Why a 2010 Commerce Dept loan guarantee program for manufacturing never got off the ground

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Congress back in 2010 created a loan guarantee program to run through the Commerce Department. Its purpose was to help along technological innovation an small and medium manufacturers. But the program never got started. Why not? For some answers the Federal Drive with Tom Temin turned to the Director for Science, Technology, Assessment and Analytics at the Government Accountability Office, Candice Wright.

Interview transcript:

Tom Temin: This is an unusual report, because usually you look at what might be improved with a program or what went wrong. In this case, you were looking at whatever happened to the program in the first place? Tell us the background here.

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Candice Wright: Certainly. So GAO has been looking at this program, the Innovative Technologies and Manufacturing Loan Guarantee Program, actually since 2013. And this was in response to a mandate that appeared in the America Competes Reauthorization Act back in 2010. And that called for GAO to conduct a review of the program every two years, we actually recently issued our fifth report. What we found is that while Congress had directed the Commerce Department to establish this program, they have not done so for a variety of reasons. These reasons range from a number of different perspectives, in particular, because the Commerce Department has determined or perceived that there is a lack of demand for such a program. And there were also concerns that the program could duplicate with other loan programs that existed SBA, and then there was just this broader perspective that they had about uncertainty whether lenders would actually participate in the program,

Tom Temin: Given the fact that there are lenders that would have been involved. And it was not money that the Congress appropriated for it, but just the authorization to engage with external lenders. Is that how it was structured?

Candice Wright: So actually, when the program was authorized, the Commerce Department, which ended up a delegating implementation of the program to the Economic Development Administration, there was actually funding that was provided and appropriated in fiscal year 2012 through 2015, Congress appropriated $19 million for the program. Over the course of the time that the funding was appropriated and provided to the Commerce Department and subsequently to the Economic Development Administration, they actually only spent about $500,000 of the funding that they were appropriated. And that was initially to take a look at some initial planning steps to get the program off the ground. So they hired a contractor to help them develop a funding model to assess the feasibility of such a loan guarantee program, as well as to develop materials to market the program. What subsequently happened is that there was a congressionally directed requirement for the Commerce Department to rescind some funds from EDA, which is the Economic Development Administration. And so the way that that was determined that the agency would apply that congressionally required rescission requirement was to apply those decisions to the ITM program, but Innovative Technologies and Manufacturing program. So they rescinded about $18.5 million of that funding in 2017 through 2019.

Tom Temin: So what was there to look at this time around, then? You were obligated to look at it. But was there any point to looking at it if the money had all been rescinded?

Candice Wright: So we have continued to report over the last few years where the department stands in implementing the program, and that while they did take some initial steps, they’ve never gotten the program off the ground, and it doesn’t seem that they have any plans to do so. As it stands, we are statutorily required to continue reporting on the program. However, given the limited action that there has been, certainly we’re looking at different options for you know, whether or not there’s a need for us to continue to review the program, given the department has said that they don’t have any plans to implement it.

Tom Temin: We’re speaking with Candice Wright. She’s director for science technology assessment and analytics at the Government Accountability Office. And just briefly, these loans were to be for small businesses for new technology or new training to improve what it is they were making in the processes they used to manufacture it?

Candice Wright: Yeah, so the ITM program would have provided loan guarantees really to help small and medium sized manufacturers to adopt or produce innovative technologies. Essentially, the way the program would have worked is that for any manufacturers that would have participated in the program, there would have been a promise to lenders that the federal government would pay off some or all of the loan in the event that the manufacturers default it. The program was developed to boost American competitiveness in manufacturing, 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 do in effect, the same thing, and those are up and running and going normally?

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Candice Wright: Yes. So in the course of our work over the last few years, we’ve certainly seen where one of the concerns about establishing the program within the Commerce Department was that the ITM program may have potentially duplicated SBA’s 7(a) program, which is also geared towards small businesses. However, perhaps what’s different with ITM is that it’s intended for small and medium sized manufacturers, and again, would have been geared to those involved in using or producing innovative manufacturing technologies.

Another thing I’ll note that’s different is with the SBA 7(a) loan programs, certainly that’s something that’s been very well established has been around for some time. And there was a perception that there would be limited demand for the ITM program, given this other long standing program with SBA 7(a) loan program. I’ll also note, too, that when you look in comparison at the funding made available, the SBA 7(a) loan program had about $3.2 billion in fiscal year 2021. You compare that to the $19 million that was appropriated for the ITM program. Certainly it’s vastly different.

Tom Temin: So the GAO makes lists of duplicative programs from time to time, from that standpoint, you must be saying, great, they’ve avoided a duplicative program.

On the other hand, as an agency that looks at agency compliance with congressional wishes, you must be saying, how can this happen? So what should we take away from this idea that a department simply didn’t go ahead with a program that Congress expected it to?

Candice Wright: Well, again, I think there’s a question of whether there is a demand for the program. And it’s not clear that that’s fully been assessed. When you think about some of the manufacturing challenges that have been revealed during the COVID-19 pandemic, there may be some questions as to whether or not it’s time to reassess whether there is a demand for the program and what that should mean for any implementation. That being said, one of the key things that will need to be considered as the fact that the Commerce Department had rescinded funding for the program, and so there isn’t funding available. And so if there were a decision that this program should be implemented, that would need to be a consideration to provide additional appropriations to implement it.

Tom Temin: But at the moment, there’s no members of Congress standing on their desks hollering for Commerce to do this.

Candice Wright: Well, we certainly provided the information to the Congress. And this information is all publicly available. And I guess that’s just the policy decision that will need to be made.

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