Does the Small Business Administration really matter to the health of America's small business community? The agency's size and status have been shrinking for years–President George W. Bush demoted the agency from cabinet-level status--and it has gotten its share of bad press.

This spring, the agency was subjected to bipartisan bashing after the public learned of massive SNAFUs and rampant fraud in providing SBA-guaranteed disaster loans after Hurricane Katrina. There have been allegations of increasing abuse of small-business set-asides in federal procurement programs, including huge contracts for Boeing Corp., as reported recently in the New York Times. And a chorus of SBA critics sang out when they learned the identity of the nominee for chairman this spring–Steven C. Preston, a Washington neophyte and former Lehman Brothers investment banker who was most recently an executive with $3.2 billion Service Master, a holding company with maintenance, janitorial, gardening and other service companies that employ 39,000.

Congress, which confirmed Preston after a brief hearing on June 29, is now working on the SBA's annual reauthorization. Its budget has decline from $1.2 billion in fiscal 2001 to $499 million in 2006. The Administration has requested $429 million in fiscal 2007, not including funds for disaster loans. While the agency provides a range of services, including the 7(a) loan program, which guarantees up to 85% of the value of loans made by participating lenders to qualified small businesses, the overall effectiveness of the SBA in promoting the viability of small businesses is difficult to assess.

Recently Fortune Small Business called for eliminating the SBA, citing a long history of bungling (See "Now Is the Time to Tear Down the SBA" FSB, June 2006). "If the SBA wants to live up to its own mission statement–'helping small business succeed'--it will close its doors," the authors sniped. The agency has long been a target of free-market purists who object to the taxpayer-supported subsidies that the SBA administers, including community development programs that target minority and women-owned businesses. The magazine quoted Véronique de Rugy, a resident fellow at the American Enterprise Institute and an advocate of abolition, who called the agency "a big corporate-welfare program."

Ms. De Rugy is right–if you change the punctuation, according to Lloyd Chapman founder of the American Small Business League. He says the problem is that the agency has turned into a big-corporate welfare program, which advances the interests of the nation's largest and most politically connected corporations at the expense of small businesses. A former small business owner, Chapman says he began scrapping with the agency in 1992 after his software company lost a federal contract under a small-business set-aside program to a Dutch-owned firm with 26,000 employees.

Since then, Chapman has been on a crusade. He founded ASBL, which he claims now has 100,000 members, and has launched a series of lawsuits to compel the SBA to disclose how it administers the set-aside program. The SBA was created in 1953 with legislation that provided a specific mechanism to nurture small business: It requires that they get their fair share--23% to be precise--of federal spending.

Chapman alleges that through a series of moves–by both Democratic and Republic administrations–the SBA has been co-opted by big-business interests. One of the most significant changes occurred in the Reagan years, when the agency redefined small business to include companies with as many as 500 employees, up from 100 in the original SBA rules. That put the majority of small businesses in competition with far more powerful rivals. (Nearly 99 percent of the businesses with employees in the U.S. that had any employees in 2003 had fewer than 100, according to the Census Bureau). Since then, Chapman says, a series of administrative rules–such as letting large corporations acquire small businesses and retain eligibility for set-asides–have created huge loopholes for giant defense and aerospace contractors. "They have adopted a number of policies that I would have to describe as anti-small business," says Chapman.

Chapman says his litigation has forced the SBA to remove 600 corporations that exceed the size standard from federal small business contractor lists and is using Freedom of Information Act requests to get the agency to disclose the identities of companies that are winning bids that are intended for small businesses. This summer Chapman is fighting a proposal in the reauthorization bill inserted by House Small Business Committee Chair Donald A. Manzullo (R- Ill.) that, the ASBL says, could let franchisees affiliated with large corporations qualify for small business set-asides.

