President Obama proposed Friday to consolidate six major federal departments and agencies that oversee various aspects of business in the U.S., including the Commerce Department and the Small Business Administration.

The other departments that would be consolidated include the Office of the U.S. Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation, and the U.S. Trade and Development Agency. Obama also elevated SBA administrator Karen Mills to a seat on the Cabinet.

The move would be the most significant reorganization in the federal government since the formation of the Department of Homeland Security in the Bush administration. Obama is asking Congress to give him the authority to merge the six entities into a single department tasked with boosting American business and promoting competitiveness.

The administration noted that Presidents have had reorganization authority from 1932 through 1984.
The initial focus of the proposed legislation, dubbed the Consolidation Authority Act, would be to help small businesses compete, export and grow. 

“Small businesses often face a maze of agencies when looking for even the most basic answers to the most basic questions,” said a fact sheet on the White House website. “There is a whole host of websites, toll-free numbers and customer service centers that at times offer them differing advice. The result is a system that is not working for our small businesses. The President is proposing to consolidate those six departments and agencies into one department with one website, one phone number and one mission—helping American businesses succeed. There will be one department where entrepreneurs can go from the day they come up with an idea and need a patent, to the day they start building a product and need a warehouse, to the day they are ready to export and need help breaking into new markets overseas. The new department will lead the development and implementation of an integrated, strategic, government-wide trade effort and have a focused capacity to help businesses grow and thrive.”

However, at least one small business advocacy group, the American Small Business League, said the consolidation would have a negative impact on small businesses. The group said it is vehemently opposed to the move because it would “negatively impact millions of small businesses and reduce the power of the only federal agency that helps small businesses.” It noted that ASBL president and founder Lloyd Chapman has been predicting for years that the federal government would try to consolidate the SBA within other departments, and has campaigned against the move.

"Of course I predicted he would do this years ago," said Chapman. "Combining the SBA with the Department of Commerce is a typical Washington move to close an agency. They're not trying to save money; they're trying to close the agency because large corporations want 100 percent of federal contracting dollars. If they can essentially close the SBA by combining it with the Commerce Department, zeroing out the budget and slowly eliminating the staff, they can essentially wind down small business programs, including the requirement that 23 percent of all federal contracts be awarded to small businesses. That money will be diverted to large corporations."

Another lobbying group, the Financial Services Roundtable, however, praised the elevation of the SBA administrator to a Cabinet-level post.

“The Financial Services Roundtable is supportive of the elevation of the SBA Administrator to Cabinet-level status by the President," said Financial Services Roundtable president and CEO Steve Bartlett in a statement. "This move recognizes the importance of small businesses across the country, and their contribution to growing the American economy. We look forward to working with the SBA and their agency partners to continue providing benefits, education, and lending opportunities to small business.”

Congress may not agree to the reorganization. The Democratic and Republican chairmen of the congressional committees overseeing trade policy and taxes, Senate Finance Committee Chairman Max Baucus, D-Mont., and House Ways and Means Committee Chairman Dave Camp, R-Mich., issued a joint statement raising some objections to consolidation of the Trade Representative's office.

“Everyone agrees we must do more to ensure that our government runs efficiently and makes the best use of taxpayer dollars," said Baucus and Camp. "While we welcome the ability to reduce duplication and streamline government services, we are concerned about the impact that the President’s proposal could have on the ability of the United States to aggressively open new markets to American-made goods and services and create U.S. jobs. Creating jobs must remain our number one priority, and a smart, aggressive trade policy that promotes our world-class agricultural and manufactured goods and services is critical to accomplishing that goal. The Office of the U.S. Trade Representative is nimble, lean and effective – and time and again it delivers on its mission and creates jobs here at home. Taking USTR, one of the most efficient agencies that is a model of how government can and should work, and making it just another corner of a new bureaucratic behemoth would hurt American exports and hinder American job creation. We certainly need to look for ways to reduce government and cut taxes, but not at the expense of programs that are helping businesses, ranchers and farmers create jobs and expand our economy.”

Rep. Sander Levin, D-Mich., the ranking Democratic member of the House Ways and Means Committee, also weighed in. “I welcome the opportunity to work with the President on the shared goal of ensuring our government agencies operate as efficiently and effectively as possible," he said in a statement. "Congress should consider the President’s request regarding executive authority to reorganize the government. As we do so, we must ensure a meaningful role for Congress on all reorganization proposals at every juncture. Regarding the example cited by the President, it is important to recall that Congress established the Office of the U.S. Trade Representative, within the Executive Office of the President, because our trade objectives were not adequately negotiated, implemented or emphasized when trade negotiators and enforcers were part of a broader agency.”

