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Wednesday, July 6, 2011

Small Business Administration HUBZone Program

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration (SBA) administers several programs to support small businesses, including the Historically Underutilized Business Zone Empowerment Contracting (HUBZone) program. The HUBZone program is a small business federal contracting assistance program “whose primary objective is job creation and increasing capital investment in distressed communities.” It provides participating small businesses located in areas with low income, high poverty rates, or high unemployment rates with contracting opportunities in the form of “setasides,” sole-source awards, and price-evaluation preferences.

In FY2010, the federal government awarded contracts valued at $12.7 billion to HUBZone certified businesses, with about $3.6 billion of that amount awarded through the HUBZone program. The program’s FY2010 administrative cost was just under $17.0 million. Its FY2011 appropriation is $2.2 million, with the additional cost of administering the program provided by the SBA’s appropriation for general administrative expenses.

Congressional interest in the HUBZone program has increased in recent years, primarily due to U.S. Government Accountability Office (GAO) reports of fraud in the program. Some Members have called for the program’s termination. Others have recommended that the SBA continue its efforts to improve its administration of the program, especially its efforts to prevent fraud.

This report examines the arguments presented both for and against targeting assistance to geographic areas with specified characteristics, such as low income, high poverty, or high unemployment, as opposed to providing assistance to people or businesses with specified characteristics. It then assesses the arguments presented both for and against the creation and continuation of the HUBZone program, starting with the arguments presented during consideration of P.L. 105-135, the HUBZone Act of 1997 (Title VI of the Small Business Reauthorization Act of 1997), which authorized the program.

The report also discusses the HUBZone program’s structure and operation, focusing on the definitions of HUBZone areas and HUBZone small businesses and the program’s performance relative to federal contracting goals. The report includes an analysis of (1) the SBA’s administration of the program, (2) the SBA’s performance measures, and (3) the potential effect of the 2010 decennial census on which areas qualify as a HUBZone.

This report also examines congressional action on P.L. 111-240, the Small Business Jobs Act of 2010, which amended the Small Business Act to remove certain language that had prompted federal courts and GAO to find that HUBZone set-asides have “precedence” over other small business set-asides. It also discusses H.R. 2131, the Protect HUBZones Act of 2011, and S. 633, the Small Business Contracting Fraud Prevention Act of 2011, which would extend for three years HUBZone eligibility for firms that lose their HUBZone eligibility due to the release of 2010 decennial census economic data. S. 633 would also require the SBA to implement several GAO recommendations designed to improve the SBA’s administration of the program.

Date of Report: June 20, 2011
Number of Pages: 30
Order Number: R41268
Price: $29.95

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