Cost Report

Report to Congress submitted pursuant to Section 4106(2)

of the Small Business Jobs Act
 

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July 2016

Cost Report

Report to Congress submitted pursuant to Section 4106(2)  

of the Small Business Jobs Act of 2010

Introduction

Small businesses are a vital part of the American economy, and their success is a critical component of

economic recovery.  Established by the Small Business Jobs Act of 2010 (the Act), the Small Business

Lending Fund (SBLF) is a dedicated fund designed to provide capital to qualified community banks1 and

community development loan funds (CDLFs) in order to encourage small business lending.  The purpose

of the SBLF is to encourage Main Street banks and small businesses to work together, help create jobs,

and promote economic growth in communities across the nation.   

This report is submitted pursuant to Section 4106(2) of the Act, which directs the Secretary of the

Treasury to provide a semiannual written report to Congress on all projected costs and liabilities, all

operating expenses, including compensation for financial agents, and all transactions made with respect

to the SBLF program.  This report reflects the estimated lifetime returns on the program’s investments

and the outlays and obligations for the period ending September 30, 2015.  

Investments made through the SBLF program are presently expected to generate a positive return of

$51 million, excluding administrative costs.  In addition, Treasury incurred $11 million in fiscal year 2015

obligations for the SBLF program, which is $6 million less than the operating budget of $17.3 million as

presented in the President’s Budget for fiscal year 2015.   

Estimated Cost of SBLF Investments

Treasury invested more than $4.0 billion in 332 institutions through the SBLF program.  These amounts

include investments of $3.9 billion in 281 community banks and $104 million in 51 CDLFs.  Collectively,

these institutions operate in more than 3,000 locations across 48 states.  The initial disbursement of

SBLF funding occurred on June 21, 2011, with subsequent transactions completed thereafter until the

program’s September 27, 2011 statutory funding deadline.   

As of June 1, 2016, 250 institutions with aggregate investments of $3.5 billion have fully redeemed their

SBLF securities and exited the program, and 8 institutions have partially redeemed $49 million (or 54

percent of their SBLF securities) while continuing to participate in the program.2

   

As of March 31, 2016, institutions participating in SBLF had made important progress in increasing their

small business lending, helping to support small businesses and local economies across the nation.  In

total, SBLF participants have increased their small business lending by $18.5 billion.3

                                                            

1 In this report, the terms “banks” and “community banks” encompass banks, thrifts, and bank and thrift holding companies

with consolidated assets of less than $10 billion as of December 31, 2010. 2 Only redemptions through FY 2015 are included in the calculation of the lifetime subsidy.
 

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Treasury currently estimates that the investments made through the SBLF program will generate a

lifetime positive return of $51 million for the Treasury General Fund.  The figures in the following table

reflect Treasury’s calculation of the estimated cost of SBLF investments, as presented in the President’s

Budget for fiscal year 2017.

Estimated Cost of SBLF Investments

(Dollars in millions)

Treasury estimated the budgetary cost of investments made through the program in conformance with

the Federal Credit Reform Act (FCRA) methodology using actual program data for fiscal years 2011,

2012, 2013, 2014 and 2015.  This data, combined with the expected future cash flows, result in a subsidy

rate of ‐1.27 percent compared to an original subsidy rate of 7.24 percent.   

Per FCRA requirements, Treasury estimated the lifetime cost and subsidy rate of the SBLF program on a

present value basis.  Assumptions used to estimate future cash flows include, but are not limited to: (1)

the forecasted cumulative default rate for program participants; (2) the actual and projected cash flows

received by Treasury from the participants’ dividend, interest, and other payments; and (3) Treasury’s

cost of raising funds to make the SBLF investments.  

The current estimate of the program’s projected lifetime savings incorporates a forecasted cumulative

default rate (i.e., lost principal, interest, and dividends) of 0.42 percent compared to a 2.32 percent rate

in the prior year’s estimate.  This lower rate reflects an overall improvement in the financial condition of

program participants.  The current year estimate also incorporates a reduction in expected lifetime

dividend and interest payments to Treasury as a result of increases in SBLF security redemptions.

