Small Business Administration
Additional Actions Are Needed to Certify and Monitor HUBZone Businesses and Assess Program Results Gao ID: GAO-08-643 June 17, 2008The Small Business Administration's (SBA) Historically Underutilized Business Zone (HUBZone) program provides federal contracting assistance to small firms located in economically distressed areas, with the intent of stimulating economic development. Questions have been raised about whether the program is targeting the locations and businesses that Congress intended to assist. GAO was asked to examine (1) the criteria and process that SBA uses to identify and map HUBZone areas and the economic characteristics of such areas, (2) the mechanisms SBA uses to ensure that only eligible small businesses participate in the program, and (3) the actions SBA has taken to assess the results of the program and the extent to which federal agencies have met their HUBZone contracting goals. To address these objectives, GAO analyzed statutory provisions, as well as SBA, census, and contracting data, and interviewed SBA and other federal and local officials.
SBA relies on federal law to identify qualified HUBZone areas based on provisions such as median income in census tracts, but the map it uses to publicize HUBZone areas is inaccurate, and the economic characteristics of designated areas vary widely. To help firms determine if they are located in a HUBZone area, SBA publishes a map on its Web site. However, the map contains areas that are not eligible for the program and excludes some eligible areas. As a result, ineligible small businesses have been able to participate in the program, and eligible businesses have not been able to participate. Revisions to the statutory definition of HUBZone areas (such as allowing continued inclusion of areas that ceased to be qualified) have nearly doubled the number of areas and created areas that are less economically distressed than areas designated under the original criteria. Such an expansion could diffuse the benefits to be derived from steering businesses to economically distressed areas. The mechanisms that SBA uses to certify and monitor firms provide limited assurance that only eligible firms participate in the program. Although internal control standards state that agencies should verify information they collect, SBA verifies the information reported by firms on their application or during recertification--its process for monitoring firms--in limited instances and does not follow its own policy of recertifying all firms every 3 years. GAO found that more than 4,600 firms that had been in the program for at least 3 years went unmonitored. Further, SBA lacks a formal policy on how quickly it needs to make a final determination on decertifying firms that may no longer be eligible for the program. Of the more than 3,600 firms proposed for decertification in fiscal years 2006 and 2007, more than 1,400 were not processed within 60 days--SBA's unwritten target. As a result of these weaknesses, there is an increased risk that ineligible firms have participated in the program and had opportunities to receive federal contracts based on their HUBZone certification. SBA has taken limited steps to assess the effectiveness of the HUBZone program, and from 2003 to 2006 federal agencies did not meet the government-wide contracting goal for the HUBZone program. While SBA has some measures to assess the results of the HUBZone program, they are not directly linked to the program's mission, and the agency has not implemented its plans to conduct an evaluation of the program based on variables tied to the program's goals. Consequently, SBA lacks key information to manage the program and assess performance. Contracting dollars awarded to HUBZone firms increased from fiscal year 2003 to 2006, but consistently fell short of the government-wide goal of awarding 3 percent of annual contracting dollars to HUBZone firms. According to contracting officials GAO interviewed, factors such as conflicting guidance on how to consider the various small business programs when awarding contracts and a lack of HUBZone firms in certain industries may have affected the ability of federal agencies to meet their HUBZone goals.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-08-643, Small Business Administration: Additional Actions Are Needed to Certify and Monitor HUBZone Businesses and Assess Program Results
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Report to the Chairwoman, Committee on Small Business, House of
Representatives:
United States Government Accountability Office:
GAO:
June 2008:
Small Business Administration:
Additional Actions Are Needed to Certify and Monitor HUBZone Businesses
and Assess Program Results:
GAO-08-643:
GAO Highlights:
Highlights of GAO-08-643, a report to the Chairwoman, Committee on
Small Business, House of Representatives.
Why GAO Did This Study:
The Small Business Administration‘s (SBA) Historically Underutilized
Business Zone (HUBZone) program provides federal contracting assistance
to small firms located in economically distressed areas, with the
intent of stimulating economic development. Questions have been raised
about whether the program is targeting the locations and businesses
that Congress intended to assist. GAO was asked to examine (1) the
criteria and process that SBA uses to identify and map HUBZone areas
and the economic characteristics of such areas, (2) the mechanisms SBA
uses to ensure that only eligible small businesses participate in the
program, and (3) the actions SBA has taken to assess the results of the
program and the extent to which federal agencies have met their HUBZone
contracting goals. To address these objectives, GAO analyzed statutory
provisions, as well as SBA, census, and contracting data, and
interviewed SBA and other federal and local officials.
What GAO Found:
SBA relies on federal law to identify qualified HUBZone areas based on
provisions such as median income in census tracts, but the map it uses
to publicize HUBZone areas is inaccurate, and the economic
characteristics of designated areas vary widely. To help firms
determine if they are located in a HUBZone area, SBA publishes a map on
its Web site. However, the map contains areas that are not eligible for
the program and excludes some eligible areas. As a result, ineligible
small businesses have been able to participate in the program, and
eligible businesses have not been able to participate. Revisions to the
statutory definition of HUBZone areas (such as allowing continued
inclusion of areas that ceased to be qualified) have nearly doubled the
number of areas and created areas that are less economically distressed
than areas designated under the original criteria. Such an expansion
could diffuse the benefits to be derived from steering businesses to
economically distressed areas.
The mechanisms that SBA uses to certify and monitor firms provide
limited assurance that only eligible firms participate in the program.
Although internal control standards state that agencies should verify
information they collect, SBA verifies the information reported by
firms on their application or during recertification”its process for
monitoring firms”in limited instances and does not follow its own
policy of recertifying all firms every 3 years. GAO found that more
than 4,600 firms that had been in the program for at least 3 years went
unmonitored. Further, SBA lacks a formal policy on how quickly it needs
to make a final determination on decertifying firms that may no longer
be eligible for the program. Of the more than 3,600 firms proposed for
decertification in fiscal years 2006 and 2007, more than 1,400 were not
processed within 60 days”SBA‘s unwritten target. As a result of these
weaknesses, there is an increased risk that ineligible firms have
participated in the program and had opportunities to receive federal
contracts based on their HUBZone certification.
SBA has taken limited steps to assess the effectiveness of the HUBZone
program, and from 2003 to 2006 federal agencies did not meet the
government-wide contracting goal for the HUBZone program. While SBA has
some measures to assess the results of the HUBZone program, they are
not directly linked to the program‘s mission, and the agency has not
implemented its plans to conduct an evaluation of the program based on
variables tied to the program‘s goals. Consequently, SBA lacks key
information to manage the program and assess performance. Contracting
dollars awarded to HUBZone firms increased from fiscal year 2003 to
2006, but consistently fell short of the government-wide goal of
awarding 3 percent of annual contracting dollars to HUBZone firms.
According to contracting officials GAO interviewed, factors such as
conflicting guidance on how to consider the various small business
programs when awarding contracts and a lack of HUBZone firms in certain
industries may have affected the ability of federal agencies to meet
their HUBZone goals.
What GAO Recommends:
GAO recommends that the SBA Administrator take steps to ensure that
only eligible firms participate in the HUBZone program and to further
assess the effectiveness of the program. In responding to a draft of
this report, SBA agreed with these recommendations and outlined steps
that it plans to take to address them.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-643]. For more
information, contact William B. Shear at (202) 512-8678 or
shearw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
SBA Relies on Federal Law to Identify HUBZone Areas, but Its Map Is
Inaccurate and the Economic Characteristics of Designated Areas Vary
Widely:
SBA Has Limited Controls to Ensure That Only Eligible Firms Participate
in the HUBZone Program:
SBA Has Not Implemented Plans to Assess the Effectiveness of the
HUBZone Program, and Most Agencies Have Not Met Contracting Goals:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Small Business Administration:
Appendix III: Economic Characteristics of HUBZone Areas:
Appendix IV: Characteristics of HUBZone Firms as of 2007:
Appendix V: Details of Site Visits to HUBZone Areas:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Number and Status of Applications for HUBZone Program, Fiscal
Years 2000-2007:
Table 2: Number and Status of Recertifications of HUBZone Firms, Fiscal
Years 2005-2007:
Table 3: Number and Status of SBA Examinations of HUBZone Firms, Fiscal
Years 2004-2007:
Table 4: Summary of SBA's Efforts to Decertify Firms Ineligible for the
HUBZone Program, Fiscal Years 2004-2007:
Table 5: Results of SBA Surveys of HUBZone Firms, Fiscal Years 2005-
2006:
Table 6: HUBZone Percentage of Total Prime Contracting Dollars Eligible
for Small Business Awards, Fiscal Years 2003-2006:
Table 7: Effect of Selected Hypothetical Changes to the Eligibility
Criteria for Metropolitan-Qualified Census Tracts:
Table 8: Effect of Selected Hypothetical Changes to the Eligibility
Criteria for Nonmetropolitan Counties:
Table 9: HUBZone Firms' Ownership by Race and Ethnicity, 2007:
Table 10: Top 10 Industries in Which HUBZone Firms Operated, 2007:
Table 11: HUBZone Firms' Small Business Designations, 2007:
Table 12: Economic Characteristics of Site Visit Locations:
Figures:
Figure 1: Number of Certified HUBZone Firms, Fiscal Years 1999-2008:
Figure 2: Statutory Changes to Definitions for HUBZone Areas and Effect
on Number of HUBZones, 1997-2006:
Figure 3: Location and Extent of HUBZone Areas, 2006:
Figure 4: Process Used to Map HUBZone Areas:
Figure 5: Comparison of Indicators Associated with Economic Distress,
by HUBZone Metropolitan Census Tracts and Redesignated Tracts:
Figure 6: Comparison of Indicators Associated with Economic Distress in
HUBZone Nonmetropolitan Counties and Redesignated Nonmetropolitan
Counties:
Figure 7: Indicators Associated with Economic Distress in HUBZone
Difficult Development Areas:
Figure 8: Dollars Obligated to HUBZone Firms, by Types of Set-aside
Contracts, Fiscal Year 2006:
Figure 9: Comparison of Indicators Associated with Economic Distress,
by HUBZone Nonmetropolitan-Qualified Census Tracts and Redesignated
Tracts:
Figure 10: Comparison of Indicators Associated with Economic Distress,
HUBZone-Qualified Indian Country Areas:
Abbreviations:
BLS: Bureau of Labor Statistics:
BRAC: Base Realignment and Closure Act:
CCR: Central Contractor Registration:
DHS: Department of Homeland Security:
DOD: Department of Defense:
DSBSS: Dynamic Small Business Source System:
FAR Council: Federal Acquisition Regulation Council:
FPDS-NG: Federal Procurement Data System-Next Generation:
GPRA: Government Performance and Results Act:
HUBZone: Historically Underutilized Business Zone:
HUD: Department of Housing and Urban Development:
IG: Inspector General:
NAICS: North American Industry Classification System:
OMB: Office of Management and Budget:
OSDBU: Office of Small and Disadvantaged Business Utilization:
PART: Program Assessment Rating Tool:
SBA: Small Business Administration:
SDB: Small Disadvantaged Business:
SSA: Social Security Administration:
[End of section]
United States Government Accountability Office: Washington, DC 20548:
June 17, 2008:
The Honorable Nydia M. Velazquez:
Chairwoman:
Committee on Small Business:
House of Representatives:
Dear Madam Chairwoman:
Created in 1997, the Historically Underutilized Business Zone (HUBZone)
program provides federal contracting assistance to small businesses in
economically distressed communities, or HUBZone areas, with the intent
of stimulating economic development in those areas. In fiscal year
2007, federal agencies awarded contracts valued at about $8 billion to
HUBZone firms. The Small Business Administration (SBA) administers the
HUBZone program, one of several contracting assistance programs that
the agency oversees. Firms that participate in the program must be
located in a HUBZone and employ residents of HUBZones to facilitate the
goal of bringing capital and employment opportunities to distressed
areas. There are more than 14,000 HUBZone areas, and, as of February
2008, almost 13,000 firms participated in the program. Further, to
support and encourage the development of small businesses in HUBZones,
Congress has set a goal for federal agencies to award 3 percent of
their annual contracting dollars to qualifying firms located in
HUBZones.
