This is the accessible text file for GAO report number GAO-15-105 
entitled 'Small Business Credit Programs: Treasury Continues to 
Enhance Performance Measurement and Evaluation but Could Better 
Communicate and Update Results' which was released on December 11, 2014.

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov.

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.

United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

December 2014: 

Small Business Credit Programs: 

Treasury Continues to Enhance Performance Measurement and Evaluation 
but Could Better Communicate and Update Results: 

GAO-15-105: 

GAO Highlights: 

Highlights of GAO-15-105, a report to congressional committees. 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

What GAO Recommends: 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-15-105]. For more 
information, contact Daniel Garcia-Diaz at (202) 512-8678 or 
GarciaDiazD@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

SBLF Participants Continue to Lend to Small Businesses and Additional 
Participants Have Exited the Program: 

Participants Have Used over Half of the SSBCI Funds and Treasury 
Continues to Address Challenges in Using Program Funds: 

Treasury Has Enhanced Performance Measures and Evaluation but Has Not 
Effectively Communicated or Updated Its SBLF Evaluation: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

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): 

Appendix III: Comments from the Department of the Treasury: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Treasury's State Small Business Credit Initiative (SSBCI) 
Program Performance Measures and Other Indicators: 

Table 2: Summary of Treasury's Efforts to Measure and Evaluate the 
Performance of SBLF and SSBCI: 

Figures: 

Figure 1: Distribution of Dividend or Interest Rates Paid by Small 
Business Lending Fund (SBLF) Participants, as of June 30, 2014: 

Figure 2: State Small Business Credit Initiative (SSBCI) Fund Usage, 
June 30, 2012, to June 30, 2014: 

Figure 3: State Small Business Credit Initiative (SSBCI) Participants' 
Usage of Allocated SSBCI Funds, as of June 30, 2014: 

Figure 4: State Small Business Credit Initiative (SSBCI) Fund Usage 
and Number of SSBCI Programs by Program Type, as of June 30, 2014: 

Figure 5: Number of New and Existing State Small Business Credit 
Initiative Programs by Program Type, as of June 30, 2014: 

Figure 6: Comparison of Treasury's Assessments of the Small Business 
Lending Fund (SBLF) as of September 30, 2013: 

Abbreviations: 

CAMELS: capital adequacy, asset quality, management, earnings, 
liquidity, and sensitivity to market rates: 

CAP: capital access program: 

CDLF: community development loan fund: 

CPP: Capital Purchase Program: 

FDIC: Federal Deposit Insurance Corporation: 

OCSP: other credit support programs: 

OMB: Office of Management and Budget: 

SBA: Small Business Administration: 

SBLF: Small Business Lending Fund: 

SSBCI: State Small Business Credit Initiative: 

TARP: Troubled Asset Relief Program: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

December 11, 2014: 

Congressional Committees: 

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.[Footnote 1] 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.[Footnote 2] 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.

Funded with $1.5 billion, SSBCI is designed to strengthen 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. The 57 program 
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 funds (a leverage ratio of 10 to 1) by December 31, 2016. 
[Footnote 3] 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.[Footnote 4] In our prior 
reports, we 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.[Footnote 5] 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.

To determine the status of SBLF as of June 30, 2014, we examined 
agency documents and analyzed data on participants' small business 
lending, interest and dividend payments Treasury received, and 
redemptions. We also interviewed Treasury officials and reviewed 
agency survey information on participants' plans for exiting the 
program and other 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.

Background: 

Small Business Lending Fund: 

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: 

* commercial and industrial loans;

* owner-occupied nonfarm, nonresidential real estate 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.[Footnote 
6] 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.

Fewer institutions applied to SBLF than initially anticipated, in part 
because many banks did not anticipate that demand for small business 
loans would increase. The institutions that applied to and were funded 
by SBLF were primarily institutions with total assets of less than 
$500 million. The amount of funding a bank received under the SBLF 
program depended on its asset size as of the end of the fourth quarter 
of calendar year 2009. Specifically, if the qualifying financial 
institution had total assets of $1 billion or less, it was eligible 
for SBLF funding that equaled up to 5 percent of its risk-weighted 
assets.[Footnote 7] If the qualifying financial institution had assets 
of more than $1 billion but less than $10 billion, it was eligible for 
funding that equaled up to 3 percent of its risk-weighted assets. In 
the case of bank or thrift holding companies, assets were to be 
measured based on the total combined assets of the insured depository 
institution subsidiaries, and risk-weighted assets were to be measured 
based on the combined risk-weighted assets of the insured depository 
institution subsidiaries. The SBLF program provided an option for 
eligible institutions to refinance preferred stock or subordinated 
debt issued to Treasury through the Troubled Asset Relief Program's 
(TARP) Capital Purchase Program (CPP).[Footnote 8] At the time of 
application, the institution was 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.

