prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: Congressional interest in small business access to capital has increased in recent years because of concerns that small businesses might be prevented from accessing sufficient capital to enable them to start, continue, or expand operations and create jobs  Small businesses have played an important role in net job growth during previous economic recoveries, particularly in the construction, housing, and retail sectors  For example, after the eight-month recession that began in July 1990 and ended in March 1991, small businesses (defined for this purpose as having fewer than 500 employees) increased their net employment in the first year after the recession, whereas larger businesses continued to experience declines in employment  During the most recent recession (December 2007-June 2009), small businesses accounted for almost 60% of net job losses  From the end of the recession through the end of FY2012, small businesses accounted for about 63% of net new jobs, close to their historical average share of net new job creation  Since then, small businesses have added about 65% of net new jobs  Some have argued that the federal government should provide additional resources to assist small businesses  Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit  They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small businesses and create jobs  Several laws were enacted during the 111 th Congress to enhance small business access to capital  For example, P L  111-5 , the American Recovery and Reinvestment Act of 2009 (ARRA), provided the Small Business Administration (SBA) an additional $730 million, including $375 million to temporarily subsidize SBA fees and increase the 7(a) loan guaranty program's maximum loan guaranty percentage from 85% on loans of $150,000 or less and 75% on loans exceeding $150,000 to 90% for all regular 7(a) loans  P L  111-240 , the Small Business Jobs Act of 2010, authorized the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund (SBLF) ($4 0 billion was issued) to encourage community banks with less than $10 billion in assets to increase their lending to small businesses  It also authorized a $1 5 billion State Small Business Credit Initiative to provide funding to participating states with small business capital access programs, numerous changes to the SBA's loan guaranty and contracting programs, funding to continue the SBA's fee subsidies and the 7(a) program's 90% maximum loan guaranty percentage through December 31, 2010, and about $12 billion in tax relief for small businesses  P L  111-322 , the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the SBA to continue its fee subsidies and the 7(a) program's 90% maximum loan guaranty percentage through March 4, 2011, or until available funding was exhausted, which occurred on January 3, 2011  According to the SBA, the temporary fee subsidies and 90% maximum loan guaranty for the 7(a) program "engineered a significant turnaround in SBA lending     The end result is that the agency helped put more than $42 billion in the hands of small businesses through the Recovery Act and Jobs Act combined " This report focuses on the SBLF  It begins with a discussion of the supply and demand for small business loans  The SBLF's advocates argued that the fund was an important part of a larger effort to enhance the supply of small business loans  After describing the program's structure, the report then examines other arguments that were presented both for and against the program's enactment  Advocates claimed the SBLF would increase lending to small businesses and, in turn, create jobs  Opponents contended that the SBLF could lose money, lacked sufficient oversight provisions, did not require lenders to increase their lending to small businesses, could serve as a vehicle for the Troubled Asset Relief Program (TARP) recipients to effectively refinance their TARP loans on more favorable terms with little or no resulting benefit for small businesses, and could encourage a failing lender to make even riskier loans to avoid higher dividend payments  The report concludes with an examination of the SBLF's implementation by the Department of the Treasury and a discussion of bills introduced during recent Congresses to amend the SBLF  For example, during the 112 th Congress, S  681 , the Greater Accountability in the Lending Fund Act of 2011, would have, among other provisions, limited the program's authority to 15 years from enactment and prohibited TARP recipients from participating in the program  H R  2807 , the Small Business Leg-Up Act of 2011, would have transferred any unobligated and repaid funds from the SBLF when its investment authority expired on September 27, 2011, to the Community Development Financial Institutions Fund "to continue the program of making capital investments in eligible community development financial institutions in order to increase the availability of credit for small businesses " H R  3147 , the Small Business Lending Extension Act, would have, among other provisions, extended the Department of the Treasury's investment authority from one year following the date of enactment to two years  During the 113 th Congress, H R  2474 , the Community Lending and Small Business Jobs Act of 2013, would have transferred any unobligated and repaid funds from the SBLF to the Community Development Financial Institutions Fund  Each quarter, the Federal Reserve Board surveys senior loan officers concerning their bank's lending practices  The survey includes questions about both the supply and demand for small business loans  For example, the survey includes a question concerning their bank's credit standards for small business loans: "Over the past three months, how have your bank's credit standards for approving applications for C&I [commercial and industrial] loans or credit lines—other than those to be used to finance mergers and acquisitions—for small firms (defined as having annual sales of less than $50 million) changed?" The senior loan officers are asked to indicate if their bank's credit standards have "Tightened considerably," "Tightened somewhat," "Remained basically unchanged," "Eased somewhat," or "Eased considerably " Subtracting the percentage of respondents reporting "Eased somewhat" and "Eased considerably" from the percentage of respondents reporting "Tightened considerably" and "Tightened somewhat" provides an indication of the market's supply of small business loans  As shown in Figure 1 , senior loan officers reported that they generally tightened small business loan credit standards from 2007 through late 2009  Since 2009, small business credit markets have generally improved, with some tightening in 2016 and the end of 2018  The survey also includes a question concerning the demand for small business loans: "Apart from normal seasonal variation, how has demand for C&I loans changed over the past three months for small firms (annual sales of less than $50 million)?" Senior loan officers are asked to indicate if demand was "Substantially stronger," "Moderately stronger," "About the same," "Moderately weaker," or "Substantially weaker " Subtracting the percentage of respondents reporting "Moderately weaker" and "Substantially weaker" from the percentage of respondents reporting "Substantially stronger" and "Moderately stronger" provides an indication of the market's demand for small business loans  As shown in Figure 1 , senior loan officers reported that the demand for small business loans declined somewhat in 2007 and 2008, and declined significantly in 2009  Demand then leveled off (at a relatively reduced level) during 2010, increased somewhat during the first half of 2011, declined during the latter half of 2011, generally increased from 2012 through 2015, and has varied somewhat, increasing in some quarters and declining in others, since then  The Federal Deposit Insurance Corporation (FDIC) has maintained comparable small business lending data for the second quarter (June 30) of each year since 2002  Figure 2 shows the amount of outstanding small business loans (defined by the FDIC as commercial and industrial loans of $1 million or less) for nonagricultural purposes as of June 30 of each year from 2006 to 2018  As shown in Figure 2 , the amount of outstanding small business loans for nonagricultural purposes increased at a relatively steady pace from June 30, 2006, to June 30, 2008, declined over the next several years, and has increased each year since June 30, 2013  Although changes in small business outstanding debt are not necessarily a result of changes in the supply of small business loans, many, including the SBA, view a decline in small business outstanding debt as a signal that small businesses might be experiencing difficulty accessing sufficient capital to enable them to lead job growth  According to an SBA-sponsored study of small business lending, several factors contributed to the decline in small business lending from 2007 to 2010  The report's authors noted that the 30% decline in home prices from their peak in 2006 to 2010 diminished the value of collateral for many small business borrowers, some of whom had relied on home equity loans to finance their small businesses during the real estate boom  The authors concluded that the absence of this additional source of collateral may have contributed to a decline in lending to small businesses  They also argued that many small businesses found it increasingly difficult to renew existing lines of credit as lenders became more cautious as a result of slow economic growth and an increasing risk of loan defaults, especially among small business start-ups, which are generally considered among the most risky investments  The authors argued that in this newly regulated market, smaller lenders are likely to be less profitable because they have fewer sales of products and services to spread out over the higher auditing and FDIC costs  Hence, they have less money to lend to small businesses and others; and the relative difficulty in assessing creditworthiness due to the lack of information about potential financial performance is very high in small business lending, especially in financial markets driven by factor—rather than relationship—lending  Therefore, one would expect the small business loan market to recover more slowly than other financial markets  The authors also noted that FDIC data indicated that small business lending had not only declined in absolute terms (the total amount of dollars borrowed and the total number of small business loans issued), but in relative terms as well (the market share of business loans): Over the eight years from 2003 through 2010, small business loans as a share of total business loans declined by more than 12 percentage points, from 81 7% in 2003 to 68 9% in 2010  Perhaps of most concern is the further decline in the ratios of small business loans to total assets and small business loans to total business loans  Small business loans constituted about 16 8% of total assets in 2005, but only 15 3% in 2010; hence, small business lending is becoming less significant for these lenders  Small business lending is also losing market share in the business loan market  In the eight-year period from 2003 to 2010, small business loans as a share of total business loans declined more than 10 percentage points from 81 7% in 2003 to 68 9% in 2010  According to the previously mentioned SBA-sponsored study of small business lending, the demand for small business loans fell during the recession primarily because many small businesses experienced a decline in sales and many small business owners had a heightened level of uncertainty concerning future sales  The study's authors argued that given small business owners' lack of confidence in the demand for their goods and services, many small business owners decided to save capital instead of hiring additional employees and borrowing capital to invest in business expansions and inventory  The responses of small business owners to a monthly survey by the National Federation of Independent Business Research Foundation (NFIB) concerning small business owners' views of the economy support the argument that declining sales contributed to the reduced demand for small business loans  From 2008 through 2011, small business owners responding to the NFIB surveys identified poor sales as their number-one problem  Prior to 2008, taxes had been reported as their number-one problem in nearly every survey since the monthly surveys began in 1986  Also, employment data suggest that small businesses were particularly hard hit by the recession  As mentioned previously, small businesses accounted for almost 60% of the net job losses during the December 2007-June 2009 recession  According to testimony by the Secretary of the Treasury before the House Small Business Committee on June 22, 2011, small businesses were especially hard hit by the recession because [s]mall businesses are concentrated in sectors that were especially hard hit by the recession and the bursting of the housing bubble: construction and real estate  More than one-third of all construction workers are employed by firms with less than 20 workers, and an additional third are employed by businesses with fewer than 100 employees  Just over half of those employed in the real estate, rental, and leasing sectors work for businesses with less than 100 workers on their payrolls  More broadly, the rate of job losses was almost twice as high in small businesses as it was in larger firms during the depths of the crisis  During the 111 th Congress, legislation designed to increase both the supply and demand for small business loans was adopted  For example, Congress provided more than $1 1 billion to temporarily subsidize fees for the SBA's 7(a) and 504/Certified Development Company (504/CDC) loan guaranty programs and to increase the 7(a) program's maximum loan guaranty percentage from 85% on loans of $150,000 or less and 75% on loans exceeding $150,000 to 90% for all regular 7(a) loans (funding was exhausted on January 3, 2011)  The fee subsidies were designed to increase the demand for small business loans by reducing the cost of borrowing  The 90% loan guarantee was designed to increase the supply of small business loans by reducing the risk of lending  Congress also provided the SBA additional resources to expand its lending to small businesses  For example, ARRA included a $255 million temporary, two-year small business stabilization program to guarantee loans of $35,000 or less to small businesses for qualified debt consolidation, later named the America's Recovery Capital (ARC) Loan program (the program ceased issuing new loan guarantees on September 30, 2010); an additional $15 million for the SBA's surety bond program and a temporary increase in that program's maximum bond amount from $2 million to $5 million and up to $10 million under certain conditions (the higher maximum bond amounts ended on September 30, 2010); an additional $6 million for the SBA's Microloan program's lending program and an additional $24 million for the Microloan program's technical assistance program; and increased the funds ( leverage ) available to SBA-licensed Small Business Investment Companies (SBICs) to no more than 300% of the company's private capital or $150 million, whichever is less  Several other programs were also enacted during the 111 th Congress to increase the supply of small business loans  For example, ARRA authorized the SBA to establish a temporary secondary market guarantee authority to provide a federal guarantee for pools of first lien 504/CDC program loans that are to be sold to third-party investors  ARRA also authorized the SBA to make below-market interest rate direct loans to SBA-designated "Systemically Important Secondary Market (SISM) Broker-Dealers" that would use the loan funds to purchase SBA-guaranteed loans from commercial lenders, assemble them into pools, and sell them to investors in the secondary loan market  P L  111-240 extended the SBA's secondary market guarantee authority from two years after the date of ARRA's enactment to two years after the date of the program's first sale of a pool of first