Small Business Credit Programs: Treasury Continues to Enhance Performance Measurement and Evaluation but Could Better Communicate and Update Results
Published: 2014-12-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Small Business Jobs Act of 2010 established the SBLF and SSBCI programs within Treasury to enhance credit opportunities for small businesses. SBLF aims to stimulate job growth by encouraging community banks and community development loan funds with assets of $10 billion or less to increase their small business lending. SSBCI provides direct funding to participants for programs that expand access to capital to small businesses.
The act mandates that GAO conduct an audit of both programs annually. GAO's prior audits examined program implementation, monitoring of performance and compliance, and usage of program funds. This fourth report examines (1) the status of SBLF and SSBCI and (2) the extent to which Treasury has enhanced efforts to measure and evaluate program performance. GAO analyzed the most recently available financial and performance information and interviewed officials from Treasury, nine states, one municipality, and trade associations. GAO selected the states and municipality based on usage of SSBCI funds, unique program characteristics, number of programs, and geographic dispersion, among other things.
section_title: What GAO Found
paragraphs: The Small Business Lending Fund (SBLF) and State Small Business Credit Initiative (SSBCI) have continued to support small business lending. According to the Department of the Treasury (Treasury), as of June 30, 2014, SBLF participants had increased their qualified small business lending by $13.5 billion over their aggregate 2010 baseline, and SSBCI participants had used 60 percent of the $1.5 billion in allocated funds.
In response to prior GAO recommendations, Treasury has taken steps to enhance performance measurement and program evaluation for SBLF and SSBCI but has not effectively communicated or updated its SBLF evaluation.
SBLF. Treasury conducted an impact evaluation, using statistical methods to compare lending among SBLF banks to a control group of non-SBLF banks that are as similar as possible to participating SBLF banks. This rigorous approach is a significant improvement over Treasury's previous analyses because it is designed to isolate the impact of the program and provides greater confidence that any differences observed between SBLF and non-SBLF banks are attributable to the program rather than to other factors. Treasury's impact evaluation estimated that 23 percentage points of the increase in small business lending among SBLF banks is attributable to the program. Although Treasury's previous, less rigorous analyses suggested that SBLF banks increased lending by as much as 45 percentage points more than non-SBLF banks, these analyses did not attempt to isolate the impact of SBLF from other factors. Treasury published its impact evaluation in appendixes in its three most recent Lending Growth Reports . However, it did not discuss the results of the evaluation in the summary or body of the reports and has not utilized the control group to update the results. Relevant resources on program evaluations indicate that the most rigorous evidence should be presented most prominently. Because Treasury has not effectively presented or updated its impact evaluation results, stakeholders may not benefit from the most rigorous and recent information on the effect of SBLF.
SSBCI. Treasury established targets for selected measures to monitor program performance and has taken steps to enhance the design of its planned program evaluation. Treasury established a target for one of its existing performance measures and also developed new performance measures and targets. For example, Treasury established a target for its existing performance measure on the amount of private-sector funds leveraged using SSBCI funds and created a new performance measure and target related to the amount of funds disbursed to states. To select and establish the new performance measures and targets, agency officials stated that they used the program objectives stated in the Small Business Jobs Act of 2010 and information from participants' annual 2013 reports. Treasury officials stated they have obtained input from experts on the design of their SSBCI program evaluation and have begun to reach out to congressional staff for feedback on the proposed design.
section_title: What GAO Recommends
paragraphs: Treasury should make the results of its SBLF impact evaluation more prominent and update its estimate of the impact of SBLF in future reports. In its written comments, Treasury agreed to implement both recommendations.

section_title: Letter
paragraphs: In 2008 and 2009, disruptions of business credit markets made accessing  credit difficult for small businesses. To address these difficulties,  Congress passed the Small Business Jobs Act of 2010, which the  president signed on September 27, 2010. Among other things, this  legislation aimed to stimulate job growth by establishing the Small  Business Lending Fund (SBLF) and the State Small Business Credit  Initiative (SSBCI) programs.
The SBLF program was designed to encourage banks and community  development loan funds (CDLF) with assets of $10 billion or less to  increase their lending to small businesses with up to $50 million in annual  revenues.  The act authorized the Secretary of the Treasury to make up  to $30 billion of capital available and offered incentives to increase small  business lending. However, interest in SBLF was lower than anticipated,  with 935 financial institutions applying to the program for a combined  funding request of $11.7 billion. The Department of the Treasury  (Treasury) approved 332 institutions for a total of $4 billion in funds. No  additional SBLF funds will be awarded to banks or CDLFs.
In this report, “banks” refers to banks, thrifts, and bank and thrift holding companies. For  purposes of the SBLF program, a CDLF is an entity that is certified by Treasury as a  community development financial institution (CDFI) loan fund. A CDFI is a specialized  financial institution that works in market niches that are underserved by traditional financial  institutions.
SSBCI funds (a leverage ratio of 10 to 1) by December 31, 2016.Participants’ Allocation Agreements are set to expire on March 31, 2017.  Treasury’s authorities to implement and administer SSBCI terminate on  September 27, 2017. The fiscal year 2015 president’s budget proposed  reauthorizing the program for a second round of SSBCI funding, which  would extend the program through 2021. In addition, legislation has been  introduced in Congress that would also provide additional SSBCI funding.
The Small Business Jobs Act of 2010 mandated that we conduct an  annual audit of the SBLF and SSBCI programs. reviewed the implementation of these programs as well as efforts to  measure and evaluate program performance, and we made  recommendations to enhance Treasury’s efforts. This fourth annual  review examines (1) the status of SBLF, (2) the status of SSBCI, and (3)  the extent to which Treasury has enhanced performance measurement  and program evaluation. § 3011(b), 124 Stat. at 2581 and § 4107(c), 124 Stat. at 2594 (codified at 12 U.S.C. §  5710(b) and 12 U.S.C. § 4741 note, respectively). On November 26, 2014, the President  signed into law the Government Reports Elimination Act of 2014, which repealed GAO’s  annual reporting requirement for SBLF and SSBCI.  See Pub. L. No. 113-188, § 901(d)- (e), 128 Stat. 2016. relevant issues. To assess the reliability of SBLF data, we reviewed prior  GAO work on the data and the systems that produced them, which  included interviewing Treasury officials on how they assess the reliability  of participants’ quarterly data and the information they maintain on SBLF.  In addition, we inspected data for missing observations and outliers. We  determined that the data were sufficiently reliable for the purposes of  describing the status of the program.
