Congressional Research Service

Small Business Administration Hubzone Program Congressional Research Service

The Historically Underutilized Business Zone Empowerment Contracting (HUBZone) program provides participating small businesses located in areas with low income, high poverty, or high unemployment with contracting opportunities in the form of set-asides, sole-source awards, and price-evaluation preferences. Its primary objectives are job creation and increased capital investment in distressed communities. Firms must be certified by the SBA to participate in the program. As of June 8, 2017, the SBA's Dynamic Small Business Search database included 5,654 firms with active HUBZone certifications. In FY2016, the federal government awarded 86,600 contracts valued at $7.13 billion to HUBZone-certified businesses, with about $1.69 billion of that amount awarded through open competition with other firms, $1.65 billion awarded through a HUBZone set-aside, $33.5 million through a HUBZone sole-source award, and $5.2 million with a HUBZone price-evaluation preference. The remaining contracts (about $3.75 billion) were awarded with another small business preference (e.g., set asides and sole source awards for small business generally and for 8(a), women-owned, and service-disabled veteran-owned small businesses). The program's anticipated administrative cost for FY2017 is about $8.4 million. Its FY2017 appropriation is $3.0 million, with the additional cost of administering the program provided by the SBA's appropriation for salaries and general administrative expenses. Congressional interest in the HUBZone program has increased in recent years, primarily due to U. S. Government Accountability Office (GAO) reports of fraud in the program. Some Members have called for the program's termination. This report examines arguments both for and against targeting assistance to geographic areas with specified characteristics as opposed to providing assistance to people or businesses with specified characteristics. It then assesses the arguments both for and against the continuation of the HUBZone program. The report also discusses the HUBZone program's structure and operation, focusing on the definition of HUBZone areas and small businesses and the program's performance relative to goals. It includes an analysis of the SBA's administration of the program and SBA's performance measures. This report also examines the Small Business Jobs Act of 2010, which removed certain language from the Small Business Act that had prompted federal courts and GAO to find that HUBZone set-asides have "precedence" over other small business set-asides. The National Defense Authorization Act for Fiscal Year 2016 includes a provision that expands the definition of a Base Realignment and Closure Act (BRAC) military base closure area to make it easier for businesses located in those areas to meet the HUBZone program's requirement that at least 35% of its employees reside in a HUBZone area. It also extends BRAC base closure area HUBZone eligibility to eight years. The Invest in Rural Small Business Act of 2017, which would, among other provisions, reduce the percentage of a HUBZone firm's employees that must reside in a HUBZone to 33% from 35% and authorize governors to petition the SBA to designate rural areas in their state that have a population of 50,000 or fewer as a HUBZone if those areas meet specified unemployment criteria. The Growing and Reviving Rural Economies Through Transitioning HUBZone Redesignation Act of 2017, and the HUBZone Investment Protection Act, which would extend the eligibility of redesignated HUBZones to seven years from three years. The Expanding the Impact of the HUBZone Program Act of 2017, which would, among other provisions, extend HUBZone eligibility to not more than 10 years and require the SBA, within one year of the bill's enactment, to publish performance metrics "designed to measure the success of the HUBZone program ... in meeting the program's objective of promoting economic development in economically distressed a