lien position 504/CDC loans to a third-party investor (which took place on September 24, 2010)  The act also increased the loan guarantee limits for the SBA's 7(a) program from $2 million to $5 million, and for the 504/CDC program from $1 5 million to $5 million for "regular" borrowers, from $2 million to $5 million if the loan proceeds are directed toward one or more specified public policy goals, and from $4 million to $5 5 million for manufacturers  It also increased the SBA's Microloan program's loan limit for borrowers from $35,000 to $50,000 and for microlender intermediaries after their first year in the program from $3 5 million to $5 million  In addition, it temporarily increased for one year (through September 26, 2011) the SBA 7(a) Express Program's loan limit from $350,000 to $1 million  The act also authorized the Secretary of the Treasury to establish the $30 billion SBLF and a $1 5 billion State Small Business Credit Initiative to provide funding to participating states with small business capital access programs  The SBLF was designed "to address the ongoing effects of the financial crisis on small businesses by providing temporary authority to the Secretary of the Treasury to make capital investments in eligible institutions in order to increase the availability of credit for small businesses " The SBLF's legislative history, including differences in the House- and Senate-passed versions of the program, appears in the Appendix   P L  111-240 authorized the Secretary of the Treasury to make up to $30 billion in capital investments in eligible institutions with total assets equal to or less than $1 billion or $10 billion (as of the end of the fourth quarter of calendar year 2009)  The authority to make capital investments in eligible institutions was limited to one year after enactment  Eligible financial institutions with total assets equal to or less than $1 billion as of the end of the fourth quarter of calendar year 2009 could apply to receive a capital investment from the SBLF in an amount not exceeding 5% of risk-weighted assets, as reported in the FDIC call report immediately preceding the date of application  During the fourth quarter of 2009, 7,340 FDIC-insured lending institutions reported having assets amounting to less than $1 billion  Eligible financial institutions with total assets of $10 billion or less as of the end of the fourth quarter of calendar year 2009 could apply to receive a capital investment from the fund in an amount not exceeding 3% of risk-weighted assets, as reported in the FDIC call report immediately preceding the date of application  During the fourth quarter of 2009, 565 FDIC-insured lending institutions reported having assets of $1 billion to $10 billion  Risk-weighted assets are assets such as cash, loans, investments, and other financial institution assets that have different risks associated with them  FDIC regulations (12 C F R  §567 6) establish that cash and government bonds have a 0% risk-weighting; residential mortgage loans have a 50% risk-weighting; and other types of assets (such as small business loans) have a higher risk-weighting  Lending institutions on the FDIC problem bank list or institutions that have been removed from the FDIC problem bank list for less than 90 days are ineligible to participate in the program  A lending institution can refinance securities issued through the Treasury Capital Purchase Program (CPP) and the Community Development Capital Incentive (CDCI) program under TARP, but only if that institution had not missed more than one dividend payment due under those programs  Participating banks (C corporations and savings associations) are charged a dividend rate of no more than 5% per annum initially, with reduced rates available if the bank increases its small business lending by specified amounts  For example, during any calendar quarter in the initial two years of the capital investments under the program, the bank's dividend rate is lowered if it increases its small business lending, as reported in its FDIC call reports, compared with the average small business lending it made in the four previous quarters immediately preceding the law's enactment, minus some allowable adjustments  Table 1 shows the dividend rates associated with small business lending increases by C corporation banks and savings associations  Table 2 shows the dividend rates associated with small business lending increases by participating S corporation banks and mutual lending institutions  These rates are slightly higher than those for C corporation banks and savings associations "to reflect after-tax effective rates equivalent to the dividend rate paid by other classes of institutions participating in the Fund through the issuance of preferred stock " As will be discussed later, an S corporation does not pay federal taxes at the corporate level  Any business income or loss is "passed through" to shareholders who report it on their personal income tax returns  Community Development Financial Institutions (CFDIs) are provided funding for an initial eight years with an automatic rollover for two additional years at the issuer's option  On the 10 th anniversary of the investment date the issuer repays the principal amount, together with all accrued and unpaid interest  Additionally, the dividend rate is 2% per annum for the first eight years from the investment date (payable quarterly in arrears on January 1, April 1, July 1, and October 1 of each year) and 9% thereafter  SBLF applicants are required to submit a small business lending plan to the appropriate federal banking agency and, for applicants that are state-chartered banks, to the appropriate state banking regulator  The plan must describe how the applicant's business strategy and operating goals will allow it to address the needs of small businesses in the areas it serves, as well as a plan to provide linguistically and culturally appropriate outreach, where appropriate  The plan is treated as confidential supervisory information  The Secretary of the Treasury is required to consult with the appropriate federal banking agency or, in the case of an eligible institution that is a nondepository community development financial institution, the Community Development Financial Institution Fund, before determining if the eligible institution may participate in the program  The act directed that all funds received by the Secretary of the Treasury in connection with purchases made by the SBLF, "including interest payments, dividend payments, and proceeds from the sale of any financial instrument, shall be paid into the general fund of the Treasury for reduction of the public debt " The SBLF's advocates argued that it would create jobs by encouraging lenders, especially those experiencing liquidity problems (access to cash and easily tradable assets), to increase their lending to small businesses  For example, the House report accompanying H R  5297 , the Small Business Lending Fund Act of 2010, argued that the SBLF was needed to enhance small business's access to capital, which, in turn, was necessary to enable those businesses to create jobs and assist in the economic recovery: There has been a dramatic decrease in the amount of bank lending in the past several quarters  On May 20, 2010, the Federal Deposit Insurance Corporation (FDIC) released its Quarterly Banking Profile for the first quarter of 2010  The report shows that commercial and industrial loans declined for the seventh straight quarter, down more than 17% from the year before  Many companies, particularly small businesses, claim that it is becoming harder to get new loans to keep their business operating and that banks are tightening requirements or cutting off existing lines of credit even when the businesses are up to date on their loan repayments  Treasury Secretary Timothy F  Geithner recently acknowledged the problem encountered by some banks, both healthy and troubled, which have been told to maintain capital levels in excess of those required to be considered well capitalized  Some banks say they have little choice but to scale back lending, even to creditworthy borrowers, and the most recent Federal Reserve data shows banks are continuing to tighten lending terms for small businesses  A dissenting view, endorsed by the House Committee on Financial Services' minority members, was included in the report  This view argued that the SBLF does not properly deal with the lack of financing for small businesses: Instead of addressing the problem by stimulating demand for credit by small businesses, H R  5297 injects capital into banks with no guarantees that they will actually lend  The bill allows a qualifying bank to obtain a capital infusion from the government without even requiring the bank to make a loan for two years  In fact, if a bank reduces or fails to increase lending to small business during those first two years, it would not face any penalty  It defies logic that the Majority would support a bill to increase lending that does not actually require increased lending  A more effective response to the challenges facing America's small businesses was offered by Representatives Biggert, Paulsen, Castle, Gerlach, and King, whose amendment would have extended a series of small business tax credits before implementing the Small Business Lending Fund  Advocates also argued that even if the SBLF were authorized "the program probably would not be fully operational for months; banks could shun the program for fear of being stigmatized by its association with TARP; and many banks would avoid taking on new liabilities when their existing assets are troubled " They contended that the bill did not provide sufficient oversight for effectively monitoring the program because the Inspector General of the Department of the Treasury, who was given that oversight responsibility under the bill, "might not be able to direct sufficient attention to this task given its other responsibilities " They argued that the Special Inspector General of TARP would be in a better position to provide effective oversight of the program  These, and other, arguments were presented during House floor debate on the bill  For example, Representative Melissa Bean advocated the bill's passage, arguing that the SBLF builds on the effective financial stabilization measures Congress has previously taken by establishing a new $30 billion small business loan fund to provide additional capital to community banks that increase lending to small businesses  This $30 billion investment on which the government will be collecting dividends and earning a profit per the CBO [Congressional Budget Office] estimates can be leveraged by banks into over $300 billion in new small business loans  This is an important investment by the Federal Government in our small business that brings tremendous returns  The terms of the capital provided to banks are performance based; the more a bank increases its small business lending, the lower the dividend rate is for the SBLF capital  If a bank decreases its small business lending, it will be penalized with higher dividend rates  This legislation includes strong safeguards to ensure that banks adequately utilize available funds to increase lending to small businesses, not for other lending or to improve their balance sheet  There will be oversight consistently throughout the program, plus it requires that the capital be invested only in strong financial institutions at little risk of default and the best positioned to increase small business lending  It's important for Americans to understand that although this fund has a maximum value of $30 billion, it is estimated to make a profit for taxpayers in the long run  And the money will ultimately go not to banks, but to the small businesses and their communities that they lend to  As our financial system stabilizes and our community banks recapitalize, these funds will be repaid to Treasury with full repayment required over the next 10 years  Representative Nydia Velázquez, then-chair of the House Committee on Small Business, added that the legislation had sufficient safeguards in place to ensure that the funds were targeted at small businesses: First, banks must apply to the Treasury to receive funds, with a detailed plan on how to increase small business lending at their institution  This language was included at my insistence that we need to make sure that small businesses will get the benefit of this legislation  Second, this capital, repayment of the government loans will be at a dividend rate starting at 5% per year  This rate will be lowered by 1% for every 2 5% increase in small business lending over 2009 levels  It can go as low as a total dividend rate of just 1% if the bank increases its business lending by 10% or more, incentivizing banks to do the right thing  To ensure that banks actually use the funding they receive, the rate will increase—and there are penalties—to 7% if the bank fails to increase its small business lending at their institution within 2 years  To ensure that all federal funds are paid back within 5 years, the dividend rate will increase to 9% for all banks, irrespective of their small business lending, after 4 1/2 years  Representative Velázquez added "let me just make it clear … CBO estimates that [the SBLF] will save taxpayers $1 billion over 10 years, as banks are expected to pay back this loan over 10 years, with interest " Representative Randy Neugebauer opposed the bill's adoption, arguing that the majority is repeating the same failed initiatives that have helped our national debt grow to $13 trillion in the past 2 years  This bill follows the model of the TARP program, minus [TARP's] stronger oversight, and it puts another $30 billion into banks in the hopes that lending to small businesses will increase  In the words of Neil Barofsky, the Special Inspector General who oversees the TARP, "In terms of its basic design," he says, "its participants, its application process, from an oversight perspective, the Small Business Lending Fund would essentially be an extension of the TARP's Capital Purchase Program " From the Congressional Oversight Panel for TARP, chaired by Elizabeth Warren, she says, "The SBLF's prospects are far from certain  The SBLF also raises questions about whether, in light of the Capital Purchase Program's poor performance in improving credit access, any capital infusion program can successfully jump-start small business lending " This bill allows for another $33 billion in spending that will be added to the government's credit card  The CBO tells us that the bank lending portion will ultimately cost taxpayers $3 4 billion when market risk is taken into account  The House passed H R  5297 by a vote of 241-182, on June 17, 2010  The arguments presented during House floor debate on H R  5297 were also presented during Senate consideration of the bill  Advocates argued that the SBLF would encourage higher levels of small business lending and jobs  For example, Senator Mary Landrieu argued on July 21, 2010, that the SBLF should be adopted because it "is not a government program for banks  It is a public-private partnership lending strategy for small business " She added that as chair of the Senate Committee on Small Business and Entrepreneurship, she talked with her colleagues, including the SBLF's opponents, and revised the program to address their concerns  She also argued that the SBLF has hundreds of endorsements from independent banks, the community banks and almost every small business association in America … makes $1 billion [according to the CBO score] … is not direct lending from the federal government  It is not creating a new bureaucracy … [It is] voluntary … there are no onerous restrictions … The small business gets the loans  We create jobs  People are employed  The recession starts ending…  It has nothing to do with TARP money  It is not a TARP program  It is not a bank program  It doesn't have anything to do with banks except that we are working in partnership with banks to lend money to small businesses which are desperate for money  Opponents argued that the SBLF could lose money, lacked sufficient oversight provisions, did not require lenders to increase their