Petaluma, Calif. - Today, President Barack Obama is expected to sign into law small business “jobs legislation” that is unlikely to create any substantial number of net new jobs, while the most significant economic stimulus proposed to date sits idle in the House Committee on Small Business. 

H.R. 2568, the Fairness and Transparency in Contracting Act, would address the small business community’s greatest need: the demand for products and services.  Yet the bill has received little fanfare from the administration or Congress. H.R. 2568 would stop the diversion of billions of dollars a year in federal small business contracts to large corporations, and significantly increase the volume of federal contracts awarded to small businesses.

Recent reports from the Congressional Oversight Panel, and the National Federation of Independent Businesses (NFIB) have concluded that the small business community’s greatest need is demand for its products and services. H.R. 2568 would inject billions of dollars directly into the small business community.  President Obama’s H.R. 5297, the Small Business Jobs Act, will not direct federal spending to small businesses.
(http://www.nfib.com/Portals/0/PDF/sbet/SBET201006.pdf ; http://www.huffingtonpost.com/2010/05/13/federal-oversight-panel-s_n_574781.html)  

The Small Business Act requires a minimum of 23 percent of the total value of all prime contracts be awarded to small businesses.  The American Small Business League (ASBL) has estimated that the government is currently awarding less than 5 percent to small businesses.  H.R. 2568 would increase the percentage of government contracts awarded to small businesses by more than 18 percent.

In April of 2010, U.S. Senate Committee on Small Business and Entrepreneurship Chair, Mary L. Landrieu (D-LA), estimated that increasing contracts to small businesses by just 1 percent would create more than 100,000 new jobs.  Based on this estimate, H.R. 2568 could create more than 1.8 million new jobs. (www.smallbusinessmajority.org/_docs/resources/SBC_Jobs_Package.pdf)  

In November of 2009, Former Secretary of Labor, and noted economist Robert Reich stated, “Right now there is only one buyer left, the government.  The only way to get jobs back right now is for the federal government to spend even more on the roads, bridges, schools, parks, public transport and everything else we need.” H.R. 2568 would direct more than $100 billion a year in existing federal infrastructure spending to the nation’s 27 million small businesses.
(http://www.huffingtonpost.com/robert-reich/how-and-why-obama-imusti_b_347095.html)  

“H.R. 2568 is the most efficient way to create jobs and stimulate the economy.  It’s reasonable, logical, cost effective and deficit neutral,” ASBL President Lloyd Chapman said. “Considering the current state of our economy, I can’t imagine why President Obama and Congress would not support legislation to stop giving small business contracts to large and Fortune 500 firms.”

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Today, the U.S. House of Representatives passed “jobs legislation” that could be devastating for the nation’s small businesses.  H.R. 5297, the Small Business Jobs Act contains a loophole that may allow large businesses to fraudulently masquerade as small businesses without fear of prosecution.

I strongly believe that the net effect of this bill will be harmful to job growth, and the potential for harm greatly outweighs any potential for benefit.  The American Small Business League (ASBL) and I are concerned about the following:

1. The tax provisions of H.R. 5297 are not likely to create jobs. Research by the Economic Policy Institute, and Princeton University's Center for Economic Policy Studies indicates that tax cuts do not effectively create jobs or stimulate the economy.  The tax cuts are so narrowly focused that they are unlikely to provide a significant benefit to most small businesses.  A more effective way would be to give any firm with less than 100 employees a 5 percent cut in their federal taxes.  (http://www.huffingtonpost.com/2010/07/28/bush-tax-cuts-extending_n_662743.html;http://www.epi.org/analysis_and_opinion/entry/tax_cuts_wont_create_jobs/) 