Questions have been raised about whether the program is targeting the
locations and businesses that Congress intended to assist and the
extent to which federal agencies have awarded contracts to certified
HUBZone firms. Therefore, you asked us to review SBA's administration
and oversight of the HUBZone program. Specifically, this report
examines (1) the criteria and process that SBA uses to identify and map
HUBZone areas and the economic characteristics of such areas, (2) the
mechanisms that SBA uses to ensure that only eligible small businesses
participate in the HUBZone program, and (3) the actions SBA has taken
to assess the results of the program and the extent to which federal
agencies have met their HUBZone contracting goals.
In examining the criteria that SBA uses to identify HUBZone areas, we
reviewed applicable statutes, regulations, and agency documents. To
assess the accuracy of SBA's map of HUBZone areas, we interviewed SBA's
mapping contractor and reviewed the contractor's policies and
procedures. In addition, we analyzed 2000 census data to (1) determine
the economic characteristics, such as poverty and unemployment rates,
of metropolitan and nonmetropolitan HUBZone areas and (2) illustrate
the effect that adjusting the HUBZone area qualification criteria would
have on the number of HUBZone areas. To determine how SBA ensures that
only eligible small businesses participate in the HUBZone program, we
reviewed policies and procedures established by SBA for certifying and
monitoring HUBZone firms and internal control standards for federal
agencies. We compared the actions that SBA takes to help ensure that
only eligible firms participate with its policies and procedures and
selected internal control standards. In examining such compliance, we
analyzed data from the HUBZone Certification Tracking System (the
information system used to manage the HUBZone program) to determine the
extent of SBA monitoring. For example, we reviewed data on the 125
applications submitted in September 2007 to determine the extent to
which SBA had requested documentation from firms to support the
applications. Further, we analyzed data from the Federal Procurement
Data System-Next Generation (FPDS-NG) and SBA's Dynamic Small Business
Source System (DSBSS) to identify the characteristics of businesses
that participated in the program.
To determine the measures that SBA has in place to assess the results
of the HUBZone program, we reviewed SBA's performance reports and other
agency documents. We compared the HUBZone performance measures with our
guidance on the attributes of effective performance measures.[Footnote
1] To determine the extent to which federal agencies have met their
contracting goals, we analyzed data from FPDS-NG and SBA's reports on
federal contracting dollars awarded to HUBZone firms. We also
interviewed small business and contracting officials from a
nongeneralizable sample of four agencies that received different
ratings from SBA based on its contracting scorecard--Department of
Commerce (Commerce), Department of Defense (DOD), Department of
Homeland Security (DHS), and Social Security Administration (SSA)--to
determine what factors affect federal agencies' ability to meet HUBZone
contracting goals. In addition, we visited a nongeneralizable sample of
four HUBZone areas--Lawton, Oklahoma (to represent Indian Country);
Lowndes County, Georgia (a nonmetropolitan area); and Los Angeles and
Long Beach, California (two metropolitan areas)--to interview
stakeholders about what, if any, benefits they believed the selected
firms and communities received. We also interviewed SBA officials in
headquarters and selected field offices, as well as SBA contractors. We
assessed the reliability of the data we used and found them to be
sufficiently reliable for the purposes of this report. Appendix I
contains additional information on our scope and methodology.
We conducted this performance audit from August 2007 to June 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Results in Brief:
SBA relies on federal law to identify qualified HUBZone areas, but the
map it uses to publicize qualified HUBZone areas is inaccurate; in
addition, the economic characteristics of HUBZone areas vary widely,
which could diffuse the economic benefits of the program. To help firms
interested in the program determine if they are located in a HUBZone
area, SBA publishes a map on its Web site that serves as the primary
information source about the program. However, the map contains areas
that are not eligible for the program and excludes some eligible areas.
Specifically, the map incorrectly includes 50 metropolitan counties as
difficult development areas that do not meet this or any other criteria
for inclusion in the HUBZone program. In addition, 27 nonmetropolitan
counties that are eligible based on their unemployment rates were
excluded because SBA has not updated its map since August 2006. As a
result, ineligible small businesses participated in the program, and
eligible businesses have not been able to participate. The HUBZone Act
of 1997 designated three types of areas in which HUBZones could be
located: qualified census tracts, nonmetropolitan counties, and Indian
reservations, which qualified as economically distressed based on
criteria such as low income levels and high unemployment and poverty
rates. Subsequent legislation expanded the definitions of these types
of areas and designated additional types of areas, such as redesignated
areas (areas that no longer meet the economic criteria but remain
eligible until after the release of the 2010 decennial census data). As
a result, the number of qualified HUBZone areas increased from 7,895 in
1999 when the program was first implemented to 14,364 in 2006. HUBZone
program officials told us that expanding the number of qualified
HUBZone areas could diffuse the economic benefits of the program, and
we found that types of HUBZone areas varied greatly with respect to
characteristics associated with economic distress, such as poverty and
unemployment rates. For example, approximately 60 percent of
metropolitan-qualified census tracts (excluding the redesignated
tracts) had a poverty rate of 30 percent or more; in contrast, about 4
percent of redesignated metropolitan census tracts had a poverty rate
of 30 percent or more. While establishing new HUBZone areas could
provide economic benefits to these new areas, it could also result in
diffusion--less targeting to areas of greatest economic distress--by
lessening the very competitive advantage upon which businesses may rely
to thrive in economically distressed communities.
The mechanisms that SBA uses to certify and monitor HUBZone firms
provide limited assurance that only eligible firms participate in the
program. For certification and recertification, firms self-report
information on their applications. Rather than providing specific
guidance or criteria for when HUBZone program staff should request
supporting documentation, SBA's policy allows the staff to determine
what circumstances warrant a request for supporting documentation.
Internal control standards for federal agencies require that agencies
collect and maintain documentation and verify information to support
their programs; however, we found that SBA requested documentation or
conducted site visits of firms to validate the self-reported data in
limited instances. Our analysis of the 125 applications submitted in
September 2007 showed that SBA requested supporting documentation for
36 percent of the applications and conducted one site visit. While
SBA's policies and procedures require program examinations--the one
process that consistently includes reviews of supporting documentation-
-the agency conducts them on 5 percent of certified HUBZone firms each
year. The recertification process offers SBA another opportunity to
monitor firms, but SBA has not complied with its policy of recertifying
firms every 3 years. More than 4,600 of the firms that have been in the
program for at least 3 years (about 40 percent) have not been
recertified. SBA officials stated that the agency lacked sufficient
staff to meet the recertification goal and hired a contractor in
December 2007 to help with recertification. However, SBA has not
established a specific timeline to ensure that the backlog is
eliminated. SBA also decertifies firms (removes them from the list of
certified firms) after determining they no longer meet eligibility
criteria. In fiscal years 2006 and 2007, SBA proposed decertification
for more than 3,600 firms and ultimately decertified more than 2,900
ineligible firms that were participating in the program. However, SBA
lacks formal guidance that would specify a time frame for processing
these decertifications. Of the more than 3,600 firms proposed for
decertification, more than 1,400 were not processed within SBA's
informal goal of 60 days. According to SBA officials, they plan to use
their contract staff to address this problem after the recertification
backlog is eliminated. As a result of a lack of controls (or limited
application of controls) and weaknesses in the application and
monitoring-related processes, SBA is unable to ensure that only
eligible firms participate in the program and have opportunities to
receive federal contracts based on their HUBZone certification.
SBA has taken limited steps to assess the effectiveness of the HUBZone
program, and from 2003 to 2006, federal agencies did not meet the
governmentwide contracting goal for the HUBZone program. SBA's current
performance measures for the program track the number of firms
certified or recertified, the annual value of contracts awarded to
HUBZone firms, and the number of program examinations completed
annually, but these measures are not directly linked to the program's
mission of stimulating economic development in economically distressed
communities. Federal agencies are required to identify results-oriented
goals and measure performance toward the achievement of their goals.
According to some local economic development officials in the HUBZone
areas we visited, information on the program's impact could help them
inform small businesses about the potential benefits. SBA has
recognized the need to assess the effect of the program on communities
but has not devoted resources to completing such an evaluation.
Consequently, SBA lacks key information that could help it better
manage and assess the results of the program. We also found that most
federal agencies did not meet their HUBZone contracting goals during
fiscal year 2006. While the percentage of prime contracting dollars
awarded to HUBZone firms increased in each fiscal year from 2003 to
2006, the 2006 awards fell short of the governmentwide 3 percent goal
by about one-third. According to contracting officials we interviewed,
factors such as conflicting guidance on how to consider the various
small business programs when awarding contracts and a lack of HUBZone
firms in certain industries may have affected the ability of federal
agencies to meet their HUBZone goals.
This report contains five recommendations designed to improve SBA's
administration and oversight of the HUBZone program. We recommend that
SBA correct and update its HUBZone map, develop and implement guidance
to ensure more routine verification of application data, eliminate its
backlog of recertifications, formalize and adhere to a specific time
frame for decertifying ineligible firms, and further assess the
effectiveness of the program. We provided SBA with a draft of this
report for its review and comment. SBA agreed with our recommendations
and outlined steps that it plans to take to address each of them. For
example, the agency stated that it anticipates that the HUBZone map
will be updated no later than August 29, 2008, and that it plans to
develop procedures that will provide guidance on when supporting
documentation and site visits will be required during certification.
SBA's comments are reprinted in appendix II.
Background:
The HUBZone program was established by the HUBZone Act of 1997 to
stimulate economic development through increased employment and capital
investment by providing federal contracting preferences to small
businesses in economically distressed communities or HUBZone areas.
[Footnote 2] The types of areas in which HUBZones may be located are
defined by law and consist of the following:
* Qualified census tracts. A qualified census tract has the meaning
given the term by Congress for the low-income-housing tax credit
program.[Footnote 3] The list of qualified census tracts is maintained
and updated by the Department of Housing and Urban Development (HUD).
As currently defined, qualified census tracts have either 50 percent or
more of their households with incomes below 60 percent of the area
median gross income or have a poverty rate of at least 25 percent. The
population of all census tracts that satisfy one or both of these
criteria cannot exceed 20 percent of the area population. Qualified
census tracts may be in metropolitan or nonmetropolitan areas. HUD
designates qualified census tracts periodically as new decennial census
data become available or as metropolitan area definitions change.
* Qualified nonmetropolitan counties. Qualified nonmetropolitan
counties are those that, based on the most recent decennial census
data, are not located in a metropolitan statistical area and in which:
1. the median household income is less than 80 percent of the
nonmetropolitan state median household income;
2. the unemployment rate is not less than 140 percent of the average
unemployment rate for either the nation or the state (whichever is
lower); or:
3. a difficult development area is located.[Footnote 4]
The definition of a difficult development area is similar to that of a
qualified census tract in that it comes from the tax code's provision
for the low-income-housing tax credit program. For the low-income-
housing tax credit program, difficult development areas can be located
in both metropolitan and nonmetropolitan counties; however, for the
HUBZone program, they can only be located in nonmetropolitan counties
in Alaska, Hawaii, and the U.S. territories and possessions.
* Qualified Indian reservations. A HUBZone-qualified Indian reservation
has the same meaning as the term Indian Country as defined in another
federal statute, with some exceptions. These are all lands within the
limits of any Indian reservation, all dependent Indian communities
within U.S. borders, and all Indian allotments. In addition, portions
of the state of Oklahoma qualify because they meet the Internal Revenue
Service's definition of "former Indian reservations in Oklahoma."
* Redesignated areas. Redesignated areas are census tracts or
nonmetropolitan counties that no longer meet the economic criteria but
remain eligible until after the release of the 2010 decennial census
data.
* Base closure areas. Areas within the external boundaries of former
military bases that were closed by the Base Realignment and Closure Act
(BRAC) qualify for HUBZone status for a 5-year period from the date of
formal closure.
In order for a firm to be certified to participate in the HUBZone
program, it must meet the following criteria:
* the company must be small by SBA size standards;[Footnote 5]
* the company must be at least 51 percent owned and controlled by U.S.
citizens;[Footnote 6]
* the company's principal office--the location where the greatest
number of employees perform their work--must be located in a
HUBZone;[Footnote 7] and:
* at least 35 percent of the company's full-time (or full-time
equivalent) employees must reside in a HUBZone.
As of February 2008, 12,986 certified firms participated in the HUBZone
program (see fig. 1). Over 4,200 HUBZone firms obtained approximately
$8.1 billion in federal contracts in fiscal year 2007.
