Interview transcript:

 

Terry Gerton We’re sitting here after weeks of uncertainty and missed paychecks during the government shutdown and a lot of people are probably feeling kind of anxious about their finances. How does that stress from just day-to-day situations spill over into how people make decisions about investments?

Art Stein Well, stress and emotion make a big difference in how people make their investments. And with the TSP, it makes a big difference in how much people are putting in the stock funds, which are the C and the S and the I funds, and then how much they’re putting in, well, especially the G fund, which is a short-term bond fund, really, it’s more of a cash account. And you know, what I’ve seen time and again for 30 years is that when the stock market crashes, federal employees and retirees tend to get disgusted and move money into the G fund. And the problem with that is, there’s never a good time to take it out of the G fund and reinvest. Usually they’ve made that move after the market has declined and frequently don’t get back in until it’s gone back a lot. So really what we caution our clients to do is to set an investment plan. And part of the investment plan is to know what you’re going to do when the stock market does crash. Because inevitably it’s going to. We don’t know when. Stock market crashes average about one every four years or one every seven years, depending upon the time period, or somewhere in between. But they are a regular part of the market cycle. And what we mean by a stock market crash is that a particular stock market like the S&P 500, which is the basis for the C fund, goes down 20% or more from a previous high. And that’s also called a bear market. A bull market is when, let’s say, the S&P 500 increases more than 20% from a previous high. And people really avoid investing in stocks or putting too much money in stocks because they fear the bear markets, they fear the crashes, they don’t like the volatility. But we’re always having volatility in any market except a bank account or the G fund. Volatility is just a fluctuation in value. Now stocks are more volatile than bonds, that’s clear. But what investors should do is trying to determine appropriate allocation between stock investments and bond investments and bank accounts. And the TSP, that means what percentage of your investments do you want in the G and the F funds, which are bonds and cash accounts, and what percentage do you want in stocks, which are C, S and I? And once you choose that percent, stick with it unless there’s a good reason to change. And the stock market crash is not really a good reason to change. And if the stock market crashes, especially for employees, that’s an opportunity. They’re investing money every two weeks. And of course they’d rather buy shares in the C and the S and the I funds when those are down and cheap than when they’re high and expensive. So just being able to stick to it really makes a difference.

Terry Gerton It’s really hard to imagine that the market is going to crash anytime soon. It’s been on such a steady upward climb for so many months. And yet you talk about when that correction, which is impossible to predict exactly, but pretty possible to predict generally happens, people do the opposite of standard recommendation. They sell low and then try to buy again high instead of buying low and selling high. Talk to us again about what kind of planning can help people avoid the emotional response to that sort of occurrence.

Art Stein Well, I think it’s very important to one, know and admit to yourself and take into account that the market’s going to crash. I mean, it’s going to happen. And it’s not unusual. It’s typical. And two, especially for employees, don’t change your investment allocation if the stock markets crash, unless you’re increasing your percentage allocation of your biweekly investments into the TSP fund. If you’re increasing the percentage going into the stock funds, that would make sense. And, you know Terry, when we speak to TSP millionaires, one consistent theme is that they had most of their investments going to the stock funds. And they did not change that when the stock markets crashed. They just kept investing. They accepted that. It was a long-term investment. And they just stuck with it.

Terry Gerton I’m speaking with certified financial planner Art Stein of Arthur Stein Financial. Art, we’re talking about a disciplined, non-emotional approach to investment here, but we’ve just come out of the longest government shutdown in history. And the current continuing resolution only goes through the 30th of January, about two and a half months from now. So how should feds think not just about their investments, about building up or building back their emergency savings if they had to dip into it during the shutdown?

Art Stein Well, this shutdown was horrible, as we know. People were living on credit card debt in many cases. It shows how important it is to have an emergency fund, three to six months of expenses in a bank account, or maybe the G fund. And what we sometimes have to recommend to people, we don’t like doing it, is to reduce your contributions to the TSP to 5%. Because in many cases, Terry, we’re speaking to people who are maxing out their contributions. But no, if you don’t have an emergency fund, that’s a mistake. Reduce it to 5%. Don’t go below that because you want to get the full 5% match from the federal government. Take that extra money that you were investing and use it to build up a bank account, three to six months of expenses. And especially, you know, this is so crazy. We’ve gone through this long shutdown, and then they had this big victory. But when you look at the victory, it only funded the government for two and a half months. I mean, how short term is that? So now is a good time. Just get on the TSP website and reduce your contributions to 5% and build up some cash. I mean, I’m praying and hoping that they won’t do another shutdown on you know, January 30th, but as we all know, things are not good with these negotiations.

