Lending by small banks focus of bill in House

By STEPHEN OHLEMACHER Associated Press Writer

WASHINGTON (AP) - Democrats are looking to increase lending by small banks as a way to resuscitate their election-year jobs agenda.

The Senate rejected a $140 billion bill Wednesday that would renew pieces of last year's economic stimulus bill, forcing lawmakers to pare the measure in attempt to round up votes. The catchall bill combined jobless aid for the long-term unemployed, aid to cash-strapped state governments and the renewal of dozens of popular tax breaks for businesses and individuals.

Governors have complained that without additional state aid, hundreds of thousands of public employees and teachers will be laid off. Nevertheless, the measure failed to muster even a majority in a test vote Wednesday, much less the 60 votes that would be required to defeat a GOP filibuster.

Senators then turned to working on a scaled-back version of the bill.

House Democrats, meanwhile, hope to pass separate legislation designed to increase small business lending and investment. A bill creating a $30 billion fund for community banks to increase lending to small businesses is up for a possible vote in the House on Thursday.

Congressional Democrats started the year with an aggressive agenda of passing a series of bills designed to create jobs. Many of the proposals stalled as lawmakers, after hearing from angry voters, became wary of adding to the national debt, which stands at $13 trillion.

Democrats emphasized that the small business lending bill would not add to the debt.

Banks that tap the fund would issue preferred stock to the Treasury Department, paying dividends based on how much they increase lending to small businesses. The more they lend, the lower the payments. The stock would have to be redeemed within 10 years.

"Changing the tight lending standards have been one of the biggest appeals that we have had from the small business community," House Speaker Nancy Pelosi, D-Calif., said.

Republicans said the package would do little to increase lending.

"The fact of the matter is, if government would just get out of the way, small businesses would lead us back to recovery," said Rep. Sam Graves, R-Mo.

If the bill is passed, it would be merged with a package of tax breaks to encourage investment in small businesses that passed the House on Tuesday.

The tax package would provide about $3.6 billion in tax breaks over the next decade. Long-term investors in some small businesses would escape capital gains taxes. New small businesses could take larger tax deductions for startup expenses.

The bill includes tax increases that would offset the tax cuts and pay for the lending bill.