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Government Shutdown Could Push Small Businesses and U.S. Economy Over the Edge

3:29 pm in Uncategorized by Kevin Baron

So it seems that all of Washington, or at least all of the media outlets, are focusing on nothing but the potential government shutdown looming over the nation like a menacing storm cloud. While it seems that Congress and the White House are spending time squabbling over social issues, they are missing the big economic picture of what a government shutdown may mean to the small business community, and the economy as a whole.

The federal government is the largest purchaser of goods and services in the world. Over the past several fiscal years, the government has reported average annual spending at approximately $530 billion, and that is just the spending that is being reported (not including any black budget spending). The vast majority of businesses that fulfill these orders for goods and services are small businesses. In fact, according the Central Contractor Registry (CCR), there are currently just below 355,000 small businesses actively registered to work with the federal government.

While a portion of the government will continue to function, even through a shutdown, there are numerous non-essential programs that will be shutdown or at least paused, meaning that the money that had been budgeted to be spent, will no longer be spent. This will equate to literally billions of dollars in spending just disappearing from small business coffers.

As these small firms become negatively impacted by a government shutdown, the U.S. economy as a whole will also be negatively impacted. According to the latest figures from the U.S. Census Bureau, small businesses create over 90 percent of all net new jobs, employ over half of the private sector workforce and are responsible for over 50 percent of the nation’s GDP.

The U.S. economy has continued to suffer through this financial and economic crisis more than necessary, precisely because small businesses have not been getting the help and support they need to grow the economy and create jobs. A government shutdown that would freeze spending on billions of dollars of contracts, could significantly stall small businesses and may be the tipping point we are all looking to avoid.

If we are already teetering on the edge of a double-dip recession, a government shutdown would only inch us closer back to outright freefall.

Even if a double-dip recession doesn’t hit, small businesses will be pinched even more by the lack of federal dollars flowing to the local level. This may cause a significant negative ripple effect across the entire economy, at precisely the time when the government should be focused on ensuring small businesses have an increased opportunity to work with the government, and at the very least ensuring that small businesses have the maximum practicable opportunity to succeed.

If Congress and the White House were actually concerned about the state of our country and economy, they would stop arguing about ideological and petty political issues that each side keeps trying to put into the budget plan, and actually pass a budget to keep our government running and the country moving away from the edge of the abyss.

Liveblog: FDIC Looks into Small Business Lending, Bernanke to Testify

10:09 am in Uncategorized by Kevin Baron

I am here in Alexandria VA at an event being put on by FDIC to look at small business lending issues. Federal Reserve Bank Chairman Ben Bernanke is a panelist as well as several members of Congress, bankers and of course, a representative from the U.S. Chamber of Commerce, who represents small business about as much as bin Laden represents U.S. national security interest.

The event is scheduled to begin in approximately 25 minutes and I will be bringing live updates as the discussion unfolds. The issue of small business lending has been at the fore of discussion for two years and still nothing seems to improve. Small businesses have repeatedly said they need demand to increase, not loans, but most likely missing from today’s discussion will be how to get more federal small business contracts into the hands of small business instead of large and Fortune 500 firms, where most currently go.

It should be interesting to see what happens, although it most likely be more rhetoric and less substance, but we will see.

UPDATE — 1:09 p.m. ET — Things are getting underway with Rep. Spencer Bachus, the Chair of the House Financial Services Committee. The first panel is FDIC Chair Shelia Bair, Ben Bernanke, Senator Mark Warner, and Thomas Bell from the US Chamber.

Shelia Bair is speaking about improving the environment for small business lending.

And now Rep. Bachus will speak…he is focusing on small businesses role in job creation, for which he is correct, but he is focusing on the free market rhetoric, which is a complete joke…now going on and on about the need for less regulation, which has nothing to do with small business…typical.

UPDATE — 1:20 p.m. ET – Rep. Bachus is still jawing on about the damage, I mean, focus his committee will do in the 112th Congress…a lot of talk on deregulation, which makes me wonder…isn’t that how our economy got here in the first place?

More talk on the importance of job creation…now the panel is talking about the need for sales and demand…Bernanke is saying the sales will pick up over this year…Bar’s outlook is that again, sales and demand will improve this year…Senator Warner wants a balance between government and regulation with greater export growth, where small biz accouts for more than 90 percent…Thom Bell says government is the problem when it comes to job creation and in helping small business, this guy is so lost when it comes to what small businesses really need…

UPDATE — 1:30 p.m. ET – The discussion the panel is having on where banks are when it comes to small business lending and how they got there, but we have heard this discussion over and over and over again over the past two years…

A question about a small federal contractor who cannot get loans, even though she has contracts…their answer is the need to rebalance, so even having government contracts is not a means to help secure loans. Thom Bell from the U.S. Chamber is responding that government does not pay quick enough to support loans…Bell has no business being on this panel, as the U.S. Chamber notoriously lobby’s for anti-small business policy…