 
2. The lending provisions of H.R. 5297 are not likely to create jobs.  Recently, the Congressional Oversight Panel, and the National Federation of Independent Businesses (NFIB) released highly critical reports regarding the Obama Administration’s efforts to further bolster community bank lending to small businesses. Both reports indicated that small businesses across the country are in need of business opportunities and increased demand for their products and services as opposed to increased access to capital.   (http://www.nfib.com/Portals/0/PDF/sbet/SBET201006.pdf; http://www.huffingtonpost.com/2010/05/13/federal-oversight-panel-s_n_574781.html)

3. Language in H.R 5297 gives the SBA the ability to change size standards for small businesses.   This language will almost certainly lead to an increase in the volume of contracts that are awarded to large businesses, and a decrease in the volume of federal contracts awarded to small businesses.  New York venture capitalist Karen Mills is almost certain to change size standards in such a way that it will divert federal small business contracts to firms owned and controlled by some of the nation’s wealthiest venture capitalists.

4. H.R. 5297 contains an exemption from capital gains tax on investment in small businesses.  This language was unquestionably a political payback to the venture capitalists that backed President Obama’s run for the White House.

5. The bill fails to stop the diversion of federal small business contracts to corporate giants.  The most straight forward, cost effective, efficient, and deficit neutral way to create jobs and stimulate the national economy is to stop the diversion of more than $100 billion a year in federal small business contracts to corporate giants and redirect those funds to small businesses.

“Anyone that knows anything about me, knows that I am a small business advocate through-and-through.  I hate this bill, and I think it is going to hurt small businesses,” ASBL President Lloyd Chapman said. “ I know that the Small Business Administration (SBA) is going to abuse the language in this bill to divert government small business contracts to large corporations and firms owned by venture capitalists.  I am 100 percent sure that it is going to hurt small businesses.”

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On Thursday, the U.S. House of Representatives passed “jobs legislation” that will do little to create jobs or stimulate the nation’s economy.  The American Small Business League (ASBL) maintains H.R. 5297, the Small Business Jobs Act, contains a loophole that may hurt small businesses by allowing large businesses to hijack small business programs without fear of prosecution.

Section 1341 states that the Administrator of the Small Business Administration (SBA), “shall promulgate regulations to provide adequate protections to individuals and business concerns from liability under this subsection in cases of unintentional errors, technical malfunctions, and other similar situations.” (http://finance.senate.gov/legislation/details/?id=da799068-5056-a032-5229-92cebbd2b7a0)   

The ASBL believes that this language may create a loophole under which large prime contractors could be protected from prosecution for felony contracting fraud under the guise of, “unintentional errors, technical malfunctions, and other similar situations.”

Since 2003, more than a dozen federal investigations have uncovered billions of dollars in federal small business contracts actually flowing into the hands of corporate giants.  Firms included in the Obama Administration’s small business data include Lockheed Martin, Boeing, Raytheon, General Dynamics, Ssangyong Corporation headquartered in South Korea, and Italian firm Finmeccanica SpA.  (https://www.asbl.com/documents/20090825TopSmallBusinessContractors2008.pdf)  

“In February of 2008, President Obama promised to end the diversion of federal small business contracts to corporate giants. This bill creates a colossal loophole that will make it easier for large firms to avoid prosecution for contracting fraud,” ASBL President Lloyd Chapman said. “In my opinion, the net effect of this bill will be harmful to job growth.  The potential for harm greatly outweighs any potential for benefit.”
 
In addition to concerns about Section 1341, the ASBL does not believe H.R. 5297’s lending provisions or tax cuts are likely to create new jobs.  Research by the Economic Policy Institute and Princeton University's Center for Economic Policy Studies indicates that tax cuts do not create jobs.  Additionally, the National Federation of Independent Businesses (NFIB) and the Congressional Oversight Panel have separately concluded that small businesses are in desperate need of demand as opposed to loans.

The ASBL maintains that the most effective way to create jobs and stimulate the economy is to direct federal infrastructure spending to small businesses.  This could be done by adopting H.R. 2568, the Fairness and Transparency in Contracting Act, which would stop the diversion of federal small business contracts to corporate giants.

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