Participating SBLF C-corporation banks and bank holding companies paid 
dividends of up to 5 percent per year initially to Treasury, with 
reduced rates available if they increased their small business 
lending.[Footnote 9] Additionally, the dividend rate payable decreased 
quarterly as banks increased small business lending over their 
baselines. While the dividend rate was no more than 5 percent for the 
first 9 quarters (a little over 2 years), an institution could reduce 
the rate to 1 percent by generating a 10 percent or more increase in 
its lending to small businesses compared with its baseline. After 9 
quarters, the dividend rate on the capital became fixed at the rate 
the participating banks were paying at that time if they had increased 
their small business lending; otherwise, the dividend rate increased 
to 7 percent if participating banks had decreased or not increased 
their small business lending. After 4.5 years, the dividend rate on 
the capital increases to 9 percent for all banks regardless of a 
bank's small business lending. For S-corporations and mutual 
institutions, the initial interest rate was at most 7.7 percent. 
[Footnote 10] The rate fell as low as 1.5 percent for the S-
corporation and mutual institutions that increased their small 
business lending by 10 percent or more from the baseline. For S 
corporations and mutual institutions, the dividend rate on the capital 
increases to 13.8 percent after 4.5 years. For CDLFs, the initial 
dividend rate will be 2 percent for the first 8 years. After 8 years, 
the rate increases to 9 percent if the CDLF has not repaid the SBLF 
funding. This structure 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.

State Small Business Credit Initiative: 

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.[Footnote 11] 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.

SBLF Participants Continue to Lend to Small Businesses and Additional 
Participants Have Exited the Program: 

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.[Footnote 12]

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. 
[Footnote 13]

Figure 1: Distribution of Dividend or Interest Rates Paid by Small 
Business Lending Fund (SBLF) Participants, as of June 30, 2014: 

[Refer to PDF for image: pie-chart] 

Number of SBLF Participants: 

Percent = proportion of SBLF institutions paying that rate. 

1.00-1.50% rate: 220 (76.0%); 
1.51-4.99% rate: 60 (21.0%); 
5.00-10.80% rate: 10 (3.4%). 

Source: GAO analysis of Treasury data. GAO-15-105. 

[End of figure]

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. 
[Footnote 14] 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.[Footnote 15] 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.[Footnote 16] 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.

Participants Have Used over Half of the SSBCI Funds and Treasury 
Continues to Address Challenges in Using Program Funds: 

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.

SSBCI Participants Have Used over Half of the Total Allocated Funds, 
but Participants' Rate of Fund Usage Continues to Vary: 

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.

Figure 2: State Small Business Credit Initiative (SSBCI) Fund Usage, 
June 30, 2012, to June 30, 2014: 

[Refer to PDF for image: horizontal bar graph] 

SSBCI fund usage: 

June 30, 2014: $869 million; 59.6%; 
June 30, 2013: $549 million; 37.6%; 
June 30, 2012: $150 million; 10.3%. 

Source: GAO analysis of Treasury data. GAO-15-105. 

Note: The amount of funds used does not include funds used by 
participants for administrative expenses. 

[End of figure] 

As of June 30, 2014, participants' use of SSBCI funds continued to 
vary widely, as shown in figure 3.[Footnote 17] 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.

Figure 3: State Small Business Credit Initiative (SSBCI) Participants' 
Usage of Allocated SSBCI Funds, as of June 30, 2014: 

[Refer to PDF for image: illustrated U.S. map and accompanying 
vertical bar graph] 

Percentage of SSBCI allocation used: 

North Dakota, Mountain: 98%; 
Montana: 96%; 
Idaho: 96%; 
South Carolina: 94%; 
West Virginia: 94%; 
New Hampshire: 93%; 
Arkansas: 93%; 
Michigan: 90%; 
Alabama: 90%; 
Missouri: 89%; 
Hawaii: 82%; 
North Carolina: 79%; 
Kansas: 76%; 
Illinois: 76%; 
Oregon: 74%; 
Colorado: 73%; 
Washington: 71%; 
Texas: 71%; 
Tennessee: 70%; 
Vermont: 68%; 
Oklahoma: 68%; 
South Dakota: 66%; 
Iowa: 66%; 
Mississippi: 65%; 
Florida: 65%; 
New Jersey: 62%; 
Indiana: 62%; 
New Mexico: 62%; 
New York: 62%; 
Puerto Rico: 60%; 
Nebraska: 59%; 
Georgia: 56%; 
Alaska: 56%; 
Minnesota: 55%; 
Utah: 53%; 
Delaware: 53%; 
Arizona: 52%; 
Louisiana: 47%; 
Wyoming: 46%; 
Massachusetts: 45%; 
Pennsylvania: 43%; 
California: 42%; 
Ohio: 42%; 
Wisconsin: 41%; 
Guam: 36%; 
Virginia: 34%; 
Kentucky: 32%; 
Rhode Island: 31%; 
North Dakota, Central: 29%; 
Nevada: 25%; 
U.S. Virgin Islands: 24%; 
Maine: 23%; 
Maryland: 23%; 
District of Columbia: 19%; 
Connecticut: 1%; 
Northern Mariana Islands: 1%; 
American Samoa: 0. 

Sources: GAO analysis of Treasury data; Map Resources (map). 
GAO-15-105. 

