In June 2006, Congress passed the Emergency Act which, among other  things, amends the HBCU Capital Financing Program to assist hurricane- affected HBCUs in their recovery efforts. HBCUs Reported Substantial Capital Project Needs, but Only About Half of Available Program Funds Have Been Borrowed

HBCU officials we interviewed reported extensive and diverse capital  project needs, including construction and renovation of facilities and  addressing deferred maintenance, yet just over half of the available  program loan capital has been borrowed. Education has collected and reported limited information on  the program’s utilization and has not established performance measures or  goals to gauge program effectiveness, though Education officials noted  that they are currently working on developing such measures and goals. 1). Specifically, 23 HBCUs, according to  Education, have taken steps to participate in the program, and 14 became  borrowers, with loans totaling just over $200 million—below the  program’s $375 million total limit. The Program Provides Needed Access to Low-Cost Capital Financing, but Certain Loan Terms and Conditions Discourage Participation

The HBCU loan program provides access to low-cost capital financing and  flexibilities not always available elsewhere, but some loan terms and  conditions discourage participation, though school officials said they  remain interested in the program. The low interest rate and long  repayment period were regarded favorably by participants and  nonparticipants alike, and the program makes funds available for a  broader range of needs than some federal grant programs. However, the  pooled escrow arrangement, monthly repayment terms, and the extent to  which some loans have been collateralized could discourage participation. Education Has Taken Some Steps to Improve the Program, but Weaknesses in Management Control Exist

While Education has taken limited steps to improve the program, we  found significant weaknesses in management controls that compromise  the extent to which Education can ensure program objectives are being  achieved effectively and efficiently. Education has recently provided  schools the choice of fixed or variable interest rates, allowed for larger  loan amounts, and afforded more opportunity for schools to negotiate loan  terms, which appealed to schools. Compliance with Program and Budget Laws and Federal Financial Accounting Standards

Education has not complied with certain statutory requirements relating to  the program’s operations and how federal agencies are to account for the  government’s cost of federal loan programs. HBCUs Affected by Hurricanes Expressed Satisfaction with Special Loan Provisions and Concerns with Application Deadline, while Education Officials Said They Would Evaluate Loan Processes

Officials from four HBCUs in the Gulf Region we spoke with (Dillard  University, Southern University at New Orleans, Xavier University, and  Tougaloo College) told us that, in light of the extensive hurricane damage  to their campuses, they were pleased with the emergency loan provisions  but concerned that the 1-year authorization would not provide sufficient  time for them to take advantage of the special program features. School  officials from each of the four schools noted that their institutions had  incurred physical damages caused by water, wind, and, in the case of one  institution, fire, and that the actual financial impact of the hurricanes may  remain unknown for years. Although Education officials told us that they  have not yet determined the extent to which the department would make  use of its authority to waive or modify program provisions for hurricane- affected institutions, the department would be prepared to provide loans  to hurricane-affected HBCUs. To  ensure that it obtains the relevant, reliable, and timely communication that  could help ensure that program objectives are being met efficiently and  effectively, and to meet statutory requirements, we recommend that the  Secretary of Education regularly convene and consult with the HBCU  Advisory Board.
Why GAO Did This Study

Historically Black Colleges and Universities (HBCU), which number around 100, undertake capital projects to provide appropriate settings for learning, but many face challenges in doing so. In 1992, Congress created the HBCU Capital Financing Program to help HBCUs fund capital projects by offering loans with interest rates near the government's cost of borrowing. We reviewed the program by considering (1) HBCU capital project needs and program utilization, (2) program advantages compared to other sources of funds and schools' views on loan terms, (3) the Department of Education's (Education) program management, and (4) certain schools' perspectives on and Education's plan to implement loan provisions specifically authorized by Congress in June 2006 to assist in hurricane recovery efforts. To conduct our work, we reviewed applicable laws and program materials and interviewed officials from federal agencies and 34 HBCUs.

What GAO Found

HBCU officials we interviewed reported extensive and diverse capital project needs, yet just over half of available loan capital ($375 million) has ever been borrowed. About 23 HBCUs have taken steps to participate in the program, and 14 have become borrowers. Education has collected and reported limited data on the program's utilization and has not established performance measures or goals to gauge program effectiveness, though Education officials noted they are developing measures and goals. The HBCU loan program provides access to low-cost capital financing and flexibilities not always available elsewhere, but some loan terms and conditions discourage participation, though school officials said they remain interested in the program. The low interest rate and 30-year repayment period were regarded favorably by participants and nonparticipants alike, and the program makes funds available for a broader range of needs than some federal grant programs. However, the requirement to place in a pooled escrow 5 percent of loan proceeds--an insurance mechanism that reduces federal program costs due to any program borrower's potential delinquency or default--monthly payments versus semiannual ones traditionally available from private sources of loans, and the extent to which some loans have been collateralized could discourage participation. While Education has taken steps to improve the program, significant weaknesses in its management control could compromise the program's effectiveness and efficiency. Education has recently provided schools with both fixed and variable interest rate options, allowed for larger loans, and afforded more opportunities to negotiate loan terms. Also, Education has increased its marketing efforts for the program. However, Education has not established effective management control to ensure that it is (1) communicating with schools in a useful and timely manner, (2) complying with statutory requirements to meet twice each year with an advisory board composed of HBCU experts and properly account for the cost of the program, and (3) monitoring the performance of the program's contractor. Officials from 4 HBCUs in Louisiana and Mississippi told us that in light of the extensive 2005 hurricane damage to their campuses, they were pleased with certain emergency loan provisions but concerned that there would not be sufficient time to take advantage of Education's authority to waive or modify the program provisions. School officials from the 4 schools noted that their institutions had incurred extensive physical damage that was caused by water, wind, and, in one case, fire, and that the full financial impact of the hurricanes may remain unknown for years. Although Education officials told us that they have not yet determined the extent to which the authority under the emergency legislation to waive or modify program provisions for hurricane-affected institutions would be used, the department would be prepared to provide loans to hurricane-affected HBCUs.