GAO

United States General Accounting Office

Report to the Chairman and Ranking 

Minority Member, Committee on 

Finance, U.S. Senate

September 2000 TRADE 

ADJUSTMENT 

ASSISTANCE

Opportunities to 

Improve the 

Community 

Adjustment and 

Investment Program

GAO/NSIAD-00-229

Page 1 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

Contents

Letter 3

Appendixes Appendix I: Community Adjustment and Investment Program

Financing for Distressed Communities Through Loan 

Guarantees, Loans, and Grants 28

Appendix II: Objectives, Scope, and Methodology 34

Appendix III: Comments From the Department of the Treasury 36

Appendix IV: Comments From the Small Business Administration 39

Appendix V: Comments From the Department of Agriculture 45

Appendix VI: GAO Contacts and Staff Acknowledgments 54

Tables Table 1: CAIP Financing Activity, September 1997-June 8, 2000 19

Figures Figure 1: CAIP’s Organizational Structure 7

Figure 2: Time Line of CAIP Implementation 10

Figure 3: Map of CAIP-eligible and -participating Counties 12

Figure 4: CAIP Financing to Assist Distressed Counties Since 

Start of Program, as of June 8, 2000 17

Figure 5: Financing Provided to States Through CAIP, as of 

June 8, 2000 21

Abbreviations

CAIP Community Adjustment and Investment Program

NAFTA North American Free Trade Agreement

SBA Small Business Administration

USDA U.S. Department of Agriculture
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United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-286103 Letr

September 29, 2000

The Honorable William V. Roth, Jr.

Chairman

The Honorable Daniel Patrick Moynihan

Ranking Minority Member

Committee on Finance

United States Senate

Recognizing that the benefits of the North American Free Trade Agreement 

between the United States, Mexico, and Canada would be widely dispersed 

across the economy but that the costs or worker dislocation effects could 

be more concentrated, Congress created the Community Adjustment and 

Investment Program in December 19931

 to assist communities suffering job 

losses due to changing trade patterns with Mexico and Canada. Under this 

program, loan guarantees, loans, and grants are provided to eligible 

counties to help stimulate private sector employment and growth. Loan 

guarantees to local businesses have accounted for the preponderance of 

financing commitments to date. The program was established with an 

initial capitalization of $22.5 million and has received $20 million in 

additional appropriations to support and expand program activities.

You expressed concern about whether the Community Adjustment and 

Investment Program is providing timely and useful assistance to eligible 

counties. At your request, we assessed (1) how the program has been 

structured, (2) how program eligibility criteria and outreach efforts have 

been implemented, and (3) what the results of efforts to provide assistance 

to eligible counties were.

1

Public Law 103-182, Sec. 543, Dec. 8, 1993.
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Background The Community Adjustment and Investment Program was established as a 

result of the North American Free Trade Agreement Implementation Act, 

passed in December 1993. The act provided that 10 percent of the paid-in 

capital ($22.5 million) to the North American Development Bank would be 

set aside for community adjustment and investment purposes.2

 The North 

American Development Bank, while it is the repository for program funds 

and provides funds management services for the program, does not 

exercise financial or programmatic control over the Community 

Adjustment and Investment Program. This authority rests with an 

interagency committee chaired by the Treasury Department.

The Community Adjustment and Investment Program uses a lending 

partnership with the Department of Agriculture and the Small Business 

Administration to jointly provide federal loan guarantees to eligible 

communities. The program uses the extensive field office infrastructure 

these agencies already have in place across the country. Although the 

Agriculture Department and Small Business Administration loan guarantee 

programs’ eligibility and creditworthiness standards remained unchanged, 

additional eligibility standards were instituted for Community Adjustment 

and Investment Program loan guarantees. These loan guarantee eligibility 

standards mainly focus on the creation or retention of jobs.

Results in Brief The Community Adjustment and Investment Program’s management 

structure hinders efficient program management. The program is managed 

in Washington, D.C., by a high-level interagency group chaired by the 

Treasury Department, called the Finance Committee. Committee 

membership includes the Departments of Agriculture; Commerce; Housing 

and Urban Development; and Labor; and the Small Business 

Administration. It took the Finance Committee over 3 years to set up 

program guidelines and to start disbursing program financing to distressed 

counties. The Finance Committee’s retention of certain day-to-day 

managerial functions is inefficient and has added more time to the 

decision-making process, particularly for direct loans and grants. Treasury 

2

The North American Development Bank is an international financial institution established 

and capitalized in equal parts by the United States and Mexico for the purpose of financing 

environmental infrastructure projects in the U.S.-Mexico border region, as well as for 

community adjustment and investment in support of the purposes of the North American 

Free Trade Agreement. 
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officials recognize that some delays have resulted from the program’s 

centralized management structure and told us that they plan to hire 

additional full-time staff to expedite future decision-making. However, it is 

not clear that new staff will improve program management unless the 

Finance Committee is prepared to delegate decision-making authority.

Program eligibility procedures are complex and rely on a database that is 

not designed to be used as a measure of the impact of the North American 

Free Trade Agreement on communities. We found that the Treasury’s 

current procedures result in the underestimation of dislocated workers, 

including approximately 3,700 secondary workers in firms that are 

suppliers to or assemblers for manufacturing firms adversely impacted by 

trade with Mexico and Canada. Although this undercounting has not had an 

impact on counties’ eligibility to date, it could potentially prevent some 

counties from qualifying for the program. For the 228 counties in 30 states 

and Puerto Rico designated eligible for the program, notification and 

outreach have been limited, as the Treasury does not directly notify eligible 

counties about the program, according to program officials. 

Since 1997, about $257 million in loan guarantees, loans, and grants have 

been provided to 83 eligible counties. Loan guarantees made through the 

program’s partnership with the Small Business Administration and the 

Department of Agriculture represent 99 percent of the total financing 

provided. The community that received the largest portion (11 percent) of 

this financing is El Paso, Texas. It is not clear to what extent the financing 

assistance has resulted in private sector employment and growth, because 

the program does not have a monitoring system in place to measure 

program outcomes. Although program records indicate that participating 

businesses created or retained 9,208 jobs, these data are based on 

projections made by businesses when first applying for program financing 

and are not verified. Moreover, most of the bankers and business owners 

we interviewed said that the loan guarantees provided under the program 

in partnership with the Small Business Administration would still have 

been made without the program, although the lack of the benefit would 

have increased the risk to the borrowers’ small business expansion 

projects. In addition, as we have stated in our previous work,3

 federal 

financing programs that assist specific sectors or firms largely shift 

employment among sectors in the economy rather than raise the overall 

3

See Export-Import Bank: Key Factors in Considering Eximbank Reauthorization

(GAO/T-NSIAD-97-215, July 17, 1997).
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level of employment, so that the program’s jobs figure may not represent 

net job gains in a period of full employment.

This report makes several recommendations to the Secretary of the 

Treasury to improve program management by delegating authority from the 

Finance Committee, amending eligibility data procedures, improving 

notification to eligible counties, and establishing a monitoring system to 

measure program outcomes. In written comments on a draft of this report, 

the Treasury agreed with our recommendations to amend the eligibility 

data procedures and improve notification to eligible counties. However, it 

did not agree that delegating additional authority from the Finance 

Committee would improve program management. Based on clarifications 

provided by the agencies on the role of the Finance Committee in the loan 

guarantee approval process, we modified the report and our 

recommendation to focus on delegating additional decision-making 

authority to program staff for loans and grants in order to promote a more 

efficient and timely decision-making process. Finally, while Treasury 

agreed in principle with our recommendation to establish a monitoring 

system to measure program outcomes, it expressed concern about the 

nature of the monitoring to be established. We disagree that follow-up 

reporting will make the program less competitive or desirable to loan 

guarantee recipients, especially since the program’s lending partners (the 

Small Business Administration and the Department of Agriculture) already 

conduct such follow-up reporting for their other loan guarantees.

