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Congressional efforts to reform a long troubled small business federal procurement program took a significant step forward today as a key panel examined legislation to improve the initiative.  Since the Historically Underutilized Business Zone Program (HUBZone) was created twenty years ago, it has been plagued by fraud and mismanagement.  During a hearing before the House Small Business Committee, lawmakers today discussed a bipartisan HUBZone bill recently introduced by Ranking Member Nydia M. Velázquez (D-NY) and Chairman Rep. Steve Chabot (R-OH). 

“Businesses in HUBZones play a large and vital role in our nation’s economy because they create jobs for those residing both inside and outside of these economically distressed areas,” said Velázquez. “However, since its implementation, the HUBZone program has not reached its full potential. From ensuring that only certified businesses enter the program to being able to present evidence that the program is meeting its mission—SBA has largely failed in the basic operation of this program.”

When a small business is looking to become HUBZone certified, they must meet certain requirements. First, the business must have its principle office located within a HUBZone certified location. These designations are made through demographic data that determine an economically distressed area. Second, 35% of employees must reside within a designated HUBZone.  Shifting eligibility requirements have made it difficult for many deserving small firms to remain HUBZone certified, while oversight studies have also found weaknesses allowing ineligible firms can easily sign up and benefit from the program.   

“Most disappointing to me was the poor oversight that allowed GAO investigators to get fake businesses certified even though they did not meet eligibility requirements,” said Velázquez. “In most instances, those certifications could have been verified by SBA simply asking for additional information on the location of the business.”  

Currently area designation is changed as often as annually as new American Community Survey data becomes available. This quick change has proven to uproot businesses seeking a HUBZone designation. For example, the certification of 3,417 HUBZones expired in 2015, largely because of the end of the approximately 3,400 census tracts that were redesignated in 2012. 

The bipartisan bill, the HUBZone Uniformity and Business Stability Act of 2017, or HUBS Act mandates a series of improvements to fulfill the HUBZone program’s mission of awarding federal contracts to underserved small firms. The bill requires area designations and the HUBZone map to be updated in 5-year increments, which would provide stability for small businesses looking to invest in economically distressed area. Instead of worrying about whether or not their location will remain certified, small firms will be incentivized to put down roots in a HUBZone. 

Since over 90 percent of HUBZone areas do not have a participating company, this measure is one way to incentivize involvement in the program.  The HUBS Act would also modify calculations for certain geographical areas to qualify as HUBZones, adding up to 1,000 rural and non-urban counties. 

To crack down on fraud and increase transparency, the HUBS Act would put in place new performance metrics to track the program’s success. Additionally, the bill requires SBA to submit an annual report to Congress analyzing the data they’ve collected. 

“I’m confident that if passed, the HUBS Act can improve the HUBZone program and provide sufficient oversight for initial certification, recertification, and business development to ensure qualified new businesses enter the program, said Velázquez. “It is our duty to ensure that small firms in underutilized business areas have fair and equal access to the federal marketplace.” 

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