To determine the status of SSBCI as of June 30, 2014, we analyzed data  on the amount of funds used by states and on how the states had  allocated funds across the types of eligible programs. To assess the  reliability of SSBCI data, we reviewed prior GAO work on the data and the  systems that produced them. In addition, we performed electronic testing  for obvious errors in accuracy and completeness. Where there were  questions or discrepancies we identified related to the data, we clarified  them through communication with Treasury officials. We determined that  the data were sufficiently reliable for the purpose of describing the status  of the program. To obtain information on participants’ experiences with  the program, we interviewed officials from 10 SSBCI participants: West  Virginia; Washington; Minnesota; Massachusetts; Laramie, Wyoming;  Connecticut; Nebraska; Oklahoma; Idaho; and Louisiana. Factors we  used for selecting the SSBCI participants included their percentage of  funds used, number of programs implemented, and geographic  dispersion. We also interviewed representatives from three trade  associations involved with the SSBCI program: (1) the Council of  Development Finance Agencies because of its role in supporting SSBCI  participants through webinars and other resources; (2) the Opportunity  Finance Network because it is a national network of community  development financial institutions; and (3) the Community Development  Venture Capital Alliance because of its role in supporting venture capital  investing. We also examined the president’s budget request for additional  SSBCI funds and interviewed agency officials about the budget request  and lessons learned they would apply in a second round of funding.
To assess the status of Treasury’s efforts to enhance performance  measurement and program evaluation, we reviewed agency documents  and interviewed agency officials. Specifically, to assess the extent to  which Treasury’s evaluation of SBLF isolates program impact, we  interviewed agency officials on their approach, reviewed Treasury’s  methodology, and considered criteria from standard economic and  statistical approaches. We also assessed how effectively Treasury  communicated the results of its impact analysis based on our analysis of  relevant resources on the use and presentation of program evaluations.
To assess the extent to which Treasury has made progress in  establishing performance targets and obtaining input from stakeholders  as part of its evaluation design process for SSBCI, we examined  documents and interviewed officials on their planned activities. See  appendix I for a more detailed discussion of our scope and methodology.
We conducted this performance audit from April 2014 to December 2014  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.
subsections: section_title: Background
subsections: section_title: Small Business Lending Fund
paragraphs: For the purpose of the SBLF program, the Small Business Jobs Act of  2010 defines qualified small business lending—as defined by and  reported in an institution’s quarterly regulatory filings, also known as Call  Reports—as one of the following: owner-occupied nonfarm, nonresidential real estate loans; commercial and industrial loans;  loans to finance agricultural production and other loans to farmers;  and  loans secured by farmland.
In addition, qualifying small business loans cannot be for an original  amount of more than $10 million, and the business may not have more  than $50 million in annual revenue. The act specifically prohibits Treasury  from accepting applications from institutions that are on the Federal  Deposit Insurance Corporation’s (FDIC) problem bank list or have been  removed from that list during the previous 90 days. The initial baseline  small business lending amount for the SBLF program was the average  amount of qualified small business lending that was outstanding for the  four full quarters ending on June 30, 2010, and the dividend or interest  rates paid by an institution are adjusted by comparing future lending  against this baseline. Also, the institution is required to report any loans  resulting from purchases, mergers and acquisitions so that its qualified  small business lending baseline is adjusted accordingly.
Risk-weighted assets are weighted according to credit risk and are used in the  calculation of required capital levels. Specifically, all assets are assigned a risk weight  according to the credit risk of the obligor or the nature of the exposure and the nature of  any qualifying collateral or guarantee, where relevant.
Purchase Program (CPP).required to submit a small business lending plan to its regulator  describing how the applicant’s business strategy and operating goals  would allow it to address the needs of small businesses in the area it  serves.
Some banking institutions are formed as C-Corporations.  C-Corporations pay federal  and state income tax on earnings. When earnings are distributed to shareholders as  dividends, they are subject to taxation. C-Corporations, unlike S-Corporations, are taxed  separately from their owners. is designed to encourage CDLFs to repay the capital investment by the  end of the 8-year period. Treasury allows an SBLF participant to exit the  program at any time, with the approval of its regulator, by repaying the  funding provided along with dividends or interest owed for that period.
Under the act, Treasury has a number of reporting requirements to  Congress related to SBLF: (1) a monthly report describing all of the  transactions made under the program during the reporting period; (2) a  semiannual report (for the periods ending each March and September)  providing all projected costs and liabilities and all operating expenses;  and (3) a quarterly report, known as the Lending Growth Report, detailing  how participants have used the funds they have received under the  program.
section_title: State Small Business Credit Initiative
paragraphs: SSBCI was established to support existing and new state programs that  support private financing to small businesses and small manufacturers  that, according to Treasury, are not obtaining the loans or investments  they need to expand and to create jobs. SSBCI provides direct support to  participants for use in programs designed to increase access to credit for  small businesses. Using a formula contained in the Small Business Jobs  Act of 2010, Treasury calculated the amount of SSBCI funding for which  each of the 50 states, as well as the District of Columbia, the  Commonwealth of Puerto Rico, the Commonwealth of the Northern  Mariana Islands, Guam, American Samoa, and the United States Virgin  Islands, were eligible to apply. This formula takes into account a state’s  job losses in proportion to the aggregate job losses of all states. In  addition to states, the act granted permission to municipalities to apply  directly for funding under SSBCI in the event that their state did not apply  for funding. Municipalities in Alaska, North Dakota, and Wyoming used  this option. Participants are expected to use their SSBCI funds to  leverage private financing and investment that is at least 10 times the  amount of their SSBCI allocation (a leverage ratio of 10 to 1) by  December 31, 2016. Forty-seven states; the District of Columbia; the  Commonwealth of Puerto Rico; the Commonwealth of the Northern  Mariana Islands; Guam; American Samoa; the United States Virgin  Islands; Anchorage, Alaska; Carrington, North Dakota; Mandan, North  Dakota; and Laramie, Wyoming, currently participate in the program.
The act allowed Treasury to provide SSBCI funding for two state program  categories: capital access programs (CAP) and other credit support  programs (OCSP). For both CAPs and OCSPs, lenders are required to  have a meaningful amount of their own capital at risk. Loan terms, such  as interest and collateral, are typically negotiated between the lender and  the borrower, although in some cases loan terms are subject to SSBCI  participant approval and, in many cases, the SSBCI participant and  lender will discuss and negotiate loan terms and options prior to reaching  agreement.
A CAP is a loan portfolio insurance program wherein the borrower and  lender, such as a small business owner and a bank, contribute to a  reserve fund held by the lender. Under a CAP, when a participating  lender originates a loan, the lender and borrower combine to contribute  an amount equal to a percentage of the loan to a loan reserve fund, which  is held by the lender. Under SSBCI, the contribution must be from 2  percent to 7 percent of the amount borrowed. Typically, the contribution  ranges from 3 percent to 4 percent. The SSBCI participant then matches  the combined contribution and sends that amount to the lender, which  deposits the funds into the lender-held reserve fund. Under SSBCI,  approved CAPs are eligible to receive federal contributions to the reserve  funds held by each participating financial institution in an amount equal to  the total amount of the contributions paid by the borrower and the lender  on a loan-by-loan basis.
In addition, the following OCSPs are examples of programs eligible to  receive funding under the act:
Collateral support programs: A Collateral Support Program is  designed to enable financing that might otherwise be unavailable due  to a collateral shortfall. It provides pledged cash collateral to lenders  to enhance the collateral coverage of individual loans. The SSBCI  participant and lender negotiate the amount of cash collateral to be  pledged by the SSBCI participant.
