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08.09
Small
Business Loan Program Reauthorization Stalled in
Congress
By Russ
Harrison
Congress missed a 30 July
deadline for reauthorizing the Small Business
Innovation Research (SBIR) loan program and the
similar Small Business Technology Transfer (STTR)
program. Legislation to reauthorize the programs
for another year has passed both houses of
Congress, but the two bills are significantly
different. Legislators were unable to reach a
compromise on a number of contentious issues
before their August break. They were, however,
able to give themselves an extension, agreeing
to continue the programs until at least 30
September.
Support for the SBIR and STTR
programs remains high in Congress. Both bills,
H.R. 2965 in the House and
S. 1233 in the Senate, are backed by large,
bipartisan majorities. The problem is that the
two bills are not the same. Significant
differences of opinion remain as to how the SBIR
and STTR programs should function.
The SBIR and STTR programs are
designed to help small businesses (defined in as
fewer than 500 employees) participate in federal
research and development efforts, as well as the
commercialization of that research.
Traditionally, smaller companies
have had difficulty accessing federal R&D funds
because they lack experience with the grant
process, have difficulty understanding the
regulations, and have fewer resources to devote
to R&D. At the same time, small businesses make
significant contributions to R&D and innovation
in this country, so small businesses can do
research; they just aren’t as good at cutting
through red tape regular R&D grants. The SBIR
and STTR programs are designed to guarantee that
some federal dollars go to smaller researchers.
Twelve separate government
agencies, including NASA, DoD and NSF,
participate in the SBIR program, and six
participate in the STTR program. Each agency
sets aside a small percentage of their R&D funds
(2.5 percent for the SBIR, .3 percent for the
STTR) for small businesses. While the
percentages are small, the dollar amounts are
not. The DoD alone allocated $1.23 billion to
the SBIR program in 2009. Overall, the SBIR
program spends about $2 billion annually.
Congress now has two months to
reach a compromise on a number of difficult
issues before the programs expire. The key areas
of disagreement are the size of the programs and
the role of venture capital in the process.
The Senate wants to expand both
the SBIR and STTR programs and increase the
maximum size of each grant. S. 1233 would
increase the percentage of agency R&D funds that
are set aside from the current 2.5 percent to3.5
percent over the course of 10 years with the
STTR program expanding to .6 percent by 2015.
The maximum grant available under each program
would also increase. The House keeps the
programs and grants at their current size.
Small business interests had
argued that the programs and grants were
insufficient to meet the needs of most small
businesses. But, they also argued that Congress
couldn’t increase just the size of the awards,
as this would mean the number of grants would
decrease (assuming the size of the program
remained constant). Some groups, including
universities, have criticized the Senate’s
decision to increase the set aside percentages
because this change would reduce the amount of
funds available to larger organizations,
particularly universities.
The Senate and House have also
made changes to the rules governing venture
capital. Under current rules, firms that are
majority owned by investment companies generally
are ineligible for SBIR or STTR grants. The
Senate would change this to allow the National
Institute of Health (NIH) to award up to 18
percent of the agency’s SBIR budget to companies
that are majority owned by these investment
firms. Other agencies could award up to 8
percent of their SBIR budgets to companies owned
by venture capitalists.
The House bill would allow firms
that are owned by venture capitalists to receive
SBIR money on the same terms as other companies,
under two conditions: 1) if the venture
capitalists own less than half of the company,
or 2) if the company is “independently owned and
operated.” The latter phrase is defined as
companies where a single venture capital company
does not own 50 percent of the company and where
no single venture capital company’s employees
make up half or more of the business’ board of
directors.
In other words, both the House
and Senate would make it easier for small
companies to use both SBIR and venture capital
funds, but would accomplish this in different
ways. So far, the two sides have been unable to
find common ground. They also differ on the
duration of the SBIR and STTR programs'
reauthorizations — the House would reauthorize
for two years, the Senate for eight.
Congress will be in recess until
8 September. It is expected that negotiations
will continue on these issues and that a
compromise bill will be passed in late
September. It is not clear what the compromise
bill will look like.
Russell T.
Harrison is IEEE-USA's legislative
representative for grassroots activities.
Comments may be submitted to
todaysengineer@ieee.org.
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