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Monday, January 7, 2013

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. Firms must be certified by the SBA to participate in the HUBZone program. On December 27, 2012, there were 5,637 certified HUBZone small businesses.

In FY2011, the federal government awarded 91,864 contracts valued at $9.9 billion to HUBZonecertified businesses, with about $2.75 billion of that amount awarded through a HUBZone setaside, sole source, or price-evaluation preference award. The program’s FY2011 administrative cost was about $15.6 million. Its FY2013 appropriation is just over $2.5 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 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 arguments 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 both for and against the continuation of the HUBZone 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 effect of the release of economic date from the 2010 decennial census on which areas qualify as a HUBZone.

This report also examines P.L. 111-240, the Small Business Jobs Act of 2010, which removed certain language from the Small Business Act that had prompted federal courts and the Government Accountability Office (GAO) to find that HUBZone set-asides have “precedence” over other small business set-asides. It also discusses several bills introduced during the 112th Congress to extend the eligibility for firms that lost their HUBZone redesignated eligibility status due to the release of economic data from the 2010 decennial census, including H.R. 2131, the Protect HUBZones Act of 2011; S. 1756, the HUBZone Protection Act of 2011; S. 633, the Small Business Contracting Fraud Prevention Act of 2011; and S. 3572, the Restoring Tax and Regulatory Certainty to Small Businesses Act of 2012. S. 633 and S. 3572 would also require the SBA to implement several GAO recommendations designed to improve the SBA’s administration of the program. Also, S. 3254, the National Defense Authorization Act for Fiscal Year 2013, as amended, would extend HUBZone eligibility for BRAC base closures for an additional five years. This provision was included in the conference agreement to H.R. 4310, the National

Defense Authorization Act for Fiscal Year 2013, which was agreed to by the House on December 20, 2012, and by the Senate on December 21, 2012. The bill has been sent to the President.

Date of Report: December 27, 2012
Number of Pages: 35
Order Number: R41268
Price: $29.95

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