UPDATE — 1:33 p.m. ET – The discussion has turned now into the TARP and TALF and the issues stemming from that…Bernanke is discussing the balance of adjusting regulation for small banks while taking strides to keep the money flow at a reasonable level…included in this is the financial regulation legislation recently passed that is supposed to help shore up and level the playing field for small community banks. The U.S. Chamber, surprisingly, is opposed to that bill and regulation…

UPDATE — 1:57 p.m. ET – Bernanke sees that banks are no longer tightening, but are loosening a little, at least as small businesses are concerned, so he feels the economy has hit a turning point and banks are improving their lending, however, he warns against over regulation…

Oh good…the U.S. Chamber thinks the economy is improving according to Bell…especially because of the extension of the Bush tax cuts. Bell wants to improve the Dodd-Frank financial regs bill, which my guess would be full repeal..

I am sorry for being so negative about the U.S. Chamber, but they do not speak for actual small businesses, and Bell’s comments seem counterproductive to helping small business.

UPDATE — 2:07 p.m. – Bernanke is discussing that the various programs the Fed has rolled out over the past several years have helped to stabilize and improve the economy, which will lead to stronger and increased lending for small businesses, but the examples being used were focused on how the stock market has improved…

Senator Warner is discussing raising the debt ceiling, saying that the focus needs to be on both short term growth coupled with long term deficit reduction. Warner said they will be introducing the Bowles-Simpson commission recommendations into legislation later this year as a means of improving the economy while reducing the deficit. What?

UPDATE — 2:13 p.m. ET — The panel’s consensus is that a balancing act is needed to keep spending around 20 percent of GDP as that is all that will be brought in on taxes, so long-term strategy needs to bring down debt.

Senator Warner is touting the need to make hard decisions, which is why he keeps touting the Cat Food Commission’s recommendations as a means to bring down debt, while still growing the economy.

Bernanke is saying that until the real estate market improves, small businesses should not rely on collateral to get loans, so small businesses need to do the hard work to get loans, but Bernanke did not expand on what that hard work should be…

UPDATE — 2:20 p.m. ET — Panel one is over…up next is Panel Two to look at some of the solutions are to these issues…

This panel consists of Don Graves from the Treasury Department, Steven Smits from the SBA,
Anthony Lowe from FDIC, John Harrison from AL State Banking Dept., Jorge Corralejo from the Latin Business Chamber of Los Angeles, William Dennis from NFIB, Rebecca Rainey from the Central Bank of Taos, and Kathleen Sowa from Bank of America.

The panel has begun talking about the difference between the TARP bill and the small business lending bill from this past September…

UPDATE — 2:25 p.m. ET — Corralejo is talking about how big business and banks are doing better, as well as Wall Street, but small businesses are still struggling…several others on the panel agree, and they all agree that the US economy will not recover until small businesses revive and begin to grow again…

A big issue being raised by moderator John Harwood that banks are not or have not been willing to loan and small businesses are not seeking loans mainly because of a lack of demand…this is where a discussion on improving federal small business contracting programs should be inserted.

UPDATE — 2:36 p.m. ET — The panel is discussing the rift between banks being willing to lend and small businesses still not being able to get loans…still no real solutions yet. The banks claim they need more capital in order to get out more loans and will only lend to solid small businesses; the small businesses still claim that regardless of how solid the business has been.

The small business lending bill will be helpful for some community banks and not for others, according to the SBA…

Several members on the panel have brought up the need for other ways to get credit and money into the hands of small businesses…I say, government contracts would be a good way.

UPDATE — 2:46 p.m. ET — The panel discussion has shifted to ways small businesses can have collateral or enough support behind them in order to qualify for loans, so the banks can make well qualified loans and get the support they need from the government in the case of default…looking at talking programs being used at the state level, where in this case, the federal government could step in and back the loans to help support the community banks in the case of defaults…

Several panel members believe small businesses need more equity to help boost theme…

Corralejo is talking about small business contracting and how it can play to help small businesses…exactly! He hit the nail on the head…he is talking about the need for accurate contracting data in order to see where improvements should be in getting contracts into the hands of small business…he and I need to talk.

UPDATE — 2:54 p.m. ET — The discussion has shifted to federal contracting and the two panelists — from the SBA and from the Treasury — have no clue what they are talking about when it comes to contracting. A person in the audience brought up the issue of contracting and how the government is failing small businesses in that area, especially minority, woman, and veteran owned businesses…no one here, except for me, has any idea about small business contracting and what the data looks like, which is very dismal. If the data was good, we would not have to keep suing the GSA.

UPDATE — 2:59 p.m. ET — Now moved to talking about repealing the healthcare bill…our main concern has been with the 1099 reporting provision, which will be a burden for small business and needs to be repealed. The panelist from NFIB supports repealing the whole healthcare bill, which is no big surprise, since NFIB is a mouthpiece for the GOP and push the Republican agenda, which again, does not always take real small business concerns into account…I think the conversation on healthcare is a moot point, the discussion needs to move back to federal contracting.

