Phil Gramm

Mr. GRAMM

Mr. GRAMM. Mr. President, I ask unanimous consent that the Select Committee on Intelligence be authorized to meet during the session of the Senate on Thursday, March 30, 2000 at 2:00 p.m., to hold a closed hearing on intelligence matters.

Mr. GRAMM. Mr. President, I ask unanimous consent that the Subcommittee on Constitution, Federalism and Property Rights be authorized to meet to conduct a hearing on Thursday, March 30, 2000 at 2:00 p.m., in SD226.

Mr. GRAMM. Mr. President, I ask unanimous consent that the Committee on Governmental Affairs be authorized to meet during the session of the Senate on Thursday, March 30, 2000 at 10:00 a.m. for a nominations hearing to consider the nominations of Alan Kessler to be a Governor on the United States Postal Service and Carol Waller Pope to be a Member of the Federal Labor Relations Authority.

Mr. GRAMM. Mr. President, I ask unanimous consent that the Committee on the Judiciary be authorized to meet to conduct a markup on Thursday, March 30, 2000, at 10:00 a.m., in SD226.

Mr. GRAMM. Mr. President, I ask unanimous consent that the Subcommittee on Forests and Public Lands of the Committee on Energy and Natural Resources be authorized to meet during the session of the Senate on Thursday, March 30 at 2:30 p.m., to conduct an oversight hearing. The subcommittee will receive testimony on the Administration's effort to review approximately 40 million acres of national forest lands for increased production.

Mr. GRAMM. Mr. President I ask unanimous consent that the Subcommittee on Superfund, Waste Control, and Risk Assessment be authorized to meet during the session of the Senate on Thursday, March 30, 10:30 a.m., to conduct a hearing to receive testimony regarding the Administration's FY 2001 budget for programs within EPA's Office of Solid Waste and Emergency Response.

