Bush Administration Quietly Dismantles SBA

Press Release

Bush Administration Quietly Dismantles SBA

Indicators Point to Withdrawal of Executive Support for Small Business

October 26, 2005

PETALUMA, Calif., Oct. 26 /PRNewswire/ -- While President Bush has made dozens of speeches referring to his support for small businesses of America, the reality is quite different. Since the Bush Administration came into power, the Small Business Administration's budget has been cut in half. The 2006 budget is $593 million, down from $1.1 billion in 2001. To put this into perspective, the Pentagon budget is just under $400 billion. Undisclosed sources at the SBA have acknowledged that the Bush Administration is attempting to "starve the SBA to death".

As a result of the budget cuts, personnel at the SBA that handle size protests, minority and disadvantaged business and government contracts have been specifically targeted for layoffs and early retirement. The SBA has now been downsized to the point that it is unable to effectively manage its major programs.

For example, response to the victims of Hurricanes Katrina and Rita has been painfully slow and the rejection rate for loan applicants has been staggering. The Associated Press reported that of the more than 9,500 applications for home and business loans in Texas and Louisiana, only six have been approved in spite of the fact that the agency has doubled the size of its staff with temporary employees to help process the disaster loans.

The awarding of contracts in the clean up of Hurricane Katrina has also been mismanaged. Without going through the normal bidding process, major contracts were quickly doled out to large corporations with links to Washington, while only 1.5 percent of the $1.6 billion awarded by the Federal Emergency Management Agency were awarded to minority businesses, less than a third of the 5 percent normally required.

Further attesting to this allegation is the misappropriation of $5 billion in post 9-11 recovery loans earmarked for small businesses. A recent report showed that of the 19,000 loans approved by the two programs, fewer than 11 percent went to companies in New York City and Washington, D.C. Instead, businesses as diverse as a South Dakota country radio station, a Virgin Islands perfume shop and a Utah dog boutique were beneficiaries of the government-guaranteed loan program.

These figures clearly illustrate the priorities of the current administration are not in support of American small business. "It's obvious that the Bush Administration is trying to reduce federal programs that assist small business by gutting budget and staff," stated Lloyd Chapman, president of the American Small Business League. "We're preparing to take legal action to prevent them from further harming small businesses that are trying to conduct business with the federal government."

About the ASBL
The American Small Business League was formed to promote and advocate policies that provide the greatest opportunity for small businesses - the 98% of U.S. companies with less than 100 employees. The ASBL is founded on the principle that small businesses, the backbone of a vital American economy, should receive the fair treatment promised by the Small Business Act of 1951. Representing small businesses in all fields and industries throughout the United States, the ASBL monitors existing policies and proposed policy changes by the Small Business Administration and other federal agencies that affect its members.


For more information contact
Lloyd Chapman

Senator Queries Slow SBA Hurricane Loans


Senator Queries Slow SBA Hurricane Loans

New York Times
October 21, 2005

WASHINGTON (AP) -- Lawmakers will investigate loan delays to hurricane-ravaged small companies along the Gulf Coast, the head of a Senate committee that oversees the Small Business Administration said Tuesday.

The situation is ''indefensible and inexcusable,'' said Sen. Olympia Snowe, R-Maine.

''Unfortunately, there appears to be no sense of urgency in providing the assistance hurricane victims so desperately need,'' she said. ''I intend to find out why.''

The SBA, which did not cut its first check to Hurricane Katrina until more than a month after the storm made landfall, also has yet to distribute any money for economic victims of Hurricane Rita within a month of its blow to the Louisiana-Texas border, according to documents obtained by The Associated Press.

The agency's figures show it has received more than 9,500 Katrina-related applications for home and business loans in Texas and Louisiana. Six loans have been approved.

The federal response has been ''simply unacceptable,'' said Rep. Nydia Velazquez of New York, top Democrat on the House Small Business Committee.

''It has been a month with no approvals or loans made for those firms impacted by Hurricane Rita -- now what will it be for the small businesses that were hit by Wilma?'' she said.

Agency officials say Rita has posed almost as many logistical problems for them as Katrina, which barreled ashore near New Orleans on Aug. 29 as a Category 4 storm.

Rita, a Category 3 hurricane as it came ashore on Sept. 24, was briefly measured as the most intense storm ever to pass through the Gulf of Mexico. Estimates put the total insured losses between $2.5 billion and $7 billion.

The agency promised a swift response. But the hurricane flooded roads, downed power lines, and shattered buildings, making it difficult for federal officials to assess damage and begin the process of making loans, an SBA official said.

''A lot depends on the situation on the ground,'' spokesman Michael Stamler said.

Agency officials came under criticism at a congressional hearing this month when lawmakers pressed for an investigation into the SBA's slow response in making loans after Katrina and the agency's high rejection rates for applicants. Within a month of the hurricane's landfall, more than 95 percent of all applicants had been rejected.