Loan participation programs: SSBCI participants may structure a loan  participation program in two ways: (1) through purchase transactions,  also known as purchase participations, in which the SSBCI participant  purchases a portion of a loan originated by a lender, or (2) by  participating in a loan as a co-lender, where a lender originates a  senior loan and the SSBCI participant originates a second loan to the  same borrower that is usually subordinate to the lender’s senior loan  should a default occur. SSBCI loan participation programs encourage  lending to small businesses because the lender is able to reduce its  potential loss by sharing its exposure to loan losses with the SSBCI  participant.
Loan guarantee programs: These programs enable small businesses  to obtain a term loan or line of credit by providing the lender with the  necessary security in the form of a partial guarantee. In most cases,  the SSBCI participant sets aside funds in a dedicated reserve or  account to collateralize the guarantee of a specified percentage of  each approved loan. The guarantee percentage is determined by the  participants and lenders but, under SSBCI, may not exceed 80  percent of loan losses.
Venture capital programs: These programs provide investment capital  to create and grow start-ups and early-stage businesses, often in one  of two forms: (1) an SSBCI participant-run venture capital fund (which  may include other private investors) that invests directly in  businesses, or (2) a fund of funds, which is a fund that invests in other  venture capital funds that in turn invest in individual businesses.
Direct loan programs: Although Treasury does not consider these  programs to be a separate SSBCI program type, it acknowledges that  some states may identify programs that they plan to support with  SSBCI funds as direct loan programs. The programs that some  participants label as direct loan programs are viewed by Treasury as  co-lending programs categorized as loan participation programs,  which have lending structures that are allowable under the statute.
OCSPs approved to receive SSBCI funds are required to target small  businesses with an average size of 500 or fewer employees and to target  support toward loans with an average principal amount of $5 million or  less. In addition, these programs cannot lend to borrowers with more than  750 employees or make any loans in excess of $20 million.
After their applications were approved, the SSBCI participants entered  into Allocation Agreements with Treasury before they received their  funds. SSBCI Allocation Agreements are signed by Treasury and  participants, and they outline how recipients are to comply with program  requirements. The act requires that each participant receive its SSBCI  funds in three disbursements or tranches of approximately one-third of its  approved allocation. As part of its request to receive the second and third  disbursements, a participant must certify that it has expended,  transferred, or obligated 80 percent or more of the previous  disbursement. When participants request subsequent disbursements,  Treasury may also review a sample of the participant’s transactions for  compliance with SSBCI requirements. All SSBCI Allocation Agreements  will expire on March 31, 2017. Treasury may terminate any portion of a  state’s allocation that Treasury has not yet transferred to the participant  within 2 years of the date on which its SSBCI Allocation Agreement was  signed. Treasury may also reduce, suspend, or terminate a state’s  allocation at any time during the term of the Allocation Agreement upon  an event of default under the agreement. Under the act, participants are  required to submit quarterly and annual reports on their use of SSBCI  funds.
Changes to participants’ Allocation Agreements generally must be  approved by Treasury through a program modification. For example,  participants must submit a program modification to Treasury for approval  in order to use SSBCI funds for a new program that was not originally  approved by Treasury, to materially change the scope or purpose of an  approved program, or to reapportion and transfer allocated SSBCI funds  among approved programs when the cumulative amounts transferred  exceed 20 percent of the participant’s total SSBCI allocation. Treasury  has procedures for participants to apply for modifications and for its  processing of modification approval requests. In general, the procedures  require participants to submit, among other things, justification of the  need for the modification and the impact of the change on program  performance, including the 10 to1 private leverage expectation. As of  June 30, 2014, Treasury had approved 60 modifications of SSBCI  participants’ programs.
section_title: SBLF Participants Continue to Lend to Small Businesses and Additional Participants Have Exited the Program
paragraphs: Treasury’s 2014 second quarter Lending Growth Report showed that  SBLF participants’ aggregate qualified small business lending has  continued to exceed their baseline levels since the program began. As of  June 30, 2014, total qualified small business lending for SBLF  participants increased by $13.5 billion over an aggregate baseline of $33  billion. Banks participating in the SBLF program increased their qualified  small business lending by $13.1 billion (41 percent) over a $32.2 billion  baseline. CDLFs participating in the SBLF program increased their  qualified small business lending by $394.6 million (50 percent) over a  $794.5 million baseline. Of the 241 participating banks, 229 (95 percent)  increased their qualified small business lending, and 45 out of 49 CDLFs  (92 percent) increased their qualified small business lending.
Banks and CDLFs had made about $255 million in dividend, interest rate,  and fee payments to Treasury as of June 30, 2014. Banks paid $249  million and CDLFs paid $5.6 million in dividend, interest, and fee  payments. See figure 1 for the numbers of participants in different  dividend or interest rate categories. Between July 1, 2013, and June 30,  2014, five SBLF participants were required to pay approximately  $427,000 in CPP lending incentive fees to Treasury.
From July 1, 2013, to June 30, 2014, the number of participants that had  exited the program more than doubled. In our previous report, we found  that as of July 1, 2013, 16 of the 332 institutions (5 percent) that received  SBLF funds had fully redeemed Treasury’s investment and exited the  program. As of June 30, 2014, a total of 41 institutions (12 percent) had  exited the program. These 41 institutions included 39 banks and 2  CDLFs. Of the 39 banks that exited, 23 had used SBLF funds to repay an  earlier investment from TARP’s CPP, according to Treasury. As of  October 2014, Treasury had not had to write off any of its investments  due to bankruptcy, according to agency officials.
In August 2014, Treasury reported in its Second Annual SBLF Lending  Survey report that of the 299 institutions participating in SBLF at the time  the survey was administered, 247 (83 percent) planned to fully redeem  Treasury’s investment.  These 247 institutions included 208 banks and  39 CDLFs. Of the 208 banks that indicated in the survey that they plan to  fully redeem, 168 (81 percent) reported that they are planning to redeem  in full by the end of first quarter 2016 when the statutorily required rate  increase to 9 percent begins. Of the 39 CDLFs that indicated in the  survey that they plan to fully redeem, 35 reported that they plan to  redeem Treasury’s investment by the end of third quarter 2019, when the  9 percent interest rate begins.
section_title: Participants Have Used over Half of the SSBCI Funds and Treasury Continues to Address Challenges in Using Program Funds
paragraphs: As of June 30, 2014, SSBCI participants have used over half of the total  allocated funds, but the rate of funds used among participants continues  to vary. Some of the SSBCI participants we interviewed for this report  faced challenges using funds that were consistent with the challenges we  previously reported, and Treasury and SSBCI participants have continued  to undertake activities to address these challenges. The fiscal year 2015  president’s budget recommends legislation authorizing a $1.5 billion  extension of SSBCI funding.
subsections: section_title: SSBCI Participants Have Used over Half of the Total Allocated Funds, but Participants’ Rate of Fund Usage Continues to Vary
paragraphs: Overall, SSBCI participants have used about $869 million (60 percent) of  the $1.5 billion in allocated funds, as shown in figure 2. Between June 30,  2013, and June 30, 2014, participants used about $320 million in SSBCI  funds.