“The enactment of trade agreements has been a hard slog with the President," said Sen. Chuck Grassley, R-Iowa, the ranking Republican member of the Senate Judiciary Committee. "Any reorganization that disrupts trade negotiations and expanded markets for U.S. businesses and farmers would cause me serious concern.  Consolidation that doesn’t hurt export opportunities might make sense. Congress will need to look at this proposal carefully.  It’s not surprising that the President is focusing on this area for consolidation. Trade is already a lower priority than it should be for this White House.” 

The Small Business Administration would be put inside a new government department, but its current chief, venture capitalist Karen Mills, is getting a promotion under a proposal Friday from President Barack Obama.

The SBA, which has been a stand-alone agency since it was formed under President Dwight Eisenhower in 1953, would be combined into the new department along with the Commerce Department, the Office of the U.S. Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation, and the U.S. Trade and Development Agency.

Congress would have to authorize the changes.

Mr. Obama says the change would make it easier for businesses that have to deal with the federal government.

But the move is being criticized by a long-time critic of the SBA and of Mr. Obama’s efforts regarding small business, Lloyd Chapman, president of the American Small Business League, based in Petaluma.

“They’re not trying to save money; they’re trying to close the agency because large corporations want 100 percent of federal contracting dollars,” Mr. Chapman says. “If they can essentially close the SBA by combining it with the commerce department, zeroing out the budget and slowly eliminating the staff, they can essentially wind down small business programs, including the requirement that 23 percent of all federal contracts be awarded to small businesses. That money will be diverted to large corporations.”

But the opposite view comes from another small business advocate.

"We were pleased today to hear the president will be elevating the head of the Small Business Administration to a cabinet-level position, as it reflects the importance small businesses play in our nation’s economy,” says John Arensmeyer, founder and CEO of Small Business Majority, a national small business advocacy organization.

“As SBA administrator, Karen Mills has proven herself a champion of the small business community and an effective leader. We’re sure she’ll continue her good work as part of the president’s cabinet,” he says.

Taking a middle ground is the National Small Business Association.

“While NSBA is firmly committed to reducing the deficit, there simply aren’t enough details available yet to know if this will be a net win or loss for small business,” says NSBA President and CEO Todd McCracken.

“On the one hand, reorganizing federal agencies to create a ‘one-stop-shop’ for America’s small businesses could streamline processes and make accessing information and assistance much easier. On the other hand, such a reorganization could minimize the emphasis placed on small business by the federal government and lead to an even greater imbalance toward promoting the interests of large businesses over those of small business,” Mr. McCracken says.

The change effectively moves the SBA and its more than 2,000 employees from the influence sphere of Cabinet-level government agencies. But Ms. Mills, an Obama appointee, and former head of the venture capital company MMP Group Inc., will be elevated to a Cabinet level position. No details were offered as to what her new duties might be.

The White House says the combination would see 1,000 federal jobs eliminated and a savings of about $3 billion over ten years.

NEW YORK (CNNMoney) -- President Barack Obama's proposal to consolidate several agencies, including the Small Business Administration, aims to streamline government, but some worry about tossing big and small corporations together.

"Throwing a small business in the same pot with General Electric (GE, Fortune 500) or Microsoft (MSFT, Fortune 500) or eBay doesn't work very well," said Dan Danner, president of the National Federation of Independent Business.

"There's such dramatic differences between the needs and interests of the small business guys," said Danner. "If they're going through the same door as the big business guys, they will be lost in the shuffle."

The announcement came Friday, when the president called on Congress to grant him the power to consolidate the SBA with the U.S. Trade and Development Agency, Overseas Private Investment Corporation, Export-Import Bank, Office of the U.S. Trade Representative and some U.S. Department of Commerce programs.

Obama assured small businesses would benefit from having a one-stop shop for entrepreneurs to launch an idea, seek patents, acquire financing and expand overseas. In an effort to reinforce his dedication to listening to small business concerns, Obama elevated the SBA to a cabinet-level agency, expanding administrator Karen Mills' responsibilities.

Mills echoed the president's sentiments during an afternoon call with industry advocates.

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"You should take this as an indication that he will continue to be focused on small business," she said, adding that the SBA's role "does not go away. It becomes a critical piece of integrating lots and lots of small business activities."

The administration stated it consulted with small businesses before proposing the idea, and some who learned of it Friday seemed warm to it.

One was Kathrine Gregory, founder and director of Mi Kitchen es su Kitchen, a consulting firm that helps food manufacturing startups. Although she's concerned forcing companies of all sizes in through a single door will be chaotic, she said it could help in the long run.

"The concept is excellent," she said. "Most entrepreneurs get lost in the maze of where to go, what to do. If you consolidate you can maximize your employees -- you can do more with less. Possibly this agency will require less of our tax dollars. It's truly the way to go."

However, moving operations into one worries Lloyd Chapman, president of the American Small Business League. He said the existence of a larger department will eliminate transparency and ease the ability to cut staff that ensures small businesses receive the legally-mandated 23 percent of all federal contracts.