The post An objective, unemotional investment strategy for your TSP, easy to say but hard to do in uncertain times first appeared on Federal News Network.

Interview transcript:

 

Terry Gerton As we look back, the shutdown’s over now, but it lasted over a month and it really froze critical functions across every federal agency. From your vantage point, what were the most immediate and severe impacts on lenders and small businesses?

Dave Bohrman Well, Terry, I think that’s obviously a big question because there’s some latency in what those impacts will be. So some of that will come out in the days and weeks and months ahead. But looking at it very specifically, you also have to kind of consider what was the situation going into the government shutdown, and that kind of governs what actually those impacts will were or are going to be. So you have a highly volatile economy from a lot of uncertainty, whether that be from the tariffs or whether that be from tax policy, or whether that be from any of the agencies’ policies internally with respect to workforce. All of that kind of created a perfect storm with the political situation of the landscape in Washington; really made a real recipe for the government shutdown to happen. My question always was, once a government shutdown happens, how do we get out of it? And that what we witnessed. So as far as the impact, any small businesses that were looking to do any government-guaranteed lending, 7(a), 504 program within the SBA, that was frozen if their loan wasn’t already into some kind of post approval process. IRS, if you work for the IRS, you obviously know the story. The IRS is a completely different scenario. They went from 100,000 employees to 25% haircut to 75,000 employees and to about half of that were still in operation during the government shutdown this time. I’ve been around long enough, the first shutdown I was part of was 2013. That was pretty small, 13 days. But the last one was the historic one, 35 days. And at that point in time, the IRS was completely shut down. If you were doing anything with any kind of, you know, and “tax” is very broad … so whether you were a tax preparer or you were trying to get tax data or you were dealing with information reporting, there was zero access. This time you had a hybrid of access. So I would say the impact of anybody trying to get information or deal with the IRS, it was marginalized and confusing at best, but there was something happening. If you were looking for anything with the SBA, you were pretty much put on standstill, whether you were a lender or a small business trying to get a loan.

Terry Gerton Well let’s go back to the IRS for a minute, because you say there were folks working and there was some access but it was confusing and perhaps fragmented. Why is IRS data so critical to the lending process, and what impact did it have with a reduction in access to that data?

Dave Bohrman Well, that’s somewhat part of what we do as a business, is get taxpayer data over to commercial lenders or financial institutions that are using it to make a business decision. When it comes to the SBA, because it’s government-guaranteed and there is a taxpayer component to it, the government has very strict guidelines on how to underwrite a 7(a) or 504 loan, it’s governed by their SOP, their standard operating procedures. In that it actually requires tax data, one from the borrower, the borrower has to provide a tax return, and two — directly from, at an arm’s length — from the IRS in a tax return transcript to reconcile that information. And the reason that has to be reconciled is because it can sniff out fraud. If somebody misreports their income, we go to the IRS and we say, your income doesn’t match. Or it can shine a very big light on cash flow. A small business that’s making payroll tax deposits on average twice a week — that payment behavior is very indicative of their financial help. So being able to sniff out whether a business is paying their taxes on time or not is really a key data point for lenders to make a credit decision, whether it be yes or no. The SBA requires it, commercial lenders, some have it part of their credit policy, some do not. But it’s a real problem that we’re trying to solve or at least help lenders make better credit decisions.

Terry Gerton I’m speaking with Dave Bohrman. He’s the co-founder and vice president of marketing at Tax Guard. Let’s follow the thread then. The SBA was basically closed. So for 40-plus days, no one was getting an application submitted, no one was getting a loan approved. And you also mentioned the latency impact of that. Talk us through that. What’s going to happen now that SBA’s doors are back open?

