Manufacturing Scale-Up: Summary of 14 Relevant Federal Financing Programs Peter Singer, mit washington Office May 27, 2014
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- Department of Defense Programs Defense Production Act Title III Program
- Industrial Base Innovation Fund
- Small Business Administration Programs Small Business Investment Company (SBIC) Program
- Certified Development Company 504 Loan Program
- Department of Transportation Programs Transportation Infrastructure Finance and Innovation Act (TIFIA)
- Department of Commerce Programs Federal Loan Guarantees for Innovative Technologies in Manufacturing [15 U.S. Code § 3721]
- Revolving Loan Fund Program
- Department of Energy Programs Loan Programs Office
- Department of the Treasury Programs New Markets Tax Credit Program
- Small Business Lending Fund
- State Small Business Credit Initiative
| Manufacturing Scale-Up: Summary of 14 Relevant Federal Financing Programs
Peter Singer, MIT Washington Office May 27, 2014 Discussed below are 14 federal programs that could potentially address aspects of the problem of financing manufacturing production scale-up faced by small, mid-sized and start-up manufacturers.1 These programs:
There is no single program that fully addresses the scale-up problem, but a patchwork of these programs could provide significant support. The majority of programs that are focused on small businesses do not provide financing for amounts above the $5 million range, which may raise questions about where advanced manufacturers fit in programs that are classified as small business oriented, in comparison with the nation’s other small businesses. Many of the programs included are identified in a 2011 Booz Allen Hamilton report.2 The programs summarized below are: Department of Defense
Small Business Administration
Department of Transportation
Department of Commerce
Department of Energy
Department of the Treasury
Department of Defense Programs Defense Production Act Title III Program Potential for small and medium manufacturers in the defense industry to receive financing for scale-up The U.S. Defense Production Act [50 U.S.C App. § 2061 et seq.] was first enacted in 1950 and most recently reauthorized on September 30, 2009. The 1950 version of the law offered the President far reaching powers, however four sections of the law have been repealed. These sections include Title II, IV, V, and VI, which dealt with the authority to requisition and condemn, price and wage stabilization, settlement of labor disputes, and control of consumer and real estate credit respectively. Title III has remained, granting wide authority to support domestic production for national defense related needs. Scope of the DPA Law: The DPA is intended “to promote industrial resources preparedness,” “to support continuing improvements in industrial efficiency and responsiveness,” and “to respond to actions taken outside of the United States that could result in reduced supplies of strategic and critical materials, including energy, necessary for national defense and the general economic well-being of the United States” [50 U.S.C. App. § 2062 (a)(2)]. The law also emphasizes supporting smaller subcontractors and suppliers of the Armed Forces with the domestic base remaining viable after the termination of assistance. Title III grants a number of authorities to the President to ensure the domestic industrial base is capable of meeting national defense needs. Of the three major authorities, the first two cited below are not being used at this time. The President may authorize a guaranteeing agency to provide guarantees of loans by private institutions to finance any contractor, subcontractor or provider of critical infrastructure. However, credit must not otherwise be available under reasonable terms. A loan guarantee must be the most cost effective, expedient and practical alternative. If the value of all guarantees combined exceed $50 million the responsible House and Senate Committees must be notified. [50 U.S.C. App. § 2091] Title III also authorizes loans and loan guarantees to private business enterprises. Once again financial assistance from private sources must be unavailable on reasonable terms as well as a number of other conditions that apply during periods of national emergency declared by the Congress or the President. Loans can be made or guaranteed only to the extent that an Appropriations Act provides advanced budget authority for the costs and a limit on the total loan principle is established. If the value of all guarantees combined exceed $50 million the responsible House and Senate Committees must be notified. [50 U.S.C. App. § 2092] While the above two authorities are not now being utilized, the third major authority is in widespread use. This authority expands beyond loans and loan guarantees and instead authorizes the President “to procure and install additional equipment, facilities, processes or improvements to plants, factories, and other industrial facilities owned by the Federal Government” and “to procure and install equipment owned by the Federal Government in plants, factories, and other industrial facilities owned by private persons” [50 