As of June 30, 2014, participants’ use of SSBCI funds continued to vary  widely, as shown in figure 3. For example, 7 participants have used 25  percent or less of their allocations, while 10 have used 90 percent or  more of their allocations. Three participants had used 1 percent or less of  their allocations. According to Treasury officials, factors such as interest  among local lenders, state marketing efforts, specific program design  features, and local economies may account for differences in participants’  use of funds.
According to Treasury’s quarterly report on participants’ progress in using  SSBCI funds, all 57 participants had received their first disbursement, 47  had received their second disbursement, and 20 participants had  received their third disbursement, as of June 30, 2014. As previously  discussed, participants can request subsequent SSBCI disbursements  when they have used at least 80 percent of their current tranche of SSBCI  funds. In addition, 13 states have reused SSBCI funds by using interest  or principal repayments on existing SSBCI loans and investments to  make additional financing available to other small businesses. As of June  30, 2014, Massachusetts had recycled about 40 percent of the SSBCI  funds it had used. Following Massachusetts, Idaho and Michigan recycled  about 20 and 12 percent of the funds they had used, respectively.  According to a Massachusetts state official, the high rate of recycled  funds in the state likely is attributable to, in part, the high interest rate on  SSBCI-funded loans, which results in loans that are typically paid off  before maturity. The official explained that the SSBCI-funded loan  program in Massachusetts is a preexisting program intended to help small  business owners who may not qualify for lower rate loans with typical  lenders. These loans provide a source of financing for these borrowers  until they are more stable and able to refinance at lower rates in the  private market.
Participants used a variety of different program types to distribute their  allocated funds. Figure 4 shows the number of different program types  that had used SSBCI funds as of June 30, 2014. Similar to data we  reported in our 2013 report, loan participation and venture capital  programs continue to be the most common program types. Some  participants chose to use only one program type, whereas others used  multiple programs. For example, 14 participants used their allocation to  fund one program type while others used up to five program types.
SSBCI participants distributed their allocated funds using 150 programs.  Participants had the option to use existing programs to distribute their  allocated funds or create new programs specifically to utilize their SSBCI  funds. As shown in figure 5, most of the programs using SSBCI funds are  new. Specifically, of the 150 programs, 84 (56 percent) were new  programs compared to 66 (44 percent) existing programs.
section_title: Treasury and SSBCI Participants Continue to Address Challenges in Using Program Funds and Promoting the Program
paragraphs: Some SSBCI participants we interviewed for this report faced difficulties  in using program funds that were consistent with some of the challenges  we previously reported in 2013.interviewed for this report, 2 participants stated they did not encounter  significant challenges in using program funds. Three participants we  interviewed indicated that Treasury has improved its guidance since the  program began, stating that the information on Treasury’s website has  been helpful. Some participants, however, stated they continued to face  challenges related to a lack of clarity in guidance and some banks’  reluctance to participate. Specifically:   Of the 10 SSBCI participants we
Treasury officials stated that they have established a process by  which they provide written responses to questions raised by states,  but officials from three participating states indicated that there  continues to be a lack of clarity in Treasury’s guidance regarding the  use of SSBCI funds for certain transactions. One participant explained  that, while this lack of clarity is not unexpected since SSBCI is still a  relatively new program, it may have resulted in some missed  opportunities to use SSBCI funds. The participant stated that Treasury  responded in writing to questions it raised but the additional guidance  Treasury provided was still vague.
According to officials in three participating states, some banks were  reluctant to participate in the program because they were unfamiliar  with it or perceived that it would increase scrutiny from regulators.  Specifically, one participant stated that the local banking community  generally was not familiar with state lending programs and some have  been reluctant to participate in government loan programs overall.  The participant explained that some local banks prefer to work with  programs that they were more familiar with, such as programs from  the Small Business Administration. Another participant highlighted the  ongoing concerns about being subject to increased regulatory scrutiny  for using SSBCI programs. The participant explained that, although  regulators had made efforts to address banks’ concerns about the  potential for increased scrutiny from regulators because of the risk  associated with loans needing SSBCI funds, banks continued to be  reluctant to participate for this reason.
SSBCI participants have continued to undertake the types of activities we  reported in 2013 to promote the use of SSBCI and address challenges in  using program funds. Several of the SSBCI participants we interviewed  for this report conducted activities, similar to those we reported in 2013, to  promote the program, including holding face-to-face meetings, conducting  presentations to interested parties, and maintaining websites, among  other activities. In addition, similar to what we reported in 2013, some  participants used program modifications to address challenges in using  program funds. Specifically, 6 of the 10 participants we interviewed stated  they had requested and received approval for program modifications to  make use of SSBCI funds. For example, according to state officials,  Treasury approved a program modification request from Connecticut in  July 2014, which will allow the state to transfer funds from its CAP to a  newly created venture capital program. As of June 30, 2014, Connecticut  had used only 1 percent of its allocation within its CAP because,  according to a state official, a Small Business Administration (SBA)  program and a new state program decreased demand for their SSBCI- funded CAP. As a result of the modification allowing the state to transfer  funds to a venture capital program, Connecticut officials told us they will  partner with the state’s quasi- public entity that supports small business  financing that includes venture capital funding and expect to be able to  deploy the remainder of the state’s SSBCI allocation within 18 months.
Treasury has continued existing activities as well as undertaken new  ones to address challenges states face in using program funds and  promoting SSBCI. Specifically, Treasury officials stated that they have  continued to offer technical assistance to states and utilize relationship  managers, who are responsible for working with an assigned group of  participants to support their outreach to the lending industry and help  them successfully allocate funds to lenders and subsequently borrowers.  In addition, Treasury has continued to facilitate information sharing  among states through its national conferences and various working  groups. For example, Treasury published reports summarizing the  discussions and observations of its working groups on venture capital and  addressing underserved communities in April and October 2014,  respectively. Since our 2013 report, Treasury has undertaken new  activities to facilitate information sharing among states such as organizing  multistate sessions and other activities. To date, Treasury has facilitated  three regional multistate sessions, which provide a forum for state officials  and other stakeholders to share information and learn from each other.  Officials explained that, although Treasury organizes the sessions,  participants determine the content. Treasury officials also told us they  facilitate information sharing on venture capital through quarterly calls for  SSBCI program managers and contractors that administer venture capital  programs. Treasury officials stated that they plan to publish a compilation  of case studies on using SSBCI funds to target underserved communities,  which is intended to complement its prior work on targeting underserved  communities.
section_title: The Fiscal Year 2015 President’s Budget Proposed an Additional $1.5 Billion in SSBCI Funding
paragraphs: The fiscal year 2015 president’s budget recommended new legislation  that would reauthorize SSBCI and provide an additional $1.5 billion in  program funding. Under the proposal, $1 billion of the funds would be  awarded on a competitive basis and $500 million would be awarded  through a need-based formula. The budget justification states that a  second round of funding, which would begin in 2015 and run through  2021, will expand on the success of the first round, capitalize on new  working relationships between states and small business lenders and  investors, and strengthen the federal government’s relationships with  state economic development agencies. In May 2014, members of the  United States Senate and House of Representatives proposed  companion bills, titled the Small Business Access to Capital Act of 2014,  which would reauthorize SSBCI. The bills would reauthorize SSBCI and  provide an additional $1.5 billion to be allocated on a similar competitive  and need-based formula basis.