Note: The four municipalities participating in SSBCI are Anchorage, 
Alaska (AK-A), Carrington, North Dakota (ND-C), Mandan, North Dakota 
(ND-M), and Laramie, Wyoming (WY). The five U.S. territories 
participating in SSBCI are American Samoa (AS), Guam (GU), the 
Northern Mariana Islands (MP), Puerto Rico (PR), and U.S. Virgin 
Islands (VI). The amount of funds used does not include funds used by 
participants for administrative expenses. 

[End of figure] 

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.[Footnote 18] For example, 14 participants used 
their allocation to fund one program type while others used up to five 
program types.

Figure 4: State Small Business Credit Initiative (SSBCI) Fund Usage 
and Number of SSBCI Programs by Program Type, as of June 30, 2014: 

[Refer to PDF for image: pie-chart and accompanying horizontal bar 
graph] 

SSBCI fund usage by program type: 
Loan participation: 37%; 
Venture capital: 31%; 
Collateral support: 17%; 
Loan guarantee: 14%; 
Capital access: 1%. 

Number of SSBCI programs by program type: 
Loan participation: 47, 31%; 
Venture capital: 39, 26%; 
Collateral support: 18, 12%; 
Loan guarantee: 22, 15%; 
Capital access: 24, 16%. 
Total: 150 programs. 

Source: GAO analysis of Treasury data. GAO-15-105. 

Note: The amount of funds used does not include funds used by 
participants for administrative expenses. 

[End of figure] 

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.

Figure 5: Number of New and Existing State Small Business Credit 
Initiative Programs by Program Type, as of June 30, 2014: 

[Refer to PDF for image: horizontal bar graph] 

Overall total: 
New programs: 84; 
Existing programs: 66. 

Loan participation: 
New programs: 25; 
Existing programs: 22. 

Venture capital: 
New programs: 23; 
Existing programs: 16. 

Capital access: 
New programs: 9; 
Existing programs: 15. 

Loan guarantee: 
New programs: 11; 
Existing programs: 11. 

Collateral support: 
New programs: 16; 
Existing programs: 2. 

Source: GAO analysis of Treasury data. GAO-15-105. 

[End of figure]

Treasury and SSBCI Participants Continue to Address Challenges in 
Using Program Funds and Promoting the Program: 

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.[Footnote 19] Of the 10 
SSBCI participants we 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: 

* 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.[Footnote 
20] 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.

The Fiscal Year 2015 President's Budget Proposed an Additional $1.5 
Billion in SSBCI Funding: 

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.[Footnote 21] 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.

Treasury Has Enhanced Performance Measures and Evaluation but Has Not 
Effectively Communicated or Updated Its SBLF Evaluation: 

Treasury has taken steps to enhance performance measures and 
evaluation, consistent with our prior recommendations.[Footnote 22] 
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.

Treasury Conducted an Impact Evaluation of SBLF Using a Generally 
Accepted and Rigorous Approach: 

Consistent with our prior recommendations to ensure Treasury could 
provide a useful assessment of SBLF that informs Congress and 
stakeholders of the effectiveness of SBLF, Treasury conducted an 
impact evaluation using a generally accepted and rigorous approach. 
[Footnote 23] An impact evaluation assesses the net effect of a 
program (or its true effectiveness) by comparing the observed outcomes 
to an estimate of what would have happened in the absence of the 
program. To conduct its evaluation, Treasury used a propensity score 
matching approach, which attempts to isolate the impact of the program 
and estimate the program's net effect on small business lending. A 
propensity score matching approach is a quasi-experimental design that 
uses statistical methods to adjust for differences between treatment 
and control groups.[Footnote 24] In this 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.[Footnote 25] 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 figure 6).[Footnote 26] 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. 
[Footnote 27] 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 could explain the increase in 
lending.[Footnote 28] While the peer group comparison 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.

Figure 6: Comparison of Treasury's Assessments of the Small Business 
Lending Fund (SBLF) as of September 30, 2013: 

[Refer to PDF for image: vertical bar graph] 

SBLF banks: 
Median change in business lending over baseline: 60%. 

Comparison groups[A]: 

Small and medium-sized banks: 
Median change in business lending over baseline: 7%; 
Difference between lending growth of SBLF banks and comparison group: 
45%. 

Peer group banks: 
Median change in business lending over baseline: 11%; 
Difference between lending growth of SBLF banks and comparison group: 
41%. 

Propensity score matched banks: 
Median change in business lending over baseline: 29%; 
Estimated program effect from impact evaluation: 23%. 

Source: GAO analysis of Treasury data. GAO-15-105. 

[A] Treasury has assessed lending by SBLF banks using three different 
comparison groups of non-SBLF banks: (1) "Small and medium-sized 
banks" includes banks with less than $10 billion in assets and located 
in jurisdictions in which SBLF banks are headquartered. (2) "Peer 
group banks" includes banks matched to SBLF banks based on size, 
geography, and asset quality. (3) "Propensity score matched banks" 
includes banks matched to SBLF banks using a statistical technique 
that takes into account a wide range of financial and economic 
characteristics and ensures that the comparison group is as similar as 
possible to SBLF banks. This third technique is the only method that 
estimates the impact of the SBLF program. 

