- Small businesses have to jump through a series of hoops to get any aid from Congress.
- On the other hand, state and local governments get a blank check to spend however they please.
- This makes no sense and Congress needs to fix this double standard in the newest stimulus bill.
- John D. Steinmetz, Vista Bank President and CEO.
- Rick Perry is the former Secretary of Energy and the 47th Governor of Texas.
- This is an opinion column. The thoughts expressed are those of the author.
- Visit Business Insider's homepage for more stories.
As COVID-19 continues to disrupt the US economy, Congress is preparing another round of stimulus funding. In addition to helping stabilize the country's economic situation, the trillions of dollars that are being injected into the economy have also exposed a double standard.
We share from both public and private sector perspectives. As the longest-serving Governor of the State of Texas, who had to manage a balanced budget on taxpayer dollars and as a community banker whose bank has served Texas entrepreneurs since 1912, both of us have grown increasingly concerned that while cities receive money from Washington without any strings attached, business owners have to jump through hoop after hoop to do the same.
In the upcoming relief bill, Congress should look more at replicating previous small business relief and loan programs and less at writing a blank check to financially mismanaged municipalities. Programs like the PPP and MSLP should be given priority over bailouts for bankrupt cities and states. And money that is given to local governments ought to be tied to long-overdue reforms and include the same oversight as private-sector relief programs.
The public-private divide
We have seen this play out in real-time. The highly effective and quickly enacted Paycheck Protection Program (PPP) and the Main Street Lending Program helped small and medium-sized businesses when they needed it most. But that money wasn't just handed out casually.
Rightfully so, banks were expected to do the necessary due diligence and make responsible lending decisions. Acting as the "Amazon Prime" of the CARES Act, Vista Bank and community banks nationwide worked around the clock to underwrite, submit, and distribute loan proceeds. For the Main Street Lending Program specifically, businesses were required to have a profitable 2019 EBITDA to qualify for assistance.
But consider what's being discussed now by Congress: potentially $160 billion handed out to cities who will not undergo any such scrutiny.
Cities across the country with substantial unfunded liabilities will more than likely face more red ink ahead, due to pandemic-related expenses. Yet no one has paused to ask if they ought to be given more hard-earned taxpayer money, so they could receive government help with no strings attached.
Unlike standard bank lending practices, local governments aren't being required to justify on the front end how these taxpayer dollars will be spent or prove past financial performance.
When banks make a credit decision to loan money to a business, they discuss the terms with the borrower. But governments who take on more debt don't have to worry about any of that. In the case of bankrupt or near-bankrupt cities, relief funding often arrives in the form of government grants, with no expectation of repayment.
Here's why this matters: A dollar given to a fiscally mismanaged local or state government is a dollar taken out of circulation today to pay for the sins of yesterday.
In Texas, job growth wasn't an accident. My administration understood that prudent state budget management would attract entrepreneurs from around the country, and that's precisely what happened. While this may seem complex to certain states or cities, these are simple business principles that entrepreneurs nationwide navigate daily.
That example is instructive right now. We expect business owners to be diligent and to repay taxpayer-funded loans on time. On the contrary, we've learned to live with elected officials who spend recklessly and are given the benefit of the doubt while businesses are doubted until they prove their benefit. That formula doesn't work, and it's time we begin applying common sense banking principles before it's too late.
Though we recognize that even a perfectly underwritten credit can, unfortunately, go south, we don't believe it's fair to ask taxpaying business owners who risk their life savings to meet a standard that our states and cities otherwise do not have to meet.
This is a year in which we can take a step back and ask the same hard questions we ask of the businesses: Were you solvent prior to COVID-19? How will you repay these hard-earned taxpayer dollars? How do you plan to navigate not just the next few months but the next several years?
In conclusion, let us be clear. This is not a partisan issue, it's common sense. And yes, it takes time and energy to answer these questions. But in a season where we are understandably strapping trillions of dollars of debt on our children and grandchildren's shoulders, it's time that the government learns to live within its means just like the rest of us.
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