In developing the budget justification and providing information to the  Office of Management and Budget (OMB) on the amount and structure of  the proposed additional SSBCI funding, Treasury officials stated they  considered data on participants’ progress in using SSBCI funds and  considered other information, such as market conditions and lessons  learned. In addition, Treasury officials stated they considered data from  participants’ quarterly reports and considered states’ disbursement and  modification requests to support the proposed $1.5 billion in additional  SSBCI funding. Treasury officials indicated that there is demand for  additional funding as participants approach their third disbursement. In  addition, the rate at which some participants are using their funds  indicates additional demand. Specifically, Treasury officials stated they  were confident that some participants could use the additional funding  based on the 12-month rate of expended, obligated, and transferred  funds among participants.
To support the proposal for both a competitive process and need-based  formula, Treasury officials stated they considered the variation among  participants regarding the speed at which funds were disbursed and the  impact of the funds, as well as current market conditions in certain areas.  Treasury officials stated that they introduced a competitive funding  element because some participants were able to more quickly disburse  SSBCI funds, demonstrated greater impact using the funds, and  demonstrated greater capacity to establish relationships with private  lenders and investors. The budget proposal states that the competitive  funds would be awarded to states on the basis of their ability to target  underserved groups, leverage federal funding, and evaluate results.  Officials stated that they proposed maintaining a need-based allocation  method because their analysis of market conditions indicated that some  areas continued to have significant needs for increased access to capital.  The proposal states that the need-based award would be allocated based  on economic factors such as job losses and pace of economic recovery.  Treasury has not proposed additional details regarding the structure of  the proposed additional funding, according to agency officials. However,  officials stated that they would recommend that certain features of the  program be maintained, such as keeping the five program types,  maintaining the 10 to 1 public to private leverage ratio, and emphasizing  increasing access to underserved communities.
Some participants we interviewed said they were better positioned than  others to continue their efforts in the absence of additional SSBCI  funding. Participants recognized that additional funds would allow them to  meet current demand for existing programs, provide funds more  consistently, or explore adding additional programs to meet other  economic development needs in the state. Eight of the 10 participants we  interviewed stated that recycled funds would play a role in continuing their  SSBCI-funded efforts. Two participants indicated that some discussions  had been held at the state level about providing state funds to continue  efforts currently funded by SSBCI. Conversely, two participants indicated  that state funds were not an option for continuing their efforts. For  example, one participant explained that the state constitution does not  allow public state funds to be used for private lending.
section_title: Treasury Has Enhanced Performance Measures and Evaluation but Has Not Effectively Communicated or Updated Its SBLF Evaluation
paragraphs: Treasury has taken steps to enhance performance measures and  evaluation, consistent with our prior recommendations. For SBLF,  Treasury conducted an impact evaluation using statistical methods to  compare lending between SBLF banks and a control group of non-SBLF  banks that are as similar as possible to participating SBLF banks. This  rigorous approach estimated the impact of the program and is a  significant improvement over its previous comparison assessments of the  SBLF program which did not attempt to isolate impact. However, while  Treasury discussed the results of its previous comparisons in the body of  its Lending Growth Reports, it discussed the results of its more rigorous  impact evaluation less prominently and included them only in the  appendixes of the reports. In addition, Treasury has not updated the  results of its impact evaluation. For SSBCI, Treasury developed some  new performance measures and also developed targets for some of its  measures. In addition, officials stated they reached out to and received  input from internal agency subject-matter experts and experts from OMB  on the design of the planned SSBCI evaluation and have reached out to  congressional staff for feedback on its proposed design.
subsections: section_title: Treasury Conducted an Impact Evaluation of SBLF Using a Generally Accepted and Rigorous Approach
paragraphs: In 2011 and 2013, we recommended that Treasury include in its evaluation of SBLF  measures that isolate the net effect of the SBLF program apart from other factors that  could also affect small business lending. See GAO-12-183 and GAO 14-135. adjust for differences between treatment and control groups.instance, SBLF banks are considered the treatment group, and banks  that are similar to participating SBLF banks yet did not participate in the  program are considered the control group. To conduct its propensity  score matching approach, Treasury selected a control group of banks that  are as similar as possible to participating SBLF banks along a number of  relevant and observable participant characteristics. Specifically, Treasury  incorporated a broad set of 71 observable financial and market variables  that could affect a bank’s likelihood of participating in the program. These  variables include balance sheet measures, financial performance  measures, capitalization, and loan composition, among others. Using the  observable financial and market variables, Treasury achieved similarity  between the two groups of banks by estimating the propensity to  participate in the program for participants and nonparticipants alike and  then matching nonparticipants to participants with a similar propensity to  participate. Treasury officials stated they chose the propensity score  matching approach because it makes similar comparisons as their  previous assessments in that the propensity score matching approach  also compares lending between SBLF banks and a selected control group  of banks.
Treasury’s impact evaluation of the program estimated that SBLF resulted  in a median increase of 23 percentage points in small business lending,  relative to the most similar control group of banks that did not participate  in SBLF. In other words, when controlling for observable variables, the  evaluation estimates that 23 percentage points of the increase in small  business lending among SBLF banks is attributable to the program.  Because the propensity score matching approach results in a carefully  selected control group of non-SBLF banks that is as similar as possible to  participating SBLF banks, lending among the control group banks can be  used to estimate lending among SBLF banks if they had not participated  in the program. Specifically, the propensity score matching approach  estimated that the average lending of SBLF banks may have increased  by 29 percent in the absence of the program (i.e., the median change in  lending over baseline among propensity score matched banks). However,  the average lending of participating SBLF banks increased by 52 percent,  23 percentage points more than non-SBLF banks. This difference  represents the estimated impact of SBLF. It is difficult to interpret the  magnitude of the results of Treasury’s impact evaluation as other  evaluations on entrepreneurial assistance—including support for small  businesses—are not comparable because they did not evaluate program  impact on increasing small business lending. However, because SBLF  participants might have increased their lending by 29 percent in the  absence of the program, 23 additional percentage points in small  business lending is a meaningful increase.