lending to small businesses, could serve as a vehicle for TARP recipients to effectively refinance their TARP loans on more favorable terms with little or no resulting benefit for small businesses, and could encourage a failing lender to make even riskier loans to avoid higher dividend payments  In addition, there were disagreements over the number of amendments that could be offered by the minority, which led several Senators to oppose further consideration of the bill until that issue was resolved to their satisfaction  For example, on July 22, 2010, Senator Olympia Snowe argued that although "under a cash-based estimate, CBO listed the official score for the lending fund as raising $1 1 billion over 10 years," SBLF proponents "fail to mention" that when CBO scored the SBLF using an alternative methodology that adjusts for market risk, it estimated that the SBLF could cost $6 2 billion  Senator Snowe also argued that the bipartisan Congressional Oversight Panel for TARP stated in its May 2010 oversight report that the proposed SBLF "substantially resembles" the TARP and "is a bank-focused capital infusion program that is being contemplated despite little, if any, evidence that such programs increase lending " Senator Snowe noted that she regretted "that we are in a position where we have not been able to reach agreement allowing the minority to offer amendments, which is confounding and perplexing as well as disappointing " Senator Snowe later added that the SBLF's incentives to encourage lending to small businesses also "could encourage unnecessarily risky behavior by banks … to avoid paying higher interest rates " Opponents also questioned the SBLF's use of quarterly call report data as submitted by lenders to their appropriate banking regulator to determine what counts as a small business loan  Call report data denotes loans of $1 million or less as small business loans, regardless of the size of the business receiving the loan  As a result, the SBLF's opponents argued that "the data used to measure small business lending in the SBLF covers an entirely different set of small businesses than those that fall within the definition set out in the Small Business Act or used by the SBA " The Senate's version of H R  5297 was agreed to on September 16, 2010, by a vote of 68-38  The House agreed to the Senate-passed version of H R  5297 on September 23, 2010, by a vote of 237-187, and the bill, retitled the Small Business Jobs Act of 2010, was signed into law by President Obama on September 27, 2010  On February 14, 2011, the Obama Administration issued its budget recommendation for FY2012  The budget anticipated that the SBLF would provide $17 399 billion in financings, well below its authorized amount of $30 billion  This was the first indication that the SBLF's implementation may not proceed as expected  The second indication that the program's implementation may not proceed as expected was an unanticipated delay in the writing of the program's regulations  The U S  Treasury was criticized by some for not implementing the program quickly enough  The first financing took place on June 21, 2011, about nine months after the program's enactment  The delay was largely due to the Treasury's need to finalize the SBLF's investment decision process with federal banking agencies and the need to create separate SBLF regulations for financial institutions established as C corporations, Subchapter S corporations, mutual lending institutions, and Community Development Financial Institutions (CDFIs)  A C corporation is a legal entity established under state law and includes shareholders, directors, and officers  The profit of a C corporation is taxed to the corporation when earned and then is taxed to the shareholders when distributed as dividends  The majority of insured depository institutions, bank holding companies, and savings and loan holding companies are C corporations  A Subchapter S c orporation refers to a section of the Internal Revenue Code (IRC) that allows a corporation to pass corporate income, losses, deductions, and credits through to its shareholders for federal tax purposes  Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates  This allows S corporations to avoid double taxation on the corporate income  Mutual lending institutions , which include many thrifts, are owned by their depositors or policyholders  They have no stockholders  CDFIs are financial entities certified by the CDFI Fund in the U S  Department of the Treasury and provide capital and financial services to underserved communities  The establishment of separate regulations for each of these different types of financial institutions was largely related to issues involving whether the SBLF's financings would be counted by banking regulatory agencies as Tier 1 capital (core capital that is relatively liquid, such as common shareholders' equity, disclosed reserves, most retained earnings, and perpetual noncumulative preferred stocks) or as Tier 2 capital (supplementary capital that consists mainly of undisclosed reserves, revaluation reserves, general provisions, hybrid instruments, and subordinated term debt)  The treatment of the SBLF's financings was important given that banks must maintain a minimum total risk-based capital ratio of 8% (the ratio measures bank capital against assets, with asset values risk-weighted, or adjusted on a scale of riskiness) to be considered adequately capitalized by federal banking regulators  In addition, banks must maintain a minimum Tier 1 risk-based ratio to assets, typically 3% for banking institutions with the highest financial ratings and 4% for others  According to Treasury officials, under Internal Revenue Service (IRS) rules, S corporations can have only a single class of stock (common shares)  Consequently, these institutions cannot issue preferred stock to Treasury  As a result, Treasury had to consider purchasing subordinated debt from these institutions, which the banking regulatory agencies would likely designate as Tier 2 capital  Treasury officials believed that providing Tier 2 capital would probably result in fewer S corporation participants  Additionally, because mutual lending institutions do not issue stock, Treasury officials were unable to receive preferred stock as consideration for an investment in this type of institution  Therefore, Treasury had to consider purchasing subordinated debt from these institutions as well


Report 2:  Treasury completed its regulations for C corporation banks first  For C corporations, SBLF funds are treated as Tier I capital and the Treasury purchases senior perpetual noncumulative preferred stock (or an equivalent)  The stock pays a quarterly dividend on the first day of each quarter after closing of the SBLF capital program funding  Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view  It is composed of core capital, which consists primarily of common stock and disclosed reserves (or retained earnings) but may also include nonredeemable, noncumulative preferred stock  In contrast, S corporations and mutual lending institutions receive unsecured subordinated debentures from the Treasury, which are considered Tier 2 capital for regulatory capital requirements  The application deadline for C corporation banks was May 16, 2011  The application deadline for Subchapter S corporations and mutual lending institutions was June 6, 2011, and the application deadline for CDFIs was June 22, 2011  A total of 926 institutions applied for $11 8 billion in SBLF funding  Treasury approved more than $4 0 billion in SBLF financing to 332 lending institutions ($3 9 billion to 281 community banks and $104 million to 51 CDFIs)  SBLF recipients have offices located in 47 states and the District of Columbia  The average financing was $12 1 million, ranging from $42,000 to $141 0 million  Of the 332 lending institutions which received financing, 137 institutions had participated in TARP's Community Development Capital Initiative or its Capital Purchase Program  These institutions received nearly $2 7 billion in SBLF financing (66 8% of the total)  Treasury is required to publish monthly reports describing all transactions made under the SBLF program during the reporting period  It is also required to publish a semiannual report (each March and September) providing all projected costs and liabilities, operating expenses, and transactions made by the SBLF, including a list of all participating institutions and the amounts each institution has received under the program  Treasury must also publish a quarterly report describing how participating institutions have used the funds they have received  SBLF participants must submit an initial supplemental report to Treasury no later than five business days before closing  The report provides information from the institution's FDIC call reports or, for holding companies, from their subsidiaries' FDIC call reports, that Treasury uses to establish an initial baseline for measuring the SBLF participants' progress in making loans to small businesses  The initial baseline is the average amount of qualified small business lending that was outstanding for the four full quarters ending on June 30, 2010  It is derived by first adding the outstanding amount of lending reported for all commercial and industrial loans, owner-occupied nonfarm, nonresidential real estate loans, loans to finance agricultural production and other loans to farmers, and loans secured by farmland  Then, the outstanding amount of lending for large loans (defined as any loan or group of loans greater than $10 million), loans to large businesses (defined as businesses with annual revenues greater than $50 million), and the portion of any loans guaranteed by the U S  government or for which the risk is assumed by a third party is subtracted from that amount  The lending institution then adds back any cumulative charge-offs with respect to such loans since July 1, 2010  This last adjustment is done to prevent lending institutions from being penalized for appropriately charging off loans  Each SBLF participant's small business lending baseline is also adjusted to take into account any gains in qualified small business lending during the four baseline quarters resulting from mergers, acquisitions, and loan purchases  This adjustment is designed to ensure that dividend rate reductions provided to any SBLF participant correspond to additional lending to small businesses and not to the acquisition of existing loans  In addition, the cumulative baseline for all SBLF participants will decrease over time as SBLF participants repay their SBLF loans and exit the program  For example, the initial small business lending baseline for the 332 SBLF participants as of March 31, 2011, was $35 52 billion ($34 75 billion for 281 banks and $770 48 million for 51 CDFIs)  The small business lending baseline for the 50 institutions that continued to participate in the SBLF as of December 31, 2018, was $1 5 billion ($808 8 million for 7 banks and $714 5 million for 43 CDFIs)  Table 3 provides the number and type of SBLF participating institutions, the small business lending baseline, the amount of small business lending by participants, the change in small business lending by participants, and the change in small business lending by both current and former participants from 2011 to 2018  The number of SBLF participating institutions is declining as institutions repay their loans and exit the program  As Treasury anticipated, this decline has accelerated following the first quarter of 2016 because the dividend rates for C corporation banks and savings associations and for S corporation banks and mutual lending institutions were increased at that time (to 9% and 13 8%, respectively)  SBLF institutions are also required to submit quarterly supplemental reports, due in the calendar quarter following submission of the initial supplemental report and in each of the next nine quarters, to determine their dividend rate for the next quarter  Using information contained in the quarterly supplemental reports, Treasury announced in its April 2019 quarterly report on SBLF Participants' Small Business Lending Growth that, as of December 31, 2018 The 50 current SBLF participants (7 banks and 43 CDFIs) increased their small business lending by $1 347 billion over a $1 523 billion baseline  Since inception, the total increase in small business lending reported by both current and former SBLF participants is more than $19 1 billion over the baseline  All seven of the currently participating community banks and 39 of the 43 currently participating CDLFs increased their small business lending over baseline levels  Most current participants report that their small business lending increases have been substantial, with 43 of 50 current SBLF participants (86 0%) increasing small business lending by 10% or more  Treasury officials have praised the SBLF's performance  For example, on October 9, 2012, then-Deputy Secretary of the Treasury Neal Wolin announced that the SBLF quarterly use of funds report released that day "is further indication that the Administration's Small Business Lending Fund is continuing to help create an environment in which entrepreneurial small businesses can succeed and excel " He added that "banks in the SBLF program continue to show large increases in the lending available for small businesses to grow, create jobs, and support families in communities across the country " Some financial commentators have expressed a somewhat less sanguine view of the program's performance  For example, one commentator noted, after the release of the quarterly use of funds report in January 2012, that although the report of increased small business lending was positive news "it is difficult to isolate the proportion of new lending that would have occurred anyway" due to improvements in the economy  Another commentator noted that the data may have been skewed by SBLF participants who were entering the small business lending market for the first time, making the increases appear larger and more significant than they actually are; yet another noted that the reported growth in small business lending occurred over six quarters (since June 30, 2010) and that the results, although positive, are "not as impressive as it may seem " A commentator argued in September 2012 that "if the SBLF ends up being a success story, it will have been on a far smaller scale than either Obama or Congress had originally expected  What's more, it's become clear that even boatloads of financing won't change the fact that demand for the loans themselves has also fallen off, as small businesses themselves are reluctant to expand in a stagnant economy " In addition, on August 29, 2013, Treasury's Office of Inspector General (OIG) released an audit of Treasury's reporting of small business lending gains relative to small business lending levels prior to the lenders' participation in the program  The OIG found that "small business lending gains reported by Treasury are significantly overstated and cannot be linked directly to SBLF funding " Specifically, the OIG noted that "substantial amounts [$3 4 billion of the then reported $8 9 billion] of the reported gains occurred prior to participants receiving SBLF funding " As the OIG explained, the lending gains reported [by Treasury] were measured against the same baseline period that the Small Business Jobs Act of 2010 (the Act) instructs Treasury to use for setting dividend rates for repayment of the SBLF capital, which is the four calendar quarters [which] ended [on] June 30, 2010  However, measuring program performance against a baseline with a midpoint seven quarters prior to when most participants received funding inflates program accomplishments and is not responsive to provisions in the Act that direct Treasury to report on participant use of the SBLF funds received  The OIG also argued that the reported lending gains cannot be directly linked to the SBLF capital that Treasury invested in the financial institutions because the lending gains reported "represent all small business lending gains that institutions participating in the SBLF achieved, regardless of how the loans were funded " In addition, the OIG noted, among