Management Structure 

Hinders Efficient 

Program Delivery

The Community Adjustment and Investment Program (CAIP) is managed 

under a high-level interagency committee structure that seeks to leverage 

available program funds by focusing on partnerships with existing federal 

loan guarantee programs. However, the Finance Committee’s retention of 

certain day-to-day managerial functions is inefficient and adds time to the 

decision-making process.

How CAIP Is Structured The Finance Committee, chaired by the Department of the Treasury, is 

comprised of members from participating federal agencies, including the 

Departments of Agriculture (USDA); Commerce; Housing and Urban 

Development; and Labor; and the Small Business Administration (SBA). 

Committee members are often at the deputy assistant secretary or deputy 
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assistant administrator level.4 Figure 1 shows the organizational structure 

of CAIP.

Figure 1: CAIP’s Organizational Structure

Source: Treasury Department.

4

Current Finance Committee members include the Treasury’s Deputy Assistant Secretary, 

Office of Government Financial Policy (chair); Agriculture’s Deputy Under Secretary for 

Policy & Planning, Office of Rural Development; SBA’s Deputy Associate Deputy 

Administrator, Office of Capital Access; Housing and Urban Development’s Director, Office 

of Economic Development and Empowerment Zones; Labor’s Director, Women’s Bureau; 

and Commerce’s Special Assistant to the Deputy Assistant Secretary, Economic 

Development Administration.

Finance Committee

Treasury (Chair), USDA, SBA,

Labor, Commerce, Housing and

Urban Development

Finance Committee

Treasury (Chair), USDA, SBA,

Labor, Commerce, Housing and

Urban Development

Advisory Committee Advisory Committee

Ombudsman

(vacant)

Ombudsman

(vacant)

Loan Subcommittee

Treasury (Chair), USDA, SBA

Loan Subcommittee

Treasury (Chair), USDA, SBA

Funding Subcommittee

Treasury, USDA, SBA,

Labor, Commerce, Housing and

Urban Development

(for grant solicitation evaluation only)

Funding Subcommittee

Treasury, USDA, SBA,

Labor, Commerce, Housing and

Urban Development

(for grant solicitation evaluation only)

USDA Business

and Industry

Program

field offices

USDA Business

and Industry

Program

field offices

SBA7(a) Program

field office

SBA7(a) Program

field office Grant Program

(San Antonio)

Grant Program

(San Antonio)

Lenders Lenders Lenders Lenders

Borrowers in

eligible communities

(generally business)

Borrowers in

eligible communities

(generally business)

Grant participants

in eligible communities

(generally nonprofits and

local governments)

Grant participants

in eligible communities

(generally nonprofits and

local governments)

Direct Loan Program

(Los Angeles)

Direct Loan Program

(Los Angeles)
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The Finance Committee’s course of action in structuring CAIP was 

predicated on its desire to maximize the potential impact of a relatively 

small level of funding, its onetime capitalization of $22.5 million. At a time 

of extensive federal government budget cutbacks in the mid-1990s, the 

committee wanted to minimize the funding that would be needed for 

administrative overhead and decided to partner with existing federal loan 

guarantee programs at USDA and SBA, which already had extensive field 

office infrastructures in place across the country. In May 1998, about 

9 months after CAIP became operational, the committee established a Loan 

Subcommittee with responsibility for reviewing the loan guarantee 

applications forwarded by the USDA and SBA field offices. The Loan 

Subcommittee was authorized to approve loan guarantees where the vote 

for approval was unanimous and the loan amount was under $5 million (for 

USDA loan guarantees), which has been the preponderance of cases. 

Otherwise, the loan guarantee application is forwarded to the Finance 

Committee for its approval. In addition, two new staff were hired to run the 

direct loan component in the Los Angeles office. Direct loan applications 

go directly to the full Finance Committee for consideration. When the 

program later received additional appropriated funds in fiscal years 1999 

and 2000, it then proceeded with the grants component in San Antonio and 

hired three staff to carry out that function. A second Funding 

Subcommittee was created with responsibility for reviewing the grant 

applications forwarded by the Grant Program office. The Funding 

Subcommittee’s role is limited to evaluating grant applications; it does not 

get involved in program management.

An Advisory Committee was established to provide advice to the Finance 

Committee on the implementation of the program. The Advisory 

Committee’s primary role was to participate in the development of the 

program guidelines. It is also directed to review on a regular basis the 

operations of the program.5

 The Advisory Committee was convened for the 

first time on October 11, 1995, and since the program became operational 

meets once a year to review CAIP operations. Advisory Committee 

meetings are open to the public, and the minutes of meetings are made 

available to the public.

5

By statute, the Advisory Committee is comprised of nine members of the public, appointed 

by the President, who collectively represent community groups whose constituencies 

include low-income families; scientific, professional, business, nonprofit, or public interest 

organizations or associations, which are neither affiliated with nor under the direction of a 

government; for-profit business interests; and other appropriate entities with relevant 

experience.
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In addition to the Advisory Committee, the statute also provided that an 

ombudsman be appointed. The ombudsman’s function was to establish 

procedures for receiving comments from the general public on the 

operation of CAIP and to perform an independent inspection and 

programmatic audit of the operation of CAIP. As of August 25, 2000, an 

ombudsman had not been appointed. Treasury officials told us that the 

ombudsman position had not been filled because funds were never 

appropriated for this purpose, and they did not want to deplete CAIP’s 

capital (the 10 percent of the paid-in capital of the North American 

Development Bank set aside for CAIP). However, there is a precedent for 

using CAIP’s capital to pay program staff salaries, since the staff of the Los 

Angeles and San Antonio offices are paid from this source.

Management Structure Is 

Inefficient

It took the Finance Committee more than 3 years to establish the program 

and provide financing to eligible counties. Much of the first 3 years of the 

program was spent by the Finance Committee in defining the program to be 

delivered and developing program eligibility criteria and guidelines. The 

Committee also signed memorandums of understanding with the North 

American Development Bank on CAIP funding and with USDA and SBA to 

establish loan guarantee partnerships. The program did not become 

operational until September 1997. Figure 2 provides a chronology of 

management actions taken in developing the program.
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Figure 2: Time Line of CAIP Implementation

Source: Treasury Department.

1993 1994 1995 1996 1997 1998 1999

November 1993:

US and Mexico agree to establish

North American Development Bank

December 8, 1993:

NAFTA Implementation

Act creates CAIP

August 21, 1995:

Charter for Advisory

Committee approved

August 31, 1995:

Memorandum of Understanding

between North American

Development Bank and Treasury

on CAIP administration signed

October 11, 1995:

First Advisory

Committee meeting held

June 1997:

CAIP guidelines issued

June 23, 1997:

Memorandum of Understanding

between Treasury and USDA

for loan guarantees signed

September 1, 1997:

CAIP becomes

operational, first financing

applications reviewed

October 21, 1998:

Congress appropriates

$10 million for CAIP

October 15, 1999:

Grant program

announced with

solicitation letter

November 29, 1999:

Congress appropriates

$10 million for CAIP

September 1997:

CAIP implemented

June 18, 1997:

Memorandum of Understanding

between Treasury and

SBA for loan guarantees signed

May 13, 1994

Executive Order 12916

establishes CAIP Finance

Committee, chaired by Treasury

Legend:

NAFTA North American Free Trade Agreement
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Because the Finance Committee is comprised of high-level officials from 

six federal agencies, getting a quorum convened and reaching consensus 

decisions can take time. For instance, the new grants component was 

announced in October 1999; grant applications were due January 17, 2000; 

and program officials planned to finalize the grant awards by the end of 

March 2000. A second round was tentatively planned to start in July 2000. 