UPDATE — 3:09 p.m. ET — The panel is looking at several questions that had been submitted…currently examining barriers for entrepreneurs, especially in the face of the housing crisis, which has hit small businesses because so many use their homes as collateral to keep their businesses functioning…the question was good, but the panel is struggling to really provide an answer…Steve Smits from the SBA is so long-winded and off target in his response it is putting the audience to sleep…the SBA has programs to try and help get loans for small businesses while trying to mitigate risk, but after two years, it seems kind of obvious that what they are doing is still not working.

UPDATE — 3:17 p.m. ET — Now the discussion is on corporate tax reform…NFIB is talking about that tax reform needs to be on the agenda for helping small business. However, the focus on tax issues is false to a certain degree, especially since numerous big businesses and multinationals are taxed as small business, of course, they get small business contracts too…it seems that the discussion on taxes is more of a benefit for big business, not small. Besides, the focus should be on improving or increasing demand so small businesses have business walking in the door, like getting federal contracts, once the economy improves and unemployment subsides, perhaps then we can look at tax reform…I am so tired of the tax debate because it seems like that is the only way to help small business, but as we know, tax cuts or tax reform does not help nor does it create jobs.

UPDATE — 3:32 p.m. ET — Discussion has turned to how local community groups can work more with FDIC, which is slightly more interesting than the rules and regulations governing FDIC and how they regulate banks…I have to be honest, that part made me doze off…

Now John Harwood just totally changed subjects to trade issues with China in light of President Hu of China impending visit with President Obama next week. The panel seems to agree, at those willing to comment, that greater regulation with China is needed…

Now, besides lending, the panel is looking at what can be done for job creation…NFIB says remove payroll tax and the government should not be spending more…I say, federal contracts, dummies!!! It is deficit neutral and will benefit small businesses more than anything…excuse me, I need to run outside and scream!

UPDATE — 3:44 p.m. ET — The panel discussion has now turned to how important small businesses are to the economy and the country and how small business is just as important to job creation as big business…I say small businesses are more important for job creation.

The panel has ended..Shelia Bair is speaking again…the problem with these panels are that no real solutions were proposed or even really debated, it was just more discussion on what we already know…

Now the SBA Administrator Karen Mills will speak, which thrills me to no end, as she is about as exciting as a bowl of lukewarm oatmeal.

UPDATE — 3:51 p.m. ET — So what this forum really covered today has really been nothing more than the same discussion that has been taking place over the past two years…several government representatives here today have been talking about progress that has been made, but where is the discussion on the solutions? This ongoing verbal masturbation does not help the real small businesses that are struggling to survive day in and day out…hearing the same old talking points is frustrating, especially when the agencies or government officials are not open to taking steps and taking on new ideas that will actually make a difference…

Karen Mills is still talking; I have heard her give this speech before, she just repeats talking points…there is no real substance, if the government actually put as much effort into working with small businesses as they did to try and convince everyone that they are working with small businesses, our economy would not be in trouble.

This concludes today’s session and liveblog.

Secret Blacklist Provision in Defense Authorization Bill Signals Death Knell for Small Businesses and Transparency in Contracting

8:33 am in Uncategorized by Kevin Baron

photo: Mayu ;p via Flickr

‘Tis the season for the bloated defense authorization bill to begin its journey towards passage, and as usual if you look hard enough, the legislation is stuffed full of all kinds of goodies. Since defense authorization will always pass, it has become an omnibus wish-list bill for anyone who wants anything out of our government, and this year is no different. Considering the size of this legislation, I will focus in on a particularly egregious section that will most likely pass under the radar of most members of Congress unless action is taken.

Section 815 for S. 3454, the National Defense Authorization Act for Fiscal Year 2011, has the innocuous title of “Reduction of Supply Chain Risk in the Acquisition of National Security Systems.” This section could essentially create “de facto” debarments of small businesses across DoD federal contracting programs, with potential for these “de facto” debarments to touch every corner of federal government contracting, thus creating a blacklist where businesses would be debarred from working with the government. The proponents of Section 815 have justified this blacklist as necessary to ensure national security and mitigate supply chain risk.

The beauty of Section 815 is that any firm placed on this blacklist is done so in secret; so much so that DoD officials are not required to notify the blacklisted parties.  This gets even better based on the language which specifically states that only two Department of Defense (DoD) officials will get to determine if any contractor is a “national security threat” worthy of being blacklisted. This falls on the Director of the Defense Intelligence Agency (DIA) and the Assistant Secretary of Defense for Networks and Information Integration (ASD-NII) to make the recommendation to debar a company from contracting with DoD. Small business advocates are concerned that DoD’s decision may flood every government-purchasing agency with a negative impression of blacklisted companies, and thus lead to “de facto” debarments across the federal government.  . . . Read the rest of this entry →

Finally Poking At the Soft Underbelly of Defense Subcontracting

11:30 am in Uncategorized by Kevin Baron

Several months ago I wrote a blog on FireDogLake detailing a small business subcontracting program being run through the Department of Defense called the Comprehensive Subcontracting Plan Test Program (CSPTP).

