Rep. Parren J. Mitchell (D-Md.) said yesterday that he may propose modifications to a new Small Business Administration plan to drop large, successful or hopeless minority businessess from a special program for disadvantaged firms.
During a House Small Business subcommittee hearing which he conducted, Mitchell criticized the proposal by new SBA Administrator Michael Cardenas to oust the businesses from the 8(a) program designed to help economically and socially disadvantaged owners of small businesses.
Last month Cardenas unveiled what he called significant new and tough policies for a program that seemed to be in disfavor with the Reagan administration. The SBA will review the records of 40 of the largest firms now benefiting from 8(a) to determine whether they should be ejected from the 12-year-old program which awards noncompetitive federal contracts to eligible firms.
The program was intended to give disadvantaged firms government contracts and technical assistance to help them become self-sufficient. But the program has been criticized because the firms live almost exclusively on the government contracts and rarely leave or "graduate" to become fully competitive. Because these firms don't leave, new firms can't enter the program.
Under the SBA's new proposal, companies coming into the set-aside program will be expected to achieve certain goals under an individual business plan. Virtually no firms have left the SBA set-aside program in the past three years. About 2,200 firms now are participating, another 600 are waiting to be certified and another 620 have been certified but haven't yet received contracts.
As firms are eliminated from the program, 200 to 300 new firms a year will be allowed in, based on their size, what type of work they do, their chances of success and the type of work that is available.
"I'm thinking of a transition," Mitchell said. The firms the SBA feels should be ousted would move from the 8(a) program into a transition phase before directly competing with other firms for contracts. During the transition, the firm also might be able to include as part owners persons other than minorities and still retain its disadvantaged status, Mitchell said.
Daniel C. Montano, an Hispanic who heads Montano Securities Corp. in Los Angeles, testified at the hearing yesterday that the problem with the 8(a) firms is they can't generate enough capital to stay afloat without the government's help. He said any other company on the brink of bankrupcy "is 10 times better than any 8(a) company I've ever seen. Some 8(a) firms truly don't have financial officers."
He said the SBA program should be designed to reward firms for becoming strong enough to compete in the business mainstream. Instead, many firms that attempt to get more capital are afraid that if they become too successful their government lifeline will be cut immediately.