There probably hasn't been as much fighting over the SBA in its entire history as there has been in the last few years, and there's another brawl coming down the pike

There's a fight brewing in Washington over the Small Business Administration's flagship loan program.

Yes, another one.

This one has to do with fees and subsidies and budget appropriations. It goes like this.

One of the things Congress did in order to stimulate the economy after the shock of 9/11 was to temporarily reduce 7(a) fees to lenders and borrowers, as well as to implement several other user-friendly temporary changes in the program. All those changes were set to expire at the end of fiscal 2004. Some folks in Congress tried to get the reduced fees and other changes extended but, as you may recall was previously reported here, they were unable to do so.

That failure has actually made the SBA happy, believe it or not, because the Bush Administration wants to move the 7(a) program to a zero-subsidy basis.

What does that mean? It means the funds used by the SBA to guarantee 7(a) loans would be generated by loan fees paid by borrowers and lenders, rather than being subsidized by a federal budget appropriation.

In order to have the funds to operate the program that way, the SBA would have to make two essential changes. They would need to increase those loan fees so they would cover the amount needed for the guarantees, and they would have to decrease the guaranty amount. Until now, the SBA guaranteed 85% of the principal on a 7(a) loan up to $150,000 and 75% on larger loans. Under a zero-subsidy program, the guarantee would probably drop to 50% — the same as is currently applicable to the much-ballyhooed SBA Express program.

Proponents of these changes say it would increase the stability of the program by detaching it from the messy and not-precisely-punctual Congressional appropriations process. Opponents say it will make access to capital even more problematic for small business owners than it already is, and would drive lenders out of the program.

Democrats and moderate Republicans on the House and Senate Small Business Committees are various degrees of unhappy about all this, from a "disappointed" Senate Committee Chairwoman Olympia Snowe (R-ME) to a frankly furious House Committee Ranking Member Nydia Velázquez (D-NY).

Senator Snowe has indicated that she is willing to work with the Administration in moving the 7(a) program to a zero-subsidy basis if they really want it that badly, but she is also of the opinion that going cold turkey (so to speak) is not the best way to proceed.

"Thousands of small businesses will be struggling to cope with a sea change in the way they do business as a result of the Small Business Administration's insistence on implementing higher fees — virtually overnight," Senator Snowe said in a press statement. "This unnecessary shock to lenders and borrowers could have been avoided by adopting a compromise, two-year phase in of a new 7(a) fee structure included in my legislation to re-authorize the SBA."

Congresswoman Velázquez, who has not been notably willing to cooperate with the Bush Administration about anything at all, is using the issue to continue questioning the strength of their commitment to small businesses.

"The decision by the White House and Congressional Republicans to go back on their commitment to this nation's small business owners is the height of hypocrisy," said the irate Congresswoman in her own press statement. "This is the final opportunity for Congress to save this critical loan program, which has gone through so much over the past year. If this move is not taken, it will be the first step in dismantling the government's role in providing small business access to affordable capital."

Both Senator Snowe and Congresswoman Velázquez have vowed to continue to fight to preserve the 7(a) loan subsidy in one fashion or another, although it seems unlikely that they'll be successful in the near term. There is a certain amount of support for the Administration's position on both of those Committees, causing a certain amount of in-fighting among the few small business advocates there are on Capitol Hill and strengthening the SBA's strategic position.

What impact the upcoming election will have on all this will be interesting to watch.

Perhaps the most interesting feature of this whole morass, though, has been the way the agency has evidently dug in its heels. As matters currently stand, if the SBA decides to change the 7(a) program to a zero-subsidy program, there is nothing in the relevant statute to stop them from doing it.

"We urged them not to [proceed with the zero-subsidy plan], but there has been no legislation passed to block them," says Craig Orfield, spokesman for the Senate Small Business Committee.

And what about the intent of Congress? "Clearly, it is our preference they that seek our approval, but technically then can go ahead," Orfield told me.

This determination to proceed with these changes goes even further. The SBA has evidently indicated that, even if Congress proceeds with a 7(a) appropriation as they are poised to do, the agency will simply not use the money.

That's impressive, isn't it? When was the last time you ever heard of a federal agency refusing to use any of its budget?

But it does bring up the question of why the Administration is so very determined to eliminate loan subsidies at the SBA. Talk of stability rings a little hollow in spite of the budget dance that has taken place in recent years; 7(a) has been operating with a subsidy for a lot longer than Congress has had trouble passing timely budgets, and stability has never before been an issue.

It would be difficult to seriously argue this one on the basis of the bleeding federal balance sheets, either; the amount of money saved by the elimination of the 7(a) subsidy amounts a rounding error in the context of the entire budget.

The likeliest explanation here is that this obstinacy is a function of philosophy rather than any practical consideration. After all, one notes that the Bush Administration is never more stubborn than when they are implementing ideology rather than mere policy. If that is true, then the only remaining question is which tenet of governing philosophy is operating here. It is a question that no one seems to be volunteering to answer.