Community colleges should be drivers of economic mobility, employment, and dynamism in local communities. Unlike four-year institutions, many of which are highly selective and pose significant barriers to entry, two-year colleges are intended to serve people from a wide range of life circumstances. In theory, they are highly egalitarian institutions that enable underserved individuals to access learning, jobs, and opportunities that would otherwise not be available to them.

However, community colleges are asked to do a lot of things with relatively little funding: they serve individuals ranging from highly gifted high school students to prospective transfers to four-year universities to people earning skilled trades certificates. This spreads schools’ attention broadly and is especially problematic given the wide range of non-academic challenges that many of their low-income students face, such as raising dependents and lack of access to reliable transportation. Troublingly, many community college degrees do not result in an economic return on investment (ROI) for their students, and many students will not recoup their investment within five years of completing a community college credential.

To address these issues, policymakers should reform community colleges in two essential ways. First, community colleges should align curricula toward fields with high wages and strong employer demand while increasing the amount of work-based learning. This shift would provide more job-ready graduates and improve student salaries and employment rates, thereby increasing student ROI. Second, the federal government should provide greater financial assistance in the form of Pell Grants and funding for wraparound services such as transportation vouchers and textbooks, allowing more students to access high-quality community college programs and graduate on time. These are interventions with a track record of proven success but require greater funding and support capacity to scale up at a national level.

Challenge and Opportunity

Challenge 1: Community colleges serve a wide range of students, including working parents seeking a better job, students who intend to transfer to four-year universities, and high school students taking dual enrollment classes.

There is no such thing as a typical community college student. As part of the Aspen Prize for Community College Excellence, the Aspen Institute collected demographic and outcomes data for its top 150 community colleges. Within this group, over 30% of students are “nontraditional” students over the age of 25, and 45% are minorities. Moreover, 63% of community college students attend part-time, which poses significant challenges in terms of scheduling and momentum. This severely impacts retention, graduation, and transfer rates. By contrast, just 11% of students at four-year flagship institutions are enrolled part-time. Community colleges must juggle these competing priorities and must do so in the absence of clear guidelines and insufficient resources.

Challenge 2: Underprivileged students tend to struggle the most given their financial constraints and insufficient access to wraparound services. At the same time, community colleges are already starved for resources and may not have the capacity to provide those critical services to these students.

Community college students are more likely than their four-year counterparts to come from less wealthy backgrounds. As of 2016, 16% of students in four-year colleges come from impoverished families, with another 17% coming from families near poverty. By contrast, some 23% of dependent community college students and 47% of independent students come from families with less than $20,000 of annual income. Unsurprisingly, two-thirds of community college students work, with roughly one-third working full-time.

Community colleges will be hard-pressed to cover students’ financial shortfalls from their own budgets. On average, community colleges receive $8,700 per full-time equivalent student versus $17,500 per student for four-year colleges (this overstates funding per enrolled student, because more community college students are enrolled part-time). Moreover, over half of community college funding comes from local and state sources. As a result, schools with the highest proportion of low-income students are more likely to have lower funding.

Challenge 3: The United States needs more nurses and allied healthcare workers, IT and cyber professionals, and skilled tradespeople, but the recruiting pipeline and training pathway for these individuals is often understaffed, highly fragmented, and hyperlocal.

Many industries with high-paying wages have experienced or will soon experience major talent shortages in the next decade. For instance, by 2030 the United States will need another 275,000 registered nurses, which, at the minimum, requires an associate’s degree in nursing (ADN) to sit for the NCLEX entrance exam. The country needs another 350,000 cybersecurity professionals, especially in the federal workforce, where 50% of the workforce is over the age of 50 and approaching retirement age. Finally, and certainly not least, the distributed renewable energy grid will not build itself: 30% of union electricians are between the ages of 50 and 70, and we will need more solar installers, wind technicians, and other skilled trades specialists to enable the green transition.

However, these issues are not easily solved by digitally native solutions rolled out at a national level. Instead, these need to be tackled at a local level. For instance, access to clinical space can only happen through hospitals, while skill development for electricians, installers, and technicians primarily occurs through high school and community college CTE classes and industry-led apprenticeships, all of which require a substantial in-person component. Thus, workforce training to fill shortages will have to be similarly local in nature.

Challenge 4: The value of the two-year associate’s degree and certificates is highly variable and depends on the type of degree or certificate earned.

The Burning Glass Institute studied the career histories of nearly 5 million individuals who graduated between 2010 and 2020 and built a rich dataset that tied salary information to LinkedIn profiles. They then assessed “degree optional” roles (jobs where 50% to 80% of individuals held a degree) and found that a four-year degree provided a 15% wage premium, which was largely driven by the job flexibility provided by the bachelor’s degree. By comparison, they found no such premium for two-year associate’s degrees.

However, these averages hide the economic variance provided by individual degrees. Third Way investigated the economic payback period for graduates of different degree programs, which they defined as the pay increase over the median high school graduate divided by the net tuition cost. Highly technical engineering, healthcare, and computer science associate’s degrees provided exceptional payback periods, with more than 90% recouping their investment in less than five years.

By contrast, other associate’s degrees saw no economic ROI. Some of these degrees, such as general humanities and culinary arts, are unsurprising. However, other fields, such as biological and physical sciences, for which half of students had no ROI, might have had stronger ROIs as bachelor’s degrees.

Similarly, certificate programs have wildly varying ROIs. Nursing and diagnostic and skilled trades generally show a strong ROI, with more than 85% of students recouping their investment within five years. On the other hand, cosmetology, culinary arts, and administrative services are highly likely to receive no ROI, indicative of the low pay in the roles that certificate earners take upon completion of their program.

Together, these studies show that associate’s degree programs and certificates with less-defined career pathways are at risk of value erosion. This may be due in part to real differences in the skills taught in a two-year degree or certificate versus a four-year program. However, it is also clear that highly technical associate’s degrees and certificates designed to meet employer-defined needs have better economic ROIs, suggesting that there is less value erosion in roles with well-defined pathways.

Plan of Action

To address these issues, policymakers, community college leaders, employers, and philanthropic stakeholders should work together to implement five general reforms:

1. Reorient community college offerings toward technical associate’s degrees and certificates that have been shown to have a strong, locally proven ROI for students while pruning programs that do not have compelling outcomes. The federal government should allocate funding to programs that have compelling five-year repayment rates and fill jobs that have high and persistent skills shortages. In addition, the Department of Education can write a “Dear Colleague Letter” that focuses on program ROI and suggest that Congress pass laws strengthening ROI requirements for federal funding
2. Community colleges and local employers should partner to deliver more job training at scale, including apprenticeships and skills-based part-time work. Many of these programs, such as Project Quest, have been established for years, and community colleges can and should play a bigger role in building a student pipeline and delivering in-classroom training that leads to a high-quality credential. In addition, under the Inflation Reduction Act, local employers can receive tax breaks for clean energy projects that use registered apprenticeships. These apprenticeships, which supplement on-the-job training with classroom instruction and are tailored to employer needs, can be provided by community colleges
3. Increase Pell Grant maximums to improve degree affordability and access. For the upcoming 2023–2024 school year, the maximum could be raised by $500, in line with the 2024 President’s Budget. Congress should enact provisions in the president’s budget that would provide $500 million in funding for community college programs that lead to high-paying jobs and $100 million for workforce training, both of which would strengthen post completion outcomes. In addition, Congress should pass legislation that makes Pell Grants nontaxable, which would enable students to use funding on living expenses.
4. Develop and fund high-ROI wraparound solutions that have been shown to improve student outcomes, such as those developed by the Accelerated Study in Associate Programs (ASAP). These include career guidance, textbook assistance, and transportation vouchers, among others. The Department of Education should also allow community colleges to spend funding (for example, some of the increases proposed in the president’s budget) on supports that are not already covered by existing entitlement programs. In addition, state and local governments can earmark special taxes and work closely with philanthropic funders to experiment with and deploy wrap     around solutions, helping policymakers further assess the most cost-effective interventions. 
5. Create comprehensive data tracking mechanisms that track data at state and local levels to evaluate student outcomes and relentlessly funnel public, private, and philanthropic capital toward interventions and degree programs that are shown to result in strong outcomes. In particular, the recommendations in the bipartisan College Transparency Act are a good start given that they would tie Integrated Postsecondary Education Data System (IPEDS) and Internal Revenue Service (IRS) data together.

Recommendation 1. Community colleges should reorient their offerings toward degrees that provide strong employment outcomes and student ROI (e.g., associate’s degrees in nursing and maintenance and installer certificates). 

The data is unambiguous: Some programs deliver strong outcomes while others are drains of students’ and taxpayers’ money. Community colleges can better serve students by focusing more time and resources on the programs that deliver strong ROIs within their local economic contexts. As Figures 2–     4 show, these programs skew heavily toward nursing and allied health, engineering and computer science, and skilled trades roles. These also dovetail with major labor shortages, suggesting that community colleges can play a significant role in matching labor supply with demand.

This premise sounds deceptively simple but requires a meaningful reimagination of the role that community colleges play. By asking community colleges to refocus toward highly technical associate’s degrees and certificates, they would end up eschewing other aspects of the higher education landscape. In this view, community colleges would de-emphasize the production of liberal arts associate’s degrees. While they would continue to teach core science and humanities courses, the structure and content would be primarily geared toward equipping students with the critical thinking and foundational skills required to excel in higher-level technical courses. Community colleges would thus further increase their role in providing vocational training.     

Refocusing community colleges on certain degrees would allow institutions to devote their limited resources to helping students navigate a smaller set of pathways. While it is certainly true that community colleges could improve liberal arts associate’s degree ROIs by helping students transfer to four-year universities, a greater emphasis on vocational degree production would help two-year colleges focus on their core competitive advantage in the higher education market. In the long run, greater focus would reduce administrative burden while helping professors, guidance counselors, and financial aid officers develop expertise in high-demand training and career pathways. In addition, a narrower focus on high-ROI degrees improves the effectiveness of public and philanthropic spending, making large-scale interventions more feasible from political and financial perspectives.

Recommendation 2. At the local level, community colleges should partner with employers to deliver job-specific training at scale (for example, apprenticeships or skills-based part-time work paired with associate’s degrees), helping economies match labor supply and demand while providing students with pay and relevant work experience.

Although increased tuition assistance would significantly improve financial access for many community college students, the reality is that programs such as the Pell Grant, while highly effective, still leave students with major financial gaps. As a result, many community college students end up working: as Figure 1 shows, 47% of independent community college students come from incomes of less than $20,000. 

A practical approach would be to ask how we might optimize the value of hours worked rather than asking how we might avoid hours worked at all. Many community college students are employed in retail and other frontline roles: in fact, 23% of students in the Washington state dataset worked in retail at the start of their academic career, while another 19% worked in accommodation and food service. These are entry-level roles that pay low salaries, provide poor benefits, and are unlikely to teach transferable skills in high-paying professions. 

A better way to provide wages as well as professionally transferable skills would be to increase funding for work-based training programs, including apprenticeships and part-time roles, that are directly related to the student’s course of study. The Department of Labor should fund a large increase in work-based training programs that provide the following characteristics:

• Are tied to an accredited course of study at a community college or other institution of higher learning with proven outcomes
• Are targeted toward roles and industries with job shortages, such as registered nurses
• Are designed in collaboration with employer partners who will ensure that students are learning skills directly related to their role and industry
• Have sufficient funding for key administrative and wraparound expenses, including career counseling and transportation stipends

Research has started to highlight the long-term benefits of well-designed work-based learning programs focused on high-paying jobs. San Antonio-based Project Quest works with individuals in healthcare, IT, and the skilled trades to provide low-income adults with credentials and employment pathways (sometimes through community colleges but also with trade schools and four-year universities providing certificates). In addition to training, Project Quest provides comprehensive wraparound support for its participants, including financial assistance for tuition, transportation, and books, as well as remedial instruction and career counseling.

In 2019, Project Quest published the results of its nine-year longitudinal study that included a randomized controlled trial of 410 adults, 88% of whom were female, enrolled in healthcare programs. Thus, replicability for other industries may prove challenging. Nonetheless, the study showed highly positive and statistically long-term earnings impacts for its participants, results that have not been easily replicated elsewhere.

Properly designed standalone apprenticeships have the potential to deliver large and positive impacts. For example, the Federation of Advanced Manufacturing Education (FAME) has long had an apprenticeship program in Kentucky to develop high-quality automotive manufacturing talent for skilled trades roles, which blends technical training for automotive manufacturing, skills that can be transferred to any industrial setting, and soft skills education. Participants complete an apprenticeship and finish with an associate’s degree in industrial maintenance technology. Within five years of graduation, FAME graduates had average incomes of almost $100,000.     

The Inflation Reduction Act, Infrastructure Act, and CHIPS Act have made it clear that reinvesting in America’s industrial base is a key policy priority. At the same time, the private sector has identified major skill shortages in the skilled trades as well as healthcare and IT. Community college administrators can lead the effort to create work-based training solutions for these key roles and coordinate the efforts of various stakeholders, including the Departments of Education and Labor, state governments, and philanthropic organizations seeking to fund high-quality comprehensive solutions such as the ones developed by Project Quest. In doing so, community college leaders can move to the vanguard of outcomes-driven, ROI-based higher education.

Recommendation 3. The federal government should increase Pell Grant funding and ensure that more students receive funds for which they are eligible.

Pell Grants are an essential component of college funding for many low-income college students, without which higher education would be unaffordable. For the 2023–2024 school year, the Pell Grant maximum is $7,395, and on average students receive around $4,250. By contrast, the average tuition at a community college is just under $4,000, with the total cost of attendance at around $13,500. Thus, the average Pell Grant would cover all of tuition but just one-third of the total cost of attendance, assuming that the student was enrolled full-time. Nonetheless, Pell Grants are highly effective tools: the Federal Reserve Bank of Richmond conducted a pilot study of 9,000 students and found that 64% of Pell recipients had graduated, transferred, or persisted in their program within 200% of the normal completion time, as opposed to 51% of non-Pell recipients. 

Increasing Pell Grant awards will have two important effects. First, additional Pell Grant assistance reduces the out-of-pocket tuition burden, in turn increasing financial capacity for critical expenditures such as living expenses, textbooks, and transportation. Second, students who receive Pell Grant funding in excess of the tuition maximum could directly apply funds to those expenditures. However, under current IRS code, Pell Grant funding that is applied to living expenses is taxable. Congress should pass legislation that makes Pell Grants nontaxable in order to avoid penalizing students who use funds on critical expenses that might otherwise go unfilled or would require funding from an outside organization. 

President Biden’s 2024 budget, which proposes a $500 increase in the maximum Pell Grant, is an excellent baseline for increasing access to high-quality community college programs. In all, this is estimated to cost $750 million in 2024 (including four-year college students), with a more ambitious pathway to doubling the grant by 2029. Moreover, the president’s budget calls for $500 million to start a discretionary fund that provides free two-year associate’s degree programs for high-quality degrees. These proposals have shown progress at the state level: for instance, Tennessee, a Republican-led state, offers free community      or technical college to every high school graduate. Furthermore, tying funding to programs with strong graduation and salary outcomes ensures that funding flows to high-quality programs, improving student ROI and increasing its appeal to taxpayers.

Policymakers should also do more to ensure that students take advantage of funds they are eligible to receive. In 2018, the Wheelhouse Center for Community College Leadership and Research examined data from nearly 320,000 students in California. Over just one semester, they found that students failed to claim $130 million of Pell Grants they were eligible for. Sometimes, students simply forget to apply, but in other cases, financial aid offices put artificial obstacles in the way: half of financial aid officers report asking for additional verification beyond the student list required by the Department of Education. Community colleges should be given more resources to ensure that eligible students apply for grant funding, but financial aid offices can also help by reducing the administrative burden on students and themselves.

Recommendation 4. In addition to expanding Pell Grant uptake, the public sector should fund and distribute wraparound services for community college students focused on high-impact practices, including first-year experiences, guidance counseling and career support, and ancillary benefits, such as textbook vouchers and transportation passes. 

In 2014, the Center for Community College Student Engagement assessed 12 community colleges to evaluate three essential outcomes: passing a developmental course in the first year, passing a gatekeeper course in the first year, and persistence in the degree program. They then pinpointed a set of practices that were meaningfully more likely to positively impact one or more of the target outcomes.

One successful intervention that bundles together many of these practices is the Accelerated Study in Associate Programs (ASAP), developed in the City University of New York (CUNY) and eventually expanded to three Ohio community colleges. The ASAP study, a randomized  control trial of 896 students at CUNY and 1,501 students in Ohio, provided tuition assistance and wraparound supports such as tutoring, career services, and textbook vouchers.      

The program delivered outstanding results: 55% of CUNY students graduated with a two-year or four-year degree versus 44% of the control group. The Ohio results were even more compelling, with the ASAP program improving two-year graduation rates by 15.6% and four-year registrations by 5.7% at a 0.01 significance level.

To scale these programs, the federal government should allow grants to be used for wraparound supports with strong research-based impacts, potentially drawing from (or in addition to) the $500 million community college discretionary fund in the president’s budget. Ideally, this would be done via competitive applications with an emphasis on programs that target disadvantaged communities and focus on high-quality degree programs. Moreover, this could be set up via matching funds that incentivize state and local governments as well as philanthropic players to play a larger role in creating wraparound supports and administrative structures that would allow community colleges to better provide these services in the long term. 

Recommendation 5. Federal, state, and local policymakers, working with large grant-writing foundations, should focus funding on interventions proven to result in higher graduation, transfer, and employment rates. As a first step, Congress should pass laws mandating the creation of datasets that merge educational and earnings data, which will help decision-makers and funders link dollars to outcomes.

Despite the success of programs such as ASAP and Project Quest, there is still a dearth of high-quality studies on comprehensive interventions. This is partly because there are relatively few such programs to begin with. Nonetheless, early results seem promising. The question is, how can we ensure that programs are properly measured in order to enable further public, private, and nonprofit financing?

Unlike ASAP and Project Quest, most programs do not rigorously track data over a long period. For instance, the American Association of Community Colleges provides a repository of data on community college apprenticeships, broken out at an aggregate level as well as by school partner. However, a closer look shows that the public-facing dataset is missing rudimentary information on the number of apprentices who complete their programs, what types of programs have a high rate of completers versus non completers, and employment outcomes, let alone richer datasets that include background demographic information, longitudinal earnings tracking, and other pieces of information essential to constructing statistically rigorous studies of student ROI.

Sample output of community college apprenticeship data, taken from Los Angeles Community College.

From Association of American Community Colleges

While there may be more privately held data in their database, the paucity of available public information is indicative of the state of data tracking for community colleges and work-based training programs. In general, institutions are not sufficiently funded to continue data tracking beyond completion or departure, leaving enormous gaps.     

One way to get around this issue is to require more rigorous data collection and longitudinal tracking, leveraging existing administrative data where possible. Fortunately, there is already a bill on the floor, called the College Transparency Act, which includes provisions requiring the Education Department to match student-level data with IRS tax data to measure post completion employment rates as well as mean and median earnings by institution, program of study, and credential level. Congress should pass the act, which enjoys bipartisan support. Passing the College Transparency Act would create the much-needed foundation to rigorously compare ROI and enable greater accountability for community colleges and higher ed writ large.

Conclusion

Designed correctly, community colleges can be fonts of economic opportunity, especially for individuals from underserved backgrounds whose primary goal is to enter into a well-paying role upon program completion. By collecting high-quality data, focusing on degrees with strong outcomes, providing quality work-based training, and funding wraparound supports and tuition assistance, community colleges can be much stronger, more effective engines for students and local communities. While these reforms will take time and energy from public policymakers, community college leaders, and employers, they have the potential to deliver compelling outcomes and are worth the investment.

Summary

The Biden Administration has recognized that small businesses, particularly minority-owned small businesses lack adequate access to capital. While SBA has operated its 7(a) Loan Program for multiple decades the program has historically shown poor results reaching minority-owned businesses and those in low- and moderate-income communities. Recently, the SBA has leveraged innovative fintech lenders to help fill this gap. 

While the agency has finalized a rule that would allow fintech companies to participate in the 7(a) Loan Program, there are significant concerns that new entrants would put the program at risk due to a lack of internal controls and transparent evaluation. To help increase lending to low- and moderate-income communities while not increasing the overall risk to the 7(a) Loan Program, SBA should establish a mentor-protégé program and conditional certification regime for innovative financial technology companies to participate responsibly in the SBA’s 7(a) Loan Program and ensure that SBA adequately preserves the safety and soundness of the program.

