Trade Adjustment Assistance: Opportunities to Improve the Community
Adjustment and Investment Program (Letter Report, 09/29/2000,
GAO/NSIAD-00-229).
Pursuant to a congressional request, GAO provided information on the
Community Adjustment and Investment Program (CAIP), focusing on: (1) how
the program has been structured; (2) how program eligibility criteria
and outreach efforts have been implemented; and (3) what the results of
efforts to provide assistance to eligible counties were.
GAO noted that: (1) the Community Adjustment and Investment Program's
management structure hinders efficient program management; (2) the
program is managed in Washington, D.C., by a high-level interagency
group chaired by the Department of the Treasury, called the Finance
Committee; (3) Committee membership includes the Departments of
Agriculture, Commerce, Housing and Urban Development, and Labor, and the
Small Business Administration; (4) it took the Finance Committee over 3
years to set up program guidelines and to start disbursing program
financing to distressed counties; (5) the Finance Committee's retention
of certain day-to-day managerial functions is inefficient and has added
more time to the decision-making process, particularly for direct loans
and grants; (6) Treasury officials recognize that some delays have
resulted from the program's centralized management structure and told
GAO that they plan to hire additional full-time staff to expedite future
decision-making; (7) however, it is not clear that new staff will
improve program management unless the Finance Committee is prepared to
delegate decision-making authority; (8) program eligibility procedures
are complex and rely on a database that is not designed to be used as a
measure of the impact of the North American Free Trade Agreement on
communities; (9) GAO found that Treasury's current procedures result in
the underestimation of dislocated workers, including approximately 3,700
secondary workers in firms that are suppliers to or assemblers for
manufacturing firms adversely impacted by trade with Mexico and Canada;
(10) although this undercounting has not had an impact on counties from
qualifying for the program; (11) for the 228 counties in 30 states and
Puerto Rico designated eligible for the program, notification and
outreach have been limited, as Treasury does not directly notify
eligible counties about the program, according to program officials; and
(12) since 1997, about $257 million in loan guarantees, loans, and
grants have been provided to 83 eligible counties.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: NSIAD-00-229
TITLE: Trade Adjustment Assistance: Opportunities to Improve the
Community Adjustment and Investment Program
DATE: 09/29/2000
SUBJECT: Eligibility determinations
Labor surplus areas
Community development
Foreign trade agreements
Economic development
Intergovernmental fiscal relations
Unemployment rates
Economically depressed areas
IDENTIFIER: North American Free Trade Agreement
NAFTA
Mexico
Canada
DOL NAFTA Transitional Adjustment Assistance Program
SBA 7(a) General Business Loan Guarantee Program
USDA Business and Industry Loan Program
Treasury Community Adjustment and Investment Program
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GAO/NSIAD-00-229
A
Report to the Chairman and Ranking Minority Member, Committee on Finance, U.
S. Senate
September 2000 TRADE ADJUSTMENT ASSISTANCE
Opportunities to Improve the Community Adjustment and Investment Program
GAO/ NSIAD- 00- 229
National Security and International Affairs Division
Lett er
B- 286103 September 29, 2000 The Honorable William V. Roth, Jr. Chairman The
Honorable Daniel Patrick Moynihan Ranking Minority Member Committee on
Finance United States Senate
Recognizing that the benefits of the North American Free Trade Agreement
between the United States, Mexico, and Canada would be widely dispersed
across the economy but that the costs or worker dislocation effects could be
more concentrated, Congress created the Community Adjustment and Investment
Program in December 1993 1 to assist communities suffering job losses due to
changing trade patterns with Mexico and Canada. Under this program, loan
guarantees, loans, and grants are provided to eligible counties to help
stimulate private sector employment and growth. Loan
guarantees to local businesses have accounted for the preponderance of
financing commitments to date. The program was established with an initial
capitalization of $22. 5 million and has received $20 million in additional
appropriations to support and expand program activities. You expressed
concern about whether the Community Adjustment and Investment Program is
providing timely and useful assistance to eligible counties. At your
request, we assessed (1) how the program has been
structured, (2) how program eligibility criteria and outreach efforts have
been implemented, and (3) what the results of efforts to provide assistance
to eligible counties were.
1 Public Law 103- 182, Sec. 543, Dec. 8, 1993.
Background The Community Adjustment and Investment Program was established
as a result of the North American Free Trade Agreement Implementation Act,
passed in December 1993. The act provided that 10 percent of the paid- in
capital ($ 22. 5 million) to the North American Development Bank would be
set aside for community adjustment and investment purposes. 2 The North
American Development Bank, while it is the repository for program funds and
provides funds management services for the program, does not exercise
financial or programmatic control over the Community Adjustment and
Investment Program. This authority rests with an
interagency committee chaired by the Treasury Department. The Community
Adjustment and Investment Program uses a lending partnership with the
Department of Agriculture and the Small Business Administration to jointly
provide federal loan guarantees to eligible communities. The program uses
the extensive field office infrastructure these agencies already have in
place across the country. Although the Agriculture Department and Small
Business Administration loan guarantee
programs' eligibility and creditworthiness standards remained unchanged,
additional eligibility standards were instituted for Community Adjustment
and Investment Program loan guarantees. These loan guarantee eligibility
standards mainly focus on the creation or retention of jobs. Results in
Brief The Community Adjustment and Investment Program's management
structure hinders efficient program management. The program is managed in
Washington, D. C., by a high- level interagency group chaired by the
Treasury Department, called the Finance Committee. Committee membership
includes the Departments of Agriculture; Commerce; Housing and Urban
Development; and Labor; and the Small Business Administration. It took the
Finance Committee over 3 years to set up
program guidelines and to start disbursing program financing to distressed
counties. The Finance Committee's retention of certain day- to- day
managerial functions is inefficient and has added more time to the
decision- making process, particularly for direct loans and grants. Treasury
2 The North American Development Bank is an international financial
institution established and capitalized in equal parts by the United States
and Mexico for the purpose of financing environmental infrastructure
projects in the U. S.- Mexico border region, as well as for community
adjustment and investment in support of the purposes of the North American
Free Trade Agreement.
officials recognize that some delays have resulted from the program's
centralized management structure and told us that they plan to hire
additional full- time staff to expedite future decision- making. However, it
is not clear that new staff will improve program management unless the
Finance Committee is prepared to delegate decision- making authority.
Program eligibility procedures are complex and rely on a database that is
not designed to be used as a measure of the impact of the North American
Free Trade Agreement on communities. We found that the Treasury's
current procedures result in the underestimation of dislocated workers,
including approximately 3,700 secondary workers in firms that are suppliers
to or assemblers for manufacturing firms adversely impacted by trade with
Mexico and Canada. Although this undercounting has not had an impact on
counties' eligibility to date, it could potentially prevent some
counties from qualifying for the program. For the 228 counties in 30 states
and Puerto Rico designated eligible for the program, notification and
outreach have been limited, as the Treasury does not directly notify
eligible counties about the program, according to program officials. Since
1997, about $257 million in loan guarantees, loans, and grants have
been provided to 83 eligible counties. Loan guarantees made through the
program's partnership with the Small Business Administration and the
Department of Agriculture represent 99 percent of the total financing
provided. The community that received the largest portion (11 percent) of
this financing is El Paso, Texas. It is not clear to what extent the
financing
assistance has resulted in private sector employment and growth, because the
program does not have a monitoring system in place to measure program
outcomes. Although program records indicate that participating businesses
created or retained 9,208 jobs, these data are based on projections made by
businesses when first applying for program financing and are not verified.