In a huge step forward for small businesses and all fans of government transparency, a group of legislators have requested that the Government Accountability Office (GAO) investigate and evaluate the CSPTP.  The program, which was launched in 1990, has never been evaluated for effectiveness.  The charge was led by Representative Yvette Clarke (D-NY) and backed by representatives Bennie Thompson (D-MS), Lynn Woolsey (D-CA), Carolyn Maloney (D-NY) and Chellie Pingree (D-ME).

To briefly summarize, the CSPTP was put into place 20 years ago with the stated intent of increasing the volume of subcontracting opportunities available to small businesses through the Department of Defense’s (DoD) contracting programs.  The program was established based on the hypothesis that reducing the administrative burden on large prime defense contractors would give those large prime contractors an imperative to do more work with small businesses.  There’s a major problem with that hypothesis.  As established, the program eliminated subcontracting reports available to the public, and penalties for non-compliance with subcontracting goals.

Translation:  Reduced transparency and accountability.

I am not exactly sure how reducing transparency, accountability and oversight on some of the largest defense contractors in the world is a recipe for increased subcontracting opportunities for small businesses, but apparently legislators thought it was worth a shot.

In the 20 years the CSPTP has been in place, it has been reauthorized by Congress 3 times without a single evaluation. The Acting Director of DoD’s Office of Small Business Programs personally expressed to me that the program has never been evaluated after I sent along a Freedom Of Information Act (FOIA) request seeking copies of the evaluations. As passed, Congress required DoD Officials to conduct an evaluation of the program no later than March 1, 1994. However, based on FOIA requests to DoD and the Small Business Administration (SBA), it seems that the 1994 evaluation was never conducted.

This “test program” has been operating for 20 years and no one knows if it is working.

Research conducted by the American Small Business League (ASBL) has shown that many of the large defense contractors who participate in the CSPTP have historically not met the mandated small business subcontracting goals, and the ASBL suspects this program to be nothing more than a loophole designed to help large prime contractors avoid paying liquidated damages for non-compliance with their small business subcontracting goals.
The program was set to expire on October 1 of this year, but thanks to Congressional delays in passing the Defense Authorization bill, the program has been extended.

Now, the House Defense Authorization bill did not include reauthorization for the CSPTP, but the Senate version did include reauthorization. As has been the track record for this Congress, if reauthorization is included in the Senate version, then it will most likely be in the final version. Couple that with the fact that several DoD officials (who will remain anonymous as they are not authorized to discuss such matters) assured me that this program will be reauthorized.

Back to the good news, the GAO request referenced above was issued on October 21, and represents a major step towards transparency and accountability in DoD small business contracting programs.  Frankly, the small business community needs congress to proactively think about the needs of small businesses.  Elimination of the comprehensive test program could mean a tremendous uptick in the volume of federal dollars flowing to small businesses. That uptick directly translates to jobs.  Small businesses are the backbone of the nation’s economy, and according to economists like Robert Reich the best way to stimulate the economy, and job growth, is for the government to send federal infrastructure funds to small businesses.  In this tough economic time, this type of action should be a major priority for our nation’s legislators.

In case you’re wondering, there are 14 participants of the CSPTP.  Participants of the program include BAE Systems, GE Aviation, Lockheed Martin, Raytheon, and Harris Corporation and eight other prime contractors.  According to federal data, participants of the CSPTP received $55.24 billion in contracts from DoD during fiscal year (FY) 2009. 1 out of every 6 dollars spent by DoD during FY 2009 were awarded to participants of the program.  As long as the CSPTP is in place, small businesses will continue to lose out on billions of dollars every year.

The ASBL and small businesses across the country applaud Representatives Clarke, Thompson, Woolsey, Maloney and Pingree, and thank them wholeheartedly for their efforts fighting for transparency, accountability and increased oversight in federal small business subcontracting programs.  This is a first step, but it is a large one.

The Senate Small Business Jobs Bill is Anti-Small Business and Will Not Create Jobs…Discuss

8:51 am in Uncategorized by Kevin Baron

Yesterday the Senate ended debate on H.R. 5297, the highly touted Small Business Jobs Act, which is being sold as a magic elixir cure-all for small businesses by the White House and most Democratic members of Congress. The problem is that this bill will not help small businesses or create jobs, in fact, language included the bill will actually be harmful for small businesses. I know, I know, it just seems so weird that a bill literally called the Small Business Jobs Act will actually do the opposite of what we are being told.

The Small Business Jobs Act, as it will be passed in the Senate this week, is going to create a $30 billion lending fund and offer $12 billion in tax breaks to small businesses. Surveys and research being conducted by real small business organizations, such as the American Small Business League (ASBL), and faux small business organizations, such as the Business Roundtable or US Chamber of Commerce, agree on one point: small businesses do not need loans, they need an increase in sales. Small businesses must have more customers walking in the door seeking goods and services.