Dave Bohrman Well, there’s the business side. Because it is a public-private partnership, the private end of it is basically most banks in America have an SBA lending program. That is the upstream pipeline of applications. So when we talk to commercial lenders, they were continuing to accept applications, process them internally and get them ready and packaged for SBA delivery. So what you expect to happen, what we’re seeing happen, is the SBA just said, “we’re open.” So now they have this backlog that they’re processing. So in the next couple of days to weeks, it’ll be interesting to see how that goes through the system so that the small businesses that are looking to be funded get funded as soon as they can.

Terry Gerton As you think about this funding lapse, would you say that it exposed any sort of systematic weaknesses both, for banks and borrowers? Was there anything because of the duration here that maybe needs to be specifically addressed?

Dave Bohrman Well, that’s an interesting question because you because history will tell you something. In the past 25 years, since 2000, there’s really been three meaningful government shutdowns. So from a systemic planning process on the agency side and the federal government side, it’s probably a little bit out of bounds to kind of truly build anything into the system to account for a government shutdown. Similarly, on a business side, it’s hard to build a business process around something that happens so infrequently. So if you kind of look at the X and Y axes, it’s very damaging when it happens, but it happens very infrequently. So to answer the question, what systemic things will be changed, I can’t imagine much.

Terry Gerton As you look forward as the government gets back up to speed in these areas, are there ripple effects that you think lenders and small businesses should be looking out for? Do you expect any change in credit standards or compliance risks?

Dave Bohrman Absolutely. Kind of going back to the point of the hyper-dynamic nature and the hyper-volatile nature of the economy as it stands today, everything in the simplest form would be there’s the demand side, so small businesses that are looking for loans, and the supply side, which is the lenders that are giving the loans. So what we’ve seen since the beginning of this current administration, especially, because of the uncertainty and planning, the desire to take capital has been diminished. So the demand side has come down. And some of that — what are the interest rates going to be? Should I wait for a better interest rate? Some of that is, there’s tariffs that are impacting my business, I don’t know where that’s going to land. There are supply chain issues, I’m not sure what to do with those. So we’ve seen the demand side go down. And I think that … if you take the theme of certainty versus uncertainty and certainty driving small-business decisions, we’re still in an uncertain environment. The ripple effects of a government shutdown on top of all of those things add more uncertainty to the equation. I think we have some more, should we say, pain to work through before we get to a place of stability where we would see the credit markets kind of operate in some kind of normal fashion. But it is kind of hard to say what is normal. And on the credit side, creditors — their credit boxes have been getting tighter. The SBA underwriting requirements have increased since the Biden administration. So on the supply side, lenders are getting a little bit more frugal by which who they give money to. And on the demand side, small businesses are looking for credit less, which is impacting the overall economy.

Terry Gerton With the uncertain availability of government data, whether it’s tax data or economic data, do you see a trend for lenders especially to be looking for alternative sources of data as they consider what they’re going to do?

Dave Bohrman Absolutely. And we’ve been doing this since 2007, 2008. The general premise of tax data really isn’t about taxes. It’s really just about a database of small business or business or taxpayer information that is very rich. So when you think about the consumer, you or I, Terry, when we go get a car or we get a credit card, there’s a rich database, whether that’s the credit bureaus or all these kinds of reporting structures, that tells a lot of information about you or I as individuals. Businesses are under a completely different data regime and reporting regime, and they are governed by more usury laws, and that’s kind of based on the premise that small businesses or business in general — they should be left alone. So what that means is there are very little data requirements in the credit-data world for small businesses. So tax data, as we call it, or what we’re talking about payroll data or income data, all the things that live in an IRS database are very rich. It’s a very rich data pool by which lenders can look through. So we’re not the only ones doing this, there are people doing this. So to the point of tax data on any small business or even an individual can be very helpful in understanding who to give money to or who the good bets are, or maybe somebody that didn’t have enough data on them. Tax data tells the story that this is a compliant business and you should be able to give them funding. On the economic data, that that’s a little bit more broad. I know that during the shutdown, there was not a lot of data released. So that will be interesting to see how that plays out. And let’s just say we have a bad job report or gross domestic product, all the economic indicator reports that are going to come out over the coming weeks, that will be interesting to see how that rattles or ripples the credit markets.

