Beware of politicians bearing changes in federal policies.

More often than not, there is more to their goals than simply streamlining government.

That's our take on proposals in Congress that would allow venture capitalists to receive federal contracts currently targeted for small businesses.

House Speaker Nancy Pelosi has proposed legislation that would remove from the Small Business Act wording that defines a small business as "independently owned."

That would make large venture capital firms eligible for more government contracts, according to the American Small Business League.

"The new loophole could divert billions of dollars in federal small business contracts away from middle class firms and into the hands of wealthy investors," the ASBL said in a press release issued this month.

"If Congress does adopt legislation that allows venture capitalists to participate in federal small business contracting programs, thousands of middle class jobs could be lost as legitimate small businesses struggle to compete head-to-head with firms owned and controlled by billionaire investors."

If there is one thing we have learned from the banking and mortgage crisis it is that larger does not always equate to better.

The ASBL also points out that many of the largest venture capital firms are located in Pelosi's California district and that the congresswoman has received more than $100,000 from these companies or their lobbyists.

That's not a large amount in Washington politics.

But it is just as important to note that her proposal is also opposed by the Small Business Administration, the U.S. Chamber of Commerce, the National Association of Government Contractors and the National Small Business Association.

Can so many influential business groups be wrong?

We think not, and other members of Congress will hopefully recognize the impact the change would have on small businesses around the United States.

It's an important question for small businesses. As Independent Street reminds us, and as we noted when we reported that the federal government had failed to fulfill its legal contracting obligations, 23% of all federal contracts are supposed to go to small businesses. Now, not all of these small businesses are small: depending on the industry, such a company can pull in as much as $15 million a year, for example. But it's an important issue. In fact, there's one group--the American Small Business League--that exists more or less solely to try to force the goverment to follow its own rules.

Given that fixed 23% figure, as goes the total number of contracts, so should go the number that are thrown to small businesses. So the question is: is that number poised to rise or to fall with the dawning of a new year, the deepening of a recession, and, of course, the introduction of a Democratic presidential administration? You'd be surprised how two-way the argument is.

On the one hand, Democrats generally like to spend more, and Obama has proposed a $825 billion stimulus plan--just at the outset--that includes hundreds of billions of dollars to be doled out to and spent on the promotion of "green jobs," the construction of new infrastructure, and other vast projects (including, importantly, money to the states). The economic philosophy of John Maynard Keynes is never more in vogue during recessions, so look for continued stimulus spending ultimately targeted towards increasing consumer demand over the next year and beyond.

On the other hand, as this great post on washingtonpost.com (our sister site) makes clear, in recent years federal contracts have ballooned, likely beyond where they should have--this is due to inefficiencies and waste--and Obama has come in promising to trim the federal government's fat. In the previous fiscal year, federal contracts amounted to $532 billion; compare that to the then-record $465 billion in only the previous fiscal year, much less to the $13 billion thirty years ago.

Moreover, the department of the federal government that quite possibly accounts for the plurality of this waste is the Pentagon--among the only departments that are actually potential candidates for less funding and contracting during a typical Democratic administration.

So you can see that a plausible case can be made either way: federal contracts truly could go up or down, and small businesses' share with them. Ideally, you would probably see an overall increase, coaxed by wisely targeted stimulus dollars and tempered by cuts where taxpayer money is being spent imprudently and wastefully.

Of course, another way to increase small business contracts is to ensure, no matter the total in federal contracts, that small businesses are getting their fair--and legally mandated--share. Surely Republicans and Democrats alike can get behind obeying the law.

Source:  http://bizbox.slate.com/blog/2009/01/will_federal_contracting_dolla.php

The inauguration balls are over. Small-business owners now want to know: How big a piece will they get out of the new spending pie?

After all, President Obama has proposed spending billions of dollars on federal projects like upgrading U.S. highways and infrastructure and building “green” power grids. The debate over whether enough small businesses are winning contracts is sure to get heated as federal projects get under way.

Some background: Congress has a goal that 23% of all prime and subprime government contract dollars go to small business. Yet, as we’ve reported, the SBA’s record of ensuring small firms get that share of federal contracts is less than remarkable. A Washington Post report a few months ago found that many corporate giants, such as Dell Inc. and Lockheed Martin Corp., managed to score contracts coded as small-business contracts.

The American Small Business League, a group focused on small-business contracting issues, is concerned that President Obama isn’t passionate enough about the issue. They feel Mr. Obama has wavered on legislation, opposed by the League, that would allow venture-capital firms to qualify for small-business contracts after they purchase a small company, essentially by changing the definition of a small business as “independently owned.” They were, then, disheartened to see Mr. Obama pick a venture capitalist as new SBA administrator.

President Obama has said little in recent weeks about where he stands on small-business contracting and the SBA’s new direction won’t be clear until after Karen Gordon Mills, the new administrator, is confirmed.

Readers, how important is the government-contract issue to you? What can the government do to make it easier for small businesses to win contracts?

Source:  http://blogs.wsj.com/independentstreet/