[End of figure] 

Treasury Has Not Effectively Communicated or Updated the Results of 
Its Impact Evaluation: 

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.[Footnote 29] 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.[Footnote 30] 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.[Footnote 31] 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.[Footnote 32]

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.[Footnote 33] 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.

Treasury Is Taking Steps to Improve Its Efforts to Measure and 
Evaluate Performance for the SSBCI Program: 

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.

Table 1: Treasury's State Small Business Credit Initiative (SSBCI) 
Performance Measures and Other Indicators: 

Program performance measure: Amount, in dollars, of private-sector 
leverage; 
Target: Cumulative private leverage ratio of 10 to 1 by December 31, 
2016[A].

Program performance measure: Amount of funds available to states[A]; 
Target: 98 percent disbursement of the funds available to states by 
December 31, 2016[A].

Program performance measure: Number of Other Credit Support Programs 
(OCSP)[B] that target borrowers with 500 or fewer employees[A]; 
Target: 98 percent of OCSPs expend SSBCI funds to support an average 
borrower or investee size of 500 employees or fewer by December 31, 
2016[A].

Program performance measure: Number of OCSPs that seek to make loans 
with an average principal amount of $5 million or less[A]; 
Target: 98 percent of OCSPs expend SSBCI funds to support loans or 
investments with an average principal amount of $5 million or less by 
December 31, 2016[A].

Other indicator: 

Program performance measure: Amount of SSBCI funds used over time; 
Target: None.

Program performance measure: Volume and dollar amount of loans or 
investments supported by SSBCI funds; 
Target: None.

Program performance measure: Estimated number of jobs created or 
retained; 
Target: None.

Source: Treasury. GAO-15-105. 

[A] Treasury adopted these measures and targets in October 2014. Other 
measures and indicators listed above were previously established.

[B] Other Credit Support Programs (OSCP) include collateral support 
programs, loan participation programs, state-sponsored venture capital 
programs, loan guarantee programs, or similar programs. 

[End of table] 

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.[Footnote 34] 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.[Footnote 35] 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.[Footnote 36] 
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. 
[Footnote 37] Treasury also published two reports it requested from 
outside experts on lessons learned from SSBCI loan programs and 
venture capital programs.[Footnote 38] 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.[Footnote 39] 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.

Conclusions: 

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.

Recommendations for Executive Action: 

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.

Agency Comments and Our Evaluation: 

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 [hyperlink, 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. 

Signed by: 

Daniel Garcia-Diaz: 
Director, Financial Markets and Community Investment: 

List of Committees: 

The Honorable Debbie Stabenow: 
Chairwoman: 
Committee on Agriculture, Nutrition and Forestry: 
United States Senate: 

The Honorable Thad Cochran: 
Ranking Member: 
Committee on Agriculture, Nutrition and Forestry: 
United States Senate: 

The Honorable Barbara Mikulski: 
Chairwoman: 
Committee on Appropriations: 
United States Senate: 

The Honorable Richard Shelby: 
Vice Chairman: 
Committee on Appropriations: 
United States Senate: 

The Honorable Tim Johnson: 
Chairman: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Mike Crapo: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Patty Murray: 
Chairman: 
Committee on the Budget: 
United States Senate: 

The Honorable Jeff Sessions: 
Ranking Member: 
Committee on the Budget: 
United States Senate: 

The Honorable Ron Wyden: 
Chairman: 
Committee on Finance: 
United States Senate: 

The Honorable Orrin G. Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Maria Cantwell: 
Chairwoman: 
Committee on Small Business and Entrepreneurship: 
United States Senate: 

The Honorable James E. Risch: 
Ranking Member: 
Committee on Small Business and Entrepreneurship: 
United State Senate: 

The Honorable Frank D. Lucas: 
Chairman: 
Committee on Agriculture: 
House of Representatives: 

The Honorable Collin C. Peterson: 
Ranking Member: 
Committee on Agriculture: 
House of Representatives: 

The Honorable Harold Rogers: 
Chairman: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Nita M. Lowey: 
Ranking Member: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Paul Ryan: 
Chairman: 
Committee on the Budget: 
House of Representatives: 

The Honorable Chris Van Hollen: 
Ranking Member: 
Committee on the Budget: 
House of Representatives: 

The Honorable Jeb Hensarling: 
Chairman: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Maxine Waters: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Sam Graves: 
Chairman: 
Committee on Small Business: 
House of Representatives: 

The Honorable Nydia Velázquez: 
Ranking Member: 
Committee on Small Business: 
House of Representatives: 

The Honorable Dave Camp: 
Chairman: 
Committee on Ways and Means: 
House of Representatives: 

The Honorable Sander Levin: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

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.

SBLF Program Status: 

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.[Footnote 40] 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.

SSBCI Program Status: 

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.[Footnote 41] 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.