Over the past two years, the focus on helping small businesses has been on increasing loans and access to capital. There are some small businesses that do need loans, but when it comes to job creation…loans and tax breaks are not going to work. The only way to create jobs and economic growth is by an increase in demand.

According to the Economic Policy Institute, “The theory of tax cuts as economic stimulus has been put to the test – and failed – twice in the past six years alone.” Alan Blinder, professor and co-director of Princeton University’s Center for Economic Policy Studies, has stated that for every budgetary dollar spent by the government, on things like unemployment insurance or on infrastructure, the real economic growth to the GDP is the equivalent of $1.60 to $1.70. Whereas he stated that every dollar in tax cuts only creates $0.35 in GDP growth. So why does our government keep insisting that tax cuts for small businesses is the best way to create jobs and stimulate the economy?

The best part about this Small Business Jobs Act is a little tiny paragraph snuck into the section on small business contracting. On the face of it, Section 1341 of the bill will help provide greater protection and oversight of small business contracting programs, which have been rife with fraud and abuse for years. Then you get to paragraph 4, which states,

The problem with this language is that it creates a giant loophole to allow large firms to defraud the government by claiming to be a small business, and then be immune from any prosecution for doing so. This language legalizes fraud while removing accountability. It allows the Administrator of the Small Business Administration (SBA) to create regulations to protect individuals or firms from liability. The catch is that the SBA has been claiming for years that large firms receive small business contracts because of “miscoding” or “simple human errors.”

Since 2003, there have been over a dozen federal investigations, which have found Fortune 500 firms and thousands of large companies around the world as the actual recipients of federal small business contracts. The SBA’s Inspector General has listed this problem as the number one management challenge facing the agency for the past five consecutive years and referred to this problem as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.

Report 5-16 from the SBA Inspector General referred to these misrepresentations as, “false certifications” and “improper certifications.” Other federal investigations described the blatant fraud as “vendor deception.”

So this legislation will allow the SBA Administrator, who claims that over $100 billion a year in small business contracts go to corporate giants due to innocent mistakes, to create a loophole to allow firms that defraud the government in order to win small business contracts to avoid any punishment for fraud because of “unintentional errors, technical malfunctions, and other similar situations.”

President Obama and the Congress should be focused on legislation that will actually help small businesses and create jobs. Legislation like H.R. 2568, the Fairness and Transparency in Contracting Act, a bill that will actually do what it says, and end fraud in small business contracting programs. Cleaning up the rampant fraud and abuse in small business contracting programs would be a huge first step when it comes to driving over $100 billion a year in demand back into the hands of small businesses, who create over 90 percent of all net new jobs.

But, I guess this has become the norm in Washington, DC, where down is up, left is right, and the Small Business Jobs Act will help small businesses and create jobs.

Is President Obama Trying to Channel His Inner FDR?

4:49 pm in Uncategorized by Kevin Baron

[Ed. note: Promoted as this post deserved far more discussion considering how much change we still need in economic policies to help small business generate jobs.]

I think it’s cute that finally, since taking office, President Obama has decided that it is time to focus on jobs and the economy.  I should not jump the gun yet, he has only given one speech, so it may be premature to say that he is focused. But what are you supposed to say on Labor Day to a huge gathering of union folks at “Laborfest” when there are over 15 million Americans who are unemployed, and millions more that have either stopped looking or are underemployed? While the President has done well when it comes to lofty rhetoric, it is the follow-through I am more concerned with. In his State of the Union Speech, the President basically said that 2010 was going to be about, “jobs, jobs, jobs.” The problem was that we all thought he meant creating them… not losing them.

The President’s speech from Monday outlined a plan to spend $50 billion on infrastructure projects such as: roads, railways and runways, essentially anything that you can drive a car, truck, train or plane on. The good news is that this spending will be paid for by rolling back one of the numerous tax subsidies to the oil and gas industry, which, I think you will be hard pressed to find anyone (outside of the oil and gas industry, that is) who would disagree with that. When Exxon Mobil pays no income tax in the U.S., I don’t oppose having them help fund the rebuilding of our crumbling infrastructure.

Increased infrastructure spending is definitely a good start when it comes to economic growth and job creation, but the focus needs to be in the right place. The President is talking about this $50 billion plan as the start of a larger six-year infrastructure plan. On Wednesday, the President will also speak about giving small businesses tax breaks and tax incentives as part of the plan to spur job creation and economic growth. As has been proven time and again, tax breaks do nothing when it comes to job creation. The best detail to come out of the President’s new focus is that he finally sounds as if he is actually ready to be the leader many of us thought he was going to be, especially when it comes to the economy and unemployment. He actually sounded a bit like FDR on Monday. The question remains, will President Obama be willing to buck the moneyed powers-that-be (like the U.S. Chamber of Commerce) in order to do what is needed to fix the economy?