U.S.C. App. § 2093 (e)]. A Defense Production Act “Fund” is also provisioned for in Title III that cannot exceed $750,000,000 at the end of the fiscal year [50 U.S.C. App. § 2094]; however, appropriations as opposed to the fund are now being used. Program Administration: Currently the DPA Title III Program is managed within the Office of the Deputy Assistant Secretary of Defense for Manufacturing & Industrial Base Policy (MIBP), the same office that oversees ManTech. The Air Force is Executive Agent for program and occasionally sends out requests for information to industry for potential topics. The Defense Production Act Committee (DPAC) plays an important advisory role and it creates study groups to assess need; currently there are groups looking into, for example, metal fabrication and lightweight materials. Title III authority is not limited to the Department of Defense and partnerships with the Department of Energy and Homeland Security have occurred. Program Funding Levels: The DPA Title III Program currently funds or has funding planned for 56 projects, totaling just over $1 billion. The portfolio of projects is broken up into four sections, space industrial base council, electronic materials & devices, structural materials, and advanced technologies & systems. Projects typically last 3-6 years and funding ranges from 8 to 20 million dollars; cost sharing is typical. In the last ten years there have only been 3 projects over $50 million. The technologies the program funds are typically at TRL/MRL (technology/military readiness level) 7 or higher, the focus is on commercial-scale production. There are currently projects in some 17 states. DPA Funding Mechanisms: DPA funding provides “special economic incentives” – i.e., purchases, purchase commitments, purchase guarantees, or leases of advanced manufacturing equipment for installation in government or privately owned facilities. It applies these tools to scaling up production to meet challenges. The government owns the installed production facilities and equipment within private firms; these cannot be transferred abroad. The Defense Production Act "Fund" has never been set up at Treasury. The Joint or Service Program Offices of record, Defense agencies or other Federal agencies, as funding offsets for specific Title III efforts, provide funding for the initiatives. Title III appropriations are valid until they are expended and the Title III program currently has around $120 million of uncommitted funds. There is separate line in the DOD appropriations for the Title III Program. The program objectives include:
The actual contracts for the projects are handled through the USAF at Wright-Patterson Air Force Base. As suggested above, the most common funding commitments in the contracts area are purchase commitments, capital equipment purchases and installation, engineering support as well as support to develop business and marketing plans. There is currently an agreement with OMB not to use loans or loan guarantees. So although there is loan and loan guarantee authority under DPA, it is not used, instead this purchase mechanism is used. A Presidential Determination is required for each project, signed by Defense Under Secretary for AT&L David Kendall and is then sent to Congress, although Congressional comments are highly infrequent. The DPA program states that it:
A recently completed project, for example, is a new beryllium production plant, a $73 million project started as a result of Brush Wellman’s shutdown of the only beryllium plant in the U.S. The Title III authority is used in conjunction with other agencies as well, like the DOE advanced "drop in" biofuels project. Recent projects supported include: PV solar cell encapsulant production with state-of the art manufacturing lines, CO2 absorbent material production, advanced carbon nanotube production, optical ceramic production, atomic layer deposition hermetic coatings production, conductive composites nano-materials scale-up, lithium ion battery production for military and space applications, and integrated automated composite fiber placement production. DPA Title III Program Director Mark Buffler noted a number of cross agency projects (DOE, DOD, Homeland Security) discussed in the most recent DPAC meeting including developing domestic production of very large transformers, a silicon carbide semiconductor project with Cree, and chem-bio sensors. Polymer shipping containers with imbedded sensors for secure shipping is a possible project, where work at the U. of Maine could be used to produce a spin off company. The program has grown significantly since 1995, when there were only around 15 projects. The program also has had strong congressional support, receiving $150 million over the budget request in 12/13. The last significant project failure, according to Buffler, was around 97/98. Although a few companies that have received funding, such as AXT, were purchased and moved overseas, equipment purchased under DPA could not be moved out of the country. A project with Boston Power (co. website: http://www.boston-power.com) to build advanced battery manufacturing facilities in the U.S. never came to fruition due to stronger