As the smoke clears on President Obama’s economic stimulus plan, the Small Business Administration is emerging as one of the winners. That’s both good and potentially disastrous.
It’s good because the SBA already has programs in place that can get aid to small firms quickly. It’s potentially disastrous because the president obviously has no idea how badly the agency was gutted during the Bush years.
As Hurricane Katrina and the other Gulf storms proved, the SBA’s ability to respond to a major crisis is woeful at best, even taking into account the unprecedented size of the disaster. In the months afterward, the agency continued to perform shamefully.
Now, as a result of the Obama stimulus bill, the SBA is about to be handed up to $20 billion in new lending authority for its flagship 7(a) loan program and its 504 Loan program for hard assets like real estate. The bill will also provide funds for the SBA’s microloan program. (In a side note, the Bush administration has been trying to kill the program for years.)
The seeds of disaster are being sown because the SBA is ill-equipped to handle the sudden influx of new spending authority. It’s sort of like the Bush administration’s ill-fated plunge into Iraq. A lot of money and resources went into the invasion, but very little thought or resources were devoted to managing Iraq after the invasion. The result was chaos.
It’s one thing to throw money at the agency. The real question is, can the SBA administer it effectively? Evidence suggests it can’t in its current state. During the Bush years, the agency was more than decimated. About one-third of its staff was cut, and its budget was slashed by half. “It was terribly, and unjustifiably in my view, cut under the previous administration,” said Sen. Mary Landrieu, D-La., the new chairman of the Senate small business committee.
One net result of Bush mismanagement, of course, was the Katrina catastrophe. But the agency has been wracked by other embarrassments as well, including massive frauds in some of its lending programs caused by a lack of oversight, inadequate funding, or general agency ineptness.
The agency has yet to get a handle on its management of the government’s small business contracting programs. Large Fortune 500 companies continue to receive billions of dollars a year in federal contracts earmarked for small firms, despite repeated investigations by the SBA’s Office of Inspector General, pointing out shortcomings.
Meanwhile, as the nation spun into the recession and credit grew increasingly tighter, the SBA basically sat on the sidelines. The number of loans, as well as the size of the loans, approved under the 7(a) program declined. In the 504 program, loan approvals fell by 17 percent and loan dollars declined by 16 percent.
In the first quarter of 2009, the SBA’s 7(a) program dropped 57 percent from the first quarter of fiscal year 2008. The total dollar value of loans processed by the SBA was down 40 percent from last year.