In his State of the Union address, President Barack Obama proposed using $30 billion in bailout funds for small-business lending. He later repeated the idea in Nashua, N.H.

Both times, Obama said he would use bailout funds that were “repaid” to the government by financial firms — conjuring up the politically appealing image of taking money from a chastened Wall Street and sending it straight to Main Street.

But Obama’s description didn’t give an accurate picture of how he plans to pay for the new program. And his comments sowed controversy and confusion on Capitol Hill.

In reality, the administration is proposing taking $30 billion from the unspent portion of the Troubled Asset Relief Program to seed the new initiative, not — as Obama’s language suggested — taking the funds from the approximately $170 billion that banks have returned to government coffers.

While that distinction might seems painfully technical, it carries significant political weight on Capitol Hill. The reason: The legislation creating TARP dictates that repaid funds must go to pay down the national debt.

The program as “originally outlined” was “totally inconsistent with the law,” Sen. Judd Gregg (R-N.H.) said in an interview with POLITICO.

Earlier this week, Gregg accused Obama of trying to create a “slush fund” from the repaid TARP cash. And he tore into White House budget chief Peter Orszag based on the description that repaid TARP dollars would be used to fund it.

“You don’t appear to understand the law! The law is very clear!” Gregg told Orszag during a hearing on the administration’s budget. He went on to read the TARP law to Orszag: “ ‘The monies recouped from the TARP shall be paid into the general fund of the treasury for the reduction of the public debt.’ It’s not for a piggy bank because you’re concerned about lending to small businesses… This money is to reduce the debt of our children!”

But it wasn’t just Republicans who had concerns. Sen. Mark Warner (D-Va.), who has been working with the administration to create a small-business program, said he sought clarification on the issue from the administration on Thursday.

“This is a major difference, particularly for some of my Republican colleagues,” Warner said. “It makes, I think, a stronger case that it fits within the footprint of the original TARP,” shoring up financial system and sending credit where it’s needed.

“And clearly one of the areas where credit is not moving is to small businesses,” Warner said.

White House officials didn’t say why Obama specifically talked of using “repaid” funds in both settings —including the State of the Union address, in which every word is carefully vetted.

But they say Obama didn’t intend to suggest that the actual repaid TARP funds would be used.

Obama’s language much like Orszag’s efforts to defend the White House show a complete lack of experience on the part of the administration which is one of the main reasons that they can’t figure out how to move the country out of this recession.

Sen. Gregg’s political career has been on the rise lately which is exactly the opposite of where it would have been had not withdrawn his nomination as Commerce Secretary in the Obama administration.