Why has the agency been helping victims of California’s wildfires? It’s quite a story, one that starts way back when Harry Truman was President
Now that Southern California wildfires have been extinguished, recovery agencies are releasing what will become a flood of aid money to help residents of devastated areas rebuild their lives. Efforts like these are largely the domain of the U.S. Federal Emergency Management Agency (FEMA), now a part of the Homeland Security Dept. But when it comes to loans for homeowners and renters who need extra cash to cover at least some of the damage that insurance won’t, it’s the U.S. Small Business Administration that hands out the checks — and it doesn’t matter whether or not applicants are small-business owners.
ANCIENT HISTORY. If the agency’s role strikes you as odd, you probably don’t know too much about the bureaucratic ways and political wiles of official Washington.
The SBA’s function as a disaster lender started in 1953, when Congress first formed the agency as part of a compromise between Congressional small-business advocates and Republicans intent on cleaning up government. Scandals during the Truman Administration had helped propel Republicans to power in the 1952 elections, handing them the White House and majorities in both houses of Congress for the first time in two decades.
The GOP figured it had a mandate to reduce government spending and tackle corruption, and the Recovery Finance Corporation (RFC) was a particularly enticing target. Critics charged that the Depression-era federal agency, which was essentially an enormous, government-run bank, had lost its focus after World War II and was bailing out businesses that should have been left to their fate. Charges that it also served as a pork barrel for President Truman’s supporters sharpened the bitterness of the wrangle.
MAGNET FOR SCANDAL. Corrupt though it may have been, the RFC was a potential source of cash for small businesses, as was another GOP cost-cutting target, the Small Defense Plants Administration, formed during WWII to help small outfits win military contracts. Democrats feared that jettisoning both agencies would leave the nation’s small businesses without any federal aid. Legislators who had long criticized the RFC for not doing enough for small biz, now started lobbying to save it.
Others suggested creating an independent small-business agency to take over the relevant RFC and SDPA functions. Bills to create such an agency were introduced, turf wars and deadlock ensued, and it took President Eisenhower’s intervention to get things moving again. Finally, in July 1953, Eisenhower signed the Small Business Act, dissolving the RFC and forming the first small-business agency founded in peacetime.
“The SBA was created almost by accident…as a sop to Congressional small-business advocates,” says business historian Jonathan Bean, an associate history professor at Southern Illinois University and author of Big Government and Affirmative Action: The Scandalous History of the Small Business Administration. Republicans were firmly against the whole idea, Bean explains, but finally endorsed it in order to win Democrats’ agreement to liquidate the RFC.