Congress established the HBCU Capital Financing Program in 1992 under Title III, Part D, of the Higher Education Act of 1965, as amended, to provide HBCUs with access to low-cost capital to help them to continue and expand upon their educational missions. (See app. II for locations of HBCUs eligible to participate in the program.) Program funds, raised through bonds issued by the DBA and purchased by the FFB, are lent to eligible schools with qualified capital projects. Loan proceeds may be used for—among other things—repairing, renovating, or in exceptional circumstances, constructing and acquiring new instructional or residential facilities, equipment, or research instrumentation. Additionally, schools are able to refinance prior capital loans. Education guarantees loan repayment. Although Education administers the program, the DBA is responsible for many of the program’s operations and is subject to departmental oversight. Specifically, the DBA works with prospective borrowers to develop loan applications and monitors and enforces loan agreements. The loan process consists of multiple steps. HBCUs interested in obtaining funds through the program must first complete a preliminary application that includes information such as enrollment, some financial data— including a description of existing debt—and proposed capital projects. On the basis of this information, the DBA determines whether the school should formally complete an application, which includes more detailed financial information, such as audited financial statements and various campus plans and assessments. To be approved for the loan, an HBCU must satisfy certain credit criteria and have qualified projects. Once the DBA determines a school’s eligibility status, a memorandum is sent to Education for final approval. When approved, the loan goes through a closing process during which certain terms and conditions may be negotiated. Table 1 describes key loan terms and conditions to which schools are subject. The Federal Credit Reform Act of 1990, along with guidance issued by OMB and accounting standards, provides the framework agencies are to use in calculating the federal budget costs of federal credit programs, such as the HBCU Capital Financing Program. The two principles of credit reform are defining subsidy cost and requiring that budget authority to cover these costs be provided in advance before new loan obligations are incurred. OMB is responsible for coordinating the estimation of subsidy costs. Subsidy costs are determined by calculating the net present value of estimated cash flows to and from the government that result from providing loans and loan guarantees to borrowers. (Guaranteed loans that are financed by the FFB are treated as direct loans for budgetary purposes, in accordance with FCRA.) Cash flows for direct loans include, for example, loan disbursements to borrowers and borrower repayments of principal and payments of interest to the government. Estimated cash flows are adjusted to reflect the risks associated with potential borrower delinquencies and defaults, and estimates of amounts collected on defaulted loans. Subsidy costs can be positive or negative. If the net present value of cash outflows exceeds the net present value of cash inflows, the government incurs a positive subsidy cost. On the other hand, the government realizes a gain in revenue if there is a negative subsidy. Since the program was established, appropriations legislation has, in general, limited the subsidy costs of the program to be no greater than zero. In addition, the legislation authorizing the program established a credit authority limit of $375 million; of this amount, private HBCUs are collectively limited to borrowing $250 million, and public HBCUs are collectively limited to borrowing $125 million. Over a period of 2 months in 2005, three hurricanes struck the Gulf Coast region of the United States, resulting in more than $118 billion in estimated property damages. Two of these hurricanes, Katrina and Rita, struck New Orleans and surrounding areas within a month of each other, resulting in significant damages to several institutions of higher education in the region and including the campuses of several HBCUs, including Dillard University, Southern University at New Orleans, and Xavier University, in Louisiana, and Tougaloo College, in Mississippi. (See app. III for locations of the 8 hurricane affected HBCUs.) In June 2006, Congress passed the Emergency Act which, among other things, amends the HBCU Capital Financing Program to assist hurricane- affected HBCUs in their recovery efforts. To be eligible, a school must be located in an area affected by a Gulf Coast hurricane disaster and demonstrate that it (1) incurred physical damage resulting from Hurricane Katrina or Rita; (2) has pursued other sources of compensation from insurance, Federal Emergency Management Agency (FEMA), or the Small Business Administration, as appropriate; and (3) has not been able to fully reopen in existing facilities or to the levels that existed before the hurricanes because of physical damage to the institution. Key provisions include a lowered interest rate and cost of issuance (both set at 1 percent or less), elimination of the escrow, and deferment of principal and interest payments from program participants for a 3-year period. The Emergency Act also provides the Secretary of Education with authority to