Figure 1: Number of Certified HUBZone Firms, Fiscal Years 1999-2008:
[See PDF for image]
This figure is a line graph depicting the following data:
Number of Certified HUBZone Firms, Fiscal Years 1999-2008:
Fiscal year: 1999;
Number of HUBZones: 235.
Fiscal year: 2000;
Number of HUBZones: 1774.
Fiscal year: 2001;
Number of HUBZones: 3793.
Fiscal year: 2002;
Number of HUBZones: 6342.
Fiscal year: 2003;
Number of HUBZones: 8570.
Fiscal year: 2004;
Number of HUBZones: 10,682.
Fiscal year: 2005;
Number of HUBZones: 12,776.
Fiscal year: 2006;
Number of HUBZones: 11,891.
Fiscal year: 2007;
Number of HUBZones: 13,005.
Fiscal year: 2008;
Number of HUBZones: 12,986.
Note: The numbers for 1999 through 2007 are as of the end of the fiscal
year. According to SBA officials, the number of certified firms has
leveled off in recent years in part because of the maturing of the
program and efforts by SBA to monitor the eligibility of HUBZone firms.
[End of figure]
A certified HUBZone firm is eligible for federal contracting benefits,
including "sole source" contracts, set-aside contracts, and a price
evaluation preference. A contracting officer can award a sole source
contract to a HUBZone firm if, among other things, the officer does not
have a reasonable expectation that two or more qualified HUBZone firms
will submit offers and the anticipated award price of the proposed
contract, including options, will not exceed $5.5 million for
manufacturing contracts or $3.5 million for all other contracts. If a
contracting officer has a reasonable expectation that at least two
qualified HUBZone firms will submit offers and an award can be made at
a fair market price, the contract shall be awarded on the basis of
competition restricted to qualified HUBZone firms. Contracting officers
also can award a contract to a HUBZone firm through "full and open
competition." In these circumstances, HUBZone firms are given a price
evaluation preference of up to 10 percent if the apparent successful
offering firm is not a small business. That is, the price offered by a
qualified HUBZone firm shall be deemed as lower than the price offered
by another firm (other than another small business) if the price is not
more than 10 percent higher than the price offered by the firm with the
lowest offer.
As of October 1, 2000, all federal agencies were required to meet the
HUBZone program's contracting goals.[Footnote 8] Currently, the annual
federal contracting goal for HUBZone small businesses is 3 percent of
all prime contract awards--contracts awarded directly by an agency. In
the HUBZone Act of 1997, Congress increased the overall federal
contracting goal for small businesses from 20 percent to 23 percent to
address concerns that the HUBZone contracting requirement would reduce
federal contracts for non-HUBZone small businesses. Each year, SBA
issues a small business goaling report that documents each department's
achievement of small business contracting goals.
SBA administers the HUBZone program, and the HUBZone program office at
SBA headquarters is responsible for certifying firms, publishing a list
of HUBZone-certified firms, monitoring certified firms to ensure
continuing eligibility, and decertifying firms that no longer meet
eligibility requirements. A HUBZone liaison at each of SBA's 68
district offices is responsible for conducting program examinations--
investigations that verify the accuracy of information supplied by
firms during the certification process, as well as current eligibility
status. HUBZone liaisons also handle program marketing and outreach to
the economic development and small business communities. Federal
agencies are responsible for trying to meet the HUBZone contracting
goal and for enforcing the contracts awarded to HUBZone firms. Each
federal agency has an Office of Small and Disadvantaged Business
Utilization (OSDBU), or an equivalent office, that helps the agency
employ special contracting programs and monitor the agency's overall
small business and special contracting goals.
In addition to the HUBZone program, SBA has other contracting
assistance programs. The 8(a) program is a business development program
for firms owned by citizens who are socially and economically
disadvantaged. SBA provides technical assistance, such as business
counseling, to these firms. While the 8(a) program offers a broad range
of assistance to socially and economically disadvantaged firms, the
Small Disadvantaged Business (SDB) program is intended only to convey
benefits in federal procurement to disadvantaged businesses. All 8(a)
firms automatically qualify for SDB certification, and federal agencies
are subject to an annual SDB contracting goal of 5 percent of all
federal contracting dollars. Small businesses also can be certified as
service-disabled veteran-owned, and the contracting goal for these
firms is 3 percent of all federal contracting dollars.
SBA Relies on Federal Law to Identify HUBZone Areas, but Its Map Is
Inaccurate and the Economic Characteristics of Designated Areas Vary
Widely:
SBA relies on federal law to identify qualified HUBZone areas, but its
HUBZone map is inaccurate and the economic characteristics of HUBZone
areas vary widely. The map that SBA uses to publicize HUBZone areas
contains ineligible areas and has not been updated to include eligible
areas. As a result, ineligible small businesses have participated in
the program, and eligible businesses have not been able to participate.
A series of statutory changes has resulted in an increase in the number
and types of HUBZone areas. HUBZone program officials noted that such
an expansion could diffuse (or limit) the economic benefits of the
program. We found that different types of HUBZone areas varied in the
degree to which they could be characterized as economically distressed
(as measured by indicators such as poverty and unemployment rates).
Recent Legislation Increased the Number and Types of HUBZone Areas:
In recent years, amendments to the HUBZone Act and other statutes have
increased the number and type of HUBZone areas. The original HUBZone
Act of 1997 defined a HUBZone as any area within a qualified census
tract, a qualified nonmetropolitan county, or lands within the
boundaries of a federally recognized Indian reservation. Qualified
census tracts were defined as having the meaning given the term in the
tax code at the time--areas in which 50 percent or more of the
households had incomes below 60 percent of the area median gross
income. Qualified nonmetropolitan areas were counties with low median
household income or high levels of unemployment.
However, subsequent legislation revised the definitions of the original
categories and expanded the HUBZone definition to include new types of
qualified areas (see fig. 2). A 2000 statute (1) defined Indian
reservation to include lands covered by the Bureau of Indian Affairs'
phrase Indian Country and (2) allowed all lands within the
jurisdictional areas of an Oklahoma Indian tribe to be eligible for the
program.[Footnote 9] The 2000 statute also amended the HUBZone area
definition to allow census tracts or nonmetropolitan counties that
ceased to be qualified to remain qualified for a further 3-year period
as "redesignated areas." Also in 2000, Congress changed the definition
of a qualified census tract in the tax code by adding a poverty rate
criterion; that is, a qualified census tract could be either an area of
low income or high poverty.[Footnote 10]
Figure 2: Statutory Changes to Definitions for HUBZone Areas and Effect
on Number of HUBZones, 1997-2006:
[See PDF for image]
This figure is an illustration of statutory changes to definitions for
HUBZone Areas and effect on number of HUBZones, 1997-2006, as follows:
Statutory timeline: December 2, 1997: The original HUBZone Act of 1997
defined a HUBZone as any area within a qualified census tract, a
qualified nonmetropolitan county, or lands within the boundaries of a
federally recognized Indian reservation;
Number of HUBZones: 0.
Statutory timeline: 1998;
Number of HUBZones: 0.
Statutory timeline: 1999;
Redesignated HUBZones: 0;
HUBZones that continue to meet eligibility requirements: 7,895.
Number of HUBZones: 7,895.
Statutory timeline: 2000; December 15: A new poverty rate criterion was
added to the definition of qualified census tracts, making a qualified
census tract either an area of low income or high poverty; December 21:
Lands covered by the term ’Indian Country“ were added, and the HUBZone
area definition was changed to allow redesignated areas–census tracts
or nonmetropolitan counties that no longer meet economic criteria but
remain qualified for a 3-year period;
Redesignated HUBZones: 121;
HUBZones that continue to meet eligibility requirements: 7841;
Total: 7962.
Statutory timeline: 2001;
Redesignated HUBZones: 342;
HUBZones that continue to meet eligibility requirements: 9686;
Total: 10,028.
Statutory timeline: 2002;
Redesignated HUBZones: 2,471;
HUBZones that continue to meet eligibility requirements: 10,909;
Total: 13,380.
Statutory timeline: 2003;
Redesignated HUBZones: 2,525;
HUBZones that continue to meet eligibility requirements: 10,873;
Total: 13,398.
Statutory timeline: 2004; December 8: Redesignated areas were changed
to remain qualified until the release date of the 2010 census. Areas
within the external boundaries of former military bases closed by the
BRAC also became qualified. Counties also became eligible based on
their unemployment relative to the national unemployment rate, if it
was lower than the state unemployment rate;
Redesignated HUBZones: 2,534;
HUBZones that continue to meet eligibility requirements: 11,237;
Total: 13,771.
Statutory timeline: 2005; August 10: Difficult development areas
outside the continental United States were qualified for the HUBZone
program;
Redesignated HUBZones: 2,626;
HUBZones that continue to meet eligibility requirements: 11,371;
Total: 13,997.
Statutory timeline: 2006;
Redesignated HUBZones: 2,854;
HUBZones that continue to meet eligibility requirements: 11,510;
Total: 14,364.
Source: GAO analysis of SBA data.
[End of figure]
A 2004 statute revised the definition of redesignated areas to permit
them to remain qualified until the release date of the 2010 census
data.[Footnote 11] In that same statute, Congress determined that areas
within the external boundaries of former military bases closed by BRAC
would qualify for HUBZone status for a 5-year period from the date of
formal closure. In addition, Congress revised the definition of
qualified nonmetropolitan counties to permit eligibility based on a
county's unemployment rate relative to either the state or the national
unemployment rate, whichever was lower. Finally, in 2005, Congress
expanded the definition of qualified nonmetropolitan county to include
"difficult development areas" in Alaska, Hawaii, and the U.S.
territories.[Footnote 12] These areas have high construction, land, and
utility costs relative to area median income.
Subsequent to the statutory changes, the number of HUBZone areas grew
from 7,895 in calendar year 1999 to 14,364 in 2006. As shown in figure
2, the December 15, 2000, change to the definition of a qualified
census tract--a provision of the low-income-housing tax credit program-
-resulted in the biggest increase in the number of qualified HUBZone
areas. SBA's data show that, as of 2006, there were 12,218 qualified
census tracts, 1,301 nonmetropolitan counties, 651 Indian Country
areas, 82 BRAC areas, and 112 difficult development areas (see fig. 3).
[Footnote 13]
Figure 3: Location and Extent of HUBZone Areas, 2006:
[See PDF for image]
This figure is a map of the United States with shading indicating
HUBZone areas.
Source: SBA (data); Mapinfo (map).
[End of figure]
SBA's Web Map Inaccurately Identifies Eligible Areas:
SBA program staff employ no discretion in identifying HUBZone areas
because the areas are defined by federal statute, but SBA has not
always designated these areas correctly on the SBA Web map. To identify
and map HUBZone areas, SBA relies on a mapping contractor and data from
other executive agencies (see fig. 4). When a HUBZone designation
changes or more current data become available, SBA alerts the
contractor. The contractor retrieves the data from the designated
federal agencies, such as HUD, the Bureau of Labor Statistics (BLS),
and the Census Bureau. Most HUBZone area designation data are publicly
available (and widely used by researchers and the general public), with
the exception of the Indian Country designation.
Figure 4: Process Used to Map HUBZone Areas:
[See PDF for image]
This figure is an illustration of the process used to map HUBZone
areas, as follows:
Congress:
Statutory criteria that define qualified HUBZone areas.
HUBZone Office:
Changes/updates;
Mapping Contractor:
Obtains updated public data from federal agencies and creates new map;
New ma of HUBZone areas in sent to SBA.
SBA:
Approves map if no discrepancies are found, and the contractor
publishes it on the HUBZone Web site.
SBA relies on firms to alert them to HUBZone areas that are miscoded.
Source: GAO analysis of SBA documents and interviews; Art Explosion
(map).
[End of figure]
Once the changes to the HUBZone areas are mapped, the contractor sends
the maps back to SBA. SBA performs a series of checks to ensure that
the HUBZone areas are mapped correctly and then the contractor places
the maps and associated HUBZone area information on SBA's Web site.
[Footnote 14] Essentially, the map is SBA's primary interface with
small businesses to determine if they are located in a HUBZone and can
apply for HUBZone certification. SBA officials stated that they
primarily rely on firms to identify HUBZone areas that have been
misidentified or incorrectly mapped. Based on client input, SBA
estimated that from 1 percent to 2 percent of firms searching the map
as part of the application process report miscodings. SBA's mapping
contractor researches these claims each month.
