The Office of Management and Budget acted improperly when it ordered the Small Business Administration to stop guaranteeing tax-exempt loans for pollution-control equipment, a congressional study has concluded.
The OMB put the kibosh on the loan guarantees in December, 1981, saying tax-exempt financing was a drain on revenues and should not be encouraged by the federal government.
The decision raised a ruckus in both House and Senate Small Business committees, where legislators complained that the program was the only way for many small-business owners to raise the money needed for pollution-control equipment and was, in any case, mandated by law.
In a report released last week by Sen. Carl Levin (D-Mich.), a member of the Senate panel, the Congressional Research Service said the OMB's action raises serious legal questions.
"There appears to be no firm legal basis for the OMB's authority to order the termination of the program," the report said, adding that the 120 small- and medium-sized businesses whose applications for the guarantees have been frozen for more than two years may have suffered "material hardship" as a result.
" . . . It would not be unlikely for a court to find SBA's termination of the program to be unlawful . . . ," the report said.