Mr. GRAMM

Mr. GRAMM. Mr. President, at the end of the last session of Congress, we passed a very important piece of legislation establishing the legal framework whereby local television stations and satellites could negotiate contracts under which television broadcasts could be carried by satellite. In the midst of that conference, a sizable majority of the conference committee members from the House and the Senate concluded there was a problem in rural America that the bill they were considering would not address: that there were substantial economic impediments to the development of systems that would deliver the local television broadcast into remote, isolated, and rural areas of the country. In trying to deal with this situation, with all the time constraints in the midst of a conference, an effort was made to write a loan guarantee into that bill. That loan guarantee program has subsequently been offered in the House and is pending before the House committee. And when I talk about it again, I will be talking about the bill as introduced in the House. There was great concern at that time about how the system would work and what it would cost. As a result of numerous negotiations and a lot of good will, a decision was made to drop that provision at the end of the last session with a commitment I made that, by the end of this month, we would report a loan guarantee bill from the Banking Committee to address this very real concern. I am happy to say that on a bipartisan basis we reported such a bill by unanimous vote and we, in doing so, fulfilled the commitment we made at the end of the last session. Rather than go through a fairly complicated bill in detail, I will focus in my opening statement on the problems we face--why it is difficult--why there are economic perils involved--in guaranteeing loans to do something that has never been done before using technology that is unproven, why it is so expensive to do this, and then how we have tried to deal with each of these problems. It is important to remember that when the Congressional Budget Office looked at the loan guarantee program pending in the House of Representatives, they concluded that of the loan guarantees that would be made--and let's be precise, a loan guarantee is where the taxpayers are committed to stand in the place of the borrower should the borrower default--roughly 45 percent of the $1.25 billion worth of loans made under that bill will be defaulted. When I say defaulted, I am not saying just that the borrower would be unable to pay that face amount. I am saying that if one looks at the CBO estimate--which is an estimate of the present value of the losses they estimate will arrive, remembering that a loss 20 years from now is discounted using the Government's cost of borrowing--what they concluded was, as the bill is structured in the House, we were looking at the potential of the taxpayers paying 45 percent of the cost of these loan guarantees as a result of their being defaulted and ultimately not being repaid. The Banking Committee, in looking at this number, concluded that it presented an unacceptable risk for the American taxpayer. Sometimes people get confused by these estimated CBO costs because the cost often looks low because it is the present value of a default which would occur 10 years, 20 years, even 25 years from now. But basically, the CBO analysis of the House bill is that we are looking at a potential default rate of about 45 percent. How did we try to deal with that? We held a set of hearings where we heard from experts in industry, and we worked with the Congressional Budget Office. We decided there were two ways we could reduce the probability the taxpayer was going to end up paying off these loans. One way we could do would be to set up a board that could exercise independent judgment as to the quality of the project being proposed and the risks that were involved, and that we could put someone who was responsible, who had knowledge of financial markets, and who was responsible to the taxpayer, in a position to make that judgment. We concluded we should have a board made up of the Secretary of the Treasury, the Chairman of the Federal Reserve Board, and the Secretary of Agriculture, or their designees--but their designees would have to be people who were appointed by the President and confirmed by the Senate. Our first line of defense is the good judgment and prudence of the three people on this board. The House would give that basically to a Government agency, but we have rejected that. Our second and, by far, our more important line of defense is that we do not guarantee the entire loan. The loan would have only an 80- percent guarantee. What this means is, when a private lender makes this loan, they are going to be liable for 20 percent. The protection we get from that requirement is not just that they lose the first 20 percent, and then we lose the other 80 percent, if the loan goes bad--that is important; and we guarantee that the taxpayer is protected first, unlike the House bill--but what we get is far more important because with a private lender, if they are liable for 20 percent of the money, they are going to perform their due diligence, they are going to scrutinize this loan, and they are going to realize that if the loan goes bad, they are going to lose 20 percent of the money they have lent. As we initially wrote this bill--in fact, the language of the bill as reported out of the Banking Committee I will amend in our first amendment today in an effort to reach a compromise--the logic was that we would have a private lender. The language of the bill requires that they be FDIC insured, that they would make the loan, and that they would be liable for 20 percent of the cost. Why is this so important? We are not talking about making a loan to deliver electricity to rural America, where we have a captive customer base, where someone cannot buy electricity from anybody else. We are not talking about making a loan to deliver telephone service to rural America where you either buy from the telephone co-op or you do not have a telephone. We are talking about a very risky business where there will be no guaranteed ratepayer. Nothing in this bill--nothing in law--requires any American living in a rural area to buy these services. So there is no captive base. When we get to the discussion of the amendment I will offer, we are going to be discussing this in detail because this is very important. The second important risk is, no one has ever done what we are proposing to do. We have one company proposing to use a satellite, which has a directed beam so that it would send a signal into a geographic area, and they are pretty confident it is going to work. In fact, they are going to invest over $1 billion to build such a system to basically service these top 40 markets in terms of viewership. But the plain truth is, no one has ever used that satellite. So while we hope it will work, while we have reason to believe it will work, and while the fact that somebody is willing to invest $1 billion in it suggests to me it might very well work, we do not know it will work. It has never been proven on the scale we are talking about. But there is a second and more fundamental risk. It is one that I think, in our rush to do something here, we want to look beyond. It is not the risk that the technology does not work. Let's say we are talking about a satellite--and our bill is neutral in terms of technology--but let's say someone comes in and asks for a loan of $1.25 billion to build and launch and put into orbit a directed beam satellite. Obviously, you have the risk that somehow the system does not work, it is not launched into orbit. Maybe they would buy insurance. I assume a lender would require that. Maybe it would work; maybe it wouldn't work. But let's say it does work. The biggest risk you face in dealing with new technology is we have no guarantee, that if someone borrowed $1.25 billion and we guaranteed 80 percent of it --and it worked perfectly-- that 2 years from now some young computer genius, getting a degree in computer science at Texas A&M, might not develop a technology that would use the Internet to deliver the local TV signal and would do it at one one-thousandth of the cost of this satellite. I say to my colleagues, if that happened, obviously, it would be a godsend for rural America because then everybody would have local television, and