Amended furloughed employee loan bill receives division approval

Federal employees in Minnesota may have a financial backstop should the government shut down again.

The House Commerce Committee approved a bill to guarantee loans for federal employees impacted by a federal government shutdown. It was sent back to the House Ways and Means Committee Tuesday with the recommendation that it be re-referred to the House Greater Minnesota Jobs and Economic Development Finance Division.

As amended, HF319, would set aside $2.5 million to act as a guarantee for banks in the event of loan defaults. In return for the guarantee, banks would offer federal employees who have been furloughed or ordered to work without pay during 2019, interest-limited loans of up to $15,000.

The limit is on when interest could be charged. Loans would be interest free during a shutdown and for a 90-day grace period after the shutdown ends. Banks would be able to begin charging interest on the loan after the grace period ends, said Rep. Zack Stephenson (DFL-Coon Rapids), the bill sponsor.

Stephenson was questioned by Rep. Tim O'Driscoll (R-Sartell) over the mechanics of interest in the plan, possible impacts on collections, and banking rights to report defaults.

Stephenson assured O’Driscoll that normal collection mechanisms would apply and banks would still retain the right to report defaulters to credit reporting agencies.

The funding mechanism is intended to assure banks’ recovery of the principal amounts loaned based on a worst case assumption – every federal employee eligible to take a loan doing so and having 3.5 percent default. If the federal employee defaults, the banks’ loss, in theory, would be contained only to the interest uncollected.

O’Driscoll spoke against the bill, expressing concern that it makes no provision to address future shutdowns. Given the conversations taking place in Washington, D.C., he said the federal government may also run into an impasse as it works on the 2020 budget. That would occur when the Legislature is not in session.

“Are we looking at a special session at that point to deal with that or are we just picking certain federal workers that can be furloughed at a certain period time, that we are going to show them and defer preference to their needs over other folks?” O’Driscoll asked. “… If we are concerned about unprecedented No. 1 (shutdown), what about 2.0 where the president or congress won’t come to terms?”

A companion, SF588, sponsored by Sen. Matt Little (DFL-Lakeville), awaits action by the Senate Jobs and Economic Growth Finance and Policy Committee.