Small black-owned businesses, among the nation's most rapidly growing firms in recent years, could be hindered by President Trump's budget cuts, entrepreneur advocates say.U.S. Sen. Ben Cardin (D-MD) recently stated that the Trump Administration's fiscal 2020 budget could cost small businesses millions in additional loan fees owed to the U.S. Small Business Administration (SBA) and reduce critical business counseling. He and organizations like the U.S. Black Chambers (USBC) are concerned that the proposed budget will burden the SBA, which black and other minority-owned firms often turn to for capital and support to help grow their businesses. For instance, the uptick of black-women owned businesses helped the SBA achieve double-digit dollar gains in 2018 in loan approvals for those firms, BLACK ENTERPRISE reported.

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Is it any wonder that small and minority-owned businesses in the Lower 48 are steamed about a federal bidding preference that has helped enrich some Alaska Native corporations? The preference drew heavy fire at a U.S. House committee hearing last week, in part because it shrinks the pool of government contracts available to truly small businesses.

The Native firms are taking advantage of a nationwide, no-bid program intended to set aside work for "small" and "disadvantaged" businesses. "Small" in this case is big enough to include a Native firm like Chugach Alaska Corp. It grossed $700 million in 2004, much of it through federal contracting.

Chenega Corp. also took advantage of the federal government's preference for small businesses. Federal contracts helped the company gross $481 million in 2004. The same was true for Alutiiuq, with $234 million in 2004 revenue. And Koniag, which grossed $151 million.

Those are hardly small companies. And if they were once disadvantaged, they aren't anymore. But the special break for Alaska Native companies allows them to form multiple subsidiaries that can qualify on their own as small businesses.

In the small and disadvantaged business program, the normal cap on a federal no-bid contract would be $3 million, or at most $5 million. But there is no cap for Alaska Native corporations, nor do they need to have any previous experience delivering the service the federal government is buying. Native corporations also can partner with much larger corporations as long as the Native firm is, at least on paper, in charge and does the majority of the work.

However, a federal review found that agencies don't check to make sure the Native corporation really is running things. Without enforcement, the corporations can be used as fronts by larger, more savvy businesses that want to avoid competitive bidding. The federal review, by the Government Accountability Office, found an $80 million case where the awarding agency wanted to pick a particular company, which partnered with an Alaska Native corporation to get the contract.

There's another reason federal bureaucrats like the unlimited, no-bid option available with Native corporations. Instead of parceling out dozens of small contracts, they can meet their small business contracting quotas with larger awards to Native-led bidders. But that shrinks the pool of work available to genuine small businesses. Powered by the special preference, Alaska Native corporations snagged $1.1 billion worth of federal contracts in 2004. That total included $876 million worth of no-bid awards.

Another concern that came up in the House hearing is excessive cost. Without competitive bidding, federal agencies may pay higher prices under some of the huge Native corporation contracts. Last week's hearing cited a case where the Native venture's initial price on a no-bid contract was double the agency's original estimate. It took a month of bargaining, including the threat of competitive bidding, to get the price down close to what the State Department thought was reasonable.

Contrary to what defenders like Alaska Rep. Don Young say, critics of the preference are not penalizing Native firms for their success. The question is how long is it appropriate to give special advantages to firms that have jumped into the game and are doing well.

When the federal government is letting a business have a no-bid preference on contracts of unlimited size, once is enough. After that, Native corporations should be treated just like every other small or disadvantaged business.

Steven Preston, a former corporate executive, was unanimously approved by a Senate committee on Thursday as the next administrator of the Small Business Administration.

A full Senate vote on his nomination is expected later this summer.

The Senate Committee on Small Business and Entrepreneurship voted 18-0 to approve Preston's nomination following a brief confirmation hearing on June 21.

"If confirmed, Mr. Preston must do everything he possibly can to prevent another bureaucratic fiasco that defined the agency's response to the Gulf Coast hurricanes," Sen. Olympia Snowe (R-Maine), the committee chairwoman, said in a statement.

Snowe said she urged the nominee to revamp the agency's ailing disaster response plan, which includes greater access to front-line employees working in disaster zones and the flexibility to adjust to changing circumstances.

