THE FEDERAL BUDGET : Small Businesses Feel the Pinch

From his comfortable perch in Laramie, Wyo., Chester R. McKee, who runs a small business, has cheered as the Republican-controlled Congress has tried to balance the budget. He has considered himself a distant spectator, not a participant in Washington’s partisan budget dramas.

No more. With the government’s partial shutdown, McKee, chief executive officer of a geological consulting firm that relies heavily on federal contracts, has been hurled into the arena of balanced-budget politics.

And it hurts. With the partial government shutdown, new government contracts to his firm have gone from about $17,000 per week to zero. And his firm has received “stop-work” orders on existing contracts--a halt in federal payments that his small firm will never recoup. Even though federal employees are expected to return to work Monday, funding for many private contractors, including McKee, has not been restored.

McKee has had to lay off three employees in recent weeks and he is scrambling to find ways to keep his remaining 100 employees paid and busy.

The experience has left this fiscal conservative a bit soured on congressional Republicans, who claim small business as one of their most important constituencies.

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“They’re certainly not helping us in business, whom classically the Republicans are supposed to help,” said McKee. “Heck, I could pay a lifetime of increased Medicare charges with what we’re losing in this shutdown.”

Across the country, businesses large and small that do contract work for the federal government are beginning to feel the pinch of Washington’s partial shutdown. Firms that do contract work for the departments and agencies whose budgets remain in dispute have been told that they will not be paid for work on contracts conducted while government operations are unfunded.

But while many big firms are absorbing the blow by reaching into their deep pockets, small businesses--a constituency courted by both sides in the budget fighta--are beginning to reel from its effects. Operating on narrow margins, a week--or two or three--without government payments can mean financial ruin.

For the government, that could mean higher unemployment rolls. And the departments that have sourced out many functions will find that the small businesses that get such contracts cannot go on providing the work without pay. For the businesses and workers themselves, the continued budget impasse is beginning to spell financial misery.

“These small businesses are very fragile and are going to look bad when they go to their banks next quarter to justify new lines of credit,” said Lorraine Lavet, president of the Chamber of Commerce in Fairfax County, Va., near Washington. Some small businesses--especially those that receive set-aside contracts for minority-owned and disadvantaged firms--may not make their payrolls, she said.

Meanwhile, each day that the Small Business Administration, or SBA, remains effectively shuttered--although its workers will be back at work, they will be unable to spend any money--it is losing the chance to award about 260 small-business loans worth $40 million. And 1,200 entrepreneurs lose the opportunity to get business counseling at SBA offices nationwide.

For Republicans, the plight of many who own small businesses represents a difficult dilemma. These people, say Republicans, are a mainstay of support for GOP priorities such as regulatory reform and balanced budgets. But they are among the first Americans beyond federal workers to feel the financial sting of the shutdown and budget gridlock. If, like McKee, they blame Republicans, there could be a backlash.

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All of which makes Democrats gleeful.

The Republicans, thundered House Minority Leader Richard A. Gephardt (D-Mo.) in a recent press conference, “don’t really care about the hard-working small-business people who are really being hurt by their actions. They’re willing to hold small business hostage.”

Republicans, meanwhile, are counting on the forbearance of small-business people and their loyalty to the budget cause.

“I do know a number of small businesses are being hurt,” said Rep. Jan Meyers (R-Kan.), chairwoman of the House Small Business Committee. “But they believe in balanced budgets so strongly, they’re gritting their teeth even though some are undoubtedly being hurt. . . . I don’t think any are naive enough to think this was going to be easy.”

Orange County Republican Dana Rohrabacher (R-Huntington Beach) acknowledged that he is getting angry calls from some of his district’s small-business contractors, many of whom depend on contracts from the largely shuttered National Aeronautics and Space Administration. But Rohrabacher’s message is unyielding.

“We’re telling them we’re sorry, but we are having to draw the line here,” said Rohrabacher. “If the government is not working, it’s because the president has not done his job in presenting his side of negotiations.”

But promises of a balanced budget in 2002 are doing little to placate the likes of Gary Petrazzuolo, owner of Avanti Inc., an environmental consulting firm with 18 employees in Annandale, Va. By early next week, Petrazzuolo will have used up all of his small company’s reserves to pay his employees and keep his office running. He says that he probably will have to lay off 16 workers.

“A balanced budget is in everybody’s best interest,” said Petrazzuolo, who considers himself a fiscal conservative now leaning toward supporting a third party. But, he added, “it confounds me how I help the government by letting people go.”