When James C. Sanders arrived at the White House for a briefing on the fiscal 1986 budget, the head of the Small Business Administration was braced for the news that his budget would have to be cut by as much as 25 percent.
But Office of Management and Budget Director David A. Stockman had something else in mind: saving $1.6 billion by abolishing the agency.
Sanders recalled later that his mouth fell open when he heard the news. "I had no idea that this was coming."
In an interview a week later, Sanders was still the careful Reagan administration appointee. He said, "Some Draconian measures are necessary to reduce that deficit, and we all want to do our part to contribute to that. But I am not sure that the benefits should be eliminated with the wasteful parts of the agency."
However, he added, "We haven't even seen the passback yet, so we can hardly comment." The "passback" is the OMB's official response to the budget proposal that the SBA submitted earlier this year. But as one senior SBA official noted, if Stockman gets his way, the passback could turn out to be a blank sheet of paper when it comes to the agency, probably this week.
"I want to be very careful not to say anything to you that would indicate that I'm planning to take on the administration," Sanders told a reporter. "That would not be useful to the agency or to my career."
But senior SBA officials and lobbyists for small-business groups said the mild-mannered Republican administrator was hurt and angry about the way the plan was announced. According to those sources, Sanders has begun working with key interest groups and with Sen. Lowell P. Weicker Jr. (R-Conn.), chairman of the Senate Small Business Committee, to try to preserve key agency programs.
One high-level SBA source said the administrator felt that he did not have enough clout to get a fair hearing from White House officials or Stockman. According to the source, Sanders and Stockman have had only one professional encounter in the past three years: when Sanders asked the OMB director for his help in blocking a congressional proposal that would have forced the SBA to make loans to farms that sustained losses because of disastrous weather.
SBA officials said that agricultural lending should be left to the Agriculture Department. When Congress approved the program, the officials said they felt that OMB could have done more to plead their case.
Sanders met with White House Chief of Staff James A. Baker III yesterday to appeal the White House proposal. According to an aide, Sanders planned to argue that reducing programs along the lines that the Reagan administration has advocated for some time could save more money in the long run than abolishing what he perceives to be the good programs, such as loan guarantees and management assistance.
For 31 years the SBA has served as a focal point for the federal government's assistance programs for small businesses. Traditionally that has meant direct loans, but over the years a wide range of other programs have been developed.
Over the past decade, however, the agency has come under more scrutiny as a higher percentage of its loans fell into default and investigations turned up abuses in programs that set aside a percentage of government contracts for businesses owned by minorities.
A senior Sanders aide, who asked not to be identified, said: "There have been enormous changes at the SBA since Jim came, positive changes that the White House has acknowledged. Now there are a solid core of programs here which are vital to expanding the economy and some, ordered up by Congress, which should be eliminated."
Officials with the trade groups for small businesses acknowledge that there is room for cuts but, predictably, oppose the dismantling of the agency. Most of those interviewed said that they are trying to work something out with sympathetic White House aides but that, if the proposal goes forward, they plan to mount a major lobbying campaign.
Most of the lobbyists indicated that they could accept that management of the set-aside program for small and disadvantaged businesses needed to be improved, and that the direct-loan program should be eliminated. But most said they felt that Congress would not approve of abolishing the agency.
The chairmen of the House and Senate Small Business Committees, Weicker and Rep. Parren J. Mitchell (D-Md.), have both expressed their opposition to the proposal.
Mike McKevitt, director of federal legislation for the National Federation of Independent Businesses, said, "There are better ways to cut the deficit than to close down the SBA. Congress is not going to sit still for this."
"The administration's proposal is absolutely asinine," said Walter B. Stults, president of the National Association of Small Business Investment Companies. "The SBA has been, over the years, very much of a positive force for small business growth in this country despie its drawbacks and its problems."
Jerome R. Gulan, executive vice president of the National Small Business Association, said: "If they want to do some restructuring, or redefine some program, we'd be happy to work with the administration. Stockman's plan is like throwing out the baby with the bathwater."
G. Thomas Cator, legislative counsel to Small Business United, which represents 70,000 small businesses through a coalition of 14 regional, state and metropolitan trade associations, said that the SBA could be streamlined and that he plans to offer the White House an alternative soon.
"Obviously," Cator said, "what is being surfaced is the worst-case scenario."
Thomas E. Donley, director of the U.S. Chamber of Commerce's Small Business Center, said his staffers are polling about 200 key small-business leaders who are affiliated with the chamber.
"We don't have an official position yet, but we're starting from the position that while reducing the deficit is the highest priority, we want to see the small-business programs made more efficient. We don't want to eliminate pro-growth opportunities for businesses."
Donley said members are giving him mixed views. Some agree that the SBA could be shut down while others support continuing certain programs, especially the office that serves as an advocate for small business throughout the government. The chamber has already come out in opposition to continuing the direct-loan program.