Legislation Needed To Establish Specific Loan Guarantee Limits for the Economic Development Administration

FGMSD-78-62: Published: Jan 5, 1979. Publicly Released: Jan 5, 1979.

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The business loan guarantee program of the Economic Development Administration (EDA) has operated for many years without specific statutory monetary limitations. Since its creation in 1965, EDA has guaranteed over $197 million in loans of which $131 million is outstanding as of spring 1978. Four of the unpaid loans, totaling $75 million, were made to one company which is experiencing financial difficulties. EDA does not have sufficient reserves available in the event of a default by that company. The fiscal 1979 Appropriation Act limits the amount of obligations for direct loans and guarantees to $75 million. Separate limits for loans and loan guarantees would strengthen congressional control as does the $75 million ceiling.

Since 1965, the size of EDA's guarantee program and the individual guarantees has greatly increased, with 60 percent of the entire program aiding two shipbuilding firms. Should two companies with larger loans or even one of the shipbuilding companies default, EDA may not have enough reserves to meet its commitment. Congressional control of EDA's loan guarantee program needs to be strengthened. The program has one obligation limit which Congress intended would control loans, but guarantees are not recorded as obligations when they are made. Congressional control could be strengthened by treating direct loans and guarantees separately. Obligation authority could be limited for direct loans, but loan guarantees could be limited by a total annual dollar amount authorized in a fiscal year. GAO believes that the amounts of individual guarantees should be limited and adequate reserves established.

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