However, the first-round grant decisions were not approved by the Finance 

Committee until August 1, 2000, in part because of caution related to 

establishing a new grant program and learning as they went along, and 

because of delays in convening meetings.6

 In another example, the Finance 

Committee received a direct loan application in October 1999. It approved 

the loan in January 2000 but did not authorize release of the funds until 

August 11, 2000, an unusually long lag in closing the loan. The prior two 

loans had been closed within 1-2 months after approval. The time lag 

appeared to reflect the amount of time it took the Finance Committee to 

modify some of the terms of the proposed loan application and reach 

agreement with the borrower.

The Finance Committee Chair said that it has been difficult for the Finance 

Committee to oversee the development of new CAIP programs and to 

review the disbursement of all program financing in a timely manner. He 

said that maintaining the current management decision-making structure 

may be even more difficult in the future with the expected growth of the 

new grant program. He told us that he plans to hire a full-time national 

director and an attorney for CAIP, which may expedite future 

decision-making and program implementation. However, it is still not clear 

the degree to which the Finance Committee will actually delegate

decision-making authority to this new program director, so it is uncertain 

whether the decision-making process will be improved.

Eligibility Procedures 

Underestimate 

Dislocated Workers, 

and Outreach Efforts 

Have Been Limited

CAIP’s eligibility procedures are complex and rely on a database that, while 

the best available data, is not designed as a measure of the impact of the 

North American Free Trade Agreement (NAFTA) on communities. The 

program’s current procedures for utilizing these data result in 

underestimating dislocated workers and could eliminate some affected 

counties from consideration. Once eligibility is determined, we found that 

6

The Finance Committee had not publicly announced the first-round grant results as of 

September 14, 2000.
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efforts to notify counties of their program eligibility and to conduct 

outreach to eligible and potentially eligible counties have been limited. 

Counties Receiving CAIP 

Financing

We found that CAIP had designated 228 counties in 30 states and Puerto 

Rico as eligible for its assistance, while 83 counties in 24 states had actually 

participated in the program, as of June 8, 2000. The eligibility and 

participation of counties are illustrated in figure 3.

Figure 3: Map of CAIP-eligible and -participating Counties

Note: Map does not show Alaska, Hawaii, or Puerto Rico. Alaska has one eligible county, which has 

participated in CAIP. Hawaii does not have any eligible counties. Puerto Rico has four eligible counties, 

none of which have participated in CAIP.

Source: Based on information provided by CAIP, USDA, and SBA.

Eligible counties

Participating counties
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Eligibility Criteria Eligibility for CAIP assistance is based on two criteria: whether a county 

(1) has experienced significant job losses attributable to NAFTA and 

(2) needs transition assistance to adjust economically to these job losses. 

The measure of job losses attributable to NAFTA is generally based on the 

Labor Department’s certifications of workers who have lost their jobs or 

are threatened with separation due to trade with Canada or Mexico. To 

demonstrate significant job losses, the county must have more than 500 

Department of Labor-certified workers in an urban county or more than 300 

in a rural county during a 36-month period. The measure of need for 

transition assistance is whether the county’s unemployment rate is 

1 percent or more above the national average unemployment rate during 

the past 12 months.7

 Eligibility for the program was originally for 

36 months; however, this was adjusted to 12 months on March 10, 1999,8

and eligibility can be renewed for periods of 12 months based upon 

continued evidence of need, as shown by an unemployment rate at least 

1 percent over the national average.

CAIP also has two special provisions related to eligibility. The first 

provision designated all border counties, defined as U.S. counties that have 

any part located within 62 miles (100 kilometers) of the U.S.-Mexico 

border, as eligible beginning October 1, 1999. The border counties’ 

eligibility does not have an expiration date. The second provision is for 

special cases, in which counties that do not qualify under the regular 

process can demonstrate adverse impact from NAFTA and become eligible. 

Adverse impact is demonstrated by evidence of job losses due to a firm’s 

relocation of production to Canada or Mexico or due to increased imports 

from Canada or Mexico.

7

County unemployment rates are measured using the Local Area Unemployment Statistics 

of the Labor Department’s Bureau of Labor Statistics. The national unemployment rate is 

measured using the National Unemployment Statistics of the Bureau of Labor Statistics.

8

Counties designated eligible before March 10, 1999, were “grandfathered” for the full 

remainder of the 36-month designation period.
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Eligibility Data and 

Procedures

The measure of job losses attributable to NAFTA is based on the Labor 

Department’s certifications under the NAFTA-Transitional Adjustment 

Assistance Program.9

 These certification data estimate the number of job 

losses due to firm relocation to or increased imports from Mexico and/or 

Canada. Labor Department officials who administer the program stress 

that the certification data are only a gross proxy for job losses due to 

NAFTA for a number of reasons. First, they point out that it is very difficult 

to tie job losses directly to a trade agreement like NAFTA. Second, the 

number of workers reported as certified under the NAFTA-Transitional 

Adjustment Assistance Program is based in part on an estimation of 

potential layoffs at the time a petition is filed with the Department of Labor, 

and this may understate or overstate eventual job losses. The Department 

of Labor rarely makes adjustments to these estimations after the final job 

reductions are made by the firm, according to Department of Labor 

officials. While CAIP administrators are aware of the limitations in the 

certification data for measuring the impact of NAFTA at the county level, 

they point out that there is no other source of information relating job 

losses to trade with Mexico and Canada; these are the best available data.10

In examining the procedures the Treasury Department uses to process 

NAFTA-Transitional Adjustment Assistance certification data to determine 

CAIP eligibility, we found that incomplete information transmitted to the 

Treasury by Labor has resulted in underestimation of affected workers in 

some areas. Under a discretionary component of the NAFTA-Transitional 

Adjustment Assistance Program, workers in secondary firms (firms that 

supply or assemble products produced by firms directly affected by 

NAFTA) can also receive program benefits. However, this data field is not 

transmitted to the Treasury, so that it is not included in CAIP eligibility 

calculations. Since 1995, 57 petitions for secondary firms, accounting for an 

estimated 3,700 workers, have made workers eligible for benefits under the 

NAFTA-Transitional Adjustment Assistance Program. None of these 

9

The Labor Department’s NAFTA-Transitional Adjustment Assistance Program provides 

extended unemployment compensation and retraining benefits to workers whose jobs are 

eliminated due to trade with Mexico and Canada and who are certified eligible for program 

assistance.

10Legislative proposals are pending to consolidate the NAFTA-Transitional Adjustment 

Assistance Program with the larger Trade Adjustment Assistance Program. If such a 

consolidation is made, CAIP’s use of Labor Department data could be compromised if Labor 

does not continue to distinguish which workers are certified due to trade with Canada and 

Mexico. CAIP’s eligibility procedures depend upon continued identification of job losses 

attributable to NAFTA.
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workers were counted when determining CAIP eligibility. This 

undercounting did not impact counties’ eligibility when CAIP eligibility was 

recalculated including these workers. However, neglecting to include 

secondary workers in the future could result in failure to identify eligible 

counties. 

Notification and Outreach 

to Eligible Counties 

Efforts to notify counties of their eligibility for the program or to provide 

counties with information about program financing assistance have been 

limited. Counties are not directly notified by CAIP when they receive CAIP 

eligibility. While letters are sent to Members of Congress representing the 

newly designated communities, notifications are not sent directly to 

eligible counties. This can be a problem because counties generally do not 

apply directly for CAIP eligibility, rather eligibility designations result from 

quarterly computer runs of Labor Department certification and 

unemployment data. Therefore, counties that become eligible for CAIP may 

not even be aware of the program unless notified by program officials. For 

example, when the new CAIP grants component was established, the 

grants staff created an extensive outreach database and conducted a large, 

targeted mailing to 6,200 addressees in eligible counties. In response to the 

solicitation letter, a number of counties stated that they had been unaware 

of the existence of CAIP, much less their eligibility for the program. 

CAIP has also done limited outreach and marketing of the program in 

eligible counties. Most of the outreach that has been done to inform 

counties about CAIP was undertaken through SBA and USDA field offices 

and their network of bankers and contacts with chambers of commerce. 