During the course of our review, we identified two problems with SBA's
HUBZone map. First, the map includes some areas that do not meet the
statutory definition of a HUBZone area. As noted previously, counties
containing difficult development areas are only eligible in their
entirety for the HUBZone program if they are not located in a
metropolitan statistical area. However, we found that SBA's HUBZone map
includes 50 metropolitan counties as difficult development areas that
do not meet this or any other criteria for inclusion as a HUBZone area.
Nearly all of these incorrectly designated HUBZone areas are in Puerto
Rico.[Footnote 15] When we raised this issue with SBA officials, they
told us they had provided a definition of difficult development areas
that was consistent with the statutory language used by the agency's
mapping contractor in December 2005. However, according to SBA, the
mapping contactor failed to properly follow SBA's guidance when adding
difficult development areas to the map in 2006. According to SBA
officials, the agency is in the process of acquiring additional mapping
services and will immediately re-evaluate all difficult development
areas once that occurs. As a result of these errors, ineligible firms
have obtained HUBZone certification and received federal contracts. As
of December 2007, there were 344 certified HUBZone firms located in
ineligible areas in these 50 counties. Further, from October 2006
through March 2008, federal agencies obligated about $5 million through
HUBZone set-aside contracts to 12 firms located in these ineligible
areas.
Second, while SBA's policy is to have its contractor update the HUBZone
map as needed, the map has not been updated since August 2006.[Footnote
16] Since that time, additional data such as unemployment rates from
BLS have become available. According to SBA officials, the update was
delayed because SBA awarded the contract for management of the HUBZone
system to a new prime contractor, which is still in the process of
establishing a relationship with the current mapping subcontractor.
Although SBA officials told us they are working to have the contractor
update the mapping system, no subcontract was in place as of May 2008.
While an analysis of the 2008 list of qualified census tracts showed
that the number of tracts had not changed since the map was last
updated, our analysis of 2007 BLS unemployment data indicated that 27
additional nonmetropolitan counties should have been identified on the
map. Because firms are not likely to receive information on the HUBZone
status of areas from other sources, firms in the 27 areas would have
believed from the map that they were ineligible to participate in the
program and could not benefit from contracting incentives that
certification provides.
Having an out-of-date map led SBA, in one instance, to mistakenly
identify a HUBZone area. When asked by a congressman to research
whether Jackson County, Michigan, qualified in its entirety as a
HUBZone area, an SBA official used a manual process to determine the
county's eligibility because the map was out of date. The official
mistakenly concluded that the county was eligible. After that
determination, the congressman publicized Jackson County's status, but
SBA, after further review, had to rescind its HUBZone status 1 week
later. Had the information been processed under the standard mapping
procedures, the mapping system software would have identified the area
as a metropolitan county and noted that it did not meet the criteria to
be a HUBZone, as only nonmetropolitan counties qualify in their
entirety. In this case, the lack of regular updates led to program
officials using a manual process that resulted in an incorrect
determination.
HUBZone Areas Vary with Respect to Characteristics Associated with
Economic Distress:
Qualified HUBZone areas experience a range of economic conditions.
HUBZone program officials told us that the growth in the number of
HUBZone areas is a concern for two reasons. First, they stated that
expansion can diffuse the impact or potential impact of the program on
existing HUBZone areas. Specifically, they noted that as the program
becomes less targeted and contracting dollars more dispersed, the
program could have less of an impact on individual HUBZone areas. We
recognize that establishing new HUBZone areas can potentially provide
economic benefits for these areas by helping them attract firms that
make investments and employ HUBZone residents. However, diffusion--less
targeting to areas of greatest economic distress--could occur with such
an expansion. Based on 2000 census data, about 69 million people (out
of 280 million nationwide) lived in the more than 14,000 HUBZones.
[Footnote 17] Considering that HUBZone firms are encouraged to locate
in HUBZone areas and compete for federal contracts (thus facilitating
employment and investment growth), the broad extent of eligible areas
can lessen the very competitive advantage that businesses may rely on
to thrive in economically distressed communities. Second, while HUBZone
program officials thought that the original designations resulted in
HUBZone areas that were economically distressed, they questioned
whether some of the later categories--such as redesignated and
difficult development areas--met the definition of economic distress.
To determine the economic characteristics of HUBZones, we compared
different types of HUBZone areas and analyzed various indicators
associated with economic distress. We found a marked difference in the
economic characteristics of two types of HUBZone areas: (1) census
tracts and nonmetropolitan counties that continue to meet the
eligibility criteria and (2) the redesignated areas that do not meet
the eligibility criteria but remain statutorily eligible until the
release of the 2010 census data. For example, approximately 60 percent
of metropolitan census tracts (excluding redesignated tracts) had a
poverty rate of 30 percent or more, while approximately 4 percent of
redesignated metropolitan census tracts had a poverty rate of 30
percent or more (see fig. 5). In addition, about 75 percent of
metropolitan census tracts (excluding redesignated tracts) had a median
household income that was less than 60 percent of the metropolitan area
median household income; in contrast, about 10 percent of redesignated
metropolitan census tracts met these criteria. (For information on the
economic characteristics of nonmetropolitan census tracts, see app.
III.)
Figure 5: Comparison of Indicators Associated with Economic Distress,
by HUBZone Metropolitan Census Tracts and Redesignated Tracts:
[See PDF for image]
This figure is a horizontal bar graph depicting the following data:
Poverty rate: 40% or more;
Metropolitan census tracts (no redesignated areas): Number: 2,237;
Metropolitan census tracts (no redesignated areas): Percentage: 25.77%;
Redesignated metropolitan census tracts: Number: 8;
Redesignated metropolitan census tracts: Percentage: 0.63%.
Poverty rate: 30.0 - 39.9%;
Metropolitan census tracts (no redesignated areas): Number: 2,962;
Metropolitan census tracts (no redesignated areas): Percentage: 33.71%;
Redesignated metropolitan census tracts: Number: 43;
Redesignated metropolitan census tracts: Percentage: 3.36%.
Poverty rate: 20.0 - 29.9%;
Metropolitan census tracts (no redesignated areas): Number: 2,911;
Metropolitan census tracts (no redesignated areas): Percentage: 33.53%;
Redesignated metropolitan census tracts: Number: 560;
Redesignated metropolitan census tracts: Percentage: 43.82%.
Poverty rate: 10.0 - 19.9%;
Metropolitan census tracts (no redesignated areas): Number: 519;
Metropolitan census tracts (no redesignated areas): Percentage: 5.98%;
Redesignated metropolitan census tracts: Number: 548;
Redesignated metropolitan census tracts: Percentage: 42.88%.
Poverty rate: Less than 10%;
Metropolitan census tracts (no redesignated areas): Number: 88;
Metropolitan census tracts (no redesignated areas): Percentage: 1.01%;
Redesignated metropolitan census tracts: Number: 119;
Redesignated metropolitan census tracts: Percentage: 9.31%.
Unemployment rate: 20% or more;
Metropolitan census tracts (no redesignated areas): Number: 1,588;
Metropolitan census tracts (no redesignated areas): Percentage: 17.95%;
Redesignated metropolitan census tracts: Number: 54;
Redesignated metropolitan census tracts: Percentage: 4.23%.
Unemployment rate: 15.0 - 19.9%;
Metropolitan census tracts (no redesignated areas): Number: 1,641;
Metropolitan census tracts (no redesignated areas): Percentage: 18.90%;
Redesignated metropolitan census tracts: Number: 62;
Redesignated metropolitan census tracts: Percentage: 4.85%.
Unemployment rate: 10.0 - 14.9%;
Metropolitan census tracts (no redesignated areas): Number: 2,719;
Metropolitan census tracts (no redesignated areas): Percentage: 31.32%;
Redesignated metropolitan census tracts: Number: 274;
Redesignated metropolitan census tracts: Percentage: 21.44%.
Unemployment rate: 5.0 - 9.9%;
Metropolitan census tracts (no redesignated areas): Number: 2,230;
Metropolitan census tracts (no redesignated areas): Percentage: 25.69%;
Redesignated metropolitan census tracts: Number: 602;
Redesignated metropolitan census tracts: Percentage: 47.10%.
Unemployment rate: Less than 5%;
Metropolitan census tracts (no redesignated areas): Number: 533;
Metropolitan census tracts (no redesignated areas): Percentage: 6.14%;
Redesignated metropolitan census tracts: Number: 286;
Redesignated metropolitan census tracts: Percentage: 22.38%.
Percentage of metropolitan area median household income: Less than 40%;
Metropolitan census tracts (no redesignated areas): Number: 1,935;
Metropolitan census tracts (no redesignated areas): Percentage: 22.29%;
Redesignated metropolitan census tracts: Number: 31;
Redesignated metropolitan census tracts: Percentage: 2.43%.
Percentage of metropolitan area median household income: 40.0 - 49.9%;
Metropolitan census tracts (no redesignated areas): Number: 1,949;
Metropolitan census tracts (no redesignated areas): Percentage: 22.45%;
Redesignated metropolitan census tracts: Number: 4;
Redesignated metropolitan census tracts: Percentage: 0.31%.
Percentage of metropolitan area median household income: 50.0 - 59.9%;
Metropolitan census tracts (no redesignated areas): Number: 2,636;
Metropolitan census tracts (no redesignated areas): Percentage: 30.37%;
Redesignated metropolitan census tracts: Number: 88;
Redesignated metropolitan census tracts: Percentage: 6.89%.
Percentage of metropolitan area median household income: 60.0 - 69.9%;
Metropolitan census tracts (no redesignated areas): Number: 1,539;
Metropolitan census tracts (no redesignated areas): Percentage: 17.73%;
Redesignated metropolitan census tracts: Number: 473;
Redesignated metropolitan census tracts: Percentage: 37.01%.
Percentage of metropolitan area median household income: 70% or more;
Metropolitan census tracts (no redesignated areas): Number: 622;
Metropolitan census tracts (no redesignated areas): Percentage: 7.17%;
Redesignated metropolitan census tracts: Number: 682;
Redesignated metropolitan census tracts: Percentage: 53.36%.
Percentage of metropolitan area median housing value: Less than 50%;
Metropolitan census tracts (no redesignated areas): Number: 3,380;
Metropolitan census tracts (no redesignated areas): Percentage: 38.94%;
Redesignated metropolitan census tracts: Number: 215;
Redesignated metropolitan census tracts: Percentage: 16.82%.
Percentage of metropolitan area median housing value: 50.0 - 59.9%;
Metropolitan census tracts (no redesignated areas): Number: 1,589;
Metropolitan census tracts (no redesignated areas): Percentage: 18.30%;
Redesignated metropolitan census tracts: Number: 212;
Redesignated metropolitan census tracts: Percentage: 16.59%.
Percentage of metropolitan area median housing value: 60.0 - 69.9%;
Metropolitan census tracts (no redesignated areas): Number: 1,326;
Metropolitan census tracts (no redesignated areas): Percentage: 15.27%;
Redesignated metropolitan census tracts: Number: 246;
Redesignated metropolitan census tracts: Percentage: 19.25%.
Percentage of metropolitan area median housing value: 70.0 - 79.9%;
Metropolitan census tracts (no redesignated areas): Number: 852;
Metropolitan census tracts (no redesignated areas): Percentage: 9.81%;
Redesignated metropolitan census tracts: Number: 210;
Redesignated metropolitan census tracts: Percentage: 16.43%.
Percentage of metropolitan area median housing value: 80% or more;
Metropolitan census tracts (no redesignated areas): Number: 1,534;
Metropolitan census tracts (no redesignated areas): Percentage: 17.67%;
Redesignated metropolitan census tracts: Number: 395;
Redesignated metropolitan census tracts: Percentage: 30.91%.
Total:
Metropolitan census tracts(no redesignated areas): Number: 8,681;
Redesignated metropolitan census tracts: Number: 1,278.
Source: GAO analysis of 2000 decennial census data.
Note: This table only provides descriptive statistics for those
metropolitan-qualified census tracts that were located (1) within the
50 states or District of Columbia and (2) in a metropolitan area as
defined in 2006.
[End of figure]
Similarly, we found that about 46 percent of nonmetropolitan counties
(excluding redesignated counties) had a poverty rate of 20 percent or
more, while 21 percent of redesignated nonmetropolitan counties had a
poverty rate of 20 percent or more (see fig. 6). Also, about 54 percent
of nonmetropolitan counties (excluding redesignated counties) had a
median housing value that was less than 80 percent of the state
nonmetropolitan median housing value; in contrast, about 32 percent of
redesignated counties met these criteria.