Moreover, most of the bankers and business owners we interviewed said that
the loan guarantees provided under the program in partnership with the Small
Business Administration would still have been made without the program,
although the lack of the benefit would have increased the risk to the
borrowers' small business expansion projects. In addition, as we have stated
in our previous work, 3 federal financing programs that assist specific
sectors or firms largely shift employment among sectors in the economy
rather than raise the overall 3 See Export- Import Bank: Key Factors in
Considering Eximbank Reauthorization (GAO/ T- NSIAD- 97- 215, July 17,
1997).
level of employment, so that the program's jobs figure may not represent net
job gains in a period of full employment.
This report makes several recommendations to the Secretary of the Treasury
to improve program management by delegating authority from the Finance
Committee, amending eligibility data procedures, improving notification to
eligible counties, and establishing a monitoring system to measure program
outcomes. In written comments on a draft of this report, the Treasury agreed
with our recommendations to amend the eligibility data procedures and
improve notification to eligible counties. However, it did not agree that
delegating additional authority from the Finance
Committee would improve program management. Based on clarifications provided
by the agencies on the role of the Finance Committee in the loan guarantee
approval process, we modified the report and our recommendation to focus on
delegating additional decision- making authority to program staff for loans
and grants in order to promote a more efficient and timely decision- making
process. Finally, while Treasury agreed in principle with our recommendation
to establish a monitoring system to measure program outcomes, it expressed
concern about the
nature of the monitoring to be established. We disagree that follow- up
reporting will make the program less competitive or desirable to loan
guarantee recipients, especially since the program's lending partners (the
Small Business Administration and the Department of Agriculture) already
conduct such follow- up reporting for their other loan guarantees.
Management Structure
The Community Adjustment and Investment Program (CAIP) is managed Hinders
Efficient
under a high- level interagency committee structure that seeks to leverage
available program funds by focusing on partnerships with existing federal
Program Delivery loan guarantee programs. However, the Finance Committee's
retention of certain day- to- day managerial functions is inefficient and
adds time to the decision- making process.
How CAIP Is Structured The Finance Committee, chaired by the Department of
the Treasury, is comprised of members from participating federal agencies,
including the
Departments of Agriculture (USDA); Commerce; Housing and Urban Development;
and Labor; and the Small Business Administration (SBA). Committee members
are often at the deputy assistant secretary or deputy
assistant administrator level. 4 Figure 1 shows the organizational structure
of CAIP.
Figure 1: CAIP's Organizational Structure
Finance Finance Committee Committee
Ombudsman Ombudsman
Treasury Treasury (Chair), (Chair), USDA, USDA, SBA, SBA,
(vacant) (vacant)
Labor, Labor, Commerce, Commerce, Housing Housing and and
Advisory Advisory Committee Committee Urban Urban Development Development
Funding Funding Subcommittee Subcommittee
Loan Subcommittee
Treasury, Treasury, USDA, USDA, SBA, SBA,
Loan Subcommittee
Labor, Labor, Commerce, Commerce, Housing Housing and and
Treasury Treasury (Chair), (Chair), USDA, USDA, SBA SBA
Urban Development Urban Development
(for (for grant grant solicitation solicitation evaluation evaluation only)
only)
USDA USDA Business Business
and and Industry Industry
SBA7( SBA7( a) a) Program Program
Direct Direct Loan Loan Program Program
Grant Grant Program Program
Program Program
field field office office
(Los (Los Angeles) Angeles)
(San (San Antonio) Antonio)
field field offices offices
Lenders Lenders Lenders Lenders Borrowers in
Grant Grant participants participants
Borrowers in in in eligible eligible communities
communities eligible eligible communities
communities
(generally nonprofits and (generally (generally business)
business) (generally nonprofits and
local local governments) governments)
Source: Treasury Department.
4 Current Finance Committee members include the Treasury's Deputy Assistant
Secretary, Office of Government Financial Policy (chair); Agriculture's
Deputy Under Secretary for Policy & Planning, Office of Rural Development;
SBA's Deputy Associate Deputy Administrator, Office of Capital Access;
Housing and Urban Development's Director, Office of Economic Development and
Empowerment Zones; Labor's Director, Women's Bureau;
and Commerce's Special Assistant to the Deputy Assistant Secretary, Economic
Development Administration.
The Finance Committee's course of action in structuring CAIP was predicated
on its desire to maximize the potential impact of a relatively small level
of funding, its onetime capitalization of $22.5 million. At a time of
extensive federal government budget cutbacks in the mid- 1990s, the
committee wanted to minimize the funding that would be needed for
administrative overhead and decided to partner with existing federal loan
guarantee programs at USDA and SBA, which already had extensive field office
infrastructures in place across the country. In May 1998, about 9 months
after CAIP became operational, the committee established a Loan
Subcommittee with responsibility for reviewing the loan guarantee
applications forwarded by the USDA and SBA field offices. The Loan
Subcommittee was authorized to approve loan guarantees where the vote for
approval was unanimous and the loan amount was under $5 million (for
USDA loan guarantees), which has been the preponderance of cases. Otherwise,
the loan guarantee application is forwarded to the Finance Committee for its
approval. In addition, two new staff were hired to run the direct loan
component in the Los Angeles office. Direct loan applications go directly to
the full Finance Committee for consideration. When the program later
received additional appropriated funds in fiscal years 1999 and 2000, it
then proceeded with the grants component in San Antonio and hired three
staff to carry out that function. A second Funding Subcommittee was created
with responsibility for reviewing the grant
applications forwarded by the Grant Program office. The Funding
Subcommittee's role is limited to evaluating grant applications; it does not
get involved in program management. An Advisory Committee was established to
provide advice to the Finance Committee on the implementation of the
program. The Advisory Committee's primary role was to participate in the
development of the
program guidelines. It is also directed to review on a regular basis the
operations of the program. 5 The Advisory Committee was convened for the
first time on October 11, 1995, and since the program became operational
meets once a year to review CAIP operations. Advisory Committee meetings are
open to the public, and the minutes of meetings are made
available to the public. 5 By statute, the Advisory Committee is comprised
of nine members of the public, appointed by the President, who collectively
represent community groups whose constituencies include low- income
families; scientific, professional, business, nonprofit, or public interest
organizations or associations, which are neither affiliated with nor under
the direction of a government; for- profit business interests; and other
appropriate entities with relevant
experience.
In addition to the Advisory Committee, the statute also provided that an
ombudsman be appointed. The ombudsman's function was to establish procedures
for receiving comments from the general public on the operation of CAIP and
to perform an independent inspection and programmatic audit of the operation
of CAIP. As of August 25, 2000, an ombudsman had not been appointed.
Treasury officials told us that the
ombudsman position had not been filled because funds were never appropriated
for this purpose, and they did not want to deplete CAIP's capital (the 10
percent of the paid- in capital of the North American Development Bank set
aside for CAIP). However, there is a precedent for using CAIP's capital to
pay program staff salaries, since the staff of the Los Angeles and San
Antonio offices are paid from this source.
Management Structure Is It took the Finance Committee more than 3 years to
establish the program Inefficient
and provide financing to eligible counties. Much of the first 3 years of the
program was spent by the Finance Committee in defining the program to be
delivered and developing program eligibility criteria and guidelines. The
Committee also signed memorandums of understanding with the North American
Development Bank on CAIP funding and with USDA and SBA to establish loan
guarantee partnerships. The program did not become operational until
September 1997. Figure 2 provides a chronology of management actions taken
in developing the program.