The Challenge

The Biden Administration has recognized that small businesses, particularly minority-owned small businesses lack adequate access to capital. While SBA has operated its 7(a) Loan Program for multiple decades, the program has historically shown poor results in reaching minority-owned businesses and those in low- and moderate-income communities. According to a 2022 Congressional Research Service report, “[i]n FY2021, 30.1% of 7(a) loan approvals ($10.98 billion of $36.54 billion) were [made] to minority-owned businesses (20.8% Asian, 6.0% Hispanic, 2.6% African American, and 0.7% American Indian)”. 

SBA has made a concerted effort previously to increase 7(a) small business lending to underserved communities by establishing the Community Advantage (CA) 7(a) loan initiative. Launched as a pilot program in 2011 and subsequently reauthorized, the CA loan initiative has been successful in encouraging mission-driven nonprofit lenders to underserved communities; however, the impact has been relatively small when compared to the traditional 7(a) loan program. In FY 2022, the CA Pilot Program approved just 722 loans totaling $114,804; whereas the general SBA 7(a) Loan Program approved 3,501 loans totaling $3,498,234,800–an order of magnitude of difference. 

The COVID-19 pandemic created an unprecedented demand for assistance to the country’s small businesses, as they were forced to close their doors and saw their revenues dwindle. Congress responded to this demand by passing the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which established one of the largest government-backed lending programs ever, the Paycheck Protection Program (PPP). During the PPP, fintech lenders, which for this policy memo includes technology-savvy banks and nonbank financial institutions that operate online and through mobile applications, proved uniquely adept at serving small businesses in traditionally underserved communities, even without specific guidance to do so from the SBA. 

Many of the borrowers assisted by fintech lenders did not have pre-existing borrowing relationships with a financial institution and were therefore deprioritized by traditional financial institutions offering PPP loans, who favored lending to small businesses with existing relationships. Previously published research showed that not only did fintech lenders receive more applications from businesses from Black and Hispanic-owned businesses, but also extended a significant amount of lending to these businesses. Fintech lenders therefore expanded the impact of the PPP to underserved borrowers and successfully bolstered the efforts of mission-driven lenders, such as Community Development Financial Institutions and Minority Depository Institutions. For example, Unity National Bank of Houston, a Minority Depository Institution partnered with Cross River, a tech-focused bank that partners with fintech companies, to increase its lending from 500 loans to nearly 200,000 loans by leveraging Cross River’s lending technology.  Similarly, Accion Opportunity Fund, a large Community Development Financial Institution, partnered with Lending Club, another tech-focused lender, to improve both entities’ lending operations to borrowers that were underserved during the first round of the PPP. However, Community Development Financial Institutions and Minority Depository Institutions often face challenges procuring and implementing the technology needed to help scale their nontraditional lending activities, which limits the efficacy of their mission-driven lending in an increasingly internet-based lending environment. 

In an effort to increase access to capital and build on the efforts of fintech companies that successfully provided capital to small businesses in the Paycheck Protection Program, SBA has proposed lifting its moratorium on non-depository lenders participating in the program. SBA and the Biden Administration have shown real progress in removing the moratorium on Small Business Lending Company (SBLC) licenses to include fintech companies, which would expand the eligible participants in the program for the first time in 40 years. 

Expanding access to capital and support for small businesses is a key priority for the Biden Administration. Specifically, the Administration noted the importance of expanding underserved small business’ access to capital.  They recommended expanding the SBA’s 7(a) program by extending SBLC licenses to nonbank lenders, which include fintech companies, as one promising strategy. To this end, SBA has established a strategy of expanding its lending network by leveraging fintech companies. The SBA previously issued a proposed rulemaking to remove the moratorium on SBLC licenses and add three new categories of SBLC licenses.

However, policymakers and some industry participants have cast serious doubts on fintech companies’ participation in SBA’s 7(a) Loan Program, due to weak internal controls of unpartnered fintech companies and subsequent fraud issues experienced during the Paycheck Protection Program. Further, these critics have cited concerns with the agency’s ability to properly oversee these fintech companies due to a lack of ability to manage the fraud risks associated with developing or expanding a lending program that includes unpartnered fintech companies. Overall, the agency has shown that both it and fintech companies should improve their engagement together to ensure that the many program requirements are adhered to, and that SBA improves its abilities to mitigate potentially new or unique risks to the 7(a) Loan Program.

The Plan of Action

To solve the aforementioned issues, SBA should establish a mentor-protégé program and conditional certification regime for innovative nonbank financial technology companies to participate responsibly in the SBA’s 7(a) Loan Program. By creating a mentor-protégé program and conditional certification regime, SBA can continue to encourage the expansion of the 7(a) Loan Program to lenders that have shown their willingness and ability to lend to traditionally underserved small business borrowers, while ensuring that the agency adequately preserves the safety and soundness of the 7(a) Loan Program.

In the proposed mentor-protégé program, SBA would conduct an initial assessment of the fintech applicant and provide a conditional certification contingent on the fintech’s participation in the mentor-protégé program. To ensure that only the most well-suited fintech companies are allowed to engage in the 7(a) program, SBA should conduct a fair lending assessment. This would include a gap analysis of the company’s lending processes, akin to the existing interagency fair lending examinations conducted by the federal banking regulators. Further, SBA should require fintech companies to complete a “Community Lending Plan” detailing the specific small business lending activities the fintech company intends to complete in traditionally underserved areas. SBA would conduct a review of applications it receives and match them with banks that are established 7(a) lenders. 

To help ensure that both mentors and protégés develop throughout the program, SBA would need to create program criteria for both mentor banks and protégé fintech companies. Mentor criteria should focus on ensuring that mentor banks assist and grow the knowledge of their fintech proteges. Thus, both mentors and protégés should be required to complete periodic progress reports. Further, mentors should conduct their own periodic assessments of the fintech protégé’s compliance and lending processes to ensure that the fintech is able to comply with existing 7(a) Loan Program requirements and not create an undue risk to the program. These criteria should be determined based on the expertise of the Office of Capital Access and Office of Credit Risk Management with advice from SBA’s 8(a) Business Development Program staff. Lastly, to ensure that mentors and protégés can speak candidly about their experience with the other participant, SBA would need to create communication portals for both entities that are walled-off review by either participant. 

Recognizing the potential apprehension existing 7(a) lenders might have to eventually increasing competition to the 7(a) lending market, the SBA would need to incentivize banks to provide mentorship services to fintech companies by providing participating mentor banks with Community Reinvestment Act (CRA) credit and an increased SBA guarantee threshold for the bank’s 7(a) loans. By pursuing these two incentives, the SBA would provide banks with clear business and regulatory benefits from participating in the mentor-protégé program.

Based on a review of the SBA’s 2023 Congressional Budget Justification, SBA has accounted for much of the increased cost that would stem from expanding the 7(a) Lending Program to additional SBLCs. SBA noted that part of its $93.6 million request for fiscal year 2023 was to attract new lenders that participated in the Paycheck Protection Program. Similarly, SBA identified the need to continue building its oversight of Paycheck Protection Program and Community Advantage lenders. To this end, SBA requested an additional $13.9 million in small business lender oversight. Establishing the 7(a) mentor-protégé program would likely require only a small amount of additional funds relative to the 2023 requested amount. To account for the additional programmatic and administrative requirements needed to establish the 7(a) mentor-protégé program, SBA should include an additional $500 thousand to $1 million to its future Congressional Budget Justifications.

Success of the mentor-protégé program depends on robust program requirements and continuous monitoring to ensure the participants are adhering to the goal of responsibly expanding capital access to underserved small businesses. To accomplish this endeavor, SBA should leverage the internal expertise of its Office of Capital Access and Office of Credit Risk Management, while also coordinating with prudential and state financial services regulators to adequately understand the novel business models of fintech companies applying to and participating in the program. Interagency coordination between state and federal regulators will ensure that the 7(a) program’s integrity is maintained at the macro and micro levels.

Conclusion

Expanding small business lending to low- and moderate- income communities is an especially important endeavor. Few opportunities for real social and economic growth exist in these traditionally underserved communities without robust access to small business credit. While the importance of expanding access is clear, SBA has a responsibility to ensure that its flagship 7(a) Loan Program remains safe, sound, and available for the benefit of all small businesses. The recent decision to finalize rulemaking that would expand allowable lenders to the 7(a) Loan Program must come with careful consideration of which lenders should be able to participate. Incorporating fintech lenders presents an opportunity to solve the issues of small business lending to traditionally underserved communities. However, given the concerns identified throughout the rulemaking process and after its finalization, SBA should work diligently to ensure that only the best-suited entities are allowed to become 7(a) lenders. To help ensure that this occurs, they should create a mentor-protégé program that will afford fintech companies the best opportunity to succeed in the program while maintaining the safety and soundness that is so important to the overall success of the 7(a) Loan Program.

Summary

With the passage of the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act, and the Inflation Reduction Act (IRA), the United States has outlined a de facto industrial policy to facilitate and accelerate the energy transition while seeking energy security and supply chain resilience. The rapid pace of industrial transformation driven by the energy transition will manifest as a human capital challenge, and the workforce will be realigned to the industrial policy that is rapidly transforming the labor market. The energy transition, combined with nearshoring, will rapidly retool the global economy and, with it, the skills and expertise necessary for workers to succeed in the labor market. A rapid, massive, and ongoing overhaul of workforce development systems will allow today’s and tomorrow’s workers to power the transition to energy security, resilient supply chains, and the new energy economy—but they require the right training opportunities scaled to match the needs of industry to do so.

Policymakers and legislators recognize this challenge, yet strategies and programs often sit in disparate parts of government agencies in labor, trade, commerce, and education. A single strategy that coordinates a diverse range of government policies and programs dedicated to training this emerging workforce can transform how young people prepare for and access the labor market and equip them with the tools to have a chance at economic security and well-being.

Modeled after the U.S. Department of Labor’s (DOL) Trade Adjustment Assistance Community College and Career Training (TAACCCT) program, we propose the Energy Security Workforce Training (ESWT) Initiative to align existing U.S. government support for education and training focused on the jobs powering the energy transition. The Biden-Harris Administration should name an ESWT Coordinator to manage and align domestic investments in training and workforce across the federal government. The coordinator will spearhead efforts to identify skills gaps with industry, host a ESWT White House Summit to galvanize private and social sector commitments, encourage data normalization and sharing between training programs to identify what works, and ensure funds from existing programs scale evidence-based sector-specific training programs. ESWT should also encompass an international component for nearshored supply chains to perform a similar function to the domestic coordinator in target countries like Mexico and promote two-way learning between domestic and international agencies on successful workforce training investments in clean energy and advanced manufacturing.

Challenge and Opportunity

With the passage of the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, the United States has a de facto industrial policy to facilitate and accelerate the energy transition while seeking energy security and supply chain resilience. However, our current workforce investments are not focused on the growing green skills gap. We require workforce investment aligned to the industrial policy that is rapidly transforming the labor market, to support both domestic jobs and the foreign supply chains that domestic jobs depend on. 

Preparing Americans to Power the Energy Transition

The rapid pace of industrial transformation driven by the energy transition will manifest as a human capital challenge. The energy transition will transform and create new jobs—requiring a massive investment to skill up the workers who will power the energy transition. Driving this rapid transition are billions of dollars slated for incentives and tax credits for renewable energy and infrastructure, advanced manufacturing, and supply chain creation for goods like electric vehicle batteries over the coming years. The vast upheaval caused by the energy transition combined with nearshoring is transforming both current jobs as well as the labor market young people will enter over the coming decade. The jobs created by the energy transition have the potential to shift a whole generation into the middle class while providing meaningful, engaging work. 

Moving low-income students into the middle class over the next 10 years will require that education and training institutions meet the rapid pace of industrial transformation required by the energy transition. Education and training providers struggle to keep up with the rapid pace of industrial transformation, resulting in skills gaps. Skills gaps are the distance between the skills graduates leave education and training with and the skills required by industry. Skills gaps rob young people of opportunities and firms of productivity. And according to LinkedIn’s latest Green Economy report, we are facing a green skills gap—with the demand for green skills outpacing the supply in the labor force. Firms have cited skills gaps in diverse sectors related to the energy transition, including infrastructure, direct air capture, electromobility, and geothermal power. 

Graduates with market-relevant skills earn between two and six times what their peers earn, based on evaluations of International Youth Foundation’s (IYF) programming. In addition, effective workforce development lowers recruitment, selection, and training costs for firms—thereby lowering the transaction costs to scale moving people into the positions needed to power the energy transition. Industrial transformation for the energy transition involves automation, remote sensing, and networked processes changing the role of the technician—who is no longer required to execute tasks but instead to manage automated processes and robots that now execute tasks. This changes the fundamental skills required of technicians to include higher-order skills for managing processes and robots. 

We will not be able to transform industry or seize the opportunities of the new energy future without overhauling education and training systems to build the skills required by this transformation and the industries that will power it. Developing higher-order thinking skills means changing not only what is taught but how teaching happens. For example, students may be asked to evaluate and make actionable recommendations to improve energy efficiency at their school. Because many of these new jobs require higher-order thinking skills, policy investment can play a crucial role in supporting workers and those entering the workforce to be competitive for these jobs. 

Creating Resilient Supply Chains, Facilitating Energy Security, and Promoting Global Stability in Strategic Markets

Moving young people into good jobs during this dramatic economic transformation will be critical not only in the United States but also to promote our interests abroad by (1) creating resilient supply chains, 2) securing critical minerals, and (3) avoiding extreme labor market disruptions in the face of a global youth bulge. 

Supply chain resilience concerns are nearshoring industrial production—shifting the demand for industrial workers across geographies at a shocking scale and speed—as more manufacturing and heavy industries move back into the United States’ sphere of influence. The energy transition combined with nearshoring will rapidly retool the global economy. We need a rapid, massive, and ongoing overhaul of workforce development systems at home and abroad. The scale of this transition is massive and includes complex, multinational supply chains. Supply chains are being reworked before our eyes as we nearshore production. For example, the port of entry in Santa Teresa, New Mexico, is undergoing rapid expansion in anticipation of explosive growth of imports of spare parts for electric vehicles manufactured in Mexico. These shifting supply chains will require the strategic development of a new workforce.

The United States requires compelling models to increase its soft power to secure critical minerals for the energy transition. Securing crucial minerals for the energy transition will again reshape energy supply chains, as the mineral deposits needed for the energy transition are not necessarily located in the same countries with large oil, gas, or coal deposits. The minerals required for the energy transition are concentrated in China, Democratic Republic of Congo, Australia, Chile, Russia, and South Africa. We require additional levers to establish productive relationships to secure the minerals required for the energy transition. Workforce investments can be an important source of soft power. 

Today’s 1.2 billion young people today make up the largest and most educated generation the world has ever seen, or will ever see, yet they face unemployment rates at nearly triple that of adults. Globally the youth unemployment rate is 17.93% vs. 6.18% for adults. The youth unemployment rate refers to young people aged 15–24 who are available for or seeking employment but who are unemployed. While rich countries have already passed through their own baby booms, with accompanying “youth bulges,” and collected their demographic dividends to power economic growth and wealth, much of the developing world is going through its own demographic transition. While South Korea experienced sustained prosperity once its baby boomers entered the labor force in the early 2000s, Latin America’s youth bulge is just entering the labor force. In regions like Central America, this demographic change is fueling a wave of outmigration. In Sub-Saharan Africa, the youth bulge is making its way through compulsory education with increasing demands for government policy to meet high rates of youth unemployment. It is an open question whether today’s youth bulges globally will drive prosperity as they enter the labor market. Policymakers are faced with shaping labor force training, and government policy rooted in demonstrable industry needs to meet this challenge. At the same time, green jobs is already one of the most rapidly growing occupations. The International Energy Agency (IEA) projects that adopting clean energy technologies will generate 14 million jobs by 2030, with 16 million more to retrofit and construct energy-efficient buildings and manufacture new energy vehicles. At the same time, the World Economic Forum’s 2023 future of jobs report cites the green transition as the key driver of job growth. However, the developing world is not making the corresponding investments in training programs for the green jobs that are driving growth. 

Alignment with Existing Initiatives

The Biden-Harris Administration’s approach to the energy transition, supply chain resilience, and energy security must address this human capital challenge. Systemic approaches to building the skills for the energy transition through education and training complement the IRA’s incentivized apprenticeships, and focus investments from the IIJA, by building out a complete technical, vocational, education and training system oriented toward building the skills required for the energy transition. We propose a whole-of-government approach that integrates public investment in workforce training to focus on the energy transition and nearshoring with effective approaches to workforce development to address the growing green skills gap that endangers youth employment, the energy transition, energy security and supply chain resilience. 

The Biden-⁠Harris Administration Roadmap to Support Good Jobs demonstrates a commitment to building employment and job training into the Investing in America Agenda. The Roadmap catalogs programs throughout the federal government that address employment and workforce training authorized in recent legislation and meant to enable more opportunities for workers to engage with new technology, advanced manufacturing, and clean energy. Some programs had cross-sector reach, like the Good Jobs Challenge that reached 32 states and territories authorized in the American Rescue Plan to invest in workforce partnerships, while others are more targeted to specific industries, like the Battery Workforce Initiative that engages industry in developing a battery manufacturing workforce. The Roadmap’s clearinghouse of related workforce activities across the federal ecosystem presents a meaningful opportunity to advance this commitment by coordinating and strategically implementing these programs under a single series of objectives and metrics. 

Identifying evidence-driven training programs can also help fill the gap between practicums and market-based job needs by allowing more students access to practical training than can be reached solely by apprenticeships, which can have high individual transaction costs for grantees to coordinate. Additionally, programs like the Good Jobs Challenge required grantees to complete a skills-gap analysis to ensure their programs fit market needs. The Administration should seek to embed capabilities to conduct skills-gap analyses first before competitive grants are requested and issued to better inform program and grant design from the beginning and to share that learning with the broader workforce training community. By using a coordinated initiative to engage across these programs and legislative mandates, the Administration can create a more catalytic, scalable whole-of-government approach to workforce training.

Collaborating on metrics can also help identify which programs are most effective at meeting the core metrics of workforce training—increased income and job placements—which often are not met in workforce programs. This initiative could be measured across programs and agencies by (1) the successful hiring of workers into quality green jobs, (2) the reduction of employer recruitment and training costs for green jobs, and (3) demonstrable decreases in identified skills gaps—as opposed to a diversity of measures without clear comparability that correspond to the myriad agencies and congressional committees that oversee current workforce investments. Better transferable data measured against comparable metrics can empower agencies and Congress to direct continued funds toward what works to ensure workforce programs are effective.

The DOL’s TAACCCT program provides a model of how the United States has successfully invested in workforce development to respond to labor market shocks in the past. Building on TAACCCT’s legacy and its lessons learned, we propose focusing investment in workforce training to address identified skills gaps in partnership with industry, engaging employers from day one, rather than primarily targeting investment based on participant eligibility. When investing in bridging critical skills gaps in the labor market, strategy and programs must be designed to work with the most marginalized communities (including rural, tribal, and Justice40 communities) to ensure equitable access and participation. 

Increased interagency collaboration is required to meet the labor market demands of the energy transition, both in terms of domestic production in the United States and the greening of international supply chains from Mexico to South Africa. Our proposed youth workforce global strategy, the Energy Security Workforce Training Initiative outlined below provides a timely opportunity for the Administration to make progress on its economic development, workforce and climate goals. 

Plan of Action

We propose a new Energy Security Workforce Training Initiative to coordinate youth workforce development training investments across the federal government, focused on critical and nearshored supply chains that will power energy security. ESWT will be charged with coordinating U.S. government workforce strategies to build the pipeline for young people to the jobs powering the energy transition. ESWT will rework existing education and training institutions to build critical skills and to transform how young people are oriented to, prepared for, and connected to jobs powering the energy transition. ESWT will play a critical role in cross-sector and intergovernmental learning to invest in what works and to ensure federal workforce investments in collaboration with industry address identified skills gaps in the labor market for the energy transition and resilient supply chains. Research and industry confirmation would inform investments by the Department of Energy (DOE), Department of Education (ED), Department of Commerce (DOC), and Department of Labor (DOL) toward building identified critical skills through scalable means with marginalized communities in mind. A key facet of ESWT will be to normalize and align the metrics by which federal, state, and local partners measure program effectiveness to allow for better comparability and long-term potential for scaling the most evidence-driven programs.

The ESWT should be coordinated by the National Economic Council(NEC) and DOC, particularly the Economic Development Administration. Once established, ESWT should also involve an international component focused on workforce investments to build resilience in nearshore supply chains on which U.S. manufacturing and energy security rely. Mexico should serve as an initial pilot of this global initiative because of its intertwined relationship with U.S. supply chains for products like EV batteries. Piloting a novel international workforce training program through private sector collaboration and U.S. Agency for International Development (USAID), DOL, and U.S. International Development Finance Corporation (DFC) investments could help bolster resilience for domestic jobs and manufacturing. Based on these results, ESWT could expand into other geographies of critical supply chains, such as Chile and Brazil. To launch ESWT, the Biden Administration should pursue the following steps.

