Change in Leadership at the SBA Offers Opportunity for Charting a New Course for Controversial Office of Advocacy

Earlier this week, Karen Mills, the current Administrator of the Small Business Administration (SBA), announced her intention to leave office, opening up another second-term vacancy for President Obama to fill in the coming months.  The SBA position is unlikely to attract as much media attention or pundit speculation as the EPA or Energy Interior posts, but it could have a big impact on whether the Obama Administration is able to take on the long to-do list of public health, safety, and environmental challenges that the nation currently faces.  The next SBA Administrator can and should begin the critical process of reshaping the controversial SBA Office of Advocacy so that it focuses on helping truly small businesses, without undermining regulatory safeguards.

A recent CPR white paper I co-authored examined how the Office of Advocacy uses federal tax dollars to try to block health, safety, and environmental regulations, often at the behest of large companies.  This small and largely unaccountable office, the paper argues, exerts significant influence over the federal rulemaking process, and its work all too often does not benefit truly small business.  Rather, the Advocacy office typically echoes the viewpoints of large corporate interests who are already well represented in the rulemaking process, often with the result of watering down or bottling up safeguards needed to protect people and the environment against unreasonable risks. 

The white paper concludes by offering several recommendations aimed at creating a more productive role for the Office of Advocacy to play in the federal regulatory system.  First, it recommends reorienting the Advocacy office’s mission so that it works toward promoting small business competitiveness—that is, finding ways to help small businesses meet effective regulatory standards without undermining the capacity to compete with larger firms (what we call “win-win” regulatory solutions).  Second, mindful that some of the "small" businesses the Advocacy office thinks are its constituents have as many as 1,500 employees, the white paper recommends restricting the Advocacy office’s focus to truly small firms—those with 20 or fewer employees—which lack the resources and expertise to participate meaningfully in individual rulemakings on their own.

Though many of these recommendations will require legislative action, there is much the next SBA Administrator can do to begin reforming the Office of Advocacy—and it should be a top priority.  He or she can start by taking the following steps:

• Conducting greater oversight of the Advocacy office’s activities.  It’s true that the head of the SBA has no direct line of authority over the Advocacy office, but the Advocacy office is still institutionally situated within the SBA, which gives the SBA Administrator access to monitor the Advocacy office’s activities.  Moreover, the SBA Administrator should have a reasonable degree of persuasive authority given that he or she should have some expertise in small business concerns and will share the Advocacy office’s purported mission of helping small businesses.  It is especially important that the SBA Administrator exercise some oversight authority—even if this authority is legally limited—given that Congress, which has the best claim to oversight authority for the Advocacy office, has shirked this responsibility in the past.  As part of this oversight, the head of the SBA should (1) discourage the Advocacy office from engaging in regulatory matters that have no unique impacts on small businesses and (2) seek to deter Advocacy from demanding excessive analyses of pending agency rules that needlessly delay critical safeguards and waste scarce agency resources. The SBA Administrator should likewise encourage the relevant committees in Congress to undertake similar oversight activities as well.
• Working cooperatively with the head of the Advocacy office to promote “win-win” regulatory solutions using the SBA’s existing authorities.  The SBA Administrator should examine the agency’s existing authorities to employ subsidized loans and other policy tools to help small businesses meet effective regulatory standards.  The SBA head should work with the head of the Advocacy office to employ these policy tools as an alternative to pushing for weaker regulatory requirements for small businesses.
• Pushing Congress to revise the SBA’s authority to set small business size standards.  The SBA currently deems firms with as many as 1,500 employees, in some sectors, as “small businesses.”  These outlandish small business size standards are largely intended to advance various small business subsidy programs the SBA administers, including guaranteed loans and preferential contracting.  The new SBA Administrator should push Congress to enact legislation that establishes a separate small business size standard for advocacy purposes, and these standards should define small businesses as only those firms with 20 or fewer employees, regardless of what industry they are part of.

As President Obama considers potential candidates to nominate for the next SBA head, he should look for individuals who share a commitment both to promoting small business interests and to pursuing the public's interest in effective safeguards for protecting people and the environment.