incentives offered by the Chinese government. A list of current DPA Title III Program projects is available here: http://bit.ly/1hlk1Lf A short article by Rich Mirsky, a former program manager at the DPA Title III program, entitled “Trekking Through That Valley of Death- The Defense Production Act” is available here: http://bit.ly/1eoKMiI OnPoint Technologies A venture capital firm that raises money for companies that produce dual use technology that meets the needs of the Army A program modeled by the Army on the CIA’s In-Q-Tel program and initially funded by the Army, OnPoint provides venture capital funding for firms that create dual use technologies and products for particular Army needs that are also developed for commercial markets. In effect, the Army leverages technologies being developed for civilian markets to meet Army requirements. According to crunchbase.com OnPoint has made a number of large investments in the last few years. These include raising $27.5 million with five other investors for InVisage Technologies, which is a semiconductor manufacturing company that makes quantum dot-based image sensors. http://www.onpoint.us/about-us/index.shtml
https://www.dodmantech.com Industrial Base Innovation Fund A fund situated within ManTech that makes direct investments in manufacturing R&D The Industrial Base Innovation Fund (IBIF) is one of the Defense-wide Manufacturing Science &Technology (DMS&T) investment areas, within ManTech. DMS&T was appropriated $25 million for FY14 and is a ManTech Project. IBIF was directed to make investments in manufacturing research and development that address any of the three areas: (1) urgent production requirements and diminishing defense manufacturing sources and material sources, and a sustainable defense design team base, (2) model-based engineering and integrated computational materials engineering, (3) new, innovative technologies being developed through public-private partnerships. Grants are awarded to large and small manufacturers for close to $1 million. The fund was authorized $30 million in FY13. https://www.dodmantech.com/ManTechPrograms/IBIF
The SBIC program enables qualified private investment funds to use their capital plus borrowed funds, guaranteed by the SBA, to make investments in businesses. SBIC’s can only invest in small businesses, those with a tangible net worth of less than $18 million and an average of $6 million in net income over the previous two years. A small business can also be defined by number of employees, which is different for each specific type of manufacturer but ranges from 500-1000 employees in general. The average investments by SBICs range between $1 million and $10 million, with loans to manufacturers averaging higher than most other businesses. The program is growing with 34 new SBIC licenses granted in 2013 and SBA plans to increase the total commitment to the program from $3 billion to $4 billion. A directory of all licensed SBICs is available on the SBA website, however not all listings include easy access to detailed information and the directory is not sortable by key industrial sectors or areas. The Obama administration created an Impact Investment Initiative, in which the SBA has committed to make $1 billion available, over five years, to investment funds licensed as Impact SBICs. Currently there are two sectors, education and clean energy, that qualify as impact investments. Advanced manufacturing could be added as a focus by Administrative directive. Between 1997 and 2005 manufacturing accounted for 29.8% of all SBIC financing. The percentage dropped to 18% between 2008 and 2012, but still totaled an investment of $1.9 billion, more than any other sector. In 2011 and 2012, 50% of SBIC fund strategies were for mezzanine financing. SBICs have also tended to invest with a wide range of geographical distribution. Because private investment funds receive the SBIC loan guarantee and then lend to small businesses, a particular loan default by a particular firm is considerably less visible than in, for example, DOE Loan Guarantee program. These SBIC programs, because the limited average size of the loans, cannot meet major production scale-up financing needs that may be in the tens of millions, but could meet niche sector scale up requirements or advanced manufacturing equipment needs. 7(a) Loan Program A widely used SBA program that provides access to financing for a wide range of small business with a maximum loan of $5 million Provides loan guarantees for small business to obtain financing. The maximum loan is $5 million. According to a 2008 Urban Institute report most of the business aided by the program are minority, women, or veteran owned, or located in rural areas or special zones in need of economic development, with start-ups representing one third of the businesses. Certified Development Company 504 Loan Program This program provides access to capital to companies to purchase land or make building improvements for small businesses; the maximum loan for SMEs is $4 million Business must have net worth less than $15 million and an average net income less than $5 million after taxes for the preceding two years to qualify for a