they would have it inexpensively, but it would not be a godsend for the taxpayer because we all know that if that happened, which would be the answer to someone's prayer, it would not be the answer to the taxpayer's prayer. The company that launched that satellite and invested $1.25 billion in it would lose every customer they had to someone who could sell for one one-thousandth of their cost. Let me say, this isn't just theoretical, this is happening every day in America. The taxpayer would be on the hook for over $800 million of losses. This is risky business, which is why the Congressional Budget Office estimates that the House bill will have a default rate of roughly 45 cents out of every $1 that is loaned. That is risky business. We have tried to deal with this by establishing a loan board to exercise due diligence, requiring a private lender, as it is now written, and an FDIC-insured lender, so basically we are talking about an institution that is in business to make money, and they are going to be making loans. They can make loans to anybody--to REA or to a private, for-profit company. They know as the bill is now written, they are going to be liable for 20 percent of that loan. If it goes bad, they will lose that money. It is my understanding that we are going to have a series of amendments that assault, in my opinion, these two basic protections of this bill. One amendment, which has been discussed, is the amendment to let Government lend the money. I totally and absolutely reject that. If we let Government lend any of this money, we destroy the whole foundation of this bill. Our protection is, if Chase Manhattan is lending this money, they are liable for 20 percent of the money. If the loan goes bad, they lose that money, and somebody will probably lose their job. So they are going to be paying attention to their business. On the other hand, if we allow an amendment which says the Government can make the loan guaranteed part directly, we are eliminating some of the due diligence that is at the very heart of this bill and which CBO has scored as lowering the cost of this loan by $100 million. The second proposal that is going to be made, a proposal I am going to accept but with a very important amendment, relates to the CFC, which is the Cooperative Finance Corporation. This is basically a captive lender of the REA. It is an entity that is given tax exemption. Why is it given tax exemption? It is given tax exemption because it is serving a public purpose: it is a lending institution that historically has lent money to REAs to provide telephone service and electric power. The important difference between a loan to provide telephone service or electric power and a loan to launch a satellite or to invest in an unproven technology is twofold. One, we have been doing phones a long time. We have been generating power for over 100 years. We know how to do it. There is no uncertainty about the technology of telephones and power generation in a traditional sense. Second, in these activities, they have captive customers. Where I am an REA customer, I can't buy power from anybody else. So if a mistake is made, there is an easy way to cover it up--raise my rates. There won't be an easy way to cover up a mistake here because there won't be any captive ratepayer whose rate can be raised. Let me make it clear, I have the highest opinion of the CFC. I think it has done a great job. It was chartered and given a tax subsidy to do that job in the public interest, and I think it does that job well. But I believe we are taking an unnecessary risk in letting the CFC make these loans. I am willing to do that as part of an effort to have a bipartisan compromise but only under the following circumstances: No. 1, what we are being asked to do is take out of the bill the requirement that the lender be FDIC insured. When we do that, we open up this whole process to institutions that we may never have considered. So we have two sort of boilerplate requirements. One is, if it is a traditional financial institution, they have to meet two requirements: First, no self-dealing; that is, they can't lend the money to themselves, so to speak; and, second, they have to meet the normal capital requirement, which is, you can't lend more than 10 or, in some cases, 15 percent of your capital to any one borrower. Now, for the CFC, we don't impose--in the final compromise I offered last night--the 10-percent loan to one borrower restriction. I would prefer it, but I know that some of my colleagues are opposed to it because CFC is opposed to it. What we require is the following: To be sure we are talking about CFC and not some other Government or some other nonprofit entity that none of us have thought about, we say that to qualify, a nonprofit institution must have one of the three highest credit ratings on a long-term bond. Some people have gotten confused between a credit rating on a long-term bond and a credit rating on any commercial paper. Almost any institution can issue a 30-day note that will be AAA rated. We are talking about lending for 25 years here, so the fact that somebody can get a good rating for short-term borrowing, what we want to know is their rating for long-term lending. That is what is significant. The first requirement is that those nonprofits that can participate must have one of the top three ratings and the Cooperative Finance Corporation qualifies. The second requirement, which I think is of equal importance, is that the board must find that by making this loan the Cooperative Finance Corporation will not see its credit rating decline, that in making the loan they are not jeopardizing the good credit they have. Why is that important? We have, as best I can estimate--and we are trying to get the final number--25 million Americans who are captive ratepayers. They are customers of REA for telephone and for electric power--one or the other and, in some cases, both. If the rating of the CFC in borrowing money to lend principally to co-ops is diminished by making this loan, every ratepayer of every co-op in America will end up paying more because this happened. We want to prevent that from happening. I am going to argue all day long, if I have to, that we should not imperil 25 million Americans who are captive ratepayers by allowing CFC to get into a risky business that can push down their credit rating. What I am proposing and will propose in the first amendment, when the general debate is over, is that we let CFC make the loans but that the board has to find that, in making the loans, CFC is not going to downgrade its creditworthiness, and in the process impose new costs on ratepayers. Finally, if their creditworthiness does decline, then they would be required, in an arm's length transaction, to sell this note on the open market. I think these are important requirements. Someone may argue that the CFC has engaged in providing television services. That is a real stretch because what really happened is the co-ops borrowed $100 million to enter into a contract with Direct Television where they were the marketing arm of Direct Television. As it turns out, over 80 percent of what they were doing, they have subsequently sold off to a private company named Pegasus that is a long way from launching a satellite and engaging in this business. Let me sum up. I think we have put together a well-crafted bill. To this point, this bill costs $100 million less than the House bill. It is still risky business. Let's remember that if this loan is defaulted, rural America is probably going to lose its television service. I hope my colleagues will look at the amendment I have offered, and I hope it can be accepted. I thank all members of the Banking Committee, Republicans and Democrats, for the bipartisanship we had in committee. I thank Senator Conrad Burns. I thank him for his leadership. There is no question that we would not be here today were it not for his persistence. I also thank him for not only trying to get television signals to rural America but trying to do it in the right way. It is very easy when you are trying to deal with all the groups that hope to benefit from some program such as this to just throw caution to the wind and say don't worry about the cost. I thank Senator Burns not only for the leadership in seeing that we are writing this bill, but for his leadership in seeing that we are doing it right. With that, I yield the floor.

