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Almost half of Export-Import Bank's small-business plans go totally unused

Almost half of Export-Import Bank's small-business plans go totally unused

The Export-Import Bank, a federal agency blasted by conservatives and some liberals as corporate welfare, has bolstered the case for its existence in recent years by ramping up support for small businesses.

But most of that "small-business support" is an accounting fiction, it turns out. It never actually backs U.S. exports.

Two Ex-Im insiders, both pressured by Ex-Im brass to reel in more small customers, say many insurance plans that Ex-Im sells to small businesses are not so much about boosting U.S. exports as they are about inflating the agency's small business numbers, in hopes of warding off congressional critics.

The numbers support this view: About 44 percent of small businesses with export-insurance plans from Ex-Im in 2016 never got coverage on a penny of exports. Still, Ex-Im counts these companies as small-business customers, and it counts these plans' billions in theoretical coverage toward the 25 percent small-business mandate that Congress has placed on the agency.

The main product involved here is a relatively new one called "Express Insurance," which Ex-Im created in 2011, with the explicit aim of boosting small business numbers. This product ensures exporters get paid if their foreign buyers renege. Exporters sign up, and Ex-Im approves a certain amount of coverage--maybe $100,000, maybe $5 million. Ex-Im then puts that amount on its proverbial scoreboard, counting it as a small business "authorization."

Unlike the set monthly premium you pay to insure your car or house, export-credit customers only pay premiums as a fraction of the value of goods they ship and request coverage for. It turns out more than 40 percent of Ex-Im's small business customers--including more than 60 percent Express Insurance customers -- never paid a single penny in premiums and never got coverage for a single penny's worth of exports.

Thanks to the Express Insurance product, Ex-Im nearly doubled the number of such inactive users over the Obama years, accounting for Ex-Im's entire growth in small-business export-credit insurance.

Two different sellers of Ex-Im insurance independently told me they are being pushed hard by management to sell more Express Insurance plans to a wider customer base.

This push is "an effort to boost our small business numbers," one salesman told me, because Ex-Im has "been accused of corporate welfare. They want to be able to say to Congress, ‘hey, we have 3,000, 4,000 small business users!'"

The Kennedy School of Government in 2012 recognized Ex-Im's Express Insurance with the school's "Bright Ideas in Government" award. "Since the policy was launched in April 2011," Ex-Im stated in a press release, "it has become a popular and reliable financing tool for small businesses…. In fiscal year 2011, Ex-Im Bank's small business financing rose over 70 percent from $3.3 billion in FY 2008 to $6 billion in FY 2011."

But those billions represent policies sold, not policies used or goods actually exported. "They book the policies that don't get used," said one insider involved in selling Ex-Im products to exporters.

Ex-Im authorized 151 Express Insurance plans worth a theoretical $40 million in Fiscal Year 2011, according to data obtained through a Freedom of Information Act request. But Ex-Im was selling those plans to companies "whether the company really has any exports at all, whether they have any interest," another salesman says. "They just want a policy on the books."

As a result, nearly half (46.4 percent) of Express plans sold in 2011, worth a combined $27.2 million, went totally unused--and the frequency of such inert plans has only climbed since then.

Obama bragged that Ex-Im's small business support rose through his eight years, but that jump turns out to be a con, made up entirely of unused small business deals. From his first year to his last year, Ex-Im's multi-buyer insurance plans for small businesses jumped by about 450, but the number of unused small business plans also jumped by about 450.

Put another way: Ex-Im approved about 1,700 multi-buyer insurance plans for small businesses in 2009, 30 percent (500) of which were never used. In 2016, Ex-Im issued about 2,150 insurance products for small "exporters," but 45 percent (950) of them were never used.

In short, Ex-Im boosted its small business numbers by booking insurance products for small businesses who didn't need the product, didn't actually pay for it, and never used it.

This was the purpose of the Express Insurance program, one salesman said. "If it doesn't get used, they're able to book exposure" -- that is, small business "authorizations," in the language of Ex-Im reports -- "with basically no risk… That's why they're doing it. That's why they came up with it."

But why would small businesses that don't export sign up for export insurance from the U.S. government? An Ex-Im spokeswoman said, "Most of the policyholders of Express Insurance are small businesses that have never exported before and may not be ready to export their products yet...." Ex-Im until recently charged nothing to small business Express customers, the spokeswoman explained. "Because the policy didn't cost businesses anything until a shipment was made, these policies frequently were taken out before the policyholder was actually in a position to use it."

One Ex-Im salesman had a more cynical explanation for why customers who don't use the product nevertheless get it: "Because we're pushing them into it."

The Ex-Im salesman, who spoke to me on the condition of anonymity, said the pressure from Ex-Im higher ups resulted in ill-served customers.

"The pressure is such that we are intentionally leaving out a lot of the info that is necessary for the exporter to figure out if the insurance product is really a good deal for them." This poor communication has resulted in many companies signing up a product they don't need, or paying premiums believing it will cover losses it doesn't cover

"We are no longer, in my opinion, being a good steward to the companies we are supposed to be serving," the salesman said. "We've lost sight of serving the exporter and have moved into self-preservation …"

A different salesman had a more innocent explanation: Small exporters were signing up for Express plans because the plans come with free credit reports on the foreign buyer. Under this explanation, hundreds of Ex-Im's small business exporters aren't looking for export finance (which is the reason Ex-Im exists) but rather taxpayer-paid, privately conducted business intel on potential foreign customers.

Ex-Im needs the small-business sheen because of its reputation as "Boeing's Bank." About 40 percent of Ex-Im financing subsidizes Boeing sales in a typical year.

The large manufacturers whose exports typically benefit from the vast majority of Ex-Im's subsidies are currently lobbying Congress and the White House to restore Ex-Im's ability to issue massive finance deals (more than $10 million). Big manufacturers are also lobbying against Trump's nomination of Scott Garrett to head Ex-Im—Garrett is a harsh critic of Ex-Im's corporate welfare.

The big guys have long pointed to Ex-Im's small customers in order to defend the agency. The numbers and the first-hand accounts from these salesmen suggest that hundreds of these small business "customers" were little more than a window dressing for a beleaguered federal agency.

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