WASHINGTON - Rep. Nydia M. Velazquez says she has corralled nearly all the Republican votes she needs to restore a congressionally appropriated subsidy that had been eliminated last year from the Small Business Administration's budget.
For decades, the SBA's budget included a credit subsidy that covered the losses in its flagship 7(a) lending program. But last fall, Congress adopted SBA Administrator Hector V. Barreto's proposal and dropped the subsidy from the agency's budget, replacing the lost funding with revenue generated by increased user fees.
Since then Rep. Velazquez, the ranking Democrat on the House Small Business Committee, has pushed to restore the subsidy, arguing that the higher fees are driving borrowers and lenders away from the program. Now she says she has 12 of the 15 GOP votes she needs to pass an amendment that would add a $79 million credit subsidy to the appropriations bill that includes the SBA's funding for fiscal year 2006.
Rep. Velazquez, D-N.Y., said she expects all of the House's 201 Democratic members to support the amendment. The House is scheduled to vote on the measure Tuesday.
"We have a strong coalition of members from both parties, along with businesses and lenders, that all believe something must be done to make this critical program more affordable and accessible to small businesses," Rep. Velazquez said in an e-mail sent to American Banker. "That is why last year's vote was 281 to 137 to restore this funding - and we expect similar bipartisan support this year."
If Rep. Velazquez succeeds in the House, the credit subsidy will likely get a sympathetic hearing in the Senate, where Sen. Olympia J. Snowe, R-Maine, the chairman of the Senate Committee on Small Business and Entrepreneurship, has criticized many of the cuts Mr. Barreto has made to the SBA budget.
The $79 million at issue in the subsidy debate is barely a drop in the bucket in a federal budget that is approaching $2 trillion, but it is a major issue for 7(a), which guaranteed more than 78,000 loans worth $12.5 billion in fiscal 2004. (The government's fiscal year runs from October through September.)
Restoring the subsidy would allow the SBA to reduce the user fees it charges borrowers and the thousands of banks that participate in 7(a). The reduction is Rep. Velazquez' key objective.
"The 7(a) program today costs thousands of dollars more, and has experienced a drop in loan levels in each of the quarters since the new structure was put in place," she said. "These moves are only making it more difficult for lenders to participate in the program."
At the same time, the subsidy would also re-inject the program into the annual appropriations process - which is the last thing Mr. Barreto and other opponents of the credit subsidy want. They said delays in receiving subsidy money from Congress in past years frequently forced the SBA to ration credit by capping the size of the loans it would guarantee, and occasionally, to shut 7(a) down altogether.
Opponents of the subsidy argue that eliminating it freed 7(a) from the uncertainty of the budget process and guaranteed a smoother running operation.
"The problem with the subsidy was that every year we'd go through the budget process, and there was never enough money to meet demand," said Rich Carter, a spokesman for House Small Business Committee Chairman Donald Manzullo, R-Ill. "Last year the program had to shut down for a week. Getting away from the federal subsidy has made the program self-sufficient. We heard from the lenders. They'd much rather have higher fees if it adds certainty to the program."
Rep. Velazquez said the disruptions 7(a) experienced before fiscal 2005 could have been fixed by increasing the subsidy. Eliminating it made the program too expensive for tens of thousands of entrepreneurs, she said.
The Independent Community Bankers of America supports restoring the credit subsidy. "It's simple economics - if something costs more, you get less of it," said Paul Merski, the trade group's chief economist.
The SBA is already struggling to keep fees close to their current level, which is twice as high as the pre-2005 level, Mr. Merski said. "The risk is that they will become prohibitive," he said. "If we can get out of that kind of situation by paying $79 million, I'm for that."
Anthony Wilkinson, the president and chief executive of the National Association of Government Guaranteed Lenders, said its primary concern is for the program's stability. He said his group's members do not like the increased fees, but he noted that even with them, 7(a) is on pace to set records both in the number of loans it guarantees and in overall dollar volume.
"Our members would welcome lower fees," Mr. Wilkinson said. "But they also welcome the fact" that 7(a) is operating free from fears of loan caps or shutdowns.
Rep. Velazquez recently sent a letter to all 435 members of the House urging them to vote for her amendment. It was co-signed by Rep. Steven C. LaTourette, R-Ohio.
"I am a big supporter of the 7(a) program, and by restoring funding we will be able to help keep costs down for both small businesses and lenders," Rep. LaTourette said in a press release last week.