Figure 6: Comparison of Indicators Associated with Economic Distress in
HUBZone Nonmetropolitan Counties and Redesignated Nonmetropolitan
Counties:
[See PDF for image]
This figure is a horizontal bar graph depicting the following data:
Poverty rate: 40% or more;
Nonmetropolitan counties (no redesignated areas): Number: 12;
Nonmetropolitan counties (no redesignated areas): Percentage: 2.48%;
Redesignated nonmetropolitan counties: Number: 0;
Redesignated nonmetropolitan counties: Percentage: 0%.
Poverty rate: 30.0 - 39.9%;
Nonmetropolitan counties (no redesignated areas): Number: 56;
Nonmetropolitan counties (no redesignated areas): Percentage: 11.59%;
Redesignated nonmetropolitan counties: Number: 7;
Redesignated nonmetropolitan counties: Percentage: 1.03%.
Poverty rate: 20.0 - 29.9%;
Nonmetropolitan counties (no redesignated areas): Number: 156;
Nonmetropolitan counties (no redesignated areas): Percentage: 32.30%;
Redesignated nonmetropolitan counties: Number: 137;
Redesignated nonmetropolitan counties: Percentage: 20.18%.
Poverty rate: 10.0 - 19.9%;
Nonmetropolitan counties (no redesignated areas): Number: 232;
Nonmetropolitan counties (no redesignated areas): Percentage: 48.03%;
Redesignated nonmetropolitan counties: Number: 438;
Redesignated nonmetropolitan counties: Percentage: 64.51%.
Poverty rate: Less than 10%;
Nonmetropolitan counties (no redesignated areas): Number: 27;
Nonmetropolitan counties (no redesignated areas): Percentage: 5.59%;
Redesignated nonmetropolitan counties: Number: 97;
Redesignated nonmetropolitan counties: Percentage: 14.29%.
Unemployment rate: 20% or more;
Nonmetropolitan counties (no redesignated areas): Number: 7;
Nonmetropolitan counties (no redesignated areas): Percentage: 1.45%;
Redesignated nonmetropolitan counties: Number: 0;
Redesignated nonmetropolitan counties: Percentage: 0%.
Unemployment rate: 15.0 - 19.9%;
Nonmetropolitan counties (no redesignated areas): Number: 22;
Nonmetropolitan counties (no redesignated areas): Percentage: 4.55%;
Redesignated nonmetropolitan counties: Number: 2;
Redesignated nonmetropolitan counties: Percentage: 0.29%.
Unemployment rate: 10.0 - 14.9%;
Nonmetropolitan counties (no redesignated areas): Number: 91;
Nonmetropolitan counties (no redesignated areas): Percentage: 18.84%;
Redesignated nonmetropolitan counties: Number: 49;
Redesignated nonmetropolitan counties: Percentage: 7.22%.
Unemployment rate: 5.0 - 9.9%;
Nonmetropolitan counties (no redesignated areas): Number: 294;
Nonmetropolitan counties (no redesignated areas): Percentage: 60.87%;
Redesignated nonmetropolitan counties: Number: 465;
Redesignated nonmetropolitan counties: Percentage: 68.48%.
Unemployment rate: Less than 5%;
Nonmetropolitan counties (no redesignated areas): Number: 69;
Nonmetropolitan counties (no redesignated areas): Percentage: 14.29%;
Redesignated nonmetropolitan counties: Number: 163;
Redesignated nonmetropolitan counties: Percentage: 24.01%.
Percentage of state nonmetropolitan area median household income: Less
than 40%;
Nonmetropolitan counties (no redesignated areas): Number: 1;
Nonmetropolitan counties (no redesignated areas): Percentage: 0.21%;
Redesignated nonmetropolitan counties: Number: 0;
Redesignated nonmetropolitan counties: Percentage: 0%.
Percentage of state nonmetropolitan area median household income:
40.0 - 49.9%;
Nonmetropolitan counties (no redesignated areas): Number: 1;
Nonmetropolitan counties (no redesignated areas): Percentage: 0.21%;
Redesignated nonmetropolitan counties: Number: 0;
Redesignated nonmetropolitan counties: Percentage: 0%.
Percentage of state nonmetropolitan area median household income:
50.0 - 59.9%;
Nonmetropolitan counties (no redesignated areas): Number: 6;
Nonmetropolitan counties (no redesignated areas): Percentage: 1.24%;
Redesignated nonmetropolitan counties: Number: 0;
Redesignated nonmetropolitan counties: Percentage: 0%.
Percentage of state nonmetropolitan area median household income:
60.0 - 69.9%;
Nonmetropolitan counties (no redesignated areas): Number: 33;
Nonmetropolitan counties (no redesignated areas): Percentage: 6.83%;
Redesignated nonmetropolitan counties: Number: 1;
Redesignated nonmetropolitan counties: Percentage: 0.15%.
Percentage of state nonmetropolitan area median household income: 70%
or more;
Nonmetropolitan counties (no redesignated areas): Number: 442;
Nonmetropolitan counties (no redesignated areas): Percentage: 91.51%;
Redesignated nonmetropolitan counties: Number: 678;
Redesignated nonmetropolitan counties: Percentage: 99.85%.
Percentage of state nonmetropolitan area median housing value: Less
than 50%;
Nonmetropolitan counties (no redesignated areas): Number: 36;
Nonmetropolitan counties (no redesignated areas): Percentage: 7.45%;
Redesignated nonmetropolitan counties: Number: 19;
Redesignated nonmetropolitan counties: Percentage: 2.80%.
Percentage of state nonmetropolitan area median housing value: 50.0 -
59.9%;
Nonmetropolitan counties (no redesignated areas): Number: 38;
Nonmetropolitan counties (no redesignated areas): Percentage: 7.87%;
Redesignated nonmetropolitan counties: Number: 24;
Redesignated nonmetropolitan counties: Percentage: 3.53%.
Percentage of state nonmetropolitan area median housing value: 60.0 -
69.9%;
Nonmetropolitan counties (no redesignated areas): Number: 84;
Nonmetropolitan counties (no redesignated areas): Percentage: 17.39%;
Redesignated nonmetropolitan counties: Number: 66;
Redesignated nonmetropolitan counties: Percentage: 9.72%.
Percentage of state nonmetropolitan area median housing value: 70.0 -
79.9%;
Nonmetropolitan counties (no redesignated areas): Number: 103;
Nonmetropolitan counties (no redesignated areas): Percentage: 21.33%;
Redesignated nonmetropolitan counties: Number: 108;
Redesignated nonmetropolitan counties: Percentage: 15.91%.
Percentage of state nonmetropolitan area median housing value: 80% or
more;
Nonmetropolitan counties (no redesignated areas): Number: 222;
Nonmetropolitan counties (no redesignated areas): Percentage: 45.96%;
Redesignated nonmetropolitan counties: Number: 462;
Redesignated nonmetropolitan counties: Percentage: 68.04%.
Total:
Nonmetropolitan counties (no redesignated areas): Number: 483;
Redesignated nonmetropolitan counties: Number: 679.
Source: GAO analysis of 2000 decennial census data.
Note: This table only provides descriptive statistics for those
qualified nonmetropolitan counties that are located within the 50
states and District of Columbia and that were considered to be
nonmetropolitan as of 2006.
[End of figure]
Overall, difficult development areas appear to be less economically
distressed than metropolitan census tracts and nonmetropolitan counties
(see fig. 7). For example, 6 of 28 difficult development areas (about
21 percent) had poverty rates of 20 percent or more. In contrast, about
93 percent of metropolitan census tracts (excluding redesignated areas)
and about 46 percent of nonmetropolitan counties (excluding
redesignated areas) met this criterion. See appendix III for additional
details on the economic characteristics of Indian Country areas and
additional analyses illustrating the economic diversity among qualified
HUBZone areas.[Footnote 18]
Figure 7: Indicators Associated with Economic Distress in HUBZone
Difficult Development Areas:
[See PDF for image]
This figure is a horizontal bar graph depicting the following data:
Poverty rate: 40% or more;
Difficult development areas: Number: 1;
Difficult development areas: Percentage: 3.57%.
Poverty rate: 30.0 - 39.9%;
Difficult development areas: Number: 0;
Difficult development areas: Percentage: 0.
Poverty rate: 20.0 - 29.9%;
Difficult development areas: Number: 5;
Difficult development areas: Percentage: 17.86%.
Poverty rate: 10.0 - 19.9%;
Difficult development areas: Number: 13;
Difficult development areas: Percentage: 46.43%.
Poverty rate: Less than 10%;
Difficult development areas: Number: 9;
Difficult development areas: Percentage: 32.14%.
Unemployment rate: 20% or more;
Difficult development areas: Number: 2;
Difficult development areas: Percentage: 7.14%.
Unemployment rate: 15.0 - 19.9%;
Difficult development areas: Number: 5;
Difficult development areas: Percentage: 17.86%.
Unemployment rate: 10.0 - 14.9%;
Difficult development areas: Number: 11;
Difficult development areas: Percentage: 39.29%.
Unemployment rate: 5.0 - 9.9%;
Difficult development areas: Number: 8;
Difficult development areas: Percentage: 28.57%.
Unemployment rate: Less than 5%;
Difficult development areas: Number: 2;
Difficult development areas: Percentage: 7.14%.
Percentage of metropolitan area median household income: Less than 40%;
Difficult development areas: Number: 1;
Difficult development areas: Percentage: 3.57%.
Percentage of metropolitan area median household income: 40.0 - 49.9%;
Difficult development areas: Number: 0;
Difficult development areas: Percentage: 0.
Percentage of metropolitan area median household income: 50.0 - 59.9%;
Difficult development areas: Number: 0;
Difficult development areas: Percentage: 0.
Percentage of metropolitan area median household income: 60.0 - 69.9%;
Difficult development areas: Number: 2;
Difficult development areas: Percentage: 7.14%.
Percentage of metropolitan area median household income: 70% or more;
Difficult development areas: Number: 25;
Difficult development areas: Percentage: 89.29%.
Percentage of metropolitan area median housing value: Less than 50%;
Difficult development areas: Number: 3;
Difficult development areas: Percentage: 10.71%.
Percentage of metropolitan area median housing value: 50.0 - 59.9%;
Difficult development areas: Number: 2;
Difficult development areas: Percentage: 7.14%.
Percentage of metropolitan area median housing value: 60.0 - 69.9%;
Difficult development areas: Number: 3;
Difficult development areas: Percentage: 10.71%.
Percentage of metropolitan area median housing value: 70.0 - 79.9%;
Difficult development areas: Number: 5;
Difficult development areas: Percentage: 17.86%.
Percentage of metropolitan area median housing value: 80% or more;
Difficult development areas: Number: 15;
Difficult development areas: Percentage: 53.57%.
Total:
Difficult development areas: Number: 28.
Source: GAO analysis of 2000 decennial census data.
Note: This table only provides descriptive statistics for those
qualified difficult development areas that are located in
nonmetropolitan areas within Alaska and Hawaii.
[End of figure]
In expanding the types of HUBZone areas, the definition of economic
distress has been broadened to include measures that were not in place
in the initial statute. For example, one new type of HUBZone area--
difficult development areas--consists of areas with high construction,
land, and utility costs relative to area income, and such areas could
include neighborhoods not normally considered economically distressed.
As a result, the expanded HUBZone criteria now allow for HUBZone areas
that are less economically distressed than the areas that were
initially designated. Such an expansion could diffuse the benefits to
be derived from steering businesses to economically distressed areas.
SBA Has Limited Controls to Ensure That Only Eligible Firms Participate
in the HUBZone Program:
The policies and procedures upon which SBA relies to certify and
monitor firms provide limited assurance that only eligible firms
participate in the HUBZone program. Internal control standards for
federal agencies state that agencies should document and verify
information that they collect on their programs. However, SBA obtains
supporting documentation from firms in limited instances and rarely
conducts site visits to verify the information that firms provide in
their initial application and during periodic recertifications--a
process through which SBA can monitor firms' continued eligibility. In
addition, SBA does not follow its own policy of recertifying all firms
every 3 years--which can lengthen the time a firm goes unmonitored and
its eligibility is unreviewed--and has a backlog of more than 4,600
firms to recertify. Furthermore, SBA largely has not met its informal
goal of 60 days for removing firms deemed ineligible from its list of
certified firms. We found that of the more than 3,600 firms that were
proposed for decertification in fiscal years 2006 and 2007, more than
1,400 were not processed within 60 days. As a result, there is an
increased risk that ineligible firms may participate in the program and
have opportunities to receive federal contracts based on HUBZone
certification.