The CAIP Los Angeles office has conducted outreach conferences in newly 

designated counties when possible in conjunction with USDA or SBA field 

staff but has been hampered by limited staff and funding for outreach 

activities, according to a program official. The Los Angeles office has also 

sent articles about the program to industry or trade journals and has 

created a Web site in conjunction with the University of California at Los 

Angeles’ North American Integration and Development Center. The Web 

site is a useful information source for those counties that are already aware 

of the program.11 In addition, the CAIP grants mailing appears to have 

generated interest in CAIP direct loans and loan guarantees as well, 

according to program officials.

11The Web site address is www.nadbank-caip.org.
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In order to gain a better understanding of CAIP outreach efforts, we visited 

two communities with high levels of CAIP activity—El Paso, Texas, and 

Coeur d’Alene, Idaho. We met with agency officials, bankers, and 

participating small business owners, as well as with community/economic 

development officials. We supplemented our field work with telephone 

interviews with agency officials in USDA and SBA field offices in Louisiana, 

South Carolina, New York, and California. While it appeared that 

substantial outreach efforts had been undertaken in El Paso and 

Coeur d’Alene, we found limited knowledge of the program among 

businesses. Most of the bankers were aware of the program; however, 

many of the community/economic development officials, bankers, and 

business owners that we talked to believed that greater outreach was 

needed. In addition, in our interviews with agency officials in SBA and 

USDA field offices, the assessment of most of the agency officials we 

talked to was that most in their business community were not aware of the 

program.

Results of Efforts to 

Stimulate Private 

Sector Employment 

and Growth

The program’s efforts to stimulate private sector employment and growth 

in eligible counties have been channeled through three types of financing: 

loan guarantees, loans, and grants. A total of about $257 million in 

financing has been provided, with loan guarantees predominating. 

However, it is not clear what the impact of the financing assistance is, 

because CAIP does not have a monitoring system in place to measure 

program outcomes.

Three Types of Financing 

Provided—Loan 

Guarantees, Loans, and 

Grants

CAIP is designed to assist the business community through loan 

guarantees, loans, and grants. Figure 4 shows the amount of financing 

provided to eligible counties since September 1997. To date, loan 

guarantees have been the primary financing mechanism used and represent 

99 percent of total financing. Two direct loans have been approved, and the 

new grant program is finalizing its first round of grant awards.
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Figure 4: CAIP Financing to Assist Distressed Counties Since Start of Program, as 

of June 8, 2000

Notes:

1. The CAIP Grant Program awarded $600,000 to a pilot grant project in 1999. This number is not 

shown in figure 4 because it could not be adequately represented on the graph.

2. Data are based on calendar year calculations. 

3. Data for 2000 are for January-June 8.

Source: SBA, USDA, and CAIP Los Angeles office.

6.5

6.8

0.5

86.6

25.9

38.2

31.9

1

39.6

18.6

0.5

0

10

20

30

40

50

60

70

80

90

100

110

120

1994

Total=

$0

1995

Total=

$0

1996

Total=

$0

1997

Total=

$13.8

1998

Total=

$111.1

1999

Total=

$70

2000

Total=

$58.7

USDA loan guarantees

SBA loan guarantees

CAIP direct loans

Dollars in millions
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Loan Guarantees Loan guarantees are provided through existing federal loan guarantee 

programs at USDA and the SBA. Specifically, CAIP established a lending 

partnership with the USDA Business and Industry Guaranteed Loan 

Program and the SBA 7(a) Loan Guarantee Program.12 CAIP benefits from 

their field infrastructure and underwriting capabilities and, in return, pays 

for the guarantee fee (usually passed on by the lender to the borrower) and 

the subsidy cost to the government for the agencies (which, otherwise, 

would be covered by the USDA and SBA budgets), as well as several 

administrative costs. All eligibility criteria established by USDA and SBA 

for financing under these programs remain the same. In addition, the 

following CAIP criteria have been added:

• The borrower must devote a majority of the loan principal made 

available under CAIP to opening a new facility, expanding operations at 

an existing facility, or improving a firm’s competitive position.

• The project must demonstrate a capacity to create new jobs, or preserve 

jobs at risk of being lost, over a 24-month period. 

• The project must demonstrate a capacity to create or preserve at least 

one job for every $70,000 of the guaranteed portion of the loan principal 

made available under the program.

Loans CAIP also offers a direct loan program designed to assist borrowers that do 

not meet the criteria for conventional financing or for USDA or SBA loan 

guarantees. Since the direct loan program’s inception in September 1997, 

two loans totaling $2 million have been made—one in California and one in 

Texas. One loan was made to the California Coastal Rural Development 

Corporation for $1 million. Cal Coastal, a community-based, nonprofit 

lender, is using the loan as a line of credit to provide up to 10 percent of the 

total loan amount for USDA Business and Industry loans in distressed 

communities that otherwise could not have qualified for these loans. The 

other loan, also for $1 million, was made to the Greater El Paso Chamber of 

Commerce, which is renovating a former Levi-Strauss factory for use as a 

workforce development center and a business resource center.

Grants Formally launched on October 15, 1999, the Grant Program is the third and 

newest of the CAIP financing programs. It is designed to assist in the 

creation or preservation of jobs for impacted counties through specific 

project and technical assistance grants. Up to $6 million will be available to 

12For more information about these loan guarantee programs, see appendix I.
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fund the first round of grant awards. In March 1999, before the new grant 

program was announced, the Finance Committee approved a pilot grant 

project for $600,000 to the New Mexico Border Authority in Dona Ana 

County, New Mexico. The grant was seed money for a retraining project for 

a projected 1,200 workers in this highly NAFTA-impacted area. (For more 

information on CAIP direct loans and grants, see app. I.)

Amount of Loan 

Guarantees, Loans, and 

Grants Provided by CAIP 

About $257 million in financing has been provided to eligible counties—

$254 million in loan guarantees, $2 million in loans, and $600,000 in grants. 

A summary of CAIP financing activity showing the number of loan 

guarantees, loans, or grants and their value, is provided in table 1.

Table 1: CAIP Financing Activity, September 1997-June 8, 2000

a

 Table excludes loan guarantees approved but withdrawn by the borrowers before closing and 

cancelled by the agencies.

b

 This is for a pilot grant project, approved in March 1999. The first round of grants, representing a total 

of $6 million, has been decided, but as of September 14, 2000, they had not been publicly announced.

Source: USDA, SBA, and the Treasury.

Financing component Number Value

Loan guaranteesa 366 $254, 137,345

 USDA Business & Industry Loan

 Guarantee Program

89 170,955,290

 SBA 7(a) Loan Guarantee Program 277 83,182,055

Direct loans 2 2,000,000

Grantsb 1 600,000

Total 369 $256,737,345
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Not all of the eligible counties have actually participated in CAIP. As 

previously mentioned, of the 228 counties in 30 states and Puerto Rico 

designated eligible for program financing, we found that 83 counties in 24 

states had actually participated in the program, as of June 8, 2000. The 

community with the highest level of loan guarantee activity was El Paso, 

Texas, which had 114 SBA 7(a) loans totaling $28 million in value and SBA 

projections of about 927 jobs created or retained. El Paso also received a 

direct loan for $1 million. The largest state recipients of program financing 

are shown in figure 5. Loan guarantees represent the majority of the 

assistance provided to each state. Louisiana, with $50.8 million in loan 

guarantees, and Texas, with $48.8 million in loan guarantees and a direct 

loan, had by far the highest level of activity in terms of value of financing, 

together accounting for 39 percent of the total. When the next three 

highest-ranking states—Georgia, California, and Idaho—are also included, 

the top five states accounted for 66 percent of the total value of the 

financing. At the other end of the spectrum, eligible counties in Arizona, 

Illinois, Indiana, New Jersey, Oregon, Puerto Rico, and Wisconsin had not 

participated in the program.13

13In some cases, lack of participation may be due to recent designation of eligibility, or a 

relatively low level of participation may be due to a limited number of eligible counties in 

that state, according to program officials.
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Page 21 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

Figure 5: Financing Provided to States Through CAIP, as of June 8, 2000

Source: USDA and SBA.