Recommendation 1. The NEC should name an ESWT Initiative Coordinator in conjunction with a DOC or DOL lead who will spearhead coordination between different agency workforce training activities.

With limited growth in government funding over the coming years, a key challenge will be more effectively coordinating existing programs and funds in service of training young people for demonstrated skills gaps in the marketplace. As these new programs are implemented through existing legislation, a central entity in charge of coordinating implementation, learning, and investments can best ensure that funds are directed equitably and effectively. Additionally, this initial declaration can lay the groundwork to build capacity within the federal government to conduct market analyses and consult with industries to better inform program design and grant giving across the country. The DOC and the Economic Development Administration seem best positioned to lead this effort with an existing track record through the Good Jobs Challenge and capacity to engage fully with industry to build trust that curricula and training are conducted by people that employers verify as experts. However, the DOL could also take a co-lead role due to authorities established under the Workforce Innovation and Opportunity Act (WIOA). In selecting lead agencies for ESWT, these criteria should be followed:

1. Access to emerging business intelligence regarding industry-critical skills—DOC, DOE
2. Combined international and domestic remit—DOE/DOL, DOC (ITA)
3. Remit that allows department to focus investment on demonstrated skills gaps, indicated by higher wages and churn—DOC
4. Permitted to convene advisory committees from the private sector under the Federal Advisory Committee Act—DOC

Recommendation 2. The DOC and NEC, working with partner agencies, should collaborate to identify and analyze skills gaps and establish private-sector feedback councils to consult on real-time industry needs.

As a first step, DOC should commission or conduct research to identify quantitative and qualitative skills gaps related to the energy transition in critical supply chains both domestically and in key international markets — energy efficiency in advanced manufacturing, electric vehicle production, steel, batteries, rare earth minerals, construction, infrastructure and clean energy. DOC should budget for 20 skills gap assessments for critical occupational groups (high volume of jobs and uncertainty related to required, relevant skills) in the above-mentioned sectors. Each skills gap assessment should cost roughly $100,000, bringing the total investment to $2 million over a six-to-twelve-month period.  Each skills gap assessment will determine the critical and scarce skills in a labor market for a given occupation and the degree to which existing education and training providers meet the demand for skills.

This research is central to forming effective programs to ensure investments align with industry skills needs and to lower direct costs on education providers, who often lack direct expertise in this form of analysis. Commissioning these studies can help build a robust ecosystem of labor market skills gap analysts and build capacity within the federal government to conduct these studies. By completing analysis in advance of competitive grant processes, federal grants can be better directed to training based on high-need industry skill sets to ensure participating students have market-driven employment opportunities on completion. The initial research phase would occur over a six-month timeline, including staffing and procurement. The ESWT coordinator would work with DOC, ED, and DOL to procure curricula, enrollment, and foreign labor market data. Partner agencies in this effort should also include the Departments of Education, Labor, and Energy. The research would draw upon existing research on the topic conducted by Jobs for the Future, IYF, the Project on Workforce at Harvard, and LinkedIn’s Economic Graph.

Recommendation 3. Host the Energy Security Workforce Development White House Summit to galvanize public, private, and social sector partners to address identified skills gaps.

The ESWT coordinator would present the identified quantitative and qualitative skills gaps at an action-oriented White House Summit with industry, state and local government partners, education providers, and philanthropic institutions. The Summit could serve as a youth-led gathering focused on workforce and upskilling for critical new industries and galvanize a call to action across sectors and localities. Participants will be asked to prioritize among potential choices based on research findings, available funding mechanisms, and imperatives to transform education and training systems at scale and at pace with industrial transformation. Addressing the identified skills gaps will require partnering with and securing the buy-in of both educational institutions as well as industry groups to identify what skills unlock opportunities in given labor markets, develop demand-driven training, and expanded capacity of education and training providers in order to align interests as well as curricula so that key players have the incentives and capacity to continually update curricula—creating lasting change at scale. This summit would also serve as a call to action for private sector partnerships to invest in helping reskill workers and establish buy-in from the public and civil society actors. 

Recommendation 4. Establish standards and data sharing processes for linking existing training funds and programs with industry needs by convening state and local grantees, state agencies, and federal government partners.

ESWT should lay out a common series of metrics by which the federal government will assess workforce training programs to better equip efforts to scale successful programs with comparable evidence and empower policymakers to invest in what works. We recommend using the following metrics: 

1. Successful hiring of workers into quality green jobs
2. The reduction of employer recruitment and training costs for green jobs
3. Demonstrable decreases in identified skills gaps

Metrics 2 and 3 will rely on ongoing industry consultations—as well as data from the Bureau of Labor Statistics. Because of the diffuse nature of existing skills gap analyses across federal grantees and workforce training programs, ESWT should serve as a convenor for learning between jurisdictions. Models for federal government data clearinghouses could be effective as well as direct sharing of evidence and results between education providers across a series of common metrics.

Recommendation 5. Ensure grants and investments in workforce training are tied to addressing specific identified skills gaps, not just by regional employment rates.

A key function of ESWT would be to determine feasible and impactful strategies to address skills gaps in critical supply chains, given the identified gaps, existing funding mechanisms, the buy-in of critical actors in key labor markets (both domestic and international), agency priorities, and the imperative to make transformative change at scale. The coordinator could help spur agencies to pursue flexible procurement and grant-making focused on outcomes and tied to clear skills gap criteria to ensure training demonstrably develops skills required by market needs for the energy transition and growing domestic supply chains. While the Good Jobs Challenge required skills gap analysis of grantees, advanced analyses by the ESWT Initiative could inform grant requirements to ensure federal funds are directed to high-need programs. As many of these fields are new, innovative funding mechanisms could be used to meet identified skills gaps and experiment with new training programs through tiered evidence models. Establishing criteria for successful workforce training programs could also serve as a market demand-pull signal that the federal government is willing and able to invest in certain types of training, crowding-in potential new players and private sector resources to create programs tailored for the skills industry needs.

Depending on the local context, the key players, and the nature of the strategy to bridge the skills gap for each supply chain, the coordinating department will determine what financing mechanism and issuing agency is most appropriate: compacts, grants, cooperative agreements, or contracts. For example, to develop skills related to worker safety in rare-earth mineral mines in South Africa or South America, the DOL could issue a grant under the Bureau of International Labor Affairs. To develop the data science skills critical for industrial and residential energy efficiency, the ED could issue a grants program to replicate Los Angeles Unified School District’s Common Core-aligned data science curriculum.

Recommendation 6. Congress should authorize flexible workforce training grants to disperse—based on identified industry needs—toward evidence-driven, scalable training models and funding for ESWT within the DOC to facilitate continued industry skills need assessments.

Congress should establish dedicated staff and infrastructure for ESWT to oversee workforce training investments and actively analyze industry needs to inform federal workforce investment strategies. Congress and the Administration should also explore how to incentivize public-private partnerships and requirements for energy, manufacturing, and supply chain companies to engage in curriculum development efforts or provide technical expertise to access tax credits included in the IRA or CHIPS.

Recommendation 7. ESWT could also incorporate an international perspective for nearshored supply chains critical to energy security and advanced manufacturing. 

To pilot this model, we recommend:

1. Bilateral coordination of federal workforce and training investments across agencies like State, USAID, and DFC: Mexico could serve as an ideal pilot country due to its close ties with U.S. supply chains and growth in the manufacturing sector. This coordination effort should direct USAID and other government funding toward workforce training for industries critical to domestic supply chains for energy security and green jobs.
2. Two-way learning between domestic and international workforce programs: As ESWT develops effective strategies to address the skills gap for the energy transition, the interagency initiative will identify opportunities for two-way learning. For example, as curricula for eclectic vehicle assembly is developed and piloted in Mexico with support from USAID, it could inform U.S.-based community colleges’ work with the DOL and DOE.
3. If successful, expand to additional aligned countries including Brazil, India, and South Africa and nations throughout the Americas that source energy and manufacturing inputs for the green economy: ESWT could facilitate scalable public-private partnership vehicles for partner country governments, private corporations, philanthropy, and nongovernmental organizations to collaborate and fund country-dedicated programs to train their energy and climate workforce. This step could be done in conjunction with naming a Special Envoy at the State Department to coordinate diplomatic engagement with partner countries. The Envoy and Coordinator should have expertise and experience in North and South America economic relations and diplomacy, and labor markets economics. Congress could incorporate dedicated funds for ESWT into annual appropriations at State.

Conclusion

The transition from an economy fueled by human and animal labor to fossil fuels took roughly 200 years (1760–1960) and was associated with massive labor market disruptions as society and workers reacted to a retooled economy. Avoiding similar labor market disruptions as we seek to transition off fossil fuels over decades, not centuries, will require concentrated coordinated action. The Energy Security Workforce Training Initiative will overhaul education and training systems to develop the skills needed to reduce greenhouse gas emissions in the labor markets central to long-term U.S. energy security and ensure that supply chains are resilient to shocks. Such a coordinated investment in training will lower recruitment, selection, and training costs for firms while increasing productivity and move people into the middle class with the jobs fueling the energy transition. 

By focusing federal workforce funding on addressing the green skills gap, we will be able to address the human capital challenges implicit in scaling the infrastructure, manufacturing overhaul, and supply chain reconfiguration necessary to secure a just transition, both at home and abroad. By building in critical international supply chains both for manufacturing and energy security from day one, the ESWT Initiative incorporates two-way learning as a means to knit together strategic supply chains through bilateral investments in equitable workforce initiatives. 

Summary

The Department of Energy (DOE) should leverage its congressionally granted other transaction authority to its full statutory extent to accelerate the demonstration and deployment of innovations critical to the clean energy transition. To do so, the Secretary of Energy should encourage DOE staff to consider using other transactions to advance the agency’s core missions. DOE’s Office of Acquisition Management should provide resources to educate program and contracting staff on the opportunity that other transactions present. Doing so would unlock a less used but important tool in demonstrating and accelerating critical technology developments at scale with industry.

Challenge and Opportunity

OTs are an underleveraged tool for accelerating energy technology.

Our global and national clean energy transition requires advancing novel technology innovations across transportation, electricity generation, industrial production, carbon capture and storage, and more. If we hope to hit our net-zero emissions benchmarks by 2030 and 2050, we must do a far better job commercializing innovations, mitigating the risk of market failures, and using public dollars to crowd in private investment behind projects. 

The Biden Administration and the Department of Energy, empowered by Congress through the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law (BIL), have taken significant steps to meet these challenges. The Loan Programs Office, the Office of Clean Energy Demonstrations, the Office of Technology Transitions, and many more dedicated public servants are working hard towards the mission set forward by Congress and the administration. They are deploying a range of grants, procurement contracts, and tax credits to achieve their goals, and there are more tools at their disposal to accelerate a just, clean energy transition. The large sums of money appropriated under BIL and IRA require new ways of thinking about contracting and agreements.

Congress gives several federal agencies the authority to use flexible agreements known as other transactions (OTs). Importantly, OTs are defined by what they are not. They are not a government contract or grant, and thus not governed by the Federal Acquisitions Regulations (FAR). Historically, NASA and the DoD have been the most frequent users of other transaction authorities, including for projects like the Commercial Orbital Transportation System at NASA which developed the Falcon 9 space vehicle, and the Global Hawk program at DARPA.

In contrast, the Department of Energy has infrequently used OTs, and even when it has, the programs have achieved no notable outcomes in support of their agency mission. When the DOE has used OTs, the agency has interpreted their authority as constraining them to cost-sharing research agreements. This restricts the creativity of agency staff in executing OTs. All the law says is that an OT is not a grant or contract. By limiting itself to cost sharing research agreements, DOE is preemptively foreclosing all other kinds of novel partnerships. This is critical because some nascent climate-solution technologies may face a significant market failure or a set of misaligned incentives that a traditional research and development transaction (R&D) may not fix.

This interpretation has hampered DOE’s use of OTs, limited its ability to engage small businesses and nontraditional contractors, and prevented DOE from fully pursuing its agency mission and the administration’s climate goals.

Exploring further use of OTs would open up a range of possibilities for the agency to help address critical market failures, help U.S. firms bridge the well-documented valleys of death in technology development, and fulfill the benchmarks laid out in the DOE’s Pathways to Commercial Liftoff.
According to a GAO report from 2016, the DOE has only used OTs a handful of times since they had the authority updated in 2005, nearly two decades ago. Compare the DOE’s use of OTs to other agencies in the four-year period in the table below (the most recent for which there is open data).

TABLE 1

From GAO-16-209

Almost every other agency uses OTs at a significantly higher rate, including agencies that have smaller overall budgets. While quantity of agreements is not the only metric to rely on, the magnitude of the discrepancy is significant. 

Other agencies have made significant changes since 2014, most notably the Department of Defense. A 2020 CSIS report found that DoD use of OTs for R&D increased by 712% since FY2015, including a 75% increase in FY2019. This represents billions of dollars in awards, much of which went to consortia, including for both prototyping and production transactions. While the DOE does not have the same budget or mission as DoD, the sea change in culture among DoD officials willing to use OTs over the past few years is instructive. While DoD did receive expanded authority in the FY2015 and 2016 NDAA, this alone did not account for the massive increase. A cultural shift drove program staff to look at OTs as ways to quickly prototype and deploy solutions that could advance their missions, and support from leadership enabled staff to successfully learn how and when to use OTs.

The Department of Transportation (DOT) only uses OTs for two agencies, the Federal Aviation Administration (FAA) and the Pipeline and Hazardous Materials Safety Administration (PHIMSA). Like DOE, the FAA is not restricted in what it can and can’t use OTs for. It is authorized to “carry out the functions of the Administrator and the Administration…on such terms and conditions as the Administrator may consider appropriate.” Unlike DOE, the FAA and DOT have used their authority for several dozen transactions a year, totaling $1.45 billion in awards between 2010 and 2014.

FIGURE 1

Source

From the GAO chart (Table 1), it’s clear that ARPA-E also follows the DOE in deploying very few OTs in support of its mission. Despite being originally envisioned as a high-potential, high-impact funder for technology that is too early in the R&D process for private investors to support, the most recent data shows that ARPA-E does not use OTs flexibly to support high-potential, high-impact tech.

The same GAO report cited above stated that:

“DOE’s regulations—because they are based on DOD’s regulations—include requirements that limit DOE’s use of other transaction agreements…. Officials told us they plan to seek approval from the Office of Management and Budget to modify the agency’s other transaction regulations to better reflect DOE’s mission, consistent with its statutory authority. According to DOE officials, if the changes are approved, DOE may increase its use of other transaction agreements.” 

That report was published in 2016, but it is unclear that any changes were sought or approved, though they likely do not need to change any regulations at all to actually make use of their authority.¹ The realm of the possible is quite large, and DOE has yet to fully explore the potential benefits to its mission that OTs provide. 

DOE can use OTs without any further authority to drive progress in critical technologies.

The good news is that DOE has the ability to use OTs without further guidance from Congress or formally changing any guidelines. Recognizing their full statutory authority would open up use cases for OTs that would help the DOE make meaningful progress towards its agency mission and the administration’s climate goals. 

For example, the DOE could use OTs in the following ways:

• Using demand-side support mechanisms to reduce the “green premium” for promising technologies like hydrogen, carbon capture, sustainable aviation fuel, enhanced geothermal, and low-embodied construction materials like steel and concrete

• Coordinating the demonstration of promising technologies through consortia with private industry in support of their commercial liftoff goals

• Organizing joint demonstration projects with the DOT or other agencies with overlapping solution sets

• Rapidly and sustainably meeting critical energy infrastructure needs across rural areas

Given the exigencies of climate change and the need to rapidly decarbonize our society and economy, there are very real instances in which traditional research contracts or grants are not enough to move the needle or unlock a significant market opportunity for a technology. Forward contract acquisitions, pay for delivery contracts, or other forms of transactions that are nonstandard but critical to supporting development of technology are covered under this authority.

One promising area where it seems the DOE is currently using this approach is in supporting the hydrogen hubs initiative. Recently the DOE announced a $1 billion initiative for demand-side support mechanisms to mitigate the risk of market failures and accelerate the commercialization of clean hydrogen technologies. The Funding Opportunity Announcement (FOA) for the H2Hubs program notes that “other FOA launches or use of Other Transaction Authorities may also be used to solicit new technologies, capabilities, end-uses, or partners.” The DOE could use OTs more frequently as a tool to advance other critical commercial liftoff strategies or to maximize the impact of dollars appropriated to implementation of the BIL and IRA. Some areas that are ripe for creative uses of other transactions include:

• Critical Minerals Consortium: A critical minerals consortium of vendors, nonprofits, academics, and others all managed by a single entity could do more than just mineral processing improvement and R&D. It could take long-term offtake agreements and do forward purchasing of mineral supplies like graphite that are essential to the production of electric vehicle (EV) batteries and other products. This could function similarly to the successful forward contract acquisition for the Strategic Petroleum Reserve executed in June 2023 by DOE.

This demand-pull would complement other recent actions taken to bolster critical minerals like the clean vehicle tax credit and the Loan Program Office’s loans to mineral processing facilities. Such a consortium could come from the existing critical materials institute or be formed by separate entities.

• Geothermal Consortium: Enhanced geothermal systems technology has received neither the attention nor the investment that it should proportional to its potential benefits as a path towards decarbonizing the electric grid. At the same time, legacy oil and natural gas industries have workforces, equipment, and experiences that can easily translate to growing the geothermal energy industry. Recently, the DOE funded the first cross-industry consortium with the $165 million GEODE competition grant awarded to Project Innerspace, Geothermal Rising, and the Society of Petroleum Engineers. 

DOE could use other transactions to further support this nascent consortium and increase the demonstration and deployment of geothermal projects. The agency could also use other transactions to organize the sharing of critical subsurface data and resources through a single entity.

• Direct Air Capture (DAC): The carbon removal market faces extremely uncertain long-term demand, and unproven technological innovations may or may not present economically viable means of pulling carbon out of the atmosphere. In order to accelerate the pace of carbon removal innovation, aggregated demand structures like Frontier’s advanced market commitment have stepped up to organize pre-purchasing and offtake agreements between buyers and suppliers. The scale of the problem is such that government intervention will be necessary to capture carbon at a rate that experts believe is necessary to mitigate the worst warming pathways. 

A carbon removal purchasing agreement for the DOE’s Regional Direct Air Capture Hubs could function much the same as the proposed hydrogen hubs initiative. It also could take the shape of a consortium of DAC vendors, nonprofits, scientists, and others managed by a single entity that can set standards for purchase agreements. This would cut the negotiation time among potential parties by a significant amount, allowing for cost saving and faster decarbonization.

• Rural Energy Improvements Consortium: The IRA appropriated $1 billion for energy improvements in rural and remote areas. Because of inherent resource limitations, the DOE will not be able to fund every potential compelling project that applies to this grant program. In order to keep the program from making single one-off grants for narrowly tailored projects, it could focus on funding projects with demonstrated catalytic impact. Through OTs, the DOE could encourage promising project developers to form a Rural Energy Improvement/Developers consortium that would not only help create efficiencies in renewable energy development and novel resilient local structures but attract private investment at a scale that each individual developer would not independently attract. 

• Hydrogen Fuel Cell Lifespan Consortia: As hydrogen fuel cells start gaining traction across transportation, shipping, and industrial applications, a consortia for fuel cell R&D could help provide new insights into the degradation of fuel cells, organize uniform standards for recycling of fuel cells, and also provide unique financial incentives to hedge against early uncertainty of fuel cell lifespans. As firms invest in new fleets of fuel cell vehicles, it may help them to have an idea of what expected value they can receive for assets as they reach the end of their lifespans. A backstopped guarantee of a minimum price for assets with certain criteria could reduce uncertainty. Such a consortium could be led by the Office of Manufacturing and Energy Supply Chains (MESC) and complement existing initiatives to accelerate domestic manufacturing.

• Long Duration Energy Storage (LDES): The DOE commercial liftoff pathway highlights the need to intervene to address stakeholder and investor uncertainty by providing long-term market signals for LDES. The tools they highlight to do so are carbon pricing, greenhouse gas (GHG) reduction targets, and transmission expansion. While these provide generalizable long-term signals, DOE could leverage OTs to provide more concrete signals for the value of LDES.

DOE could organize an advance market commitment for long-duration energy storage capabilities on federal properties that meet certain storage hour and grid integration requirements. Such a commitment could include the DoD and the General Services Administration (GSA), which own and operate the large portfolio of federal properties, including bases and facilities in hard-to-reach locations that could benefit from more predictable and secure energy infrastructure. Early procurement of capability-meeting but expensive systems could help diversify the market and drive technology down the cost curve to reach the target of $650 per kW and 75% RTE for intra-day storage and $1,100 per kW 55 and 60% RTE for multiday storage.