Treasury has developed and refined its approach to assessing SBLF, and  its impact evaluation is a distinct improvement over its previous  comparisons between SBLF banks and groups of non-SBLF banks. While  some differences between participants and nonparticipants may be  unobserved, such as anticipated demand for small business lending, the  control group Treasury developed based on propensity score matching  addresses the observable differences among SBLF and non-SBLF banks  in an effort to isolate the impact of the program. Previous assessments,  however, did not adequately address observable differences between  SBLF and non-SBLF banks and did not attempt to isolate the impact of  the program. In its earliest approach to assess SBLF, Treasury has  compared lending among SBLF banks to small and medium-sized banks,  which suggested that SBLF banks increased business lending by 45  percentage points more than non-SBLF banks as of September 30, 2013  (see fig. 6). To improve its approach to assessing the program,  Treasury also conducted a peer group comparison by which it compared  SBLF banks to a group of peer banks matched according to size,  geography, and the Texas Ratio, a measure of asset quality. Treasury  officials described these characteristics as common and intuitive for  comparing financial institutions. The peer group comparison suggested  that SBLF banks increased business lending by about 41 percentage  points more than peer group banks as of September 30, 2013. As we  stated in our prior reports, these two analyses did not fully identify how  SBLF has affected participants’ lending compared to other factors that   While the peer group comparison  could explain the increase in lending.method was valuable because the peer group was more similar to SBLF  banks than the general population of small banks, it omitted important  characteristics that could influence small business lending among SBLF  participants and nonparticipants, such as liquidity or loan growth rate. The  propensity score matching approach attempted to address these  limitations because it identified a control group of banks that is similar to  SBLF participants along a very broad set of characteristics, which  provides greater confidence that any differences observed between  participants and nonparticipants are attributable to the program.
section_title: Treasury Has Not Effectively Communicated or Updated the Results of Its Impact Evaluation
paragraphs: Treasury adopted a generally accepted and rigorous approach to conduct  an impact evaluation, as we recommended, but its presentation did not  communicate the results as effectively as possible. In its Lending Growth  Reports, Treasury discussed the results of its prior, simpler  assessments—those that compare lending among SBLF banks to that of  small and medium-sized banks and peer matched banks—more  prominently than the more rigorous results of its impact evaluation.  Specifically, it discussed the simpler assessments in the body, but  published the results of its impact evaluation in the appendixes of its April,  July, and October 2014 Lending Growth Reports. Further, Treasury did  not reference the results of the impact evaluation in the executive  summary or body of the reports. GAO’s Designing Evaluations guide  states that how evaluation results are communicated can dramatically  affect how they are used. Our review of relevant resources on the use  and presentation of program evaluations also indicates that rigorous  evidence should be given prominence in comparison to less credible  evidence so that the strongest evidence is used to inform policy and the  allocation of resources. Further, SBLF’s authorizing legislation requires, in  part, that Treasury provide transparency with respect to its use of funds  provided by the SBLF program. As we concluded in our prior report, it is  important that Congress and stakeholders have information about the  extent to which the program has a meaningful impact on small business  lending.
Treasury officials stated that the results of the SBLF impact evaluation  (i.e., the propensity score analysis) were included as appendixes instead  of in the body of the reports because the evaluation was intended to be a  one-time analysis of the program. They explained that the purpose of the  evaluation was to serve as another objective method for assessing the  program and validating the results of its previous analyses. According to  agency officials, including the results as an appendix allowed the report’s  format to remain consistent with prior and future Lending Growth Report  iterations, rather than revising the entire report for one quarterly issuance.  However, as agency officials explained, the results of the propensity  score matching approach are relatively comparable to their previous  assessments because the propensity score matching approach also  compares lending between SBLF banks and a selected control group of  banks. As such, we determined it is unlikely that discussing the results of  the impact evaluation in the body of its quarterly Lending Growth Reports  would cause inconsistencies or major revisions.
Because Treasury presents the results of its simpler group comparison  more prominently than the results of its impact evaluation in its Lending  Growth Reports, readers may not be aware of the results of the more  rigorous analysis or understand the differences between the various  alternative control groups and what they might imply about the overall  impact of the program. As previously discussed and shown in figure 6,  Treasury’s less rigorous comparisons suggested that SBLF banks  increased lending by 45 and 41 percentage points more than all small  and medium-sized banks and peer banks, respectively. The propensity  score matching approach—which is designed to isolate the impact of the  program—produced the smallest relative median increase in lending at 23  percentage points. However, these results are not discussed in the body  of Treasury’s Lending Growth Reports. As a result, readers—including  Congress and other stakeholders—may not use the results of the more  credible analysis to inform their conclusions about the program and the  extent to which it has impacted small business lending.
In addition, Treasury has not updated the results of the impact evaluation.  In our work on best practices that enhance the use of performance  information, we found that communicating performance information  frequently and routinely enhances the use of that information for making  decisions that affect future strategies, planning and budgeting, identifying  priorities, and allocating resources. Frequently communicated  performance information typically includes performance measures, such  as the changes in small business lending that Treasury reports each  quarter for SBLF banks. Program evaluations, however, are typically  conducted less frequently to assess how well a program works. Treasury  officials stated that they have not updated the results of the impact  evaluation because they intended for the evaluation be a one-time  analysis that captured the effect of the program through September 30,  2013—the period during which participating banks were incentivized to  increase small business lending over their baselines in order to reduce  their dividend rates. Treasury published the same impact evaluation  results in appendixes of its April, July, and October 2014 Lending Growth  Reports and does not have plans to update the results in future reports. In  contrast, Treasury updates the results of its simpler assessments in its  quarterly Lending Growth Reports and anticipates continuing to update  the results until 2016, when Treasury expects about 80 percent of  participants to have exited the program as a result of the scheduled  dividend rate increase to 9 percent for most participating banks.
Although program evaluations can be costly and time consuming, we  determined that Treasury could adjust its existing propensity-matched  control group to update the results of its impact evaluation without having  to repeat the entire evaluation. Specifically, Treasury could take an  approach similar to the one it uses to update the results of its peer group  comparison. As SBLF banks exit the program, Treasury could remove  similar non-SBLF banks from the control group and repeat its analyses  using the updated groups of banks. Treasury officials acknowledged that  they could update the results of their impact evaluation using this  approach, but explained that they would need to obtain programming  software to conduct the analysis and that considerable time and effort  would be required to ensure the accuracy of the impact evaluation data  and analyses.
