The wolf is at the door

Budget cuts and Barreto's resignation leave SBA toothless

One small-business advocate is sounding the alarm as best he can that companies should prepare for the possible closure of the Small Business Administration.
It's just a matter of time, said Lloyd Chapman, president of the American Small Business League. President Bush and the Republican-controlled Congress want to shut SBA's doors for good, he said.

"People need to panic right now and start doing something," he said. "A lot of them are going to be going out of business."

Action or reaction?

Deep budget cuts in recent years have created a keen sense of foreboding among small businesses worried that the agency may not have the tools to carry out its mission as their advocate. Add to this the resignation last month of SBA Administrator Hector Barreto, and it's evident that the agency is struggling for direction, perhaps even its survival.

But Chapman's call to push the panic button may be premature, according to research analysts and industry observers. Even if the agency is closed or overhauled, a reduction in programs would not eliminate the small-business contracting market, said Stan Soloway, president of the Professional Services Council and a Washington Technology columnist.

The evidence the council has collected does not support the contention that the government is out to diminish the role of small business in federal procurement, Soloway said. But the role of SBA is a different story altogether, he added.

Rodney Thomas, president and CEO of Thomas and Herbert Consulting LLC, Silver Spring, Md., said he has yet to hear of concern among other small IT companies that SBA is in real jeopardy. Thomas' company is in the SBA's 8(a) and HUBZone programs.

But Thomas said he and other small-business owners are worried about the proposed budget cuts.

"There's a lot of anxiety among small businesses," he said. "Nobody has a concrete picture of what those negative outcomes will be, although they believe the outcomes will be negative and that they will impact the small companies out there."

SBA oversees large loan programs, is an advocate for small companies in government contracting and is charged with oversight of governmentwide, small-business contracting programs and goals.

SBA's budget has been cut from more than $1.2 billion in fiscal 2001 to $499 million in 2006. The request for 2007 is $429 million, not counting disaster loans.

In March, a report from the House Small Business Committee detailed more than $6 billion in proposed cuts to small-business support programs across the federal government in President Bush's 2007 budget proposal. More than $3 billion in proposed cuts are aimed directly at programs supporting small technology companies, according to the report.

Supporters and detractors of small-business programs agree that an important debate about SBA is just beginning, and the results will greatly affect the future of the agency and small IT contractors.

The reality of small-business contracting, according to both Soloway and Thomas, is that small businesses are landing their share of federal contracts, and that SBA has done a good job as an advocate for small companies to win work.

Agency procurement officers are getting increasingly larger contracts for small companies, Thomas said.

Chapman brushed aside such assertions, however, and charged that many of those contracts actually go to large businesses, not small companies. SBA has been investigating such claims, and even reached a $1 million settlement with a company it said posed as a small business to win set-aside contracts.

Not all agencies can meet their small-business contracting goals, and those that do may be misrepresenting how many contracts went to small companies.

It's in the role of watchdog that SBA is failing by not getting agencies to meet their goal of 23 percent of all contract dollars going to small companies, Thomas said.

Oversight of the government's small-business contracting goals should be given to either the Government Accountability Office or the Office of Management and Budget, he said.

"Because GAO and OMB are, in comparison to SBA, well-respected, and in some cases feared, it may have even more teeth," he said.

Agency budgets should be tied to their ability to meet contracting goals, Thomas said.
"If you tie it to the money, and the agency's ability to get dollars, the goals will be met, I promise you," he said.

Getting OMB or GAO involved is a bad idea, said John Kost, managing vice president for market research firm Gartner Inc., Stamford, Conn. SBA and its programs are a way of inserting social policies into the contracting process, and GAO, the audit arm of the legislative branch of the government, has no role in the executive branch's procurement process, Kost said.

"For OMB, an oversight role in social policy would run contrary to its fiduciary responsibility to protect the best interests of the taxpayer," he said.

The rumor mill

The way SBA is perceived is another of its problems. In the wake of Barreto's resignation, word quickly spread throughout the small-business community that the Office of Federal Contract Assistance for Veteran Business Owners Office of Government Contracting had been closed.

SBA spokesman Raul Cisneros denied that the program had been shuttered, and said it had been "shifted to the Office of Veterans Business Development. With the resources in that office, we can better serve the veteran's business community."

Asked to explain why veteran business owners saw the move as a scale-back of support for veteran businesses, Cisneros answered, "Certainly not," and offered no further explanation.

The move of the office should not be assumed to be negative, Soloway said. SBA is known for its inefficiencies, he said, and any moves it makes to improve should be supported.

However, he added, "that does not mean that every time they do this they're doing it with the right intentions."

At press time, SBA had yet to announce the program move. With so little explanation from official sources, the small-business community is left on its own to try and determine what the consolidation means to companies and their futures.

Oversight, size standards and poor communications are some of the issues likely to figure large in any debate about small business and SBA's role.

"We're getting to the point where it's time to start having some of these discussions, but it's hard to have them," Soloway said.

Staff Writer Ethan Butterfield can be reached at

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