As the President begins to find his inner FDR, we need to make sure that when it comes to helping small businesses, and the American economy overall, the focus is in the right place. In this sense, the President’s plan may be a bit misguided.  . . . Read the rest of this entry →

Checking My Crystal Ball on the FY 2009 Federal Small Business Contract Numbers, Part 2

10:53 am in Uncategorized by Kevin Baron

You may have seen a blog I wrote a few weeks ago making several predictions regarding the Small Business Administration’s (SBA) release of its Small Business Goaling Report and Procurement Scorecard for fiscal year (FY) 2009. It has been customary for the SBA to release this information late on a Friday when it seems no one is paying attention, and this year is no different. To that end, this past Friday afternoon, the SBA released the government’s Small Business Procurement Scorecard for FY 2009, to very little fanfare or media attention. In fact, the only media attention I saw on this came in the form of a press release that the SBA put out, which seemed to get picked up only by a few random blogs.

Before delving into my own scorecard of predictions to see if I can get a job with the Psychic Friends Network, let us look briefly at the SBA’s scorecard. Once again, for yet another consecutive year, the government missed the mandatory 23 percent small business goal. This year, the SBA claims small businesses received approximately $96 billion in contracts, which amounted to 21.8 percent of the total dollar amount of government contracts. In order to downplay missing the goal, the SBA is selling this as a “victory” by claiming it was a record year for small businesses, which is exactly the same thing the SBA did last year when the scorecard came out. The bottom line is that even when using the government’s own numbers, which are completely flawed, small businesses lost out on billions of dollars in opportunities in federal contracts.

In checking my own scorecard of predictions, #1 was that the SBA would release the FY 2009 small business Procurement Scorecard and Goaling Report late on a Friday afternoon. As I just mentioned, that is exactly what they did; score one point for me. The other half of that prediction was that the President’s Interagency Task Force on Federal Contracting Opportunities for Small Businesses would release their report and recommendations on small business contracting at the same time. While the 90-day window the taskforce was given to issue a report is up, at this point, the White House has not released to the public the report and recommendations from the taskforce. Due to the taskforce not publicly releasing the report at the same time as the SBA released the small business scorecard, I will take away a half-point.

As a side note to the release of the SBA’s Procurement Scorecard, the SBA did not release the FY 2009 Goaling Report that normally would accompany the scorecard. The Goaling Report is an agency-by-agency breakdown, as well as the aggregate totals of contract action awards and dollars that each agency conducted with every category of small business over the course of the fiscal year. This data has not been released by the SBA, at least it does not appear in the Goaling Report section of the SBA’s website, which, like most government websites, generally takes an unusually long time to be updated. The fact that the actual numbers and data have not been released calls into question the legitimacy of the SBA’s numbers and how they arrived at the totals that they did. A study conducted earlier this year by the American Small Business League (ASBL) found that for FY 2009, legitimate small businesses actually received approximately 5 percent of the total dollars in federal small business contracts, due to the majority of those contracts being awarded to large businesses, Fortune 500 firms and multinational corporations.

This brings me to prediction #2, which was that once the contracting numbers are examined, the data will show that the majority of small business contracts actually went to large businesses. Since this point was made just above, I will chalk up one more point for me.

Prediction #3 was that the SBA will claim that large companies receive small business contracts due to “miscoding” or “simple human errors,” and that the “data is as clean as it has ever been.” The only press release issued by the SBA does not even mention large companies receiving small business contracts. And it seems that so far, no one at the SBA has talked to any reporters about this on the record. To help put this into context, the SBA’s Inspector General has said for the past five consecutive years that the number one management challenge at the SBA is,

In the press release, the SBA did state, “As it does every year, the SBA has closely examined federal procurement reporting and data to ensure the greatest level of transparency possible. After identifying anomalies in initial reports, the SBA has worked collaboratively – and will continue to work – with agencies across the government to correct as many data issues as possible, and improve the integrity of all small business federal contracting reporting moving forward.” For those of you who are not fluent in government-speak, this means that there were simple “miscoding” and “data entry” errors and that the “data is as clean as it has ever been.” Score one more point for me.

Prediction #4 was that the SBA would overstate the percentage of the federal acquisition budget and the dollar volume flowing to small businesses. Without even looking at the actual Goaling Report, I can tell you that this is accurate. Again, I will draw your attention the recent study released by the ASBL, linked here, which shows several different ways that the SBA overstates the amount of contracts small businesses receive from year to year. The most obvious being that large businesses receive billions of dollars a month in contracts that are supposed to go to small businesses. Score one more point for me.

In examining the point totals, I received 3.5 out of 4 points, which means I can fulfill my dream of being a psychic. The really sad part is what this actually means. It means that for another year, America’s small businesses have lost out on billions of dollars in federal contracts. It means that the one sector of our economy that is responsible for creating over 90 percent of net-new jobs lost out on billions of dollars in opportunities for job creation and economic growth. It means that because small businesses suffer, the U.S. economy has suffered during the worst economic downturn in over 70 years. It means that while the importance of small businesses gets thrown around quite a bit in Washington, the Obama Administration is still not serious about helping and working with small businesses. It means that until the government’s actions match its rhetoric on small business issues, I am going to hold off on starting a career as a psychic.