Snowe added that she expects Preston to "provide strong and unwavering leadership at this pivotal juncture."

Sen. John Kerry (D-Mass.), the committee's ranking member, also underscored the need for reform. "We're down to our last at bat with this administration," he said. "Steve Preston has the opportunity to turn things around at the SBA to help small businesses win."

During his confirmation hearing, Preston called disaster response "job number one," saying he plans to foster stronger partnerships between private-sector lenders, as well closer ties with members of Congress.

When pressed on how he would accomplish this given the SBA's shrinking budget in recent years, Preston replied only that he would have to look at the figures.

Preston served most recently as an executive at The ServiceMaster, a $3 billion publicly-traded lawn-care company with more than 5,000 franchise location.

If you think the high arrogance of the Bush administration is confined to its dismissiveness about Abu Ghraib; its shrugging off the admonitions of former military brass; its bogus rationale, management and cost of the war in Iraq; its domestic spying and its insistence on tax cuts for people with money to burn, think again.

Apparently, there is no limit, there are no edges, there are no boundaries to Bushist hubris. Even a relatively backwater agency like the Small Business Administration has got Can't Touch This fever.

For years, the SBA has run a program called the Small Business Investment Company, which licenses venture capitalists to use a mix of federal dollars and their own to kick-start small businesses around the country. Four years ago, an Atlanta-based firm named Diamond Ventures applied for an SBIC license. Diamond wanted to invest in inner city upstarts, with a focus on women and racial minority entrepreneurs.

Despite a stellar track record in previous ventures by Diamond's experienced, highly accomplished partners, SBA turned Diamond down. The agency concluded that the principal members of the management team were not up to the work.

Diamond filed suit against the SBA in 2003, charging racial discrimination, in part because, allegedly, SBA did not apply the same standards to Diamond as it had for other applicants. Even the agency's own inspector general had a problem with how SBA assessed Diamond's application. In fact, he concluded that the SBA didn't even follow the usual rules in how it rejected Diamond.

At every turn so far in federal court, Diamond has won. Every motion SBA has filed has been denied. Every one Diamond has filed has been granted, most notably the one requesting SBA's records on SBIC awards. It's been a year since the court ordered the data released. SBA has ignored that order.

Since then, both House and Senate members have demanded an accounting from the SBA, having grown suspicious of its secrecy and of repeated charges that the agency, indeed, has plenty good reason to hide its records.

Proving that it is non-partisan in its intransigence and disrespect, then-SBA Administrator Hector Barreto (Barreto resigned in late May to become head of The Latino Coalition advocacy group in Washington) and his staff ignored demands from a federal district court judge; Rep. Nydia Velazquez, D-N.Y., the ranking member of the House Small Business Committee; Sen. John Kerry, D-Mass., ranking member of the Senate Small Business Committee, and, recently, Sen. Orrin Hatch, R-Utah, chairman of the Senate Finance Committee. Not so much as a "bug off" from SBA.

I have two dogs in this hunt: First, one of Diamond's partners is a close friend -- an earnest brother who wants to help and has the chops to do it. Second, as a fully vested, taxpaying United States citizen, I am sick to death of being flipped off by the hired help, which this, and any, administration most assuredly is.

From the start, the Bush clan has made it clear that only established, big-monied players count. Merely aspiring to such stature does not get you in the game. Moreover, if you don't aspire to be one of the big boys, but only want to feed and clothe and house and heal yourself and your family, you count for naught.

Where do you turn when that happens? For all of its reassuring language, what good is the Constitution if it is flouted and without consequence? We've seen this with the whole National Security Agency wiretapping issue, whereby the president himself not only clearly violated law, but has essentially said he would do it again and will continue to do so.

I should not be shocked, then, that a functionary like Baretto would follow his master's lead and ignore legal and constitutional protocols, mistreating a small band of well-intended investors who only want to animate the president's own rhetoric about an "ownership society."