Open for Business in a Bad Economy: Improving Federal Assistance to Small Business

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Article | 100 KY. L. J. ONLINE 4 | Mar. 1, 2012

By Jim R. Moye

Recent news shows that small businesses may be rebounding after an increase in consumer demand:

A poll last month conducted by the University of Michigan revealed that 58 percent of small business CEOs expect the economy to improve this year, while just 5 percent expect further declines. That was the most favorable outlook for economic growth since 2004, based on prior results of the quarterly survey of more than 1,700 small business chief executives. The poll, sponsored by Visage International Inc., also showed for the first time in three years that a majority of small businesses — 54 percent — planned to add employees to handle increased sales.

Ted is an experienced, high-performing satellite salesman. Over the last ten years, he has sold satellite dishes to commercial and personal customers. After talking to a number of customers, distributors and others, he concluded he could distribute satellite dishes cheaper than the company he works for and expand into other areas of satellite development. Ted does not have a business plan, financial support, employees or even the least bit of knowledge on how to develop those requirements. All Ted knows is that he has an idea, backed by his ten years of experience in the business and a fundamental understanding of the satellite industry.

Ted is like so many Americans attempting to live out the American dream by becoming a business owner. Since the economic collapse in 2008, however, the dream has become even harder to achieve. Most experts agree any economic recovery must start with small businesses, as they are the most likely to spur job growth. While the federal government expends billions of dollars each year on small business development and still billions more on federal contracting, small business growth is essentially stagnant. Need proof of this disconnect? Consider three different situations, which spurred massive government spending, and the impact they had on small businesses.

First, to stave off a complete collapse of the American economy, the U.S. government passed various legislation, including the American Recovery and Reinvestment Act of 2009 (ARRA). ARRA allowed the Federal Government to spend over $787 billion to stabilize the American economy. Of that total sum, $274 billion of which was set aside for federal contracts, grants and loans. As of June 2011, $42,410,094,497 has been made specifically available for contracts. As part of this effort, the United States Small Business Administration was allocated $730 million to stabilize and attempt to stimulate small businesses. There is no evidence this $730 million allocation had a significant impact on small business growth and development during the crisis.

Second, the United States has been involved in wars in Afghanistan and Iraq. Federal government total spending has exceeded $1 trillion dollars. From 2004 through 2006, the Federal Government spent $11 billion, $17 billion and $25 billion, respectively, on contracting in Afghanistan and Iraq. While large defense contractors grew exponentially behind these efforts, there is no evidence small business growth or development was impacted. In fact, the only discernible impact for small business was the training made available to war veterans who wanted to start their own businesses.

Third, on August 29, 2005, Hurricane Katrina, considered one of the worst natural disasters in American history, made landfall in the Eastern Gulf of Mexico region. Hurricane Katrina, a Category 4 Storm, displaced thousands of people in Louisiana, Mississippi and Alabama and caused over $2 billion in damages. To assist in the reconstruction of the region, the Federal Emergency Management Agency (FEMA), part of the Department of Homeland Security, distributed over $33 billion by late 2007. FEMA awarded $8.8 billion in contracts related to hurricane damage, mostly for Katrina victims. Subsequent to Hurricane Katrina, to meet the emergent need, FEMA awarded four no-bid contracts, which eventually totaled $3 billion. In all the contracts awarded, again, small businesses were left out. In fact, a probe conducted by the Department of Homeland Security’s Inspector General noted that contracts were awarded to companies that were allegedly small and local, but there was no evidence these companies actually even met the criteria.

While there have been billions of dollars spent by the federal government in the situations described above, small business growth and development has continued to lag. Many experts agree the only way the economy can rebound from the constant barrage of events over the last five years is to bolster the small business community, which in turn will create more jobs. With that in mind, and with so many federal government contracting opportunities available, the United States Small Business Administration’s (“SBA”) outreach and assistance to the small business community takes on new importance. There is a range of programs offered through the SBA to support small businesses, including certification, funding, mentoring and educational opportunities. The SBA opines there are 27.5 million small businesses in the United States. However, with the current state of the economy, and with so many contracting opportunities available, how much progress is being made with small businesses? How can the government stabilize this important sector of the business world, even as it looks to tighter budgets over the next few years?

This Article explores what options are available to the Federal Government in its quest to improve the economy and create new jobs through the small businesses community. Part I examines the Small Business Act of 1953 , which laid the framework for the current, federal support meachanisms for small business. Part II analyzes the federal government’s most current major initiative to create jobs, which is the Small Business Jobs Act of 2010. Part III reviews the Federal Acquisition Regulation and the applicable regulations governing small business. Part IV makes legislative and policy recommendations to improve, and actually enhance, small business participation in federal contracting. This analysis concludes that the time is right, for the economy and the Federal Government, to provide greater support for small businesses. Further, this discussion concludes that with adjustments to law and policy, the SBA’s programs can actually reach those businesses that need help the most.

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Open for Business in a Bad Economy: Improving Federal Assistance to Small Business

Citation

Jim R. Moye, Open for Business in a Bad Economy: Improving Federal Assistance to Small Business, 100 Ky. L.J. Online 29 (2011), http://kentuckylawjournal.org/online-originals-2/open-for-business.

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