In 2010, Congress created a loan guarantee program that runs through the Department of Commerce. Its aim was to support the technological innovation of small and medium-sized manufacturers. But the program never started. Why not? For some answers, the Federal Drive with Tom Temin turned to the director of science, technology, evaluation and analysis at the Government Accountability Office, Candice Wright.
Tom Temin: This is an unusual report because you are usually looking at what could be improved with a program or what went wrong. In that case, were you looking at what happened to the program in the first place? Tell us the context here.
Candice Wright: Certainly. So the GAO has been looking at this program, the Innovative Technology and Manufacturing Loan Guarantee Program, actually since 2013. And that was in response to a mandate that was in the America Competes Reauthorization Act in 2010. And that called GAO to conduct a review of the program every two years, we recently released our fifth report. What we found is that even though Congress had directed the Commerce Department to establish this program, it did not do so for various reasons. These reasons vary from a number of different perspectives, in particular, because the Department of Commerce has determined or perceived that there is a lack of demand for such a program. And there were also concerns that the program might duplicate other loan programs that existed SBA, and then there was just this broader perspective that they had on the uncertainty of whether lenders would participate actually on the program,
Tom Temin: Considering the fact that there are lenders who would have been involved. And it wasn’t money that Congress appropriated for it, just permission to engage with outside lenders. Is that how it was structured?
Candice Wright: So in fact when the program was authorized, the Department of Commerce, which ended up delegating the implementation of the program to the Economic Development Administration, there was actually funding that was provided and allocated to the In fiscal year 2012 to 2015, Congress appropriated $19 million for the program. During the time that funding was allocated and provided to the Department of Commerce and then to the Economic Development Administration, they actually only spent about $500,000 of the funding that was allocated to them. And that was initially to take a look at some initial planning stages to launch the program. So they hired a contractor to help them develop a financing model to assess the feasibility of such a loan guarantee program, as well as develop materials to market the program. What happened next was that there was a requirement imposed by Congress for the Commerce Department to cancel certain funds from the EDA, which is the Economic Development Administration. And so, the way it was determined that the agency would apply this congressionally required cancellation requirement was to apply those rulings to the ITM program, but to the Innovative Technologies and Manufacturing program. So they canceled about $18.5 million of that funding from 2017 to 2019.
Tom Temin: So what was there to watch this time around, then? You had to watch it. But was there any point in watching it if the money was canceled?
Candice Wright: So we’ve continued to report over the past few years on the department’s position in implementing the program, and while it took some initial steps, it never launched the program, and it doesn’t appear that he has every intention of doing so. As it stands, we are legally required to continue reporting on the program. However, given how little action there has been, we are certainly looking at different options as to whether or not it is necessary for us to continue to review the program, given that the ministry has stated that it does not had no plans to implement it.
Tom Temin: We speak with Candice Wright. She is the Director of Science Technology Assessment and Analysis at the Government Accountability Office. And briefly, these loans were to be for small businesses for new technology or new training to improve what they were making in the processes they were using to make them?
Candice Wright: Yes, so the ITM program would have provided loan guarantees really to help small and medium manufacturers to adopt or produce innovative technologies. Essentially, the way the program would have worked is that for all manufacturers who participated in the program, there would have been a promise to the lenders that the federal government would repay some or all of the loan if the manufacturers defaulted. The program was developed to boost American competitiveness in the manufacturing sector and to ensure that small and medium-sized manufacturers can continue to contribute to the economy.
Tom Temin: And you said earlier, there are SBA programs that actually do the same thing, and those are up and running normally?
Candice Wright: Yes. So, in our work over the past few years, we’ve certainly seen where one of the concerns with the establishment of the program within the Department of Commerce was that the ITM program could potentially duplicate the 7( a) SBA, which is also geared towards small businesses. However, what is perhaps different with ITM is that it is aimed at small to medium sized manufacturers, and again, would have been suitable for those using or producing innovative manufacturing technologies.
Another thing that I will note that is different is with the SBA 7(a) loan programs, this is definitely something that has been very well established for quite some time. And there was a perception that there would be limited demand for the ITM program, given that other long-running program with the SBA 7(a) loan program. I’ll also note that when you compare the funds made available, the SBA 7(a) loan program had about $3.2 billion in fiscal year 2021. You’re comparing that to the $19 million that were assigned to the ITM. program. Admittedly, it is very different.
Tom Temin: So the GAO does list duplicate programs from time to time, from that perspective, you have to say, great, they avoided a duplicate program.
On the other hand, as an agency looking at the agency’s compliance with the wishes of Congress, you have to say to yourself, how can this happen? So what should we take away from this idea that a department simply did not pursue an agenda that Congress expected?
Candice Wright: Well, again, I think there’s a question of whether there’s a demand for the program. And it’s not clear that this has been fully assessed. When you think about some of the manufacturing challenges that have come to light during the COVID-19 pandemic, you may wonder whether or not it’s time to reassess if there is demand for the program and what that should mean for any implementation. . That being said, one of the main things to consider is the fact that the Department of Commerce has canceled funding for the program, and therefore there is no funding available. And so if there was a decision that this program should be implemented, it should be considered to provide additional funds to implement it.
Tom Temin: But right now, no member of Congress is standing on his desk asking Commerce to do it.
Candice Wright: Well, we certainly provided the information to Congress. And this information is all publicly available. And I guess that’s just the political decision that will have to be made.