The Small Business Administration (SBA) annually issues a funding opportunity announcement with an estimate of total funding for the Small Business Development Center (SBDC) Program. The SBDC Program provides training and counseling to small businesses through a nationwide network of 62 lead centers and more than 900 service centers.
Each year, SBDC lead centers submit grant applications based on an estimated amount in SBA’s funding opportunity announcement. The Government Accountability Office (GAO) was asked to review SBA’s procedure for the SBDC funding estimate.
Individual SBDCs are required to use the estimate to apply for their portion of the funding. In fiscal year 2016, SBA began using the lowest funding estimate—the amount in the President’s budget—rather than an estimate reflecting historical funding levels. In fiscal year 2019, the amount in the President’s budget was 15 percent lower than the prior-year appropriation and in 2020, 23 percent. If SBA continues its practice for fiscal year 2021, the funding estimate will be 35 percent lower than the 2020 appropriation. When appropriations are enacted for the program, the funding amount is revised and SBDCs submit a final budget.
SBA officials told GAO they changed how they set the funding estimate to conform to federal standards and appropriations law.
In a 2019 letter to the House and Senate Small Business Committees, SBA said it adopted the change to help the program operate more effectively and be consistent with federal financial management standards. When asked by GAO, SBA officials could not point to specific regulations or guidance to support this statement. Office of Management and Budget (OMB) guidance for grants states that estimates based on the previous year’s funding are acceptable if current appropriations are not yet available, as was the case when recent SBDC funding opportunity announcements were issued.
During GAO’s review, SBA officials also cited the Antideficiency Act, which prohibits federal agencies from obligating or expending federal funds in advance or in excess of an appropriation. But staff from OMB and SBA’s Office of General Counsel told GAO that the Antideficiency Act does not apply to a funding opportunity announcement because the announcement does not obligate federal funds.
The majority of SBDCs that GAO surveyed said using the President’s budget request for the initial funding estimate created budgeting, operational, and performance burdens and challenges—mostly stemming from the large gap between the initial estimate and appropriated amounts. For example, SBDCs surveyed said that they now:
- spend more time on budgeting (determining what to cut from initial budgets to meet the lower estimate and then recalculating for final budgets);
- have a harder time obtaining matching funds (from state, local, or private-sector sources) or increasing the amounts from initial to final funding levels;
- have difficulty hiring or retaining staff;
- face challenges providing services to small businesses (particularly if SBDCs have staffing gaps); and
- thus also face challenges meeting performance goals (which include number of clients served).
GAO therefore concluded that under SBA’s current practice for funding estimates, SBDCs will continue to experience (or may experience increasing) challenges given the growing divergence between the initial estimate and appropriated amounts.
Consequently, GAO recommends that the Associate Administrator of the Office of Entrepreneurial Development should reevaluate the SBDC funding application requirements, including reexamining the funding estimate SBDCs are required to use and considering other changes that could reduce administrative burdens on SBDCs.
SBA partially agreed with the recommendation and recognized room for improvement in how it sets the funding estimates for the SBDC Program. SBA did not explicitly state which part of GAO’s recommendation it disagreed with; rather, SBA reiterated its view that the agency’s practice of planning to the more conservative President’s annual budget request affects only fiscal-year SBDCs.
SBA listed two changes it was considering to improve the funding application process. SBA first stated that it is exploring moving the program start date for fiscal-year SBDCs to January 1, which would make all SBDCs operate on a calendar-year basis. SBA also indicated that it is considering publishing the fiscal year 2021 Funding Opportunity Announcement later in the fall (for example, on the first day of October), by which time the agency would be operating on a continuing resolution or final appropriation and would no longer be working with funding estimates. GAO responded that these steps are “promising”, but added it would need to “evaluate their implementation to determine whether they fully address our recommendation”.