SBA Largely Relies on Self-Reported Data for HUBZone Certifications and
Recertifications, Increasing the Risk That Ineligible Firms Can
Participate:
To certify and recertify HUBZone firms, SBA relies on data that firms
enter in its online application system; however, the agency largely
does not verify the self-reported information.
SBA's Certification and Recertification Processes Are Similar:
The certification and recertification processes are similar. Firms
apply for HUBZone certification using an online application system,
which employs automated logic steps to screen out ineligible firms
based on the information entered on the application. For example, firms
enter information such as their total number of employees and number of
employees that reside in a HUBZone. Based on this information, the
system then calculates whether the number of employees residing in a
HUBZone equals 35 percent or more of total employees, the required
level for HUBZone eligibility.
HUBZone program staff review the applications to determine if more
information is required. While SBA's policy states that supporting
documentation normally is not required, it notes that agency staff may
request and consider such documentation, as necessary. No specific
guidance or criteria are provided to program staff for this purpose;
rather, the policy allows staff to determine what circumstances warrant
a request for supporting documentation. In determining whether
additional information is required, HUBZone program officials stated
that they generally consult sources such as firms' or state
governments' Web sites that contain information on firms incorporated
in the state.[Footnote 19] In addition, HUBZone program officials
stated that they can check information such as a firm's address using
the Central Contractor Registration (CCR) database.[Footnote 20]
According to HUBZone program officials, they are in the process of
obtaining Dun and Bradstreet's company information (such as principal
address, number of employees, and revenue) to cross-check some
application data.[Footnote 21] While these data sources are used as a
cross-check, the data they contain are also self-reported.
The number of applications submitted by firms grew by more than 40
percent from fiscal year 2000 to fiscal year 2007, and the application
approval rate varied. For example, as shown in table 1, 1,527
applications were submitted in fiscal year 2000, and SBA approved 1,510
applications (about 99 percent). In fiscal year 2007, 2,204
applications were submitted, and SBA approved 1,721 (about 78 percent).
Of the 2,204 applications submitted in fiscal year 2007, 383 (about 17
percent) were withdrawn. Either the firms themselves or SBA staff can
withdraw an application if it is believed the firm will not meet
program requirements. HUBZone program staff noted that they withdraw
applications for firms that could, if they made some minor
modifications, be eligible. Otherwise, firms would have to wait 1 year
before they could reapply. The remaining 100 applications (about 5
percent) submitted in fiscal year 2007 were declined because the firms
did not meet the HUBZone eligibility requirements. See appendix IV for
details on the characteristics of current HUBZone firms.
Table 1: Number and Status of Applications for HUBZone Program, Fiscal
Years 2000-2007:
Applications submitted;
2000: 1,527;
2001: 3,027;
2002: 3,560;
2003: 3,047;
2004: 3,294;
2005: 3,023;
2006: 3,156;
2007: 2,204.
Applications approved;
2000: 1,510;
2001: 2,570;
2002: 2,662;
2003: 2,160;
2004: 2,195;
2005: 2,167;
2006: 2,386;
2007: 1,721.
Percentage of applications approved;
2000: 98.9;
2001: 84.9;
2002: 74.8;
2003: 70.9;
2004: 66.6;
2005: 71.7;
2006: 75.6;
2007: 78.1.
Applications withdrawn;
2000: 0;
2001: 418;
2002: 653;
2003: 576;
2004: 864;
2005: 663;
2006: 704;
2007: 383.
Percentage of applications withdrawn;
2000: 0;
2001: 13.8;
2002: 18.3;
2003: 18.9;
2004: 26.2;
2005: 21.9;
2006: 22.3;
2007: 17.4.
Applications declined;
2000: 17;
2001: 39;
2002: 245;
2003: 311;
2004: 235;
2005: 193;
2006: 66;
2007: 100.
Percentage of applications declined;
2000: 1.1;
2001: 1.3;
2002: 6.9;
2003: 10.2;
2004: 7.1;
2005: 6.4;
2006: 2.1;
2007: 4.5.
Source: GAO analysis of data from HUBZone Certification Tracking System
(as of Jan. 22, 2008).
Note: SBA does not track the number of applications started by a firm
but not submitted to SBA for review. The total for applications
submitted in 2007 does not include two applications still in process as
of January 22, 2008.
[End of table]
To ensure the continued eligibility of certified HUBZone firms, SBA
requires firms to resubmit an application. That is, to be recertified,
firms re-enter information in the online application system, and
HUBZone program officials review it. In 2004, SBA changed the
recertification period from an annual recertification to every 3 years.
[Footnote 22] According to HUBZone program officials, they generally
limit their reviews to comparing resubmitted information to the
original application. The officials added that significant changes from
the initial application can trigger a request for additional
information or documentation. If concerns about eligibility are raised
during the recertification process, SBA will propose decertification or
removal from the list of eligible HUBZone firms. Firms that are
proposed for decertification can challenge that proposed outcome
through a due-process mechanism. SBA ultimately decertifies firms that
do not challenge the proposed decertification and those that cannot
provide additional evidence that they continue to meet the eligibility
requirements. For example, as shown in table 2, SBA began 3,278
recertifications in fiscal year 2006 and had completed decertification
of 1,699 firms as of January 22, 2008. Although SBA does not
systematically track the reasons why firms are decertified, HUBZone
program officials noted that many firms do not respond to SBA's request
for updated information. We discuss this issue and others related to
the timeliness of the recertification and decertification processes
later in this report.
Table 2: Number and Status of Recertifications of HUBZone Firms, Fiscal
Years 2005-2007:
Number of firms subject to recertification[A];
Year recertification began: 2005: 1,101;
Year recertification began: 2006: 3,278;
Year recertification began: 2007: 2,419.
Withdrawn by SBA headquarters[B];
Year recertification began: 2005: 5;
Year recertification began: 2006: 18;
Year recertification began: 2007: 8.
Reviews still in process as of January 22, 2008[C];
Year recertification began: 2005: 5;
Year recertification began: 2006: 17;
Year recertification began: 2007: 45.
Firms recertified;
Year recertification began: 2005: 331;
Year recertification began: 2006: 890;
Year recertification began: 2007: 278.
Firms still proposed for decertification as of January 22, 2008[D];
Year recertification began: 2005: 58;
Year recertification began: 2006: 654;
Year recertification began: 2007: 1,794.
Percent still proposed for decertification as of January 22, 2008;
Year recertification began: 2005: 5.3;
Year recertification began: 2006: 20.0;
Year recertification began: 2007: 74.2.
Firms decertified[E];
Year recertification began: 2005: 702;
Year recertification began: 2006: 1,699;
Year recertification began: 2007: 294.
Percentage decertified;
Year recertification began: 2005: 63.8;
Year recertification began: 2006: 51.8;
Year recertification began: 2007: 12.2.
Source: GAO analysis of data from the HUBZone Certification Tracking
System (as of Jan. 22, 2008).
Notes: SBA did not adopt the policy of recertifying firms every 3 years
until 2004; therefore, the first year of reportable results was 2005.
[A] These data are based on the year that SBA began the
recertification.
[B] According to SBA officials, they withdrew (or rescheduled to the
next year) some recertifications because, for example, a HUBZone firm
may not have the technical capabilities to fill out the application
online as required. In these cases, SBA will allow the firm additional
time to obtain the necessary technical capabilities by conducting the
recertification the following year.
[C] These are cases where SBA has yet to make a determination as to
whether a firm should be recertified or proposed for decertification.
[D] Firms that are proposed for decertification can challenge that
proposed outcome through a due-process mechanism.
[E] This category includes firms determined to be ineligible, and thus
decertified by SBA, and firms that requested decertification. Firms
that were determined to be ineligible by SBA were proposed for
decertification before actually being decertified by SBA.
[End of table]
SBA's Certification and Recertification Processes Provide Limited
Assurance That Information Supplied by Firms Is Accurate:
We found that SBA verifies the information it receives from firms in
limited instances. In accord with SBA's policy, HUBZone program staff
request documentation from firms and conduct site visits when they feel
it is warranted. The HUBZone Certification Tracking System does not
readily provide information on the extent to which SBA requests
documentation from firms or conducts site visits; therefore, we
conducted reviews of applications and recertifications. Specifically,
we reviewed the 125 applications and 15 recertifications submitted or
begun in September 2007. For the applications submitted in September
2007, HUBZone program staff:
* requested additional information but not supporting documentation for
10 (8 percent) of the applications;
* requested supporting documentation for 45 (36 percent) of the
applications; and:
* conducted one site visit.
After reviewing supporting documentation for the 45 applications, SBA
ultimately approved 19 (about 42 percent). Of the remaining 26
applications, 21 (about 47 percent of the 45 applications) were
withdrawn by either SBA or the firm, and 5 (about 11 percent of the 45
applications) were denied by SBA. For the 15 firms that SBA began
recertifying in September 2007, HUBZone program staff requested
information and documentation from 2 firms and did not conduct any site
visits.[Footnote 23]
In the instances when SBA approved an application without choosing to
request additional information or documentation (about 50 percent of
our application sample), HUBZone program staff generally recorded in
the HUBZone system that their determination was based on the
information in the application and that SBA was relying on the firm's
certification that all information was true and correct. In requesting
additional information, HUBZone staff asked such questions as the
approximate number of employees and type of work performed at each of
the firm's locations. When requesting supporting documentation, HUBZone
staff requested items such as copies of driver's licenses or voter's
registration cards for the employees that were HUBZone residents and a
rental/lease agreement or deed of trust for the principal office.
Internal control standards for federal agencies and programs require
that agencies collect and maintain documentation and verify information
to support their programs.[Footnote 24] The documentation also should
provide evidence of accurate and appropriate controls for approvals,
authorizations, and verifications. For example, in addition to
automated edits and checks, conducting site visits to physically verify
information provided by firms can help control the accuracy and
completeness of transactions or other events.
According to HUBZone program officials, they did not more routinely
verify the information because they generally relied on their automated
processes and status protest process.[Footnote 25] For instance, they
said they did not request documentation to support each firm's
application because the application system employs automated logic
steps to screen out ineligible firms. For example, as previously noted,
the application system calculates the percentage of a firm's employees
that reside in a HUBZone and screens out firms that do not meet the 35
percent requirement. But the automated application system would not
necessarily screen out applicants that submit false information to
obtain a HUBZone certification. HUBZone program officials also stated
that it is not necessary to conduct site visits of HUBZone firms
because firms self-police the program through the HUBZone status
protest process. However, relatively few protests have occurred in
recent years.[Footnote 26] In addition, officials from SBA's HUBZone
office did not indicate a reliable mechanism HUBZone firms could use to
identify information that could be used in a status protest. For
example, it is unclear how a firm in one state would know enough about
a firm in another state, such as its principal office location or
employment of HUBZone residents, to question its qualified HUBZone
status.
Rather than obtaining supporting documentation during certification and
recertification on a more regular basis, SBA waits until it is
conducting examinations of a small percentage of firms to consistently
request supporting documentation. The 1997 statute that created the
HUBZone program authorized SBA to conduct program examinations of
HUBZone firms. Since fiscal year 2004, SBA's policy has been to conduct
program examinations on 5 percent of firms each year.[Footnote 27] Over
the years, SBA has developed a standard process for conducting these
examinations. SBA uses three selection factors to determine which firms
will be examined each year.[Footnote 28] After firms have been selected
for a program examination, SBA field staff request documentation from
them to support their continued eligibility for the program. For
instance, they request documents such as payroll records to evaluate
compliance with the requirement that 35 percent or more of employees
reside in a HUBZone and documents such as organization charts and lease
agreements to document that the firm's principal office is located in a
HUBZone. After reviewing this documentation, the field staff recommend
to SBA headquarters whether the firm should remain in the program. As
shown in table 3, in fiscal years 2004 through 2006 nearly two-thirds
of firms SBA examined were decertified, and in fiscal year 2007, 430 of
715 firms (about 60 percent) were decertified or proposed for
decertification. The number of firms decertified includes firms that
the agency determined to be ineligible, and were decertified, and firms
that requested to be decertified.