Figure 2: Time Line of CAIP Implementation
September 1997: June 1997:
CAIP implemented CAIP guidelines issued
June 18, 1997: November 1993:
Memorandum of Understanding US and Mexico agree to establish
between Treasury and
October 21, 1998:
North American Development Bank SBA for loan guarantees signed
Congress appropriates $10 million for CAIP
June 23, 1997: December 8, 1993:
Memorandum of Understanding NAFTA Implementation
between Treasury and USDA Act creates CAIP
for loan guarantees signed
September 1, 1997:
CAIP becomes operational, first financing applications reviewed
1993 1994 1995 1996 1997 1998 1999 May 13, 1994
August 21, 1995: October 15, 1999:
Executive Order 12916 Charter for Advisory
Grant program establishes CAIP Finance
Committee approved announced with
Committee, chaired by Treasury solicitation letter
August 31, 1995: November 29, 1999:
Memorandum of Understanding Congress appropriates between North American
$10 million for CAIP Development Bank and Treasury
on CAIP administration signed
October 11, 1995:
First Advisory Committee meeting held
Legend: NAFTA North American Free Trade Agreement
Source: Treasury Department.
Because the Finance Committee is comprised of high- level officials from six
federal agencies, getting a quorum convened and reaching consensus decisions
can take time. For instance, the new grants component was announced in
October 1999; grant applications were due January 17, 2000;
and program officials planned to finalize the grant awards by the end of
March 2000. A second round was tentatively planned to start in July 2000.
However, the first- round grant decisions were not approved by the Finance
Committee until August 1, 2000, in part because of caution related to
establishing a new grant program and learning as they went along, and
because of delays in convening meetings. 6 In another example, the Finance
Committee received a direct loan application in October 1999. It approved
the loan in January 2000 but did not authorize release of the funds until
August 11, 2000, an unusually long lag in closing the loan. The prior two
loans had been closed within 1- 2 months after approval. The time lag
appeared to reflect the amount of time it took the Finance Committee to
modify some of the terms of the proposed loan application and reach
agreement with the borrower. The Finance Committee Chair said that it has
been difficult for the Finance Committee to oversee the development of new
CAIP programs and to review the disbursement of all program financing in a
timely manner. He
said that maintaining the current management decision- making structure may
be even more difficult in the future with the expected growth of the new
grant program. He told us that he plans to hire a full- time national
director and an attorney for CAIP, which may expedite future
decision- making and program implementation. However, it is still not clear
the degree to which the Finance Committee will actually delegate decision-
making authority to this new program director, so it is uncertain whether
the decision- making process will be improved.
Eligibility Procedures CAIP's eligibility procedures are complex and rely on
a database that, while Underestimate
the best available data, is not designed as a measure of the impact of the
North American Free Trade Agreement (NAFTA) on communities. The Dislocated
Workers, program's current procedures for utilizing these data result in and
Outreach Efforts
underestimating dislocated workers and could eliminate some affected Have
Been Limited
counties from consideration. Once eligibility is determined, we found that 6
The Finance Committee had not publicly announced the first- round grant
results as of September 14, 2000.
efforts to notify counties of their program eligibility and to conduct
outreach to eligible and potentially eligible counties have been limited.
Counties Receiving CAIP
We found that CAIP had designated 228 counties in 30 states and Puerto
Financing Rico as eligible for its assistance, while 83 counties in 24
states had actually participated in the program, as of June 8, 2000. The
eligibility and
participation of counties are illustrated in figure 3.
Figure 3: Map of CAIP- eligible and -participating Counties
Eligible counties Participating counties
Note: Map does not show Alaska, Hawaii, or Puerto Rico. Alaska has one
eligible county, which has participated in CAIP. Hawaii does not have any
eligible counties. Puerto Rico has four eligible counties, none of which
have participated in CAIP.
Source: Based on information provided by CAIP, USDA, and SBA.
Eligibility Criteria Eligibility for CAIP assistance is based on two
criteria: whether a county (1) has experienced significant job losses
attributable to NAFTA and (2) needs transition assistance to adjust
economically to these job losses. The measure of job losses attributable to
NAFTA is generally based on the Labor Department's certifications of workers
who have lost their jobs or are threatened with separation due to trade with
Canada or Mexico. To demonstrate significant job losses, the county must
have more than 500
Department of Labor- certified workers in an urban county or more than 300
in a rural county during a 36- month period. The measure of need for
transition assistance is whether the county's unemployment rate is
1 percent or more above the national average unemployment rate during the
past 12 months. 7 Eligibility for the program was originally for 36 months;
however, this was adjusted to 12 months on March 10, 1999, 8 and eligibility
can be renewed for periods of 12 months based upon
continued evidence of need, as shown by an unemployment rate at least 1
percent over the national average. CAIP also has two special provisions
related to eligibility. The first provision designated all border counties,
defined as U. S. counties that have any part located within 62 miles (100
kilometers) of the U. S.- Mexico border, as eligible beginning October 1,
1999. The border counties' eligibility does not have an expiration date. The
second provision is for
special cases, in which counties that do not qualify under the regular
process can demonstrate adverse impact from NAFTA and become eligible.
Adverse impact is demonstrated by evidence of job losses due to a firm's
relocation of production to Canada or Mexico or due to increased imports
from Canada or Mexico.
7 County unemployment rates are measured using the Local Area Unemployment
Statistics of the Labor Department's Bureau of Labor Statistics. The
national unemployment rate is measured using the National Unemployment
Statistics of the Bureau of Labor Statistics. 8 Counties designated eligible
before March 10, 1999, were “grandfathered” for the full
remainder of the 36- month designation period.
Eligibility Data and The measure of job losses attributable to NAFTA is
based on the Labor Procedures
Department's certifications under the NAFTA- Transitional Adjustment
Assistance Program. 9 These certification data estimate the number of job
losses due to firm relocation to or increased imports from Mexico and/ or
Canada. Labor Department officials who administer the program stress that
the certification data are only a gross proxy for job losses due to
NAFTA for a number of reasons. First, they point out that it is very
difficult to tie job losses directly to a trade agreement like NAFTA.
Second, the number of workers reported as certified under the NAFTA-
Transitional Adjustment Assistance Program is based in part on an estimation
of potential layoffs at the time a petition is filed with the Department of
Labor, and this may understate or overstate eventual job losses. The
Department
of Labor rarely makes adjustments to these estimations after the final job
reductions are made by the firm, according to Department of Labor officials.
While CAIP administrators are aware of the limitations in the certification
data for measuring the impact of NAFTA at the county level, they point out
that there is no other source of information relating job losses to trade
with Mexico and Canada; these are the best available data. 10
In examining the procedures the Treasury Department uses to process NAFTA-
Transitional Adjustment Assistance certification data to determine CAIP
eligibility, we found that incomplete information transmitted to the
Treasury by Labor has resulted in underestimation of affected workers in
some areas. Under a discretionary component of the NAFTA- Transitional
Adjustment Assistance Program, workers in secondary firms (firms that supply
or assemble products produced by firms directly affected by
NAFTA) can also receive program benefits. However, this data field is not
transmitted to the Treasury, so that it is not included in CAIP eligibility
calculations. Since 1995, 57 petitions for secondary firms, accounting for
an estimated 3, 700 workers, have made workers eligible for benefits under
the NAFTA- Transitional Adjustment Assistance Program. None of these 9 The
Labor Department's NAFTA- Transitional Adjustment Assistance Program
provides extended unemployment compensation and retraining benefits to
workers whose jobs are eliminated due to trade with Mexico and Canada and
who are certified eligible for program assistance.
10 Legislative proposals are pending to consolidate the NAFTA- Transitional
Adjustment Assistance Program with the larger Trade Adjustment Assistance
Program. If such a consolidation is made, CAIP's use of Labor Department
data could be compromised if Labor does not continue to distinguish which
workers are certified due to trade with Canada and
Mexico. CAIP's eligibility procedures depend upon continued identification
of job losses attributable to NAFTA.
workers were counted when determining CAIP eligibility. This undercounting
did not impact counties' eligibility when CAIP eligibility was recalculated
including these workers. However, neglecting to include secondary workers in
the future could result in failure to identify eligible counties.