The rejection rate is described by officials as the result of a new computer system that takes all applications into account, not just loans that are seriously considered for approval. SBA officials acknowledged that the rejection rate for Rita-related loans probably would top 70 percent -- much higher than the traditional 50 percent to 55 percent for most disaster recovery efforts.

''We're dealing with areas where there's a lot of low-income people,'' said Herb Mitchell, head of the SBA's disaster assistance office.

Mitchell also said early figures tend to exaggerate the rejection rate. Typically, he said, people have to be rejected for government loans before they can apply for grants, which don't have to be paid back.

Last week, SBA officials announced they would relax some filing requirements to expedite loans by not requiring a three-year monthly sales analysis, three years of tax returns, and title or record searches for loans under $50,000. The agency also has given a one-year deferral of principal payments to existing borrowers in the disaster area.

The agency said it has more than doubled the size of its staff since the hurricane season began and dramatically increased the size of its disaster assistance office by adding temporary employees to help process loans.

Snowe, who heads the Senate Small Business and Entrepreneurship Committee, was not impressed.

''While I understand the SBA is responding to the most catastrophic natural disaster in United States history, I have growing doubts about the agency's management and leadership,'' she said. ''The SBA's continued failure to process and approve disaster loans in a timely manner for the victims of Hurricane Katrina and Rita is indefensible and inexcusable.''

Sizing Things Up


Sizing Things Up

Under fire for giving too many contracts to big business, the SBA fights back.

By Christopher Moraff
Entrepreneur Magazine
October 1, 2005

Depending on whom you talk to, Texas-born small-business advocate Lloyd Chapman is either a modern-day Cesar Chavez or a conspiracy theorist with a grudge. Either way, as the SBA has learned, he's become hard to ignore.

In late 2004, Chapman and his organization, the American Small Business League, spearheaded an investigation into a series of flaws in the SBA's contract procurement process, culminating in a lawsuit. Since the end of 2004, at least five reports from three different government agencies--the Government Accountability Office, the SBA Office of Advocacy and the SBA Office of the Inspector General--have noted irregularities in the SBA's system of awarding small-business contracts, prompted in part by Chapman's incessant lobbying. The agencies' findings allege complacency at best, borderline fraud at worst.

The ASBL complaint focused on the SBA's refusal to offer up a draft of a 2003 report that highlights serious discrepancies in the awarding of federal contracts. Chapman sued for the data, claiming the agency was hiding blatant contracting fraud by releasing only an edited version of the original document. The SBA initially appealed a judge's order to release the paper, but eventually acquiesced in June. The draft report, conducted by research firm Eagle Eye Inc., shows that in 2002, "$2 billion in contracts coded as small-business awards went to 39 firms designated as large businesses," and lists possible vendor fraud as one of the causes.

The SBA Office of Advocacy's John McDowell is quick to defend his department's actions. "There is nothing sensational about the draft as compared to the final product," McDowell says. "All our edits were designed to eliminate speculation and produce a quality report grounded in sound data."

Chapman points out, however, that none of the companies has ever been prosecuted for falsifying their claims, despite a provision in the Small Business Act that lists intentional misrepresentation as an offense punishable by up to 10 years in prison.

According to the SBA, no action has been taken against these companies because the mistakes were simple company coding errors, not unusual for a database containing thousands of names. The complexity of the SBA's Central Contractor Registration database system--which, until April of this year, relied on self-reporting--only serves to exacerbate the problem.

Furthermore, enforcement of size standards occurs only when a company's size classification is protested by a contracting officer, another bidder or the SBA itself. In 2002, the SBA processed 383 of these protests, of which 29 percent were dismissed on procedural grounds. Of the remaining cases, 85 firms were found to be misclassified.

Earlier this year, the Department of Energy was singled out after a GAO report showed it had vastly overestimated the number of contracts it was awarding to small businesses. Prompted by the findings, Sen. Olympia Snowe (R-Maine), chair of the Senate Committee on Small Business and Entrepreneurship, urged the DOE to work on fixing the problem. In response to pressure from the committee, the DOE agreed to better police itself.

For its part, the SBA is eager to assuage critics and spent the summer struggling to repair its image in the U.S. small-business community. It held a series of hearings to gauge sentiment on issues, the most important of which was its proposed size-standard changes. The SBA wants to switch to a standard based strictly on number of employees, abandoning the current mix of size- and revenue-based indicators.

But changing the standards may not be the answer. Paul Murphy, author of the original Eagle Eye report, says of the proposal, "Our analysis concludes that on average, the proposed revisions will harm the truly small and emerging businesses by reclassifying a group of larger contractors that exceed revenue standards but not the proposed new labor standards."

After holding a hearing in her home state of Maine, Snowe, too, urged caution: "Any reform of this system must be fair to businesses of every size, help them grow to become competitive in national and global markets, and give due regard to the unique circumstances of the industries in which they compete," Snowe said in a statement.

It's likely the discussions will carry on into 2006 before a compromise is reached.