other findings, that "a relatively small number (35 or 11%) of SBLF participants accounted for half of small business lending increases between the baseline figure and December 31, 2012 " During the 112 th Congress, several bills were introduced to change the SBLF  None of the bills were enacted  For example, then-Senator Snowe introduced S  681 , the Greater Accountability in the Lending Fund Act of 2011, on March 30, 2011  Senator Snowe argued that While I would prefer to terminate this fund altogether, it is unlikely based on the current political environment, which is why we must work to protect taxpayers from some of its most egregious provisions  My goal with this legislation is to ensure that only healthy banks have access to taxpayer money, that they are required to repay loans within a reasonable period of time, and that small businesses find the affordable credit they need  The bill would have, among other things, required recipients to repay SBLF distributions within 10 years of the receipt of the investment; terminated the program no later than 15 years after the date of the bill's enactment; prohibited the Secretary of the Treasury from making capital investments under the program if the FDIC is appointed receiver of 5% or more of the institutions receiving an investment under the program; prohibited participation by any institution that received an investment under TARP (effective on the date of the bill's enactment); removed provisions allowing the Secretary of Treasury to make a capital investment in institutions that would otherwise not be recommended to receive the investment based on the institution's financial condition, but are able to provide a matching investment from private, nongovernmental investors; required the approval of appropriate financial regulators when determining whether an institution should receive a capital investment; and revised the benchmark against which changes in the amount of small business lending is measured from the four full quarters immediately preceding the date of enactment to calendar year 2007  In addition, H R  1387 , the Small Business Lending Fund Accountability Act of 2011, would have provided the Special Inspector General for TARP responsibility for providing oversight over the SBLF  S Amdt  279 to S  493 , the Small Business Innovation Research, Small Business Technology Transfer Reauthorization Act of 2011, would have prevented TARP recipients from using funds received in any form under any other federal assistance program, including the SBLF program  H R  2807 , the Small Business Leg-Up Act of 2011, would have transferred any unobligated and repaid funds from the SBLF to the Community Development Financial Institutions Fund beginning on the date when the Secretary of the Treasury's authority to make capital investments in eligible institutions expired (on September 27, 2011)  The bill's stated intent was "to increase the availability of credit for small businesses " H R  3147 , the Small Business Lending Extension Act, would have extended the Department of the Treasury's investment authority from one year following enactment to two years and required the Treasury Secretary to provide any institution not selected for participation in the program the reason for the rejection, ensure that the rejection reason remains confidential, and establish an appeal process that provides the institution an opportunity to contest the reason provided for the rejection of its application  During the 113 th Congress, H R  2474 , the Community Lending and Small Business Jobs Act of 2013, would have, among other provisions, transferred any unobligated and repaid funds from the SBLF to the Community Development Financial Institutions Fund  The SBLF was enacted as part of a larger effort to enhance the supply of capital to small businesses  Advocates argued that the SBLF would help to address the decline in small business lending and create jobs  Opponents were not convinced that it would enhance small business lending and worried about the program's potential cost to the federal treasury and its similarities to TARP  Participating institutions are reporting they have increased their small business lending  However, as has been discussed, questions have been raised concerning the validity of these reported amounts  Specifically, as Treasury's OIG argued in its August 2013 audit, more than one-third of the reported lending gains at that time occurred prior to September 30, 2011, the quarter in which most SBLF participants received their SBLF funds; the reported small business lending gains reflect all of the small business lending gains that the participants achieved, regardless of how the loans were funded; and previous OIG audits "have shown that a large number of participants misreport their small business lending activity " In those previous audits, "50% or more of the institutions reviewed submitted erroneous lending data to Treasury, either overstating or understating their small business lending gains " In addition to questions related to the validity of the reported small business lending gains, any analysis of the program's influence on small business lending is likely to be more suggestive than definitive because differentiating the SBLF's effect on small business lending from other factors, such as changes in the lender's local economy, is methodologically challenging, especially given the relatively small amount of financing involved relative to the national market for small business loans  The SBLF's $4 0 billion in financing represents less than 0 7% of outstanding small business loans (as defined by the FDIC)  In terms of the concerns expressed about the program's potential cost, Treasury initially estimated in December 2010 that the SBLF could cost taxpayers up to $1 26 billion (excluding administrative costs that were initially estimated at about $26 million annually but actual outlays were $4 54 million in FY2014, $9 05 million in FY2015, $5 01 million in FY2016, and $3 4 million in FY2017)  Treasury based that estimate on an expectation that about $17 billion in SBLF financings would be disbursed  In October 2011, Treasury estimated the program's costs based on actual participant data  It estimated that the SBLF would generate a savings of $80 million (excluding administrative costs), with the savings coming primarily from a lower-than-expected financing level and, to a lesser extent, improvements in projected default rates "due to higher participant quality than expected" and lower market interest rates  Treasury issues a semiannual report on SBLF costs  In its latest semiannual cost report, released on August 16, 2018, Treasury estimated that the SBLF will "generate a lifetime positive return of $31 million [excluding administrative costs] for the Treasury General Fund " One issue that arose relative to the program's projected cost is the noncumulative treatment of dividends  Treasury's OIG reported in May 2011 that Under the terms set by legislation, dividend payments are non-cumulative, meaning that institutions are under no obligation to make dividend payments as scheduled or to pay off previously missed payments before exiting the program  This dividend treatment differs from the TARP programs, in which many dividend payments were cumulative  This change in dividend treatment was driven by changes in capital requirements mandated by the Collins Amendment to the Dodd-Frank Act  The amendment equalizes the consolidated capital requirements for Tier 1 capital of bank holding companies by requiring that, at a minimum, regulators apply the same capital and risk standards for FDIC-insured banks to bank holding companies  Under TARP, the FRB [Federal Reserve Board] and FDIC treated capital differently at the holding company and depository institution levels  The FRB treated cumulative securities issued by holding companies as Tier 1 capital, while FDIC treated non-cumulative securities issued by depository institutions as Tier 1 capital  In order to comply with the Dodd-Frank Act requirement that securities purchased from holding companies receive the same capital treatment as those purchased from depository institutions, Treasury made the dividends under SBLF non-cumulative  Additionally, given that Tier 1 capital must be perpetual and cannot have a mandatory redemption date, the 10-year repayment period in the Small Business Jobs Act cannot be enforced  Treasury addressed this issue by placing the following additional requirements and restrictions on participants who miss dividend payments: the participant's CEO [Chief Executive Office] and CFO [Chief Financial Officer] must provide written notice regarding the rationale of the board of directors (BOD) for not declaring a dividend; no repurchases may be affected and no dividends may be declared on any securities for the applicable quarter and the following three quarters; after four missed payments (consecutive or not), the issuer's BOD must certify in writing that the issuer used best efforts to declare and pay dividends appropriately; after five missed payments (consecutive or not), Treasury may appoint a representative to serve as an observer on the issuer's BOD; and after six missed payments (consecutive or not), Treasury may elect two directors to the issuer's BOD if the liquidation preference is $25 million or more  Treasury's OIG agreed that Treasury's equity investment policy is consistent with the legislation and that "it has reasonably structured the program to incentivize payment of dividends " However, it recommended that "Congress consider whether an amendment to the Small Business Jobs Act and/or waiver from the Collins Amendment to the Dodd-Frank Act is needed to make the repayment of dividends a requirement for exiting the program " In conclusion, congressional oversight of the SBLF is currently focused on the program's potential long-term costs and effects on small business lending  Underlying those concerns are fundamental disagreements regarding the best way to assist small businesses  Some advocate the provision of additional federal resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations and create jobs  Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit  They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small businesses and create jobs  The SBLF's Legislative Origin On March 16, 2009, President Obama announced the first SBLF-like proposal  Under that proposal, the Department of the Treasury would have used TARP funds to purchase up to $15 billion of SBA-guaranteed loans  The purchases were intended to "immediately unfreeze the secondary market for SBA loans and increase the liquidity of community banks " The plan was dropped after it met resistance from lenders  Some lenders objected to TARP's requirement that participating lenders comply with executive compensation limits and issue warrants to the federal government  Smaller, community banks objected to the program's paperwork requirements, such as the provision of a small-business lending plan and quarterly reports  In his January 2010 State of the Union address, President Obama proposed the creation of a $30 billion SBLF to enhance access to credit for small businesses: When you talk to small business owners in places like Allentown, Pennsylvania, or Elyria, Ohio, you find out that even though banks on Wall Street are lending again, they're mostly lending to bigger companies  Financing remains difficult for small business owners across the country, even those that are making a profit  Tonight, I'm proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat  In response to the opposition community lenders had expressed concerning TARP's restrictions in 2009, the Obama Administration proposed that Congress approve legislation authorizing the transfer of up to $30 billion in TARP spending authority to the SBLF and statutorily establish the new program as distinct and independent from TARP and its restrictions  The Administration's legislative proposal was finalized and sent to Congress on May 7, 2010  Representative Barney Frank, then-chair of the House Committee on Financial Services, introduced H R  5297 , the Small Business Lending Fund Act of 2010, on May 13, 2010  The House Committee on Financial Services held a hearing on H R  5297 on May 18, 2010, and passed the bill, as amended to include a State Small Business Credit Initiative, the following day  The House passed the bill, as amended to include a Small Business Early-Stage Investment Program, a Small Business Borrower Assistance Program, and some small business tax reduction provisions, on June 17, 2010  The House-Passed Version of the SBLF Title I of the House-passed version of H R  5297 authorized the Secretary of the Treasury to establish a $30 billion SBLF "to address the ongoing effects of the financial crisis on small businesses by providing temporary authority to the Secretary of the Treasury to make capital investments in eligible institutions" with total assets equal to or less than $1 billion or $10 billion (as of the end of the fourth quarter of calendar year 2009) "in order to increase the availability of credit for small businesses " The authority to make capital investments in eligible institutions was limited to one year after enactment  Eligible financial institutions having total assets equal to or less than $1 billion as of the end of the fourth quarter of calendar year 2009 could apply to receive a capital investment from the SBLF in an amount not exceeding 5% of risk-weighted assets, as reported in the FDIC call report immediately preceding the date of application  During the fourth quarter of 2009, 7,340 FDIC-insured lending institutions reported having assets amounting to less than $1 billion  Eligible financial institutions having total assets equal to or less than $10 billion as of the end of the fourth quarter of calendar year 2009 could apply to receive a capital investment from the fund in an amount not exceeding 3% of risk-weighted assets, as reported in the FDIC call report immediately preceding the date of application  During the fourth quarter of 2009, 565 FDIC-insured lending institutions reported having assets of $1 billion to $10 billion  Risk-weighted assets are assets such as cash, loans, investments, and other financial institution assets that have different risks associated with them  FDIC regulations (12 C F R  §567 6) establish that cash and government bonds have a 0% risk-weighting; residential mortgage loans have a 50% risk-weighting; and other types of assets (such as small business loans) have a higher risk-weighting  Lending institutions on the FDIC problem bank list or institutions that have been removed from the FDIC problem bank list for less than 90 days were ineligible to participate in the program  Lending institutions could refinance securities issued through the Treasury Capital Purchase Program (CPP) and the Community Development Capital Incentive (CDCI) program under TARP, but only if the institution had not missed more than one dividend payment due under those programs  Participating banks would be charged a dividend rate of no more than 5% per annum initially, with reduced rates available if the bank increased its small business lending  For example, during any calendar quarter in the initial two years of the capital investments under the program, the bank's rate would be lowered if it had increased its small business lending compared to the average small business lending it made in the four previous quarters immediately preceding the enactment of the bill, minus some allowable adjustments  A 2 5% to less than 5% increase in small business lending would have lowered the rate to 4%, a 5% to less than 7 5% increase would have lowered the rate to 3%, a 7 5% to less than 10% increase would have lowered the rate to 2%, and an increase of 10% or greater would have lowered the rate to 1%  Table A-1 shows the dividend rates associated with small business lending increases for C corporation banks and savings institutions under H R  5297   These rates were subsequently included in the final law  The bill also authorized the Secretary of the Treasury to adjust these dividend rates for S corporations "to take into account any differential