Cutting Through the Budget Rhetoric

By Marsha Bailey

Cutting a budget isn’t easy.  Whether you’re a small business owner, a non-profit executive or a local government manager, making cuts is hard.  It’s hard because in small organizations, we don’t see the line items on our budgets as numbers, we see them as people.

There is much discussion in Washington, D.C. about cutting waste and inefficiency, eliminating duplicative programs and making tough choices.   Most of this is just high-sounding posturing – a smoke screen for a process that has become more political than practical.

Those who are eager to congratulate themselves for making “tough choices” see numbers, not people.

A good example is the proposed cuts to the Small Business Administration’s programs which assist the country’s smallest businesses.  And by “small business” I don’t mean 500 employees.  I mean five or fewer employees – those businesses classified as micro enterprises.  According to the government’s own data, after the recession following 9/11, 79% of the net new jobs came from businesses with four or fewer employees.  Yet both President Obama and Congressman Sam Graves, chairman of the House Small Business Committee, want to cut technical assistance and training programs that benefit precisely those business owners.  Their rationale: a majority of assistance is provided to prospective borrowers, many of whom do not become actual borrowers.

News Flash: Many business startups, particularly in the service sector, don’t need loans – but they do need training and technical assistance.  This is especially true of micro entrepreneurs who are often creating their own job to replace the one they lost in the current economic meltdown.

Congressman Graves recently stated,  “There isn’t a federal agency that should be immune from cutbacks and fiscal discipline and the Small Business Administration is no different.”   He says reducing the deficit by cutting “out-of-control” government spending will help spur economic growth and job creation, rather than taxpayer-funded small-business programs.

I think the Congressman is wrong on both points:

1)      Some agencies should indeed be immune from cutbacks.  Those that help create jobs should not be cut for two compelling reasons:  leverage and outcomes.  My organization leverages our SBA funding at nearly a 4:1 ratio.  85% of the leverage comes from private funds and 15% from other government sources.  Overall, only 35% of our total budget comes from public funds.   What does the government get for that?  The clients we serve in just one year create and retain nearly 400 jobs.  Those businesses generate over $1.4 million in state and local tax revenues – more than our entire annual operating budget.  We estimate that our programs return $12 to the economy for every dollar we spend.

2)      The assumption that cutting government spending is a more effective strategy for spurring economic growth and job creation simply has no basis in reality:  See 1936.  Cutting programs that support entrepreneurship is equivalent to what farmers call “eating your seed corn.”

Duplication?  The SBA’s Women’s Business Center and PRIME (Program for Investment in Micro-Entrepreneurs) Programs were created because the existing Small Business Development Centers (SBDCs) did not meet the needs of this rapidly growing group of economically and socially disadvantaged business owners.   These programs receive a fraction ($14 million and $8 million respectively) of the allocation – $113 million – that SBDCs get.

Organizations serving disadvantaged clients must patch together a number of different grants in order to fulfill the need for their services.  That’s not duplication.  President Obama’s 2012 budget, like George W. Bush’s, zeroes out PRIME.  Congressman Graves has suggested eliminating Women’s Business Centers.   This “last in, first out” strategy merely extends long-established patterns of economic injustice.

As for tough decisions?  Since when was picking on the weakest, poorest, and not coincidentally, the most powerless in our society a tough decision?

Marsha Bailey is the Founder and CEO of Women’s Economic Ventures, a   twenty-year-old non-profit organization dedicated to creating an equitable and just society through the economic empowerment of women.  Her organization receives funding from three different SBA programs. The opinions expressed in this article are her own and do not reflect the viewpoint of the SBA or its employees.