We visited two communities with high levels of CAIP activity—El Paso, 

Texas, and Coeur d’Alene, Idaho—in order to gain a better understanding 

of the effect of CAIP financing. We supplemented our field work with 

telephone interviews with the USDA and SBA offices responsible for CAIP 

loan guarantees in eligible counties in Louisiana, South Carolina, and New 

York, as well as the areas of Los Angeles in southern California and 

Watsonville in central California. Most USDA and SBA officials we talked to 

said that CAIP had been valuable in increasing the volume of loans that 

they could generate in these distressed counties. 

0.6

0.8

2.1

2.4

2.6

2.7

2.7

2.8

3.1

3.9

4.1

4.5

4.5

4.6

6

6.7

8.7

10.6

13.4

18

24.8

27.6

48.8

50.8

0 10 20 30 40 50 60

Dollars in millions

Virginia

Washington

Pennsylvania

Kentucky

Kansas

New Mexico

Florida

Alabama

Missouri

Arkansas

N. Carolina

Tennessee

New York

Connecticut

Ohio

Mississippi

Michigan

Alaska

S. Carolina

Idaho

California

Georgia

Texas

Louisiana
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Most USDA officials we talked to said that CAIP was valuable in increasing 

the availability of funds for its business and industry loan guarantees. The 

Business and Industry Guaranteed Loan Program usually uses up its state 

allocations early in the fiscal year, and additional funds are generally not 

available until the end of the fiscal year when any unused funds are 

returned to the National Reserve Office and can be tapped. While CAIP 

funds are used to make loan guarantees throughout the year, according to 

USDA officials they play a critical role in enabling loans that USDA would 

not otherwise be able to make during this time. USDA officials said that 

they did not pay the 2-percent guarantee fee with CAIP funds, rather they 

used all available CAIP funds to increase the pool of funds for loan 

guarantees. The average size of CAIP-supported USDA Business and 

Industry loan guarantees was about $1.9 million, according to CAIP.

Most SBA officials we talked to said that CAIP was valuable in paying the 

7(a) guarantee fee, which was a burden for most small business borrowers. 

The average size of CAIP-supported SBA 7(a) loan guarantees was about 

$300,000, according to CAIP, with guarantee fees ranging from 2 percent to 

3.875 percent of the guaranteed portion of the loan, depending on the size 

of the loan. Most of the participating lenders and borrowers we talked to 

agreed, saying that not having to pay the guarantee fee had been a benefit 

for the borrowers and had freed up needed operating capital during their 

business expansion. Most lenders and borrowers said that they probably 

would have completed the SBA 7(a) loan without the CAIP benefit; 

however, lack of the benefit would have increased the risk to their small 

business expansion projects. Having the extra capital helped to make the 

business stronger and allowed them to hire more workers. 

CAIP Does Not Monitor 

Loan Outcomes

CAIP has no requirements for monitoring the outcomes of its financial 

assistance to eligible counties, which would allow it to measure the degree 

to which the program has actually assisted distressed counties. Program 

officials monitor program outputs, such as the number of loans, loan 

amounts, and CAIP expenses. As such, these are measures only of what 

CAIP is providing counties, not what has resulted in the counties due to the 

loans. Program officials do track the number of jobs created or retained 

due to CAIP loan guarantees, which program records indicate was 9,208 

jobs, as of June 8, 2000. However, these data are based solely on the 

projections made by businesses when they apply for the loan guarantee. 

There is no follow-up to monitor the actual number of jobs that the 

borrowing businesses had realized in the 24 months following the loan, 
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Page 23 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

although this estimate is a primary condition for qualifying for the CAIP 

loan guarantee. 

The issue of creation of jobs is a complex one. As we have stated in prior 

work, economists and policymakers recognize that employment levels are 

substantially influenced by macroeconomic policies, including actions of 

the Federal Reserve. At the national level, under conditions of full 

employment, government finance assistance programs may largely shift 

production among sectors within the economy rather than raise the overall 

level of employment in the economy. Therefore, it should be kept in mind 

that the jobs figure that CAIP reports may not represent net job gains in a 

period of full employment.

Another consideration in CAIP’s jobs numbers is the question of the 

“additionality”—that is, would these jobs have been created or retained 

anyway in the absence of the program. For instance, most of the SBA 7(a) 

lenders and borrowers we interviewed said that the SBA 7(a) loan 

guarantees provided under CAIP would still likely have been made without 

CAIP participation. While CAIP financing may have helped stimulate 

economic growth in distressed counties, unless CAIP develops appropriate 

performance measures and a monitoring system to track them, it will not 

be able to establish the degree to which the program has actually assisted 

these counties.

Conclusions The additional contribution that CAIP makes to distressed counties 

appears limited, as most of the assistance provided to date—$254 million in 

loan guarantees, or 99 percent of the total program support—is channeled 

through existing USDA and SBA loan guarantee delivery mechanisms. 

Although agency officials, bankers, and participating businesses that we 

interviewed said they valued this financing, they acknowledged that a 

significant amount of these loan guarantees would have been provided 

without the program. Answering this fundamental question requires a 

monitoring system that measures program outcomes and demonstrates the 

value of the program.

We identified several additional areas where program management could 

be improved. First, the Finance Committee’s retention of certain day-to-day 

managerial functions has resulted in a highly centralized and inefficient 

management decision-making structure. Second, eligibility determinations 

are very complex and rely upon a Department of Labor database that was 

not designed for this purpose. Furthermore, eligibility determination 
B-286103

Page 24 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

procedures do not ensure the completeness and accuracy of the data, 

which could potentially result in eliminating some counties from qualifying 

for program assistance. Finally, adequate notification has not been 

provided to eligible counties.

Recommendations for 

Executive Action

In order to improve the management and administration of the Community 

Adjustment and Investment Program, we recommend that the Secretary of 

the Treasury direct the Chair of CAIP’s Finance Committee to take the 

following steps.

1. Consider delegating additional decision-making authority from the 

Finance Committee to program staff for loans and grants. 

2. Establish procedures to ensure that the data used in determining 

eligibility for program assistance are complete and accurate.

3. Improve notification of eligible counties by directly informing them 

when they are found to be eligible for the program.

4. Establish outcome measures and a monitoring system to track the 

degree to which the program has actually assisted distressed counties.

Agency Comments and 

Our Evaluation

We received written comments on a draft of this report from the 

Department of the Treasury, the SBA, and USDA (see apps. III to V). The 

Treasury agreed with our recommendations to establish procedures for 

complete and accurate eligibility data and to improve eligibility notification 

and said it was already taking steps to implement an improved eligibility 

notification process. The SBA and USDA did not comment on these two 

recommendations. In addition, the Treasury, the SBA, and USDA also 

provided technical comments, which we incorporated in the report as 

appropriate.

The Treasury, the SBA, and USDA did not agree with our recommendation 

that the Finance Committee consider delegating additional 

decision-making authority, particularly for loan guarantees. In addition, the 

Treasury said that it wanted to retain the current process for direct loans 

and grant awards because this type of assistance occurs infrequently. The 

three agencies provided information clarifying the role of the Finance 

Committee in the loan guarantee approval process, and as a result we have 
B-286103

Page 25 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

revised our report and focused our recommendation on delegating 

decision-making authority for grants and loans. Just as agency officials 

indicated that the loan guarantee process became more efficient once the 

Finance Committee delegated approval authority to the Loan 

Subcommittee, other areas of program activity, such as determinations of 

community eligibility and the administration of direct loans and grants, 

would also benefit from such a delegation of decision-making authority to 

program staff. The Finance Committee’s retention of decision-making 

authority in these areas is inefficient and has added substantial time—in 

some cases, months—to the decision-making process. Greater efficiency 

will be even more important in the near future, since agency officials have 

indicated that the Grant Program is expected to grow substantially over the 

upcoming year.