Treasury's Efforts to Enhance Performance Measures and Evaluations: 

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.[Footnote 42] 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.[Footnote 
43] For 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. 

[End of section] 

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.

Table 2: Summary of Treasury's Efforts to Measure and Evaluate the 
Performance of SBLF and SSBCI: 

SBLF: 

Quarterly Reports: Treasury collects and analyzes information on 
changes in small business lending by SBLF participants relative to 
baseline levels and assesses program performance by comparing lending 
by SBLF banks to non-SBLF bank groups. The reports also include other 
information, such as funds used to repay investments from the Troubled 
Asset Relief Program. 

Annual Surveys: Treasury collects and analyzes participants' survey 
responses on the volume of small business loans originated over time 
and the use of SBLF funds. The survey covers other topics including 
changes in participants' small business lending standards and demand; 
obstacles to increasing small business lending; actual increases in 
small business lending by industry, sector, number, and dollar value; 
actions associated with the use of SBLF funds; and small business 
outreach activities required by the Small Business Jobs Act of 2010. 

Program Impact Evaluation: Treasury evaluated the impact of SBLF using 
statistical methods to select a group of non-SBLF banks that are as 
similar as possible to SBLF banks along a broad set of characteristics 
and then compare lending between SBLF banks and non-SBLF banks. This 
approach attempts to isolate the impact of SBLF and determine the 
program's net effect on small business lending. The results of this 
one-time evaluation are included in appendixes of Treasury's April, 
July, and October 2014 Lending Growth Reports. 

SSBCI: 

Quarterly Reports: Treasury collects and analyzes information from 
participants' quarterly reports on the amount of SSBCI funds used. The 
reports also include information on the amount of funds recycled. 

Annual Reports: Treasury collects and analyzes information from 
participants' annual reports on the volume and dollar amount of loans 
or investments supported by SSBCI funds, the dollar amount of private-
sector leverage, and the estimated number of jobs created or retained. 
The reports also include information on loans and investments made to 
businesses in low-and moderate-income communities. 

Consultants' Reports: Treasury commissioned two reports from external 
industry experts on the Venture Capital Programs and on the Loan 
Programs. Each report describes how states designed their approved 
SSBCI programs and identifies the promising practices that show 
preliminary success in deploying the funds. 

Program Evaluation (Planned): At the end of the program in 2017, 
Treasury plans to evaluate the performance of SSBCI to determine if 
the program model was successful. As of October 2014, Treasury was in 
the process of finalizing the evaluation design and planned to use 
information from participants' final program assessments, case 
studies, and interviews with investors and lenders, among other 
information, to help evaluate SSBCI's performance. 

Source: Treasury. GAO-15-105. 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of the Treasury: 

Department of The Treasury: 
Washington, D.C. 20220: 

November 24, 2014: 

Daniel Garcia-Diaz: 
Director: 
Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Garcia-Diaz: 

Thank you for the opportunity to review the draft report entitled 
Small Business Credit Programs: Treasury Continues to Enhance 
Performance Measurement and Evaluation But Could Better Communicate 
and Update Results (the Report). This letter provides the official 
response of the Department of the Treasury (Treasury). 

The Report examines two Treasury programs established by tire Small 
Business Jobs Act of 2010: the Small Business Lending Fund (SBLF) and 
the State Small Business Credit Initiative (SSBCI). We are pleased 
that the Report acknowledges that SBLF and SSBCI have enhanced 
performance measurements and program evaluation, including conducting 
an impact evaluation of SBLF through use of the propensity score 
matching approach and developing additional performance measures and 
targets for SSBCI. 

Treasury appreciated and accepted prior recommendations regarding both 
programs. SSBCI has improved the guidance it provides to participants 
since the program began and continues to foster many opportunities for 
information sharing. Treasury also accepted GAO's guidance on 
developing program evaluations and has sought to supplement this with 
input from stakeholders such as Congress, OMB, SBA, and other 
divisions of Treasury. Treasury is developing a final assessment 
framework for SSBCI that will include three key sections: I) review of 
national program-wide outcomes; 2) review of the variation in programs 
outcomes state-by-state; and 3) feedback from private sector lenders 
and investors. 

Treasury employed three objective methods to evaluate the performance 
of SBLF. The results indicate that the SBLF program continues to make 
a meaningful positive impact. As of June 30, 2014, SBLF participants 
had increased their qualified small business lending by $13.5 billion 
over the baseline. The results of Treasury's impact evaluation, 
conducted using lending growth performance as of September 30, 2013, 
suggest that, on average, SBLF participants increased business lending 
by 23 percentage points more than a comparable group of non-
participants. 

In response to GAO's first recommendation, Treasury will better 
communicate the results afire impact evaluation that SBLF conducted 
using lending growth performance as of September 30, 2013 by 
publishing those results as a stand-alone report with its own link on 
the Treasury website. In response to GAO's second recommendation, 
Treasury will update the impact evaluation in the future, taking into
consideration the costs and benefits of updating the results of the 
impact evaluation and the lending incentive structure of the program. 

Thank you once again for the opportunity to review the Report. 
Treasury values GAO's review of its programs and looks forward to 
continuing to work with your team. 