Notification and Outreach Efforts to notify counties of their eligibility
for the program or to provide
to Eligible Counties counties with information about program financing
assistance have been
limited. Counties are not directly notified by CAIP when they receive CAIP
eligibility. While letters are sent to Members of Congress representing the
newly designated communities, notifications are not sent directly to
eligible counties. This can be a problem because counties generally do not
apply directly for CAIP eligibility, rather eligibility designations result
from quarterly computer runs of Labor Department certification and
unemployment data. Therefore, counties that become eligible for CAIP may not
even be aware of the program unless notified by program officials. For
example, when the new CAIP grants component was established, the
grants staff created an extensive outreach database and conducted a large,
targeted mailing to 6, 200 addressees in eligible counties. In response to
the solicitation letter, a number of counties stated that they had been
unaware of the existence of CAIP, much less their eligibility for the
program. CAIP has also done limited outreach and marketing of the program in
eligible counties. Most of the outreach that has been done to inform
counties about CAIP was undertaken through SBA and USDA field offices and
their network of bankers and contacts with chambers of commerce. The CAIP
Los Angeles office has conducted outreach conferences in newly designated
counties when possible in conjunction with USDA or SBA field staff but has
been hampered by limited staff and funding for outreach activities,
according to a program official. The Los Angeles office has also sent
articles about the program to industry or trade journals and has created a
Web site in conjunction with the University of California at Los
Angeles' North American Integration and Development Center. The Web site is
a useful information source for those counties that are already aware of the
program. 11 In addition, the CAIP grants mailing appears to have generated
interest in CAIP direct loans and loan guarantees as well, according to
program officials.
11 The Web site address is www. nadbank- caip. org.
In order to gain a better understanding of CAIP outreach efforts, we visited
two communities with high levels of CAIP activity- El Paso, Texas, and Coeur
d'Alene, Idaho. We met with agency officials, bankers, and participating
small business owners, as well as with community/ economic development
officials. We supplemented our field work with telephone interviews with
agency officials in USDA and SBA field offices in Louisiana,
South Carolina, New York, and California. While it appeared that substantial
outreach efforts had been undertaken in El Paso and Coeur d'Alene, we found
limited knowledge of the program among businesses. Most of the bankers were
aware of the program; however, many of the community/ economic development
officials, bankers, and business owners that we talked to believed that
greater outreach was needed. In addition, in our interviews with agency
officials in SBA and
USDA field offices, the assessment of most of the agency officials we talked
to was that most in their business community were not aware of the program.
Results of Efforts to The program's efforts to stimulate private sector
employment and growth
Stimulate Private in eligible counties have been channeled through three
types of financing: loan guarantees, loans, and grants. A total of about
$257 million in Sector Employment financing has been provided, with loan
guarantees predominating.
and Growth However, it is not clear what the impact of the financing
assistance is,
because CAIP does not have a monitoring system in place to measure program
outcomes.
Three Types of Financing CAIP is designed to assist the business community
through loan
Provided- Loan guarantees, loans, and grants. Figure 4 shows the amount of
financing
Guarantees, Loans, and provided to eligible counties since September 1997.
To date, loan Grants
guarantees have been the primary financing mechanism used and represent 99
percent of total financing. Two direct loans have been approved, and the new
grant program is finalizing its first round of grant awards.
Figure 4: CAIP Financing to Assist Distressed Counties Since Start of
Program, as of June 8, 2000
120 Dollars in millions
110 100
25.9 90 80 70
1 60
0.5 31.9 50
18.6 40
86.6 30 20
0.5 38.2
39.6 10
6.8 0
6.5 1994
1995 1996
1997 1998
1999 2000 Total=
Total= Total=
Total= Total=
Total= Total= $0
$0 $0
$13.8 $111.1
$70 $58.7 USDA loan guarantees SBA loan guarantees CAIP direct loans
Notes: 1. The CAIP Grant Program awarded $600,000 to a pilot grant project
in 1999. This number is not shown in figure 4 because it could not be
adequately represented on the graph.
2. Data are based on calendar year calculations. 3. Data for 2000 are for
January- June 8. Source: SBA, USDA, and CAIP Los Angeles office.
Loan Guarantees Loan guarantees are provided through existing federal loan
guarantee programs at USDA and the SBA. Specifically, CAIP established a
lending partnership with the USDA Business and Industry Guaranteed Loan
Program and the SBA 7( a) Loan Guarantee Program. 12 CAIP benefits from
their field infrastructure and underwriting capabilities and, in return,
pays for the guarantee fee (usually passed on by the lender to the borrower)
and
the subsidy cost to the government for the agencies (which, otherwise, would
be covered by the USDA and SBA budgets), as well as several administrative
costs. All eligibility criteria established by USDA and SBA for financing
under these programs remain the same. In addition, the following CAIP
criteria have been added:
The borrower must devote a majority of the loan principal made available
under CAIP to opening a new facility, expanding operations at an existing
facility, or improving a firm's competitive position.
The project must demonstrate a capacity to create new jobs, or preserve jobs
at risk of being lost, over a 24- month period. The project must demonstrate
a capacity to create or preserve at least one job for every $70,000 of the
guaranteed portion of the loan principal made available under the program.
Loans CAIP also offers a direct loan program designed to assist borrowers
that do not meet the criteria for conventional financing or for USDA or SBA
loan guarantees. Since the direct loan program's inception in September
1997, two loans totaling $2 million have been made- one in California and
one in Texas. One loan was made to the California Coastal Rural Development
Corporation for $1 million. Cal Coastal, a community- based, nonprofit
lender, is using the loan as a line of credit to provide up to 10 percent of
the
total loan amount for USDA Business and Industry loans in distressed
communities that otherwise could not have qualified for these loans. The
other loan, also for $1 million, was made to the Greater El Paso Chamber of
Commerce, which is renovating a former Levi- Strauss factory for use as a
workforce development center and a business resource center. Grants Formally
launched on October 15, 1999, the Grant Program is the third and
newest of the CAIP financing programs. It is designed to assist in the
creation or preservation of jobs for impacted counties through specific
project and technical assistance grants. Up to $6 million will be available
to
12 For more information about these loan guarantee programs, see appendix I.
fund the first round of grant awards. In March 1999, before the new grant
program was announced, the Finance Committee approved a pilot grant project
for $600,000 to the New Mexico Border Authority in Dona Ana County, New
Mexico. The grant was seed money for a retraining project for a projected
1,200 workers in this highly NAFTA- impacted area. (For more information on
CAIP direct loans and grants, see app. I.)
Amount of Loan About $257 million in financing has been provided to eligible
counties-
Guarantees, Loans, and $254 million in loan guarantees, $2 million in loans,
and $600,000 in grants.
Grants Provided by CAIP A summary of CAIP financing activity showing the
number of loan guarantees, loans, or grants and their value, is provided in
table 1.
Table 1: CAIP Financing Activity, September 1997- June 8, 2000 Financing
component Number Value
Loan guarantees a 366 $254, 137, 345 USDA Business & Industry Loan
89 170,955, 290 Guarantee Program SBA 7( a) Loan Guarantee Program 277 83,
182, 055
Direct loans 2 2, 000, 000 Grants b 1 600, 000
Total 369 $256,737, 345
a Table excludes loan guarantees approved but withdrawn by the borrowers
before closing and cancelled by the agencies. b This is for a pilot grant
project, approved in March 1999. The first round of grants, representing a
total
of $6 million, has been decided, but as of September 14, 2000, they had not
been publicly announced. Source: USDA, SBA, and the Treasury.
