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Minnesota businesses, conservatives at odds over fate of export bank

WASHINGTON — The Export-Import Bank has spent more than $1 billion financing exports for Minnesota firms since 2007, but its congressional authority could expire by September.

Export-Import Bank president and chairman Fred Hochberg testifies in January before a Senate Banking, Housing and Urban Affairs Committee hearing on reauthorization of the bank.
REUTERS/Joshua Roberts

WASHINGTON — Over the last seven years, The Export-Import Bank of the United States has supported $1.8 billion in export sales for Minnesota companies in the form of loans and loan guarantees. Over the last five years, the bank has kicked $2 billion back into the federal budget.

And if conservative Republicans successfully block the bank's reauthorization in September, it will cease to exist.

For most of its 80-year history, Congress reauthorized the bank with ease, even unanimously. But in 2012, with a presidential campaign waging and the economy emerging from the shadow of the Great Recession, the right flank of the House GOP battled against the bank and its request that it be given a $140 billion lending limit.

The bank survived that session, but 93 House Republicans, including Minnesota Rep. Erik Paulsen, voted against it. Every Democrat voted in favor of the bank, and they’ve found themselves allying with the Chamber of Commerce and other business groups to save it now.

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This year, opposition isn’t confined the GOP’s right edge. Members of House leadership like incoming Majority Leader Kevin McCarthy have said they’re considering dropping the bank when its authority expires at the end of September.

While a debate brews in Washington about the ultimate fate of the bank — whether, as conservatives say, it’s a purveyor of crony capitalism and should be allowed to expire in September, over the objections of Democrats and business groups — Minnesota exporters who have benefited from the bank’s loans are watching closely.

Conservative objections

The principal conservative objection to the bank is that it serves such a narrow set of companies that it plays an outsized role in picking markets’ winners and losers.

Conservative Groups like Club for Growth and Americans for Prosperity have waged a campaign against the bank, calling it an agent of crony capitalism and corporate welfare. Some of the bank's biggest beneficiaries include Boeing and Caterpillar, and John Cooney, the chair of AFP in Minnesota who penned an op-ed against the bank this week that noted that only 73 of Minnesota’s 8,600 exporting companies got help from Ex-Im in 2013.

“I don’t wish anybody who gets this support ill will, but there’s got to be a level playing field for everybody,” he said.

And while the claims of crony capitalism dominate the debate over the bank — and its strong financials over the years have been well-documented — critics point to a report from the Congressional Budget Office warning that, using certain accounting methods, the bank could cost taxpayers $2 billion over the next ten years. But using other methods, CBO said, the bank saved taxpayers $14 billion over the same ten-year period.

How does the bank work?

The Export-Import Bank provides federally-funded financing services like loans and loan guarantees for foreign entities looking to buy from American companies, often when private lenders won’t finance the sales. The bank isn’t unique to the United States — around 60 countries have similar programs — and the bank says it’s actually turned a $2 billion profit over the last five years through fees and interest payments on its financing. The bank spent $27.3 billion in 2013 on financing, supporting $37.4 billion in trade.

Impact in Minnesota

Whatever its impact on the federal bottom line, the bank has clearly benefited some Minnesota businesses. Take Eden Prairie-based Grain Millers, which deals mainly in grain products, for cereals, breads and the like.

The company has a dairy division as well, shipping dried milk products like whey through the country and around the world. Steve Shogren, the company’s credit manager, said exports are worth about 30 percent of Grain Millers’ dairy area.

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And when that product goes overseas or across the border into Mexico, Grain Millers often turns to the federal Export-Import Bank for help.

Since 2007, the Ex-Im Bank has spent $65.4 million on loans or other types of financing for Grain Millers’ international customers, according to the Bank, the second-highest total for any company in Minnesota.

Shogren said the Ex-Im Bank has been “very beneficial” for his company’s export business.

“The rallying cry a few years ago was export, export, export, and we have,” he said. “Ex-Im is a big help for us.”

Statewide, the bank has spent more than $1 billion financing deals since 2007 for 173 companies ranging in size from giants like 3M and Land O’Lakes to smaller companies like Grain Millers. The bank says it’s supported $1.8 billion in exports since then. Minnesota exported $20.7 billion worth of goods in 2013.

Export-Import Bank support of MN companies, 2007–2013
Total disbursements represents the value of loans, loan guarantees and other financial services provided by the Export-Import Bank. Total supported sales represents the total dollar value of exports related to Ex-Im Bank's authorized financing.
Source: Ex-Im Bank

Shogren explained the Ex-Im process: When he wants to make an international sale, he collects credit reports and other financial documents and submits them online to the bank, which then decides whether to offer financing. At that point, Shogren says his company pays a premium in exchange for that financing. Once, he said, Grain Millers faced a six-figure loss from a buyer in India, but recouped 95 percent of that loss through an Ex-Im claim, and the bank recovered the rest from the buyer within a year.

Shogren said the bank has better terms, an easier application process and lower fees than private finance. Rick Barrett, the exports sales manager at Midwest Hardwood Corp., agreed — he said his company, for which Ex-Im has spent $60 million since 2007, would have to secure financing from German firms if the bank disappears.

Midwest Hardwood, a Maple Grove timber-sales company with $220 million in annual sales, employs 350 people whose jobs are dependent on exports and could be at risk if Congress doesn’t act on the bank, Barrett said.

But Barrett said there could be a ripple effect in the Ex-Im Bank goes away. About 60 percent of Midwest’s manufacturing business is based on exports, much of it to China, Barrett said, where timber has a fixed price. Since he can’t raise that price, he said the company would probably spend less on buying raw timber if it had to secure more costly private financing, which would mean less money for the timber farmers.

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We’re starting to see a little bit of a resurgence in manufacturing in the United States, and [ending the bank] would stop that,” he said.

Export-Import Bank disbursements by Congressional District, 2007–2014
The Export-Import Bank tracks support of exports by the Congressional District in which companies are located. Total disbursements represents the value of loans, loan guarantees and other financial services provided by the Export-Import Bank. Total supported sales represents the total dollar value of exports related to Ex-Im Bank's authorized financing.
Source: Ex-Im Bank

The bank helps finance deals for bigger firms as well — one of the reasons it’s become controversial. Ex-Im has financed more than $89 million worth of sales for CHS Inc., an Inver Grove Heights agriculture services company, for example. But CHS brought in $44.5 billion in revenue in 2013, and only $8.3 million worth of exports financed by Ex-Im. Company spokesman Lani Jordan said CHS had no opinion one way or another on the bank’s reauthorization.

Political battles developing

The controversy is creating strange bedfellows. Democrats have aligned with big business. And this week, nine Republican governors joined 20 Democrats, including Minnesota Gov. Mark Dayton, on a letter urging Congress to act on the bank.

Among Minnesota Republicans, Rep. Michele Bachmann is the most vocally opposed to the bank. The offices of Paulsen and Rep. John Kline said they are waiting to see what type of bill comes out of committee before deciding on it one way or another.

"I believe reforms to the Export-Import Bank are needed to ensure that taxpayers are not exposed to unnecessary and costly risks,” Paulsen said in a statement.

As for Shogren, a self-described Republican, and Barrett, who said he often agrees with conservatives on fiscal issues, both said they wished Republicans would look elsewhere if trying to root out corporate welfare.

They’re going to block renewing this thing because it gives them an issue five weeks ahead of the midterms,” Barrett said. “We’re going hurt the U.S. economy significantly from grandstanding over this issue.”

Devin Henry can be reached at dhenry@minnpost.com. Follow him on Twitter: @dhenry