tax treatment of securities issued by such eligible institution " Also, Community Development Financial Institutions were to be charged a dividend rate of 2% per annum for eight years, and 9% thereafter  SBLF applicants were also required to submit a small business lending plan to the appropriate federal banking agency and, for applicants that are state-chartered banks, to the appropriate state banking regulator  The plan was to describe how the applicant's business strategy and operating goals will allow it to address the needs of small businesses in the areas it serves, as well as a plan to provide linguistically and culturally appropriate outreach, where appropriate  The plan was to be treated as confidential supervisory information  The Secretary of the Treasury was required to consult with the appropriate federal banking agency or, in the case of an eligible institution that is a nondepository community development financial institution, the Community Development Financial Institution Fund, before determining if the eligible institution was to participate in the program  The bill specified that the SBLF would be "established as separate and distinct from the Troubled Asset Relief Program established by the Emergency Economic Stabilization Act of 2008  An institution shall not, by virtue of a capital investment under the Small Business Lending Fund Program, be considered a recipient of the Troubled Asset Relief Program " The bill also directed that all funds received by the Secretary of the Treasury in connection with purchases made by the SBLF, "including interest payments, dividend payments, and proceeds from the sale of any financial instrument, shall be paid into the general fund of the Treasury for reduction of the public debt " The Senate-Passed Version of the SBLF Title IV of the Senate-passed version of H R  5297 , which later became law, authorized the Secretary of the Treasury to establish a $30 billion SBLF to make capital investments in eligible community banks with total assets equal to or less than $1 billion or $10 billion  There were several differences between the Senate-passed version of H R  5297 's SBLF provisions and the SBLF provisions in the House-passed version of H R  5297   Specifically, the House-passed version of H R  5297 indicated that eligible institutions may be insured depository institutions that are not controlled by a bank holding company or a savings and loan holding company that is also an eligible institution and is not directly or indirectly controlled by any company or other entity that has total consolidated assets of more than $10 billion, bank holding companies, savings and loan holding companies, community development financial institution loan funds, and small business lending companies, all with total assets of $10 billion or less (as of the end of 2009)  The Senate-passed version of H R  5297 did not provide eligibility to small business lending companies  House-passed version of H R  5297 defined small business lending "as small business lending as defined by and reported in an eligible institution's quarterly call report, where each loan comprising such lending is made to a small business and is one the following types: (1) commercial and industrial loans; (2) owner-occupied nonfarm, nonresidential real estate loans; (3) loans to finance agricultural production and other loans to farmers; (4) loans secured by farmland; (5) nonowner-occupied commercial real estate loans; and (6) construction, land development and other land loans " The Senate-passed version of H R  5297 's definition of small business lending did not include nonowner-occupied commercial real estate or construction, land development and other land loans  Senate-passed version of H R  5297 had an exclusion provision prohibiting recipient lending institutions from using the funds to issue loans that have an original amount greater than $10 million or that would be made to a business with more than $50 million in revenues  The House-passed version of H R  5297 did not contain this provision  House-passed version of H R  5297 indicated that the incentives received in the form of reduced dividend rates during the first 4 5-year period following the date on which an eligible institution received a capital investment under the program would be contingent on an increase in the number of loans made  If the number of loans made by the institution did not increase by 2 5% for each 2 5% increase of small business lending, then the rate at which dividends and interest would be payable during the following quarter on preferred stock or other financial instruments issued to the Treasury by the eligible institution would be (i) 5%, if this quarter is within the two-year period following the date on which the eligible institution received the capital investment under the program; or (ii) 7%, if the quarter is after the two-year period  The Senate-passed version of H R  5297 did not contain this legislative language  House-passed version of H R  5297 included an alternative computation provision that would have allowed eligible institutions to compute their small business lending amounts for incentive purposes as if the definition of their small business lending amounts did not require that the loans comprising such lending be made to small business  This alternative computation would have been allowed if the eligible institution certified that all lending included by the institution for purposes of computing the increase in lending was made to small businesses  The Senate-passed version of H R  5297 did not contain this provision  House-passed version of H R  5297 indicated that an eligible institution that is a community development loan fund may apply to receive a capital investment from the SBLF in an amount not exceeding 10% of total assets, as reported in the audited financial statements for the fiscal year of the eligible institution that ended in calendar year 2009  The Senate-passed version of H R  5297 specifies 5%  House-passed version of H R  5297 would have required the Secretary of the Treasury, in consultation with the Community Development Financial Institutions Fund, to develop eligibility criteria to determine the financial ability of a Community Development Loan Fund to participate in the program and repay the investment  It provided a list of recommended eligibility criteria that the Secretary of the Treasury could use for this purpose  The Senate-passed version of H R  5297 provided a similar, but mandatory, list of eligibility criteria that must be used for this purpose  House-passed version of H R  5297 contained a temporary amortization authority provision which would have allowed an eligible institution to amortize any loss or write-down on a quarterly straight-line basis over a period of time, adjusted to reflect the institution's change in the amount of small business lending relative to the baseline  The Senate-passed version of H R  5297 did not contain this provision  The Senate's version of H R  5297 was agreed to in the Senate on September 16, 2010, after considerable debate and amendment to remove the Small Business Early-Stage Investment Program and Small Business Borrower Assistance Program, revise the SBLF, and add numerous other provisions to assist small businesses, including additional small business tax reduction provisions  The House agreed to the Senate amendments on September 23, 2010, and President Obama signed the bill, retitled the Small Business Jobs Act of 2010 ( P L  111-240 ), into law on September 27, 2010 

ground_truth: The United States is a member of the OAS, PAHO, IICA, and PAIGH, which promote democracy, health care, agricultural development, and scientific exchange. GAO was asked to review U.S. assistance to these four organizations. In this report, GAO (1) assesses the extent to which the organizations' strategic goals align with those of U.S. agencies; (2) examines how the organizations oversee the use of their funds and the extent to which U.S. agencies have supported those efforts; (3) assesses the extent to which U.S. agencies included key monitoring provisions as part of assistance agreements; and (4) assesses the extent to which U.S. agencies had documentation of monitoring activities, including those called for by these provisions. GAO analyzed documents and interviewed officials from State, USAID, HHS, USDA, and the organizations. GAO also analyzed a nongeneralizable sample of 12 of the 60 assistance agreements that were awarded by State, USAID, HHS, and USDA to OAS, PAHO, and IICA and were active during calendar years 2014 through 2016. For each agency, GAO selected three agreements with the lowest, median, and highest dollar value. GAO found that strategic goals of the Organization of American States (OAS), the Pan American Health Organization (PAHO), the Inter-American Institute for Cooperation on Agriculture (IICA), and the Pan-American Institute of Geography and History (PAIGH) are predominantly aligned with the strategic goals of the Department of State (State), the U.S. Agency for International Development (USAID), the Department of Health and Human Services (HHS), and the U.S. Department of Agriculture (USDA). For example, IICA's strategic goals of a productive agricultural sector, enhancing agricultural development, and food security are aligned with USDA's foreign assistance goals. State, USAID, HHS, and USDA fund activities in the form of assistance agreements (e.g., grants and cooperative agreements) with OAS, PAHO, and IICA, which in 2016 totaled $32 million. According to agency officials, the agencies employ mechanisms to ensure that these agreements align with U.S. strategic goals. OAS, PAHO, IICA, and PAIGH have established mechanisms for overseeing their use of funds, such as external auditors, internal audit boards, and anti-fraud and ethics policies. State and USDA have directly supported these mechanisms. For example, State engaged in the selection process for OAS's Inspector General. GAO's review of 12 selected assistance agreements found that USDA included no financial or performance monitoring provisions in one of its agreements and that State did not include two key monitoring provisions in one of its agreements, called for by applicable guidance. GAO found that the remaining 10 agreements it reviewed contained all key monitoring provisions and that State has since taken corrective action. GAO found that U.S. agencies did not have full documentation of 18 of the 42 monitoring activities required by the 12 assistance agreements GAO reviewed (see table). For example, USDA did not have full documentation, such as for financial reports, of any of its 10 required monitoring activities and USDA officials did not explain their lack of documentation. USAID officials explained that their lack of full documentation was due, in part, to grant officers not always following their document management policies. State and HHS have since taken corrective action. If an agency does not have full documentation of monitoring activities, it may lack information needed to make appropriate budgetary and programmatic decisions. GAO recommends that (1) USDA ensure inclusion of all monitoring provisions as part of agreements and (2) USAID and USDA ensure full documentation of monitoring activities. USDA and USAID concurred with GAO's recommendations.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: The U S  government engages with the governments of other countries in the Western Hemisphere through various inter-American organizations including the OAS, PAHO, IICA, and PAIGH  According to State, the OAS is the primary inter-American political forum through which the United States engages with other countries in the Western Hemisphere to promote democracy, human rights, security, and development  PAHO serves as the Regional Office for the Americas of the World Health Organization, the United Nations agency on health  IICA supports agricultural development and rural well-being through technical cooperation and the execution of agricultural projects throughout the hemisphere  PAIGH specializes in regional cartography, geography, history, and geophysics and has facilitated the settlement of regional border disputes  According to U S  agency officials, the organizations’ regional knowledge and technical expertise make them effective implementing partners for projects serving U S  national interests and priorities throughout the hemisphere  Member states collectively finance these organizations by providing assessed and voluntary contributions (see table 1)  For each organization, its member states’ assessed contributions are intended to finance the organization’s regular budgets, which generally cover the organization’s day-to-day operating expenses, such as facilities and salaries  Member states also finance certain OAS, PAHO, and IICA activities and projects through voluntary contributions  According to U S  officials, the United States provides voluntary contributions to the OAS, PAHO, and IICA primarily through assistance agreements for specific projects from State, USAID, HHS, and USDA  The Institute of Internal Auditors (IIA) provides the framework for international organizations to oversee funds such as the assessed contributions provided by member states to OAS, PAHO, IICA, and PAIGH  The institute’s authoritative guidance, International Standards for the Professional Practice of Internal Auditing, includes mandatory performance standards that describe the nature of internal audit activities and provide criteria for evaluating these activities  Organizations are required to subscribe to these IIA standards, according to PAIGH officials and OAS, PAHO, and IICA documents  Assistance agreements are a critical tool the U S  government uses to achieve important national objectives  As we have previously reported, effective oversight and internal control are important to provide reasonable assurance to federal managers and taxpayers that assistance agreements are awarded properly, recipients are eligible, and federal funds are used as intended and in accordance with applicable laws and regulations  State, USAID, HHS, and USDA oversee funds provided to OAS, PAHO, and IICA through assistance agreements using monitoring activities such as financial and performance reports  Within each of these agencies, various bureaus and offices are responsible for awarding and managing assistance agreements to these inter-American organizations, including State’s Office of Weapons Removal and Abatement in the Bureau of Political-Military Affairs, USAID’s Office of U S  Foreign Disaster Assistance, HHS’s Centers for Disease Control and Prevention and its Food and Drug Administration, and USDA’s Animal and Plant Health Inspection Service  The documentation of these monitoring activities as called for by federal standards for internal control enables the agencies to determine the effectiveness of the agreement activity  We found that the strategic goals of the four inter-American organizations are predominantly aligned with the high-level strategic goals for the Western Hemisphere documented by State, USAID, HHS, and USDA  According to officials, the agencies all consider U S  strategic goals when deciding which projects to fund at OAS, PAHO, and IICA  State, USAID, HHS, and USDA have goals for foreign assistance to the Western Hemisphere, as shown in table 2  For example, four of the five goals in State and USAID’s Joint Strategy correspond with goals at the OAS, IICA, and PAIGH  U S  agencies, on an ongoing basis, evaluate each inter- American organization to ensure U S  and organization goals are aligned  Officials from all four agencies provided examples of how they help to ensure alignment of U S  strategic goals when funding projects at OAS, PAHO, and IICA  State: According to State officials, State created an Annual Performance and Budget Review process in 2014 specifically to review entities, such as the OAS, that receive voluntary contributions funded through the International Organization and Programs account  This process examines performance of State-funded activities relative to those activities from the previous year and the extent to which the activities advance U S  priorities and