The banking industry is objecting to a proposal in U.S. highway funding legislation that would reduce dividends to banks from the Federal Reserve -- an early sign of trouble for the measure even before the Senate starts debate.
Meanwhile, House Republican leaders Wednesday declared the Senate’s three-year funding measure dead on arrival because it significantly differs from the House’s version that would fund highway construction only through Dec. 18.
The frosty reception from the banking community and the House less than a day after Senate Majority Leader Mitch McConnell unveiled the $47 billion plan signals major complications in getting a bill to President Barack Obama’s desk before current highway funding authority expires July 31.
Five financial industry groups made their objections clear in a July 16 letter to Senate leaders obtained Tuesday by Bloomberg. They, along with Senate Banking Committee Chairman Richard Shelby, oppose a plan to help fund the highway bill by reducing the 6 percent dividend paid by the Fed to member banks. It would be cut to 1.5 percent for banks with more than $1 billion in assets, which is expected to generate $16.3 billion for the highway fund.
“Dramatically reducing the rate to pay for a completely unrelated congressional priority will weaken the financial stability of banking institutions and reduce liquidity available in the financial system,” trade groups, including the American Bankers Association, wrote. The letter was sent to Senate Environment and Public Works Committee Chairman James Inhofe of Oklahoma and the panel’s top Democrat, Senator Barbara Boxer of California.
Other signers of the letter include the Financial Services Forum, the Financial Services Roundtable, the Independent Community Bankers of America and the Clearing House Association.
Former Fed Vice Chairman Donald Kohn said the dividend compensates banks for committing capital to the Fed system that could earn a higher investment return elsewhere. He said at a House Financial Services subcommittee hearing Wednesday that cutting the dividend would be a “tax” on bigger banks.
In congressional testimony last week, Federal Reserve Chair Janet Yellen also expressed concern over the reduction, saying it “could conceivably have unintended consequences, and I think it deserves serious thought and analysis.”
Senator Mark Warner, a Virginia Democrat who serves on the banking committee, said almost 600 community banks would be affected by the dividend cut.
“These are not ’large’ banks involved in risky financial activities, but the type of community-based lenders that offer mortgages and small business loans that keep Main Street going,” Warner said in a statement.
A procedural vote on the Senate plan Wednesday passed 62-36, setting the stage for as many as 30 hours of debate on the bill. On Tuesday, a procedural vote failed amid opposition by Democrats who said they needed time to study the measure.
House Majority Leader Kevin McCarthy of California told reporters Wednesday that hhis chamber won’t take up the Senate’s bill. He and other Republican leaders said that the Senate should instead vote on a stop-gap bill passed by the House last week to allow more time to work on a longer-term plan.
“I am going to oppose this,” Transportation and Infrastructure Committee Chairman Bill Shuster of Pennsylvania told reporters Wednesday, referring to the Senate bill.
Shuster said the Senate was aiming to send to the House “six years of policy we are not going to be able to talk about.” Failing to finish a bill before the August congressional recess would be better than acting on the Senate bill, he said.
Speaker John Boehner of Ohio said at a news conference Wednesday that the House already passed “a responsible approach last week to fund our highway program through the end of this calendar year, and continues to work to get a long-term, fully funded bill in place.”
The House Republican plan, passed 312-119, would prevent federal funds from lapsing July 31 by funding highways through Dec. 18 with $8.1 billion in revenue gained mostly by tightening tax compliance rules. That short-term funding is intended to buy time for lawmakers while they work on an ambitious plan to tie international tax changes to a six-year highway funding bill.
Senate Democrats also have objections to the bipartisan agreement McConnell unveiled. Senator Richard Blumenthal, a Connecticut Democrat, called the Senate plan a “safety disaster” and Senator Tom Carper, a Delaware Democrat, said a number of Democrats favor the House’s shorter-term plan if it could be used to spur a revamp of the tax code.
“Why we would rush to judgment on this is beyond me,” Carper said Wednesday of the Senate bill.
The uncertainty over the highway legislation also may complicate efforts to reauthorize the U.S. Export-Import Bank, an 81-year-old institution whose charter expired June 30.
The Obama administration supports whatever transportation legislation Congress moves that includes reauthorizing the bank, White House spokesman Josh Earnest said Wednesday.
“We need to get this done,” Obama said after meeting at the White House with small-business owners Wednesday to discuss reauthorizing the bank. “We cannot leave these businesses hanging.”
McConnell, who personally opposes the bank’s reauthorization, has said he would allow its Senate supporters to try to attach language reviving Ex-Im to the highway bill.
The House highway legislation doesn’t reauthorize Ex-Im. Some high-ranking House Republicans, including McCarthy and Financial Services Committee Chairman Jeb Hensarling of Texas are among the bank’s most vocal opponents.
The bank, which provides loans, guarantees and insurance for U.S. companies selling products overseas, has been unable to approve new applications for financial support since its charter expired.