Finally, the Treasury agreed in principle with our recommendation that the 

Community Adjustment and Investment Program establish outcome 

measures and a monitoring system to track the degree to which the 

program has actually assisted distressed counties. However, the Treasury 

expressed concern that imposing a reporting requirement on lenders 

and/or borrowers involved with the program’s loan guarantees would make 

the program less competitive than the SBA’s and USDA’s other loan 

guarantees. The Treasury indicated it would explore monitoring through 

informal surveys or through site visits or interviews by the SBA and USDA 

field offices. The SBA and USDA both noted that the program’s Los Angeles 

office had conducted a follow-up survey of jobs realized by borrowing 

businesses. 

We do not believe that follow-up monitoring of the Community Adjustment 

and Investment Program’s loan guarantees, loans, or grants will make them 

less competitive or desirable to recipients. In fact, the SBA and USDA 

already conduct their own follow-up activities for their loan guarantees, 

and in two of the three partner programs are already collecting some 

degree of job results information. As such, the program’s loan guarantees 

would clearly not be put at a competitive disadvantage if the program 

instituted a monitoring system, as recommended in our report. In terms of 

the survey mentioned by the Treasury, the SBA, and USDA, the program’s 

Los Angeles office did conduct a preliminary survey from October 1998 to 

February 1999 of jobs created or retained as a result of the program’s loan 

guarantee partnership with USDA during the program’s first year of 

operation. However, this was a onetime snapshot of one of the program’s 

loan guarantee partnerships and does not constitute a consistent or 
B-286103

Page 26 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

effective monitoring system that would provide program outcome 

measures, as called for in our report.

We are sending copies of this report to appropriate congressional 

committees. We are also sending copies of this report to the Honorable 

Lawrence H. Summers, Secretary of the Treasury; the Honorable Dan 

Glickman, Secretary of Agriculture; and the Honorable Aida Alvarez, 

Administrator of the Small Business Administration. Copies will also be 

made available to others upon request.

If you or your staff have any questions about this report, please contact me 

on (202) 512-4128. Additional GAO contacts and staff acknowledgments are 

listed in appendix VI.

Susan S. Westin, Associate Director

International Relations and Trade Issues
Page 27 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities
Page 28 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

Appendix I

Community Adjustment and Investment Apendxies

Program Financing for Distressed 

Communities Through Loan Guarantees, 

Loans, and Grants ApendxiI

The Community Adjustment and Investment Program (CAIP) was 

established in December 1993 to assist communities that have suffered job 

losses due to changing trade patterns with Mexico and Canada as a result 

of the 1993 North American Free Trade Agreement (NAFTA). It provides 

financing assistance to these distressed communities through loan 

guarantees, loans, and grants in order to stimulate private sector 

employment and growth.

Loan Guarantees CAIP has formed a lending partnership with the Department of Agriculture 

(USDA) and the Small Business Administration (SBA) in order to provide 

loan guarantees. This component, called the CAIP Federal Agency 

Program, has partnered with the USDA Business and Industry Guaranteed 

Loan Program and the SBA 7(a) Loan Guarantee Program. Further, the 

Finance Committee that manages CAIP approved the addition of the SBA’s 

504 Program to the Federal Agency Program in April 2000. It was initiated 

on August 10, 2000.

USDA’s Business and Industry Guaranteed Loan Program is administered 

by the Rural Business-Cooperative Service of USDA Rural Development. 

The primary purpose of the program is to create and maintain employment 

and improve the economic and environmental climate in rural 

communities. Loan guarantees are limited to a maximum of $10 million per 

borrower, although the Rural Business-Cooperative Service Administrator 

may approve loans up to $25 million. The guarantee will cover from 60 to 

80 percent of the loan, depending on the size of the loan. Repayment must 

be made within 7 years for working capital, 15 years for machinery and 

equipment (or its useful life), and 30 years for real estate. The guarantee fee 

is generally 2 percent of the guaranteed principal amount.1

1

More detailed information on the Business and Industry Guaranteed Loan Program is 

available at its Web site: www.rurdev.usda.gov.
Appendix I

Community Adjustment and Investment 

Program Financing for Distressed 

Communities Through Loan Guarantees, 

Loans, and Grants

Page 29 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

The SBA’s 7(a) Loan Guarantee Program is its primary business loan 

program, generally used for business start-ups and to meet the varied 

short- and long-term needs of existing small businesses. A 7(a) guaranteed 

loan may be used for most business purposes, including start-up, 

expansion, equipment purchases, working capital, inventory, or real estate 

acquisition. Participating lenders—small business lenders that have 

entered into lending agreements with the SBA—provide loans in 

conjunction with SBA guarantees. By reducing risk, guarantees expand the 

lenders’ ability to make small business loans. Generally, the SBA can 

guarantee up to $750,000 of a private sector loan. The guarantee rate is

80 percent on loans of $100,000 or less and 75 percent on loans greater than 

$100,000. The loan can extend to 10 years for working capital and

25 years for fixed assets. The guarantee fee ranges from 2 to 3.875 percent, 

depending on the size of the loan.2

CAIP recently decided to add the SBA’s 504 Loan Program to the CAIP 

Federal Agency Program. The 504 Loan Program provides long-term, 

fixed-rate financing for businesses needing to acquire industrial or 

commercial buildings or heavy machinery and equipment. Loans under the 

504 Program are developed through certified development companies 

(nonprofit corporations sponsored by private-sector organizations or by 

state and local governments to contribute to economic development), 

working in partnership with private lenders and the SBA. The certified 

development company finances its part of the loan through the sale of a 

debenture3

 to private institutional investors with the SBA fully 

guaranteeing the repayment of the debenture. The SBA can guarantee 

debentures covering as much as 40 percent of a 504 project. The maximum 

SBA debenture generally is $750,000 (up to $1 million, if the project meets a 

public policy goal). For every $35,000 of debenture financing in the 

certified development corporation’s portfolio, the SBA requires that an 

average of one job be created or retained within 2 years of the project’s 

funding.

2

More detailed information on SBA 7(a) loans is available at its Web site: 

www.sba.gov/financing. 

3

A debenture is a bond backed by the general credit of a corporation rather than a specific 

lien on particular assets.
Appendix I

Community Adjustment and Investment 

Program Financing for Distressed 

Communities Through Loan Guarantees, 

Loans, and Grants

Page 30 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

Direct Loans The CAIP Direct Loan Program is administered by CAIP’s Los Angeles 

office. While direct loans must generally meet the same criteria CAIP has 

set for its loan guarantee programs, the application process is much more 

involved. Both the application process and the evaluation and selection 

process for direct loans are delineated in the CAIP guidelines. For example, 

to be eligible for a direct loan, the director of the program conducts an 

initial evaluation of the project using specified criteria and a scoring system 

that includes elements such as county job losses and the need for transition 

assistance, as well as the anticipated benefits of the project to that county. 

The director submits to the Finance Committee only those projects 

receiving a score of 60 points or greater out of a potential 100 points. 

Although the Los Angeles office has reviewed a number of loan requests, it 

has made only two direct loans. The first direct loan was made to California 

Coastal Rural Development Corporation for $500,000 and was approved by 

the Finance Committee on September 5, 1997. The loan to Cal Coastal is 

being used as a line of credit that has allowed this community-based, 

nonprofit lender to provide up to 10 percent of the total loan amount of the 

loans guaranteed by USDA’s Business and Industry/CAIP loan guarantee 

program.4

 Since the direct loan to Cal Coastal closed in October 1997, Cal 

Coastal has made three Business and Industry/CAIP loans totaling over 

$2.2 million, and it has projected the loans will help create or retain 135 

jobs, as of April 25, 2000. According to the CAIP Direct Loan Program 

Director, Cal Coastal would likely not have been able to make these loans 

without the direct loan because it lacks the capital to fund the required 

10 percent that is not guaranteed. 