By updating the results of its impact evaluation, Treasury could further  enhance the performance information it provides on SBLF. As we have  described in previous reports and summarize in appendix III, Treasury  provides quarterly information on the performance of SBLF, including its  simpler lending growth comparisons among SBLF and non-SBLF banks.  Updated results from Treasury’s most rigorous and accurate assessment  of SBLF could enhance the performance information that readers and  decision makers consider. For example, updated information on the  impact of the program could be useful for observing any changes in the  impact of the program over time. In addition, because SBLF capital could  still promote small business lending even in the absence of dividend- based incentives, updated information on the effect of the program after  the lending incentives expired in September 2013 could be useful.
section_title: Treasury Is Taking Steps to Improve Its Efforts to Measure and Evaluate Performance for the SSBCI Program
paragraphs: In our prior work, we recommended that Treasury enhance its efforts to  measure and evaluate the performance of SSBCI. Consistent with our  previous recommendation that Treasury set targets for selected  performance measures related to monitoring program performance,  Treasury established a target for its performance measure related to the  amount of private-sector leverage. In addition, Treasury developed  additional performance measures and targets related to the disbursement  of funds to states and the extent to which OCSPs target small businesses  with an average size of 500 or fewer employees and target support  towards loans with an average principal amount of $5 million or less (see  table 1). Officials stated that because almost all SSBCI-funded programs  became fully operational in 2014, they used the information from the 2013  annual reports to establish performance targets. Officials explained that  they used the stated program objectives in the Small Business Jobs Act  of 2010 to establish the additional measures and select the measures for  which they established targets. OMB guidance defines performance  indicators (or measures) as measurable values that agencies use to track  progress toward set targets or goals within a time frame. The guidance  defines indicators that do not require targets and time frames as “other  indicators.” Consistent with this definition, Treasury officials stated that  they intend to use the measures for which they did not establish targets  as additional indicators of performance.
In response to our recommendation that Treasury seek input from  Congress and other federal agencies on what information would be useful  in assessing SSBCI’s effectiveness as Treasury designs its program  evaluation, officials stated they received input from internal agency  subject-matter experts and experts from OMB and have reached out to  congressional staff for feedback. Specifically, Treasury conducted  meetings with experts in December 2013 and January 2014 on how it will  evaluate the performance of SSBCI in 2017. Officials stated that they  reached out to staff of two congressional committees in October 2014 for  feedback on the proposed evaluation design.
OMB guidance and our prior work have emphasized the importance of  performance information and program evaluations in decision making.  Specifically, OMB guidance instructs agencies to include a thorough  discussion of evidence, both positive and negative, for major proposed  policies in its budget submission, including performance indicators,  performance goals, and evaluation results. In addition, our work on  improving information to Congress found that information on how  activities have been implemented and the extent to which the program  reached the intended clients can be useful to inform reauthorization  decisions. Further, our work assessing duplication, overlap, and  fragmentation looked across 52 programs supporting entrepreneurs and  emphasized the importance of performance information for decision  making and highlights that program evaluations can provide additional  information about program performance and help gauge program  effectiveness. Specifically, we reported that several of these programs  lacked adequate performance information and program evaluations,  which resulted in limited information on program efficiency and  effectiveness. We found that, without this type of information, Congress  and the agencies may not be able to better ensure that scarce resources  are being directed to the most effective programs and activities.
Treasury’s existing information on the performance of SSBCI, as well as  information that will result from Treasury’s efforts to enhance performance  measures and evaluation, could provide useful information for decision  makers on the proposed reauthorization of the program. As previously  discussed, Treasury officials said they considered information on the  performance of SSBCI, such as participants’ progress in using funds, the  speed at which funds were disbursed, and the impact of the program, to  support the amount and structure of additional program funds under the  proposed reauthorization. In addition, Treasury has published  performance information on SSBCI that could be helpful for decisions  related to the reauthorization of the program. Specifically, Treasury has  published quarterly reports on participants’ progress in using funds and  two annual reports that summarize key finding from participants’ 2012  and 2013 annual reports. Treasury also published two reports it  requested from outside experts on lessons learned from SSBCI loan  programs and venture capital programs. Treasury plans to publish its  evaluation in 2017. Treasury officials said that they plan to use  information from participants’ final program assessments, which are due  to Treasury in early 2017, to help them evaluate SSBCI to help them  determine whether the program model for SSBCI was successful. To  determine the success of SSBCI, officials plan to focus on whether the  program achieved its performance targets, whether state managers found  the program to be effective for achieving their goals, and whether private  lenders and investors found the program to be effective. While the  evaluation will be useful for future decisions regarding programs that are  intended to increase capital to small businesses in distressed credit  markets, the information from Treasury’s evaluation of SSBCI will not be  available to inform decisions on the current request for additional funding.
section_title: Conclusions
paragraphs: Treasury’s efforts to provide performance information on SBLF and  SSBCI are positive developments that could help to ensure that agency  decision makers and Congress have information to assist them in making  programs more efficient and effective and allocating scarce resources. In  response to our prior recommendations, Treasury conducted a rigorous  impact evaluation, which is a distinct improvement over other analyses  using comparisons because it uses statistical methods to compare SBLF  banks to a carefully selected control group of banks that did not  participate in the program but are as similar as possible to the  participating SBLF banks along a broad set of characteristics. Treasury’s  impact evaluation is important particularly because it provides a rigorous  assessment of the program’s effects and indicates that SBLF increased  small business lending by a smaller percentage than Treasury’s other  simpler analyses. However, because Treasury presents its impact  evaluation in appendixes in its Lending Growth Reports rather than in the  body, users of Treasury’s lending reports may rely on less rigorous  analyses to inform their conclusions.
Further, although Treasury intended for the impact evaluation to be a  one-time analysis, the existing control group it used to estimate the  impact of SBLF has the potential to be updated for future reports.  Treasury officials stated that updating the impact evaluation results would  require additional time and effort, and we acknowledge that costs and  benefits would have to be considered in determining the frequency of the  updates. However, Treasury has an opportunity to better utilize its impact  evaluation to further enhance the performance information available on  SBLF. Policymakers will likely face future constrained credit environments  for small businesses and will seek options to address them. In such  circumstances, the results of Treasury’s impact evaluation, and any  updates to those results, could provide a useful assessment of the  effectiveness of SBLF as a capital investment program.
section_title: Recommendations for Executive Action
paragraphs: To help ensure that Congress and stakeholders can easily access the  best information available to inform their conclusions about the  effectiveness of SBLF as a capital investment tool, we recommend that  the Secretary of the Treasury take the following two actions: (1) make the  results of its SBLF impact evaluation more prominent, such as by  discussing the results in the executive summary and body of future  Lending Growth Reports, and (2) update the results of its impact  evaluation in future reports, taking into consideration the costs and  benefits of doing so to determine the appropriate frequency of the  updates.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to Treasury for their comment and  review. Treasury provided written comments, which are reprinted in  appendix III. In its written comments, Treasury agreed to implement our  recommendations regarding its SBLF impact evaluation and described  the actions it plans to take. Treasury stated that it would publish a stand- alone report with its own link on the Treasury website to better  communicate the results of the SBLF impact evaluation, which analyzed  lending growth performance as September 30, 2013. In its comments,  Treasury suggested that all three of its methods of evaluating the  performance of SBLF indicate the program has had a positive impact.   However, as we stated in our report, only one of its methods—the impact  evaluation using the propensity score matching approach—estimates the  impact of the program. Treasury also stated that it would update its  impact evaluation in the future, taking into consideration the costs and  benefits of doing so as well as the lending incentive structure of the  program.
