For the past eight years the Small Business Administration (SBA) has been one of the federal government’s more hapless agencies. It has been forced to endure crippling budget cuts during President Bush’s entire term in office. The net effect has been a sorry history of mismanagement, fraud, wasteful spending, and rock-bottom morale.
But there is a widespread belief that President-elect Barack Obama’s administration will mark a significant change for the SBA. Still, a certain unease permeates the small business community over the depth of Obama’s commitment to foster real change. Small businesses have been promised much only to be repeatedly disappointed. The government over the years has failed to deliver on such key issues as tax reform, health care reform, federal contracting, and assistance to women- and minority-owned businesses.
The first key indicator of Obama’s commitment to small businesses will come early on, when the president-elect unveils his economic stimulus program. With the nation mired in a deepening recession, small businesses should be central to any recovery effort. Anything less will send up an early warning flag about the new administration’s genuine commitment to Main Street.
But that remains to be seen. Although the President-elect has yet to detail his small business agenda, his incoming administration has made a couple of encouraging moves. Foremost is his selection of Karen Mills to lead the SBA.
Mills has an undergraduate degree from Harvard and an MBA from Harvard Business School. She has worked as a consultant for McKinsey & Co. and as a product manager for General Foods. She is currently the managing director of Scotts Miracle-Gro, and a director of Arrow Electronics, a Mellville, N.Y.-based distributor with a $2.1 billion market capitalization.
Mills is also president of MMP Group, a private equity firm, co-founder of New York venture capital firm Solera Capital, advisor to Maine Gov. John Baldacci, and chairwoman of his Council on Competitiveness and the Economy.
But less known is the fact that she is the daughter of Melvin and Ellen Gordon, the husband-and-wife team who control and run Chicago-based Tootsie Roll Industries, which is a phenomenal small business success story in itself.
According to corporate history, Tootsie Roll began in 1896 as a tiny candy shop in New York City, founded by family patriarch Leo Hirshfield. Today, it’s a multinational family-owned company with a half billion dollars in sales. The family has a strong work ethic; Melvin Gordon, 89, and Ellen Gordon, 77, still run the business and expect their four daughters, including Mills, to one day take over the company. In short, Mills is no bureaucrat looking to get her ticket punched.
Her strong academic background and successful business career suggest she is taking the job because Obama intends to elevate the role of the SBA in the new administration and make small businesses a key part of his recovery effort.
House Small Business Committee Chairwoman Nydia Velazquez, D-N.Y., says the decision to name a new SBA administrator early on is a good sign. “This appointment shows that [Obama’s] economic team recognizes the key role that small firms play in job creation and the need to take quick steps to revitalize the agency’s role in spurring growth,” she said.
The only cause for concern lies in Mills’ ties to the venture capital community. It’s a sensitive subject because the National Venture Capital Association has tried repeatedly to change the rules on how the government awards research grants earmarked for small businesses.
The association wants small companies controlled by the nation’s largest and wealthiest venture capital firms to be eligible for the grants, even though they don’t meet the definition of a small business under current SBA regulations. The association has lavished key Capitol Hill lawmakers, as well as the Obama campaign, with contributions. And House Speaker Nancy Pelosi, D-Calif., has been a champion of the bill, H.R. 3567, also known as the Small Business Investment Expansion Act.
Lloyd Chapman, founder and president of the American Small Business League, who was highly critical of the Bush administration, has emerged as an early Obama critic. “I predict President-elect Obama will not restore the Small Business Administration’s budget and staffing as he promised during the campaign. I don’t think he will do anything to stop Fortune 500 firms from receiving federal small business contracts,” he predicted in a recent statement.
The bill has run into repeated roadblocks in the Senate, where a compromise measure is pending. But even there, a changing of the guard is underway. Small business committee chairman John Kerry, D-Mass., is taking over the Committee on Foreign Relations and Sen. Mary L. Landrieu, D-La., is taking over the small business chairmanship.
Landrieu is also a member of the Senate Appropriations Committee, which will give the SBA an important advocate during budget deliberations, something it sorely needs. By Kerry’s calculation, the agency lost $500 million, or 26 percent, of its budget during the Bush years. The cutbacks and mismanagement have left the SBA “a shell of the agency it used to be,” according to Velazquez.
In yet another encouraging sign, Fred Hochberg, a leader of Obama’s transition team for the SBA, has joined a chorus of lawmakers and small business advocates who are calling for Obama to restore the SBA to cabinet-level status as soon as he takes office. It last enjoyed that honor during the Clinton administration.
The nation paid a terrible price when the SBA turned out to be ill-equipped to come to the aid of businesses during the Gulf hurricanes, and it is paying a terrible price now because key SBA lending programs have been crippled at a time when they are sorely needed.
Obama seems to be well on his way to turning things around, but it remains to be seen how far he will go. Small businesses have been down this road before, and it’s all too frequently led to a dead end. Here’s hoping this time is different.