objectives  State officials further noted that the Annual Performance and Budget Review helps inform State’s decision-making on what to include in the following year’s budget request  For example, during the 2016 review for the OAS Development Assistance Program, State reported the program’s significant activities, funds expended, and achievements such as training government officials on successful small business policies in the United States  USAID: According to USAID officials, USAID’s project design and approval policies and procedures ensure that all USAID-funded activities are linked to applicable U S  and USAID strategies  USAID’s agency guidance requires, at a minimum, that each project or activity must be formally approved in writing by the relevant Mission Director or Principal Officer for a given program  Officials stated that this approval memo and supporting documentation address a number of planning considerations, including how the proposed activity aligns with broader strategies  Furthermore, officials stated that USAID’s lawyers review project approval documentation prior to final approval and verify that the activity complies with all applicable statutes, regulations, and policies  HHS: According to HHS officials, HHS engages with PAHO on its Biennial Work Plans, which are operational planning instruments that PAHO uses to identify activities that it can implement within each of its member states  HHS officials noted that they use PAHO’s Biennial Work Plan to strengthen U S  approaches on issues of common concern and to advance U S  priorities within the region  According to HHS officials, proposals for technical cooperation projects are required to correspond to one of the technical priorities in PAHO’s strategic plan for 2014–2019 and to be aligned with the HHS global strategy and U S  priorities  USDA: USDA officials said that they compare the U S  strategic goals with IICA’s goals and objectives when they formulate project proposals with IICA to ensure that the projects are aligned with U S  priorities for the region  Additionally, USDA officials told us that USDA helped shape and influence IICA’s recent 10-year strategic plan, ensuring that IICA’s strategic objectives were closely aligned with U S  strategic goals  OAS, PAHO, IICA, and PAIGH have established mechanisms for overseeing their use of assessed and voluntary contributions, such as external auditors and internal audit boards as required by IIA standards  State and USDA have directly supported these oversight mechanisms  OAS, PAHO, IICA, and PAIGH have oversight mechanisms, as shown in table 3  The four organizations follow the internal control standards of the IIA, codified in the International Standards for the Professional Practice of Internal Auditing, according to PAIGH officials and OAS, PAHO, and IICA documents  All four organizations have internal and external auditors, as required by these standards  Furthermore, OAS, PAHO, and IICA have additional oversight mechanisms, such as anti-fraud policies and program evaluation processes  The officials we interviewed from State, USAID, HHS, and USDA expressed confidence in the four organizations’ management of their assessed and voluntary contributions  All four organizations document the status of their financial and internal control activities in audit reports posted on their public websites  For example, the OAS Office of the Inspector General’s April 2017 Annual Report included an update on its five ongoing audits and investigations  The report also outlined progress made against prior recommendations  U S  agency officials support budget and administrative subcommittees in three of the four organizations and promote the participation of U S  experts on independent audit committees, as shown in table 4  For example, according to officials, State plays a significant role in promoting policies on oversight and accountability at the four organizations through formal engagement in deliberations and decision-making of each organization’s governing body and through informal engagement with other member states and the secretariat by recommending best practices in governance, management, and oversight  State and USDA are also directly involved in implementing some of the additional oversight mechanisms at the organizations  For example, a USDA official serves as a member of IICA’s Audit Review Committee  Additionally, an IICA official told us the United States was involved in defining IICA’s Convention and Rules of Procedure for its governing bodies, which established the requirement for internal and external auditing  According to State officials, the United States led efforts to strengthen oversight at several of the organizations under review in recent years, such as advocating for the creation of an ethics officer position at PAHO, proposing language to strengthen the authority and independence of the OAS’s Office of the Inspector General, and encouraging the creation of audit committees at both organizations  In addition, State has played a lead role in supporting the ongoing reform of the OAS administration, which includes improved oversight and accountability, according to officials from the OAS and the U S  Mission to the OAS  We reviewed 12 selected assistance agreements that the four U S  agencies awarded to OAS, PAHO, and IICA that were active during calendar years 2014 through 2016, and found that two agencies did not consistently include all key monitoring provisions in their agreements  While HHS and USAID implemented applicable guidance by including all key monitoring provisions in their agreements, USDA and State did not do so  USDA and State agency officials did not explain why USDA and State did not include these monitoring provisions in their agreements  However, State has since taken corrective action to ensure that they are included in future agreements, according to State officials  Applicable agency guidance calls for agencies to conduct monitoring activities as part of their oversight of their agreements  Each of the four agencies has established agency-specific guidance that outlines the monitoring activities for assistance agreements  In some cases, the agency-specific guidance may mandate additional monitoring activities beyond those called for in applicable federal regulations, such as risk assessments  For example, State’s guidance calls for the creation of a monitoring plan  Federal standards for internal control require that agencies include in agreements all key provisions delineating the parties’ responsibilities  For the 12 agreements we reviewed, the number of total key monitoring provisions per agreement varied—including within one agency—depending on when the agency issued and updated its guidance relative to when the agreements were approved  Federal standards for internal control call for agencies to document internal controls, transactions, and significant events  Specifically, internal control standards state that agency management should include internal control activities (e g , monitoring activities) in policies or directives for transactions such as assistance agreements  For the 12 assistance agreements we reviewed, USDA and State did not include provisions implementing 6 of the 55 total (11 percent) applicable monitoring activities required by applicable guidance to carry out required monitoring activities (see table 5)  State took corrective action in 2015 by issuing a standard operating procedure  USDA: USDA did not include 4 of the 13 key monitoring provisions implementing the applicable guidance for the three USDA agreements we reviewed (see table 6)  Two of the agreements and supporting documentation each included all four key applicable monitoring provisions  However, Agreement 2 in the table did not include 4 of the 5 monitoring provisions in the agreement or work plan, which documents the monitoring provisions  The agreement partially included performance goals, because it included objectives for the agreement’s activities, but did not include time frames to complete all of the activities  The USDA grant official did not explain why the work plan did not adhere to applicable federal regulations when it was drafted and approved  State: State did not include 2 of the 21 key monitoring provisions implementing the applicable guidance for the three State agreements we reviewed (see table 7)  Two of the agreements and supporting documentation we reviewed included the 7 monitoring provisions implementing the requirements in the applicable agency guidance  However, one agreement awarded in 2012 did not include 2 of the provisions: a risk assessment and a monitoring plan  That office that awarded this agreement took corrective action in 2015 by issuing a standard operating procedure requiring that risk assessments and monitoring plans accompany its grants and cooperative agreements  USAID: USAID included both key monitoring provisions implementing the applicable guidance for the three USAID agreements we reviewed (see table 8)  USAID’s Automated Directives System 308, Standard Provisions for Cost-Type Awards to Public International Organizations contains two key monitoring provisions for agreements  USAID incorporated the monitoring provisions nearly verbatim into the agreements we reviewed, using templates from this guidance for required terms and conditions  HHS: HHS included the 15 monitoring provisions implementing the applicable guidance for the three HHS agreements we reviewed (see table 9)  None of the agencies provided us with full documentation to demonstrate their adherence to the required monitoring activities called for in all of their agreements that we reviewed, including the previously mentioned key monitoring provisions that we reviewed  State and HHS have taken corrective actions to address the gaps we found in documentation for the agreements we reviewed  Agency officials told us that they use these monitoring documents, such as financial and progress reports, to inform future budgetary and programmatic decisions  Therefore, they may lack information needed to make such decisions if they do not have access to complete monitoring documentation  According to federal standards for internal control, each agency is to include key monitoring provisions as part of its agreements  In the individual assistance agreements, the agencies specify the requirements to fulfill these activities, such as requiring financial reports on a quarterly basis or including specific information in performance reports  Grants officers at times, if they deem it necessary or appropriate, include additional monitoring provisions requiring activities beyond those required by the applicable guidance, such as site visits  Federal standards for internal control call for agency management to design monitoring activities, such as financial and performance reporting, so that all transactions are completely and accurately recorded  Recording these activities maintains their relevance and value to management in controlling operations and making decisions  Without access to complete monitoring documentation, the agencies risk weakening the effectiveness of these controls  None of the four U S  agencies had full documentation of all of the monitoring activities required by their agreements we reviewed (see table 10)  The agencies did not have full documentation of monitoring activities for 9 of the 12 agreements we reviewed  For the 42 monitoring activities identified across all of the individual agreements, the four agencies did not have full documentation of 18 of the activities (43 percent)  However, State took corrective action in May 2017 to address its gaps in documentation, and according to HHS officials, the Food and Drug Administration addressed its gap in documentation by implementing its agreement monitoring program in fiscal year 2018  USDA did not have full documentation of any of the 10 monitoring activities we identified (see table 11)  USDA demonstrated that it had partially documented 2 of the 10 monitoring activities (20 percent) by providing us with some, but not all, quarterly performance reports  For one of the agreements, USDA had no documentation of the monitoring activities for that agreement  For its other two agreements, USDA did not have full documentation of the required monitoring activities  USDA officials did not explain why they did not have full documentation  Without full documentation of the required monitoring activities, USDA may not have the information it needs to make appropriate budgetary and programmatic decisions  USAID did not have full documentation of 2 of the 11 total monitoring activities (18 percent) we identified across the three agreements we reviewed (see table 12)  USAID had partial documentation of those 2 monitoring activities  For example, USAID provided us with some, but not all, records such as financial reports required by the terms of the monitoring activities in the agreements  According to USAID officials, the agencies’ lack of complete monitoring documentation was in part due to agency officials not following some of their agency’s requirements for managing agreement documents, such as placing all documents in a shared document management system  For example, for one of the agreements we reviewed, USAID officials stated that they stored some agreement documentation electronically—such as modifications, correspondence with the agreement recipient, and quarterly financial reports—but primarily maintained paper files  USAID officials told us they use the monitoring documents of these agreements, such as financial and progress reports, to inform future budgetary and programmatic decisions  For example, according to USAID officials, USAID uses monitoring documents to identify and address potential project delays or other “red flags ” For one of the agreements we reviewed, USAID officials stated these monitoring reports also assist them in determining whether to award additional funds and establish new indicators in subsequent agreements  Without full documentation of the required monitoring activities, USAID may not have the information it needs to make appropriate budgetary and programmatic decisions  State did not have full documentation for 5 of the 16 monitoring activities (31 percent) we identified across the three agreements we reviewed (see table 13)  However, State had partial documentation of 4 of those 5 monitoring activities  For example, State had some, but not all, records such as standard reporting metrics, required by the terms of the monitoring activities in one of the agreements  State did not have documentation of one of the monitoring activities (site visits)  According to State officials, the agency’s lack of complete monitoring documentation was in part due to agency officials not following some of the agency’s requirements for managing agreement documents, such as placing all documents in a shared document management system  For example, according to State officials, for one of the agreements we reviewed, the grants officer mistakenly had saved site visit reports and similar documents to personal folders because the officer did not know how to use State’s grant document storage system  As a result, neither the current grants officer nor other State officials could retrieve these documents  In May 2017, after awarding the agreements we reviewed, State took corrective action by issuing the Federal Assistance Directive to establish internal guidance, policies, and procedures for all domestic and overseas grant-making bureaus, offices, and posts within the department when administering federal financial assistance  The directive notes that State implemented a grant management system for domestic and overseas grants to resolve its “significant deficiency in the management of Federal financial assistance ” In addition, the directive indicates that officials from State’s Bureau of Administration, Office of the Procurement Executive, Federal Assistance Division will evaluate compliance with risk assessment requirements and review documentation for selected agreements each fiscal year  One of the stated purposes of these reviews is to mitigate risk by strengthening management and oversight of awards, including grants  