To use OTs more frequently, the DOE needs to focus on culture and education.

As noted, the DOE does not need additional authorization or congressional legislation to use OTs more frequently. The agency received authority in its original charter in 1977, codified in 42 U.S. Code § 7256, which state:

“The Secretary is authorized to enter into and perform such contracts, leases, cooperative agreements, or other similar transactions with public agencies and private organizations and persons, and to make such payments (in lump sum or installments, and by way of advance or reimbursement) as he may deem to be necessary or appropriate to carry out functions now or hereafter vested in the Secretary.” [emphasis added]

This and other legislation gives DOE the authority to use OTs as the Secretary deems necessary. 

Later guidelines in implementation state that other officials at DOE who have been presidentially appointed and confirmed by the Senate are able to execute these transactions. The DOE’s Office of Acquisition Management, Office of General Counsel, and any other legal bodies involved should update any unnecessarily restrictive guidelines, or note that they will follow the original authority granted in the agency’s 1977 charter. 

While that would resolve any implementation questions about the ability to use OT at DOE, the agency ultimately needs strong leadership and buy-in from the Secretary in order to take full advantage. As many observers note regarding DoD’s expanding use of OTs, culture is what matters the most. The DOE should take the following actions to make sure the changing of these guidelines empowers DOE public servants to their full potential:

1. The Secretary should make clear to DOE leadership and staff that increased use of OTs is not only permissible but actively encouraged.

2. The Secretary should provide internal written guidance to DOE leadership and program-level staff on what criteria need to be met for her to sign off on an OT, if needed. These criteria should be driven by DOE mission needs, technology readiness, and other resources like the commercial liftoff reports.

3. The Office of Acquisition Management should collaboratively educate relevant program staff, not just contracting staff, on the use of OTs, including by providing cross-agency learning opportunities from peers at DARPA, NASA, DoD, DHS, and DOT.

4. DOE should provide an internal process for designing and drawing up an OT agreement for staff to get constructive feedback from multiple levels of experienced professionals.

5. DOE should issue a yearly report on how many OTs they agree to and basic details of the agreements. After four years, GAO should evaluate DOE’s use of OTs and communicate any areas for improvement. Since OTs don’t meet normal contracting disclosure requirements, some form of public disclosure would be critical for accountability.

Mitigating risk

Finally, there are many ways to address potential risks involved with executing new OTs for clean energy solutions. While there are no legal contracting risks (as OTs are not guided by the FAR), DOE staff should consider ways to most judiciously and appropriately enter into agreements. For one resource, they can leverage the eight recent reports put together by four different offices of inspector generals on agencies’ usage of other transactions to understand best practices. Other important risk limiting activities include:

1. DoD commonly uses consortiums to gather critical industry partners together around challenges in areas such as advanced manufacturing, mobility, enterprise healthcare innovations, and more.

2. Education of relevant parties and modeling of agreements after successful DARPA and NASA OTs. These resources are in many cases publicly available online and provide ready-made templates (for example, the NIH also offers a 500-page training guide with example agreements).

Conclusion

The DOE should use the full authority granted to it by Congress in executing other transactions to advance the clean energy transition and develop secure energy infrastructure in line with their agency mission. DOE does not need additional authorization or legislation from Congress in order to do so. GAO reports have highlighted the limitations of DOE’s OT use and the discrepancy in usage between agencies. Making this change would bring the DOE in line with peer agencies and push the country towards more meaningful progress on net-zero goals.

Summary 

Wildfires are burning in ways that surprise even seasoned firefighters. Our current models cannot predict this extreme fire behavior—nor can they reproduce recent catastrophic wildfires, making them likely to fail at predicting future wildfires or determining when it is safe to light prescribed fires. 

To better prepare the fire management community to operate in a new climate, Congress should establish and fund five regional centers of excellence (CoE) to develop, maintain, and operate next-generation fire and vegetation models to support wildland fire planning and management. Developing five regional CoEs (Southeast, Southwest, California, Pacific Northwest, Northern/Central Rockies) will ensure that researchers pursue a range of approaches that will ultimately lead to better models for predicting future wildfire behavior, improving our ability to safeguard human lives, communities, and ecosystems.

Challenge and Opportunity

In the decade ending in 2021, total federal wildfire suppression expenditures surpassed $23 billion, which is a fraction of the total costs of damages from wildfire over that period. For example, the 2018 wildfires in California are estimated to have amounted to $148.5 billion in economic costs for the state. The costs of suppressing fire, and the societal and natural resources costs of extreme wildfire, will continue to increase with increasing temperatures. 

Fewer than 2% of ignitions become large wildfires, but it is this 2% that cause most of the damage because they are burning under extreme conditions. The area of forests burned by wildfire annually in the western United States has been increasing exponentially since 1984. While the number of ignitions remains relatively constant from year to year, climate change is drying fuels and making forests more flammable. As a result, no matter how much money we spend on wildfire suppression, we will not be able to stop increasingly extreme wildfires. Thus, we need to better understand where the risks lie on our landscapes and work proactively to reduce them. 

When vegetation—especially dead vegetation—is subjected to high temperatures, any moisture absorbed during the winter months quickly evaporates. As a result, increasingly hot summers are making our forests more flammable. Live vegetation moisture content does not react as quickly as dead vegetation, but sharp increases in air temperature when conditions are dry can make live plants more flammable as well. While this relationship between temperature and ecosystem flammability has remained consistent over time, until the past decade we had not reached a level of warming that dried ecosystems sufficiently to allow for consistent extreme fire behavior. This is in part because large dead fuels, such as dead trees and logs, did not dry sufficiently to become flammable for the majority of the fire season until recently. 

Our current operational models for simulating wildfire and vegetation are incapable of reproducing the extreme fire behavior and rapid ecosystem change that we are now experiencing. Forest growth-and-yield models, such as the Forest Vegetation Simulator, used by managers have served them well for decades. However, because they are built using statistical relationships between past tree growth and climate, they are incapable of capturing the effects of changing climate, especially extreme events, on tree growth and mortality. Similarly, our operational fire models, such as FARSITE, that are used for both management planning and simulating fire spread to plan fire suppression activities are not designed to deal with the substantial ecosystem changes that are occurring from climate change. These fire models have served us well in the past, but increasing temperature and a drying atmosphere are causing conditions that far exceed the data used to build these models. 

For example, our current operational fire models do not account for large dead trees and logs and how they contribute to fire spread or for the way fire behaves in the wildland–urban interface. Yet wildfires are increasingly burning through communities, and the number of dead trees and logs is increasing because of drought- and insect-induced tree mortality and is increasingly available to burn because of high temperatures. The 2020 Creek Fire in the Sierra Nevada, California, burned through an area of extensive tree mortality from prolonged drought and insect outbreaks. The operational fire spread model ELMFIRE, which is used to predict fire spread of active wildfires, was unable to predict the mass fire behavior created by the massive number of dead trees.

Managing wildfire risk both prior to and during wildfires requires advanced models that are able to account for changing climatic conditions. We need new wildfire models that account for the increasing fuel dryness that facilitates extreme fire behavior, and we need new vegetation models that account for the effects of extreme drought and temperature on vegetation mortality. The research and development necessary to prepare us for our increasingly flammable world requires both fundamental and applied research, neither of which is sufficient on its own. 

Further, we need to ensure that we commit to maintaining these models as the climate continues to change so that we do not create another tool that fails to serve us well within a decade or two. As the climate continues to change, these next-generation fire and vegetation models will be challenged with novel conditions that require continuous efforts to ensure they are capable of capturing the dynamics of the system. In addition, we must ensure that the mechanistic understanding of the system that develops is applied to supporting fire and vegetation management decision-making. This will require ongoing experimentation and observations of actual wildfire behavior, along with extensive data collection to characterize how quickly the flammability of the system changes as a function of vegetation type and weather conditions. 

Developing these next-generation models is necessary for both fire suppression and management planning. Incident command teams rely on fire spread models to help plan suppression efforts for active wildfires, and thus having better predictions of fire spread is essential for effective operations and firefighter safety. Likewise, planning forest treatments that are effective for reducing the risk of high-severity wildfire under extreme weather conditions requires better vegetation and fire models that can capture the influence of changing climate on the probability that high-severity wildfire occurs. 

Plan of Action

Developing and future-proofing next-generation fire and vegetation models will require new and sustained investment. Further, we must accept that these advanced models will require a level of expertise to operate that we cannot expect from a land manager trained in natural resource management, requiring that we fund expert model users to support management planning and suppression efforts. 

As with all research and development, there are many possible pathways. Regional differences in weather, vegetation, and management history will alter climate effects on vegetation growth, mortality, and flammability. Similar to the Manhattan Project approach of simultaneously pursuing two different ignition systems when there was more than one potential viable alternative, we lack the necessary understanding to pick a “winning” model at this point. 

To account for regional differences in vegetation and the research momentum that is developing in different nascent modeling approaches, an effective and robust federal investment would entail the following actions. 

Recommendation 1. Congress should establish and fund five centers of excellence housed at academic institutions in the Southeast, Southwest, California, Pacific Northwest, and Northern/Central Rockies to develop and maintain next-generation fire and vegetation models that are capable of modeling extreme fire behavior and can be operationalized to support planning for wildfire and vegetation management and to support wildfire suppression. 

Establishing five centers with this geographic distribution will allow for investigation into the forest types where the majority of wildfire area occurs and will capture the range of climatic conditions under which wildfires are occurring. It will also take advantage of past and ongoing regional research efforts that will form the information foundation for each center. While these centers should have largely independent research programs, it will be necessary to coordinate some large-scale experimentation and to ensure that research findings and advances are shared rapidly. To achieve these objectives, one center should be selected to act as the coordinating center for the network. 

Recommendation 2. Congress should require institutional partnerships between the host institutions and federal research institutions (e.g., U.S. Forest Service Research and Development, Department of Energy National Labs, U.S. Geological Survey, etc.). 

We are currently in an all-hands-on-deck situation in the fire and fuels research community, and we need to operate in a collaborative and regionally coordinated manner. Requiring partnerships between the academic centers of excellence and federal research facilities within each region will ensure that effort is not duplicated and a wider range of expertise. For example, efforts are under way at federal research facilities that could be integrated within the regional fire centers. The integration will ensure collaboration between academic and federal partners and allow for the overall research effort to draw on the strengths of these different types of institutions. 

Recommendation 3. Congress should mandate and fund the centers to operate these next-generation models and support wildfire and vegetation management planning and operations. 

To date, we have relied on fire and vegetation models developed by the research community to use data collected by fire and forest managers and packaged so that natural resource professionals can operate the models. Both of these constraints have contributed to the limitations of our current suite of models. We can no longer afford the limitations imposed by expectations on the research community to develop models that a natural resource professional can run on a desktop computer. Accounting for a range of factors, such as how changing climatic conditions will directly change the amount of fuel on the landscape and also for how short-term changes in weather will interact with longer-term changes in climate and influence fuel moisture, requires a more sophisticated approach to simulating the system than is necessarily accessible to a non-expert user. Expecting a natural resource professional to use an advanced coupled atmosphere-biosphere fire model would be like teaching someone how to balance their checkbook and then expecting them to calculate exactly how much they need to save every week for retirement. Further, important feedback to model improvement will come from repeated application by expert model users. To deploy next-generation fire and vegetation models in a manner that will effectively support fire and natural resource management decision-making, each center will employ experts who will work collaboratively with managers in response to their requests to run simulations for pre-fire management and suppression operations planning.

Recommendation 4. Congress should mandate the creation of strategic plans to support implementation and coordination across centers. 

Each center will develop a five-year strategic plan to guide its research and development efforts. Following strategic plan development, representatives from the five centers will convene to determine necessary coordinated experimentation and implementation plans to facilitate coordinated efforts. The coordinating center will hold biannual leadership meetings to ensure data and information flow and identify additional opportunities for collaboration among individual centers. 

Conclusion 

Establishing five centers of excellence to develop, maintain, and operate next-generation models will cost approximately $26 million per year, which is less than 1% of the 2021 federal wildfire suppression expenditure. This level of funding would provide $5 million per year per center (plus an additional $1 million per year for the coordinating center). The annual budgets would fund staff scientist and research assistant positions, provide support for the experiments necessary to develop and parameterize new models, provide computing resources for computationally sophisticated models, and fund staff analysts to run the models in support of managers. Initially, the majority of the annual appropriation would be focused on model development, transitioning to maintaining and operating the models to support land management as the technology matures. 

The centers could be supported through National Science Foundation (NSF) funding. NSF could provide financial support for five university host institutions (one in each region) selected through a competitive bidding process. In turn, these university host institutions can manage the required federal partnerships. Selection of university host institutions could be based in part on demonstrated capacity to manage successful partnerships with federal institutions. 

It is imperative that we invest in new models that will support more effective mitigation to reduce wildfire severity, otherwise spending on suppression will continue to balloon despite improved fire intelligence.

Toxic smoke from wildland fire spreads far beyond fire-prone areas, killing many times more people than the flames themselves and disrupting the lives of tens of millions of people nationwide. Data infrastructure critical for identifying and minimizing these smoke-related hazards is largely absent from our wildland fire management toolbox. 

Congress and executive branch agencies can and should act to better leverage existing smoke data in the context of wildland fire management and to fill crucial data infrastructure gaps. Such actions will enable smoke management to become a core part of wildland fire management strategy, thereby saving lives.

Challenge and Opportunity

The 2023 National Cohesive Wildland Fire Management Strategy Addendum describes a vision for the future: “To safely and effectively extinguish fire, when needed; use fire where allowable; manage our natural resources; and collectively, learn to live with wildland fire.” Significant research conducted since the publication of the original Strategy in 2014 indicates that wildfire smoke impacts people across the United States, causing thousands of deaths and billions of dollars of economic losses annually. 

Smoke impacts exceed their corresponding flame impacts and span far greater areas coast to coast. However, wildfire strategy and funding largely focus on flames and their impacts. Smoke mitigation and management should be a high priority for federal agencies considering the 1:1 ratio of economic impacts and 1:30 ratio of fire to smoke deaths.

Some smoke data is already collected, but these datasets can be made more actionable for health considerations and better integrated with other fire-impact data to mitigate risks and save more lives.

Smoke tracking

Several federal programs exist to track wildfire smoke nationwide, but there are gaps in their utility as actionable intelligence for health. For example, the recent “smoke wave” on the East Coast highlighted some of the difficulties with public warning systems. 

Existing wildfire-smoke monitoring and forecast programs include:

• The Fire and Smoke Map, collaboratively managed by the Environmental Protection Agency (EPA) and the US Forest Service, which displays real-time air-quality data but is limited to locations with sensors;
• The National Oceanic and Atmospheric Administration (NOAA) Hazard Mapping System Fire and Smoke Product, which evaluates total-atmosphere smoke, but lacks ground-level estimates of what people would breathe; and 
• The Interagency Wildland Fire Air Quality Response Program (IWFAQRP) and the experimental U.S. Forest Service (USFS) BlueSky Daily Runs, which integrate external data to make forecasts, but lack location-specific data for all potentially impacted locations.

The EPA also publishes retrospective smoke emissions totals in the National Emissions Inventory (NEI), but these lack specificity on the downwind locations impacted by the smoke that would be needed to be used for health considerations.

Existing data are excellent, but scientists using the data combine them in non-standardized ways, making interoperability of results difficult. New nationwide authoritative smoke-data tools need to be created—likely by linking existing data and existing methods—and integrated into core wildland fire strategy to save lives.

Smoke health impacts

There is no single, authoritative accounting of wildfire smoke impacts on human health for the public or policymakers to use. Four key gaps in smoke and health infrastructure may explain why such an accounting doesn’t yet exist. 

1. The U.S. lacks a standardized method for quantifying the health impacts of wildfire smoke, especially mortality, despite recent research progress in this area. 
2. The lack of a national smoke concentration dataset hinders national studies of smoke-health impacts because different studies take different approaches. 
3. Access to mortality data through the National Vital Statistics System (NVSS), managed by the National Center for Health Statistics (NCHS), is slow and difficult for the scientists who seek to use mortality data in epidemiological studies of wildfire smoke. 
4. Gaps remain in understanding the relative harm of wildfire smoke, which can contain aerosolized hazardous compounds from burned infrastructure, compared to the general air pollution (e.g., from cars and factories) that is often used as analog in health research. 

Addressing these gaps together will enable official wildfire-smoke-attributable death tolls to be publicized and used by decision-makers.

Integration of wildfire smoke into wildland fire management strategy

Interagency collaborations currently set wildland fire management strategy. Three key groups with a mission to facilitate interagency collaboration are the National Interagency Fire Center (NIFC), the National Wildfire Coordinating Group (NWCG), and the Wildland Fire Leadership Council (WFLC). NIFC maintains datasets on wildfire impacts, including basic summary statistics like acres burned, but smoke data are not included in these datasets. Furthermore, while NWCG does have 1 of its 17 committees dedicated to smoke, and has collaborations that include NOAA (who oversees smoke tracking in the Hazard Mapping System), none of the major wildfire collaborations include agencies with expertise in measuring the impacts of smoke, such as the EPA or Centers for Disease Control (CDC). Finally, WFLC has added calls for furthering community smoke-readiness in the recent 2023 National Cohesive Wildland Fire Management Strategy Addendum, but greater emphasis on smoke is still needed. Better integration of smoke data, smoke-health data, and smoke-expert agencies will enable better consideration of smoke as part of national wildland fire management strategy.

Plan of Action

To make smoke management a core and actionable part of wildland fire management strategy, thereby saving lives, several interrelated actions should be taken.

To enhance decision tools individuals and jurisdictions can use to protect public health, Congress should take action to:

1. Issue smoke wave alerts nationwide. Fund the National Weather Service (NWS) to develop and issue smoke wave alerts to communities via the Wireless Emergency Alerts (WEA) system, which is designed for extreme weather alerting. The NWS currently distributes smoke messages defined by state agencies through lower-level alert pathways, but should use the WEA system to increase how many people receive the alerts. Furthermore, a national program, rather than current state-level decisions, would ensure continuity nationwide so all communities have timely warning of potentially deadly smoke disasters. Alerts should follow best practices for alerting to concisely deliver information to a maximum audience, while avoiding alert fatigue.
2. Create a nationwide smoke concentration dataset. Fund NOAA and/or EPA to create a data inventory of ground-level smoke PM2.5 concentrations by integrating air-monitor data and satellite data, using existing methods as needed. The proposed data stream would provide standardized estimates of smoke concentrations nationwide, and would be a critical precursor for estimating smoke mortality as well as the extent to which smoke is contributing to poor air quality in communities. This action would be enhanced by data from recommendation 4 (below).
3. Create a smoke mortality dataset. Fund the CDC and/or EPA to create a nationwide data inventory of excess morbidity and mortality attributed  to smoke from wildland fires. An additional enhancement would be to track the smoke health impacts contributed by each source wildfire. Findings should be disseminated in NIFC wildfire impact summaries. This action would be enhanced by data from recommendations 4-5 and research from recommendations 6-8 (below).

The decision-making tools in recommendations 1-3 can be created today based on existing data streams. They should be further enhanced as follows in recommendations 4-10:

To better track locations and concentrations of wildfire smoke, Congress should take action to: 

4. Install more air-quality sensors. Fund the EPA, which currently monitors ground-level air pollutants and co-oversees the Fire and Smoke Map with the USFS, to establish smoke-monitoring stations in each census tract across the U.S and in other locations as needed to provide all communities with real-time data on wildfire-smoke exposure. 
5. Create a smoke impact dashboard. The current EPA Fire and Smoke Map shows near-real-time data from regulatory-grade air monitors, commercial-grade air sensors, and satellite data of smoke plumes. An upgraded dashboard would combine that map with data from recommendations 1-3 to give current and historic information about ground-level air quality, the fraction of pollutants due to wildfire smoke, and the expected health impacts. It would also include short-term forecast data, which would be greatly improved with additional modeling capability to incorporate fire behavior and complex terrain.

To better track health impacts of wildfire smoke, Congress should take action to:

6. Improve researcher access to mortality data. Specifically, direct the CDC to increase epidemiologist access to the National Vital Statistics System. This data system contains the best mortality data for the U.S., so enhancing access will enhance the scientific community’s ability to study the health impacts of wildfire smoke (recommendations 6-8).
7. Establish wildfire-health research centers. Specifically, fund the National Institutes of Health (NIH) to establish flagship wildfire-smoke health-research centers to research the health effects of wildfire smoke. Results-dissemination pathways should include through the NIFC to reach a broad wildfire policy audience.
8. Enhanced health-impact-analysis tools. Direct EPA to evaluate the available epidemiological literature to adopt standardized wildfire-specific concentration-response functions for use in estimating health impacts in their BenMAP-CE tool. Non-wildfire functions are currently used even in the research literature, despite potentially underestimating the health impacts of wildfire smoke. 