Inclusive of these changes, the program’s projected lifetime positive return is $51 million.

   

Outlays and Obligations for Operating Expenses  

Treasury is committed to implementing the SBLF in a cost‐effective manner to protect taxpayer interests

while achieving the program’s objectives of encouraging small business lending.  The outlays for fiscal

year 2015, reported herein, primarily reflect the costs of monitoring the performance and compliance of

                                                                                                                                                                                                3 As established in the Act, the baseline for measuring the change in small business lending is the average of the amounts that

were reported for each of the four calendar quarters ended June 30, 2010. The aggregate baseline lending decreases as

participants redeem and those participants’ baseline lending is removed from the aggregate baseline. The default rate is

estimated based on the financial condition of program participants relative to the historical performance of institutions rated

by the major ratings agencies. The SBLF portfolio has had no defaults to date.

Subsidy Rate

Projected/Actual

Investment Amount

Projected Li fetime

Cost (Savings)

Original estimate 7.24% 17,399 1,260

President's Budget for fiscal year 2013 ‐2.08% 4,028 ‐84

President's Budget for fiscal year 2014 ‐1.26% 4,028 ‐50

President's Budget for fiscal year 2015 ‐0.63% 4,028 ‐25

President's Budget for fiscal year 2016 ‐0.26% 4,028 ‐10

President's Budget for fiscal year 2017 ‐1.27% 4,028 ‐51
 

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participating institutions, reporting on program performance and expenses, maintaining program

accounts, and managing the portfolio and the disposition of securities purchased.  In total, as of

September 30, 2015, outlays for fiscal year 2015 totaled $9 million.

The figures shown in the following table reflect outlays and obligations for operating expenses incurred

as of September 30, 2015.  Descriptions of the expense categories follow the table.

SBLF Outlays and Obligations for Fiscal Year 2015

Budget for

fiscal year

20151

Outlays  

as of 9/30/152

Obligations

as of 9/30/153

Salaries and benefits 3,727,000 2,148,967 2,150,667

Travel 20,000 1,951 1,951

Contracts and other

Legal support n/a 0 0

Custodian and infrastructure provider n/a 410,380 844,100

Asset management n/a 3,406,515 3,939,745

Internal controls n/a 555,325 719,100

Office of the Treasury Inspector General n/a 549,824 628,108

Other (equipment, supplies, rent) n/a 1,982,357 2,651,659

Subtotal (contracts and other) 13,634,000 6,904,401 8,782,712

Total 17,361,000 9,055,319 10,935,330

[1] Represents the total budget for the SBLF program for fiscal year 2015 per the 2015 President's Budget.   

[2] Includes outlays from 10/1/2014 to 9/30/2015 for fiscal year 2015, as well as carried‐over 2013 and 2014 available funds.

[3] Includes all fiscal year 2015 obligations as of 9/30/2015.  

                                                                                                                           

On September 27, 2011, the SBLF program’s core investment activities were completed.  SBLF is now

staffed primarily to monitor, manage, and report on these investments and related participant lending

and program activities.   

Contract and other expenses are reported in the period obligated.  Descriptions of costs related to legal

support, financial agents, internal controls, and the Treasury’s Office of the Inspector General (OIG) are

presented below:

 Legal Support:  Legal services incurred in connection with transactions related to the

management of the investments.   
 

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 Custodian and Infrastructure Provider:  Bank custodial services with respect to SBLF securities

and documents, and payments processing for SBLF participants.   

 Asset Management:  Financial analysis and monitoring of SBLF participants and applicable

market research regarding the community banking sector.   

 Internal Controls:  Design and implementation of processes and internal controls associated

with the program’s asset management, operating, reporting, and compliance functions.  Internal

controls include work performed by consultants to develop procedures, systems, information

databases, and other documentation for monitoring and managing program activities.   

 Office of the Treasury Inspector General:  Reimbursements to the Treasury’s OIG for audits of

the SBLF program.  Per the Act, OIG is required to issue reports on the SBLF no less than two

times each year.  The fiscal year 2015 budgeted amount for audit related activities was

$628,108.