Not all of the eligible counties have actually participated in CAIP. As
previously mentioned, of the 228 counties in 30 states and Puerto Rico
designated eligible for program financing, we found that 83 counties in 24
states had actually participated in the program, as of June 8, 2000. The
community with the highest level of loan guarantee activity was El Paso,
Texas, which had 114 SBA 7( a) loans totaling $28 million in value and SBA
projections of about 927 jobs created or retained. El Paso also received a
direct loan for $1 million. The largest state recipients of program
financing are shown in figure 5. Loan guarantees represent the majority of
the assistance provided to each state. Louisiana, with $50.8 million in loan
guarantees, and Texas, with $48.8 million in loan guarantees and a direct
loan, had by far the highest level of activity in terms of value of
financing, together accounting for 39 percent of the total. When the next
three highest- ranking states- Georgia, California, and Idaho- are also
included, the top five states accounted for 66 percent of the total value of
the
financing. At the other end of the spectrum, eligible counties in Arizona,
Illinois, Indiana, New Jersey, Oregon, Puerto Rico, and Wisconsin had not
participated in the program. 13 13 In some cases, lack of participation may
be due to recent designation of eligibility, or a relatively low level of
participation may be due to a limited number of eligible counties in that
state, according to program officials.
Figure 5: Financing Provided to States Through CAIP, as of June 8, 2000
Louisiana 50.8
Texas 48.8
Georgia 27.6
California 24.8
Idaho 18
S. Carolina 13.4
Alaska 10.6
Michigan 8.7
Mississippi 6.7
Ohio 6
Connecticut 4.6
New York 4.5
Tennessee 4.5
N. Carolina 4.1
Arkansas 3.9
Missouri 3.1
Alabama 2.8
Florida 2.7
New Mexico 2.7
Kansas 2.6
Kentucky 2.4
Pennsylvania 2.1
Washington 0.8
Virginia 0.6
0 10 20 30 40 50 60 Dollars in millions
Source: USDA and SBA.
We visited two communities with high levels of CAIP activity- El Paso,
Texas, and Coeur d'Alene, Idaho- in order to gain a better understanding of
the effect of CAIP financing. We supplemented our field work with telephone
interviews with the USDA and SBA offices responsible for CAIP loan
guarantees in eligible counties in Louisiana, South Carolina, and New York,
as well as the areas of Los Angeles in southern California and Watsonville
in central California. Most USDA and SBA officials we talked to said that
CAIP had been valuable in increasing the volume of loans that
they could generate in these distressed counties.
Most USDA officials we talked to said that CAIP was valuable in increasing
the availability of funds for its business and industry loan guarantees. The
Business and Industry Guaranteed Loan Program usually uses up its state
allocations early in the fiscal year, and additional funds are generally not
available until the end of the fiscal year when any unused funds are
returned to the National Reserve Office and can be tapped. While CAIP funds
are used to make loan guarantees throughout the year, according to USDA
officials they play a critical role in enabling loans that USDA would not
otherwise be able to make during this time. USDA officials said that they
did not pay the 2- percent guarantee fee with CAIP funds, rather they used
all available CAIP funds to increase the pool of funds for loan
guarantees. The average size of CAIP- supported USDA Business and Industry
loan guarantees was about $1.9 million, according to CAIP.
Most SBA officials we talked to said that CAIP was valuable in paying the 7(
a) guarantee fee, which was a burden for most small business borrowers. The
average size of CAIP- supported SBA 7( a) loan guarantees was about
$300,000, according to CAIP, with guarantee fees ranging from 2 percent to
3.875 percent of the guaranteed portion of the loan, depending on the size
of the loan. Most of the participating lenders and borrowers we talked to
agreed, saying that not having to pay the guarantee fee had been a benefit
for the borrowers and had freed up needed operating capital during their
business expansion. Most lenders and borrowers said that they probably would
have completed the SBA 7( a) loan without the CAIP benefit; however, lack of
the benefit would have increased the risk to their small business expansion
projects. Having the extra capital helped to make the business stronger and
allowed them to hire more workers. CAIP Does Not Monitor
CAIP has no requirements for monitoring the outcomes of its financial Loan
Outcomes
assistance to eligible counties, which would allow it to measure the degree
to which the program has actually assisted distressed counties. Program
officials monitor program outputs, such as the number of loans, loan
amounts, and CAIP expenses. As such, these are measures only of what CAIP is
providing counties, not what has resulted in the counties due to the loans.
Program officials do track the number of jobs created or retained due to
CAIP loan guarantees, which program records indicate was 9,208 jobs, as of
June 8, 2000. However, these data are based solely on the projections made
by businesses when they apply for the loan guarantee. There is no follow- up
to monitor the actual number of jobs that the borrowing businesses had
realized in the 24 months following the loan,
although this estimate is a primary condition for qualifying for the CAIP
loan guarantee. The issue of creation of jobs is a complex one. As we have
stated in prior
work, economists and policymakers recognize that employment levels are
substantially influenced by macroeconomic policies, including actions of the
Federal Reserve. At the national level, under conditions of full employment,
government finance assistance programs may largely shift
production among sectors within the economy rather than raise the overall
level of employment in the economy. Therefore, it should be kept in mind
that the jobs figure that CAIP reports may not represent net job gains in a
period of full employment.
Another consideration in CAIP's jobs numbers is the question of the
“additionality”- that is, would these jobs have been created or
retained anyway in the absence of the program. For instance, most of the SBA
7( a) lenders and borrowers we interviewed said that the SBA 7( a) loan
guarantees provided under CAIP would still likely have been made without
CAIP participation. While CAIP financing may have helped stimulate economic
growth in distressed counties, unless CAIP develops appropriate performance
measures and a monitoring system to track them, it will not
be able to establish the degree to which the program has actually assisted
these counties.
Conclusions The additional contribution that CAIP makes to distressed
counties appears limited, as most of the assistance provided to date-$ 254
million in loan guarantees, or 99 percent of the total program support- is
channeled
through existing USDA and SBA loan guarantee delivery mechanisms. Although
agency officials, bankers, and participating businesses that we interviewed
said they valued this financing, they acknowledged that a significant amount
of these loan guarantees would have been provided without the program.
Answering this fundamental question requires a monitoring system that
measures program outcomes and demonstrates the value of the program.
We identified several additional areas where program management could be
improved. First, the Finance Committee's retention of certain day- to- day
managerial functions has resulted in a highly centralized and inefficient
management decision- making structure. Second, eligibility determinations
are very complex and rely upon a Department of Labor database that was not
designed for this purpose. Furthermore, eligibility determination
procedures do not ensure the completeness and accuracy of the data, which
could potentially result in eliminating some counties from qualifying for
program assistance. Finally, adequate notification has not been provided to
eligible counties.
Recommendations for In order to improve the management and administration of
the Community Executive Action
Adjustment and Investment Program, we recommend that the Secretary of the
Treasury direct the Chair of CAIP's Finance Committee to take the following
steps.
1. Consider delegating additional decision- making authority from the
Finance Committee to program staff for loans and grants.
2. Establish procedures to ensure that the data used in determining
eligibility for program assistance are complete and accurate.
3. Improve notification of eligible counties by directly informing them when
they are found to be eligible for the program.
