The resignation of Hector Barreto, head of the Small Business Administration, leaves many speculating that he was forced out by the Bush administration in an effort to clean house within an organization soiled with criticism. There are also questions about the SBA’s future, as it has recently weathered a great deal of controversy.
According to Nydia Valázquez (D-N.Y.), ranking Democrat on the House Small Business Committee, three months after Hurricane Katrina, it was determined that only 5% of 312,000 SBA loan applicants had actually received money. As a result, Velázquez called for Barreto to step down from his post. James E. Clyburn, chairman of the House Democratic Caucus and member of the Congressional Black Caucus, was also critical, “It is clear that the administration failed on every front in responding to Hurricanes Katrina and Rita, and the SBA is no exception.” The SBA claims that three months after Katrina, the agency had approved more than $881 million in disaster loans to more than 12,500 applicants.
In 2002, Lloyd Chapman, founder and president of the American Business League, an advocacy group, met with representatives at the Inspector General’s Office of the SBA, claiming that Fortune 1000 companies were misrepresenting their size in an attempt to secure small-business contracts. According to a 2005 SBA report, four of the six largest contracts that were to go to small businesses for FY 2001 and 2002 sent to big companies. “This level of abuse could never have occurred without the knowledge of the SBA,” Chapman says.
One of the beneficiaries was Insight Public Sector Inc., an IT solutions provider with $3.3 billion in sales reported in 2005. The Tempe, Arizona, company falsely certified itself as a small business in 1996. As a result, it received $4 million in small-business contracts. After a federal investigation by the Justice Department and the Office of the Inspector General of both the SBA and the General Services Administration, Insight agreed to pay a $1 million settlement.
Despite the problems during his tenure, Barreto told BLACK ENTERPRISE that he was under no pressure to leave and had gotten the “perfect opportunity” to head up The Latino Coalition, an advocacy group. “I came from the private sector and my intentions were always to return,” says Barreto. He also states he is proud of the agency’s accomplishments, claiming it received a total of
419,500 Katrina loans and approved 151,500 of them, totaling $9.94 billion in half the time it took to process the $4 billion in loans for the1994 Northridge Earthquake. Barreto also contends that procurement is up 54.8% versus four years ago and that loans to African Americans are up 41% since last year.Blacks actually received 6,261 working capital, fixed-asset, and real estate loans worth $576.4 million in fiscal year 2005, according to the SBA.
Statistics show small businesses are responsible for providing 75% of the net jobs and employing 50% of the private workforce. Despite the numbers and a changing of the guard, there are those calling for the elimination of SBA programs.
Last September, the U.S. Commission on Civil Rights published a report requesting that the White House create a
task force to determine “whether race-conscious programs are still necessary” and that recommendations be presented “to Congress by March 2007.” The only dissension was from Michael Yaki, one of two Democratic members on the board of seven.A 2006 report published by The American Enterprise Institute, a public policy research group, suggested that the SBA’s loan programs be eliminated altogether. According to the report, there is “no failure of the private sector to allocate loans efficiently,” and the “SBA’s activities are simply a wasteful, politically motivated subsidy.”
When asked about eliminating the SBA, Alex Conant, a White House spokesman said, “The President has not made any [such] proposal.” However, with two and a half years left in office, a political storm could still be on the horizon.