loan. 504 loans can be used to purchase land, including existing buildings, purchase improvements, the construction of new facilities or modernizing, renovating or converting existing facilities. The loans are made by Certified Development Companies (CDCs), which are nonprofit corporations certified and regulated by the SBA. There are 270 CDCs, each covering a specific geographic area, across the United States. A bank partners with a CDC, with the bank covering 50% of project costs and the CDC covering up to 40%. For small manufacturers the maximum loan is $4 million and one job must be created or retained for every $100,000 guaranteed by the SBA (for other businesses the maximum loan is $5 million and $65,000 for each job). Manufacturing SMEs could use the program for small plants and facilities or modernization of existing facilities. The caps on loan size for manufacturers limit its applicability to major production scale-up, but this could support smaller-scale efforts. http://www.sba.gov/category/navigation-structure/loans-grants/small-business-loans/sba-loan-programs/real-estate-and-eq
The Transportation Infrastructure Finance and Innovation Act (TIFIA) provides credit assistance for large-scale surface transportation projects. The program leverages Federal funds with private co-investment, with one federal dollar typically leveraged to about ten total. The projects that receive an investment have forms of user-backed revenues like tolls, taxes or fees. Projects that are not undertaken by public institutions, such as state or local governments, must be publically sponsored. The program is administered by the Department of Transportation, with a thirteen member Credit Council providing recommendations regarding the selection of projects. Three types of assistance are available through the program. Secured (direct) loans have a maximum term of 35 years and repayments can begin up to five years after substantial completion. Loan guarantees, are full-faith-and-credit guarantees for repayment to non-Federal lenders. Loan repayments must begin no later than five years after substantial completion of project. Standby lines of credit are also available, as a contingent Federal loan to supplement project revenues during the first 10 years of operation. Direct lending dominates the TIFIA lending portfolio. TIFIA interest rates are equivalent to Treasury rates but the amount of credit assistance cannot exceed 33% (now up to 49% as a result of MAP-21) of reasonably anticipated eligible project costs, the exact terms are negotiated on a project-by-project basis. A total of 41 projects have been completed or are underway, with $15.8 billion in TIFIA assistance with total investment in projects of $59.9 billion. All projects except the Washington Metro Capital Improvement Program (loan guarantee) have been direct loans. MAP-21 authorized $1 billion for TIFIA in FY14. There is also a provision for rural projects, with 10% set aside for them and the minimum project threshold cost is half that of other projects and can receive an interest rate half that of the Treasury’s. TIFIA is governed by the Federal Credit Reform Act of 1990, which requires that the DOT establish a capital reserve or “subsidy amount” to cover expected credit losses. With private money making up a large portion of funding, credit markets provide oversight. FTA Project Management Oversight Program, contracts out to engineering firms that review project management plans and monitor progress, for projects that fall under its oversight. TIFIA financed public private partnership projects have included, I-635 Managed Lanes in Texas, Capital Beltway HOT Lanes and I-595 corridor improvements in Florida. The most notable TIFIA project to have financial problems was the SR 125/ South Bay Expressway, a toll road east of San Diego running to the Mexican border. The company operating the road, South Bay Expressway LP went bankrupt. However, the San Diego Association of Governments purchased the right to operate road until 2042 and TIFIA expects to get its money back. The road will revert back to the California Department of Transportation after 2042. Using TIFIA as a model for manufacturing would require significant changes due to the large differences between transport infrastructure and manufacturing. TIFIA provides a large-scale program model for project finance popular on a bipartisan basis in Congress in the surface transportation field. While historically federal, state and local governments have played a dominant role in transportation infrastructure that is not the case in manufacturing facilities. A TIFIA-like manufacturing financing program would require federal legislation and an active state or local government role in supporting the lending process. Department of Commerce Programs Federal Loan Guarantees for Innovative Technologies in Manufacturing [15 U.S. Code § 3721] This program is designed for the scale-up problem, but is not yet operating and the initial appropriation levels are likely too small to address significant scale-up problems This program within the Department of Commerce (through the Economic Development Administration), was authorized for