We did not make any new recommendations regarding SSBCI in this  report, but Treasury noted that it appreciated prior GAO  recommendations.  Treasury stated that it accepted GAO’s guidance on  developing program evaluations and has sought to supplement this  guidance with input from stakeholders for its planned SSBCI evaluation.  Treasury also noted that its final assessment of SSBCI would include  three sections: (1) a review of national program-wide outcomes, (2)  review of the state-by-state variation in program outcomes, and (3)  feedback from private sector lenders and investors.  Treasury provided  technical comments on the draft report, which we have incorporated in  the final report, as appropriate.
We are sending copies of this report to appropriate congressional  committees and Treasury. In addition, the report is also available at no  charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-8678 or garciadiazd@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 major contributions to  this report are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to examine (1) the status of the Small Business  Lending Fund (SBLF), (2) the status of the State Small Business Credit  Initiative (SSBCI), and (3) the extent to which Treasury’s efforts enhance  performance measurement and program evaluation.
subsections: section_title: SBLF Program Status
paragraphs: To examine the status of SBLF, we reviewed Treasury program data from  Treasury’s October 2014 Lending Growth Report and its June 2014  monthly transaction report. To show lending growth among SBLF  participants, we analyzed Treasury data as of June 30, 2014. We  reviewed Treasury’s monthly transaction report to determine the dividend,  interest, and fee payment received by Treasury and the number of  participants that exited the SBLF program as of June 30, 2014. We also  used responses from SBLF respondents to an item in Treasury’s second  annual SBLF survey to describe participants’ plans for exiting the  program. To assess the reliability of SBLF data, we reviewed prior GAO  work on the data and the systems that produced them, which included  interviewing Treasury officials on how they assess the reliability of  participants’ quarterly data and the information they maintain on SBLF. In  addition, we inspected data for missing observations and outliers.  Where  there were questions or discrepancies we identified related to the data,  we clarified them through communications with Treasury officials. We  determined that the data were sufficiently reliable for the purposes of  describing the status of the program.
section_title: SSBCI Program Status
paragraphs: To examine the status of SSBCI, we analyzed Treasury program data on  participants’ allocation amounts and program types, and whether  participants developed new programs to participate in SSBCI or  expanded existing programs with SSBCI funds. In addition, we analyzed  participants’ June 30, 2014, SSBCI quarterly report data—the most recent  quarter available—on the total amount of funds used and fund usage by  program type. To assess the reliability of SSBCI data, we reviewed prior  GAO work on the data and the systems that produced them that included  interviewing knowledgeable Treasury officials on how they assess the  reliability of participants’ quarterly data and the information they maintain  on SSBCI. In addition, we performed electronic testing for obvious errors  in accuracy and completeness.  Where there were questions or  discrepancies we identified related to the data, we clarified them through  discussions with Treasury officials. We determined that the data were  sufficiently reliable for the purposes of describing the status of the  program.
We also interviewed Treasury SSBCI officials and 10 purposively  selected SSBCI participants on the use of funds, any challenges in using  the allocations, and the president’s request for additional program funds.   We interviewed officials from Connecticut; Idaho; Louisiana;  Massachusetts; Minnesota; Nebraska; Oklahoma; Washington; West  Virginia; and Laramie, Wyoming.  We selected a non-random sample of  10 participants from the total of 57 participants—which included 47 states;  Washington, D.C.; four municipalities; and five U.S. territories— using  participants’ March 31, 2014, quarterly report data. We selected this  nonrandom, purposive sample of participants because we assumed that  the types of challenges related to using SSBCI funds would vary for  participants characterized by a mix of fund usage histories and numbers  of new and existing programs across all regions.  We selected  participants based on the following criteria: (1) the percentage of SSBCI  funds participants had used as of March 31, 2014; (2) the percentage of  SSBCI funds transferred to participants; (3) the percent of SSBCI funds  recycled by participants; (4) the number of programs participants  implemented and whether the programs were new or existing; (5) the  number of program modifications; and (6) geographic dispersion.  We  purposively weighted the sample to approximate the distribution found in  the population for percentage of funds used, percentage of funds  transferred, and region to allow for a greater range of views that might  also be found in the population. This sample does not represent the  experience of the states that are not included in this sample.
To reduce respondent burden, we excluded from our selection (1) the four  participants that the Treasury Office of the Inspector General told us it  was in the process of auditing or was planning to audit at the time we  selected the participants and (2) the nine participants we interviewed for  our 2013 SSBCI review.  When we selected participants to interview, the  March 2014 data were the most recent available.  We also reviewed  testimonial evidence we obtained during our 2013 SSBCI report related to  challenges SSBCI participants faced in using SSBCI funds. We also  interviewed representatives from three trade associations involved with  the SSBCI program: (1) the Council of Development Finance Agencies  because of its role in supporting SSBCI participants through webinars and  other resources; (2) the Opportunity Finance Network because it is a  national network of community development financial institutions; and (3)  the Community Development Venture Capital Alliance because of its role  in supporting venture capital investing.  To describe Treasury’s request  for additional funds, we reviewed the 2015 President’s budget justification  for SSBCI and interviewed Treasury officials about the budget request  and lessons learned they would apply in a second round of funding.
section_title: Treasury’s Efforts to Enhance Performance Measures and Evaluations
paragraphs: To assess the extent to which Treasury’s efforts enhance performance  measures and evaluations for SBLF and SSBCI, we interviewed agency  officials on the activities they conducted to implement recommendations  from our 2012 and 2013 reports and collected information related to these  activities. For SBLF, we reviewed Treasury’s impact evaluation presented in its April and July 2014 Lending Growth Reports and  interviewed agency officials for additional information on the methodology  and results of the evaluation. In addition, to assess the extent to which  Treasury effectively communicated the results of the impact evaluation,  we reviewed its Lending Growth Reports to determine how other  assessments are presented. We developed criteria and based our  conclusions on professional judgment and consultation of a variety of  relevant resources on the use and presentation of policy evaluations.SSBCI, we reviewed the new performance measures and targets  Treasury adopted in October 2014.
We conducted this performance audit from April 2014 to December 2014  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.
section_title: Appendix II: Summary of Treasury’s Efforts to Measure and Evaluate the Performance of the Small Business Lending Fund (SBLF) and State Small Business Credit Initiative (SSBCI)
paragraphs: Appendix II: Summary of Treasury’s Efforts to  Measure and Evaluate the Performance of the  Small Business Lending Fund (SBLF) and  State Small Business Credit Initiative (SSBCI)
Treasury has undertaken several efforts to measure and evaluate the  performance of SBLF and SSBCI, as shown in table 2.
section_title: Appendix III: Comments from the Department of the Treasury
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Daniel Garcia-Diaz, (202) 512-8678, garciadiazd@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Kay Kuhlman (Assistant  Director), Charlene Lindsay (Analyst-in-Charge), Bethany Benitez, Mark  Braza, Pamela Davidson, Michael Hoffman, Robert Rieke, Jennifer  Schwartz, Stephanie Shipman, and Jena Sinkfield made key contributions  to this report.