To enhance wildland fire strategy by including smoke impacts, Congress should take action to:

9. Hire interagency staff. Specifically, fund EPA and CDC to place staff at the main NIFC office and join the NIFC collaboration. This will facilitate collaboration between smoke-expert agencies with agencies focused on other aspects of wildfire.

Support landscape management research. Specifically, direct the USFS, CDC, and EPA to continue researching the public health impacts of different landscape management strategies (e.g., prescribed burns of different frequencies compared to full suppression). Significant existing research, including from the EPA, has investigated these links but still more is needed to better inform policy. Needed research will continue to link different landscape management strategies to probable smoke outputs in different regions, and link the smoke outputs to health impacts. Understanding the whole chain of linkages is crucial to landscape management decisions at the core of a resilient wildland fire management strategy.

Diagram with arrows showing data flow from top to bottom, between the proposed infrastructure, with each shape representing one recommendation. Data flows from the data inputs (top boxes) to actionable tools for decision-making (circles), and finally on to pathways for integrating smoke into wildland fire management strategy (bottom boxes). The three blue shapes are recommendations that can be implemented immediately.

Cost estimates

This proposal is estimated to have a first-year cost of approximately $273 million, and future annual cost of $38 million once equipment is purchased. The total cost of the first year represents less than 4% of current annual wildfire spending (subsequent years would be 0.5% of annual spending), and it would lay the foundation to potentially save thousands of lives each year. Assumptions behind this estimate can be found in the FAQ.

Conclusion

In the U.S., more and more people are being exposed to wildfire smoke—27 times more people are experiencing extreme smoke days than a decade ago. The suggested programs are needed to improve the national technical ability to increase smoke-related safety, thereby saving lives and reducing smoke-related public health costs.

Summary 

The $350 billion space industry could grow to more than $1 trillion by 2040, spurring international interest in harnessing space resources. But this interest will bring with it a challenge: while existing international agreements like the Artemis Accords promote the peaceful and shared exploration of celestial bodies, they do little to address differences between existing scientific research activities and emerging opportunities like lunar mining, particularly for water ice at polar latitudes and in the perpetually shaded depths of certain craters. Lunar water ice will be a vital resource for outer space exploration and development efforts because it can be used to make hydrogen fuel cells, rocket fuel, and drinking water for astronauts. It will also be cheaper than transporting water from Earth’s surface into outer space, given the moon’s lower surface gravity and proximity to human space operations on its surface and beyond. The moon harbors other valuable long-term commodities like helium-3, the fuel needed for low-emissions nuclear fusion energy.

However, current multilateral agreements do not address whether nongovernmental operators can claim territory on celestial bodies for their use or own the resources they extract. Further, the space object registration process is currently used for satellites and other spacecraft while in orbit, but it does not include space objects intended for use on the surface of celestial bodies, such as mining equipment. These gaps leave few options for the United States or other Artemis Accords nations to resolve conflicts over territorial claims on a celestial body. In the worst-case scenario, this increasing competition for resources—especially with other major space powers like China and Russia—could escalate into military conflict. 

Adopting new treaties or amendments to the existing Outer Space Treaty (OST) for modern space use is a slow process that may fail to meet the urgency of emerging space resource issues. However, the United States has another diplomatic avenue for faster action: revision of the existing United Nations’ Guidelines for the Long-term Sustainability of Outer Space under the auspices of the U.N. Committee on the Peaceful Uses of Outer Space (COPUOS). Such a process avoids the decade-long deliberations of a formal treaty amendment. The United States should thus lead the development of multilateral protocols for extracting resources from celestial bodies by proposing two updates to either the COPUOS Guidelines, the OST, or both. First, there should be an updated registration process for all space objects, which should specify the anticipated location, timeline, and  type(s) of operation to establish usage rights on a particular part of a celestial body. Second, the United Nations should establish a dispute resolution process to allow for peaceful resolution of competing claims on celestial surfaces. These strategies will lay the necessary foundation for peacefully launching new mining operations in space.

Challenge and Opportunity 

Right now, outer space is akin to the Wild West, in that the opportunities for scientific innovation and economic expansion are numerous, yet there is little to no political or legal infrastructure to facilitate orderly cooperation between interested terrestrial factions. For example, any nation claiming mining rights to lunar territory is on shaky legal ground, at best: the Outer Space Treaty and the subsequent Guidelines for the Long-term Sustainability of Outer Space, promulgated by the U.N. Committee on the Peaceful Uses of Outer Space, do not provide legally sound or internationally recognized development rights, enforcement structures, or deconfliction mechanisms. If one claimant allegedly violates the territorial rights of another, what legal systems could either party use to press their case? Moreover, what mechanisms would avert potential escalation toward militarized conflict? Right now, the answer is none. 

This is an unfortunate obstacle to progress given the enormous economic potential of outer space development in the coming decades. To put the potential value in perspective, the emerging $350 billion space industry could grow to more than $1 trillion by 2040, motivating significant international interest. One potentially lucrative subset of operations is space mining, a sector valued at $1 billion today with a potential value of $3 billion by 2027. Once operational, space mining would be a valuable source of rare earth elements (e.g., neodymium, scandium, and others), 60% of which are currently produced in China. Rare earth elements are necessary for essential technologies such as electric vehicles, wind turbines, computers, and medical equipment. Additionally, in the event that nuclear fusion becomes commercially viable in the long-term future, space mining will be an essential industry for securing helium-3 (He-3), an abundant isotope found on the moon. Recent increases in fusion investment and a breakthrough in fusion research show the potential for fusion energy, but there is no guarantee of success. He-3 could serve as a critical fuel source for future nuclear fusion operations, an emerging form of energy production free of carbon emissions that could provide humanity with the means to address global climate and energy crises without losing energy abundance. The abundance of lunar He-3 could mean having access to secure clean energy for the foreseeable human future.

Furthermore, human exploration and development of outer space will require water, both in the form of drinking water for crewed missions and in the form of rocket propellant and fuel cell components for spacecraft. As it costs over $1 million to transport a single cubic meter of water from Earth’s surface into low Earth orbit, extracting water from the lunar surface for use in outer space operations could be substantially more economical due to the moon’s lower escape velocity—in fact, lunar water ice is estimated to be worth $10 million per cubic meter. 

The space mining sector and lunar development also offer promise far beyond Earth. Our moon is the perfect “first port of call” as humanity expands into outer space. It has lower surface gravity, polar ice deposits, and abundant raw materials such as aluminum, and its status as our closest celestial neighbor make it the ideal layover supply depot and launch point for spacecraft from Earth heading deeper into our solar system. Spacecraft could be launched from Earth with just enough fuel to escape Earth’s gravity, land and refuel on the moon, and launch far more efficiently from the moon’s weaker gravity elsewhere into the system. 

All in all, the vast untapped scientific and economic potential of our moon underscores the need for policy innovation to fill the gaps in existing international space law and allow the development of outer space within internationally recognized legal lines. The imperative for leading on these matters falls to the United States as a nation uniquely poised to lead the space mining industry. Not only is the United States one of the global leaders in space operations, but U.S. domestic law, including the Commercial Space Launch Competitiveness Act of 2015, provides the U.S. private sector some of the necessary authority to commercialize space operations like mining. However, the United States’ rapid innovation has also led the way to a growing space industry internationally, and the sector is now accessible to more foreign states than before. The internationalization of the space economy further highlights the gaps and failings of the existing space policy frameworks. 

Two main challenges must be addressed to ensure current governance structures are sufficient for securing the future of lunar mining. First is clarifying the rights of OST State Parties and affiliated nongovernmental operators to establish space objects on celestial bodies and to own the resources extracted. The OST, the primary governing tool in space (Figure 2), establishes that no State that signed the treaty may declare ownership over all or part of a celestial body like the moon. And despite the domestic authority bestowed by the 2015 Commercial Space Launch Competitiveness Act, the multilateral OST does not address whether nongovernmental operators can claim territory and own resources they extract from celestial bodies. Thus, the OST promotes the peaceful and shared exploration of space and scientific research but does little to address differences between research operations and new commercial opportunities like lunar mining. This leaves few options to resolve conflicts that may arise between competing private sector entities or States.

Even if domestic authorization of mining operations were sufficient, a second challenge has emerged: ensuring transparency and recordkeeping of different operations to maintain peaceful shared operations in space. Through the OST and the Registration Convention, States have agreed to inform the U.N. Secretary General of space activities and to maintain a record of registered space objects (including a unique identifier, the location and date of launch, and its orbital path). But this registration process covers space objects simply at a geospatial position in orbit, and there are gaps in the process for space objects intended for use on the surface of celestial bodies and whether a spacecraft that was designed for one purpose (i.e., landing) can be repurposed for another purpose (i.e., mining). This leaves little recourse for any group that seeks to peacefully pursue mining operations on the moon’s surface if another entity also seeks to use that land.

In spite of these gaps, the U.S. government has been able to move forward with scaling up moon-related space missions via NASA’s bipartisan Artemis Program and the corresponding Artemis Accords (Figure 1), a set of bilateral agreements with updated principles for space use. The Accords have 24 signatories who collectively seek to reap the benefits of emerging space opportunities like mining. In part, the Artemis Accords aim to remedy the policy gaps of previous multilateral agreements like the OST by explicitly supporting private sector efforts to secure valuable resources like He-3 and water ice.

But the Accords do not address the key underlying challenges that could stifle U.S. innovation and leadership in space mining. For instance, while the Accords reaffirm the need to register space objects and propose the creation of safety zones surrounding lunar mining operations, gaps still remain in describing exactly how to register operations on celestial objects. This can be seen in Section 7 of the Artemis Accords, which states that space objects need to be registered, but does not specify what would classify as a “space object” or if an object registered for one purpose can be repurposed for other operations. Further, the Accords leave little room to address broader international tensions stemming from increased resource competition in space mining. While competition can have positive outcomes such as spurring rapid innovation, unchecked competition could escalate into military conflict, despite provisions in the original OST to avoid this.

In particular, preemptive measures must be taken to alleviate potential tensions with other OST signatories in direct competition with the Accords. China and Russia are not party to the Accords and therefore do not need to abide by the agreement. In fact, these nations have declared opposition to the Accords and instead formed their own partnership to establish a competing International Lunar Research Station. As these programs develop concrete lunar applications, designating methods to determine who can conduct what type of operations on specific timelines and in specific locations will be a crucial form of anticipatory diplomacy.

Plan of Action 

The United States should propose that when any State registers a space object in advance of operations on a celestial body, it must specify the anticipated location of the operation; the timeline; and the type(s) of operation, described as “intent to” do one or more of the following: mine/extract resources for sale, conduct scientific research, or perform routine maintenance. This multilaterally developed process would clarify the means to register space objects for peaceful occupation of celestial object surfaces. 

Additionally, the United States should propose the implementation of a process for States to resolve disputes through either bilateral negotiation or arbitration through another mutually agreed-upon third party such as the International Court of Justice (ICJ) or the Permanent Court of Arbitration (PCA). Similar disputes related to maritime resource extraction under the United Nations Law of the Sea have been resolved peacefully using the aforementioned bilateral negotiations or third party arbitration. The new dispute resolution process would similarly allow for peaceful resolution of competing claims on celestial body surfaces and resources.

To guide the creation of a space object arbitration process, other such processes like the ICJ, PCA, and International Tribunal of the Law of the Sea can be used as models. The PCA has had success with halting unfair processes and setting up a dialogue between participating parties. It has helped smaller countries set up arbitration processes with bigger ones, such as Ecuador vs. the United States, in which the Republic of Ecuador instituted arbitral proceedings against the United States concerning the interpretation and application of an investment treaty between the two countries. In the short term, existing negotiation avenues will likely be sufficient to allow for dispute resolution. However, as the space industry continues to grow, it may eventually be necessary to establish an internationally recognized “Space Court” to arbitrate disputes. The International Tribunal for the Law of the Sea provides an example of the type of international body that could arbitrate space disputes.

These anticipatory diplomacy steps could be implemented in one of three ways: 

1. As a binding amendment to the OST: This would require the most time to implement, but this would also make it enforceable and binding, an obvious advantage. It would also provide an opportunity to bring all the important players to the table, specifically the parties who did not sign the Artemis Accords, and would help to start a discussion on the improvement of diplomatic relations for future space operations.
2. As a nonbinding update to COPUOS Guidelines: This would be faster to implement, but would not be enforceable or binding.
3. As an update to the COPUOS Guidelines followed by an amendment to the OST: This would allow for both quick action in the nearer term and a permanent and enforceable implementation longer-term. Implementing a revised COPOUS could be a precursor to build support for the nonbinding updates to COPUOS. If the model is successful, State Parties would be more likely to agree to a binding amendment to OST. However they are implemented, these two proposed anticipatory diplomacy steps would improve the ability of space faring nations to peacefully use resources on celestial bodies.

Could this be done through bilateral agreements? After all, the United States has shown diplomatic initiative by entering into agreements with countries such as France, Germany, and India with the aim of using space for peaceful purposes and cooperation, though they don’t explicitly mention mining. But a bilateral process does not offer good prospects for global solutions. For one, it would be very slow and time-consuming for the United States to enter into bilateral agreements with every major country with stakes in lunar mining. If space mining agreements were to occur on a similar timeline to bilateral trade agreements, each agreement could take from one to six years to take effect. A crucial obstacle is the Wolf Amendment, which prevents the United States from entering into bilateral agreements with China, one of the its major competitors in the space industry. This restriction makes it hard to negotiate bilaterally with an important stakeholder concerning space mining.

Further, reaching these agreements would require addressing aspects of the Accords that have made many major stakeholder countries hesitant to sign on. Thus, an easier path would be to operate diplomatically through the COPUOS, which already represents 95 major countries and oversees the existing multilateral space treaties and potential amendments to them. This approach would ensure that the United States still has some power over potential amendment language but would bring other major players into some sort of dialogue regarding the usage of space for commercial purposes. 

While the COPUOS guidelines are not explicitly binding, they do provide a pathway for verification and arbitration, as well as a foundation for the adoption of a binding amendment or a new space treaty moving forward. Treaty negotiations are a slow, lengthy process; the OST required several years of work before it took full effect in 1967. With many Artemis Program goals reliant upon successful launches and milestones achieved by 2025, treaty amendments are not the timeliest approach. Delays could also be caused by the fact that some parties to the OST may have reservations about adopting an amendment for private sector space use due to another space treaty, the Moon Agreement. This agreement, which the United States is not party to, asserts that “the Moon and its natural resources are the common heritage of mankind and that an international regime should be established to govern the exploitation of such resources when such exploitation is about to become feasible.” Thus, countries that have signed the Moon Agreement probably want the moon to operate like a global commons with all countries on Earth having access to the fruits of lunar mining or other resource extraction. Negotiations with these nations will require time to complete.

The U.S. State Department’s Office of Space Affairs, under the Bureau of Oceans and Environmental and Scientific Affairs (OES), is the lead office for space diplomacy, exploration, and commercialization and would be the ideal office to craft the required legislation for an OST amendment. Additionally, the Office of Treaty Affairs, which is often tasked with writing up the legal framework of treaties, could provide guidance on the legislation and help initiate the process within the U.S. State Department and the United Nations. Existing U.S. law like the Commercial Space Launch Competitiveness Act, and international treaties like OST and Registration Convention, provide authority for these proposals to be implemented in the short term. However, negotiation of updates to COPOUS Guidelines and amendments to the OST and other relevant space treaties over the next 5 to 10 years will be essential to their long term success.

Finally, the Federal Aviation Administration (FAA) at the Department of Transportation would be the logical federal agency to initially lead implementing the updated registration process for U.S.-affiliated space objects and for verifying the location and intended use of space objects from other nations. FAA implements the current U.S. process for space objects registration. In the long term it could be appropriate to transfer responsibility for space object registration to the rapidly growing Office of Space Commerce (OSC) at the Department of Commerce. Moving responsibilities for implementing space object registration and verification to the OSC would provide opportunities for the office to expand with the rapidly expanding space industry. This change would also allow the FAA to focus on its primary responsibilities for regulating the domestic aerospace industry. 

Conclusion

Douglas Adams may have put it best: “Space is big. You just won’t believe how vastly, hugely, mind-bogglingly big it is.” While Adams was describing the sheer size of space, this description applies just as well to the scale of outer space’s scientific and economic prospects. After all, any new economic theater that will grow into a multi-trillion dollar market in just a few decades is not to be taken lightly. But without a plan to avert and resolve potential conflicts with other outer space actors, the United States’ future efforts in this emerging theater will be hamstrung. Improved collaboration on space mining provides an opportunity to promote international cooperation and economic development, while military conflict in space poses high risks to the economic potential of the current and future space industry. Transparent and widely agreed-upon frameworks would allow for peaceful competition on scientific research and resource extraction on celestial objects.

Lunar mining has shown promise for providing access to water ice, rare earth metals, He-3, and other raw materials crucial for the further exploration of space. Providing a peaceful and secure source of these materials would build on the bipartisan Commercial Space Launch Competitiveness Act’s guidelines for space resource extraction and, in the long run, further enable the modernization and decarbonization of the U.S. electric grid for public benefit. 

In order to promote the peaceful exploration and development of space, we must update existing international law—either the COPUOS Guidelines, the OST, or both—to clarify the locations, timeline, and types of outer space operations conducted by state actors. We must also propose deconfliction mechanisms for OST parties to resolve disputes peacefully via bilateral negotiation or arbitration by a mutually acceptable third party like the ICJ or PCA. Just as the United States led the world into the “final frontier” in the 20th century, so too must we lead the next chapter in the 21st. If implemented successfully, the anticipatory space diplomacy we propose will allow for the shared peaceful use of celestial bodies for decades to come.

Acknowledgments

Dr. Sindhu Nathan provided valuable insights into the writing of this memo.

Summary

Federal, state, local, tribal, and territorial agencies collect and maintain a range of disaster resilience, vulnerability, and loss data. However, this valuable data lives on different platforms and in various formats across agency silos. Inconsistent data collection and lack of validation can result in gaps and inefficiencies and make it difficult to implement appropriate mitigation, preparedness, response, recovery, and adaptation measures for natural hazards, including wildfires, smoke, drought, extreme heat, flooding, and debris flow. Lack of complete data down to the granular level also makes it challenging to gauge the true cost of disasters.

The Biden-Harris Administration should launch an Open Disaster Data Initiative to mandate the development and implementation of national standards for disaster resilience, vulnerability, and loss data to enable federal, state, local, tribal, and territorial agencies to regularly collect, validate, share, and report on disaster data in consistent and interoperable formats.

Challenge and Opportunity

Disaster resilience, vulnerability, and loss data are used in many life-saving missions, including early detection and local response coordination, disaster risk assessments, local and state hazard mitigation plans, facilitating insurance and payouts, enabling rebuilding and recovery, and empowering diverse communities to adapt to climate impacts in inclusive, equitable, and just ways. 

While a plethora of tools are being developed to enable better analytics and visualizations of disaster and climate data, including wildfire data, the quality and completeness of the data itself remains problematic, including in the recently released National Risk Index. 

This is because there is a lack of agency mandates, funding, capacity, and infrastructure for data collection, validation, sharing, and reporting in consistent and interoperable formats. Currently, only a few federal agencies have the mandate and funds from Congress to collect disaster data relevant to their mission. Further, this data does not necessarily integrate state and local data for non-federally declared disasters. 

Due to this lack of national disaster and climate data standards, federal and state agencies, universities, nonprofits, and insurers currently maintain disaster-related data in silos, making it difficult to link in productive and efficient ways down to the granular level. 

Also, only a few local, state, and federal agencies regularly budget for or track spending on disaster resilience, vulnerability, and response activities. As a result, local agencies, nonprofits, and households, particularly in underserved communities, often lack access to critical lifesaving data. Further, disaster loss data is often private and proprietary, leading to inequality in data access and usability. This leaves already disadvantaged communities unprepared and with only a limited understanding of the financial burden of disaster costs carried by taxpayers. 

Since the 1990s, several bipartisan reviews, research, data, and policy documents, including the recent President’s Council of Advisors on Science and Technology (PCAST) report on modernizing wildland firefighting, have reiterated the need to develop national standards for the consistent collection and reporting of disaster vulnerability, damage, and loss data. Some efforts are under way to address the standardization and data gaps—such as the all-hazards dataset that created an open database by refining the Incident Command System data sets (ICS-209). 

However, significant work remains to integrate secondary and cascading disasters and monitor longitudinal climate impacts, especially on disadvantaged communities. For example, the National Interagency Fire Center consolidates major wildfire events but does not currently track secondary or cascading impacts, including smoke (see AirNow’s Fire and Smoke Map), nor does it monitor societal vulnerabilities and impacts such as on public health, displacement, poverty, and insurance. There are no standardized methods for accounting and tracking damaged or lost structures. For example, damage and loss data on structures, fatalities, community assets, and public infrastructure is not publicly available in a consolidated format. 

