As Obama Considers Options, Proven Programs Exist in Federal Toolkit
As Barack Obama hunkers down with the brightest minds in the country to craft a plan to restore market stability, economic growth and national confidence, federal programs already exist that, with renewed interest and only a modest investment, could help lead us out of our worst recession in 80 years.
The U.S. Small Business Administration (SBA) is a proven federal enterprise whose programs are fully capable of stimulating local economies around the country. Unfortunately, disdain for the SBA by the Bush administration -- compounded by the diversion of funds to finance the Iraq war -- siphoned off discretionary dollars in the Federal budget. As a result, many SBA programs are on life support.
Tried and true incentives -- long known to be a catalyst for local economies because they create jobs and grow Main Street businesses -- have been among the hardest hit during these past eight years. They include SBA loan guarantees, access to federal contracts for small businesses and business development assistance.
Since the mid-1990s, small businesses have fostered eight of every 10 new jobs. They are the source of half of all the nation's private sector employees and contribute more than 50 percent of U.S. non-farm gross domestic product. Yet, at $463 million this year, the SBA budget is less than half that of what it was during the last year of the Clinton administration ($1.1 billion in 2000).
The crippling of SBA programs, which began well before the onset of this vexing recession -- has also paralyzed any effective responses the SBA might have offered to businesses in trouble. Small business supporters from coast-to-coast, some of whom gave testimony before Congress, detected this trend early on and predicted the ill effects that an eroded SBA would have on the national economy.
The SBA reports a 30 percent drop over the past year in the number of loans it has issued, and a 13 percent decline -- from $20.6 billion to $17.96 billion -- in dollars borrowed. This continues a trend of annual declines under the Bush administration, the likes of which were last seen in the early 1970s.
It is, indeed, time for change in the wake of last week's election, which has produced a President-elect with firsthand memories of how even a modest investment in local neighborhoods helps nurture success. As the premier advocate for mom-and-pop businesses, the SBA can provide the biggest bang for our bucks in both jobs preserved and jobs created.
Here's what we need to do:
• Breathe new life into SBA-guaranteed, private-sector lending. Federal help to financial institutions under the $700 billion bailout package should be tied to an ironclad pledge by banks to dedicate a sizable percentage -- say a minimum 25 percent of their loan capacity -- to small businesses. If lending institutions use the SBA guarantee program they will have minimal risk as these loans will be secured by the full faith and credit of the United States government. An appeal to Treasury Secretary Paulson for $2 billion of the $700 billion authorized under the Emergency Economic Stability Act will bolster SBA guaranteed lending.
• Transfer $5 billion of the $700 billion for other SBA investments: infrastructure, brick-and-mortar initiatives, and support for veterans, women and minority-owned small businesses. These chronically underserved sectors of the economy are disproportionately impacted in a downturn.
• Invoke an "emergency powers" approach to the crisis, as is done in the event of natural disasters, and immediately roll back the punishing increases in SBA lending fees. Also eliminate deleterious auditing assessments and other disincentives imposed on lenders and borrowers. In addition, the byzantine, bulky application process must be streamlined. Finally, extended payback terms should be allowed during this period of economic uncertainty.
• Facilitate sales by small businesses to the largest purchaser of goods and services -- the United States government. The SBA needs tough enforcement mechanisms to reverse the big-business bias at government agencies -- Department of Defense and Department of Justice are big offenders -- that systematically ignore goals to reserve more than 23 percent of federal purchases for small firms. Loopholes must be closed on large businesses that acquire small firms holding multi-year contracts designated for small businesses. All federal dollars linked to contracts issued to small enterprises should be re-bid if those firms are acquired.
• New emphasis must be placed on the SBA's Small Business Investment Company (SBIC) program, its nationwide network of 1,100 Small Business Development Centers (SBDCs) and the Service Corps of Retired Executives (SCORE) mentor program. SBICs route private venture capital to worthy small enterprises. SCORE, with its retired business professionals and university-based SBDC's provide one-on-one counseling to those with the raw talent but not necessarily the acumen needed to navigate the challenges that start-ups inevitably face.
A reinvestment in the neglected Small Business Administration and an expansion of its already viable programs will yield positive results sooner rather than later, restore confidence on Main Street and underscore for the nation's last pioneers -- job-creating entrepreneurs -- that the incoming administration understands that a robust small business community advances the promise that is America.
Michael P. Forbes, a Member of Congress (D-NY) 1995-2001, served on the House Small Business Committee and is a past senior official at the U.S. Small Business Administration.