I’ve been surprised by how little coverage has been afforded to the Office of Strategic Capital, or OSC. But my lobbyist friends tell me that the office is the “best kept secret in DC,” so naturally I’m compelled to talk loudly about it on the internet.
Authorized in 2022 and formally enacted into law by the FY24 defense package, the Department of Defense’s loan office was originally a small shop, with a loan authority of just over $900 million. But Republicans’ One Big Beautiful Bill (OB3) supersized OSC, giving the office $200 billion in loan authority and $1 billion in credit subsidy. It now effectively represents the DoD’s version of the DOE Loan Programs Office.
With extraordinary new resources at its disposal, OSC now has the task of figuring out what to actually do with the money. This will start with staffing up the office, which I’ve been told may still have a single-digit number of employees. But OSC will also have to determine its risk tolerance and remit.
OSC’s authorities were left pretty open-ended by the FY24 NDAA. It was given thirty-one different “strategic technology areas,” and the requirement that its loans go to “dual-use technologies” – that is, technologies with both commercial and defense applications. And OB3 specifically carved out half of the office’s $200 billion for critical minerals, leaving $100 billion to spread across thirty siloes.
With much of OSC’s strategy still up in the air, I thought it would be useful to consult current and former employees of government loan- and grant-making offices about reforms that could help the office become more effective. Here are five consensus picks.
Allow for faster and more flexible hiring.
Use the same hiring authorities that the last administration used for administering BIL and IRA programs. In particular, Schedule A and Direct Hiring Authority. OPM can invoke these authorities, but it’s also helpful to write them into statute.
Eg: “The Secretary may appoint, without regard to the provisions of subchapter I of chapter 33 of title 5, United States Code, other than sections 3303 and 3328, such personnel as may be necessary to carry out the functions of the program.”
Clarify that there is no prohibition on “double dipping.”
It’s not totally clear whether there’s a restriction on “double dipping” at OSC, wherein OSC loan recipients are not allowed to also sell to DOD. Guidance would suggest that there is some restriction, while some others have told me that there is generally a restriction but that it’s case-by-case.
Double dipping prohibitions represents a real constraint for a number of loan applicants – so Congress should clarify that there is not a restriction.
Provide OSC more credit subsidy.
OSC has $200 billion in loan authority but only $1 billion of credit subsidy. There’s no way you can support $200 billion of loans off of that level of credit subsidy. For example, most loans to critical mineral projects have less than 10:1 leverage.
A couple more billion would go a long way.
Simplify OSC’s strategic technology areas.
There are 31 strategic technology areas for OSC. Through OB3 the office got $200 billion in lending authority, with $100 billion specifically designated for critical minerals.
That means that there’s an additional $100 billion left for 30 strategic technology areas. That is entirely too many strategic technology areas. So OSC’s many siloes should probably be bucketed, and Congress can help by calling out priorities and the amount of funding (these ten programs will get x%, or whatever).
I don’t have strong opinions here, so I just asked ChatGPT for a mock framework for compressing the 31 siloes. Here’s what it gave me: (1) Microelectronics and Enablers (20%), (2) Energy Storage and Industrial Materials (15%), (3) Space and Resilient Communications (15%), (4) Energy and Fuels (10%), (5) Compute, Data & Autonomy (10%), (6) Frontier Sciences (10%), and then (7) a remaining 15% for cross-cutting equipment financing, etc.
OSC needs a director.
I expect we’ll cover the office in greater detail in the future. More soon!