Stupid Economy – It’s About Small Business

9:11 am in Uncategorized by Kevin Baron

Is good policy defined as legislation that is bipartisan? Apparently President Obama and his administration seem to believe so. Before leaving on a vacation yesterday, the president gave some brief remarks in the Rose Garden, most of which were centered on small businesses, specifically the need for Senate Republicans to stop blocking the passage of the small business lending bill that has been languishing in the Senate, after passing in the House weeks ago.

President Obama said,

Of course, the president also said that this bill is supported by the U.S. Chamber of Commerce, which immediately should raise red flags for any pro-small business person. So because this bill is “bipartisan” in nature, according to the White House, that makes it sound policy, but then why are no Republicans willing to support? Ok, ok, dumb question.

The real problem with the Senate small business lending bill is that it is focused on increasing lending to small business through private banks (which is in and of itself a major roadblock) and on tax breaks. These are the same two areas of focus that have dominated the small business discussion in Washington for two years now. And for the past two years, Congress and the White House have enacted legislation that has sought to increase lending to small businesses and provide tax breaks or tax incentives. I have a small piece of advice for President Obama, THIS HAS NOT AND WILL NOT WORK TO CREATE JOBS!!! I feel like I am taking crazy pills. How many times do we have to try the same thing, expecting different results, before the men in white coats come to take us away?

The U.S. Department of Labor released a report yesterday showing that jobless claims surpassed the 500,000 mark for last week, making it the fifth consecutive week jobless claims have risen. This marks the highest number of jobless claims since November 2009, suggesting that the U.S. economy is creating fewer jobs now than in the first half of this year.

To add insult to injury, the Labor Department released another report this week showing that small businesses are shedding the most jobs in the fourth quarter of this year than any other business category in the private sector. The report shows that businesses with less than 50 employees accounted for 61.8 percent of all job cuts, while that same category only added 54.1 percent of new jobs. This is a stark shift from one year ago, when small businesses were creating more jobs than losing jobs.

Back to the president’s comments from yesterday. While President Obama was excoriating Senate Republicans to end their obstruction to the small business bill, the president said that the Labor Department report,

I think the president is absolutely right, this report should compel both Congress and White House to act…just not on passing the Senate small business bill, which will have little to no impact on job creation or economic growth for small businesses in the middle class economy.

It is time for bold action in a different direction.

The focus needs to shift from small business loans and tax breaks to demand stimulation. More and more small businesses are saying that access to capital is not their main concern; it is a lack of demand- a lack of customers walking through the door.

When the private sector and consumers fall short on their demand for goods and services, the government can step in and help to stimulate demand, in fact it does already. The federal government is the largest purchaser of goods and services in the world, spending over $500 billion a year with private sector businesses. Fifty-seven years ago, Congress had the foresight to pass the Small Business Act, which now mandates that small businesses receive not less than 23 percent of the total dollar amount of all federal contracts. That translates to approximately $125 billion a year in contracts that should be going to small businesses. It could be as high as $230 billion a year in small business contracts if you include intelligence and “black projects” in the official acquisition budget.

The problem is that a series of federal investigations, and research conducted by the American Small Business League (ASBL) shows that the majority of small business contracts go to large businesses, Fortune 500 firms and multinational corporations. In fact, small businesses on average receive less than 5 percent of the federal governments total purchases every year. Meaning, small businesses are losing out on roughly $100 billion in federal contracts every year.

There is a different bill rotting in the House right now that would end the fraud and abuse in these small business contracting programs and bring over $100 billion a year, and every year, in contracts back into the hands of small businesses. The bill, H.R. 2568, the Fairness and Transparency in Contracting Act would do more to help small businesses than anything the White House has proposed or pushed thus far. The government can utilize these existing small business contracting programs as a means to drive demand to small businesses in order to make up for the lack in consumer spending.

So if President Obama is concerned about small businesses and pushing Congress to pass small business legislation, then why has he been silent on this contracting issue and why would he not push Congress to pass H.R. 2568? If having bipartisan legislation is the president’s definition of good policy, then he should definitely support H.R. 2568, which has 26 co-sponsors, two of which are Republicans. That is already more Republican support than the president has received on any of his major policies.

The Missing Ingredient to Avoid the Double-Dip: Small Business Contracts

3:04 pm in Uncategorized by Kevin Baron

There has been a great deal of discussion lately, especially from prominent economists, focusing on the supposed certainty that the U.S. economy is heading into a double-dip recession. Despite all the lofty rhetoric coming from the Obama Administration, one thing does seem certain; the economy is about to move again, but this time in the wrong direction.

Regardless of which economist you listen to, it seems they all agree that the only way to end the recession is to create jobs. The other point that most economists will agree on is that the majority of new jobs are created by small businesses. Now, there has been quite a bit of talk recently, especially from the Obama administration that,

The problem is that both the Obama administration and most members of Congress have fallen far short when it comes to doing anything to help small businesses during these tough (horrendous) economic times. Frankly, strong rhetoric is all we have seen out of the Obama administration when it comes to the importance of small businesses.