The Finance Committee approved a second tranche, or installment, of 

$500,000 to Cal Coastal on January 4, 2000. Cal Coastal had originally 

requested $1 million, and the loan had been approved in two installments of 

$500,000. However, the Finance Committee did not close the loan, that is, 

transfer the funds, until August 11, 2000, according to the CAIP Direct Loan 

Program Director. Cal Coastal has requested the second installment 

4

The USDA Business and Industry/CAIP loan guarantee program provides a 90-percent loan 

guarantee, leaving 10 percent that is not guaranteed and that must be carried by the lending 

institution. For example, for a $1 million loan, USDA would guarantee 90 percent, or 

$900,000, and the lender would hold the unguaranteed portion (10 percent, or $100,000). In 

this example, the CAIP line of credit would be used to fund the unguaranteed amount. The 

guaranteed portion of the loan is salable in the secondary market, which the lender would 

immediately sell off in order to recoup the majority of the total loaned. 
Appendix I

Community Adjustment and Investment 

Program Financing for Distressed 

Communities Through Loan Guarantees, 

Loans, and Grants

Page 31 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

because its existing line of credit with CAIP has been depleted by about 

half. In addition, Cal Coastal has more Business and Industry/CAIP loans 

that it is working to complete but that call for about $100,000 more than is 

available under the first installment. 

The second direct loan was made to the El Paso Workforce Collaborative, a 

wholly owned subsidiary of the Greater El Paso Chamber of Commerce, for 

$1 million and was approved by the Finance Committee on May 13, 1999. 

This direct loan has enabled the El Paso Chamber of Commerce to make 

renovations to a former Levi-Strauss factory. The renovated facility will be 

used as both a workforce development center and a business resource 

center. As long as the Chamber uses the building as a workforce 

development center, interest charges accrued on the loan will be waived. 

Although the facility was not fully finished when we visited El Paso in June 

2000, the Chamber had submitted plans and specifications for its 

completion. The Chamber also recently reported that about 98 percent of 

the renovated building was leased. 

Besides managing the direct loan program, the CAIP Los Angeles office has 

provided some technical assistance, outreach, and monitoring. For 

example, the Los Angeles office provides technical assistance to 

businesses interested in receiving benefits under the CAIP Direct Loan or 

Federal Agency programs. The office has been involved in providing 

technical assistance to several applicants that resulted in loans made 

through the Federal Agency Program in conjunction with commercial 

lenders. In addition, outreach activities include working with communities 

applying for CAIP eligibility to help them identify actual NAFTA impacts, as 

well as attending various conferences to help market CAIP and efforts to 

maintain the CAIP Web site. Finally, in an effort to help monitor CAIP 

eligibility and activity, the Los Angeles office prepares an annual CAIP 

status report that captures eligibility and activity data by state.
Appendix I

Community Adjustment and Investment 

Program Financing for Distressed 

Communities Through Loan Guarantees, 

Loans, and Grants

Page 32 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

Grants The CAIP Grant Program is administered by the CAIP Grant Program 

office, located in the San Antonio, Texas, headquarters of the North 

American Development Bank. Among other responsibilities, the Grant 

Program office has core activities that include designing the national 

selection process and, when grants are awarded, monitoring project 

implementation. Up to $6 million has been committed to fund the first 

round of grant awards. A project may be funded under the Grant Program if 

it meets applicant5

 and area eligibility requirements laid out in the 

solicitation for grant applications. In addition, it must meet broad eligibility 

criteria for projects and programs established by the Finance Committee. 

Two types of grants may be funded: specific project grants or technical 

assistance grants. For example, a specific project grant may be awarded to 

a project that provides assistance to retain an existing business that has 

threatened to leave the United States. A technical assistance grant may be 

obtained to support the development of specific projects or programs 

designed to create or preserve jobs (for example, providing preparation 

assistance to applicants under the CAIP Direct Loan Program or similar 

assistance programs). 

In addition to the eligibility requirements, a formal application that 

includes a work plan statement must be completed and submitted to the 

Grant Program office. The application is then screened for eligibility and 

completeness, and a competitive scoring system is employed to determine 

which projects will be funded. A Funding Subcommittee with grants 

experience implements the scoring system, which includes a 

recommended slate of applicants for endorsement to the Finance 

Committee. Once an applicant is selected to receive a grant award, the 

awardee will be required to enter into a grant agreement that includes 

requirements to complete the project and report on the project’s progress. 

The Grant Program received 81 specific project applications and 55 

technical assistance applications, with a total amount requested of about 

$46.4 million. After the grant solicitation closed in January 2000, the Grant 

Program office staff and the Funding Subcommittee developed specific 

review procedures and implemented the final procedures approved by the 

Finance Committee. The Finance Committee received and approved the 

5

An eligible applicant is any nonprofit (501 (c) (3) or 501 (c) (4)) organization, public or 

private institution of higher education, state or local political subdivision or agency, or 

Indian tribal government.
Appendix I

Community Adjustment and Investment 

Program Financing for Distressed 

Communities Through Loan Guarantees, 

Loans, and Grants

Page 33 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

recommended slate of applicants from the Funding Subcommittee in June. 

Then the Grant Program office performed its due diligence requirements to 

ensure the integrity of the Grant Program. Although an announcement on 

the grant awards had been anticipated for March 2000, the awards were not 

approved by the Finance Committee until August 1, 2000, and still had not 

been publicly announced as of September 14, 2000. 

A pilot project to fund the New Mexico Border Authority in Dona Ana 

County, New Mexico, was approved by the Finance Committee on 

March 10, 1999. The grant request for $600,000 was planned as seed money 

for providing retraining to approximately 1,200 workers in the Dona Ana 

region of New Mexico, a highly NAFTA-impacted area. The pilot grant 

project was initiated in part to help the Grant Program office gain some 

experience in the development of a grant program and in part to encourage 

support for the new Grant Program.

Administratively, the Grant Program has also benefited from its affiliation 

with the North American Development Bank office in San Antonio, Texas, 

according to the Grant Program Director. The Bank provides additional 

resources to CAIP through specific services supplied to the Grant Program. 

For example, Grant Program staff have benefited from access to the 

expertise of Bank procurement and disbursement specialists, as well as 

from administrative support, such as the Bank’s receptionist. Having these 

types of resources available to the CAIP Grant Program has proved 

beneficial and provided it with important efficiencies, according to the 

Grant Program Director.
Page 34 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

Appendix II

Objectives, Scope, and Methodology ApendxiI

Concerned about whether the Community Adjustment and Investment 

Program is providing timely and useful assistance to communities suffering 

job losses due to changing trade patterns with Mexico and Canada, the 

Chairman and Ranking Minority Member of the Senate Finance Committee 

asked us to assess (1) how the program has been structured, (2) how 

program eligibility criteria and outreach efforts have been implemented, 

and (3) what the results of efforts to provide assistance to eligible 

communities were.

To obtain information on how the program has been structured, we 

interviewed agency officials from the Departments of the Treasury and 

Agriculture and the Small Business Administration and reviewed program 

documents, including minutes of CAIP Finance Committee meetings. We 

reviewed the minutes and briefing packages for all of CAIP’s Advisory 

Committee meetings that have been held. We also attended the Advisory 

Committee’s annual meeting on April 25, 2000, in Washington, D.C.

To obtain information on how program eligibility criteria have been 

implemented, we looked at documentation and interviewed officials at the 

Departments of Labor and the Treasury, as well as the CAIP Los Angeles 

office. We reviewed the Finance and Advisory Committee records of 

deliberations on establishing eligibility criteria. We also interviewed an 

official of the North American Integration and Development Center at the 

University of California in Los Angeles, which is under contract to the 

Department of the Treasury to conduct the actual computer runs that 

determine program eligibility. Further, we reviewed the procedural manual 

for eligibility determinations that the Treasury’s Office of Economic Policy 

provided to the Center. In addition, we obtained and analyzed the 

NAFTA-Transitional Adjustment Assistance Program database that the 

Department of Labor provides to the Treasury for the eligibility 

determination. 

