SBA Treated as a Washington Backwater, Until Disaster Strikes
SBA Treated as a Washington Backwater, Until Disaster Strikes
(Bloomberg) --
The only person who didn’t speak at a White House briefing on a massive federal effort to aid mom-and-pop firms crushed by the coronavirus pandemic was the woman actually running the initiative, Jovita Carranza.
President Donald Trump, his daughter Ivanka and Treasury Secretary Steven Mnuchin all lauded the program despite its rocky start at the beginning of April. Carranza, who was charged with processing hundreds of billions of dollars in loans only months into her new job as the head of the Small Business Administration, smiled approvingly, but was never asked to speak.
Carranza’s sideline role at the April 28 event was emblematic of the challenges facing her agency, which has long been treated as a backwater in Washington. Despite its checkered track record in disaster response, the SBA is now responsible for a $669 billion program to rescue the 30 million small firms that make up nearly half the U.S. economy.
The SBA has approved more than half a trillion dollars in loans in a matter of weeks and has about $125 billion left before a second round of funding runs out. Advocates fear that the money will be exhausted again before all small firms that need it get help. At the same time, Trump is pushing to reopen the economy with polls showing Americans are wary about returning to business as usual.
For years, Congress hasn’t set up the SBA to adequately respond to crises. And lawmakers have never before asked it to handle an effort as massive as the Paycheck Protection Program, meant to help devastated small businesses survive the pandemic.
Working with the Treasury, Congress decided that to get money out fast, it had to put the SBA in charge because the agency already had an established loan program with a network of pre-approved banks. That left Carranza, who was a deputy administrator under President George W. Bush, to make the best of a situation everyone worried would be fraught with problems.
‘Massive, Massive Program’
“They gave the SBA, an agency that has repeatedly botched previous disaster responses, the responsibility to handle this massive, massive program,” said Veronique de Rugy, a senior research fellow at George Mason University’s Mercatus Center who has studied the agency’s history.
An agency spokesman called the SBA’s performance an “historic achievement.” A Treasury spokeswoman agreed that the SBA is performing well under Carranza and said that she works closely with Mnuchin. White House spokespeople didn’t respond to a question about why she wasn’t invited to address the April 28 White House event.
Carranza declined to be interviewed for this article.
“She’s been faced with about the most challenging circumstance a head of the SBA has ever had to operate under,” said Representative Steve Chabot of Ohio, the top Republican on the House Small Business Committee. “I mean, the very survival of the American economy rests on your shoulders.”
The SBA, which was elevated to a cabinet-level agency by President Barack Obama, supports the nation’s small businesses through loan programs and training for entrepreneurs. In times of crisis, including after Hurricanes Katrina, Irma and Harvey, the agency bolstered its funding programs to supply mom and pop firms and homeowners with emergency capital.
The rocky launch of the PPP program featured some of the same problems the SBA hadn’t fixed after past disasters, in addition to new ones. Technology meltdowns and the way the program was structured led to delays in getting the money to those who needed it the most.
In the first round of funding, many small companies were left stranded while hundreds of publicly traded companies got more than $1 billion. Major banks favored large corporate clients, whose bigger loan amounts gave lenders fatter fees. Congress was forced to replenish the fund just two weeks after it began.
The SBA has been especially handicapped under Trump, according to John Arensmeyer, who heads the Small Business Majority, an advocacy group that has a network of more than 58,000 small business owners, most of whom have less than 100 employees.
When Carranza took up her post in January, the agency had had a leadership vacuum and was being run by its general counsel. Its former head, Linda McMahon, a Trump donor and co-founder of World Wrestling Entertainment, Inc., left in April 2019 to chair Trump’s 2020 Super-PAC America First Action. Carranza was picked for the post last July after serving as U.S. treasurer since June 2017. In that role, she advised Mnuchin and oversaw the printing of money. Her signature appeared on bills.
The White House still hasn’t nominated a new No. 2 -- the deputy administrator who normally handles the day-to-day affairs -- after the last one left in 2018. In February, Trump proposed cutting the agency’s 2021 budget by 25%.
