The Reagan administration read the handwriting on the wall yesterday and decided it would have to abandon its effort to eliminate the Small Business Administration as a separate agency, according to knowledgeable sources.
"Basically, this is good news," said Sen. William L. Armstrong (R-Colo.), sponsor of the administration's bill to eliminate the SBA and transfer many of its functions to the Commerce Department. "We're more likely to win reform if the battle is over the issues and the budget rather than turf."
"The effort to sell off the SBA loan portfolio is more feasible now that the lightning rod [of eliminating the SBA] is removed," said Lee Stillwell, Armstrong's press secretary.
Richard Rahn, vice president and chief economist of the U.S. Chamber of Commerce, said the administration yesterday "agreed to go ahead and let deficit reduction come first, rather than pushing the reorganization of the SBA.
"Small business needs an independent voice," he said; "the chamber looks on this as a victory."
It was the second time in two years that the administration has been forced to back down on its efforts to eliminate the SBA.
The White House has sought and is still seeking to sell off the agency's loan portfolios. The decision to give up on the SBA transfer -- at least temporarily -- was made yesterday at a meeting between officials of the Office of Management and Budget and the White House, sources said. The results were communicated to the Hill.
Joseph R. Wright Jr., deputy director of OMB, denied that the administration had decided to "abandon any of the aspects of our budget proposal. We are in the first stages of the congressional budget-resolution process. [The elimination of the independent SBA] is the right thing to do from a small-business standpoint."
Budgets passed by both the House and Senate generally continue SBA funding at current levels. A House-Senate conference to resolve the differences is expected to reconvene next week.
Rumors about the SBA have been widespread as political pressure generated by the president's SBA reorganization proposal mounted. When Charles L. Heatherly took over as acting SBA administrator on April 1, he fired half of the agency's regional administrators because they had failed to support the president's position on the agency.
Within the past three weeks, rumors have intensified that the administration would back down on eliminating the SBA as a separate agency and name a permanent administrator who would be acceptable to Congress.
One prominent name widely mentioned was Van Smith, a leader of the Chamber of Commerce. Smith said he had not been approached about the job.
Heatherly has said on numerous occasions that he has never discussed becoming the permanent administrator with the White House.