Table 3: Number and Status of SBA Examinations of HUBZone Firms, Fiscal
Years 2004-2007:
Number of firms subject to program examinations[A];
Year program examination began: 2004: 556;
Year program examination began: 2005: 703;
Year program examination began: 2006: 688;
Year program examination began: 2007: 715.
Withdrawn by SBA headquarters[B];
Year program examination began: 2004: 37;
Year program examination began: 2005: 21;
Year program examination began: 2006: 10;
Year program examination began: 2007: 28.
Reviews still in process as of January 22, 2008[C];
Year program examination began: 2004: 0;
Year program examination began: 2005: 0;
Year program examination began: 2006: 5;
Year program examination began: 2007: 25.
Firms that retained certification;
Year program examination began: 2004: 168;
Year program examination began: 2005: 235;
Year program examination began: 2006: 208;
Year program examination began: 2007: 232.
Firms still proposed for decertification as of January 22, 2008[D];
Year program examination began: 2004: 0;
Year program examination began: 2005: 0;
Year program examination began: 2006: 6;
Year program examination began: 2007: 82.
Firms decertified[E];
Year program examination began: 2004: 351;
Year program examination began: 2005: 447;
Year program examination began: 2006: 459;
Year program examination began: 2007: 348.
Percentage decertified;
Year program examination began: 2004: 63.1;
Year program examination began: 2005: 63.6;
Year program examination began: 2006: 66.7;
Year program examination began: 2007: 48.7.
Source: GAO analysis of data from the HUBZone Certification Tracking
System (as of Jan. 22, 2008).
[A] SBA selects a large number of firms to examine each year but
withdraws a number of them before they are assigned to an analyst.
Therefore, the program examinations we included in our analysis are
limited to those that were assigned to an analyst. These data are based
on the year that SBA began the program examination.
[B] According to SBA officials, they withdrew (or rescheduled to the
next year) some program examinations because, for example, a HUBZone
firm may not have the technical capabilities to fill out the required
form. In these cases, SBA will allow the firm additional time to obtain
the necessary technical capabilities by conducting the program
examination the following year.
[C] These are cases where SBA has yet to make a determination as to
whether a firm should be recertified or proposed for decertification.
[D] Firms proposed for decertification can challenge that proposed
outcome through a due-process mechanism.
[E] This category includes firms determined to be ineligible, and thus
decertified by SBA, and firms that requested decertification. Firms
determined to be ineligible by SBA were proposed for decertification
before actually being decertified by SBA.
[End of table]
Because SBA limits its program examinations to 5 percent of firms each
year, firms can be in the program for years without being examined. For
example, we found that 2,637 of the 3,348 firms (approximately 79
percent) that had been in the program for 6 years or more had not been
examined. In addition to performing program examinations on a limited
number of firms, HUBZone program officials rarely conduct site visits
during program examinations to verify a firm's information. When
reviewing the 11 program examinations that began in September 2007, we
found that SBA did not conduct any site visits to verify the
documentation provided.[Footnote 29]
As a result of SBA's limited application of internal controls when
certifying and monitoring HUBZone firms, the agency has limited
assurances that only eligible firms participated in the program. By not
obtaining documentation and conducting site visits on a more routine
basis during the certification process, SBA cannot be sure that only
eligible firms are part of the program. And while SBA's examination
process involves a more extensive review of documentation, it cannot be
relied upon to ensure that only eligible firms participate in the
program because it involves only 5 percent of firms in any given year.
Because SBA Has Not Complied with Its Policy of Recertifying Firms
Every 3 Years, Some Firms Went Unmonitored for Longer Periods, and SBA
Has Not Specified Time Frames for Eliminating the Large Backlog:
As previously noted, since 2004, SBA's policies have required the
agency to recertify all HUBZone firms every 3 years. Recertification
presents another opportunity for SBA to review information from firms
and thus help monitor program activity. However, SBA has failed to
recertify 4,655 of the 11,370 firms (more than 40 percent) that have
been in the program for more than 3 years. Of the 4,655 firms that
should have been recertified, 689 have been in the program for more
than 6 years.
SBA officials stated that the agency lacked sufficient staff to comply
with its recertification policy. According to SBA officials, staffing
levels have been relatively low in recent years. In fiscal year 2002,
the HUBZone program office, which is located in SBA headquarters in
Washington, D.C., had 12 full-time equivalent staff. By fiscal year
2006, the number had dropped to 8 and remained at that level as of
March 2008. Of the 8, 3 conduct recertifications on a part-time basis.
SBA hired a contractor in December 2007 to help conduct
recertifications, using the same process that SBA staff currently use.
[Footnote 30] According to the contract, SBA estimates that the
contractor will conduct 3,000 recertifications in fiscal year 2008; in
subsequent years, SBA has the option to direct the contractor to
conduct, on average, 2,450 recertifications annually for the next 4
years. Although SBA has contracted for these additional resources, the
agency lacks specific time frames for eliminating the backlog. As a
result of the backlog, the periods during which some firms go
unmonitored and are not reviewed for eligibility are longer than SBA
policy allows, increasing the risk that ineligible firms may be
participating in the program.
SBA Lacks a Formal Policy on Time Frames for Decertifying Firms, Which
Provides Ineligible Firms with an Opportunity to Obtain Contracts:
While SBA policies for the HUBZone program include procedures for
certifications, recertifications, and program examinations, they do not
specify a time frame for processing decertifications--which occur
subsequent to recertification reviews or examinations and determine
that firms are no longer eligible to participate in the HUBZone
program. If SBA suspects that a firm no longer meets standards or fails
to respond to notification of a recertification or program examination,
SBA makes a determination and, if found ineligible, removes the firm
from its list of certified HUBZone firms. Although SBA does not have
written guidance for the decertification time frame, the HUBZone
program office negotiated an informal (unwritten) goal of 60 days with
the SBA Inspector General (IG) in 2006.[Footnote 31]
In recent years, SBA ultimately decertified the vast majority of firms
proposed for decertification but, as shown in table 4, has not met its
60-day goal consistently. From fiscal years 2004 through 2007, SBA
failed to resolve proposed decertifications within its goal of 60 days
for more than 3,200 firms. However, SBA's timeliness has improved. For
example, in 2006, SBA did not resolve proposed decertifications in a
timely manner for more than 1,000 firms (about 44 percent). In 2007,
over 400 (or about 33 percent) were not resolved in a timely manner.
SBA staff acknowledged that lags in processing decertifications were
problematic and attributed them to limited staffing. SBA plans to use
its contract staff to address this problem after the backlog of
recertifications is eliminated.
Table 4: Summary of SBA's Efforts to Decertify Firms Ineligible for the
HUBZone Program, Fiscal Years 2004-2007:
Firms proposed for decertification[B];
Year firms proposed for decertification: 2004: 559;
Year firms proposed for decertification: 2005: 1,390;
Year firms proposed for decertification: 2006: 2,428;
Year firms proposed for decertification: 2007[A]: 1,227.
Withdrawn by SBA;
Year firms proposed for decertification: 2004: 24;
Year firms proposed for decertification: 2005: 18;
Year firms proposed for decertification: 2006: 8;
Year firms proposed for decertification: 2007[A]: 14.
Firms actually decertified;
Year firms proposed for decertification: 2004: 314;
Year firms proposed for decertification: 2005: 1,082;
Year firms proposed for decertification: 2006: 2,032;
Year firms proposed for decertification: 2007[A]: 890.
Firms that retained certification;
Year firms proposed for decertification: 2004: 217;
Year firms proposed for decertification: 2005: 288;
Year firms proposed for decertification: 2006: 370;
Year firms proposed for decertification: 2007[A]: 183.
Cases that have not been resolved;
Year firms proposed for decertification: 2004: 4;
Year firms proposed for decertification: 2005: 2;
Year firms proposed for decertification: 2006: 18;
Year firms proposed for decertification: 2007[A]: 140.
Number of firms proposed for decertification but not resolved within 60
days;
Year firms proposed for decertification: 2004: 473;
Year firms proposed for decertification: 2005: 1,306;
Year firms proposed for decertification: 2006: 1,057;
Year firms proposed for decertification: 2007[A]: 408.
Source: GAO analysis of data from HUBZone Certification Tracking System
(as of Jan. 22, 2008).
[A] SBA conducted 3,134 recertifications and program examinations,
which are often precursors to proposals for decertification, in fiscal
year 2007, which was 832 less than the previous year.
[B] Firms proposed for decertification have the ability to challenge
that proposed outcome through a due-process mechanism. These data are
based on the year that SBA proposed the firm for decertification.
[End of table]
In addition, we and the SBA Inspector General found that SBA does not
routinely track the reasons why firms are decertified.[Footnote 32]
According to SBA officials, a planned upgrade to the HUBZone data
system will allow SBA to track this information. While SBA does not
currently track the specific reasons why firms are decertified, our
analysis of HUBZone system data shows that firms were primarily
decertified because firms either did not submit the recertification
form or did not respond to SBA's notification. According to HUBZone
officials, firms may fail to respond because they are no longer in
business or are no longer interested in participating in the program.
But firms also may not be responding because they no longer meet the
eligibility requirements. Tracking the various reasons why firms are
decertified could help SBA take appropriate action against firms that
misrepresent their HUBZone eligibility status.
While we were unable to determine how many firms were awarded HUBZone
contracts after they were proposed for decertification, our analysis
showed that 90 of the firms proposed for decertification in fiscal
years 2004 through 2007 received HUBZone set-aside dollars after being
decertified. However, some of these firms may have been awarded the
contracts before they were decertified. As a consequence of generally
not meeting its 60-day goal, lags in the processing of decertifications
have increased the risk of ineligible firms participating in the
program.
SBA Has Not Implemented Plans to Assess the Effectiveness of the
HUBZone Program, and Most Agencies Have Not Met Contracting Goals:
SBA has taken limited steps to assess the effectiveness of the HUBZone
program. While SBA has a few performance measures in place that provide
some data on program outputs, such as the number of certifications and
examinations, the measures do not directly link to the program's
mission. SBA has plans for assessing the program's effectiveness but
has not devoted resources to implement such plans. Although Congress's
goal is for agencies to award 3 percent of their annual contracting
dollars to qualifying firms located in HUBZones, most federal agencies
did not meet the goal for fiscal year 2006--the total for federal
agencies reached approximately 2 percent. Factors such as conflicting
guidance on how to consider the various small business programs when
awarding contracts and a lack of HUBZone firms with the necessary
expertise may have affected the ability of federal agencies to meet
their HUBZone goals.
SBA Has Limited Performance Measures and Has Not Implemented Plans to
Evaluate the Effectiveness of the Program:
While SBA has some measures in place to assess the performance of the
HUBZone program, the agency has not implemented its plans to conduct an
evaluation of the program's benefits. According to the Government
Performance and Results Act (GPRA) of 1993, federal agencies are
required to identify results-oriented goals and measure performance
toward the achievement of their goals. We have previously reported on
the attributes of effective performance measures.[Footnote 33] We noted
that for performance measures to be useful in assessing program
performance, they should be linked or aligned with program goals and
cover the activities that an organization is expected to perform to
support the intent of the program.
We reviewed SBA's performance measures for the HUBZone program and
found that although the measures related to the core activity of the
program (providing federal contracting assistance), they were not
directly linked to the program's mission of stimulating economic
development and creating jobs in economically distressed communities.
According to SBA's fiscal year 2007 Annual Performance Report, the
three performance measures were:
* number of small businesses assisted (which SBA defines as the number
of applications approved and the number of recertifications processed),
* annual value of federal contracts awarded to HUBZone firms, and:
* number of program examinations completed.[Footnote 34]
The three measures provide some data on program activity, such as the
number of certifications and program examinations and contract dollars
awarded to HUBZone firms.[Footnote 35] However, they do not directly
measure the program's effect on firms (such as growth in employment or
changes in capital investment) or directly measure the program's effect
on the communities in which the firms are located (for instance,
changes in median household income or poverty levels).