FY11-FY13. Projects that were eligible for a loan include those that use an innovative technology or an innovative process in manufacturing, to manufacture an innovative technology product or an integral component of such a product; or to commercialize an innovative product, process, or idea that was developed by research funded in whole or in part by a grant from the Federal government. Only small and medium-sized manufacturers qualify. According to a GAO report in June of 2013 the program had $10 million, however a request for comment was published in the Federal Register and only four responses were received suggesting limited interest or awareness in the program. The GAO report stated that the first awards could be finalized in mid to late 2015. The Consolidated Appropriations Act of 2014 appropriated $5 million for 15 U.S. Code § 3721. The limited interest in the program to date could stem from a lack of awareness and/or the low amounts appropriated to the program, ensuring small loan guarantees. Another question that arises is the general interest in loan guarantees as opposed to direct loans, which are used much more often in TIFIA (see discussion above) and the remaining DOE Loan Program, ATVM (see discussion below). The law allows NIST’s Manufacturing Extension Program (MEP) centers, which provide technical advice to small manufacturers and are located in every state, to provide information about the lending programs and conduct outreach to potential borrowers. Connecting a financing program to MEP centers offers substantial potential and an opportunity for a manufacturing-specific loan program to gain a foothold in an agency outside of the DOD and DOE. It is not clear if this program, given its limited size to date, will reach a volume to provide loan guarantees that could broadly address the production scale-up problem. If it could, it provides a direct program model. GAO report here: http://www.gao.gov/assets/660/656161.pdf Revolving Loan Fund Program Makes capital available to small business by providing grants to revolving loan funds The Commerce Department’s Economic Development Administration (EDA) awards grants to state and local governments and other private and public non-profits that use the grant money to make loans available to small business at or below market rates. EDA’s regional offices award the grants to revolving loan funds (RFLs), which set their own interest rates, loan terms, and maximum assistance levels. The South Central Tennessee Development District RLF, for example, limits the borrower to $250,000 and typically leverages this 2:1 with other sources. The Oregon Business Development Fund grants loans up to $700,000 with a maximum loan of 40% of eligible project costs. Department of Energy Programs Loan Programs Office Provides direct loans to automotive manufacturers and may begin providing loan guarantees for renewable energy companies The Loan Program provides loan guarantees to private clean energy companies to spur private investment. The program also provides direct loans to manufactures of advanced technology vehicles and components. Currently the Section 1703 Loan Program is accepting solicitations for its Advanced Fossil Energy Projects and the Advanced Technology Vehicles Manufacturing Loan Program is accepting solicitations. The 1703 program still has $1.5 billion in renewable energy funds. The 1705 program no longer has funding but the Loan Programs Office has around $2 billion in mixed-use authority and hundreds of millions in credit subsidy authority that could potentially be used for advanced electric grid technology and storage. The 1705 program provided the loans to Solyndra, a $528 million loan, and Abound Solar a $68 million loan, two manufacturing companies that failed. DOE was not able to recover any money from Solyndra, which led to widespread criticism of the 1705 program. While the majority of 1705 loans were successful, such as the $150 million loan to 1366 Technologies, a solar manufacturer in Bedford, Mass. to build two new facilities, the fall out from Solyndra means the 1705 program is unlikely to be restarted. It does not appear that significant portions, if any, of the funds the DOE is looking to begin using will be available for advanced manufacturing with the current focus on energy generation projects. Department of the Treasury Programs New Markets Tax Credit Program A tax credit to spur investment in Community Development Entities that provides investment capital for businesses and people in low-income communities Congress established the New Markets Tax Credit Program (NMTC Program) in 2000 to spur new or increased investments into operating businesses and real estate projects located in low-income communities. The NMTC Program attracts investment capital to low-income communities by permitting individual and corporate investors to receive a tax credit towards their Federal income tax return in exchange for making equity investments in specialized financial institutions called Community Development Entities (CDEs). Areas covered by the NMTC, which occur in all 50 states, can be accessed on the agency website (below). The program provides a tax credit worth 39% of