Senate clash over SBA unit's powers puts agency's budget in doubt

Discussions over the Small Business Administration’s budget for the 2020 fiscal year are on hold.

Though the House of Representatives recently approved a $100 million credit subsidy for the SBA's 7(a) program, efforts in the Senate's Committee on Small Business and Entrepreneurship to approve a reauthorization bill have suddenly become mired in a clash over broader regulatory relief.

Lawmakers on the committee want to tackle the reauthorization bill before approving a budget for the SBA's 2020 fiscal year, which begins Oct. 1.

The stalemate spurred a flurry of political finger-pointing.

Progress on reauthorization was halted after Democrats objected to a series of proposals aimed at giving small businesses more chances to comment on regulations that could pinch their bottom lines, said Sen. Marco Rubio, R-Fla., the committee's chairman.

“Legislating requires compromise, but it is now clear that there are irreconcilable differences when it comes to easing the regulatory burden of America’s more than 30 million small businesses,” Rubio said in a press release.

At the heart of the dispute is a proposal that would let the SBA’s Office of Advocacy challenge other agencies' determinations that proposed regulations will not harm small businesses. It would also require the challenged agency to publish the Office of Advocacy's letter in the Federal Register, allow time for public comment and publish the results of its review.

That plan, as well as several other reform proposals, are “poison-pill measures that hamstring federal agencies’ ability to protect workers and the environment,” said Sen. Ben Cardin, D-Md., the committee’s ranking minority member.

“Rather than being narrowly designed to help small businesses, the regulatory section of the chairman’s mark implements a wish list from corporate interests who seek to stifle government regulations that protect our health and safety,” Cardin said in a press release.

Earlier this year, it looked like the biggest stumbling block for a budget agreement would involve the House. Representatives on both sides of the aisle questioned the SBA’s determination that the 7(a) program would need a $99 million subsidy — the first since the 2013 fiscal year — to pay for credit costs in the 2020 fiscal year. The past six years, fees paid by lenders and borrowers have proved sufficient to cover the program's credit costs.

The 7(a) program’s annual credit costs have finished below estimates every year since the 2012 fiscal year. In the 2018 fiscal year the downward revision totaled $431 million.

As a result, members of the House Small Business Committee balked initially at considering the $99 million subsidy request, and they rejected the SBA’s alternate plan to increase user fees.

In a shift, the House in June agreed on an appropriations bill that earmarked $100.6 million to cover for 7(a) credit costs. At the same time, committee members pressed forward with a request that the Government Accountability Office conduct an in-depth study of the mechanism by which SBA and the Office of Management and Budget estimate credit subsidy costs.

“We have just begun that assignment and, at this point, we do not have an estimated completion date for the work,” said GAO spokeswoman Sarah Kaczmarek. A spokeswoman for the House Small Business Committee said the report's results will not alter the decision to provide 7(a) with a credit subsidy in the 2020 fiscal year.

“Nothing will change directly because of the study, but we will have to cross that bridge when we get the finding,” the committee spokeswoman said. “Right now, it’s up to the Senate to pass their appropriations bills.”

If unresolved, the impasse in the Senate could lead to a shutdown. That would be another bad break in what has been a challenging year for the 7(a) program.

The SBA was shuttered for 35 days in December 2018 and January 2019 after a budget battle shut down large parts of the federal government. At the same time, lending volume is trending down for a second straight year. Through July 26, the volume of loans backed under 7(a) was down 8% from a year earlier, totaling $18.7 billion.

By contrast, lending under 504, the agency’s second-biggest program, has seen an 8% increase in lending activity.

Still, there is some optimism that lawmakers in the Senate will find a compromise when they reconvene next month.

“Everyone on the committee is aware that this is an issue that needs to get worked out,” as Senate staff member said on background.

“Things are still up in the air, but we always expected it would be late September before there was a resolution,” said Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders.