The House Foreign Affairs Committee has scheduled a markup for May 9 for H.R. 5105, the Better Utilization of Investments Leading to Development Act of 2018.

Ostensibly, the BUILD Act is intended to “reform and modernize America’s approach to development finance, making it more efficient and effective.” In reality, however, it creates a supersized Overseas Private Investment Corporation (OPIC) and reduces congressional oversight through the authorization and appropriation process.

The BUILD Act of 2018 would consolidate OPIC and several development finance activities into a new Development Finance Corporation (DFC).

As explained in a Heritage Foundation paper last week, the BUILD Act is more of a rebranding and supersizing of OPIC than it is a reform bill. In fact, owing to extended authorization and the ability to use fees and other resources to pay for its operations, the proposed DFC would be less subject to regular congressional oversight than OPIC.

Moreover, the BUILD Act would not require any specific focus on countering Chinese investment and influence, which is a main reason why the Trump administration and conservatives would consider supporting the legislation in the first place.

In response, House Foreign Affairs Committee Chairman Ed Royce, R-Calif., will offer an amendment in the form of a substitute that, in effect, inserts a new text to replace the current bill. While the new text makes some tweaks to address a few of the concerns raised, most of the serious flaws of the bill remain in place.

First, the tweaks:

  • The new text notes that it is the policy of the U.S. to “provide countries a robust alternative to state-directed investments by authoritarian governments and United States’ strategic competitors using high standards of transparency, environmental and social safeguards, and which take into account the debt sustainability of partner countries,” but it still fails to include any specific mandate to act as a counterweight to growing Chinese investments and influence.
  • The new text requires the DFC to submit an easily obtained presidential certification to Congress that support for projects in upper-middle-income countries “furthers the national economic or foreign policy interests of the United States.” While better than nothing, a certification is a lower hurdle than requiring congressional approval.
  • The new text includes permission for the DFC to support nongovernmental organizations for the purpose of policy reforms to expand economic freedom and attract direct foreign investment, but does not require policy reform in recipient countries to lessen the need for assistance in the future.

Despite these tweaks, serious flaws remain unaddressed.

In particular, the legislation would create a large development finance institution that is far less subject to congressional scrutiny and oversight. Specifically:

  • As with the previous text, the chairman’s amendment would authorize the DFC for seven years. Granted, that’s shorter than the Senate version, which would authorize it for 20 years, but any organization of this size should be subject to reauthorization more frequently, especially since OPIC—the organization that the DFC resembles and succeeds—has itself been subject to frequent criticism and calls for elimination.
  • Unlike OPIC, the DFC would be able to use its earnings to pay for its operations and place the remainder in a separate account to pay for future claims. The new House legislation would require annual appropriations for the DFC to use those resources for administrative expenses and support for corporate activities, which is a welcome change. However, the Senate version continues to permit the DFC to use these resources absent specific congressional authorization.
  • The new text also increases the contingent liability for the DFC to $60 billion—roughly double that of OPIC and the other consolidated activities. Moreover, the BUILD Act would automatically adjust this contingent liability upward every five years at the percentage increase in the Consumer Price Index with no additional congressional authorization required. In other words, if inflation trends remain steady, the DFC’s contingent liability would automatically grow 10 percent to 15 percent every five years in perpetuity without any specific future authorization from Congress. That’s a huge expansion of financial authority for an unproven agency. If the DFC proves effective, it will have no trouble drawing support for increased contingent liability, appropriations for operations, and reauthorization through the normal legislative process.

Taken together, the self-funding authority, automatically rising continent liability, and extended authorization work to insulate the DFC from congressional scrutiny.

As frustrating as the legislative process might be, the appropriation and authorization process is fundamental to congressional oversight. Insulating it from annual appropriations and regular reauthorization, as the BUILD Act would do, gravely undermines accountability.

In addition, the new text continues to allow the DFC to make equity investments up to “35 percent of the corporation’s aggregate exposure.” In other words, a U.S. government corporation could in the near future hold ownership stakes in foreign companies totaling more than $20 billion.

Moreover, while the new text removes a specific instruction for the DFC to “develop appropriate policies and guidelines” on its support for state-owned enterprises, it does not prohibit the corporation from supporting them.

The BUILD Act says that U.S. policy is to “finance development in a way that builds and strengthens civic institutions, promotes competition, provides for public accountability and transparency.” But the new DFC would send the opposite signal each time our government invests in a private business or supports a foreign state-owned enterprise.

Another issue that may concern the Trump administration is that the legislation, both new and old, would weaken the focus on supporting U.S.-owned businesses.

Currently, OPIC eligibility requires U.S. ownership or strong U.S. involvement. The BUILD Act and the chairman’s amendment, however, require only that the DFC “give preferential consideration to projects sponsored by or involving private sector entities that are United States persons.”

In short, the amended text of the BUILD Act under consideration at the May 9 markup makes a few cosmetic changes, but serious fundamental concerns remain. Conservatives should oppose it unless changes are made to address them.

This article has been corrected to acknowledge a change in the House legislation.