The Government Accountability Office, Congress’s watchdog agency, has repeatedly warned that the SBA’s technology needs to be revamped. Its budget is about $1 billion and its staff of more than 6,000, compared with the Commerce Department, which has 52,000 employees and a budget of $15.2 billion. Although Congress eventually added $2.8 billion for SBA salaries and other expenses in its pandemic relief measures, some said it was too little, too late, given the magnitude of the task.
“The SBA is going to need to be better-funded and more of a priority agency simply because of the disaster that’s befallen small businesses across the country,” said Arensmeyer. “I would hope that the administration and Congress recognize that.”
Despite the difficulties, Carranza has earned the respect of key lawmakers and small-business groups, who said she’s been accessible, willing to listen and a problem-solver.
She is no stranger to challenges. A native of Chicago and the daughter of first-generation Mexican-Americans, she worked two jobs and raised a child as a single mother, according to her testimony during her December Senate confirmation hearing.
She spent 30 years at United Parcel Service Inc., where she started as a part-time, hourly employee on the warehouse docks, loading packages onto trucks. She climbed the ladder to eventually lead the company’s operations in Latin America and the Caribbean, managing thousands of employees. She retired as the highest-ranking Latina in the company’s history.
Carranza ran the SBA’s day-to-day operations under Bush from 2006 to 2009. As deputy administrator, she oversaw 80 national field offices and a portfolio of loans worth tens of billions of dollars. She developed the SBA’s disaster recovery plan after the agency faced a torrent of criticism over how slowly it administered loans after Hurricane Katrina.
Her former SBA colleagues describe her as a hands-on manager who can speak authoritatively on minute details. Eric Thorson, who was the SBA’s inspector general at the time, said agency heads often had antagonistic relationships with their inspectors general. That wasn’t the case with Carranza, who was eager to address issues his office highlighted, he said.
Carranza began her second stint at SBA with ambitious goals to reform the agency, including doing more to support women and minority-owned businesses and making the agency’s emergency loan systems more efficient.
Then catastrophe struck. By mid-March, the pandemic had prompted businesses to close their doors as stay-at-home orders stretched across the country. Hotels, airlines, media, restaurants and manufacturers shed jobs by the millions as revenue dried up.
Carranza and Mnuchin met with lawmakers including Senators Marco Rubio, a Florida Republican, and Ben Cardin, a Maryland Democrat, to hammer out a small business aid package as part of the administration’s multi-trillion-dollar relief initiative. Democrats on the small business panel wanted to set up a grant program, which Republicans opposed because they thought it would take too long and instead pushed for a loan program, according to a person familiar with the matter.
Lawmakers worried that the SBA wouldn’t be able to handle the job. Mnuchin dispatched Deputy Secretary Justin Muzinich, his No. 2 at the Treasury, to the SBA to smooth out the program’s rollout, according to a person familiar with the matter.
Representative Nydia Velazquez, a New York Democrat and chairwoman of the House Small Business Committee, said she called Carranza after the program was approved and told her: “You got to be prepared.” Carranza replied that she had her team working overtime to be ready because she knew how important it was to the economy, Velazquez said.
‘She Is Committed’
“She has been there, what, three months?” said Velazquez. “I know she is committed. I know they are working hard.”
The SBA has moved much more quickly amid the coronavirus pandemic than in past crises, despite a flood of applications and technology glitches. It made changes to ensure the money gets to those who need it the most, including creating a window when only the smallest lenders could apply. Lawmakers, the White House and even Carranza herself have boasted about how rapidly the agency was able to distribute the loans.
The SBA’s pandemic response could face more attacks as it distributes an additional $320 billion. It missed an April 26 deadline for providing guidance on how loans will be forgiven -- meaning that small business owners who struggled to get funding still don’t know how much they may have to repay.
Cardin said the pandemic has underscored the need to fix the country’s response to disasters. “There’s two parts to this,” Cardin said. “One is to triage this current situation to make sure underserved communities get loans” and the other is to build capacity for the future, he said. “Whether they’re economic downturns or natural disasters or other pandemics,” Cardin added, “there will be other problems.”
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