SBA Chief Falls Short as Agency Faces New Round of Cutbacks

Congress may not want to kill the Small Business Administration as it did five years ago, but budget cuts proposed by the House and Senate appropriations committees would cripple the agency, SBA officials say.

SBA Administrator Aida Alvarez, charged with helping the beleaguered agency make a fresh start with Congress when she was appointed nearly three years ago, has failed to convince legislators that the SBA is fit and trim. Indeed, her close alignment with the Clinton administration has alienated the very people responsible for sending budget dollars her way.

As a result, about 1,000 of the agency’s 3,200 employees would have to be laid off under the budget approved by the U.S. Senate, SBA officials say. An even more drastic House version would require cuts of 2,400, or 75% of the SBA work force.

“The House bill virtually shuts the SBA down in the dust,” said Greg Walters, the agency’s deputy chief financial officer. “Our hope is that the House and Senate conference committee will be able to restore $87 million, so we don’t have to go through a shutdown.”

But the chance of Congress returning after the summer recess with generous inclinations toward the SBA is about as likely as an August snowfall in the nation’s capital. The problem is one of politics: The SBA has run afoul of Republicans and has no allies.

The SBA proposed a $994.5-million budget--$174.5 million more than the agency received last year. That includes $45 million for its New Market initiatives--venture capital and technical assistance programs for inner-city small businesses. But appropriations committees in both the House and Senate refused to provide a dime for the New Market programs. Instead, both committees proposed SBA budgets that are more than $250 million short of what the SBA requested.

Insiders say much of the problem rests with Alvarez, who was expected to modernize and upgrade an agency hard hit in the past by budget cutbacks and questions about its loan default rate. When its very existence was threatened, past administrator Phil Lader trimmed 500 workers. It remained for Alvarez to take the agency forward.

Instead, Alvarez ran smack into questions from Congress about her administration when the 7(a) loan program, its largest, had to be capped in 1997 to prevent it from running out of money. Despite improvements to the agency’s lending programs, financial questions continue to plague the agency.

In March, the Senate Committee on Small Business criticized Alvarez, saying she failed to submit a fiscal 1998 audit and was unable to account for past expenditures, yet came before Congress asking to expand the agency. Committee Chairman Christopher S. Bond (R-Mo.) also sharply questioned Alvarez about her reportedly hiring an additional 120 workers in the midst of a hiring freeze. The agency insists that it has adhered to the hiring freeze. Bond’s office believes the agency has run into money shortfalls because it lacks the funds to pay the additional help.

Last month, Bond’s office sent a letter to Alvarez demanding a response to allegations that the agency pulled $400,000 from its Service Corps of Retired Executives budget meant to reimburse volunteers. SBA officials say no money was taken from the SCORE budget, but that for years SCORE volunteer expenses were paid “unofficially” from SBA district offices that can no longer afford the expense.

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Some say Bond’s criticism and that of other Republicans stem from Alvarez’s alignment with President Clinton and Vice President Al Gore. Indeed, Alvarez was rumored to be hopeful of securing the vice presidential spot on the Democratic ticket. Alvarez often teamed with Gore in announcing new SBA programs. Earlier this year, Clinton toured the country touting the SBA’s New Market initiatives as a key program of his administration.

Alvarez compounded that political problem by failing to observe congressional protocol. Typically, new programs work their way up through Congress, getting authorization from various committees like Bond’s before going to appropriations committees for funding.

Alvarez could have spent time working with the House and Senate committees on small business to inform and persuade legislators about the programs. Bond, for one, questions whether many of the new programs will work and believes others duplicate existing federal programs. Instead, perhaps accurately assessing that there would be little chance of approval, Alvarez went the public route with Clinton and received no funding from Congress.

Now, faced with possible cutbacks, the SBA has turned toward small-business associations and activists for help lobbying Congress. SBA officials have sent thick information packets to their National Advisory Council, a nationwide group of small-business leaders whose organizations have thousands of members. But some SBA supporters believe the agency may be crying wolf.

SBA officials, for example, appear to be using creative math to come up with the possible budget damage. They first estimated that under the Senate’s proposed budget, they would have to lay off 300 workers. But they modified that figure to 600, saying that the extra staff cuts would be needed to get money to pay laid-off workers federally required termination benefits. Somehow, the figure has since risen to 1,000. Similar methods have been used to arrive at the 2,400 figure under the House’s proposed SBA budget.

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These political machinations may seem petty to a small-business owner struggling to find money and expertise to expand, but the problems affect the type and amount of help those businesses can expect from the SBA.

The SBA’s problems, brought to a head in this year’s budget process, have resulted in low employee morale and agency chaos, small-business activists say. Because the SBA is a small fry in the overall federal budget, it needs a strong administrator willing to get the agency in top shape and persuade Congress that it’s doing a good job. So far, it appears Alvarez has been unable to get the task done.

Whether the fault lies with her or with a Congress beset by partisanship, the bottom line is that the SBA must now ask for aid from small firms, the very group the agency is supposed to be helping.

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Times staff writer Vicki Torres can be reached at (213) 237-6553 or at vicki.torres@latimes.com.