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US SBA "Talking Points" Q&A

Legislative Alert

Supportive & Background Information about:

The US Small Business Administration

The following information should explain various issues which have been raised during recent Congressional activities to seriously reduce the budget of the US SBA. You are encouraged to use this information when you communicate with members of your Congressional delegation.

Questions, Comments and Answers about SBA Budget Issues:

Why did the 7(a) loan program have to be capped to prevent from running out of money, and do financial questions continue about the Agency?

There are no financial questions about the safety and soundness of the SBAís loan programs. The $500,000 cap lasted for a short time in 1997, about a month. It resulted from demand for the 7(a) program exceeding the available program level in FY 1997. Due to an error found in the subsidy rate for the 7(a) program that year, the SBA has significantly increased its attention to these cost calculations and uses an independent accounting firm to annually certify their accuracy. The GAO has given the SBA the highest ranking of all federal credit agencies in the area of subsidy rate calculations.
By April of 1997, it appeared that demand for the 7(a) loans would outstrip the SBA's appropriation for the program. In order to remain within the level of funding provided for the 7(a) loan program in FY 1997 (which was $7.8 billion compared to SBA's request of $11.0 billion) and avoid shutting the program down entirely before the end of the fiscal year, SBA determined that it needed to impose a restriction on program demand by limiting the maximum size of loan to $500,000.

Soon after imposing the cap, SBA, working with the General Accounting Office (GAO) discovered an error in the calculation used to determine the cost of the program, resulting in a downward adjustment in the cost formula. Applying this adjustment increased the level of loans supported by the appropriation from $7.8 billion to $10.2 billion. This eliminated the apparent shortfall problem - allowing the SBA to immediately lift the cap on loans.

Some members of the Senate Small Business Committee have criticized the SBA for failing to submit a FY 1998 audit and being unable to account for past expenditures, while asking the Committee to expand the Agency.

The SBA has at all times been able to account for past expenditures, and the quality and accuracy of SBA financial information and the general financial health of the Agency has never been better. SBA completed the required financial statements in May, and has received a draft audit from its independent auditors that once again, and for the third year in a row, awards the SBA with an unqualified opinion, the highest possible rating.
The SBA has produced audited financial statements of its operations since 1991. For FY 1996, the SBA was the first Federal credit agency to receive an unqualified audit opinion - the highest rating available on such an effort. This rating was repeated in FY 1997. These efforts signal to the public that SBA's financial records are in order and reliable.

For the FY 1998 financial statements, the Office of Management and Budget (OMB) and the General Accounting Office (GAO) substantially revised the required information to be included in this process by adding new statements. The new requirements were extensive and the Agency accounting systems needed to be totally re-engineered to meet these new requirements. For FY 1998, SBA had to manually make the needed adjustments causing a delay in the preparation of the statements and the audit. The SBA did not want to rush this process and risk some diminution of their good audit record. The fact that the SBA has now received an unqualified opinion for the third year in a row attests to the strength of SBA's financial condition and the accuracy and integrity of its financial records.

Chairman Bond has questioned the Administrator about hiring an additional 120 workers in the midst of a hiring freeze.

The SBA has essentially the same number of employees that it did at the end of last year. The hiring freeze was imposed in February to ensure that SBA could remain within its approved budget and still allow strategically targeted decisions on hiring. The hiring referred to by Sen Bond occurred last year, not this year.
Since 1990, the SBA has downsized its staffing from more than 4,000 employees to just over 3,000 employees resulting in a 24% staff reduction. This is one of the largest percentage cuts taken by any Federal agency, and the SBA willingly took these reductions to increase its efficiency and to reduce costs - helping to balance the budget. From the end of FY 1997 (which marked one of the lowest staffing levels ever for the SBA) through the end of FY 1998, SBA's staffing level did increase by 166 positions. During this period, the Congress and the Administration introduced a number of new programs and initiatives that required SBA staff and resources, such as the new HUBZone program. These positions were fully funded within SBA's approved budget from the Congress, including a number of Welfare-to-Work hires to support the National Welfare initiative of President Clinton. Some of these positions were funded by other agencies to support their small business procurement efforts.

Also, SBA's loan portfolio has increased 100% since 1992 to a level of about $50 billion dollars. SBA's financial management responsibilities require it to continue strategic hiring of a limited number of appropriately skilled individuals.

Chairman Bond indicated that SBA "diverted" $400,000 from the SCORE budget.

SBA has provided to SCORE every penny that Congress appropriated. This year, Congress appropriated $3.5 million for SCORE and this appropriation was provided in its entirety to the National SCORE office. SBA also paid rent and telephone costs of approximately $1.6 million for SCORE chapters. In addition to this support, the Administrator in previous years agreed to pay for other expenses out of general funds, amounting to about $400,000. This year, with declining resources, SBA is able to provide $150,000 directly to SCORE chapters, which will use the funds for chapter administrative expenses. SCORE volunteers have and will continue to play an important role in helping small business succeed.
The SBA has for the last two years augmented the SCORE budget with funds from the Agency's general Salaries and Expense Account. These funds have been provided directly to SCORE chapters and they are used to purchase supplies, postage and mailing, and for other administrative expenses. These funds are in addition to the appropriation of $3.5 million made available by Congress expressly for SCORE.

Funds appropriated for SCORE pay for its national office and to reimburse its 12,000-plus volunteers for their travel and some local operating expenses. In addition, SBA's field offices provide space for the volunteers, and some other support such as supplies, copiers, postage, etc. for those chapters collocated with district or branch offices. The value of this is estimated at approximately $1.6 million. SBA was not able to provide some of the additional funds that SCORE requested this year, due to limited budget dollars. The Administrator has, however, provided another $150,000 to supplement SCORES's Congressionally mandated funding.