4. Establish outcome measures and a monitoring system to track the degree to
which the program has actually assisted distressed counties. Agency Comments
and
We received written comments on a draft of this report from the Our
Evaluation Department of the Treasury, the SBA, and USDA (see apps. III to
V). The Treasury agreed with our recommendations to establish procedures for
complete and accurate eligibility data and to improve eligibility
notification and said it was already taking steps to implement an improved
eligibility notification process. The SBA and USDA did not comment on these
two recommendations. In addition, the Treasury, the SBA, and USDA also
provided technical comments, which we incorporated in the report as
appropriate. The Treasury, the SBA, and USDA did not agree with our
recommendation that the Finance Committee consider delegating additional
decision- making authority, particularly for loan guarantees. In addition,
the
Treasury said that it wanted to retain the current process for direct loans
and grant awards because this type of assistance occurs infrequently. The
three agencies provided information clarifying the role of the Finance
Committee in the loan guarantee approval process, and as a result we have
revised our report and focused our recommendation on delegating decision-
making authority for grants and loans. Just as agency officials indicated
that the loan guarantee process became more efficient once the
Finance Committee delegated approval authority to the Loan Subcommittee,
other areas of program activity, such as determinations of community
eligibility and the administration of direct loans and grants, would also
benefit from such a delegation of decision- making authority to program
staff. The Finance Committee's retention of decision- making authority in
these areas is inefficient and has added substantial time- in some cases,
months- to the decision- making process. Greater efficiency will be even
more important in the near future, since agency officials have indicated
that the Grant Program is expected to grow substantially over the
upcoming year. Finally, the Treasury agreed in principle with our
recommendation that the Community Adjustment and Investment Program
establish outcome measures and a monitoring system to track the degree to
which the program has actually assisted distressed counties. However, the
Treasury expressed concern that imposing a reporting requirement on lenders
and/ or borrowers involved with the program's loan guarantees would make
the program less competitive than the SBA's and USDA's other loan
guarantees. The Treasury indicated it would explore monitoring through
informal surveys or through site visits or interviews by the SBA and USDA
field offices. The SBA and USDA both noted that the program's Los Angeles
office had conducted a follow- up survey of jobs realized by borrowing
businesses. We do not believe that follow- up monitoring of the Community
Adjustment and Investment Program's loan guarantees, loans, or grants will
make them
less competitive or desirable to recipients. In fact, the SBA and USDA
already conduct their own follow- up activities for their loan guarantees,
and in two of the three partner programs are already collecting some degree
of job results information. As such, the program's loan guarantees would
clearly not be put at a competitive disadvantage if the program
instituted a monitoring system, as recommended in our report. In terms of
the survey mentioned by the Treasury, the SBA, and USDA, the program's Los
Angeles office did conduct a preliminary survey from October 1998 to
February 1999 of jobs created or retained as a result of the program's loan
guarantee partnership with USDA during the program's first year of
operation. However, this was a onetime snapshot of one of the program's loan
guarantee partnerships and does not constitute a consistent or
effective monitoring system that would provide program outcome measures, as
called for in our report. We are sending copies of this report to
appropriate congressional committees. We are also sending copies of this
report to the Honorable Lawrence H. Summers, Secretary of the Treasury; the
Honorable Dan Glickman, Secretary of Agriculture; and the Honorable Aida
Alvarez, Administrator of the Small Business Administration. Copies will
also be
made available to others upon request. If you or your staff have any
questions about this report, please contact me on (202) 512- 4128.
Additional GAO contacts and staff acknowledgments are listed in appendix VI.
Susan S. Westin, Associate Director International Relations and Trade Issues
Appendi xes Community Adjustment and Investment Program Financing for
Distressed Communities Through Loan Guarantees,
Appendi x I
Loans, and Grants The Community Adjustment and Investment Program (CAIP) was
established in December 1993 to assist communities that have suffered job
losses due to changing trade patterns with Mexico and Canada as a result of
the 1993 North American Free Trade Agreement (NAFTA). It provides
financing assistance to these distressed communities through loan
guarantees, loans, and grants in order to stimulate private sector
employment and growth.
Loan Guarantees CAIP has formed a lending partnership with the Department of
Agriculture (USDA) and the Small Business Administration (SBA) in order to
provide loan guarantees. This component, called the CAIP Federal Agency
Program, has partnered with the USDA Business and Industry Guaranteed
Loan Program and the SBA 7( a) Loan Guarantee Program. Further, the Finance
Committee that manages CAIP approved the addition of the SBA's 504 Program
to the Federal Agency Program in April 2000. It was initiated on August 10,
2000.
USDA's Business and Industry Guaranteed Loan Program is administered by the
Rural Business- Cooperative Service of USDA Rural Development. The primary
purpose of the program is to create and maintain employment and improve the
economic and environmental climate in rural communities. Loan guarantees are
limited to a maximum of $10 million per
borrower, although the Rural Business- Cooperative Service Administrator may
approve loans up to $25 million. The guarantee will cover from 60 to 80
percent of the loan, depending on the size of the loan. Repayment must be
made within 7 years for working capital, 15 years for machinery and
equipment (or its useful life), and 30 years for real estate. The guarantee
fee is generally 2 percent of the guaranteed principal amount. 1 1 More
detailed information on the Business and Industry Guaranteed Loan Program is
available at its Web site: www. rurdev. usda. gov.
The SBA's 7( a) Loan Guarantee Program is its primary business loan program,
generally used for business start- ups and to meet the varied short- and
long- term needs of existing small businesses. A 7( a) guaranteed loan may
be used for most business purposes, including start- up, expansion,
equipment purchases, working capital, inventory, or real estate acquisition.
Participating lenders- small business lenders that have
entered into lending agreements with the SBA- provide loans in conjunction
with SBA guarantees. By reducing risk, guarantees expand the lenders'
ability to make small business loans. Generally, the SBA can guarantee up to
$750,000 of a private sector loan. The guarantee rate is 80 percent on loans
of $100,000 or less and 75 percent on loans greater than $100,000. The loan
can extend to 10 years for working capital and 25 years for fixed assets.
The guarantee fee ranges from 2 to 3. 875 percent, depending on the size of
the loan. 2 CAIP recently decided to add the SBA's 504 Loan Program to the
CAIP
Federal Agency Program. The 504 Loan Program provides long- term, fixed-
rate financing for businesses needing to acquire industrial or commercial
buildings or heavy machinery and equipment. Loans under the 504 Program are
developed through certified development companies (nonprofit corporations
sponsored by private- sector organizations or by
state and local governments to contribute to economic development), working
in partnership with private lenders and the SBA. The certified development
company finances its part of the loan through the sale of a debenture 3 to
private institutional investors with the SBA fully guaranteeing the
repayment of the debenture. The SBA can guarantee debentures covering as
much as 40 percent of a 504 project. The maximum SBA debenture generally is
$750,000 (up to $1 million, if the project meets a public policy goal). For
every $35,000 of debenture financing in the certified development
corporation's portfolio, the SBA requires that an average of one job be
created or retained within 2 years of the project's funding.
2 More detailed information on SBA 7( a) loans is available at its Web site:
www. sba. gov/ financing. 3 A debenture is a bond backed by the general
credit of a corporation rather than a specific lien on particular assets.
Direct Loans The CAIP Direct Loan Program is administered by CAIP's Los
Angeles office. While direct loans must generally meet the same criteria
CAIP has set for its loan guarantee programs, the application process is
much more involved. Both the application process and the evaluation and
selection process for direct loans are delineated in the CAIP guidelines.
For example, to be eligible for a direct loan, the director of the program
conducts an initial evaluation of the project using specified criteria and a
scoring system
that includes elements such as county job losses and the need for transition
assistance, as well as the anticipated benefits of the project to that
county. The director submits to the Finance Committee only those projects
receiving a score of 60 points or greater out of a potential 100 points.