Sincerely, 

Signed by: 

Jessica Milano: 
Deputy Assistant Secretary: 
Small Business, Community Development, and Affordable Housing Policy: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Daniel Garcia-Diaz, (202) 512-8678, garciadiazd@gao.gov.

Staff Acknowledgments: 

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.

[End of section] 

Footnotes: 

[1] Pub. L. No. 111-240, 124 Stat. 2504 (2010). 

[2] 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. 

[3] Forty-seven states, the District of Columbia, the municipalities 
of Carrington, North Dakota; Mandan, North Dakota; Anchorage, Alaska; 
Laramie, Wyoming; and the territories of American Samoa, Guam, the 
Northern Mariana Islands, Puerto Rico, and the Virgin Islands 
currently participate in the program. For purposes of this report, 
when we refer to "states" we are referring to all SSBCI participants 
unless otherwise noted. 

[4] § 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.

[5] GAO, State Small Business Credit Initiative: Opportunities Exist 
to Improve Program Oversight, GAO-12-173 (Washington, D.C.: Dec. 7, 
2011); Small Business Lending Fund: Additional Actions Needed to 
Improve Transparency and Accountability, GAO-12-183 (Washington, D.C.: 
Dec. 14, 2011); Small Business Lending: Opportunities Exist to Improve 
Performance Reporting of Treasury's Programs, GAO-13-76 (Washington, 
D.C.: Dec. 5, 2012); Small Business Lending Fund: Treasury Should 
Ensure Evaluation Includes Methods to Isolate Program Impact, GAO-14-
135 (Washington, D.C.: Dec. 11, 2013); and State Small Business Credit 
Initiative: Opportunities Exist to Enhance Performance Measurement and 
Evaluation, GAO-14-97 (Washington, D.C.: Dec. 18, 2013).

[6] The problem bank list is a confidential list created and 
maintained by FDIC of banks that are in jeopardy of failing. In 
general, "problem" institutions are those institutions with financial, 
operational, or managerial weaknesses that threaten their continued 
financial condition. Depending upon the degree of risk and supervisory 
concern, they received a composite CAMELs rating of either "4" or "5." 
The CAMELS rating system is a U.S. supervisory tool that describes a 
bank's overall condition and that is used to classify the nation's 
banks. The composite rating is based on financial statements and 
regulators' on- site examinations and has six components--capital 
adequacy, asset quality, management, earnings, liquidity, and 
sensitivity to market risk--that make up the acronym. It rates banks 
on a scale of 1 to 5, with 1 being the strongest. 

[7] 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. 

[8] As the largest capital infusion program under TARP, CPP was 
designed to provide capital investments to financially viable 
financial institutions. Treasury received preferred shares and 
subordinated debentures, along with warrants. 

[9] 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.

[10] Some banking institutions are formed as either S-corporations or 
mutual organizations. S-corporations elect not to pay income taxes. 
Instead, the corporation's income or losses are divided among and 
passed through to its shareholders. A mutual organization is a company 
that does not issue capital stock and therefore does not have 
shareholders. In mutual companies, profits are set aside for the 
benefit of the depositors or are held as surplus reserves to maintain 
liquidity. 

[11] The act allowed multiple municipalities in a state to 
collectively submit a joint application for funds. SSBCI policy 
requires that municipalities submitting joint applications had to 
designate a "lead applicant" to serve as the point of contact and to 
ensure that all parties to the application comply with program 
requirements. Carrington, North Dakota, is the lead applicant for 36 
North Dakota communities that participate in SSBCI. Mandan, North 
Dakota, is the lead applicant for 38 municipalities in North Dakota, 
and Laramie, Wyoming, is the lead applicant for 17 Wyoming 
municipalities.

[12] As of June 30, 2014, there were 242 banks participating in the 
SBLF program. However, one participating bank repaid Treasury's 
investment in early July 2014 and did not submit its lending report 
because it discontinued its participation in the program before the 
report was due. 

[13] Treasury may impose fees upon SBLF participants that refinanced 
CPP investments for failing to increase their small business lending 
relative to their baseline amounts. 

[14] As of June 30, 2014 and according to Treasury, 137 institutions 
repaid a CPP investment in connection with an SBLF closing. These 
banks received $2.7 billion in funding and used $2.2 billion of those 
funds to repay outstanding TARP balances. Also as of June 30, 2014, 
111 institutions that repaid their TARP investment with SBLF funds 
continued to participate in the SBLF program. 

[15] The SBLF Lending Survey is an annual survey required of all 
institutions participating in the program. Treasury reports aggregate 
survey responses from participants on their small business lending, 
loan demand, credit standards, obstacles to small business lending, 
and outreach to small businesses in their community. Treasury has 
published two survey reports: the first in June 2013 and the second in 
August 2014.

[16] Four banks have a step up rate in fourth quarter 2015. The step 
up rate for S-corporations and mutual institutions is 13.8 percent. 