Regardless of how overplayed the rhetoric is on small businesses being the backbone of the nation’s economy, the fact is that the rhetoric is absolutely true. According to the U.S. Census Bureau, small businesses create over 90 percent of all net new jobs, provide over 50 percent of the nation’s private sector workforce, create half of the country’s GDP and provide over 90 percent of new innovations. A recent study from the Kauffman Foundation found that companies less than 5 years old create nearly all net new jobs, and by far, the vast majority of companies less than 5 years old are small businesses. In fact, another study from the Kauffman Foundation found that startup companies, i.e. small businesses, have long lasting positive economic impacts on job creation. This means that currently, small businesses are responsible for virtually every net new job being created. With this in mind, why did the Obama administration direct less than 3 percent of stimulus funds to small businesses?  . . . Read the rest of this entry →

Checking My Crystal Ball on the FY 2009 Federal Small Business Contract Numbers

2:39 pm in Uncategorized by Kevin Baron

Ms. Cleo from the Psychic Hotline has nothing on me. I am going to put my psychic abilities to the test here. Historically, the Small Business Administration (SBA) releases its Small Business Goaling Report and Procurement Scorecard on the previous fiscal years small business contract activity with the federal government towards the end of August. This means the FY 2009 numbers should be coming out within the next few weeks. Additionally in April, President Obama formed a small business taskforce to look into federal contracting opportunities for small businesses and will be presenting the president with a report on its findings within the next few weeks. We all know that commissions and taskforces are a way to whitewash important issues, (this one is no different) and it will be interesting to see if the taskforce recommendations match any of the dozens of federal investigations that have come out over the past decade showing rampant fraud and abuse in small business contracting programs.

So here is prediction #1: The SBA will release the FY 2009 Small Business Goaling Report and Procurement Scorecard on a Friday afternoon, possibly right before Labor Day weekend, and President Obama’s small business taskforce will release its report at the same time. We all know the government has a track record of releasing really bad news on Friday afternoons when most people are distracted. This way, no one will notice or pay any attention to what will be another consecutive year that our government has not achieved its small business mandates, and has continued its horrendous track record of working with small businesses.

Prediction #2: When examining the data on the actual small business contract recipients for FY 2009, the majority will be large businesses, Fortune 500 firms and multinational corporations. In fact, this is already true. Several months ago, the American Small Business League (ASBL) conducted its own analysis and report of the Top 100 small business contract recipients for FY 2009 and found that 61 out of 100 were not actual small businesses. These 61 large firms received 64 percent of the total dollars for the Top 100, which came out to almost $10 billion. The ASBL’s report can be found here.

Prediction #3: The SBA will make the claim that large firms received small business contracts because of “miscoding,” “simple human errors,” and “data entry mistakes.” The SBA has been making that claim every year since at least 2002, and every year they say the contracting data is scrubbed of these errors and that the “data is as clean as it has ever been.” It is almost amusing that every year, simple miscoding and data entry mistakes seem to give billions of dollars in small business contracts to large firms, but never the other way around.

Prediction #4: The SBA will overstate the percentage of the federal acquisition budget and the dollar volume flowing to small businesses. During FY 2008, the SBA claimed small businesses received over $93 billion in contracts, which amounted to 21.5 percent of the governments 23 percent mandate. The truth is that the SBA falsely inflates its small business numbers. One way of doing this is by counting large firms as small businesses. The SBA also deflates the contract dollar totals. The SBA claims that for FY 2008, the total “small business eligible dollars” was just over $434 billion, which, when you take $93 billion out of $434 billion, comes to 21.5 percent. The problem is that the total dollar amount of all prime contracts for that year (the number the SBA is supposed to be using) was over $536 billion. Now, the SBA has never defined or been able to explain what a “small business eligible contract” is or where the law states that they can use this figure instead of the actual total. This is just a way to make it appear that small businesses are doing more work with the government than they actually are.

On another interesting note, if you take into account all of the “black” projects and intelligence operations that do not get counted officially as part of the government’s procurement numbers, the dollar amount spent on contracts for FY 2008 jumps to right around $1 trillion, which would mean that small businesses should be receiving close to $230 billion in contracts.

The fraud and abuses will continue in small business contracting programs until federal agencies are held accountable and the SBA actually admits there is a serious problem instead of trying to deny the issue. There is legislation in Congress right now, H.R. 2568, the Fairness and Transparency in Contracting Act, introduced by Congressman Hank Johnson (D-GA-4) that currently has 26 cosponsors, which will do more to end these abuses, and bring billions of dollars a year in contracts back into the hands of small businesses than anything proposed so far. And when we talk about job creation and economic growth, we are talking about small businesses, so why not utilize small business contracting programs as a means of driving demand into the hands of our small businesses? The programs are already in place and would be deficit neutral. All we need is for Congress to finally do something that will actually help small businesses and pass H.R. 2568.

Break out your scorecards and within a few weeks we will see how accurate my psychic abilities are…