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Small Business Bushwhacked Again on SBIR Research Grants

By Keith Girard
March 28, 2011

The new Congress is looking a lot like the old Congress in the debate over two key conduits of federal research and development grants for small businesses -- the Small Business Innovation Research (SBIR) program and the Small Business Technical Transfer (STTR) program. Funding authorization for both is hanging by a thread and still deeply mired in politics.

You may recall that a bill extending the authorization was rushed through the Senate on the final day of the lame-duck legislative session last year, but failed during the final hour of deliberation in the House of Representatives. The stumbling block was none other than then-House Small Business Committee Chairman Nydia Velazquez, D-N.Y.

Velazquez has been a champion of multi-billion dollar venture capital firms that want to regain access to the programs. They were kicked out in 2003 by an administrative law judge, who determined that the research firms they substantially owned failed to qualify as a small business as defined by the landmark Small Business Act of 1958.

Ever since then, the venture capital industry has been trying to wield its considerable influence on Capitol Hill to reverse the judge's ruling. Velazquez and former House Speaker Nancy Pelosi repeatedly ramrodded legislation through the House, but the Senate always killed it.

The subsequent midterm elections were thought to be a game changer because supposedly pro-small business Republicans won control of the House last November and increased their numbers in the Senate.

But so far, the current Congressional session has been anything but pro-small business on this issue. In fact, Sam Graves, R-Mo., the new House Small Business Committee chairman, has also strongly favored overturning the administrative judge's ruling.

"He has worked closely with Velazquez for many years under a variety of circumstances, and the VC issue has been a major Bond (pardon the pun) between them," according to Rick Shindell, who publishes the SBIR Insider newsletter. "Several times Mr. Graves has introduced legislation to allow full access to SBIR programs by companies owned by one or more VCs," he said.

What makes the current situation so frustrating is the fact that the biomedical industry, venture capitalists, and small business technology groups have worked out a compromise that all of the warring parties now support. It made up the substance of the failed lame-duck Senate bill, which has been reintroduced again by Sens. Mary Landrieu, D-La., and Olympia Snowe, R-Maine.

The bill (S.493) sailed through the Senate Committee on Small Business & Entrepreneurship, which Snowe now chairs, but things have taken a turn for the worse in the full Senate.

When the bill hit the Senate floor, lawmakers offered more than 70 amendments, only about a dozen of which were even related to the programs, according to Shindell. The process turned the simple measure into what's known as a "Christmas Tree." That's because it's now laden with all kinds of political and special interest plums that almost guarantee its failure if adopted.

The SBIR bill alone, for example, had a fiscal impact of about $150 million over five years, according to the Congressional Budget Office. But as amended the cost of the bill would balloon by $25 billion over the same time.

"Once again it appears that an SBIR reauthorization bill in the Senate is being hijacked to address other congressional interests," Shindell said.

There is a term known to legislative insiders when lawmakers pile unrelated "ornaments" onto a bill. It's call "loving it to death," because the real point of attaching so many amendments is to kill the legislation. How crazy are some of the measures?

Well, Sen. Rand Paul, R-Ky., has proposed an amendment to force the government to cut $200 billion in spending from the FY2011 budget; Sen. Kay Bailey Hutchinson, R-Tex., has filed a measure to block the administration's health reform law, but the amendment proposed by Sen. Mike Johanns, R-Nebr., amendment takes the cake.

He's filed a measure to make changes in the tax code, including repeal of the new IRS 1099 reporting requirement for small businesses. This seemingly small business-friendly measure, however, would be an automatic deal killer. By rule, all tax measures must originate in the House. "This is a slap in the face to the House and an assured road to nowhere for the Senate bill," said Shindell.

The House Small Business Committee held a hearing last week on a reauthorization bill for the two programs. To his credit, Graves allowed a representative from the Small Business Technology Council (SBTC) to testify. The group represents small, independent research companies. Under Velazquez, the committee never invited the group to speak.

Michael R. Squillante, vice president of Radiation Monitoring Devices (RMD) in Watertown, Mass, who testified on behalf of the group, noted that Biotechnology Industry Organization (BIO), Bay Area Innovation Alliance, U.S. Chamber of Commerce, the National Venture Capital Association (NVCA), and several other tech groups support the Senate compromise bill.

Among other things, the compromise makes 25 percent of the programs' funds available to substantially venture-back companies, while still ensuring that independent research firms are "not edged out of the program," he said.

But supporters are pessimistic about the bill's chances in the House. "The word compromise does not seem to exist in Velazquez's lexicon, as she again demonstrated in the hearing, displaying no interest in the Senate's 25 percent VC compromise," Shindell noted.

As things now stand, the two programs, which only comprise 3 percent of the government's budget for research grants, are surviving on yet another continuing resolution authorizing their funding, but that runs out in May. Without further action, the programs will end.

At the end of the hearing, Velazquez offered a stern statement that clearly suggested she opposed the compromise. "We all want to get this reauthorization done. But if we're going to authorize this for 10 to 14 years, we have to do it right, and it has to be in a way that works, and works for the small firms. Otherwise we cannot abdicate our responsibility in this committee," she said.

Graves clearly shared her sentiments. "I'd like to echo the ranking member's remarks," he said. "We're going to work hard to get a bill out and to the House floor in May and ultimately as quick as we can to the president's desk so he can hopefully sign it."

Don't hold your breath.

Source: http://www.allbusiness.com/government/government-bodies-offices-legislative/15480731-1.html



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