The post The shutdown may be over, but its ripple effects on lending and tax compliance are just beginning first appeared on Federal News Network.

Interview transcript:

 

Doug Criscitello Very excited to get underway at the Center for USA Lending. The idea has been building really in my mind, and on the part of others from this community, the federal lending community, for several decades really. The U.S. government runs more than 125 federal loan and loan guarantee programs, and that’s at agencies like the Federal Housing Administration, the Small Business Administration, the Department of Agriculture has a variety of loan programs, and various others. There’s about a dozen federal agencies that have loan programs. And today, the U.S. government has evolved to a point where it’s really the world’s largest financial institution. Its credit portfolio alone now totals about $5 trillion, a huge number. So given the relative complexity of making and servicing loans — and these instruments have terms that can last for decades — managing the government’s huge credit portfolio has always been a tremendous challenge. You know, particularly when you compare it with simply providing a one-time cash grant to an intended beneficiary, that’s pretty simple. You’re just cashing once. When we loan money, we’re entering into a long-term relationship with the borrower, technically, so the complexity is very significant.

Terry Gerton When you think about that massive portfolio, you’d said 125 different programs, 12 agencies, $5 trillion. Are there any specific programs that rise to the top of your visibility list in terms of desperately needing attention?

Doug Criscitello Let me answer that by talking about some of the good news, because huge strides have been made in recent decades. We’ve come a long way from the days when loan repayments were recorded on three-by-five index cards in pencil, right? So many of the systems that have been developed over the past few decades are huge advances relative to what we had prior to the sort of general use of computational power across the government. But notwithstanding those advancements, the systems that we have today are fragmented, outdated, they don’t communicate with each other. So, this creates a whole lot of administrative complexity. And borrower confusion. It drives up costs at the end of the day and it makes it difficult to manage risk or detect fraud. And it generally frustrates borrowers. I think if you did a man on the street interview, it wouldn’t be hard to find folks that have been frustrated in repaying a loan to the government.

Terry Gerton Well, your press release for the Center for USA Lending mentions modernization, technology, and integrity as core priorities. You just sort of glossed over them. But when I think about the financial industry, banking, and major corporations, they’re really at the front edge of technology, cybersecurity, identity management. How are you seeing the possibilities for bringing that kind of technology into how the government operates its loan portfolio?

Doug Criscitello Exactly right. So there are a lot of financial institutions that embrace modern technologies and are continuing to advance their use of cutting-edge tools. I think artificial intelligence is a terrific application here, right, to tailor the experience of borrowers, depending on their background, both in the application process and when it comes to servicing. Our hope is to really facilitate a dialog, not only across the government, but to bridge the gaps that exist between technology, private financial institutions and what they’re doing, and the U.S. government credit apparatus. Right now, there are huge opportunities to have really seamless systems from the time a borrower applies for a loan till the day they make the final payment. One agency that I’ve worked at and around for much of my career, the Small Business Administration, has made some amazing strides since the COVID pandemic, when it was forced to disperse nearly $1 trillion in paycheck protection program loans and economic injury disaster loans. They’re in the midst of just an incredible improvement in the borrower experience, the disaster loan program being a great example. And we want to encourage that type of improvement to occur at other agencies as well.

Terry Gerton I’m speaking with Doug Criscitello. He’s the new executive director at the Center for USA Lending. Doug, coordinated technology investment is a perennial problem for the federal government. But setting that aside, you just described a situation that calls out for centralized governance, that calls out for data standardization. Beyond tech investment, what are your policy priorities for the center?

Doug Criscitello You’ve touched on some of them, for sure. The notion of trying to at least have a coherent approach across agencies, where we have common data definitions and agreement in principle that having these end-to-end systems are the way forward here. We really need to automate workflows and integrate systems. I mean, that’s priority one, to ensure that can be done. So look, there’s a lot that the center can do. One thing we’re planning to do is to convene the community. Let’s get folks — we plan to have frequent gatherings of both folks in government, folks in industry — to come together to explore how best to move forward and to continually evolve. It’s not a one-time fix, you know. These systems can continually be strengthened. The government has shown no signs of reducing the size of its footprint here in the lending world. So, you know, we want to be a convener. We want to develop thought leadership. We want to pull together data from across the federal lending enterprise into a common shared platform to help all of the participants in this realm better understand how these programs are performing and what we might do differently going forward.

