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Policy

Explaining the Senate Plan to Kill the Small Business Administration

By Patrick Clark                                                                    January 14, 2014

Photograph by Drew Angerer/Getty Images

Burr talking to the media on Capitol Hill

Last month, Senator Richard Burr, (R-N.C.) introduced a bill that would combine the U.S. Commerce and Labor departments and eliminate the Small Business Administration as a stand-alone agency. Under other circumstances, a proposal to pare government by a Republican lawmaker might seem like political grandstanding, at least while a Democrat sits in the White House. But Burr’s proposal has been getting good circulation in small business advocacy circles, perhaps because it bears similarities to a plan floated by President Obama in 2012 to combine overlapping agencies. Here’s what to know about the bill.

Why would anyone want to get rid of the Small Business Administration?

The bill appears to be driven by the goal of eliminating duplicate efforts by the Commerce and Labor departments. Burr isn’t proposing to kill the SBA but to transform it from a stand-alone agency into an arm of a newly created Department of Commerce and the Workforce. In that scenario, the head of the SBA would be an undersecretary, according to an organizational chart (PDF) on Burr’s website. Presumably, the SBA would continue to perform its core function of guaranteeingsmall business loans from within the Commerce-Labor hybrid. Streamlining programs in other areas—exporting, for instance—in which multiple agencies provide similar support could help small businesses by making government bureaucracy easier to navigate.

So they don’t want to kill the SBA. How is trading a cabinet level administrator for an undersecretary a good deal for small business?

Good point. National Small Business Association President Todd McCracken toldInc. that having an SBA chief who can speak on behalf of small business owners’ interests is a key benefit of having a stand-alone organization. A Burr spokesman told McClatchy that putting an undersecretary in charge would actually elevate the SBA within the executive branch. That makes the SBA’s current acting administrator, Jeanne Hulit, sound like a big fish in a small ocean.

So it might be better if the SBA boss were a smaller fish in a more powerful organization?

That’s the argument. By the way, did you know the Commerce Department housed the National Aquarium for decades?

How are other advocacy groups reacting?

Consolidation would create additional layers of red tape for the SBA’s loan programs, says Beth Solomon, chief executive officer of the National Association of Development Companies, an umbrella organization for SBA lenders. That could undo gains in small business lending made during the Obama administration.

The National Federation of Independent Business hasn’t taken a position on reorganization but would like to see the SBA’s Office of Advocacy preserved. That’s because Advocacy has the power to prevent new federal regulations that overburden small business under the Regulatory Flexibility Act, spokeswoman Jean Card says in an e-mail.

What do the politicians say?

Neither Senator Mary Landrieu (D-La.), who chairs the Senate Small Business and Entrepreneurship Committee, nor Sam Graves (R-Mo.), who heads the House Committee on Small Business, responded to requests for comment. The matter is complicated by speculation that Landrieu could soon be named chair of the Senate’s energy committee, creating a vacancy.

A more important question: Why would Obama let a Republican senator take credit for consolidation? Landrieu and fellow Democratic committee members Jeanne Shaheen (D-N.H.) and Mark Pryor (D-Ark.) are up for reelection, and folding the SBA is unlikely to help any of their campaigns. That’s to say nothing of the lesser political squabbles over just what inefficiencies would be streamlined.

You ’re not making it sound very likely to happen. Why are people talking about it?

Eliminating or deemphasizing the SBA can be a tough political sell, as President Ronald Reagan discovered from a failed attempt to shutter the agency. Burr’s plan is getting attention now for two big reasons: Obama proposed merging the SBA with the Commerce Department and several other agencies back in 2012. That gives Burr’s proposal a bipartisan feel, even though its cosponsors are all Republicans. Beyond that, it’s worth noting that Obama has yet to nominate a successor to Karen Mills, who announced her resignation last February and left the administration in August for a role at Harvard University. As long as the SBA is led by an acting chief, there will be speculation in some quarters that its days as a stand-alone agency are limited.

So if Obama were to nominate someone, talk about getting rid of the SBA would go away?

Probably. The White House hasn’t responded to a request for comment on the search for a new SBA chief.

Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.