[17] Throughout this report we use "funds used" to represent the 
amount of SSBCI funds participants have used to support small business 
lending and investments. This definition is similar to Treasury's 
definition of "funds expended, obligated, or transferred," except our 
definition of "funds used" does not include funds used by participants 
for administrative expenses. Treasury used the following definitions: 
(1) SSBCI "funds expended" are funds used to support loans or 
investments or for administrative expenses; (2) SSBCI "funds 
obligated" are funds legally committed to support loans or 
investments, including obligations to intermediaries, and for 
administrative expenses; and (3) SSBCI "funds transferred" are funds 
transferred to a contracting entity as reimbursement of expenses 
incurred or to fund a loan or investment.

[18] GAO-14-97. 

[19] GAO-14-97. 

[20] Connecticut received SSBCI funds for its existing state-funded 
CAP, which has existed since the early 1990s, according to state 
officials. However, officials explained that an SBA program and a new 
state program resulted in programs that competed with Connecticut's 
CAP. In response to the economic downturn and limited access to 
credit, Connecticut officials told us that the governor of Connecticut 
allocated $100 million to a state loan program around the same time as 
the SSBCI funds were allocated. In addition, officials stated that SBA 
began to guarantee a higher percentage of the value of its loans than 
is guaranteed under Connecticut's CAP. 

[21] Legislation has been introduced in both the House and Senate. 
S.2285 and H.R. 4556, 113TH Cong. In May 2014, both bills were 
referred to committees. To date, no additional action has been taken.

[22] See appendix II for a summary of Treasury's efforts to measure 
and evaluate performance.

[23] 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. 

[24] A quasi-experimental design uses a treatment group and one or 
more comparison groups; however, unlike the groups in the true 
experiment, membership in these groups is not randomly assigned. As 
with any empirical approach, propensity score matching is based on a 
number of assumptions that are not always true in practice. In 
particular, propensity score matching can only establish that a 
program caused a particular outcome (i.e., isolate impact) if all 
relevant characteristics of participants and nonparticipants are 
observable and included in the statistical model.

[25] As part of our work reviewing 52 programs that support 
entrepreneurs administered by U.S. Departments of Agriculture, 
Commerce, and Housing and Urban Development and the Small Business 
Administration, we requested all studies conducted on these programs 
and identified 16 evaluations published between 2000 and 2012 that 
were sufficiently reliable to report high-level findings related to 
the program's overall effectiveness. None of these evaluations 
addressed program impact on increasing small business lending. See 
GAO, Entrepreneurial Assistance: Opportunities Exist to Improve 
Programs' Collaboration, Data-Tracking, and Performance Management, 
GAO-12-819 (Washington, D.C.: Aug. 23, 2012). As of March 2014, 
agencies had taken steps to improve program evaluation but no 
additional program evaluations had been completed. 

[26] The comparison group is comprised of non-SBLF insured depository 
institutions that were established prior to March 31, 2009, had total 
assets between $7.0 million and $6.4 billion (the range of total 
assets for SBLF banks) as of March 31, 2011 (which is the end of the 
first quarter prior to SBLF banks receiving funding), are located in 
one of the jurisdictions (44 states and the District of Columbia) in 
which SBLF banks are headquartered, and reported a positive amount of 
business lending in the applicable baseline period. We refer to this 
group as "small-and medium-sized banks." Small banks are banks with 
average assets of less than $1 billion, and medium-sized banks are 
banks with average assets of at least $1 billion and less than $10 
billion.

[27] This peer group consists of non-SBLF insured depository 
institutions that share certain size, geographic, and financial 
characteristics. Generally, for each SBLF bank, two peer banks with 
the closest Texas Ratio that were located within the same state and 
asset size category as the SBLF participant as of March 31, 2011 (the 
quarter immediately prior to Treasury's first SBLF investment). The 
Texas Ratio is a measure of asset quality which helps determine a 
bank's likelihood of failure by comparing its troubled loans to its 
capital. The Texas Ratio is defined as nonperforming assets plus loans 
90 or more days past due divided by tangible equity and reserves.

[28] GAO-13-76 and GAO-14-135.

[29] Treasury did not update the results of its impact evaluation, but 
published the same results in its April, July, and October 2014 
Lending Growth Reports. 

[30] GAO, Designing Evaluations: 2012 Revision, GAO-12-208G 
(Washington, D.C.: January 2012). 

[31] Pub. L. No. 111-240, § 4105(6), 124 Stat. 2504, 2592.

[32] GAO-14-135.

[33] In 2005, we identified how federal agencies can use performance 
information to make management decisions and practices that can 
facilitate agency use of performance information. While this work 
focused on agencies' use of performance information, these practices 
can be applied more broadly to the use of performance information by 
other stakeholders, including Congress. To identify practices that can 
facilitate agency use of performance information, we reviewed relevant 
literature, including previous GAO reports; spoke to experts in using 
performance information; and held group discussions with federal 
program managers. See GAO, Managing for Results: Enhancing Agency Use 
of Performance Information for Management Decision Making, GAO-05-927 
(Washington, D.C.: Sept. 9, 2005).

