SBA Should Be Dismantled, Stockman Says

Budget Director David A. Stockman told a Senate committee Thursday that the Small Business Administration should be dismantled because its $3-billion-a-year lending program is costly, “inconsequential and unnecessary to the thriving small-business sector.”

Defending the Administration’s proposal to abolish the lending programs and transfer remaining activities to the Commerce Department, Stockman said the agency’s loan programs do not measurably sharpen competition, help small companies to compete against large ones or foster growth of emerging industries.

Rather, the program “indiscriminately sprays a faint mist of subsidized credit into the weakest and most prosaic nooks and crannies of the nation’s $3-trillion economy,” Stockman told the Senate Small Business Committee.

The SBA’s credit programs have long been criticized for wastefulness, and it was the only federal agency targeted for abolition in President Reagan’s proposed 1986 budget.

Earlier this month, Stockman declared the SBA a “rat hole” that cost billions in federal funds.

But congressional sentiment has been strongly in favor of preserving the 32-year-old agency. Sen. Lowell Weicker (R-Conn.), the committee chairman, predicted Thursday that the SBA would survive although its direct lending programs may be done away with. He accused Stockman of relying on statistics that were “wrong, incomplete or misleading.”

Stockman has said his proposal would save $1.6 billion a year by closing down the SBA’s credit programs and selling its loan portfolio.

Among the remaining activities that would be transferred to the Commerce Department are the SBA’s small-business advocacy office and units designed to channel government contracts to small businesses and special loans to minority-owned small businesses.

Stockman testified that only about 0.2% of the 14 million U.S. small businesses have received SBA loans or loan guarantees, a number so small as to have had no substantial effect on the distribution of credit.

By subsidizing a few businesses, the agency creates unfair competition for others that are more credit-worthy, according to Stockman.

The agency’s loans flow to sectors of the economy that have no difficulty getting credit from banks or other financial institutions, the budget director said.

For example, in 1984, some $370 million in agency loans flowed to restaurants, bars and liquor and tobacco stores alone, he testified.

Between 1978 and 1984, nearly $750 million went to medical professionals, such as doctors and dentists, although their incomes are generally high and their facilities fully mortgagable, according to Stockman. “These loans meet no test of public purpose at all,” Stockman testified.

He noted that loans worth $119 million were distributed among 417 country clubs, golf courses and tennis clubs between 1978 and 1984.

Weicker and other committee members argued that the SBA loans have helped launch scores of worthy firms that otherwise would not have survived.

Among its notable beneficiaries are personal-computer maker Apple Computer Inc.; Cray Research Inc., the maker of supercomputers; Rolm Corp., the telecommunications firm, and Federal Express Corp., the package-delivery concern.

Weicker has proposed legislation that would continue the agency for at least three years while cutting 35% of its $726-million budget.

Most of those savings would be realized by eliminating direct loans and loans to victims of so-called non-physical disasters, such as the devaluation of the Mexican peso.