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United Press International
Bush Budget Will Hurt Hispanic Small Businesses
Small Business Getting Shafted
17 February 2005
WASHINGTON, Feb 17, 2005 (United Press International via COMTEX) -- Radically different views are shaping the debate on the government's commitment to the nation's small businesses. The ranking Democrat on the House Small Business Committee has drawn a line in the sand, saying that the aggregate impact of recommended program restructuring and funding reductions in the president's fiscal 2006 budget proposal will disproportionately hurt the interests of small business owners, a key constituency that supported President George W. Bush's successful re-election last year.
Rep. Nydia Velazquez of New York, a vocal critic of Bush administration policies, joined four other Congressional Democrats to outline concerns about 50 programs across seven federal agencies that are positioned for elimination, restructuring or monetary cuts.
"This budget is a disaster," Velazquez said at the Capitol on Wednesday.
Although the group spent a lot of time discussing the negative economic impacts of phasing out the popular Community Development Block Grant and Empowerment Zone programs under other departments -- propositions that the National League of Cities and community development groups have protested strongly -- they expressed a high amount of concern about proposed changes to long-established capital support programs that fall under the jurisdiction of the U.S. Small Business Administration.
The president's budget calls for the elimination of the SBA's Microloan program, which finances smaller loans to entrepreneurs, while the fees that borrowers and lenders pay to access the agency's 7(a) loan program, which was subsidized in part with taxpayer dollars until last year, would most likely increase under the current proposal, something the lawmakers said reduces opportunities for people to utilize the financing.
Rep. Danny Davis, D-Ill., said that most small businesses fail because they don't have enough money to keep going, and that the loss of manufacturing jobs in his district warrants the kind of support that the SBA loan programs and other federal initiatives provide.
"It's kind of like talking peace and waging war," Davis said of the administration's budgetary objectives.
The Republican chairman of the Small Business Committee, Don Manzullo of Illinois, however, expressed his support for the administration's budget proposal at a committee hearing last week. A spokesman with Manzullo's office reiterated the congressman's statement that the SBA under administrator Hector Barretto's leadership has been able to demonstrate a strong capacity "to do more with less."
Manzullo's spokesman, Rich Carter, said some of the changes Velazquez and the other lawmakers identified, especially increasing the fees for lenders and borrowers under 7(a) program, are warranted in light of the problems the program faced last January, when it was forced to shut down temporarily because it didn't have enough money to meet the demand for assistance. The program has long been a financial godsend to those looking to start businesses or increase their operations.
Although the 7(a) shut down was due in part to budget reductions SBA experienced between 2001 and 2004, Carter said the majority leadership of the committee set out to modify the program so that it would remain solvent without relying on federal subsidies. By the end of fiscal year 2004, the program provided more than $12 billion in loans, a record number, which accounted for 30 percent of all long-term small business lending in the country.
"The fees paid by the borrowers and the lenders are enough to cover the default rate on the loan, so you don't need a taxpayer subsidy," Carter said, stressing that the statistics show the program is operating "better than it ever had previously."
"The statistics show that the small business owners that need the loans are getting the loans, and actually they're in much better shape because they know the program is self-sustaining and no longer has to rely on the whims of Congress," he said.
Manzullo's office also released a statement last year hailing achievements for small business, such as increasing the amount that can be written off as business expenses from $25,000 to $100,000 through 2005, changes to the definition of S-corporations, the capital gains tax cut, and the Health Savings Account provision enacted under the Medicare Prescription Drug Act of 2003.
Yet Velazquez has continued to challenge the relative impact of legislation passed during the 108th Congressional session, saying in media accounts that the small business community experienced nominal gains, with the majority of the legislative spoils going to large corporate interests and wealthier individuals.
Considering that the SBA has seen its budget reduced by a quarter during Bush's first term, concerns are surfacing at the local level about the administration's commitment to the agency. Oliver Singleton, president of the Metropolitan Business League in Richmond, Va., said that while he's pleased with what his regional SBA office has been able to do for the 400 members of his organization -- which has focused on minority and small business development for more than 30 years -- he is concerned about the agency's role in the future.
"Our regional SBA office is broke," Singleton said, stating that the level of technical assistance the agency provides has decreased. He also said the increasing level consolidation among financial institutions in his area has caused lenders to become "choosier and choosier about financing," which concerns him.
As for the much-ballyhooed capital gains tax cut that was enacted during Bush's first term and was heavily supported by organizations such as the National Federation of Independent Business, Singleton's response was less than enthusiastic.
"None of my members were affected in a positive way (by the tax cuts)," he said.
Still, there are some things that Small Business committee members and small business advocates across different ideological spectrums agree on, such as easing certain tax and regulatory burdens, helping the government do a better job at engaging small businesses for federal procurement and other contractual opportunities, and creating an environment where the cost of running businesses isn't unreasonable due to the tremendous increase in health care costs over the last decade.
In particular, Singleton said he hopes to see more "debundling" of federal contracts to make it easier for small and emerging minority businesses to "get a piece of the pie."
Velazquez and her colleagues said that while they don't agree with grandfathering some of the tax cuts that Bush pushed through Congress during his first term -- a move they said would contribute to the ballooning of the federal deficit -- they do support "targeted tax relief" for small businesses. The best way to help, they said, is supporting the programs that are already in place, which stimulate the economy and create jobs.
The SBA's Office of Advocacy reported last year that small businesses, defined as businesses with 500 people or less, employ half of the nation's private sector employees and have generated 60 to 80 percent of net new jobs annually over the last decade, although the rate of business openings roughly matches the rate of those that have closed since 2003.