By Kent Hoover

The chairman of the Senate Small Business Committee said he has "serious reservations" about the U.S. Small Business Administration's ability to tackle new programs.

Sen. Christopher Bond, R-Mo., said offices supporting current programs are "underfunded and understaffed" despite past budget increases.

Bond called the SBA's proposed $1.06 billion budget for next year "an ambitious addition to a house sitting on a foundation of wet cement." The SBA's current budget is $873.7 million.

In addition to expanding current loan programs, the SBA wants $150 million for its proposed New Markets Venture Capital program, which would finance businesses in low and moderate income areas across the country. These businesses would receive $30 million in technical assistance from the agency.

Bond said the agency should first address flaws in its current programs. He cited delays in implementing a new computer system to monitor SBA loan programs and several critical outside studies over the past year, including a General Accounting Office report that concluded the agency was not sufficiently protecting the government's rights to intellectual property developed through Small Business Investment Research grants.

SBA Administrator Aida Alvarez, who began a series of budget hearings by appearing before Bond's committee, said her agency has made "significant progress" on the new computer system. She also noted her 3,100-person agency has 22 percent fewer employees than it had in 1990.

"We have laid out an aggressive agenda to improve our internal management," Alvarez said. "We are upgrading and modernizing our information systems, offering every small firm electronic access to our products and services to extend our outreach and offer more customer-driven assistance. And we are transitioning our people to meet the challenges of the new knowledge-based economy."

Alvarez said the SBA can play a vital role in bringing more economic opportunities to poor inner-city neighborhoods and rural areas -- a goal shared by President Clinton and congressional Republicans. The GOP's approach, however, emphasizes tax incentives over government-backed investment programs.

In addition, Bond wonders whether a new venture capital program for poor areas would duplicate the SBA's Small Business Investment Cos. program. Last year, for example, SBICs invested $746 million in small businesses located in low and moderate income areas. This accounted for 18 percent of their total investments.

"We have enough wheels running around without inventing new ones," said Bond, who has asked the GAO to study how existing economic stimulus programs would fit with the president's proposed New Markets programs.

SBICs, for-profit firms licensed by the SBA, are "location blind" in deciding where to put their money, said Lee Mercer, executive director of the National Association of Small Business Investment Cos. They base their investment decisions on a small business's growth potential, not address, he said.

"If the next Microsoft is started in a garage in a poor inner-city area, if an SBIC found it, believe me, they'd finance it," Mercer said.

Alvarez said New Market Venture Capital investment decisions will be more "mission-driven" than motivated by profit.

Sen. John Kerry, D-Mass., agreed the new program is needed to spread the success of the SBIC program to underserved urban and rural areas.

"It has to be a matter of conscience," Kerry said. "If there ever was a moment to use the power of capitalism to reach into these communities, it's now."