Although the Los Angeles office has reviewed a number of loan requests, it
has made only two direct loans. The first direct loan was made to California
Coastal Rural Development Corporation for $500, 000 and was approved by the
Finance Committee on September 5, 1997. The loan to Cal Coastal is being
used as a line of credit that has allowed this community- based,
nonprofit lender to provide up to 10 percent of the total loan amount of the
loans guaranteed by USDA's Business and Industry/ CAIP loan guarantee
program. 4 Since the direct loan to Cal Coastal closed in October 1997, Cal
Coastal has made three Business and Industry/ CAIP loans totaling over $2. 2
million, and it has projected the loans will help create or retain 135 jobs,
as of April 25, 2000. According to the CAIP Direct Loan Program
Director, Cal Coastal would likely not have been able to make these loans
without the direct loan because it lacks the capital to fund the required 10
percent that is not guaranteed. The Finance Committee approved a second
tranche, or installment, of $500,000 to Cal Coastal on January 4, 2000. Cal
Coastal had originally requested $1 million, and the loan had been approved
in two installments of
$500,000. However, the Finance Committee did not close the loan, that is,
transfer the funds, until August 11, 2000, according to the CAIP Direct Loan
Program Director. Cal Coastal has requested the second installment
4 The USDA Business and Industry/ CAIP loan guarantee program provides a 90-
percent loan guarantee, leaving 10 percent that is not guaranteed and that
must be carried by the lending institution. For example, for a $1 million
loan, USDA would guarantee 90 percent, or $900, 000, and the lender would
hold the unguaranteed portion (10 percent, or $100, 000). In this example,
the CAIP line of credit would be used to fund the unguaranteed amount. The
guaranteed portion of the loan is salable in the secondary market, which the
lender would immediately sell off in order to recoup the majority of the
total loaned.
because its existing line of credit with CAIP has been depleted by about
half. In addition, Cal Coastal has more Business and Industry/ CAIP loans
that it is working to complete but that call for about $100, 000 more than
is available under the first installment. The second direct loan was made to
the El Paso Workforce Collaborative, a
wholly owned subsidiary of the Greater El Paso Chamber of Commerce, for $1
million and was approved by the Finance Committee on May 13, 1999. This
direct loan has enabled the El Paso Chamber of Commerce to make renovations
to a former Levi- Strauss factory. The renovated facility will be used as
both a workforce development center and a business resource center. As long
as the Chamber uses the building as a workforce
development center, interest charges accrued on the loan will be waived.
Although the facility was not fully finished when we visited El Paso in June
2000, the Chamber had submitted plans and specifications for its completion.
The Chamber also recently reported that about 98 percent of
the renovated building was leased. Besides managing the direct loan program,
the CAIP Los Angeles office has provided some technical assistance,
outreach, and monitoring. For example, the Los Angeles office provides
technical assistance to businesses interested in receiving benefits under
the CAIP Direct Loan or Federal Agency programs. The office has been
involved in providing
technical assistance to several applicants that resulted in loans made
through the Federal Agency Program in conjunction with commercial lenders.
In addition, outreach activities include working with communities applying
for CAIP eligibility to help them identify actual NAFTA impacts, as well as
attending various conferences to help market CAIP and efforts to maintain
the CAIP Web site. Finally, in an effort to help monitor CAIP eligibility
and activity, the Los Angeles office prepares an annual CAIP
status report that captures eligibility and activity data by state.
Grants The CAIP Grant Program is administered by the CAIP Grant Program
office, located in the San Antonio, Texas, headquarters of the North
American Development Bank. Among other responsibilities, the Grant Program
office has core activities that include designing the national selection
process and, when grants are awarded, monitoring project implementation. Up
to $6 million has been committed to fund the first round of grant awards. A
project may be funded under the Grant Program if it meets applicant 5 and
area eligibility requirements laid out in the
solicitation for grant applications. In addition, it must meet broad
eligibility criteria for projects and programs established by the Finance
Committee. Two types of grants may be funded: specific project grants or
technical assistance grants. For example, a specific project grant may be
awarded to a project that provides assistance to retain an existing business
that has threatened to leave the United States. A technical assistance grant
may be
obtained to support the development of specific projects or programs
designed to create or preserve jobs (for example, providing preparation
assistance to applicants under the CAIP Direct Loan Program or similar
assistance programs).
In addition to the eligibility requirements, a formal application that
includes a work plan statement must be completed and submitted to the Grant
Program office. The application is then screened for eligibility and
completeness, and a competitive scoring system is employed to determine
which projects will be funded. A Funding Subcommittee with grants experience
implements the scoring system, which includes a recommended slate of
applicants for endorsement to the Finance
Committee. Once an applicant is selected to receive a grant award, the
awardee will be required to enter into a grant agreement that includes
requirements to complete the project and report on the project's progress.
The Grant Program received 81 specific project applications and 55 technical
assistance applications, with a total amount requested of about $46.4
million. After the grant solicitation closed in January 2000, the Grant
Program office staff and the Funding Subcommittee developed specific review
procedures and implemented the final procedures approved by the Finance
Committee. The Finance Committee received and approved the
5 An eligible applicant is any nonprofit (501 (c) (3) or 501 (c) (4))
organization, public or private institution of higher education, state or
local political subdivision or agency, or Indian tribal government.
recommended slate of applicants from the Funding Subcommittee in June. Then
the Grant Program office performed its due diligence requirements to ensure
the integrity of the Grant Program. Although an announcement on the grant
awards had been anticipated for March 2000, the awards were not approved by
the Finance Committee until August 1, 2000, and still had not been publicly
announced as of September 14, 2000.
A pilot project to fund the New Mexico Border Authority in Dona Ana County,
New Mexico, was approved by the Finance Committee on March 10, 1999. The
grant request for $600,000 was planned as seed money for providing
retraining to approximately 1,200 workers in the Dona Ana region of New
Mexico, a highly NAFTA- impacted area. The pilot grant project was initiated
in part to help the Grant Program office gain some
experience in the development of a grant program and in part to encourage
support for the new Grant Program.
Administratively, the Grant Program has also benefited from its affiliation
with the North American Development Bank office in San Antonio, Texas,
according to the Grant Program Director. The Bank provides additional
resources to CAIP through specific services supplied to the Grant Program.
For example, Grant Program staff have benefited from access to the expertise
of Bank procurement and disbursement specialists, as well as from
administrative support, such as the Bank's receptionist. Having these types
of resources available to the CAIP Grant Program has proved
beneficial and provided it with important efficiencies, according to the
Grant Program Director.
Appendi x II
Objectives, Scope, and Methodology Concerned about whether the Community
Adjustment and Investment Program is providing timely and useful assistance
to communities suffering job losses due to changing trade patterns with
Mexico and Canada, the Chairman and Ranking Minority Member of the Senate
Finance Committee asked us to assess (1) how the program has been
structured, (2) how
program eligibility criteria and outreach efforts have been implemented, and
(3) what the results of efforts to provide assistance to eligible
communities were.
To obtain information on how the program has been structured, we interviewed
agency officials from the Departments of the Treasury and Agriculture and
the Small Business Administration and reviewed program documents, including
minutes of CAIP Finance Committee meetings. We reviewed the minutes and
briefing packages for all of CAIP's Advisory Committee meetings that have
been held. We also attended the Advisory Committee's annual meeting on April
25, 2000, in Washington, D. C.
To obtain information on how program eligibility criteria have been
implemented, we looked at documentation and interviewed officials at the
Departments of Labor and the Treasury, as well as the CAIP Los Angeles
office. We reviewed the Finance and Advisory Committee records of
deliberations on establishing eligibility criteria. We also interviewed an
official of the North American Integration and Development Center at the
University of California in Los Angeles, which is under contract to the
Department of the Treasury to conduct the actual computer runs that
determine program eligibility. Further, we reviewed the procedural manual
for eligibility determinations that the Treasury's Office of Economic Policy
provided to the Center. In addition, we obtained and analyzed the NAFTA-
Transitional Adjustment Assistance Program database that the Department of
Labor provides to the Treasury for the eligibility determination. To obtain
information on how program outreach efforts have been implemented, we
interviewed agency officials and reviewed program
documents at the Departments of the Treasury and Agriculture, the Small
Business Administration, and the CAIP Los Angeles and San Antonio offices.
In order to gain the perspective of how participating eligible communities
viewed CAIP's outreach efforts, we visited two communities with high usage
of the program- El Paso, Texas, and Coeur d'Alene, Idaho.