According to a State Office of Inspector General report, State should complete the full deployment of this system for overseas grants in fiscal year 2019  HHS did not have full documentation of 1 of the 5 applicable monitoring activities (20 percent) we identified across the three agreements we reviewed (see table 14)  HHS had partial documentation of the semiannual progress report activity for one of its agreements, required by the terms of its agreement  HHS officials did not explain why they did not have full documentation for this monitoring activity  HHS had full documentation of all applicable monitoring activities for the other two agreements we reviewed  According to agency officials, the Food and Drug Administration, which administered one of the HHS agreements we reviewed, has taken corrective action to evaluate its agreement documentation and address deficiencies  According to HHS officials, the Food and Drug Administration developed a pilot program intended to provide an additional layer of oversight to ensure adherence to the terms of each agreement  Under the pilot, officials said, a grant monitoring specialist reviews the agreement documentation and monitoring reports to identify agreements that need additional assistance  According to HHS officials, the Food and Drug Administration implemented this program in fiscal year 2018 and will eventually include all Food and Drug Administration agreements  U S  assistance agreements for projects with inter-American organizations further U S  strategic goals in the Western Hemisphere, but State, HHS, USAID, and USDA did not consistently include all key monitoring provisions as part of their assistance agreements or demonstrate that they had full documentation of monitoring activities for the agreements we reviewed  Of these four agencies, USAID and USDA have not taken corrective actions  Monitoring the implementation of U S  assistance agreements and fully documenting the results of such monitoring are key management controls to help ensure that U S  agreement recipients use federal funds appropriately and effectively  The agencies risk weakening the effectiveness of these controls by not including all key monitoring provisions called for by applicable agency guidance  Further, if the agencies do not have full documentation of the agreements’ required monitoring activities, they may not be able to effectively manage federally funded projects that support U S  strategic goals  In addition, agencies may not have all the information they need to make budgetary and programmatic decisions  We are making a total of three recommendations: one to USAID and two to USDA  The USAID Administrator should ensure that USAID officials have full documentation of required monitoring activities in agreements with inter- American organizations  (Recommendation 1) The Secretary of Agriculture should ensure that USDA includes all key monitoring provisions specified by applicable guidance as part of agreements with inter-American organizations  (Recommendation 2) The Secretary of Agriculture should ensure that USDA officials have full documentation of required monitoring activities in agreements with inter- American organizations  (Recommendation 3) We provided a draft of this report for comment to State, USAID, HHS, and USDA  USDA concurred with our recommendations in an e-mail  In its written comments, reproduced in appendix IV, USAID stated that it has policies, procedures, and training in place for the officials who manage these agreements  In response to our recommendations, USAID stated that it will issue an agency notice to remind all such officials of these responsibilities, including the requirement to maintain complete files for each agreement  State and HHS did not provide formal comments  They did provide technical comments, which we incorporated as appropriate  As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of State, the Administrator of the U S  Agency for International Development, the Secretary of Health and Human Services, and the Secretary of Agriculture  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have questions about this report, please contact me at (202) 512-9601, or melitot@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix V  Congressional requesters asked us to review several issues related to the Organization of American States (OAS), the Pan American Health Organization (PAHO), the Inter-American Institute for Cooperation on Agriculture (IICA), and the Pan-American Institute of Geography and History (PAIGH)  In this report, we (1) assess the extent to which the organizations’ strategic goals align with those of U S  agencies; (2) examine how the organizations oversee the use of their funds and the extent to which U S  agencies have supported those efforts; (3) assess the extent to which U S  agencies included key monitoring provisions as part of their assistance agreements; and (4) assess the extent to which U S  agencies had documentation of monitoring activities, including those called for by these provisions  To address the first objective, we gathered documentation and interviewed officials from the four U S  agencies and the four organizations to determine the U S  strategic goals for foreign assistance to the Western Hemisphere and the goals of the four organizations  According to Department of State (State) and U S  Agency for International Development (USAID) officials, the strategic document that underpins their foreign assistance priorities for the region is The Department of State’s Bureau of Western Hemisphere Affairs’ and USAID’s Bureau for Latin American and Caribbean Affairs’ Joint Regional Strategy  Department of Health and Human Services (HHS) officials said that HHS’s relevant strategic document is The Global Strategy of the U S  Department of Health and Human Services  U S  Department of Agriculture’s (USDA) strategic goals for foreign assistance, according to officials, are outlined in the United States Department of Agriculture Strategic Plan FY2015–2018  The OAS outlined its strategic goals in the Comprehensive Strategic Plan of the Organization, adopted on October 31, 2016  PAHO’s goals are laid out in Strategic Plan of the Pan American Health Organization 2014–2019  IICA’s strategic document is the IICA 2010–2020 Strategic Plan, which took effect in October 2010  PAIGH’s strategic document is the Declaration and Guide for the Pan American Agenda 2010-2020  We compared the strategic goals articulated by the four organizations against U S  strategic goals to assess the extent to which the organizations’ goals contribute to U S  interests in the region  We then interviewed officials from the four agencies and reviewed relevant documentation on efforts they undertake to ensure that U S -funded activities align with U S  strategic goals  To address the second objective, we reviewed documentation of the organizations’ internal control mechanisms and confirmed our findings with the organizations  We identified mechanisms to include policies, directives, rules, practices, and organizational structures that can have an oversight role in the use of the organizations’ funds  We also interviewed officials from State, USAID, HHS, and USDA to discuss their support of these mechanisms  To address the third objective, we identified 60 active assistance agreements that these agencies oversaw with OAS, PAHO, and IICA during calendar years 2014 through 2016 and selected a nongeneralizable sample of 12 agreements, three each from State, USAID, HHS, and USDA  To determine which agreements we would review for each agency, we selected the three agreements with the lowest, median, and highest dollar value  If any of an agency’s agreements supported the same country or activity or were for one-time projects such as seminars, we selected the next appropriate agreement based on dollar value  For these selected agreements, we then identified the applicable agency guidance for monitoring activities in the agreements, which we define as all documents related to each agreement provided to us by the agencies, such as monitoring reports  The number of key monitoring provisions varied—even within each agency—depending on when agency guidance was issued and updated relative to when the agreements were approved  USDA did not have applicable internal agency-specific guidance for monitoring of assistance agreements at the time it awarded the agreements we reviewed; thus, with USDA’s input, we used the applicable sections of the Code of Federal Regulations, which together have five key monitoring provisions for agreements  However, USDA approved two of the agreements in 2012 and the third agreement in 2016, and this third agreement was subject to an amended version of the Code of Federal Regulations, which added an additional provision for performance goals  State’s four applicable grants policy directives have seven key monitoring provisions for agreements that were applicable at the time the agreements we reviewed were approved  USAID’s Standard Provisions for Cost-Type Awards to Public International Organizations (PIOs): A Mandatory Reference to ADS Chapter 308 has two key monitoring provisions for agreements: audits and records, and the organization’s adherence to their rules  HHS’s grants policy has five key monitoring provisions for grant documentation  We identified key monitoring provisions for agencies to include as part of agreements to ensure oversight of the use of funds, such as financial and progress reports  For the 12 agreements in our sample, we analyzed the assistance agreements from the four agencies, and then determined the extent to which the agencies’ agreements included key monitoring provisions implementing monitoring activities called for by applicable agency guidance  We did not include subsequent amendments to these 12 agreements in our review of key monitoring provisions  We interviewed officials from State, USAID, HHS, and USDA (1) to confirm we were applying the appropriate federal or agency guidance and (2) to discuss instances in which the agreements did not include key monitoring provisions  To address the fourth objective, we reviewed the 12 selected assistance agreements and guidance to identify specific required monitoring activities, such as financial and program reports, site visits, and other forms of oversight  The agreements specify the requirements for these activities such as requiring financial reports on a quarterly basis  For these 12 agreements, we reviewed all the documentation provided to us by the agencies, then determined the extent to which the agencies had full documentation of key monitoring activities as specified in the assistance agreements, including those called for by key monitoring provisions, as well as those called for by guidance when the monitoring provisions were absent  We did not include subsequent amendments to these 12 agreements in our review of monitoring activities  We interviewed officials from State, USAID, HHS, and USDA to discuss instances in which the agency did not have full documentation of key monitoring activities  We also discussed how State, USAID, and HHS agency officials manage their agreement documentation and use the information in the agreements’ required monitoring documentation  We conducted this performance audit from July 2016 to December 2017 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  The Organization of American States (OAS), Pan American Health Organization (PAHO), the Inter-American Institute for Cooperation on Agriculture (IICA), and the Pan-American Institute on Geography and History (PAIGH) have established mechanisms for overseeing their use of funds  Tables 15–18 show the mechanisms (oversight policies and oversight committees and organizations) for each of these inter-American organizations, as confirmed by the organizations’ officials  To oversee the execution of their agreements, the Department of State (State), the U S  Agency for International Development (USAID), the Department of Health and Human Services (HHS), and U S  Department of Agriculture (USDA) are to conduct monitoring activities called for by applicable federal regulations or agency guidance and document these provisions in assistance agreements as called for by federal standards for internal control  We identified key monitoring provisions implementing the applicable agency guidance for State, USAID, HHS, and the applicable regulations for USDA, as shown in table 19  For both the agency guidance and the federal regulations, those listed are the ones that were in effect when the agreements in our sample were approved  Some of the agency guidance and regulations have since been amended or superseded  In addition to the contact named above, Pierre Toureille (Assistant Director), Julia Jebo Grant (Analyst-in-Charge), Leslie Stubbs, and Paul Sturm, Alana Miller, and Shirley Min made key contributions to this report  In addition, David Dayton, Martin de Alteriis, Neil Doherty, Jeff Isaacs, and Alex Welsh provided technical assistance 


Report 2: In November 2011, we reported that over the previous decade, the FBI and GSA conducted a number of studies to assess the Hoover Building and its other headquarters facilities’ strategic and mission needs  Through these studies, they determined the condition of the FBI’s current assets and identified gaps between current and needed capabilities, as well as studied a range of alternatives to meet the FBI’s requirements  According to these assessments, the FBI’s headquarters facilities did not fully support the FBI’s long-term security, space, and building condition requirements  Since our report, the assessment of the Hoover Building has not materially changed  For example: Security: Since September 11, 2001, the FBI mission and workforce have expanded, and the FBI has outgrown the Hoover Building  As a result, the FBI also operates in annexes, including some located in the National Capital Region  During our 2011 review, FBI security officials told us that they have some security concerns—to varying degrees— about the Hoover Building and some of the headquarters annexes  In our report, we noted that the dispersion of staff in annexes created security challenges, particularly for at least nine annexes that were located in multitenant buildings, where some space was leased by the FBI and other space was leased by nonfederal tenants  While this arrangement did not automatically put FBI operations at risk, it heightened security concerns  In addition, in January 2017, we found that the FBI occupies space leased from foreign owners in at least six different locations, including one in Washington, D C  Further, federal officials who assess foreign investments told us at that time that leasing space in foreign-owned buildings could present security risks, such as espionage and unauthorized cyber and physical access  Space: In 2011, we reported that FBI and GSA studies showed that much of the Hoover building’s approximately 2 4 million gross square feet of space is unusable, and the remaining usable space is not designed to meet the needs of today’s FBI  Moreover, the Hoover Building’s original design is inefficient, according to GSA assessments, making it difficult to reconfigure space to promote staff collaboration  For example, in its fiscal year 2017 prospectus for the proposed FBI headquarters consolidation project, GSA noted that the Hoover Building was designed at a time when FBI operated differently, and it cannot be redeveloped to provide the necessary space to consolidate the FBI Headquarters components or to meet the agency’s current and projected operational requirements  As a result, the FBI reported facing several operational and logistical challenges  We similarly noted in our prior work in 2011 that space constraints at the Hoover Building and the resulting dispersion of staff sometimes prevented the FBI from physically locating certain types of analysts and specialists together, which in turn hampered collaboration and the performance of some classified work  Building condition: In our 2011 report, we noted that the condition of the Hoover Building was deteriorating, and GSA assessments had identified significant recapitalization needs  At that time, we