Factors for Evaluating the Cost Share of Manufacturing Extension Partnership Program to Assist Small and Medium-Sized Manufacturers

U.S. manufacturing plays an important role in the nation's economy, producing about $1.6 trillion of value each year--11.5 percent of the U.S. gross domestic product (GDP)--and accounting for over 13 million jobs in the United States in 2008, according to the Department of Commerce. However, over the past decade, increased competition abroad and the migration of manufacturing overseas have led to declines in U.S. manufacturing. To support the manufacturing sector, the federal government has undertaken efforts, including creating programs that are partly funded by the federal government and partly funded by nonfederal entities such as state and local governments. However, according to the Bureau of Labor Statistics, from 2008 to 2009, following the beginning of the recent economic downturn, the United States lost 1.5 million manufacturing jobs. One federal effort aimed at helping manufacturers is the Hollings Manufacturing Extension Partnership (MEP) program. The MEP program was established in 1988 through Commerce's National Institute of Standards and Technology (NIST) to enhance productivity and technological performance, and strengthen the global competitiveness of small and medium-sized U.S. manufacturers, helping them create and retain jobs. Under this program, NIST has established relationships with 60 nonfederal organizations throughout the United States and Puerto Rico--called MEP centers. NIST enters into annual cooperative agreements with each of the 60 MEP centers whereby federal funding is provided to the centers subject to the centers providing matching funds and meeting performance measures. These centers provide services to small and medium-sized manufacturers to help them develop new customers, expand into new markets, and create new products. MEP centers focus on helping manufacturers in five key areas--technology acceleration, supplier development, sustainability, workforce, and continuous improvement. Specifically, MEP centers enter into contracts with companies to deliver technical assistance to improve their manufacturing processes and productivity, expand capacity, adopt new technologies, utilize best management practices, and accelerate company growth. The MEP program has changed over the years. As implemented during the 1990s, the MEP program provided federal funding to reimburse each $1 of nonfederal contributions with no more than $1 of federal funding--referred to as a 1:1 cost share--for the first 3 years that a center operated. For the fourth year of operation, every $3 of nonfederal contributions were reimbursed with $2 of federal funding--referred to as a 3:2 cost share. For the fifth and sixth years of operation, every $2 of nonfederal contributions were reimbursed with $1 of federal funding--referred to as a 2:1 cost share. Under the original legislation, federal funding was scheduled to end once a center had operated for 6 years. In 1998, Congress passed legislation changing the program to, among other things, provide for continued federal funding and set the cost share at 2:1 for all centers that had been in operation for at least 6 years. More recently, there have been a number of legislative and executive proposals to further alter the program. The America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science (America COMPETES) Reauthorization Act of 2010 includes provisions requiring GAO to report to Congress on the MEP program's cost share requirements within 90 days of enactment. Our objectives for this review were to (1) provide information on various cost share structures in the MEP program, including the cost share structure in place prior to such date of enactment; (2) identify the effect of such cost share structures on individual centers and the overall program; and (3) provide recommendations, if possible, on how best to structure the cost share requirement to provide for the long-term sustainability of the program..