SBA first estimated that the Senate budget for FY 2000 would cut 300 staff, then 600, then 1,000. They now say that the House budget would cut 2,400 staff. How does the SBA arrive at these figures and why do they keep changing?

The only changes in the estimates have been made as a result of changes in the amounts provided for operating expenses as the bills move through both house of Congress.
The annual appropriation process is constantly changing as the bills move through both houses of Congress. As such, SBA was tracking the bills and developing impact estimates at various stages of their enactment. This year, the Senate level for SBA's operating expenses was reduced at each stage, causing the SBA to increase the estimated impact on staffing levels in direct response to legislative action.

The final Senate bill cuts SBA's operating budget by $38 million. This equates to the annual salary cost of 500 employees. Under Federal personnel rules, SBA must notify employees 60 days in advance of any adverse personnel action, such as a reduction-in-force (RIF). In addition, SBA must pay these employees severance and for accrued leave time. As a result, SBA can only save about half of an employee's salary. The other half is spent paying the employees the other half as part of the RIF. Therefore, in order to save the equivalent annual salary of one person, SBA must RIF two people. So, SBA has to RIF 1,000 employees, or 32% of the SBA's workforce to stay within the budget proposed by the Senate.

On the House side, the cut is much more dramatic. The House reduced SBA's operating budget by $87 million. This is equivalent to the annual salary of 1,200 employees. Using the same calculations, SBA would have to RIF 2,400 employees or 75% of the SBA's workforce to stay within the budget proposed by the House.

It has been stated that SBA ignored congressional protocol by seeking appropriations for new programs for which it had not secured authorization from committees like Bondís.

Administrator Alvarez and SBA staff have met extensively with committee staff and dozens of Senators and Representatives, both Democrats and Republicans, to discuss every aspect of the SBAís budget proposal and its New Market Initiative legislation.
The legislative season begins in earnest each January with the President's State of the Union Address and with the submission of the President's budget request. SBA's specific budget request outlines the funding needs for the Agency and lets the Congress know of any authorizing legislation needed to develop new programs.

SBA briefs Hill staff and the Administrator meets with members of the House and Senate Small Business Committees and the Appropriations Committees to consult with them on SBA's budget and legislative requirements. The Congress holds hearings on the budget request and new legislative ideas. Discussions with staff continue throughout the spring and SBA submits a legislative package, if necessary, in the late spring or early summer. Typically, the Congress works through the summer marking-up and voting on both authorization and appropriations bills.

Many times the appropriations committees fund programs before the Congress votes on final passage of authorization bills. This was true of SBA's own reauthorization bill in 1997 and in the case of the passage of the new HUBZones program in 1997. Often, appropriations bills will be accompanied by reports that include authorizing language.

Cooperative efforts this year:
Administrator Alvarez met with Chairs and ranking members of the Authorization and Appropriations Committees to discuss the SBA budget and New Markets Initiative legislation. She also has met with dozens of Senators and Representatives, both Democrats and Republicans, about SBA proposals to encourage their support.

SBA staff - Congressional, CFO staff, and Program staff have conducted extensive briefings of Committee staff, and the staff of individual Members regarding SBA proposals.

Administrator Alvarez testified at several hearings about SBA proposals and urged Congressional support.

SBA staff and several industry advocates testified in favor of SBA's proposals for the New Markets Initiative at Roundtables held by Senator Bond in the spring.

SBA submitted legislation to the Congress to increase small size loans, which is part of the SBA's New Markets proposal. The House of Representatives has passed this proposal. The Senate is scheduled to review this legislation in late September.

Not all of SBA's New Markets Initiative proposals require new authorizing legislation. However, SBA took the extraordinary step of holding a public hearing to solicit the views of the public (including the Congress).

Proposed regulations were published in the Federal register for the LMI Investment program. Final regulations will be published soon.

SBA has also held six meetings co-sponsored by the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation, in New York, Chicago, San Francisco, Atlanta, Dallas, and Kansas City to educate the public about the Low and Moderate Income (LMI) Investment program. Senators and members of Congress were invited and encouraged to participate in each of these sessions, including Chairman Bond and Chairman Talent.

SBA plans to continue working through the rest of this legislative session to encourage the authorization and appropriations committees to pass authorizing legislation to fund the New Markets Initiative.

Summary of Hiring Freeze Committee Actions
2/1/99 - 8/1/99
From February 19 through August 1, 1999, 201 exceptions to the freeze have been approved. While this number appears at first to be large, the number of actual positions that will result in an impact on SBAís regular appropriation budget is only a small percentage of this total for the following reasons:
93 actions (46%), are SBA-only internal hires funded from regular appropriations, and include many internal promotion actions.

54 actions (27%), are funded from sources other than regular SBA funds, such as SDB reimbursements.

10 actions (5%), are offset by reductions in current contract employees, resulting in a net savings for the SBA.

7 actions (3%), are for staff that will generate income for SBA from processing licenses in the SBIC program area.

7 actions (3%), while advertised for all sources will give SBA employees priority before an external candidate can be approved.
The remaining number of actions that will impact SBAís budget is only 30 (15%). In these cases an external recruitment was approved because there was a demonstrated need identified by the senior SBA manager that could not be met within existing SBA staff resources. Examples of these exceptions are the need to backfill for recent vacancy of the ADA/Capital Access and AA/Field operations.
The majority of the exceptions made through this process have been to fill critical vacancies left through the downsizing of the SBA over the past several years.

SBA is currently at a level of staffing that is 24% less than FY 1990.

Due to continued funding problems in FY 1999 and anticipated funding shortages in FY 2000, SBA fully expects that the hiring freeze will remain in place through FY 2000.

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