To obtain information on how program outreach efforts have been 

implemented, we interviewed agency officials and reviewed program 

documents at the Departments of the Treasury and Agriculture, the Small 

Business Administration, and the CAIP Los Angeles and San Antonio 

offices. In order to gain the perspective of how participating eligible 

communities viewed CAIP’s outreach efforts, we visited two communities 

with high usage of the program—El Paso, Texas, and Coeur d’Alene, Idaho. 

We selected El Paso because it was the community with the highest amount 

of CAIP financing, including loan guarantees and a direct loan; it was in the 

U.S.-Mexico border region; and it was highly impacted by NAFTA. We 
Appendix II

Objectives, Scope, and Methodology

Page 35 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

selected Coeur d’Alene because it had the highest number of both USDA 

and SBA loan guarantees in the same area, and it was close to the 

U.S.-Canada border. We interviewed SBA field office officials in El Paso 

and in Spokane, Washington, because SBA’s Spokane District Office was 

responsible for northern Idaho, including the Coeur d’Alene area. We 

interviewed USDA officials in Coeur d’Alene. In these communities, we 

also met with lenders, borrowers, chamber of commerce officials, 

economic development officials, and academics. To gain the perspective of 

USDA and SBA field officials in different parts of the country where there 

was both high and low participation in CAIP financing, we conducted 

telephone interviews with agency officials in California, Louisiana, New 

York, South Carolina, and Texas.

To obtain information on the results of efforts to provide assistance to 

eligible communities, we interviewed agency officials and obtained 

documentation at the Departments of the Treasury and Agriculture and the 

Small Business Administration and the CAIP Los Angeles office. In 

addition, for loan guarantees, we reviewed the USDA and SBA CAIP loan 

guarantee databases. We visited the CAIP Grant Program office in San 

Antonio and reviewed Grant Program procedures and a selection of 

applications. We also met with officials of the North American 

Development Bank who have been assisting the Grant Program office. Our 

field visits to El Paso and Coeur d’Alene were also focused on gaining the 

perspective of these NAFTA-impacted communities on CAIP financing. As 

previously stated, we met with agency officials implementing the program 

in these communities and with lenders, borrowers, community officials, 

chamber of commerce officials, and economic development officials. In El 

Paso, we met with a Greater El Paso Chamber of Commerce official to gain 

his views on both CAIP loan guarantees and the direct loan the Chamber 

obtained. We also met with the Director of the New Mexico Border 

Authority, which undertook the grant pilot project. We supplemented this 

information with our telephone interviews with agency officials in 

California, Louisiana, New York, South Carolina, and Texas.

We performed our work from February through August 2000 in accordance 

with generally accepted government auditing standards.
Page 36 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

Appendix III

Comments From the Department of the 

Treasury ApendxiI

Note: GAO comment 

supplementing those in the 

report text appear at the end 

of this appendix.

See comment 1.
Appendix III

Comments From the Department of the 

Treasury

Page 37 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities
Appendix III

Comments From the Department of the 

Treasury

Page 38 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

The following is GAO’s comment on the Department of the Treasury’s letter 

dated September 14, 2000.

GAO Comment 1. We revised the report to clarify the role of the Finance Committee in 

approving loan guarantees. We also modified our recommendation to 

focus on the need for greater delegation of decision-making authority 

for loans and grants. 
Page 39 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

Appendix IV

Comments From the Small Business 

Administration ApendxiIV

Note: GAO comments 

supplementing those in the 

report text appear at the end 

of this appendix.

See comment 1.
Appendix IV

Comments From the Small Business 

Administration

Page 40 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

See comment 2.
Appendix IV

Comments From the Small Business 

Administration

Page 41 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

See comment 3.
Appendix IV

Comments From the Small Business 

Administration

Page 42 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

See comment 1.
Appendix IV

Comments From the Small Business 

Administration

Page 43 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities
Appendix IV

Comments From the Small Business 

Administration

Page 44 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

The following are GAO’s comments on the Small Business Administration’s 

letter dated September 13, 2000.

GAO Comments 1. Our point was not to question whether these loan guarantees could 

have been made without CAIP. All borrowers clearly have to qualify for 

the 7(a) loan guarantee before they are considered for CAIP eligibility. 

Our point was to raise the question of what additional benefits or 

outcomes CAIP was bringing to the program. Outcome measures and a 

monitoring system are needed to demonstrate the benefits CAIP has 

brought to communities. In addition, it was not our intent and nowhere 

does the report indicate that CAIP loan guarantees should be targeted 

to higher-risk lenders.

2. As we stated in the text, the issue of job creation is a complex one. Our 

point was to note that in the larger economic context, a government 

financial assistance program such as CAIP is not likely to create net 

new jobs in the economy. Rather, programs such as CAIP can shift 

resources from one region or industry to another. This issue has been 

recognized by the Office of Management and Budget in its OMB 

Circular A-94, Guidelines and Discount Rates for Benefit-Cost Analysis 

of Federal Programs (Oct. 1992), which instructs agencies to assume 

that resources in the economy are likely to be fully employed.

3. We revised the report to clarify the role of the Finance Committee in 

approving loan guarantees. We also modified our recommendation to 

focus on the need for greater delegation of decision-making authority 

for loans and grants.
Page 45 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

Appendix V

Comments From the Department of 

Agriculture ApendxiV

Note: GAO comments 

supplementing those in the 

report text appear at the end 

of this appendix.

See comment 1.
Appendix V

Comments From the Department of 

Agriculture

Page 46 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities
Appendix V

Comments From the Department of 

Agriculture

Page 47 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

See comment 2.
Appendix V

Comments From the Department of 

Agriculture

Page 48 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

See comment 3.

See comment 4.
Appendix V

Comments From the Department of 

Agriculture

Page 49 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

See comment 5.
Appendix V

Comments From the Department of 

Agriculture

Page 50 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities
Appendix V

Comments From the Department of 

Agriculture

Page 51 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities
Appendix V

Comments From the Department of 

Agriculture

Page 52 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

See comment 6.
Appendix V

Comments From the Department of 

Agriculture

Page 53 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

The following are GAO's comments on the Department of Agriculture's 

letter dated September 12, 2000.

GAO Comments 1. We revised the report to clarify the role of the Finance Committee in 

approving loan guarantees. We also modified our recommendation to 

focus on the need for greater delegation of decision-making authority 

for loans and grants.

2. Our point was not to question whether these loan guarantees would 

have been made without CAIP, but rather to raise the question of what 

additional benefits or outcomes CAIP was bringing to the program. 

Outcome measures and a monitoring system are needed to 

demonstrate the benefits CAIP has brought to communities.

3. As we stated in the text, the issue of job creation is a complex one. Our 

point was to note that in the larger economic context, a government 

financial assistance program such as CAIP is not likely to create net 

new jobs in the economy. Rather, programs such as CAIP can shift 

resources from one region or industry to another. This issue has been 

recognized by the Office of Management and Budget in its OMB 

Circular A-94, Guidelines and Discount Rates for Benefit-Cost Analysis 

of Federal Programs (Oct. 1992), which instructs agencies to assume 

that resources in the economy are likely to be fully employed.

4. We revised the name of the program in the text as suggested.

5. The data in figure 4, and throughout the report, are based on the 

calendar year and not the fiscal year. We have added a note to figure 4 

indicating its basis in calendar year data.

6. These points are largely covered in both the letter and in greater detail 

in appendix I.
Page 54 GAO/NSIAD-00-229 Trade Adjustment Assistance for Communities

Appendix VI

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Steve Lord (202) 512-4379

Leyla Kazaz (202) 512-9638

Acknowledgments In addition to those listed above, Patricia Cazares-Chao, Phil Herr, 

Samantha Roberts, Rona Mendelsohn, Frederick J. Barrett, Matt Helm, and 

Franz Traxler made key contributions to this report. 

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