waive or modify any statutory or regulatory provisions related to the program in connection with a Gulf Coast hurricane disaster. FEMA assists states and local governments with the costs associated with disaster response and recovery efforts that exceed a state or locale’s capabilities. Grants are also provided to eligible postsecondary educational institutions to help them recover from the disaster. Some institutions of higher education are subsequently provided with referrals to SBA when seeking assistance from FEMA. For private, nonprofit institutions, SBA’s disaster loans are designed to be a primary form of federal assistance. Unlike their public counterparts, private colleges must apply for low-interest, long-term disaster loans prior to seeking assistance from FEMA. Schools may apply for SBA loans, and the aggregate loan amount cannot exceed $1.5 million. In general, the loan terms for each loan include a maximum of 30 years for repayment with interest rates of at least 4 percent. HBCU officials we interviewed reported extensive and diverse capital project needs, including construction and renovation of facilities and addressing deferred maintenance, yet just over half of the available program loan capital has been borrowed. While HBCU capital project needs are not well documented by national studies, the schools themselves have individually identified and documented them. Despite reported needs, only about a quarter of HBCUs have taken steps to participate in the program, and about half of these HBCUs became borrowers. Education has collected and reported limited information on the program’s utilization and has not established performance measures or goals to gauge program effectiveness, though Education officials noted that they are currently working on developing such measures and goals. There are few national studies that document the capital project needs of HBCUs, and they do not provide a current and comprehensive national picture. The four that we identified and reviewed are more than several years old, narrowly scoped, or had limited participation. Specifically, the studies are between 6 and 17 years old, and two studies focused only on specific types of need—renovation of historic properties and campus wiring for computer networks. One study that addressed a broader range of needs and was among the most recent had a low response rate— 37 percent. Despite the lack of national studies, schools that we interviewed reported extensive, diverse, and ongoing capital project needs. School officials reported that they routinely conduct facility assessments as part of their ongoing strategic planning and that these assessments help determine the institutions’ short- and long-term capital needs. They said that capital projects, including the construction of new dormitories, renovation of aging or historic facilities, repair of infrastructure, and addressing long- standing deferred maintenance are needed for a variety of reasons. New facilities such as dormitories and student centers are often needed as a result of enrollment growth, for example, while modernization of existing facilities is needed to accommodate technological advances. For example, Tuskegee University renovated an existing facility to house its hospitality management program, creating modern meeting facilities along with a full- service hotel, which provides students with a real-world laboratory in which they gain immediate hands-on experiences (see fig. 1). In addition, many of the school officials who we interviewed reported that their schools had particularly old facilities, many of which are listed in the National Register of Historic Places. Some school officials cited their need to repair or replace campus infrastructure. For example, some schools reported needing to replace leaking underground water pipes, while others reported the need to replace 100-year-old water and gas pipes. Many of the school officials we interviewed reported having deferred maintenance projects, some for over 15 years, and officials from 3 schools estimated their schools’ deferred maintenance to be over $50 million. For some schools, the deferred maintenance is substantial in light of existing resources, according to HBCU officials. These types of capital projects are essential to ensuring student safety and preserving assets that directly affect their ability to attract, educate, and retain students. Over the life of the program, approximately 14 percent of HBCUs have borrowed just over half of the available funds despite the substantial needs reported by schools. Specifically, 23 HBCUs, according to Education, have taken steps to participate in the program, and 14 became borrowers, with loans totaling just over $200 million—below the program’s $375 million total limit. About 20 percent of the eligible private institutions have borrowed a little more than half of the $250 million allotted for private schools, and less than 8 percent of public institutions have borrowed less than two-thirds of the $125 million allotted for public schools. To date, loan participants have all been 4-year institutions. Taking into account loan repayments, the total amount of outstanding loans was about $168 million as of August 2006, leaving about $207 million available for loans (about $66 million for public schools and about $141 million for private schools). Table 2 shows the participants and the amounts of their loans.