Terry Gerton You’ve laid out a pretty bold and expansive vision there. If you’re successful, five years from now, what looks different about federal lending?

Doug Criscitello The stakes are really high with a $5 trillion portfolio. I think if we’re successful, our work will help enhance taxpayer value, importantly, by reducing wasteful spending on duplicated systems. We hope to enhance program integrity, reduce hedge fraud faster, and streamline access to loans. Particularly when they’re needed most, right? There are times when the federal government — and the pandemic was a great example — times when funds need to be put on the street quickly and effectively and efficiently, and avoiding fraud. So our goal is really to make government lending more efficient. So whether you’re a borrower seeking faster service, a private lender who wants to have a harmonized relationship across all of their various federal loan guarantee programs in which they participate, or even just a taxpayer … importantly, a taxpayer who absolutely deserves efficient government operations. The center’s modernization efforts, I think, are poised to benefit you directly. So we’re really excited to get underway.

The post A new center aims to modernize federal lending at a scale few realize exists first appeared on Federal News Network.

Interview transcript:

 

Terry Gerton The nation’s waterways may have some more reckless driving on them. Among the Trump administration’s cuts to government spending, the Coast Guard planned to cut funding for boating safety grants to states and nonprofits. To find out what this could mean for the maritime community, and to get a little more insight into how they work, Federal News Network’s Eric White spoke with David Kennedy, government affairs manager for the boat insurance company BoatUS.

Eric White Mr. Kennedy, thanks for joining us.

David Kennedy Thanks, Eric, for having me.

Eric White So how does this Coast Guard recreational boating safety grant work, or how do these grants work? You know, how much are we talking about here and where does the money necessarily go to?

David Kennedy What we’re initially talking about here are the Coast Guard Nonprofit Recreational Boat Grants, which I am happy to report have been renewed for 2025, which was one of the things that was in question, but we have those going forward. And these go out to several different groups, and I’ll say including the BoatUS Foundation for Clean Water and Safe Boating. But it’s used for a variety of issues. One of the groups is the National Association of Boating Law Administrators, and these are the state-level folks who really deal with recreational boats in their states and their safety programs. It trains law enforcement, local law enforcement and the operation of boats, helps coordinate, gives us uniform laws. Another group supported by it is the American Boat and Yacht Council, which is really the standard-setting body for the design of recreational boats, making sure we have safe recreational boats. So overall, this program is supported through the something called the Sport Fish Restoration and Boating Trust Fund. This is a program that takes the taxes paid by boaters through motor fuel tax, tax on fishing equipment, about six different sources of funds, that then goes back out to boating safety and boating access and environmental programs. So it’s a long-standing program that we have a lot of support for. The nonprofit grants are about $6.5 million a year. The overall trust fund is in the neighborhood of $650 million to $700 million dollars per fiscal year.

Eric White Okay. And so from that fund, there is also some federal funding that comes into play here. Those go to fund boating safety programs and the like. Do I have that correctly, or what is the government participation in this?

David Kennedy Sure. So like I said, it’s talking about the Sport Fish Restoration and Boating Trust Fund that takes in boaters’ taxes, and anglers — I should say recreational anglers. So every time you buy a fishing pole, there’s a tax on that. And those funds come into the come into the federal government and they’re then dispersed back out to programs that benefit the end users. So we call it a “user-pay, user-benefit” program. The nonprofit grants are one example. It also funds Coast Guard’s program to the states for their boating safety programs. So you go to Virginia or Maryland, they have their state DNR, or every state does it a little bit differently, that provides a level of their funding as well. And that also is matched by boat registration fees and other fishing licenses, so that it’s a real compounding effect. We call it a cycle of success that really supports the overall system that then our members go out and enjoy.

Eric White We’re speaking with David Kennedy, the manager of government affairs at BoatUS. All right, so then the idea came about, hey, let’s stop all that. Let’s cut that bit of funding out, reallocate resources, whatever they had planned for. What was the controversy at stake?

