You’re the Boss Blog: Do Romney’s Budget Pledges Threaten S.B.A. Loans?

The Agenda

How small-business issues are shaping politics and policy.

Should Mitt Romney become president next year, he will face a difficult question pitting his eagerness to help small businesses against his eagerness to shrink the government: What to do with the Small Business Administration?

Since taking office in 2009, President Obama is on track to nearly double the S.B.A.’s budget. But apart from a burst of stimulus spending in 2009 and 2010 to increase lending temporarily, the infusion has not expanded the S.B.A.’s reach — it has merely allowed the agency to maintain its existing loan volume. Much of the S.B.A.’s mission is to guarantee loans to small companies that banks would otherwise not make, and steep cuts would likely force the agency to turn away borrowers.

While Mr. Romney’s campaign has been short on specifics about how it plans to achieve a “smaller, simpler, smarter” federal government, it does make two promises on its Web site that could affect the S.B.A.:

• Send Congress a bill on Day One that cuts nonsecurity discretionary spending by 5 percent across the board
• Pass the House Republican Budget proposal, rolling back President Obama’s government expansion by capping nonsecurity discretionary spending below 2008 levels

Either proposal could make it harder for small-business borrowers to receive government-backed loans, because federal law requires the government to set aside money to cover the cost of loans that it estimates will go bad, and the recession has driven those costs up by making small-business loans much riskier. Before the recession, fees on borrowers and lenders paid for the cost of loan defaults, but those fees have reached a cap set by law and can’t be increased unless Congress changes the law. Instead, since 2010, Congress has appropriated a subsidy to make up for the difference between the fees received and the allocation for defaults.

Largely because of the subsidy, the S.B.A.’s appropriation for small-business programs (that is, excluding funds for disaster loans, which the S.B.A. also administers) in 2013 will likely approach $1 billion, nearly double the appropriation in 2008. Loan subsidies for the agency’s two main loan programs, which cost taxpayers nothing in 2008, will grow to somewhere around $340 million, enough to support $22 billion in financing.

There is a fairly direct correlation between the size of the subsidy and the amount of lending — if the subsidy shrinks by 5 percent, lending will fall by roughly the same amount. That said, estimating the effects of Mr. Romney’s proposed 5 percent cut is a little complicated, if only because it is unclear what the starting point for the cut would be. Is it the president’s proposed budget for 2013? Is it the actual appropriation for 2012? Is it something else? (The Romney campaign declined to clarify.)

Taking 5 percent off what the Obama administration has proposed — and the House and Senate have largely accepted — for the S.B.A. in fiscal year 2013 would probably amount to a modest cut, but could still shut out some borrowers unless the agency is able to move some money around. If, on the other hand, Mr. Romney chooses to cut 5 percent from the 2012 budget, S.B.A. lending could be decimated. According to an Obama administration budget analyst who ran the numbers — but insisted on anonymity — the agency would be reduced to guaranteeing just $13.3 billion in loans in 2013. That is a third less than the $19.4 billion it has approved so far this year.

And slashing spending to below the level in 2008, when there were no subsidies, could effectively end S.B.A. lending. In the current economic environment, the loan programs cannot legally operate without a subsidy appropriated by Congress. (The S.B.A. will likely have some subsidy funds leftover at the end of 2012 that it can use next year, but once that money is spent, it will need a new appropriation to continue making loans.)

There appears to be little enthusiasm in Congress for raising those fees to substitute for the subsidy. In a budget letter this year, Republicans on the House Small Business Committee opposed both raising loan fees and cutting subsidies. The House, in its appropriation bill for 2013, actually passed a subsidy that was even larger than the president requested to support more loans.

But in an e-mail statement, Representative Sam Graves, the committee chairman, supported a 5 percent budget cut for the S.B.A. — even from the agency’s actual 2012 appropriation. “Our massive debt is acting as an ominous cloud over our economy, therefore, cutting the federal budget is necessary to help provide a better economic environment for small-business growth,” he said. “We can cut a lot of fat in every agency, including the S.B.A. There are some core programs that are useful, but there’s no question that there’s 5 percent of waste in agencies and numerous duplicative programs with little to show for the taxpayers’ generous investment.”

The Agenda sought the Romney campaign’s comment on the squeeze the S.B.A. might face and more generally on the agency’s place in Mr. Romney’s small-business agenda. The response from a campaign spokeswoman, Amanda Henneberg, didn’t mention the S.B.A. “Governor Romney has proposed bold policies that champion small business and support the economic growth needed to help create 12 million jobs in his first term,” Ms. Henneberg said in an e-mailed statement. “Chief among these policy proposals is reducing taxes on job creation through individual and corporate tax reform, stopping the increase in regulation that tangles job creators in red tape, and replacing Obamacare with real health care reform that controls cost and improves care.”

The S.B.A. also went unmentioned at the Republican convention two weeks ago, which dedicated an entire night to the theme of “We Built It” — a dig at President Obama’s “you didn’t build that” moment in July. But even so, the choice of speakers that evening illustrated the agency’s importance, perhaps unintentionally. Three of the four small-business owners who proclaimed on the dais that night that they built their businesses themselves have borrowed money with guarantees from the S.B.A. And the fourth sought business counseling from a small-business development center and a women’s business center — both organizations that are supported by grants from the S.B.A. and that might see less funding if Mr. Romney wins and follows through on his campaign pledges.

Article source: http://boss.blogs.nytimes.com/2012/09/13/do-romneys-budget-pledges-threaten-s-b-a-loans/?partner=rss&emc=rss