found that GSA had decided to limit investments in the Hoover Building to those necessary to protect health and safety and keep building systems functioning while GSA assessed the FBI’s facility needs  We found that this decision increased the potential for building system failures and disruption to the FBI’s operations  Given that the FBI would likely remain in the building for at least several more years, we recommended that GSA evaluate its strategy to minimize major repair and recapitalization investments and take action to address any facility condition issues that could put FBI operations at risk and lead to further deterioration of the building  In 2014, in response to our recommendation, GSA evaluated its strategy for the Hoover Building and determined it needed to complete some repairs to ensure safety and maintain tenancy in the building  For example, in 2014, GSA funded contracts to waterproof portions of the building’s mezzanine level to prevent water intrusion into the building and repair the concrete facade, small sections of which had cracked and fallen from the building  In July 2017, GSA and FBI officials stated that they cancelled the procurement for the new FBI headquarters consolidation project, noting that the there was a lack of funding necessary to complete the procurement  GSA added that the cancellation of the procurement did not lessen the need for a new FBI headquarters, and that GSA and the FBI would continue to work together to address the space requirements of the FBI  In July 2014, we reported that the swap exchange approach can help GSA address the challenges of disposing of unneeded property and modernizing or replacing federal buildings  GSA officials told us that swap exchanges can help GSA facilitate construction projects given a growing need to modernize and replace federal properties, shrinking federal budgets, and challenges obtaining funding  Specifically, GSA officials noted that swap exchanges allow GSA to immediately apply the value of a federal property to be used in the exchange to construction needs, rather than attempting to obtain funds through the appropriations process  In our 2014 report, GSA officials stated that the exchanges can be attractive because the agency can get construction projects accomplished without having to request full upfront funding for them from Congress  In addition, because swap exchanges require developers or other property recipients to complete the agreed-upon GSA construction projects prior to the transfer of the title to the current property GSA is exchanging, federal agencies can continue to occupy the property during the construction process for the new project, eliminating the need for agencies to lease or acquire other space to occupy during the construction process  GSA has limited experience in successfully completing swap exchange transactions and has cancelled several recently proposed swap exchanges  More specifically, in 2016 we reported that GSA had only completed transactions using the swap exchange authority for two small (under $10-million each) swap exchanges completed in Atlanta, Georgia, in 2001 and in San Antonio, Texas, in 2012  Furthermore, GSA has faced a number of obstacles in its use of this authority  For example, for our 2014 report, we reviewed five projects identified since August 2012 in which GSA solicited market interest in exchanging almost 8-million square feet in federal property for construction services or newly constructed assets  However, GSA chose not to pursue swap-exchanges in all five of these projects, including the proposed FBI headquarters consolidation project  For example, GSA officials told us that there was little or no market interest in potential swap exchanges in Baltimore, Maryland, and Miami, Florida, and that GSA chose to pursue different approaches  Respondents to the solicitations for these two GSA swap exchanges noted that GSA did not provide important details, including the amount of investment needed in the federal properties and GSA’s specific construction needs  In addition, from 2012 to 2015, GSA pursued a larger swap exchange potentially involving up to 5 federal properties located in the Federal Triangle South area of Washington, D C , to finance construction at GSA headquarters and other federal properties  In 2013, GSA decided to focus on exchanging two buildings, the GSA Regional Office Building and the Cotton Annex, based on input from potential investors  On February 18, 2016, GSA decided to end its pursuit of the exchange, saying in a memorandum supporting this decision that private investor valuations for the two buildings fell short of the government’s estimated values  After the discontinuation of the Federal Triangle swap exchange project, we reported in 2016 that GSA officials noted they planned to improve the swap exchange process, including the property appraisal process, outreach to stakeholders to identify potential project risks for future projects, and to the extent possible, mitigate such risks  However, we also reported that several factors may continue to limit the applicability of the agency’s approach  Specifically, the viability of swap exchanges may be affected by specific market factors, such as the availability of alternative properties  In addition, the specific valuation approach used by appraisers or potential investors may reduce the viability of the swap exchange  For example, in reviewing the proposed Federal Triangle project, we found in 2016 that the proposals from two of the investment firms valued the two federal buildings involved in the proposed swap substantially less than GSA’s appraised property value  In addition, swap exchanges can require developers to spend large sums on GSA’s construction needs before receiving title to the federal property used in the exchanges  We found in 2014 that GSA’s solicitations have not always specified these construction needs in sufficient detail  Consequently, developers may be unable to provide meaningful input, and GSA could miss swap exchange opportunities  In 2014, we recommended that GSA develop criteria for determining when to solicit market interest in a swap exchange  GSA agreed with the recommendation and has since updated its guidance to include these criteria  In January 2017, GSA agreed to a swap exchange for the U S  Department of Transportation Volpe Center in Cambridge, Massachusetts  After a competitive process, GSA selected the Massachusetts Institute of Technology (MIT) as its exchange partner for the existing Department of Transportation (DOT) facility  Per the agreement, MIT will construct a new DOT facility on a portion of a 14 acre site to which DOT has title and, in exchange, will receive title to the remaining portion of the site that will not be used by DOT, which is located near its main campus  GSA indicated that, once completed, the project will provide $750 million in value to the federal government in the form of the design and construction services and value-equalization funds from MIT  Our prior work has identified a number of alternative approaches to funding real property projects  In March 2014, we reported that upfront funding is the best way to ensure recognition of commitments made in budgeting decisions and to maintain fiscal controls  However, obtaining upfront funding for large acquisitions such as the Hoover Building replacement can be challenging  Congress has provided some agencies with specific authorities to use alternative funding mechanisms for the acquisition, renovation, or disposal of federal real property without full, upfront funding  Table 1 outlines selected funding mechanisms, and considerations for each mechanism we identified in our 2014 report  Some of these alternative mechanisms allow selected agencies to meet their real property needs by leveraging other authorized resources, such as retained fees or land swaps with a private sector partner  Funding mechanisms leverage both monetary resources, such as retained fees, and non-monetary resources, such as property exchanged in a land swap or space offered in an enhanced use lease  In some cases, the funding mechanism may function as a public-private partnership intended to further an agency’s mission by working with a partner to leverage resources  Some of these mechanisms allow the private sector to provide the project’s capital—at their cost of borrowing  The U S  federal government’s cost of borrowing is lower than the private sector’s  When the private sector provides the project capital, the federal government later repays these higher private sector borrowing costs (e g , in the form of lease payments)  In some cases, factors such as lower labor costs or fewer requirements could potentially help balance the higher cost of borrowing, making partner financing less expensive  Our 2014 report also identifies budgetary options—within the bounds of the current unified budget—to meet real property needs while helping Congress and agencies make more prudent long-term decisions  In 2014, we reported that projects with alternative funding mechanisms present multiple forms of risk that are shared between the agency and any partner or stakeholder  Further, we noted project decisions should reflect both the likely risk and the organization’s tolerance for risk  Incorporating risk assessment and management practices into decisions can help organizations recognize and prepare to manage explicit risks (e g  financial and physical) and implicit risks (e g  reputational)  For example, clearly defined lease terms may help agencies manage risks of costs for unexpected building repairs  Further considerations we noted in our 2014 report include the availability of an appropriate partner—and that partners should bring complementary resources, skills, and financial capacities to the relationship—and management of the relationship with that partner  While different funding mechanisms have been used as an alternative to obtaining upfront funding for federal real property projects, changes to the budgetary structure itself—within the bounds of the unified budget that encompasses the full scope of federal programs and transactions—may also help agencies meet their real property needs  Such alternatives may include changing existing or introducing new account structures to fund real property projects  Our previous work identified options for changes within the current discretionary budget structure and options on the mandatory side of the budget  Alternative budgetary structures may change budgetary incentives for agencies and therefore help Congress and agencies make more prudent long-term fiscal decisions  Chairman Barrasso, Ranking Member Carper, and Members of the Committee, this concludes my prepared statement  I am happy to answer any questions you may have at this time  If you or your staff members have any questions concerning this testimony, please contact me at (202) 512-2834 or wised@gao gov  In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement  Individuals who made key contributions to this testimony are Mike Armes (Assistant Director), Colin Ashwood, Matt Cook, Joseph Cruz, Keith Cunningham, Alexandra Edwards, Carol Henn, Susan Irving, Hannah Laufe, Diana Maurer, John Mortin, Monique Nasrallah, Matt Voit, Michelle Weathers, and Elizabeth Wood  This is a work of the U S  government and is not subject to copyright protection in the United States  The published product may be reproduced and distributed in its entirety without further permission from GAO  However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately 

ground_truth: GSA, which manages federal real property on behalf of other federal agencies, faces challenges in funding new construction projects due to budget constraints—including obtaining upfront funding—among other reasons. One type of transaction, called a swap exchange, enables GSA to apply the value of federal property to finance construction without relying on appropriated funds. Under such an exchange, GSA transfers the title of the unneeded property to a private investor after receiving the agreed upon construction services at another location. GSA proposed a swap exchange procurement for construction of a new FBI headquarters building in exchange for the Hoover Building and appropriations to compensate for the difference in value between the Hoover Building and the new building. GSA cancelled this procurement in July 2017 due to lack of funding. This statement addresses (1) GSA's and FBI's assessments of the Hoover Building, (2) GSA efforts to implement swap exchanges, and (3) alternative approaches to funding real property projects. It is based on GAO's body of reports on real property from 2011 to 2017, and selected updates from GSA. In November 2011, GAO reported that, according to General Services Administration (GSA) and Federal Bureau of Investigation (FBI) assessments, the FBI's headquarters building (Hoover Building) and its accompanying facilities in Washington, D.C., did not fully support the FBI's long-term security, space, and building condition requirements. Since GAO's report, the assessments have not materially changed, for example: Security: GAO's prior work noted that the dispersion of staff in annexes creates security challenges, including where some space was leased by the FBI and other space was leased by nonfederal tenants. Earlier this year, GAO reported the FBI is leasing space in D.C. from foreign owners. Space : In 2011, GAO reported that FBI and GSA studies showed that much of the Hoover Building is unusable. GSA noted in its fiscal year 2017 project prospectus for the FBI headquarters consolidation that the Hoover Building cannot be redeveloped to meet the FBI's current needs. Building Condition: In GAO's 2011 report, GAO noted that the condition of the Hoover Building was deteriorating, and GSA assessments identified significant recapitalization needs. Since GAO's report and in response to GAO's recommendation, GSA has evaluated its approach to maintaining the building and completed some repairs to ensure safety. GSA has limited experience in successfully completing swap exchange transactions and chose not to pursue several proposed swap exchanges, most recently the planned swap exchange for the Hoover Building. GSA has developed criteria for determining when to solicit market interest in a swap exchange, in response to recommendations in GAO's 2014 report. In addition, GSA officials told GAO that they planned to improve the swap exchange process, including the property appraisal process, outreach to stakeholders to identify potential risks associated with future projects, and to the extent possible, mitigate such risks. Nevertheless, several factors may continue to limit use of swap exchanges, including market factors, such as the availability of alternative properties and an investor's approach for valuing properties. For example, in reviewing a proposed swap exchange in Washington, D.C., GAO found in a 2016 report that the proposals from two firms valued the two federal buildings involved in the proposed swap substantially less than GSA's appraised property value. In a 2014 report, GAO identified a number of alternative approaches to funding real property projects. Congress has provided some agencies with specific authorities to use alternative funding mechanisms—including the use of private sector funds or land swaps—for the acquisition, renovation, or disposal of federal real property without full, upfront funding, though GAO has previously reported that upfront funding is the best way to ensure recognition of commitments made in budgeting decisions and maintain fiscal controls. GAO has reported that projects with alternative funding mechanisms present multiple forms of risk that are shared between the agency and any partner or stakeholder. In addition, alternative budgetary structures could be established, such as changing existing or introducing new account structures to fund real property projects. GAO has made recommendations in the past to GSA on various real property issues, including to develop additional guidance for swap exchanges and to evaluate its approach to maintaining the Hoover Building. GSA agreed with these two recommendations and addressed them.