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As White House Pushes SBA Loans, Bad Debt Piles Up All Around

Mike Klein

This week President Barack Obama traveled through important Midwest primary states to carry the message that he’s doing something about jobs.  Or, he will soon, probably next month, after his smart people think about it a few weeks longer.  The White House website already features a Small Business Administration section and what it says are 100 SBA success stories.

SBA is neither Republican nor Democrat and it definitely is not Tea.  It has been used by White Houses of both stripes, and it has been praised and condemned.  The White House budget director under President Ronald Reagan wanted to abolish it.  SBA survived because politicians recognized that receiving money from politicians made folks feel good about politicians.

The Small Business Administration is a Dwight Eisenhower-era invention.  It has been around since 1953.  It came into vogue after World War II and the Korean War when Americans were on a mission to create consumerism.   Folks wanted to buy things and folks who wanted to sell things were starting businesses by the millions.  SBA money helped start some of those shops.  Less important were cumbersome philosophical issues about whether government should fund business start-ups.

The White House is holding up the Small Business Administration as one resource to help put Americans back to work – which will put taxpaying Americans in hock because SBA loans have to be paid back.  It ain’t free money.

In pursuit of transparency, here’s what the White House would rather you didn’t know:  Taxpayers are on the hook for nearly $70 billion in SBA loans to start-up businesses that failed, especially during the last ten years.  When that happens the largest portion of the bill goes to taxpayers.  That is not a message politicians are eager to share.

A new CATO Institute report from Veronique de Rugy and Tad DeHaven even makes their case to abolish the Small Business Administration because, “The SBA benefits a relatively tiny number of small businesses at the expense of the vast majority of small business that do not receive government assistance. SBA subsidies also represent a form of corporate welfare for the banking industry.”  SBA loans are made by banks.  Taxpayers are on the hook for 85 percent when loans default and the banks are owed.  Banks are willing and even eager government partners.

The CATO report states:  “The SBA will cost taxpayers about $6.2 billion in 2011.  Annual outlays are typically closer to $1 billion, but the SBA has suffered higher than usual losses on its guaranteed loans in recent years, so the costs imposed on taxpayers have soared. The SBA will guarantee almost $24 billion in new loans in 2011. The share of guaranteed loans outstanding that the SBA — and ultimately federal taxpayers — are on the hook for is about $70 billion.”

Using data from the Federal Reserve Board, the National Federation of Independent Business, the Government Accountability Office and academic and government sources, CATO said 19.4 percent of SBA loans made to the top 15 industries that received them failed between 2001 and 2010.  One in four restaurants failed, two in ten beauty salons failed, one in four miscellaneous retail sales stores failed and so forth.  Dentists and physicians had the lowest failure rates.

In their analysis de Rugy and DeHaven noted that President Dwight Eisenhower initially opposed creating the Small Business Administration but he eventually relented.  In 1958 the White House Budget Office said SBA was “an uncontrollable program.”  The agency grew into its own dynasty over several decades.

SBA loans were used by President Ronald Reagan during his first term to support federal set-asides to minority firms.  During Reagan’s second term his budget director, the often controversial David Stockman, described SBA as “a billion dollar waste – a rat hole” and Reagan supported trying to abolish SBA.  That didn’t happen. Presidents Bill Clinton and George W. Bush both supported expansion of SBA loan programs.

Two years ago President Obama used SBA loans as part of the American Recovery and Reinvestment Act and this week SBA loans and success stories are being showcased again, as if there is no possible downside.  This is happening, de Rugy and DeHaven point out, even though SBA’s recent track record continues to get worse.  Bad loans increased from $1 billion in 2006 and 2007 to $3.9 billion in 2009 and $4.8 billion in 2010.

Beware whenever someone says, “I’m from the government and I’m here to help.”

(Mike Klein is Editor at the Georgia Public Policy Foundation)

August 17, 2011 Posted by | Uncategorized | , , , , , , , , , , , , | Leave a comment

More Georgia and Southern H.S. Students are Taking the ACT

Mike Klein

There are two big cats in the national college admission test industry – the SAT which is familiar in Georgia because that is what most students here take, and the ACT which is taken by fewer Georgia students, but like the SAT, it also has a big national college admissions testing footprint.

Increasingly, southern states students are taking the ACT.  This week the Southern Regional Education Board said at least 50% of 2011 high school seniors took the ACT in 10 of SREB’s 16 member states.  Georgia is not one of those states, but it is trending in that direction.  Last year 44 percent of Georgia seniors took the ACT.  The ratio grew to 47 percent this year.

Here is what SREB said about how southern students performed on the 2011 ACT:

“This year’s average composite ACT scores rose or held steady from 2010 in most SREB states where at least half of seniors in the Class of 2011 have taken the college admission test, even as the numbers of students taking the test and aspiring to college increased in the SREB region and the nation, according to ACT Inc. data released on August 17.

“In the 10 SREB states in which more than 50 percent of graduating seniors have taken the ACT, scores rose in Florida, Kentucky, Louisiana and South Carolina, stayed the same in Alabama and Oklahoma, and declined one-tenth of a point in Arkansas, Mississippi, Tennessee and West Virginia. The average composite score for all SREB states was 20.2, the same as in 2010. The U.S. average composite score was 21.1, up one-tenth of a point.

“Since 2006, the number of graduating seniors taking the ACT has risen in all 16 SREB states. Use of the ACT has soared especially in Arkansas (where 91 percent of graduating seniors now have taken it), Oklahoma (now at 76 percent), Florida (now at 66 percent) and West Virginia (now at 65 percent). In Kentucky, Louisiana, Mississippi and Tennessee, virtually all students take the ACT. In the region overall this year, about 618,000 graduating seniors had taken the ACT by their senior year — up by more than 185,000 from 2006, and by nearly 30,000 from last year alone.

“Hispanic students in SREB states not only increased the percentage of students tested but also increased their average composite score by two-tenths of a point. The score for black students in the region also increased, by one-tenth of a point. The regional score for white students held steady from 2010. On the ACT, each one-tenth of a point is considered significant.

“It’s promising that the SREB region’s score held steady, even as many more students took the test, especially students from underrepresented groups. It shows that aspirations for college and career training after high school are growing for all students — and that is (the) key to the future of our region,” said Joan Lord, SREB’s vice president of Education Policies.”

You can learn more about SREB initiatives and studies on its website.

(Mike Klein is Editor at the Georgia Public Policy Foundation)

August 17, 2011 Posted by | Uncategorized | , , , | Leave a comment