Mr. GRAMM. Mr. President, I ask unanimous consent to change the request to 2 o'clock.

Mr. GRAMM. That is correct.

Mr. GRAMM. That is correct.

Mr. GRAMM

Mr. GRAMM. Mr. President, I understand there are two bills at the desk due for their second reading.

Mr. GRAMM. Mr. President, I object to further proceedings on these bills at this time.

Mr. GRAMM

Mr. GRAMM. Mr. President, that being the case, let me ask unanimous consent, following the comments of the acting Democrat leader, that there be an hour equally divided for opening statements and that at the conclusion of that hour I be recognized to offer an amendment.

Mr. GRAMM. Mr. President, I understand the Democrat leader has a statement to make. Let me just say to our colleagues, we are going to take up the bill providing loan guarantees to those who would develop the technology and make the investments to bring local television to rural America. We expect there to be opening statements this morning. Let me say, since there is no one here on the other side to debate the issue, I intend at some point to ask unanimous consent that we might have an hour or so for opening statements and then I might be recognized to offer an amendment at that point. If there is an objection to that, then I will go ahead and offer an amendment at the conclusion of my statement. Let me say we should have votes throughout the day. We are confident we will finish this bill today--or we hope to. Following the disposition of this bill, there will be a cloture vote on the motion to proceed to the gasoline tax legislation. After the cloture vote, the Senate will begin a period of morning business with statements expected by Senator Brownback on the marriage penalty. I thank our colleagues for their attention. Mr. President, before I go into a discussion of the bill, I ask unanimous consent I might yield to the Democrat leader to make a statement on his leadership time, and then that I might be recognized to make the initial opening statement.

Mr. GRAMM

Mr. GRAMM. That is fine.

Mr. GRAMM. Reserving the right to object, people yell at me so much, I don't hear so good. Will the Senator repeat that?

Mr. GRAMM. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. GRAMM. Mr. President, I ask unanimous consent that the vote on the amendment be stacked after the first vote we have today.

Mr. GRAMM

Mr. GRAMM. The Senator is correct. Public involvement must be an essential part of this program if it is to succeed. The Board established by S. 2097 falls within the definition of an ``agency'' under section 552 of Title 5 of the United States Code (Administrative Procedure Act) and therefore will have its rulemaking subject to the Administrative Procedure Act. All parties will have an opportunity to be heard. This openness to public comment will help ensure that the interests of those most likely to benefit from the loan guarantee program--television subscribers in unserved areas--will be represented. In addition, an open rulemaking should help ensure that no applicant for a loan guarantee will receive consideration apart from the merits of the proposed project.

Mr. GRAMM. Mr. President, I ask unanimous consent that this amendment be voted on immediately following a short statement by Senator Burns.

Mr. GRAMM. If the Senator will yield, I know Senator Domenici wanted to vote on final passage and has to leave to attend a meeting. I do not think anybody opposes the amendment on which we have worked out a consensus. If the Senator wants a rollcall, obviously, we will have one.

Mr. GRAMM. Mr. President, I think while we have looked as if there was inaction and chaos all afternoon--it felt like it at various moments--the truth is, we have done our work. Senator Baucus has an amendment which I intend to accept. Senator Hatch as a second-degree amendment. I will be supportive of both the second-degree amendment and first-degree amendment. We will accept those. Senator Johnson and I have worked out differences. We will accept that amendment. We will then be ready for a vote on final passage. Senator Baucus may offer his amendment when he is ready. I have already offered the amendment for Senator Hatch. If Senator Johnson wants to offer a second-degree amendment to it, he can. If not, if someone will pass it to me, I will do it. We are putting everybody on notice that we are coming to the happy hour. We should be able to finish our bill in about 15 minutes. People can start moving in this direction. I yield the floor.

Mr. GRAMM

Mr. GRAMM. Mr. President, I send an amendment to the desk.

Mr. GRAMM. Mr. President, I ask unanimous consent that reading of the amendment be dispensed with.

Mr. GRAMM. Mr. President, this amendment is a very simple amendment. It simply strikes a line in the bill where we were trying to be sure we weren't changing communication law. On further reflection, we simply concluded that silence is often the best answer on these kinds of issues. This amendment would strike that sentence. I have not had an opportunity to have anyone on the Democrat side of the aisle look at the amendment. I will just leave this amendment pending. I suggest the absence of a quorum.