We selected El Paso because it was the community with the highest amount of
CAIP financing, including loan guarantees and a direct loan; it was in the
U. S.- Mexico border region; and it was highly impacted by NAFTA. We
selected Coeur d'Alene because it had the highest number of both USDA and
SBA loan guarantees in the same area, and it was close to the U. S.- Canada
border. We interviewed SBA field office officials in El Paso and in Spokane,
Washington, because SBA's Spokane District Office was responsible for
northern Idaho, including the Coeur d'Alene area. We interviewed USDA
officials in Coeur d'Alene. In these communities, we
also met with lenders, borrowers, chamber of commerce officials, economic
development officials, and academics. To gain the perspective of USDA and
SBA field officials in different parts of the country where there was both
high and low participation in CAIP financing, we conducted telephone
interviews with agency officials in California, Louisiana, New York, South
Carolina, and Texas.
To obtain information on the results of efforts to provide assistance to
eligible communities, we interviewed agency officials and obtained
documentation at the Departments of the Treasury and Agriculture and the
Small Business Administration and the CAIP Los Angeles office. In addition,
for loan guarantees, we reviewed the USDA and SBA CAIP loan
guarantee databases. We visited the CAIP Grant Program office in San Antonio
and reviewed Grant Program procedures and a selection of applications. We
also met with officials of the North American
Development Bank who have been assisting the Grant Program office. Our field
visits to El Paso and Coeur d'Alene were also focused on gaining the
perspective of these NAFTA- impacted communities on CAIP financing. As
previously stated, we met with agency officials implementing the program in
these communities and with lenders, borrowers, community officials, chamber
of commerce officials, and economic development officials. In El Paso, we
met with a Greater El Paso Chamber of Commerce official to gain
his views on both CAIP loan guarantees and the direct loan the Chamber
obtained. We also met with the Director of the New Mexico Border Authority,
which undertook the grant pilot project. We supplemented this
information with our telephone interviews with agency officials in
California, Louisiana, New York, South Carolina, and Texas. We performed our
work from February through August 2000 in accordance with generally accepted
government auditing standards.
Comments From the Department of the
Appendi x II I Treasury Note: GAO comment supplementing those in the report
text appear at the end of this appendix.
See comment 1.
The following is GAO's comment on the Department of the Treasury's letter
dated September 14, 2000.
GAO Comment 1. We revised the report to clarify the role of the Finance
Committee in approving loan guarantees. We also modified our recommendation
to focus on the need for greater delegation of decision- making authority
for loans and grants.
Comments From the Small Business
Appendi x V I Administration Note: GAO comments supplementing those in the
report text appear at the end of this appendix.
See comment 1.
See comment 2.
See comment 3.
See comment 1.
The following are GAO's comments on the Small Business Administration's
letter dated September 13, 2000. GAO Comments 1. Our point was not to
question whether these loan guarantees could
have been made without CAIP. All borrowers clearly have to qualify for the
7( a) loan guarantee before they are considered for CAIP eligibility. Our
point was to raise the question of what additional benefits or outcomes CAIP
was bringing to the program. Outcome measures and a monitoring system are
needed to demonstrate the benefits CAIP has
brought to communities. In addition, it was not our intent and nowhere does
the report indicate that CAIP loan guarantees should be targeted to higher-
risk lenders. 2. As we stated in the text, the issue of job creation is a
complex one. Our
point was to note that in the larger economic context, a government
financial assistance program such as CAIP is not likely to create net new
jobs in the economy. Rather, programs such as CAIP can shift resources from
one region or industry to another. This issue has been recognized by the
Office of Management and Budget in its OMB Circular A- 94, Guidelines and
Discount Rates for Benefit- Cost Analysis of Federal Programs (Oct. 1992),
which instructs agencies to assume
that resources in the economy are likely to be fully employed. 3. We revised
the report to clarify the role of the Finance Committee in approving loan
guarantees. We also modified our recommendation to focus on the need for
greater delegation of decision- making authority
for loans and grants.
Comments From the Department of
Appendi x V
Agriculture Note: GAO comments supplementing those in the report text appear
at the end of this appendix.
See comment 1.
See comment 2.
See comment 3. See comment 4.
See comment 5.
See comment 6.
The following are GAO's comments on the Department of Agriculture's letter
dated September 12, 2000.
GAO Comments 1. We revised the report to clarify the role of the Finance
Committee in approving loan guarantees. We also modified our recommendation
to focus on the need for greater delegation of decision- making authority
for loans and grants. 2. Our point was not to question whether these loan
guarantees would have been made without CAIP, but rather to raise the
question of what additional benefits or outcomes CAIP was bringing to the
program.
Outcome measures and a monitoring system are needed to demonstrate the
benefits CAIP has brought to communities.
3. As we stated in the text, the issue of job creation is a complex one. Our
point was to note that in the larger economic context, a government
financial assistance program such as CAIP is not likely to create net
new jobs in the economy. Rather, programs such as CAIP can shift resources
from one region or industry to another. This issue has been recognized by
the Office of Management and Budget in its OMB Circular A- 94, Guidelines
and Discount Rates for Benefit- Cost Analysis of Federal Programs (Oct.
1992), which instructs agencies to assume
that resources in the economy are likely to be fully employed. 4. We revised
the name of the program in the text as suggested. 5. The data in figure 4,
and throughout the report, are based on the
calendar year and not the fiscal year. We have added a note to figure 4
indicating its basis in calendar year data.
6. These points are largely covered in both the letter and in greater detail
in appendix I.
Appendi x VI
GAO Contacts and Staff Acknowledgments GAO Contacts Steve Lord (202) 512-
4379 Leyla Kazaz (202) 512- 9638 Acknowledgments In addition to those listed
above, Patricia Cazares- Chao, Phil Herr, Samantha Roberts, Rona Mendelsohn,
Frederick J. Barrett, Matt Helm, and Franz Traxler made key contributions to
this report. (711495) Lett er
GAO United States General Accounting Office
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Contents Letter 3 Appendixes Appendix I: Community Adjustment and Investment
Program
Financing for Distressed Communities Through Loan Guarantees, Loans, and
Grants 28
Appendix II: Objectives, Scope, and Methodology 34 Appendix III: Comments
From the Department of the Treasury 36 Appendix IV: Comments From the Small
Business Administration 39 Appendix V: Comments From the Department of
Agriculture 45 Appendix VI: GAO Contacts and Staff Acknowledgments 54
Tables Table 1: CAIP Financing Activity, September 1997- June 8, 2000 19
Figures Figure 1: CAIP's Organizational Structure 7
Figure 2: Time Line of CAIP Implementation 10 Figure 3: Map of CAIP-
eligible and -participating Counties 12 Figure 4: CAIP Financing to Assist
Distressed Counties Since
Start of Program, as of June 8, 2000 17 Figure 5: Financing Provided to
States Through CAIP, as of
June 8, 2000 21
Abbreviations
CAIP Community Adjustment and Investment Program NAFTA North American Free
Trade Agreement SBA Small Business Administration USDA U. S. Department of
Agriculture
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Appendix I
Appendix I Community Adjustment and Investment Program Financing for
Distressed Communities Through Loan Guarantees, Loans, and Grants
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Appendix I Community Adjustment and Investment Program Financing for
Distressed Communities Through Loan Guarantees, Loans, and Grants
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Appendix I Community Adjustment and Investment Program Financing for
Distressed Communities Through Loan Guarantees, Loans, and Grants
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Appendix I Community Adjustment and Investment Program Financing for
Distressed Communities Through Loan Guarantees, Loans, and Grants
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Appendix I Community Adjustment and Investment Program Financing for
Distressed Communities Through Loan Guarantees, Loans, and Grants
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Appendix II
Appendix II Objectives, Scope, and Methodology
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Appendix III Comments From the Department of the Treasury
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Appendix IV
Appendix IV Comments From the Small Business Administration
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Appendix V Comments From the Department of Agriculture
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