A Peek At Obama's SBA

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Last week, the Center for American Progress offered the incoming Obama Administration a public memo on the future of the Small Business Administration. CAP is a Democratic Party think tank with a stubbornly centrist (as the name implies) bent -- it was founded by Clinton White House hands -- and the SBA's mission resonates with centrists: it's the government helping business. "The new president has the opportunity to channel SBA's business development programs and support tools to help small businesses contribute to the growth and stability of the economy," writes (pdf) Fred Hochberg. "The new administration will also have to consider which SBA programs gutted or eliminated by the Bush administration should be revived or restored." Hochberg served as a deputy SBA administrator in the -- wait for it -- Clinton Administration.

Normally one construes this sort of memo as a plea for the new president's ear, often from someone who doesn't have it. Except that Hochberg, it turns out, has Obama's ear -- he's heading president-elect's SBA transition team. So the memo is more than a mere wish list; it could be a pretty good indication of what's likely to transpire at the SBA over the next four years. If Hochberg has his way, expect a mish-mash of initiatives, a mixture of good and bad, as centrist agendas usually are:

*Restoring the agency to cabinet level status (which it had in the Clinton Administration but not under Bush).

*Quickly developing new "financing tools" appropriate for today's global economy, and evaluating risk tolerance appropriate for a government-supported program." "This willingness to assume risk is under threat at the SBA," writes Hochberg. "The agency is no longer taking the risk needed to make the economy grow." One obvious example: the Small Business Investment Company program, which historically has aided growth companies by issuing debt or taking in them -- the Bush Administration is winding down the equity portion, citing large losses. That's even though it fills a growing gap in the marketplace: private VCs are increasingly passing over start-ups and early-stage firms.

*For the existing 7(a) loan guaranty program, lower fees for borrowers and banks, a higher guaranty rate (for most loans it's 75 percent; Hochberg would raise it to 80 or 90 percent), and increasing the maximum loan size.

*Simplifying, standardizing, and increasing the regulations that determine how big "small" can be to qualify for SBA programs. The agency has a welter of different caps on employees and revenue that vary according to industry, and also occasionally by program. It's hard to find people who argue against simplification, but it's easy to find people who argue against setting new limits that reach up into the pool of businesses. Under more generous size standards, the smallest firms may well suffer, especially when it comes to partaking in federal contracts -- it's much easier for a government agency to contract with a bigger firm than a smaller firm, and higher ceilings could allow a bureaucracy to meet its goals for small business contracting without having to trouble itself with those small firms.

*For the 8(a) Small Business Development Program, intended to boost "disadvantaged" (usually minority and women-owned) businesses with a combination of training and special access to government contracts, setting aside additional contract opportunities for firms leaving the program that aren't yet big enough to compete on their own. "Many businesses do not have the size or experience needed to continue to grow their companies once they graduate" from the program -- they lose access not just to contracts but to a "critical supporting network" of counseling and mentoring. But that's not really the 8(a)'s problem. The problem is that the program is so poorly funded that its counseling efforts are a joke, and many businesses in the program are simply looking for a side door into government purchasing offices. It has been so for all of the program's 40-year life, but especially in the last eight years. When I visited the Richmond SBA office in 2006, the 8(a) counselors were "advising" a hundred firms each. (In 1980, for comparison, the General Accounting Office found that 8(a) staff in the region counseled 17 clients -- and even that was too much.) Creating a new entitlement won't help but at the margins.

There are other ideas (and a couple of non-ideas), but you get the idea. So will President Obama take Hochberg up on his vision? It's hard to say. Incoming administrations typically don't give too much thought about the SBA. (One indicator of the agency's priority: the memo is not included in the Center's new book, Change For America, a comprehensive blueprint for the new administration, including a lengthy section on economics.) And some in the SBA itself take issue with Hochberg's analysis. On Friday the agency's press office issued a rebuttal (pdf) to the Center's memo. The agency (well, presumably Bush apparatchiks inside the agency) took issue with basically everything Hochberg wrote. According to the SBA, "Mr. Hochberg's analysis is largely inaccurate, outdated, and misleading and does not advance the cause of informed debate on the future of the Agency."

Until Obama names an SBA Administrator, Hochberg basically speaks for the incoming administration on the SBA, so the press release can be seen as the old guard criticizing the vanguard. It is an astonishing display of public acrimony, and one not obviously apparent elsewhere in the bureaucracy -- and that in itself may be an indication of the trouble the SBA is in.

Last updated: Dec 15, 2008




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