the original investment over seven years for individual or corporate investors in Community Development Entities. The Community Development Financial Institutions Fund can certify organizations as CDEs if they are a domestic corporation or partnership, primarily serve or provide investment capital for low income persons or communities, and if the low income community is represented on a governing or advisory board. Currently providing real estate financing for industry/manufacturing is the only applicable listed service in the CDE application form. As of July 31, 2012 there were 5780 certified CDEs throughout the United States. According to Treasury, since the NMTC Program's inception, the CDFI Fund has made 749 awards allocating a total of $36.5 billion in tax credit authority to CDEs through a competitive application process. The CDEs can make loans or equity investments in businesses, and in 2012 approximately 58% of NMTCs were used in this way, such as for small business lending or million dollar equity investments in neighborhood development projects. Approximately 40% of the NMTCs were used in loans or equity investment in real estate projects, including commercial, retail, industrial, and mixed use projects. This program could potentially serve manufacturing SMEs or startups creating plants and facilities in urban and rural lower-income areas. http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=5 Small Business Lending Fund A fund to provide capital to small banks to encourage more lending within their communities Treasury invested $4 billion in the fund to provide capital to community banks (with consolidated assets under $10 billion) and community development loan funds to encourage small business lending. There are 332 participating institutions. Small Business Lending Fund banks reported a 48% median change over the base line to the commercial and industrial sector as compared to a 13% increase from their peer group and 2% increase in the comparison group. This program helps smaller banks lend to their communities, and could potential reinvigorate the community-banking sector, which was vital for manufacturers in the past. http://www.treasury.gov/resource-center/sb-programs/Pages/Small-Business-Lending-Fund.aspx State Small Business Credit Initiative An initiative that makes funds available to states to implement a variety of state level programs aimed at small businesses A $1.5 billion initiative to strengthen state programs that support lending to small business and small manufacturers. States can use federal funds for their programs that leverage private lending. Programs and participation vary on a state by state, but include collateral support programs, capital access programs and loan guarantee programs. Between 2011-2012 states received between $13 and $168 million. About half of the companies that receive loans through SSBCI programs are less than 5 years old. The SSBCI Capital Access program in Minnesota, for example, provides portfolio insurance so banks, credit unions, and community development finance institutions will make loans that don’t quite meet the lenders’ underwriting standards; the maximum loan is $5 million. This program could be used by states to support advanced manufacturing facilities for smaller manufacturers. While the scale of lending would not support large scale-up production, it could be useful in niche production markets or for advanced equipment financing. http://www.treasury.gov/resource-center/sb-programs/Pages/ssbci.aspx
1 This problem is discussed, for entrepreneurial and start-up companies, in MIT Task Force on Production and Innovation, Production in the Innovation Economy (MIT Press 2014), 51-108 (chapt. 4, by Elizabeth B Reynolds, Hiram M. Semel and Joyce Lawrence). See generally, Suzanne Berger, Making in America (MIT Press 2013); PCAST, Advanced Manufacturing Partnership1.0 report, Capturing Domestic Competitive Advantage in Advanced Manufacturing (July 2012) http://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast_amp_steering_committee_report_final_july_27_2012.pdf 2 Booz Allen Hamilton, “Connecting Small Manufacturers with the Capital Needed to Grow, Compete, and Succeed: Small Manufacturers Capital Access Inventory and Needs Assessment Report,” Nov. 2011, http://www.nist.gov/mep/upload/MEP_Capital_Needs_Assessment_Final.pdf 3 PCAST, Advanced Manufacturing Partnership1.0 report Directory: sites -> default -> files -> doc doc -> North Mankato Taylor Library doc -> In the Red and Brown Water doc -> - doc -> Chicago Sports Teams a report by D. Rose November 12, 2015 doc -> New jersey state interscholastic athletic association 1161 Route 130, po box 487, Robbinsville, nj 08691 League/Conference Officers Meeting Summary October 15, 2015 doc -> Islam, the Mediterranean and the Rise of Capitalism doc -> Cbp and Trade Automated Interface Requirements Appendix: pga december 22, 2015 doc -> Ace abi catair customs and Trade Automated Interface Requirements doc -> Ace abi catair customs and Trade Automated Interface Requirements doc -> Mobile audio/video recording systems Download 52.85 Kb. Share with your friends:
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