Statement of Administration Policy: H.R. 1315 - Resolution Trust Corporation Funding Act of 1991

(House)
(Wylie (R) Ohio)

The Administration strongly supports House passage of H.R. 1315 as reported by the Committee on Banking, Finance, and Urban Affairs or as proposed to be amended by Representative Wylie. The Resolution Trust Corporation (RTC) has exhausted the initial funding for losses provided by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Without additional funding now, the RTC will cease resolving insolvent thrifts. The cost of delay to the taxpayers will be substantial.

The Administration strongly supports the Wylie substitute, which would provide the $30 billion as requested in the President's Budget. In addition, the substitute contains management objectives and increased reporting requirements to enhance the RTC's performance.

If the Kennedy/Slattery substitute were presented to the President in its current form, his senior advisers would recommend a veto. The Kennedy/Slattery substitute would abrogate the agreement reached in the Omnibus Budget Reconciliation Act of 1990 (OBRA) by requiring that funding for existing deposit insurance guarantees be financed in a deficit-neutral manner. Section 13101 of OBRA provides that full funding of deposit insurance guarantees is exempt from the pay-as-you-go requirement.

The Kennedy/Slattery substitute would not directly provide the RTC any new funds; it would merely authorize appropriations. In addition, it would terminate, immediately upon enactment, the RTC's access to the Treasury for its working capital needs, unless that borrowing is financed by a tax increase or a direct spending cut. The RTC would have to stop resolving thrifts immediately, unless the Congress enacted a 1991 tax increase or spending cut of $40 billion to offset the RTC's remaining 1991 working capital needs.

The Gonzalez substitute contains numerous provisions whose overall effect would be to increase the cost to the taxpayers of the clean-up, impede the efficient operation of the RTC, and trigger pay-as-you-go. If the Gonzalez substitute were presented to the President in its current form, his senior advisers would recommend a veto. The Administration opposes the Gonzalez substitute because it would:

• Impose a different resolution process on thrifts than that used for banks. Rather than dealing with this issue in an RTC funding bill, it should be dealt with in the overall context of deposit insurance and financial services reforms. (Title 1)
  
  
• Inappropriately expand the use of deposit insurance for housing subsidies. (Title II)
  
  
• Require the RTC to enforce and pay for local rent control policies for upper-income households (those with incomes above 115% of the median) by limiting the RTC's ability to abrogate contracts. The RTC estimates that use of its existing power to abrogate all types of contracts has saved $1 billion. (Title II)
  
  
• Further impede the RTC's ability to sell assets by substantially increasing the time (up to six months) that assets must be held off the market. (Title III)
  
  
• Raise serious constitutional concerns insofar as it would require or encourage Federal contracts to be distributed on the basis of race, ethnicity, and sex, rather than on the ability of contractors to perform the contract in the most cost-effective way possible. Cost-effectiveness is particularly important to minimize the cost of resolutions. (Title IV)

RTC funding should not be held up by these issues, many of which are controversial.

Scoring for Purposes of Pay-As-You-Go and Caps H.R. 1315, as reported, makes available to the RTC $30 billion for the funding of existing deposit insurance guarantees. This amount was included in the President's FY 1992 Budget. Accordingly, enactment of H.R. 1315, as reported, would not increase projected deficits. Pursuant to Section 13101 of OBRA, pay-as-you-go requirements do not apply to this bill. Similarly, pay-as-you-go does not apply to the Wylie substitute.

The Gonzalez substitute would increase direct spending; therefore, it is subject to the pay-as-you-go requirement of OBRA. The direct spending provisions in Titles II and III of the Gonzalez substitute expand programs which are outside the scope of deposit insurance. OBRA provides that only the full funding of deposit insurance guarantees is exempt from the pay-as-you-go requirement.

No offsets to the direct spending increases are provided in the substitute. Because the substitute is not fully offset, a budget point of order would apply in the Senate. If, contrary to the Administration's recommendation, the Senate waives the point of order, enactment of the Gonzalez substitute would add to the end of year pay-as-you-go requirement, which must be met to avoid sequester.

OMB's preliminary scoring estimate for the Gonzalez substitute is that it would increase outlays by an estimated $150 million in FY 1991 and over $200 million between 1991 and 1993. A more precise estimate is under development. Final scoring of this legislation may deviate from this estimate. If the Gonzalez substitute were enacted, final OMB scoring estimates would be published five days after enactment, as required under OBRA. The cumulative effect of all enacted legislation on the pay-as-you-go requirement will be issued in monthly reports transmitted to Congress.