[34] OMB, Circular No. A-11, Preparation, Submission, and Execution of 
the Budget (Washington, D.C.: July 25, 2014).

[35] GAO/PEMD-95-1.

[36] See GAO-12-819.

[37] Under the Small Business Jobs Act of 2010, participants are 
required to submit quarterly and annual reports on their use of SSBCI 
funds. See Pub. L. No. 111-240, § 3007, 124 Stat. 2504, 2579.

[38] Center for Regional Economic Competitiveness, Filling the Small 
Business Lending Gap: Lessons from the U.S. Treasury's State Small 
Business Credit Initiative (SSBCI) Loan Programs (Washington, D.C.: 
Jan. 21, 2014). While the report is addressed to state policymakers 
and program managers, the information may also be useful for federal 
policymakers and program managers. Cromwell Schmisseur LLC, 
Information and Observations on State Venture Capital Programs 
(Washington D.C.: February 15, 2013).

[39] As part of Treasury's SSBCI oversight and performance strategy, 
all SSBCI Allocation Agreements require participants to conduct a 
final assessment on their programs' performance at the end of the 
program in 2017. 

[40] U.S. Department of the Treasury, Results of the Second Annual 
SBLF Lending Survey, August 2014. The SBLF lending survey is an annual 
survey required by Treasury for all SBLF participants as part of the 
agreement between Treasury and SBLF participants. The second annual 
survey covered from July 1, 2012, to June 30, 2013. The item from 
which we used responses from participants regarding their plans to 
exit the program was "Please estimate the calendar quarter and year in 
which your institution anticipates fully redeeming Treasury's 
investment and exiting the SBLF program." 

[41] In 2013, we interviewed representatives from the following SSBCI 
participants: SSBCI participants: Arizona; Iowa; Maryland; Missouri; 
Montana; New York; City of Carrington, North Dakota; Vermont; and 
Virginia.

[42] In our 2011 report, we recommended that Treasury make plans for 
assessing the performance of the SBLF program, including measures that 
can isolate the impact of SBLF from other factors that affect small 
business lending. See GAO, Small Business Lending Fund: Additional 
Actions Needed to Improve Transparency and Accountability, GAO-12-183 
(Washington, D.C.: Dec. 14, 2011). In our 2013 report on SBLF, we 
recommended that Treasury ensure the analytical approaches identified 
by its contractors will isolate the role of SBLF from other factors 
that could affect small business lending to show the net impact of the 
program. See GAO, Small Business Lending Fund: Treasury Should Ensure 
Evaluation Includes Methods to Isolate Program Impact, GAO-14-135 
(Washington, D.C.: Dec. 11, 2013). In our 2013 report on SSBCI, we 
recommended that Treasury establish performance targets for selected 
performance measures related to monitoring program performance and 
seek input from program stakeholders--including other agencies 
involved in promoting small businesses and Congress--as it designs its 
SSBCI program evaluation. See GAO, State Small Business Credit 
Initiative: Opportunities Exist to Enhance Performance Measurement and 
Evaluation, GAO-14-97 (Washington, D.C.: Dec. 18, 2013).

[43] We consulted the following sources: GAO, Designing Evaluations: 
2012 Revision, GAO-12-208G (Washington, D.C.: January 2012); Program 
Evaluation: A Variety of Rigorous Methods Can Help Identify Effective 
Interventions, GAO-10-30 (Washington, D.C.: Nov. 23, 2009); American 
Evaluation Association, An Evaluation Roadmap for a More Effective 
Government (February 2009), accessed November 6, 2014, [hyperlink, 
http://comm.eval.org/home/]; GAO, Program Evaluation: Improving the 
Flow of Information to the Congress, GAO/PEMD-95-1 (Washington, D.C.: 
Jan. 30, 1995); and National Science Foundation, The 2002 User 
Friendly Handbook for Project Evaluation (January 2002), accessed 
November 6, 2014, [hyperlink, http://www.nsf.gov/index.jsp]. 

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the 
performance and accountability of the federal government for the 
American people. GAO examines the use of public funds; evaluates 
federal programs and policies; and provides analyses, recommendations, 
and other assistance to help Congress make informed oversight, policy, 
and funding decisions. GAO's commitment to good government is 
reflected in its core values of accountability, integrity, and 
reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's website [hyperlink, http://www.gao.gov]. Each 
weekday afternoon, GAO posts on its website newly released reports, 
testimony, and correspondence. To have GAO e-mail you a list of newly 
posted products, go to [hyperlink, http://www.gao.gov] and select 
"E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAO's actual cost of 
production and distribution and depends on the number of pages in the 
publication and whether the publication is printed in color or black 
and white. Pricing and ordering information is posted on GAO's 
website, [hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 
MasterCard, Visa, check, or money order. Call for additional 
information. 

Connect with GAO: 

Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov]. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]; 
E-mail: fraudnet@gao.gov; 
Automated answering system: (800) 424-5454 or (202) 512-7470. 

Congressional Relations: 

Katherine Siggerud, Managing Director, siggerudk@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, DC 20548. 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, DC 20548. 

[End of document]