Innovative Manufacturing:

Commerce Has Continued Efforts to Create a Loan Guarantee Program, but Future Steps Are Uncertain

GAO-18-276R: Published: Feb 8, 2018. Publicly Released: Feb 8, 2018.

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John Neumann
(202) 512-3841
neumannj@gao.gov

 

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Small and medium-sized manufacturers may have difficulty finding the capital needed to use or produce innovative technologies.

To help foster innovative technologies in these businesses, the America COMPETES Act of 2010 directed that a loan guarantee program be established.

We have conducted biennial reviews of the program. Since our last report, the Commerce Department has taken additional steps to implement the program and address our recommendation. However, future steps are uncertain because of a perceived lack of demand for the program from businesses, competing regulatory priorities, and appropriations rescissions.

A Metal Fabrication and Machining Company

A worker in protective gear works with stainless steel at a metal fabrication and machining shop.

A worker in protective gear works with stainless steel at a metal fabrication and machining shop.

Additional Materials:

Contact:

John Neumann
(202) 512-3841
neumannj@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

The Department of Commerce's (Commerce) Economic Development Administration (EDA) has taken additional steps to implement the Federal Loan Guarantees for Innovative Technologies in Manufacturing (ITM) program since GAO's February 2016 report and has begun to address the recommendation GAO made in that report. To further implement the ITM program, EDA issued a proposed rule for the program in September 2016. EDA also worked with a contractor to develop a program manual that includes, among other things, standard operating procedures for interacting with clients once the program begins issuing loan guarantees. To address GAO's February 2016 recommendation that EDA work with the Small Business Administration (SBA) and the National Institute of Standards and Technology (NIST) to further identify any gaps in capital access that the ITM program could fill, EDA officials consulted with SBA officials to discuss how to minimize the potential for overlap between the ITM program and an existing SBA program.

However, EDA's future steps to implement the ITM program and address GAO's recommendation are uncertain because of (1) a perceived lack of demand among small- and medium-sized businesses, (2) competing regulatory priorities within Commerce, and (3) reductions in available appropriations for the program. Specifically, EDA officials said that they have found limited demand for the ITM program among medium-sized businesses and that the technologies and small businesses that would be eligible for loan guarantees through the ITM program could also be served by an existing SBA program. EDA officials also told GAO that, as of December 2017, Commerce had not set a timetable for finalizing the ITM program's regulations, in part because Commerce has prioritized other regulatory actions. EDA officials said that before finalizing a regulation for the ITM program, the agency must consider Executive Order 13771, which provides that, unless prohibited by law, whenever an agency proposes or otherwise promulgates a regulation, it must identify at least two existing regulations to be repealed. Finally, while the full-year fiscal year 2018 appropriation for EDA was not finalized as of January 2018, EDA officials said that recent and proposed rescissions to EDA's prior year unobligated balances raise uncertainty as to future funding for the ITM program. 

Why GAO Did This Study

Manufacturing plays a key role in the U.S. economy as a source of economic growth, high-paying jobs, and innovation. To invest in innovation, improve U.S. competitiveness, and help address the capital needs of small- and medium-sized manufacturers, the America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science Reauthorization Act of 2010, among other things, directed the Secretary of Commerce to establish the ITM program. When implemented, the program is to support loan guarantees for small- and medium-sized manufacturers for the use or production of innovative technologies. Commerce's EDA is responsible for implementing the program.

The act also included a provision for GAO to conduct a biennial review of the Secretary of Commerce's execution of the program. GAO has published two prior reports, including, most recently, in February 2016. GAO's February 2016 report included a recommendation that EDA work with SBA and NIST to further identify any capital access gaps the ITM program could fill and conduct outreach to help target those gaps. This report assesses the steps EDA has taken to implement the ITM program since GAO's February 2016 report and the extent to which EDA has addressed GAO's recommendation. GAO analyzed applicable laws and program documents, and interviewed EDA, SBA, and NIST officials.

GAO is not making any recommendations.

For more information, contact John Neumann at (202) 512-3841 or neumannj@gao.gov

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