The Open Disaster Data Initiative will enable longitudinal monitoring of pre- and post-event data for multiple hazards, resulting in a better understanding of cascading climate impacts. Guided by the Open Government Initiative (2016), the Fifth National Action Plan (2022), and in the context of the Year of Open Science (2023), the Open Disaster Data Initiative will lead to greater accountability in how federal, state, and local governments prioritize funding, especially to underserved and marginalized communities. 

Finally, the Open Disaster Data Initiative will build on the Justice40 Initiative and be guided by the recommendations of the PCAST Report on Enhancing prediction and protecting communities. The Open Disaster Data Initiative should also reiterate the Government Accountability Office’s 2022 recommendation to Congress to designate a federal entity to develop and update climate information and to create a National Climate Information System. 

Precedents 

Recent disaster and wildfire research data platforms and standards provide some precedence and show how investing in data standards and interoperability can enable inclusive, equitable, and just disaster preparedness, response, and recovery outcomes.

The Open Disaster Data Initiative must build on lessons learned from past initiatives, including:

• the National Weather Service’s (NWS) Storm Events database, which collects meteorological data on when and where extreme events occur, along with occasional but unverified estimates of socioeconomic impacts.
• the Centers for Disease Control’s (CDC) COVID-19 Data Modernization Initiative, which attempts to  harmonize data collection and reporting across national, tribal, state, and local agencies. 
• the National Oceanic and Atmospheric Administration’s (NOAA) National Integrated Drought Information System (NIDIS), a multiagency partnership that coordinates drought monitoring, forecasting, planning, and information at national, tribal, state, and local levels but is impacted by inconsistent data reporting.
• the Federal Emergency Management Agency (FEMA)’s OpenFEMA initiative, which shares vast amounts of data on multiple aspects of disaster outcomes, including disaster assistance, hazard mitigation investments, the National Flood Insurance Program, and grants, but requires technical expertise to access and utilize the data effectively.
• FEMA’s National Risk Index, which maps the nation’s resilience, vulnerability, and disaster losses at county and census tract levels but shows shortcomings in capturing the risk of geophysical events such as earthquakes and tsunamis. In late 2022, Congress passed the Community Disaster Resilience Zones Act (P.L. 117-255), which codifies the National Risk Index. The goal is to support the census tracts with the highest risk rating with financial, technical, and other forms of assistance. 

There are also important lessons to learn from international efforts  such as the United Nations’ ongoing work on monitoring implementation of the Sendai Framework for Disaster Risk Reduction (2015–2030) by creating the next generation of disaster loss and damage databases, and the Open Geospatial Consortium’s Disaster Pilot 2023 and Climate Resilience Pilot, which seek to use standards to enable open and interoperable sharing of critical geospatial data across missions and scales. 

Plan of Action

President Biden should launch an Open Disaster Data Initiative by implementing the following four actions.

Recommendation 1. Issue an Executive Order to direct the development and adoption of national standards for disaster resilience, vulnerability, and loss data collection, validation, sharing, and reporting, by all relevant federal, state, local, tribal, and territorial agencies to create the enabling conditions for adoption by universities, non-profits, and the private sector. The scope of this Executive Order should include data on local disasters that do not call for a Presidential Disaster Declaration and federal assistance.

Recommendation 2. Direct the Office of Management and Budget (OMB) to issue an Open Disaster Data Initiative Directive for all relevant federal agencies to collaboratively implement the following actions:

• Direct the National Council on Science and Technology to appoint a subcommittee to work with the National Institute of Standards and Technology to develop national standards for disaster resilience, vulnerability, and loss data collection, sharing, and reporting, by all relevant federal, state, local, tribal, and territorial agencies, as well as by universities, nonprofits, and the private sector. 
• Direct all relevant federal agencies to adopt national standards for disaster resilience, vulnerability, and loss data collection; validation; sharing; and reporting to address ongoing issues concerning data quality, completeness, integration, interoperability, accessibility, and usability.

• Develop federal agency capacities to accurately collect, validate, and use disaster resilience, vulnerability, and loss data, especially as it relates to population estimates of mortality, morbidity, and displacements, including from extreme heat and wildfire smoke.
• Direct FEMA to coordinate and implement training for state, local, tribal, and territorial agencies on how to collect disaster resilience, vulnerability, and loss data in line with the proposed national standards. Further, building on the FEMA Data Strategy 2023-2027 and in line with OpenFEMA, FEMA should review its private and sensitive data sharing policy to ensure that disaster data is publicly available and useable. FEMA’s National Incident Management System will be well positioned to cut across hazard mission silos and offer wide-ranging operational support and training for disaster loss accounting to federal, state, local, tribal, and territorial agencies, as well as nonprofit stakeholders, in coordination with FEMA’s Emergency Management Institute.

Recommendation 3. Designate a lead coordinator for the Open Disaster Data Initiative within the Office of Science Technology and Policy (OSTP), such as the Tech Team, to work with the OMB on developing a road map for implementing the Open Disaster Data Initiative, including developing the appropriate capacities across all of government.

Recommendation 4. Direct FEMA to direct appropriate funding and capacities for coordination with the National Weather Service (NWS), the U.S. Department of Agriculture’s Risk Management Agency, and the National Centers for Environmental Information (NCEI) to maintain a federated, open, integrated, and interoperable disaster data system that can seamlessly roll up local data, including research, nonprofit, and private, including insurance data. 

In addition, Congress should take the following three actions to ensure success of the Open Disaster Data Initiative:

Recommendation 5. Request the Government Accountability Office to undertake a Disaster Data Systems and Infrastructure Review to:

• Inform the development of national standards and identify barriers for accurate disaster data collection, validation, accounting, and sharing between federal, state, local, tribal, and territorial agencies, as well as the philanthropic and private sector. 
• Review lessons learned from precedents (including NWS’s Storm Events database, CDC’s Data Modernization Initiative, NOAA’s NIDIS, and FEMA’s National Risk Index). 
• Form the basis for the OMB and the OSTP to designate an appropriate budget and capacity commitment and suggest a national framework/architecture for implementing an Open Disaster Data Initiative. 

Recommendation 6. Appropriate dedicated funding for the implementation of the Open Disaster Data Initiative to allow federal agencies, states, nonprofits, and the private sector to access regular trainings and develop the necessary infrastructure and capacities to adopt national disaster data standards and collect, validate, and share relevant data. This access to training should facilitate seamless roll-up of disaster vulnerability and loss data to the federal level, thereby enabling accurate monitoring and accounting of community resilience in inclusive and equitable ways.

Recommendation 7. Use the congressional tool of technical corrections to support and enhance the Initiative:

• Pass Technical Corrections and Improvements to the Community Disaster Resilience Zones Act to include provisions for the collection, sharing, and reporting of disaster resilience, vulnerability, and loss data by all relevant federal, state, local, tribal, and territorial agencies and academic, private, community-based, and nonprofit entities, in consistent and interoperable formats, and in line with the proposed national disaster data standards. Technical corrections language could point to the requirement to “review the underlying collection and aggregation methodologies as well as consider the scoping of additional data the agency (ies) may be collecting.” This language should also direct agencies to review dissemination procedures for propriety, availability, and access for public review. The scope of this technical correction should include local disasters that do not call for a Presidential Disaster Declaration and federal assistance. 
• Pass Technical Corrections and Improvements or suspension bill to the ​​Disaster Recovery Reform Act, section 1223 which mandates a study of information collection or section 1224, which requires publication of said data accessible to the public would complement the above by tasking FEMA to study, aggregate, and share information with the public in a way that is digestible and actionable. 

Conclusion

The Open Disaster Data Initiative can help augment whole-of-nation disaster resilience in at least three ways: 

1. Enable enhanced data sharing and information coordination among federal, state, local, tribal, and territorial agencies, as well as with universities, nonprofits, philanthropies, and the private sector.
2. Allow for longitudinal monitoring of compounding and cascading disaster impacts on community well-being and ecosystem health, including a better understanding of how disasters impact poverty rates, housing trends, local economic development, and displacement and migration trends, particularly among disadvantaged communities.
3. Inform the prioritization of policy and program investments for inclusive, equitable, and just disaster risk reduction outcomes, especially in socially and historically marginalized communities, including rural communities.

Summary  

The advancement and commercialization of bioprocesses in the United States is hindered by a lack of suitable and available pilot-scale and manufacturing-scale facilities. This challenge stems in part from our inability to repurpose facilities that are no longer needed due to a lack of standardization and inadequate original design. Historically, most biomanufacturing facilities have been built with a single product in mind and with a focus on delivering a facility as cheaply and quickly as possible. While this might be the best approach for individual private companies, it is not the best approach for the bioeconomy as a whole. The Biden-Harris Administration should establish a program to standardize the construction of biomanufacturing facilities across the United States that also permits facilities to be repurposed for different products in the future. 

Through government-incentivized standardization, better biomanufacturing facilities can be built that can be redeployed as needed to meet future market and governmental needs and ultimately solve our nation’s lack of biomanufacturing capacity. This program will help protect U.S. investment in the bioeconomy and accelerate the commercialization of biotechnology. Enforcement of existing construction standards and the establishment of new standards that are strictly adhered to through a series of incentivization programs will establish a world-leading biomanufacturing footprint that increases supply resilience for key products (vaccines, vitamins, nutritional ingredients, enzymes, renewable plastics), reduces reliance on foreign countries, and increases the number of domestic biomanufacturing jobs. Furthermore, improved availability of pilot-scale and manufacturing-scale facilities will accelerate growth in biotechnology across the United States.

This memo details a framework for developing and deploying the necessary standards to enable repurposing of biomanufacturing facilities in the future. A team of 10–12 experts led by the National Institute for Standards and Technology (NIST) should develop these standards. A government-sponsored incentivization program with an estimated cost of $50 million per year would then subsidize the building of new facilities and recognition of participating companies.

Challenge and Opportunity 

Currently, the United States faces a shortage in both pilot-scale and manufacturing-scale biomanufacturing facilities that severely hinders product development and commercialization. This challenge is particularly large for the fermentation industry, where new facilities take years to build and require hundreds of millions of dollars in infrastructure investment. Many companies rely on costly foreign assets to advance their technology or delay their commercialization for years as they wait for access to one of the limited contract pilot or manufacturing facilities in the United States. 

Why do we have such a shortage of these facilities? It is because numerous facilities have been shut down due to changing market conditions, failed product launches, or bankruptcy. When the facilities were ultimately abandoned and dismantled for scrap, the opportunity to repurpose expensive infrastructure was lost along with them. 

Most U.S. biomanufacturing facilities are built to produce a specific product, making it difficult to repurpose them for alternative products. Due to strict financing and tight timelines for commercialization, companies often build the minimally viable facility, ultimately resulting in a facility with niche characteristics specific to their specific process and that has a low likelihood of being repurposed. When the facility is no longer needed for its original purpose—due to changes in market demand or financial challenges—it is very unlikely to be purchased by another organization. 

This challenge is not unique to the biomanufacturing industry. In fact, even in the highly established automotive industry, less than half of its manufacturing facilities are repurposed. The rate of repurposing biomanufacturing facilities is much lower, given the lower level of standardization. Furthermore, nearly 30% of currently running biomanufacturing facilities have some idle capacity that could be repurposed. This is disappointing considering that many of these biomanufacturing facilities have similar upstream operations involving a seed bioreactor (a small bioreactor to be used as inoculum for a larger vessel) to initiate fermentation followed by a production reactor and then harvest tanks. Downstream processing operations are less similar across facilities and typically represent far less than half the capital required to build a new facility.

The United States has been a hot spot for biotech investment, with many startups and many commercial successes. We also have a robust supply of corn dextrose (a critical input for most industrial fermentation), reasonable energy costs, and the engineering infrastructure to build world-class biomanufacturing facilities providing advantages over many foreign locations. Our existing biomanufacturing footprint is already substantial, with hundreds of biomanufacturing facilities across the country at a variety of scales, but the design of these facilities lacks the standardization needed to meet the current and future needs of our biomanufacturing industry. There have been some success stories of facilities being repurposed, such as the one used by Gevo for the production of bio-butanol in Minnesota or the Freedom Pines facility in Georgia repurposed by LanzaTech. 

However, there are numerous stories of facilities that were unable to be repurposed, such as the INEOS facility that was shuttered in India River, Florida. Repurposing these facilities is challenging for two primary reasons: 

1. A lack of forethought that the facility could be repurposed in the future (i.e., no space for additional equipment, equipment difficult to modify, materials of construction that do not have broad range of process compatibility). 
2. A lack of standardization in the detailed design (materials of construction, valve arrangements, pipe sloping, etc.) that prevents processes with higher aseptic requirements (lower contamination rates) from being implemented. 

In order to increase the rate at which our biomanufacturing facilities are repurposed, we need to establish the policies and programs to make all new biomanufacturing facilities sustainable, more reliable, and capable of meeting the future needs of the industry. These policies and associated standards will establish a minimum set of guidelines for construction materials, sterilizability, cleanability, unit operation isolation, mixing, aeration, and process material handling that will enable a broad range of compatibility across many bioprocesses. As a specific example, all fermentors, bioreactors, and harvest tanks should be constructed out of 316L grade stainless steel minimum to ensure that the vast majority of fermentation and cell culture broths could be housed in these vessels without material compatibility concerns. Unfortunately, many of the U.S. biomanufacturing facilities in operation today were constructed with 304 grade stainless steel, which is incompatible with high-salt or high-chloride content broths. Furthermore, all process equipment containing living microorganisms should be designed to aseptic standards, even if the current product is not required to be axenic (absent of foreign microorganisms). 

These standards should focus on upstream equipment (fermentors, media preparation tanks, sterilization systems), which are fairly universal across the food, pharma, and industrial biotech industries. While there are some opportunities to apply these standards to downstream process equipment, the downstream unit operations required to manufacture different biotech products vary significantly, making it more challenging to repurpose equipment. 

Fortunately, guiding principles covering most factors that need to be addressed have already been developed by experts in the American Society of Mechanical Engineers (ASME), Bioprocess Equipment (BPE), and the International Society for Pharmaceutical Engineering (ISPE). These standards cover the gamut of biomanufacturing specifications: piping, mixing, valves, construction materials, and, in some cases, the design of specific unit operations. Companies are often forced to decide between following best practices in facility design and making tight timelines and budgets. 

Following these standards increases capital costs of the associated equipment by 20% to 30%, and can extend construction timelines, preventing companies from adopting the standards even though it directly improves their top or bottom line by improving process reliability. Our biggest gap today is not ability to standardize but rather the incentivization to standardize. If the government provides incentives to adopt these standards, many companies will participate as it is widely recognized that these standards will result in facilities that are more reliable and more flexible for future products. 

The National Institute for Standards and Technology (NIST) should initiate a program focused on biomanufacturing standards. The proposed program could be housed or coordinated out of a new office at the NIST—for example, as described in the previously proposed “Bio for America Program Office (BAPO)”—which should collaborate closely with the Office of the Secretary of Commerce and the Under Secretary of Commerce for Standards and Technology, as well as additional government and nongovernmental stakeholders as appropriate. NIST is the appropriate choice because it harbors cross-disciplinary expertise in engineering, and the physical, information, chemical, and biological sciences; is a nonregulatory agency of the U.S. Department of Commerce, whose mission it is “to drive U.S. economic competitiveness, strengthen domestic industry, and spur the growth of quality jobs in all communities across the country”; and is a neutral convener for industry consortia, standards development organizations, federal labs, universities, public workshops, and interlaboratory comparability testing.

Plan of Action 

The Biden-Harris Administration should sponsor an initiative to incentivize the standardization that will enables the repurposing of biomanufacturing facilities, resulting in a more integrated and seamless bioeconomy. To do so, Congress should appropriate funds for a program focused on biomanufacturing standards at NIST. This program should:

• Develop a set of design and construction standards that enable facilities to be efficiently repurposed for different products in the future.
• Create, in collaboration with other government agencies, an incentivization program to encourage participation.
• Recognize participating companies with a certification.
• Track the program’s impact by measuring the rate of facility repurposing long-term.

First, the program will need to be funded by Congress and stood up within NIST. The award amounts will vary based on the facility size, but it is estimated that each participating company will receive $6 million on average, leading to a total program cost in the range of $30 million to $50 million per year. While the costs might seem high, the investment is at reduced risk by design, since facilities that adopt the program are better equipped to be repurposed should the original company abandon the facility. 

Next, design and building standards would be defined that ensure the highest chance of redeployment along with reliable operation. While relevant standards exist (i.e., ASME BPE Standards), they should be refined and elaborated by an expert panel established by NIST with the purpose of promoting repurposing. The adoption rate of the existing nonmandatory standards is low, particularly outside of the pharma industry. This new NIST program should establish a panel of experts, including industry and government representatives, to fully develop and publish these standards. A panel of 10–12 members could develop these standards in one year’s time. Thereafter, the panel could be assembled regularly to review and update these standards as needed. 

Once the standards are published, NIST should launch (and manage) a corresponding incentivization program to attract participation. The program should be designed such that an estimated 50% incremental cost savings would be achieved by adhering to these standards. In other words, the improved infrastructure established by following the standards would not be fully subsidized, but it would be subsidized at the rate of 50%. The NIST program could oversee applicants’ adherence to the new standards and provide awards as appropriate. NIST should also work with other federal government agencies that support development of biomanufacturing capacity (e.g., Department of Energy [DOE], Department of Defense [DoD], and Department of Agriculture [USDA]) to explore financial incentives and funding requirements to support adherence with the standards. 

In addition, the government should recognize facilities built to the new standards with a certification that could be used to strengthen business through customer confidence in supply reliability and overall performance. NIST will publish a list of certified facilities annually and will seek opportunities to recognize companies that broadly participate as a way to recognize their adoption of this program. Furthermore, this type of certification could become a prerequisite for receiving funding from other government organizations (i.e., DoE, DoD, USDA) for biomanufacturing-related funding programs.

Last, to measure the program’s success, NIST should track the rate of redeployment of participating facilities. The success rate of redeployment of facilities not participating in the program should also be tracked as a baseline. After 10 years, at least a twofold improvement in redeployment rate would be expected. If this does not occur, the program should be reevaluated and an investigation should be conducted to understand why the participating facilities were not redeployed. If needed, the existing biomanufacturing standards should be adjusted.

Conclusion 

Given the large gap in biomanufacturing assets needed to meet our future needs across the United States, it is of paramount importance for the federal government to act soon to standardize our biomanufacturing facilities. This standardization will enable repurposing and will build a stronger bioeconomy. By establishing a program that standardizes the design and construction of biomanufacturing facilities across the country, we can ensure that facilities are built to meet the industry’s long-term needs—securing the supply of critical products and reducing our reliance on foreign countries for biomanufacturing needs. In the long run, it will also spur biotech innovation, since startup companies will need to invest less in biomanufacturing due to the improved availability of manufacturing assets.

Summary

Entrepreneurship and innovation are crucial for sustained community development, as new ventures create new jobs and wealth. As entrepreneurs start and grow their companies, access to capital is a significant barrier. Communities nationwide have responded by initiating programs, policies, and practices to help entrepreneurs creatively leverage philanthropic dollars, government grants and loans, and private capital. But these individually promising solutions collectively amount to a national patchwork of support. Those who seek to scale promising ideas face a funding continuum that is filled with gaps, replete with high-transaction costs, and highly variable depending on each entrepreneur’s circumstances. 

To help entrepreneurs better and more reliably access capital no matter where in the country they are, the Small Business Administration (SBA) should work with the other Interagency Community Investment Committee (ICIC) agencies to expand the SBA’s secondary market capacity. The SBA’s secondary market allows lenders to sell the guaranteed portion of a loan backed by the SBA. This provides additional liquidity to lenders, which in turn expands the availability of commercial credit for small businesses. However, there is no large standardized secondary market for debt serviced by other federal agencies, so the benefits of a secondary market are limited to only a portion of federal lending programs that support entrepreneurship. Expanding SBA’s secondary market authority would increase access to large pools of private capital for a larger proportion of entrepreneurs and innovative small businesses. 

As a first step towards this goal, one or several agencies should enter into a pilot partnership with SBA to use SBA’s existing administrative authority and infrastructure to enable private lenders to sell other forms of federally securitized loans. Once proven, the secondary market could be expanded further and permanently established as a government-sponsored enterprise (GSE). This GSE would provide accessible capital for entrepreneurs and small businesses in much the same way that the GSEs Fannie Mae and Freddie Mac provide accessible capital, as mortgages, for prospective homeowners.

