Patrick McHenryChairman

Washington, May 31, 2022 -

The top Republican on the House Financial Services Committee, Patrick McHenry (NC-10), sent a letter to the Treasury Department’s Deputy Inspector General, Richard Delmar, regarding the State Small Business Credit Initiative (SSBCI). After Democrats injected billions of dollars into the opaque SSBCI through their failed American Rescue Plan, the letter asks Deputy Inspector General Delmar whether his office is willing and able to use its authority to ensure these taxpayer funds are not vulnerable to waste, fraud, and abuse.

Read the full letter to Deputy Inspector General Delmar here or below:

“Dear Mr. Delmar:

“Last year, the American Rescue Plan Act (ARPA) reauthorized and provided $10 billion in funds for the State Small Business Credit Initiative (SSBCI). The SSBCI is a government-driven investment program with origins in the federal response to the 2007-09 financial crisis. It was enacted to support private financing for small businesses that were otherwise unable to obtain loans and investments for expansion and new hiring.  The effectiveness of the program between 2010 and 2017 was unclear, at best. Because the program was reauthorized with few changes from the original version, it is also uncertain whether the program will be an effective vehicle to deliver pandemic relief to small businesses. We are writing to determine whether your office has the requisite authority and resources to monitor the SSBCI’s next round of funding.

“The program was initially funded with approximately $1.5 billion in 2010 for states to create new small business programs, restart legacy programs, and to scale their existing programs.  When SSBCI expired in 2017, however, the program’s impact was uncertain. For instance, states fell short of the program’s goal to leverage SSBCI funds to generate new lending at a 10:1 ratio (SSBCI participants leveraged $8.95 in new financing for every $1 in SSBCI funds).  In fact, states only spent or obligated 88 percent of the funds available. The Congressional Research Service found ‘[i]t is difficult to determine the full extent of the SSBCI’s effect on small business lending’ because ‘differentiating the SSBCI’s effect on small business lending from other factors, such as changes in the lender’s local economy, is methodologically challenging, especially given the relatively small amount of financing involved relative to the national market for small business loans.’

“Now, the Treasury Department is distributing $10 billion in new funding via SSBCI without having addressed the program’s shortcomings. Moreover, the program is set to run until 2030, which further exposes the funds to waste, fraud, and abuse.

“From 2011 to 2014, the Government Accountability Office (GAO) released annual audits and provided recommendations to Treasury about SSBCI. In 2011, the GAO found the slow implementation of the program was caused by ‘delays in finalizing disbursement procedures,’ and a ‘variation in program design across states.’ In light of the fact that the new tranche of SSBCI funding will rely on the program’s existing framework, ‘none of these implementation impediments [was] expected to affect the latest round of funding.’ Yet the renewed program still required well over a year to approve SSBCI capital program applications for only five states.  On May 19, 2022—more than 14 months since the ARPA was signed into law—the Department of the Treasury finally announced the first group of plans approved under the new round of SSBCI funds.  The program’s slow start raises questions as to whether lessons from the first tranche of SSBCI are being applied.

“To clarify your office’s authority to address those and other questions, and to identify waste, fraud, and abuse associated with SSBCI funds, Republicans offered an amendment during the Committee’s consideration of the American Rescue Plan Act that would authorize the Inspector General to conduct monitoring and oversight of the receipt, disbursement, and use of funds made available under the program. This amendment was defeated on a party line vote, and it was left unclear whether or how your office will conduct SSBCI oversight. Pursuant to Section 3003(c)(1)(C) of the Small Business Jobs Act of 2010, the Office of Inspector General at the Department of Treasury maintained a specific authority to “carry out an audit of the participating State’s use of allocated funds” and identify “intentional or reckless misuse” of initial SSBCI funds.  The section also prescribed the Secretary’s responsibility to recoup funds that are intentionally misused, and the penalty structure for violating the terms of the program.  Furthermore, each participating jurisdiction was required to submit quarterly and annual reports to Treasury that include the total use of funds, and information about specific borrowers.  The American Rescue Plan Act was unclear as to whether your office retains those authorities, and the authority pursuant to Section 3011(a) to ‘conduct, supervise, and coordinate audits and investigations of the use of funds made available under the Program.’ The statute also does not address whether the Secretary may seek recoupment in cases where your office has not formally declared that funds were intentionally or recklessly misused.

“To assist the Committee, please clarify your office’s statutory authority over SSBCI funds, and whether your office will exercise this authority. Additionally, please advise as to whether the data reporting requirements for SSBCI jurisdictions are sufficient to evaluate the effectiveness of the program and provide any reports, audits, or findings made by your office that reference the renewed SSCBI program. Thank you for your attention to this important matter.”

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