Small Business to Get Some Relief from Sequester

Congress will make some changes to help contractors and vendors, but a big fix won’t come before the 2014 elections.

Congress will soon step in to help small businesses deal with the pain that trickles down to them from the federal government’s automatic budget cuts, known as the sequester.

First up: restoring funding to the Small Business Administration. It took a hit of about $92 million from its $1.1-billion budget for fiscal 2013, with more cuts in store next year and beyond. Those cuts translate to about $17 million less in subsidies this year, and about 2,000 fewer loans to small businesses.

Congress can’t restore all of the money, but it will OK the shifting of some funds to help ease the squeeze.

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Congress, pushed by House Republicans, will also roll back some regulations. The GOP won’t get everything it wants — $75 billion would be saved by paring rules that deal with health insurance coverage, Wall Street, labor and climate change. But Democrats will go along with a more selective pruning to encourage small operations to create jobs.

Look for some tinkering with Medicare, too. Congress will give back some of the 2% reduction that was made to administrative programs. The replenished funds will help small nursing homes, which have already eliminated some support jobs while trying to avoid cuts in positions that deal directly with patients. Some small specialized-care facilities will also be in line for more money, including cancer centers that have been faced with treating fewer patients or cutting out expensive drugs.

And expect more trade agreements, with the European Union and some countries in Asia and Africa. Small businesses account for about 60% of U.S. exports, so opening the door to more deals will help companies boost their bottom lines and make up for some of the dollars lost to sequester.

But all of this will amount to tinkering around the edges. Congress will be slow to make sweeping changes in the sequester law anytime soon. That translates into continued hardship for government contractors and vendors as this year’s $85 billion in budget reductions kicks in. Small companies don’t supply big-ticket items, but as subcontractors they sell Uncle Sam key components for everything from fighter jets to federal prison cells. Agencies that can shift funds are opting to eliminate or cancel contracts instead of furloughing government workers. Contractors with military ties will continue to take the hardest punches.

Vendors of every size will suffer, too, as departments cut back on office supplies, travel and conferences. Every scrapped event means less business for caterers, entertainers, cab drivers and, of course, hotels. Many government vendors are small, local businesses.

When might more help be on the way? Probably not until after the 2014 congressional elections. Republicans are in a tough spot. On one hand, they want to stand up for business owners. On the other hand, many GOPers say the need to cut the country’s long-term deficit is an issue that plays well for them politically. Democrats, on the other hand, see Republicans digging themselves into a hole and won’t try to stop them before voters decide the makeup of the House and Senate.

Don’t expect either side to blink before 2015.

That might be too late to save some small businesses already under pressure, as they wait for consumers to start spending freely again after the deep recession, and as they prepare to deal with uncertainties tied to the national health coverage law.

Reporters Liisa Rajala and Gillian White contributed to this report.

Kenneth R. Bazinet
Associate Editor, The Kiplinger Letter