With the 118th Congress considering the reauthorization of SBA for the first time in 22 years, there is an opportunity to seize on this reauthorization to modernize the SBA. Piloting the SBA’s secondary market capacity is a crucial piece of modernization to increase access to capital for entrepreneurs. 

Challenge and Opportunity

Access to capital changes the economic trajectory of individuals and communities. Approved small business loan applicants, for instance, report average income increases of more than 10% five years after loan approval. Unfortunately, capital for budding entrepreneurs is scarce and inequitably allocated. Some 83% of budding entrepreneurs never access adequate capital to start or grow their business. Success rates are even lower for demographic minorities. And when entrepreneurs can’t access capital to start their business, the communities around them suffer, as evidenced by the fact that two out of every three new jobs over the past 25 years has been generated by small businesses. 

The vast majority of new businesses in the United States are funded by personal or family savings, business loans from banks or financial institutions, or personal credit cards. Venture capital is used by only 0.5% of entrepreneurs because most entrepreneurs’ businesses are not candidates for it. Public and mission-driven lending efforts are valiant but can’t come close to matching the scale of this untapped potential. Outside of the COVID-19 emergency response, the SBA annually appropriates $1–2 billion for lending programs. The Urban Institute found that between 2011 and 2017, Chicago alone received $4 billion of mission-driven lending that predominantly went toward communities of color and high-poverty communities. But during the same time period, Chicago also received over $67 billion of market investment—most of which flowed to white and affluent neighborhoods.

Communities across the country have sought to bridge this gap with innovative ideas to increase access to private capital, often by leveraging federal funding or federal programmatic infrastructure. For example: 

• The Entrepreneur Backed Asset Fund is a philanthropically funded initiative that creates a secondary market for microloans made through Community Development Financial Institutions (CDFIs). This idea came from an experienced microlender who was frustrated with the illiquidity of microloans and subsequent need to constantly engage in time-consuming philanthropic fundraising. 
• ESO Ventures is a nonprofit organization out of East Oakland, California, that combines competency-based curriculum and access to capital. As entrepreneurs grow their skills through the program, they receive access to increasing lines of credit to apply those new skills to their businesses. ESO Ventures has grown rapidly by using both federal recovery grants funneled through the state of California and access to private banks for credit lines. The organization’s goal is to create 3,000 more businesses and generate $3 billion in economic activity by 2030. 
• Network Kansas is an entrepreneurial support organization born out of the first version of the Treasury Department’s State Small Business Credit Initiative (SSBCI) program under the Obama Administration. The organization leverages a Kansas state tax credit to provide below-market debt to rural entrepreneurs in the most remote parts of Kansas. Since 2006, Network Kansas has deployed $500 million.

These example programs are successful, replicable, and already supported by some of the agencies in the ICIC. These programs use traditional, well-understood financial mechanisms to provide capital to entrepreneurs: credit lines, insurance, shared-equity agreements, tax credits, and low-interest debt. The biggest obstacle to scaling these types of programs is financial: they must first raise money to support their core financial mechanism(s) and their dependence on ad hoc fundraising almost inevitably yields uneven results.

There is a clear rationale for federal intervention to improve capital access for entrepreneurship-support programs. Successful investment in marginalized communities serves the public interest by generating positive externalities such as increases in jobs, wealth, and ownership. Government can grow these externalities manyfold by reducing risk for investors and reducing the cost of capital to entrepreneurs through the expansion of SBA’s secondary market authority and ultimate creation of a GSE to create permanence, increased accountability, and further flexibility of capital access. With SBA reauthorization on the legislative docket, this is a prime opportunity to address the core challenge of capital access for entrepreneurs. 

Plan of Action 

Federal government should create standardized, straightforward mechanisms for entrepreneurs and small businesses across the country to tap into vast pools of private capital at scale. A first step is launching an administrative pilot that extends the SBA’s current secondary market capacity to interested agencies in the ICIC. An initial pilot partner could be the Department of the Treasury in order to recapitalize its Community Development Financial Institutions (CDFI) Fund. If the pilot proves successful, the secondary market could be expanded further and permanently established as a government-sponsored enterprise.

Recommendation 1. Establish an administrative pilot.

The SBA’s secondary market can already serve small business debt and debt-like instruments for small businesses and community development. The SBA currently underwrites, guarantees, securitizes, and sells pools of 7(a) and 504 loans, unsecured SBA loans in Development Company Participation Certificates, and Small Business Investment Company Debentures. Much like Federal Housing Administration and Veterans Affairs home loans offer guaranteed debt to homeowners, there are programs that offer guaranteed debt for entrepreneurs. However, there is no large standardized secondary market for the debt that extends across agencies. 

An interagency memorandum of understanding between interested ICIC agencies could quickly open up the SBA’s secondary market infrastructure to other forms of small business debt. This would allow the ICIC to explore, with limited risk, the extent to which an expanded secondary market for federally securitized debt products enables entrepreneurs and small businesses to more easily access low-cost capital. Examples of other forms of small business lending provided by ICIC agencies include Department of Agriculture Rural Business Development Grants, Department of Housing and Urban Development Community Development Block Grants, and the Treasury Small Business Lending Fund, among others.

An ideal initial pilot partner target among ICIC agencies would be the Treasury, which could pilot a secondary market approach to recapitalizing its CDFI Fund. This fund allocates capital via debenture to CDFIs for them to make personal, mortgage, and commercial loans to low-income and underserved communities. The fund is recapitalized on an annual basis through the federal budget process. A partnership with SBA to create a secondary market for the CDFI Fund would effectively double the federal support available for CDFIs that leverage that fund.

It is important to note that while SBA can create pilot intergovernmental agreements to extend its secondary market infrastructure, broader or permanent extension of secondary market authority may require congressional approval.

Recommendation 2. Create a government-sponsored enterprise (GSE).

Upon successful completion of the administrative pilot, the ICIC should explore creating a GSE that decreases the cost of capital for entrepreneurs and small businesses and expands capital access for underserved communities. This separate entity would be a more independent body than an expanded secondary market created through SBA’s existing infrastructure. Benefits of creating a GSE include providing more flexibility and allowing the agency to function more independently and with greater authority while being subject to more rigorous reporting and oversight requirements to ensure accountability. 

After the 2008 housing-market crash and subsequent recession, the concept of a GSE was criticized and reforms were proposed. There is no doubt that GSEs made mistakes in the housing market, but they also helped standardize and grow the mortgage market that now serves 65% of American households. The federal government will need to implement thoughtful, innovative governance structures to realize the benefits that a GSE could offer entrepreneurs and small businesses while avoiding repeating the mistakes that the mortgage-focused GSEs Fannie Mae and Freddie Mac made. 

One potential ownership structure is the Perpetual Purpose Trust (PPT). PPTs work by separating the ownership right of governance from the ownership right of financial return and giving them to different parties. The best-known example of a PPT to date is likely the one established by Yvon Chouinard to take over his family’s ownership interest in Patagonia. In a PPT, trustees—organized in a Trust Steward Committee (TSC)—are bound by a fiduciary duty to maintain focus on the stated purpose of the trust. None of the interests within the TSC are entitled to financial return; rather, the rights to financial return are held in a separate entity (the Corporate Trustee) that does not possess governance rights. This structure, which is backed by a Trust Enforcer, ensures that the TSC cannot force the company to do something that is good for profits but bad for purpose. 

Emulating this basic structure for a capital-focused GSE could circumvent the moral hazard that plagued the mortgage-focused GSEs. The roles of TSC, Trust Enforcer, and Corporate Trustee in a federal context could be filled as follows:

• Trust Steward Committee: The TSC possesses a fiduciary for the PPT and typically makes strategic decisions to pursue the PPT’s purpose. For a capital-focused GSE, the TSC’s role would be limited to governance. The TSC would be populated by a mix of stakeholders, such as entrepreneurs, community developers, investors, and support organizations. 
• Trust Enforcer: The Trust Enforcer is an independent entity that rules on whether the TSC is sufficiently pursuing the PPT’s stated purpose. For a capital-focused GSE, this role could be filled by federal agency staff. The trust that holds the governance rights serves as the vehicle for the regulatory body to oversee the GSE. 
• Corporate Trustee: The entity that holds the financial interest of the GSE could be sold to investors, granted to employees, or given away to relevant nonprofit and other stakeholder groups. 

Conclusion 

The ICIC agencies support and create many creative solutions that blend private and public dollars to increase entrepreneurship and community development. Yet the federal government stops short of providing the most important benefit: standardization and scale. The ICIC agencies should therefore create an entity that unlocks standardization and scale for the programs they help create, with the overall goals of:

• Unifying small-business and community-development underwriting
• Broadening private-actor participation in small business loan origination by creating the risk standards that allow for greater liquidity
• Opening the capital markets to lower the cost of capital for entrepreneurs

A first step towards accomplishing these goals is to establish an administrative pilot, by which interested ICIC agencies would use the SBA’s existing authority and infrastructure to create a secondary market for their securitized debt instruments. 

If the pilot proves successful, the next step is to expand the secondary market and establish it for the long term through a GSE modeled on those that have effectively supported the mortgage industry—but with a creative structure that proactively addresses GSE weaknesses unveiled by the 2008 housing-market crash. The result is a stable, permanent institution that enables all communities to realize the benefits of robust entrepreneurship by ensuring that budding entrepreneurs and small-business owners across the country can easily tap into the capital they need to get started. 

Summary

Congress created the Development Finance Corporation (DFC) to finance private sector solutions to the most critical challenges facing the developing world. In parallel, the United States Agency for International Development (USAID) has committed to engaging the private sector and shifting more resources to local market providers to further the impact of U.S. foreign aid dollars. 

USAID is on the verge of awarding its largest-ever suite of foreign aid contracts, totaling $17 billion over the next ten years and comprising nine awards as part of the “NextGen Global Health Supply Chain” (GHSC) contracts. This is a continuation of previous global health supply chain contracts that date back to the 1960s that have grown exponentially in total value but have underperformed and not meaningfully transitioned responsibility for deployment to low- and middle-income country (LMIC) governments and LMIC-based organizations. 

Now is the time for USAID and the DFC to pilot new ways of working with the private sector that put countries on a path to high-impact, sustainable development that builds markets. 

We propose that USAID set aside $300 million of the overall $17 billion package – or less than 2 percent of the overall value – to create a Supply Chain Commercialization Fund to demonstrate a new way of working with the private sector and administering U.S. foreign aid. USAID and the DFC can deploy the Commercialization Fund to:

• Create and finance instruments that pay for results against certain well-defined success metrics, such as on-time delivery;
• Provide blended financing to expand the footprint and capabilities of established LMIC-based healthcare and logistics service providers that may require additional working capital to grow their presence and/or expand operations; and
• If successful, invite other countries to participate in this model, with the potential for replication to other geographies and sectors where there are robust private sector markets, such as in agriculture, water, and power.

USAID and the DFC can pilot this new model in three countries where there are already thriving and well-established private markets, like Ghana, Kenya, and Nigeria. 

Challenge and Opportunity

The world is facing an unprecedented concurrence of crises: pandemics, war, rising food insecurity, and a rapidly warming climate. Low- and middle-income countries (LMICs) are deeply affected, with many having lost decades’ worth of gains made toward the Sustainable Development Goals in only a few short years. We now face the dual tasks of regaining lost ground while ensuring those gains are more durable and lasting than before. 

The Biden Administration recognizes this pivotal moment in its new U.S. Strategy Toward Sub-Saharan Africa. The Strategy acknowledges the continent’s growing importance to U.S. global priorities and lays out a 21st-century partnership to contribute to a strong and sustainable global economy, foster new technology and innovation, and ultimately support the long-envisioned transition from donor-driven to country-driven programs. This builds on past U.S. foreign aid initiatives led by administrations of both political parties, including Administrator Mark Green’s Journey to Self Reliance and Administrator Raj Shah’s USAID Forward initiatives. Rather than creating a new flagship program, the U.S. Strategy Toward Sub-Saharan Africa focuses on improved implementation and better integration of existing initiatives to supercharge results. Such aims were echoed repeatedly during the U.S.-Africa Leaders Summit in December 2022.

To realize a new vision for U.S.-Africa partnerships, the Biden Administration should more effectively fuse the work of USAID and the DFC. A key policy rationale for the DFC’s creation in 2018 was to counter China’s Belt and Road Initiative (BRI) and growing economic influence in frontier markets. By combining this investment arm with USAID’s programmatic work, Congress hoped to accelerate major development impact. However numerous mismatches between USAID and DFC priorities have limited and sometimes actively undermined Congress’ goals. In the worst cases, USAID dollars have been used to pay international aid contractors to perform work in places where existing market providers could. Rather than bolster markets, this can distort them.

This memo lays out a new approach to development rooted in better USAID-DFC collaboration, where the work of both agencies contributes to the commercialization of sectors ready to transition from aid-dependent models to commercial and trade-enabled ones. In these sectors, USAID should work to phase out its international aid contractor-led model and instead scale up the work of existing market participants, including by paying them for results. This set of recommendations also advances USAID priorities outlined in the Agency’s new Acquisition and Assistance Strategy and proposed implementation plan, as well as USAID’s policy framework, which each call for working more closely with the private sector and transitioning to more pay-for-performance models.

The global health supply chain is ideal for USAID and the DFC to test the concept of a commercialization fund because of the sector’s discrete metrics and robust existing logistics companies. Investing in cheaper, more efficient evidence-driven solutions in a competitive marketplace can improve aid effectiveness and better serve target populations with the health goods like PPE, vaccines, and medications they need. This sector receives USAID’s largest contracts, with the Agency spending more than $1B each year on procurement and logistics to get the right health products to the right place, at the right time, and in the right condition across dozens of countries. In the logistics space, only about 25%¹ of USAID’s expenditure supports directly distributing commodities to health facilities in target nations; the other 75% is spent on fly-in contractors who oversee that work. Despite this premium, on-time and in-full distribution rates often miss their targets, and stockouts are still common, according to USAID’s reports and audits.²

A Commercialization Fund can directly address policy goals such as localization or private-sector engagement by building resilient health supply chains through a marketplace of providers that ensures patients and providers access the supplies they need on time. In addition to improving sustainability and results and cutting costs, a well-structured Commercialization Fund can improve global health donor coordination, crowd-in new investments from other funders and philanthropy that want to pay for outcomes, and hasten the transition from donor-led aid models to country-led ones.

Plan of Action

USAID should create the Global Health Supply Chain Commercialization Fund, a $300 million initiative to purchase commercial supply chain services directly from operators, based on performance or results. USAID should pilot using the Commercialization Fund to pay providers in three countries where there are already thriving and well-established private logistics markets, such as Kenya, Nigeria, and Ghana. In these countries, dozens of logistics and healthcare providers operate at scale, serving millions of people.

With an initial focus on health logistics, USAID should use $300 million from its yet-to-be-awarded suite of $17 billion NextGen Global Health Supply Chain contracts to provide initial funding for the Commercialization Fund. If successful, the Commercialization Fund will create an open playing field for competition and crowd-in high-impact technology, innovation, and more market-based actors in global health supply chains. This fund will build upon existing efforts across the Agency to identify, incubate, and catalyze innovations from the private sector. 

To quickly stand up this Commercialization Fund and select vendors, Administrator Power should utilize her “impairment authority.” Though typically applied to emergencies, the “impairment authority” has been used previously during global health events like the COVID-19 pandemic and the Ebola response and could be used to achieve a specific policy priority such as localization and/or transforming the way USAID administers its global health supply chains. (See FAQ for more information regarding this authority).

The creation of this Fund, which can be fully budget-neutral, requires the following steps:

Step 1. USAID and DFC take administrative action to design and capitalize the $300 million, five-year, cross-cutting, and disease-agnostic Supply Chain Commercialization Fund. A joint aid effectiveness “tiger team” within USAID and the DFC should:

1. Spearhead the design and implementation framework for the Fund and stipulate clear, standardized key performance indicators (KPIs) to indicate significant improvements in health supply chain performance in countries where the Commercialization Fund operates.
2. Select three countries to adopt the Commercialization Fund, chosen in coordination with overseas USAID Missions and the DFC. Countries should be selected and prioritized based on factors such as analyses of health systems’ needs, the existence of local supply chain service providers, and countries’ desire to manage more of their own health supply chains. As a follow-on to the U.S.-Africa Leaders Summit, we recommend USAID and the DFC direct initial Commercialization Fund funds to support activities in Africa where there are already thriving and well-established private markets such as Ghana, Kenya, and Nigeria.
3. Set pricing for each KPI and product in each Commercialization Fund country market. For example, pay-for-performance indicators could include percent of on-time deliveries. USAID and the DFC should set high expectations for performance, such as 95+ percent on-time delivery, especially in geographies where existing market providers can already deliver against similarly rigorous targets in other sectors. USAID bureaus and missions, partner country governments, and in-country private sector healthcare and logistics leaders, as well as supply chain and innovative financing experts, should be consulted during this process. 
4. Choose funding mechanisms that pay for results (see Step 2 for details).
5. Provide blended financing to vendors that may need additional resources to scale their footprint and/or increase their capabilities.
6. Select a third-party auditor(s) to audit the results upon which providers are paid.

Step 2: USAID structures financial instruments to pay service providers against results delivered in selected Commercialization Fund countries

USAID should pay Commercialization Fund providers to deliver results, consistent with the KPIs set in Step 1 by the joint aid effectiveness “tiger team.” Pay-for-performance contracts can also provide incentives and/or price assurances for service providers to build infrastructure and expand to areas they don’t traditionally serve.

Structuring pay-for-performance tools will favor providers that can demonstrate their ability to deliver superior and/or more cost-effective results relative to status quo alternatives. Preference should be given to providers that are operational in the target country where there is existing market demand for their services, as evidenced by factors such as whether the host country government, national health insurance program, or consumers already pay for the providers’ services. USAID should work with the host country government(s) to select vendors to ensure strong country buy-in.

To maximize performance and competition, USAID should explicitly not use cost-reimbursable payment models that reimburse for effort and optimize for compliance and reporting. The red tape associated with these awards is so cumbersome that non-traditional USAID service providers cannot compete.³

USAID should consider using the following pay-for-performance modalities:

• Fixed-price, milestone-based awards that trigger payment when a service provider meets certain milestones, such as for each delivery made with a 95% on-time rate and with little-to-no product spoilage or wastage. Using fixed-price grants and contracts in this way can effectively make them function as forward-contracts that provide firms with advanced price assurances that, as long as they continue to deliver against predetermined objectives, the U.S. Government will pay. Fixed-amount grants and contracts are easier for non-traditional USAID partners to apply for and manage than more commonly-used “cost reimbursement” awards that reimburse vendors for time, materials, and effort and have enormous compliance costs. Because pay-for-results awards only pay upon proof of milestones achieved, they also increase accountability for the U.S. taxpayer.
  
  As USAID’s proposed acquisition and assistance implementation plan points out, “‘pay-for-result’ awards (such as firm fixed price contracts or fixed amount awards) can substantially reduce burdens on [contracting officers] and financial management staff as well as open doors for technically strong local partners unable to meet U.S. Government financial standards.”
  
• Innovation Incentive Awards (IIAs) that pay providers retroactively after they meet certain predetermined results criteria. This award authority, expanded by Congress in December 2022, enables USAID to pre-publish its willingness to pay up to $100,000 for certain well-defined, predetermined results; then pay retroactively once a service provider can demonstrate it met the intended objective.
  
  Unlike a fixed-price award, which establishes a longer-term relationship between USAID and the selected vendor, USAID can use the IIA modality to provide vendors with one-time spot payments. However, USAID could still use this payment modality to move more money at scale provided a vendor(s) can successfully meet multiple objectives (e.g. USAID could make multiple $100,000 payments for multiple on-time deliveries).
  
• USAID could pursue Other Transaction Authority (OTA) opportunities without additional authorization, but the Agency may also benefit from consultation with the White House, the Office of Management and Budget (OMB), and The Office of Information & Regulatory Affairs (OIRA), as well as Congress, to secure additional authorities or waivers to disburse Commercialization Fund resources using innovative pay-for-results tools, including OTA, which other federal agencies have used to invite greater private sector participation from nontraditional U.S. Government partners.

Step 3: USAID and DFC should provide countries with additional technical assistance resources to create intentional pathways for selected countries to contribute to the design and management of program implementation. 

To ensure these initiatives support countries’ needs and facilitate country ownership and increase voice, USAID should also consider establishing a supra-agency advisory board to support the success of the Commercialization Fund modeled after DFC’s Africa Investment Advisor Program that seats a panel of experts that can continually advise both agencies on strategic priorities, key risks, and award structure, etc. It could also model elements of the Millennium Challenge Corporation’s compact model to ensure participating countries have a hand in the design of relevant aspects of the Commercialization Fund. 