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"Worst idea ever," he said. "They should be taking that agency and quadrupling the budget and hiring a few thousand people."

The president cannot proceed with the plan without congressional authority, and details of what a new agency would look like remain unclear. But many industry leaders welcomed Mills' elevation to the cabinet, including House Small Business Committee Chairman Sam Graves (R-MO).

"This platform could provide an opportunity to advocate for small businesses in an environment where important decisions are made," he said in a statement.

But Graves said he plans to closely examine the proposal to ensure significant changes to federal commerce and trade programs are done carefully.

The International Franchise Association, while supporting Mills' elevation, also expressed concern over the changes.

"As part of any proposed reorganization, it would be essential that SBA loan programs remain intact and at their current funding levels, to ensure franchise small businesses can continue to access capital through these successful loan programs," CEO Steve Caldeira said in a statement.

Robert Litan, vice president of research and policy at the Kauffman Foundation, shrugged off any hopes and fears associated with the president's proposal. He said little of consequence occurs at the cabinet level, calling Mills' elevation a political move. And he said the consolidation, which he doubts will be approved because it is an election year, isn't likely to result in smoother operations.

"What they're hoping is that all these different agencies will work together. Maybe that could happen. But the wheels of change grind slowly in Washington, and even if they magically get this approved, it would take years to realize these kinds of synergies," he said.

--Parija Kavilanz contributed to this report. 

In 2008 a lucky engineering firm snagged the top spot on a list of leading small business contractors to the federal government. Based in Alexandria, Va., the company had signed an impressive 39 contracts with government entities ranging from the U.S. Navy to the Department of Energy. The catch? The "small business" in question, VSE Corp. (VSEC), employs 1,920 workers and posted $1 billion in revenues last year.

VSE's incongruous distinction illustrates a persistent problem in the federal contracting system: the mislabeling of corporate titans as small businesses. Federal guidelines mandate that 23% of all government contracts be awarded to small businesses, which generate roughly half of private-sector employment and more than half of private, nonfarm GDP.

But at least 16 companies with more than $1 billion in annual revenues were among the top 100 small business contractors in 2008, according to Eagle Eye, a Virginia research firm that tracks federal spending. In addition to VSE, giant defense contractors Lockheed Martin (LMT, Fortune 500) and General Dynamics (GD, Fortune 500) each earned more than $120 million in small business contract payments last year.

On May 21, Rep. Hank Johnson, D-Ga., moved to remedy this situation by introducing the Fairness and Transparency in Contracting Act, which prohibits publicly traded and foreign-owned companies (or their subsidiaries) from being classified as U.S. small businesses for government contracting purposes. The bill also requires that small business contract holders have their names reported quickly and that they be listed by the name of their parent companies so that large firms can't hide behind small subsidiaries.

"For far too long, large corporations have benefited when they should not have," Johnson says.

Small business advocates give the bill mixed grades. "Tightening the definition of small business would create significant opportunities for actual small businesses," says Brad Close, vice president of public policy at the National Federation of Independent Business, an advocacy group based in Washington, D.C.

Others argue that excluding public companies could make it harder for growing businesses to snag their fair share of federal contracts.

"Contracting is being bifurcated into two communities, a number of very large businesses and a number of protected small businesses," says Giovanni Coratolo, vice president of small business policy at the U.S. Chamber of Commerce. "I can't digest that you don't let public companies be counted as small. Why? You don't advocate for small business and put a ceiling on their ability to grow."

Large firms often end up on small business contractor lists because they buy small firms that have scored federal procurement contracts. Case in point: In September 2006 the Department of Homeland Security announced that 28 small businesses had been awarded portions of a large computer contract called Eagle. Since then at least 11 of these firms have been acquired. One, Alpha-Insight of Falls Church, Va., was bought by information technology giant CACI International (CACI) six months before its government contract win was announced.

In the end, small businesses would be helped most by the speedy removal of large businesses from the small business contract statistics, which would push government agencies to find true small businesses in order to reach their 23% goal. "More than likely, having correct data would drop the numbers," says Robert Burton, a former senior official at the Office of Federal Procurement Policy. "And there's no question that the government would come under intense scrutiny to meet its target."

Meanwhile, some tenacious small companies have managed to buck the system. In 2004 Federal Edge, a small computer reseller based in Riverside, Calif., lost out to technology behemoth GTSI (GTSI) for a $600,000 small business contract to provide computer equipment to the Air Force. GTSI grossed $1.1 billion in 2004 but had been incorrectly classified as a small business, says Federal Edge vice president Rod Stolk. Federal Edge filed a protest with the Air Force, won the contract and attracted media coverage from the Wall Street Journal, CBS News and this magazine.

"We were barraged with e-mails, phone calls and letters from small business owners across the country saying, 'Us too! Us too! Keep it up!'" Stolk recalls. "It's a tough gig for small businesses out there."