David Kennedy I think the question was folks not really understanding what the program was and what it did. And so that’s where roles for association like BoatUS come in. And we were able to have a dialog with the administration, with the folks in Congress who support us. We have great support from the House Transportation Committee Chairman Graves and Ranking Member Larsen, from Sen. Cruz and Sen. Cantwell, and just to bring them up to speed on what this program means and how it is able to go out and support and, as I said, we’re able to happily report that it has in fact been funded for 2025. Now, you know, it’s certainly incumbent on us to continue to make sure folks understand why this is important and how it goes back into the programs that the boaters and the anglers all support.

Eric White Not to have you have to rehash old turf, but what was in your pitch in those conversations with the government officials on the effect that these grants have on boating safety and any other restoration efforts?

David Kennedy I think for a number of the nonprofits that get this group, this is a decent part of their funding. And they were going to have to make some hard choices about which you know which programs they were able to support, which they could do going forward. So I think it was helping them to understand what these programs did. And I’ll go back to the example of the National Association of State Boating Law Administrators, where they really provide a link between Coast Guard and the states, and the state on water law enforcement. So I think that was that was a piece of it. Understanding the standard-setting piece of it and how that really makes the whole process of getting safety design updates out there into the system. And at this point, the you know, the U.S. standards are the world standards. You know, everybody looks to the United States and to ABYC for how they’re going to safely design a boat. And we wanted to make sure folks understood that keeping that piece running was important. So those were some of the things we touched on. And then we do things like, we have a life jacket loaner program. So, you know, you’re going to take the grandkids out and you don’t have a child-sized life jacket. Well, you can come to BoatUS and borrow one. So there’s programs like that as well that are just real simple, good safety and make it so people can go out and have fun and be safe on the water.

Eric White Can you give us a snapshot of the effect that programs like this have on boating safety and where we stand as a country when it comes to boating safety? Growing up here in Maryland, I still see that the waterways are as crowded as ever. But as we know, more participation means more potential situations for trouble. Where do things currently stand?

David Kennedy That’s the good news. It’s a very safe activity. And like anything, you have to be cautious and think about the risks. But overall, in 2024, we had the lowest number of fatalities that we’ve had since they started keeping records. In 1971, they passed the [Federal Boat Safety Act]. The estimate is that we’ve prevented over 100,000 deaths since that passed. So I think all of these programs are going to improve boating safety, but we’ve got to continue that work. And that was one of the things that we emphasized when we were discussing this program and continue to do. I mean you speak about Maryland — Maryland was actually the first state that put in a requirement for on-water education, or for boater education, I should say. And since then, that that concept has really spread across the nation. And in fact, BoatUS’s own foundation, we’re the largest provider of free online boating education. So people can come to boatus.org and they can get their boater education certification … and again, that’s how we’re keeping boating safe and trying to improve that. So those are the kinds of things that this all supports.

Eric White On that theme of continuance, you had mentioned that you know, you’re all set for 2025, after having to do a little bit of lobbying on your part. What do things look like going forward? Do you think that you’ll be able to maintain that level of communication with the powers that be, you know, whether or not any different personnel may be involved?

David Kennedy I mean, I believe so, but that’s my job to believe such things. And again, we’ve got a great working relationship with the Coast Guard and with the Department of Homeland Security. I always will point out to folks when people are 18 years old and deciding to go to the Coast Guard Academy for their career, they did it because they wanted to help people. And so that’s why it’s such a great agency to work with. The trust fund is up for reauthorization in the coming year. It’s done about every five years. The legislation has been introduced, it’s bipartisan. This is one of these issues that is supported by everyone out there. They understand how it works, and there’s a really good community of interest groups like ourselves that work with and make sure that folks understand that this works. So I remain optimistic. It really is a system that that feeds itself. I think you get to boaters and anglers, they understand that we’ve got the most interest in protecting the resource and we’ve got to contribute to it. So I feel like we’ll be okay. But we have to continue to tell the story and let folks know why it’s important.

The post What keeps recreational boaters safe, and what happens if the funding dries up? first appeared on Federal News Network.