USAID should additionally provide participating Commercialization Fund countries with Technical Assistance resources to ensure that host country governments can eventually take on larger management responsibilities regarding the administration of Commercialization Fund pay-for-performance contracts.

Step 4: As needed, USAID and the DFC should collaborate to provide sustainable pathways for blended financing that allows existing market providers to access working capital to scale their footprint. 

While the DFC and USAID have worked on blended finance deals in the past, the Biden Administration should explicitly direct the two agencies to work together to identify and scale the footprints and capabilities of logistics and healthcare providers in targeted Commercialization Fund countries.

Many of the existing healthcare and logistics providers that could potentially manage a greater share of global health supply chains could need additional financing to expand their operations, increase working capital, or grow their capabilities, but they often find themselves in a chicken or the egg problem to secure financing from financial institutions like the DFC. 

Traditional banks and DFC investment officers often consider these companies to be potentially risky investments because their revenue in health supply chains is not assured, especially because one of the largest healthcare payers in many LMICs is the U.S. Government, but USAID (and other global health donors) have historically funded international aid contractors to manage countries’ health supply chains, not local firms or alternative service providers. However, at the same time, USAID and other donors have not relied more on existing logistics service providers to manage health supply chains because many of these providers do not operate at the scale of larger international aid contractors.

To break this cycle, and to enable the DFC and other lenders to offer better financing terms to firms that need it to grow their capabilities or secure working capital, USAID could provide identified firms with more blended finance deals, including guaranteed eligibility to receive pay-for-performance revenue using the funding modalities described above. It could also provide unrestricted early-stage and/or phased funding to cover operational costs associated with working with the U.S. Government.

Increasing available credit to firms via the DFC and using a USAID pay-for-performance contract as collateral would also enhance firms’ overall ability to raise credit from other sources. This assurance, in turn, reduces the cost of capital for receiving firms, resulting in more significant, impactful investments from private capital in the construction of other supply chain infrastructure, including warehouses, IT systems, and shipping fleets.

Step 5: Pending success, USAID and the DFC should replicate the Commercialization Fund in additional countries. Congress should codify the Commercialization Fund into law and authorize larger-scale commercialization funds in additional geographies and sectors as part of the BUILD Act reauthorization in 2025.

While this initial Commercialization Fund will focus on building sustainable, high-performing global health supply chains in three LMICs, the same blueprint could be leveraged in other countries and in other sectors where there are robust private sectors, such as in food or power.

1. Congress should require USAID and DFC to report overall Commercialization Fund performance every six months for a minimum of three years.
2. If the Commercialization Fund proves successful after the first year, USAID and the DFC should proactively invite other countries to participate to expand this model to other geographies, where appropriate.
3. If successful with healthcare supply chains, the Commercialization Fund should also be expanded to cover additional sectors and geographies and included in the BUILD Act 2025 reauthorization.

Conclusion

Continued reliance on traditional aid in commercial-ready sectors contributes to market failures, limits local agency, and minimizes the opportunity for sustainable impact.

As a team of researchers from the Carnegie Endowment’s Africa Program pointed out on the heels of the U.S.-Africa Leaders Summit, “A persistent humanitarian approach to Africa…creates pathologies of unhelpful dependency, insufficient focus on the drivers of inclusive growth, and perverse incentives for the continuation of the status quo by a small coterie of connected beneficiaries.” Those researchers identified 18 new initiatives announced at the Summit supported with public money in economic sectors that can facilitate trade, investments, entrepreneurship, and jobs creation, signaling an unprecedented readiness in this Administration to prioritize trade alongside aid. 

The Commercialization Fund outlined in this memo — a market-shaping mechanism designed to correct market failures that conventional aid models can perpetuate — has the potential to become a model for accelerating the transition of other key economic sectors away from the status quo and toward innovation, investment, impact, and long-term sustainability.

Summary

Economic development planning shouldn’t be this hard. Our planning system in the United States is highly disjointed, both from the bottom up and from the top down, and this negatively impacts our ability to build functioning, aligned, and specialized innovation ecosystems. Today, there is no single document or directive that outlines America’s economic priorities from an R&D, commercial, or economic development perspective. In addition, the organizations that carry out our economic development planning rarely include deep analysis of innovation ecosystems and opportunities for cluster development in their plans. 

The elements of a coherent innovation plan have started to appear in policy publications: for example, the 2022 National Security Strategy document outlines the need for a “modern industrial and innovation strategy,” and the biotechnology executive order, the CHIPS and Science Act, and the National Network for Critical Technology Assessment all send strong signals that a short list of industries, industrial capabilities, and strategic supply chains are critical to our country’s continued prosperity. However, while these signals might be strong, they are not yet clear and not yet strategically framed. The Office of Science and Technology Policy, in consultation with other federal agencies and non-governmental organizations, will bring together a national competitiveness plan from these disparate efforts in the coming months. Today, proponents of innovation would do well to think about the next step of this challenge: once a national competitiveness plan exists, how will it be implemented and who will lead the charge? 

Across the country, a network of regional development organizations (RDOs) regularly create and maintain economic development plans (called comprehensive economic development strategies, or CEDS) on a regional basis. At the same time, the federal government’s emphasis on building innovation ecosystems and developing regional innovation clusters has unleashed billions of dollars in funding for cluster-aligned projects. One might assume that these efforts are highly aligned and that CEDS created and maintained by RDOs provide the analysis and foundation for cluster development efforts. In reality, cluster development efforts rarely begin with a CEDS for a few key reasons: (1) CEDS are not aligned with a clear national competitiveness strategy; (2) the RDOs that create CEDS often have limited capacity to assess innovation ecosystems and even more limited resources with which to improve their capacity or conduct their analysis; and (3) existing CEDS are often hard to find (even for community members in the RDO’s district). 

Creating a better planning system will require clear, top-down guidance about competitiveness priorities, which is on its way. It will also require more sophisticated, focused, and better supported local economic planning. The U.S. Economic Development Administration (EDA) manages existing processes that allow for certification of RDOs and the regular production of CEDS. Additional guidelines and incentives should be structured into these programs in order to build our national capacity for strategic planning around shared competitiveness priorities and to ensure that regional planning processes incorporate a cohesive national framework. This will allow local cluster development efforts to best capitalize upon their respective comparative advantages, setting up communities for success as they develop plans to build stronger local economies, create better jobs, and promote sustainable growth.

Challenges

Challenge 1: Innovation ecosystem development is a form of economic development activity for which both funding and planning are highly fragmented. 

Innovation is a key part of economic development and is driven by young, dynamic firms, leading to higher levels of job creation and productivity gains. As such, the federal government has consistently taken an active role in incentivizing startup creation and growth, especially in high-tech industries. Historically, public sector tools for supporting innovation ecosystem development and startup creation have included grants, grand challenges, prize competitions, tax incentives, and loan assistance, among other mechanisms. In recent years, investments have promoted the growth of high-tech and advanced industry clusters in geographic areas outside of traditional innovation hubs like Silicon Valley in California or Boston’s Route 128 in Massachusetts. For example:

• The EDA’s Build Back Better Regional Challenge (BBBRC) awarded $1 billion to encourage cities and regions to develop regional development plans centered around expansion of industry hubs. The 21 winners supported the development of several high-priority industries by strengthening their underlying production, talent, and capital access capabilities.
• The EDA also administers programs like the Good Jobs Challenge (GJC) and Build to Scale (B2S), which enhance innovation capacity by strengthening local workforces and providing access to catalytic capital. Recently, the GJC awarded $500 million to 32 cities, colleges, and workforce organizations to expand local industry talent hubs, and B2S provided $47 million across 51 grants to a range of universities and accelerators.
• The Department of Energy (DoE)’s Regional Clean Hydrogen Hubs will establish 6 to 10 hubs to produce, process, deliver, store, and use clean hydrogen across a range of industrial applications. 
• The Department of Defense (DoD)’s Defense Manufacturing Community Support Program invests in workforce development, skills, R&D, and small business support to aid the defense innovation base in communities across the United States.

Many federal agencies provide funding for innovation ecosystem development activities. In 2018, the DoE spent $10 billion on R&D alone, and the passage of the Inflation Reduction Act (IRA) will add hundreds of billions of grant and loan support for commercialization of green technologies such as solar, wind, hydrogen, and carbon capture and storage. Beyond the DoE, the DoD’s DARPA, the Department of Homeland Security (DHS) Science & Technology Directorate, the National Science Foundation (NSF), and a host of other government agencies distribute billions in innovation funding, which has been recently buttressed by the American Rescue Plan, Inflation Reduction Act, CHIPS and Science Act, and the Infrastructure Investment and Jobs Act. These are all supported by smaller, but critically important, matching investments at the state level.

In short, innovation ecosystem development is economic development, and the federal government understands that. It has a clear national interest in prioritizing the development of certain industries in order to generate positive spillovers, correct market failures, and preserve national competitiveness. State governments and regional bodies have an interest in promoting the economic well-being of specific communities. So why is reconciling these interests across the country so difficult? The answer lies more in game theory than in politics. 

Challenge 2: Communities focus their ideas for developing innovation clusters in just a few industries and fail to give enough thought and analysis to their comparative advantage and their role in national competitiveness as they make these choices. 

When a region decides to assess its potential to develop an innovation cluster, its leaders must first decide which cluster to develop, turning to the information that is mostly easily accessible to them. This generally includes lagging metrics describing the region’s present-day economy (such as location quotient, industry-level employment, and skills concentration). In many regions of the country that do not already have a strong cluster, these metrics look very similar. It is also data that answers the wrong question. When seeking to build a cluster, regions should not just ask “What are our strengths today?” or “What industries have gotten the most press lately?” Instead, regions should ask “In which growing or emerging industries might our community have a comparative advantage?” Asking the wrong question also leads regions to end up proposing cluster efforts in a few industries (e.g., biotechnology, advanced manufacturing, and semiconductors), rather than picking a goal for cluster development in an industry that is comparatively underserved yet still vitally important (e.g., green tech, water tech, or aerospace). Even a modest concentration of assets in an underserved industry might position a region as a leading hub, and 40% of American regions cannot build identical hubs at the same time. 

For example, too many National Science Foundation Engines proposals are centered around semiconductor and microelectronic clusters. Funding to create semiconductor hubs is limited to a small number of places: recently, Commerce Secretary Gina Raimondo announced that the Department of Commerce would spend the $50 billion of CHIPS Act funds to develop at least two semiconductor hubs. However, given the scale and cost of developing semiconductor manufacturing facilities, as well as the required workforce, infrastructure, and other public services investments, only two or three additional hubs will likely be developed. Consequently, the vast majority of the 23 regions and cities that have submitted Engines applications focused on semiconductors and microelectronics will waste time and money while incurring significant opportunity costs chasing clusters that they are ill-suited to build. More importantly, however, this distracts cities and regions from making longer-term plans that they can stick to, which is essential to the long-term investments in infrastructure, education and training, housing, and land permitting, among others, that are needed to promote innovation.

While we have the systems and processes to support a massive push to integrate competitiveness priorities into local development plans, both the system and the organizations it funds have limited bandwidth and even more limited resources. Policymakers must also balance the need for increased attention to national competitiveness with the tradition of local control that is core to the American way. There is no appetite for central planning in the United States, but there is a desperate need for clear, shared priorities that allow each region to determine how their community can best serve a higher, patriotic purpose.

Challenge 3: The organizations responsible for economic planning (RDOs) need to improve their internal capacity to plan for innovation ecosystem development, which will require additional resources. 

It is easy to imagine a world in which RDOs take the lead on improving the quality of CEDS planning, and efforts led by the National Association for Development Organizations (NADO) Research Foundation are in place to do just that. In addition to managing an EDA-funded community of practice for RDOs, which includes maintaining resources and conducting webinar trainings, the NADO Research Foundation independently maintains CEDS Central, an excellent repository of best practices. While these resources and their consistent use demonstrate communities’ desires to plan well, they alone have not yet led to the widespread use of CEDS as a means of detailed cluster analysis and planning. 

When looking at any one individual RDO, it is easy to see why. RDOs (also called Councils of Governments, Economic Development Districts, Regional Development Districts, or Regional Planning Organizations) have incredibly broad planning responsibilities and limited staffing and resources. The CEDS that they manage reflect these broad remits and often include elements related to broadband access, transportation, aging population services, housing, education, and employment and economic growth. As a result, there is very little capacity to create clear and detailed innovation plans. Of the organizations whose plans NADO listed as exemplary on their CEDS Central site, the average total staff size was 17 with an average of three employees dedicated to economic development. Moreover, no employees were dedicated to innovation ecosystems, entrepreneurship, or cluster development. 

In order for RDOs to build their capacity for creating regional cluster development plans, they must train and hire staff with new capabilities. This is nearly impossible for these organizations to do on their own, given their current financial resources and the breadth of demands on their time. Changing that will require dedicated funding for new staff and training, as well as a clear directive to prioritize this work. 

Challenge 4: Many regional, local, state, and nongovernmental stakeholders participate in de facto economic planning activities. However, these are not universally integrated with RDO efforts, and transparency is a key barrier. 

The innovation funding picture is further complicated by a long tail of regional, local, and state players. There are over 520 RDOs in the United States. However, only 23 RDOs have published digital CEDS, indicating that these critical planning documents are not yet widely produced, or at least not widely shared, by local and regional stakeholders. In addition, there is no publicly accessible central repository of active CEDS. Providing such a resource could facilitate greater community alignment and better understanding of communities’ comparative advantage across the country. 

In addition, a wide range of private and social sector bodies participate in innovation planning and regional development. Incubators such as the Boston-based MassVentures provide venture funding but also support technology transfer, mentorship, and small business innovation research (SBIR) support. Industry trade organizations, local chambers of commerce, and large nonprofits lobby for regulatory change, help their constituents navigate government resources, and encourage informal planning. Without meaningful transparency in the CEDS process, these groups will struggle to align their activities with regional plans.

Transparency alone will not fix a highly fragmented system, but it will give groups that are inclined to seek alignment the opportunity to do so. It also allows the opportunity for more federal programs (including EDA’s own innovation programs) to require that applicants speak to alignment with their regional CEDS in more detailed ways during the application process and include alignment with CEDS as an evaluation criterion when applications are reviewed. 

Opportunity

R&D is at the core of innovation, and the United States has excelled compared to its peers and competitors. Both the European Union and China have struggled to reach the benchmark level of 2% of gross domestic product (GDP) invested in R&D, giving the United States a huge edge in cutting-edge technologies such as biotechnology, clean tech, and software. However, the decline in public R&D spending, which was over 1% of GDP in the 1970s but is now down to ~0.7%, has significant repercussions for competitiveness in emerging technologies that require significant public investment to overcome developmental hurdles. For example, China was first to launch a quantum encryption satellite, and by 2030 China is projected to have 25% of semiconductor manufacturing capacity, compared to just 10% in the United States.

To be clear, the United States retains a large quantitative and qualitative advantage in R&D and innovation, buttressed by a world-leading university system and large and growing private investments. Gross expenditures are increasing in the United States. However, private sector R&D is largely geared toward commercialization rather than developments in basic science given different incentives and time horizons. Economists have long recognized the market failures in early-stage R&D: private sector firms do not consider the positive social spillovers in investment, leading to suboptimal investment levels. The government is better able to justify the total social impact of investing in innovation.

Increasing the amount of public R&D and ecosystem spending, which includes workforce development and infrastructure, is crucial to accelerating American innovation. The $500 million appropriated in the FY23 omnibus spending bill for EDA’s Regional Technology and Innovation Hubs is a good start, but this is only a fraction of the amount proposed by the CHIPS Act. However, there is bipartisan agreement in favor of regional cluster building, most recently demonstrated by the December 2022 House Subcommittee on Research and Technology hearing on Building Regional Innovation Economies.

In addition to growing the cumulative effectiveness of national innovation spending, regionally based cluster development plans will distribute economic prosperity more equitably. In 2021, the United States invested nearly $350 billion in venture capital dollars. However, nearly $250 billion went to just three states: California, New York, and Massachusetts. While these three states are home to some of the nation’s largest, most productive, and best-educated cities, other regions also have budding clusters and compelling competitive advantages that deserve more financial and human capital. A well-structured innovation roadmap that starts with national priorities, incorporates local advantages, and encourages transparency will help public, private, and nonprofit stakeholders at the regional level develop long-term investment plans. In turn, this will enable a greater number of regions and individuals to reap the economic benefits of innovation, create good jobs, and increase standards of living.

Plan of Action

Recommendation 1: Direct, align, and coordinate innovation ecosystem development activities more clearly at the federal level. 

Better coordination of innovation spending starts at the top. Regions, states, and cities would benefit from greater clarity in the direction of U.S. priorities regarding innovation. This is especially true for technologies and sectors that are critical to national competitiveness, require significant upfront R&D, and have large spillover benefits.

• Publish an innovation roadmap every four years at the national level. The White House and key federal departments should work together to publish a comprehensive innovation roadmap every four years, shortly after the beginning of a President’s term. To enable the rapid development of the national roadmap, presidential campaigns should make place-based innovation policy a core part of their campaign and transition team structures. This document should be refreshed every year in conjunction with major events, such as the State of the Union and the publication of the National Security Strategy. At a minimum, the OSTP should include such a roadmap within their Quadrennial Science and Technology Review (Sec. 10613).
• Fund continuous assessment of critical technology areas and their needs. The NSF should continue its funding for efforts like the National Network for Critical Technology Assessment to ensure that our understanding of the specific needs within these industries remains current and technically relevant.
• The White House or Office of Management and Budget should regularly convene innovation ecosystems and cluster development program managers across the federal government. Ensuring that federal programs work together to facilitate local alignment and engagement with CEDS can help serve an ongoing alignment function. It can also prevent local fragmentation caused by funding of competing or misaligned efforts across agencies. 
• Key stakeholders should include the National Economic Council, Domestic Policy Council, and the National Security Council. The Departments of Commerce and Treasury and the Small Business Administration should also have major roles. In addition, other agencies should be involved in specific components of the innovation plan (such as the Departments of Labor and Education for workforce development). 

Recommendation 2: Direct RDOs to include detailed innovation and cluster planning in the CEDS process. The EDA should update CEDS Content Guidelines to require that plans address opportunities to build innovation ecosystems and develop local clusters, as they have to require that plans include resilience measures. These plans should include:

• A clear description of a selected area of cluster emphasis and a data-informed rationale for making that choice.
• An overall strategic direction.
• An asset capacity assessment relative to the selected cluster. 
• A high-level operational plan that outlines major initiatives.
• A description of active coalition members and their roles.
• A framework for evaluating progress, including key metrics. 

Recommendation 3: Give RDOs the resources needed to include detailed innovation and cluster planning in the CEDS process. Congress should authorize annual funds to support the placement of senior innovation and cluster leaders in RDOs as Regional Competitiveness Officers (RECOs). This program should be administered by the EDA or its designee and be modeled on the Economic Recovery Corps fellowships. This will build staff capacity to help coordinate the development of regional strategies that cut across state and city lines such that innovation planning becomes a regular facet of economic development policy.

• This funding should be prioritized in regions that applied to the Build Back Better Regional Challenge or the Good Jobs Challenge but did not win an award. 
• RECOs should be responsible for leading community efforts to create plans for innovation ecosystem and cluster support and facilitate broad engagement in community efforts to seek federal grants to implement these plans. 

The EDA should provide innovation ecosystems and cluster research training through its existing community of practice for RDOs to invest in developing innovation strategies as a component of their CEDS process.  

Recommendation 4: Facilitate local alignment through greater CEDS transparency and require that federally funded cluster development initiatives to ask applicants to demonstrate alignment with their regional CEDS as they apply. 

• The EDA should coordinate with RDOs to create and maintain a publicly accessible national database of CEDS and their accompanying innovation strategies. This will facilitate greater transparency and coordination among regional players working to identify ideas already in the market and coordinate resources appropriately. The database can also serve a critical transparency function and answer currently unanswerable questions like “How many U.S. regions are working to build biotech or semiconductor clusters?” 
• Federal cluster development programs across all agencies should require applicants to articulate their alignment with their regional CEDS. Staff and external reviewers should be instructed to consider the degree of alignment as a key criterion for all regional cluster-based programs. 
• Regions, states, and cities should ground their economic development in transparent and publicly available CEDS goals and strategies. Smaller entities and political designations that offer planning grants, support grants, and other resources could integrate alignment with the CEDS into their criteria for assessment.

Conclusion

The approach proposed here will facilitate the development of a coordinated national approach to innovation policy. Adopting this approach will help regions make better investments in their industry clusters, help private sector investors more productively channel funding into strategically vital areas, and accelerate the growth of high-quality jobs. Strengthening innovation planning will benefit all Americans by accelerating economic development, expanding local economic clusters, and generating middle-class employment that builds communities.