Union Tribune

October 18, 2002 Friday 

Bush administration works at cross purposes as it tries to help small business 

DANA WILKIE
Copley News Service 

WASHINGTON-- In a classic case of the left hand not working with the right, one office of the Bush administration is trying to make it easier for small businesses to grow and thrive, while another is actually making it harder. 

In a move President Bush said would help lead the nation to economic recovery, the administration recently cut the fees
the Small Business Administration charges for borrowing money. But in a development that could impede that recovery,
Bush's budget office is using antiquated accounting that has forced the SBA to cut in half the amount of money it can lend
this year. 

If the situation doesn't change, said San Diego banker Dave Bartram, "we're going to lend less." "That means there will
be less people getting the capital they need to start a business, to expand a business, and to employ more people," said
Bartram, president of the SBA division for U.S. Bank in San Diego, which last year made $15 million of SBA loans in
the region. 

Critics said the budget office relies on its current accounting method because it helps balance the federal budget. 

"The timing ... could not be worse," wrote GOP Rep. Darrell Issa of Vista, Calif., in a letter to House Speaker Dennis
Hastert, R-Ill. "As we look to small businesses to restore economic growth in our state, the most important source of
credit that fuels growth and job creation has been cut in half." 

Issa is a member of the House Small Business Committee. He wants Hastert to back a plan that would force the budget
office to change the way it calculates the reserve. 

The Small Business Administration funds 40 percent of all the long-term loans that go to America's businesses, and half
of those loaned to California businesses. The agency gave $11.9 billion worth of loans last fiscal year. But two
developments hit the SBA budget so hard that the agency will loan only $4.9 billion during the fiscal year that started this
month. 

On the one hand, a new law lowered the fees the SBA charges lenders and borrowers to protect the agency against
losses, which means less money for the SBA. 

On the other, Bush's Office of Management and Budget is - in the opinion of some - forcing the SBA to set aside more
money than is necessary to cover those same losses. 

As a result, the agency announced Oct. 1 that business owners can now borrow no more than $500,000 from the SBA. 

SBA spokesman Mike Stamler said he believes the loan cap is "not a Draconian response" to his agency's budget
predicament. Moreover, because most SBA loans last year were for under $500,000, "the vast majority of small
businesses that seek SBA help will not be affected by the $500,000 cap," he said. 

Some San Diego bankers disagree. 

Gary Youmans is executive vice president of Community National Bank in San Diego County, which last year provided
area businesses with $63 million of SBA loans. About 60 percent of those loans - or $38 million worth - were for more
than $500,000, he said. 

"This is going to take away the flexibility we have to help our small business borrowers," Youmans said. 

The General Accounting Office, Congress' investigative arm, reported last year that when the president's budget office
calculates how much should be in the SBA reserve, it unnecessarily looks at the last 17 years of loan defaults. As a result, the accounting office concluded, the reserve has collected $1.5 billion more than it needs. Several members of Congress believe that if Bush's budget office would rely only on the past decade, the SBA reserve could be lower, giving the agency more money for loans. 

"The Bush Administration is ... robbing small businesses to repay Enron, WorldCom, and their biggest contributors," said
Sen. John Kerry, D-Mass., a likely Democratic presidential contender. "Cutting investments in small businesses only risks
more lay-offs, more bankruptcies and even less access to credit for the small businesses which drive this economy," he
said. 

A spokeswoman for Bush's budget office acknowledged that the accounting methods are outdated, but said they can't be
changed until next October. 

"We're developing a new model, and it takes time to make sure it's done correctly," said the spokeswoman, Amy Call. 

Critics said the budget office already missed a deadline this month to have new rules in place. 

"Every time you talk to (the budget office), they have to tweak the rules more," said one Senate staffer close to the issue who asked not to be named. "They don't have an incentive to move quickly, because every year (the accounting method puts) $300 million, $400 million or $500 million into the treasury." 

Call would not comment on the accusation. 

In the meantime, bankers are preparing for the worst: Bartram, for instance, is making a plan to cut staff if the loan limits stay in place. 

"If we have a prolonged cap on the loan program, that means I cannot have the size of staff I have, because we won't be making as many loans," said Bartram, whose division employs 220 salespeople nationwide.