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SBA Budget Under Fire

on March 22, 2011 Source: Policy Dialogue on Entrepreneurship

Last week, Rep. Sam Graves (R-MO), the Chairman of the House Small Business Committee, made headlines when he proposed nearly $100 million in cuts to the U.S. Small Business Administration’s FY 2012 budget.  In his press release, he said, “Fourteen programs are defunded because they duplicate existing programs at the SBA or at other agencies.  Other programs receive no recommendations of funds where there is an absence of any evidence that they will help small businesses create new jobs.  However, the core functions of the SBA to make capital available, provide advice, and increase utilization of small businesses as federal contractors are preserved and improved.”  He cited a study from the Republican staff of the Joint Economic Committee illustrating how fiscal discipline could help to grow the economy in the long-run. 

But, when one looks at the cuts being proposed to the SBA’s budget, it is clear that the Small Business Committee also utilized the General Accountability Office’s recent study, “Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue.”  This study, which estimated that the government could save at least $100 billion through consolidation of duplicated programs, was requested by Sen. Tom Coburn (R-OK).  Coburn immediately issued a press release trumpeting the findings.  “This report also shows we could save taxpayers hundreds of billions of dollars every year without cutting services.  And, in many cases, smart consolidations will improve service.  GAO has identified a mother lode of government waste and duplication that should keep Congress busy for the rest of the year,” Dr. Coburn said. 

Specific to entrepreneurship, the GAO study identified 52 programs at the U.S. Commerce Department, U.S. Department of Housing and Urban Development, the U.S. Department of Agriculture, and the SBA.  It writes, “… narrowly scoped programs comprise 21 of 52 programs that fund entrepreneurial efforts.  Moreover, most of these 21 programs target similar geographic areas.”  Most explicitly, the GAO study remained critical of the HUBZone program, similar to its analysis two years ago.  Indeed, when SBA Administrator Karen Mills testified before the House Small Business Committee on March 2, she was asked about the GAO study, both on duplication of programs by Rep. Allen West (R-FL) and on the effectiveness of the HUBZone program by Rep. Nydia Velazquez (D-NY).  In her response, Administrator Mills noted that the SBA and other federal agencies were exploring ways to “tighten their belts.”

The President’s FY 2012 budget also included some cuts to the entrepreneurial development programs at SBA, most notably a reduction in the amount of funding given to Small Business Development Centers (SBDC) but not the SCORE program.  This led many to accuse the Administration of playing favorites.  According to a “views and estimates” letter delivered to the House Budget Committee, the House Small Business Committee budget for SBA, if passed, would restore some of the SBDC funding, but a host of other programs would be eliminated, mostly because they overlap with other programs (namely SBDC and SCORE) or they are deemed ineffective.  Specifically, this letter states the following:

Funds should be reduced for: 7(j) technical assistance; microloan technical assistance; and the National Women’s Business Council.  Funding should be eliminated for the following existing programs: Women’s Business Centers; Veterans Business Centers; Prime Technical Assistance: HUBZone outreach; and the Offices of Native American Affairs, and International Trade.  No funds should be made available for the following initiatives: Drug-Free Workplace, Regional Innovation Clusters, and Emerging Leaders programs.

In addition, Rep. Grave’s budget would eliminate the Regional Administrator and Regional Advocate positions at SBA and the Office of Advocacy.  In their analysis of this budget, The New York Times noted that there were also “winners:”

In addition to restoring money to the small business development centers, the Republicans propose using $2 million of the savings to bolster S.B.A. staff that helps small businesses win federal contracts, $2 million for the Inspector General’s office, and more to speed up the review of size standards and hire additional staff for the Office of Advocacy.

For the most part, the capital access programs of the SBA were left largely untouched by this budget.

Rep. Velazquez, who is the ranking member of the House Small Business Committee, does not agree with all of the cuts in the proposed Republican budget for the SBA.  She told Kent Hoover of, for instance, that she opposed eliminating the Veterans Business Centers, which assist military veterans to become entrepreneurs, and she is a strong advocate of the SBDC network.  But, the Congresswoman from New York did suggest – much as she did to the SBA Administrator in the March 2 hearing – that SBA is diverting funds away from “reputable programs” to give to “untested” ones.

The challenge with this bill is that it boldly goes after programs with built-in constituents, particularly women and veteran entrepreneurs.  That could provide a hurdle for passage in the U.S. House, even with Republican majorities.  With that said, I am surprised by how little I have heard from these groups so far about cuts to these programs.  Perhaps that is a sign that they do not expect to see these cuts fulfilled, or maybe it is just too soon.  I reached out to Senate Small Business & Entrepreneurship Committee’s staff and was told that they were studying the House committee’s cuts.  Nonetheless, I suspect that Sen. Mary Landrieu (D-LA) is unlikely to call for the elimination of many of these programs in her FY 2012 budget proposals, necessitating some form of reconciliation of two distinctly different viewpoints.  I would expect a vocal and often heated debate in the coming months.

Category:  Digesting DC  Tags:  budget, small business

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