While SBA's performance measures for the HUBZone program do not link
directly to the program's mission, the agency has made attempts to
assess the effect of the program on firms. In fiscal years 2005 and
2006, SBA conducted surveys of HUBZone firms. According to SBA data on
the surveys, HUBZone firms responding to the 2005 survey reported they
had hired a total of 11,461 employees as a result of their HUBZone
certification, and HUBZone firms responding to the 2006 survey reported
they had hired a total of 12,826 employees (see table 5). Based on the
firms that responded to the 2005 survey, the total capital investment
increase in HUBZone firms as a result of firm certification was
approximately $523.8 million as of August 31, 2005. As of September 12,
2006, the total capital investment increase based on firms responding
to the 2006 survey was approximately $372.6 million. SBA did not
conduct this survey in fiscal year 2007, but officials stated that they
planned to conduct a similar survey during fiscal year 2008.
Table 5: Results of SBA Surveys of HUBZone Firms, Fiscal Years 2005-
2006:
Fiscal year: 2005[B];
HUBZone firms at beginning of fiscal year[A]: 10,682;
Total number of HUBZone firms responding to survey: 3,500;
Reported number of employees hired as a result of firms' HUBZone
certification: 11,461;
Reported number of employees residing in a HUBZone hired as a result of
firms' HUBZone certification: 7,063;
Reported increase in capital investment as a result of firms' HUBZone
certification (in millions): $523.8.
Fiscal year: 2006[C];
HUBZone firms at beginning of fiscal year[A]: 12,776;
Total number of HUBZone firms responding to survey: 3,460;
Reported number of employees hired as a result of firms' HUBZone
certification: 12,826;
Reported number of employees residing in a HUBZone hired as a result of
firms' HUBZone certification: 9,489;
Reported increase in capital investment as a result of firms' HUBZone
certification (in millions): $372.6.
Source: SBA.
[A] The number of HUBZone firms at the beginning of the fiscal year
serves as a proxy measure of total surveys sent to firms because SBA
could not provide data on the total number of surveys sent to firms.
[B] Aggregated survey data as of August 31, 2005.
[C] Aggregated survey data as of September 12, 2006.
[End of table]
However, the survey results have several limitations. For instance, the
2005 and 2006 surveys appear to have had an approximate response rate
of 33 percent and 27 percent, respectively, which may increase the risk
that survey results are not representative of all HUBZone firms. It
also is unclear whether the survey results were reliable because SBA
did not provide detailed guidance on how to define terms such as
capital investment, which may have led to inconsistent responses.
Finally, while the surveys measured increased employment and capital
investment by firms--which provided limited assessment of, and could be
linked to, the program's effect on individual firms--they did not
provide data that showed the effect of the program on the communities
in which they were located. Since the purpose of the HUBZone program is
to stimulate economic development in economically distressed
communities, useful performance measures should be linked to this
purpose.
Similarly, the Office of Management and Budget (OMB) noted in its 2005
Program Assessment Rating Tool (PART) that SBA needed to develop
baseline measures for some of its HUBZone performance measures and
encouraged SBA to focus on more outcome-oriented measures that more
effectively evaluate the results of the program.[Footnote 36] Although
OMB gave the HUBZone program an assessment rating of "moderately
effective," it stated that SBA had limited data on, and had conducted
limited assessments of, the program's effect. The assessment also
emphasized the importance of systematic evaluation of the program as a
basis for programmatic improvement.
The PART assessment also documented plans that SBA had to conduct an
analysis of the economic impact of the HUBZone program on a community-
by-community basis using data from the 2000 and 2010 decennial census.
SBA stated its intent to assess the program's effect in individual
communities by comparing changes in socioeconomic data over time.
Variables that the program office planned to consider included median
household income, average educational levels, and residential/
commercial real estate values. Additionally, in a mandated 2002 report
to Congress, SBA identified potential measures to more effectively
assess the HUBZone program.[Footnote 37] These measures included
assessing full-time jobs created in HUBZone areas and the larger areas
of which they were a part, the amount of investment-related
expenditures in HUBZone areas and the larger areas of which they were a
part, and changes in construction permits and home loans in HUBZone
areas. While SBA has recognized the need to assess the results of the
HUBZone program, SBA officials indicated that the agency has not
devoted resources to implement either of these strategies for assessing
the results of the program.[Footnote 38] Yet by not evaluating the
HUBZone program's benefits, SBA lacks key information that could help
it better manage the program and inform Congress of its results.
We also conducted site visits to four HUBZone areas (Lawton, Oklahoma;
Lowndes County, Georgia; and Long Beach and Los Angeles, California) to
better understand to what extent stakeholders perceived that the
HUBZone program generated benefits. For all four HUBZone areas, the
perceived benefits of the program varied, with some firms indicating
they have been able to win contracts and expand their firms and others
indicating they had not realized any benefits from the program.
Officials representing economic development entities varied in their
knowledge of the program, with some stating they lacked information on
the program's effect that could help them inform small businesses of
its potential benefits. (See appendix V for more information on our
site visits.)
Most Federal Agencies Did Not Meet Their Contracting Goals for the
HUBZone Program:
Although contracting dollars awarded to HUBZone firms have increased
since fiscal year 2003--when the statutory goal of awarding 3 percent
of federally funded contract dollars to HUBZone firms went into effect-
-federal agencies collectively still have not met that goal.[Footnote
39] According to data from SBA's goaling reports, for fiscal years 2003
through 2006, the percentage of prime contracting dollars awarded to
HUBZone firms increased but was still about one-third short of the
statutory goal for fiscal year 2006 (see table 6).
Table 6: HUBZone Percentage of Total Prime Contracting Dollars Eligible
for Small Business Awards, Fiscal Years 2003-2006:
Fiscal year: 2003;
Total prime contracting dollars (in billions): $277.5;
Prime contracting dollars awarded to HUBZone firms (in billions): $3.4;
Governmentwide goal for percentage of small-business-eligible prime
contracting dollars awarded to HUBZone firms: 3;
Percentage of total small-business-eligible prime contracting dollars
awarded to HUBZone firms: 1.23.
Fiscal year: 2004;
Total prime contracting dollars (in billions): $299.9; P
rime contracting dollars awarded to HUBZone firms (in billions): $4.8;
Governmentwide goal for percentage of small-business-eligible prime
contracting dollars awarded to HUBZone firms: 3;
Percentage of total small-business-eligible prime contracting dollars
awarded to HUBZone firms: 1.60.
Fiscal year: 2005;
Total prime contracting dollars (in billions): $320.3;
Prime contracting dollars awarded to HUBZone firms (in billions): $6.2;
Governmentwide goal for percentage of small-business-eligible prime
contracting dollars awarded to HUBZone firms: 3;
Percentage of total small-business-eligible prime contracting dollars
awarded to HUBZone firms: 1.93.
Fiscal year: 2006;
Total prime contracting dollars (in billions): $340.2;
Prime contracting dollars awarded to HUBZone firms (in billions): $7.2;
Governmentwide goal for percentage of small-business-eligible prime
contracting dollars awarded to HUBZone firms: 3;
Percentage of total small-business-eligible prime contracting dollars
awarded to HUBZone firms: 2.11.
Sources: Report on Annual Procurement Preference Goaling Achievements
(FY 2003) and Small Business Goaling Reports (FY 2004-2006).
Note: Fiscal year 2006 is the most recent year for which SBA has
published a small business goaling report.
[End of table]
In fiscal year 2006, 8 of 24 federal agencies met their HUBZone goals.
[Footnote 40] Of the 8 agencies, 4 had goals higher than the 3 percent
requirement and were able to meet the higher goals. Of the 16 agencies
not meeting their HUBZone goal, 10 awarded less than 2 percent of their
small-business-eligible contracting dollars to HUBZone firms. According
to SBA's most recent guidance on the goaling process, agencies are
required to submit a report explaining why goals were not met, along
with a plan for corrective action.[Footnote 41]
Federal agencies may not have met their HUBZone goals for various
reasons, which include uncertainty about how to properly apply federal
contracting preferences. For instance, federal contracting officials
reported facing conflicting guidance about the order in which the
various small business programs--the HUBZone program, the 8(a) program,
and the service-disabled veteran-owned small business program--should
be considered when awarding contracts. The 2007 Report of the
Acquisition Advisory Panel concluded that contracting officers need
definitive guidance on the priority for applying the various small
business contracting preferences to specific acquisitions.[Footnote 42]
The report stated that each program has its own statutory and
regulatory requirements. It also noted that both SBA and the Federal
Acquisition Regulatory Council (FAR Council) have attempted to
interpret these provisions but that their respective regulations
conflict with each other.[Footnote 43] According to the report, in
general, SBA's regulations provide for parity among most of the
programs and give discretion to the contracting officer by stating that
the contracting officer should consider setting aside the requirement
for 8(a), HUBZone, or service-disabled veteran-owned firms'
participation before considering setting aside the requirement as a
small business set-aside. However, according to the report, the FAR
currently conflicts with SBA's regulations by providing that, before
deciding to set aside an acquisition for small businesses, HUBZone
firms, or service-disabled veteran-owned small firms, the contracting
officer should review the acquisition for offering under the 8(a)
program.
Officials at three of the four agencies we interviewed (Commerce, DHS,
and SSA) regarding the awarding of contracts to small businesses stated
that contracting officers occasionally faced uncertainty when applying
the guidelines on awarding contracts under these programs. In March
2008, a proposal to amend the FAR was published with the purpose of
ensuring that the FAR clearly reflects SBA's interpretation of the
Small Business Act and SBA's interpretation of its regulations about
the order of precedence that applies when deciding whether to satisfy a
requirement through award under these various types of small business
programs.[Footnote 44] Among other things, the proposed rule is
intended to make clear that there is no order of precedence among the
8(a), HUBZone, or service-disabled veteran-owned small business
programs. The proposed rule stated that SBA believes that, among other
factors, progress in fulfilling the various small business goals should
be considered in making a decision as to which program is to be used
for an acquisition.
Federal contracting officials from the four agencies also explained
that it was sometimes difficult to identify HUBZone firms with the
required expertise to fulfill contracts. For example, DHS acquisition
officials stated that market research that their contracting officers
conducted sometimes indicated there were no qualified HUBZone firms in
industries in which DHS awarded contracts. Specifically, a contracting
officer in the U.S. Coast Guard's Maintenance and Logistics Command
explained that for contracts requiring specialized types of ship-repair
work, the Coast Guard sometimes could not find sufficient numbers of
HUBZone firms with the capacity and expertise to perform the work in
the time frame required. SSA officials also stated that the agency
awards most of its contracts to firms in the information technology
industry and that contracting officers at times have had difficulty
finding qualified HUBZone firms operating in this industry due to the
amount of infrastructure and technical expertise required. Officials
representing the Defense Threat Reduction Agency (an agency within DOD)
also stated they often have difficulty finding qualified HUBZone firms
that can fulfill their specialized technology needs. Lastly, Commerce
officials explained that a review of the top 25 North American Industry
Classification System (NAICS) codes under which the agency awarded
contracts in fiscal year 2007 showed that fewer than 100 HUBZone firms
operated in 13 of these 25 industries, including 5 industries that had
fewer than 5 firms operating.[Footnote 45] They noted that these small
numbers increased the difficulty of locating qualified HUBZone firms
capable of meeting Commerce's requirements. We did not validate the
statements made by these federal contracting officials related to the
difficulty they face in awarding contracts to HUBZone firms.
Finally, according to contracting officers we interviewed, the
availability of sole-source contracting under SBA's 8(a) program could
make the 8(a) program more appealing than the HUBZone program. Through
sole-source contracting, contracting officers have more flexibility in
awarding contracts directly to an 8(a) firm without competition.
According to U.S. Coast Guard contracting officers we interviewed, this
can save 1 to 2 months when trying to award a contract. Sole-source
contracts are available to HUBZone program participants but only when
the contracting officer does not have a reasonable expectation that two
or more qualified HUBZone firms will submit offers. Contracting
officers we interviewed regarding HUBZone sole-source contracts stated
that this is rarely the case. In fiscal year 2006, $5.8 billion (about
44 percent) of all dollars obligated to small business 8(a) firms were
awarded through 8(a) sole-source contracts. In contrast, about 1
percent of the contracts awarded to HUBZone firms were HUBZone sole-
source contracts.
Identifying Contract Dollars Awarded Based on a Particular Designation
Is Difficult Because Dollars Can Be Counted under Multiple
Socioeconomic Subcategories:
Because agencies can count contracting dollars awarded to small
businesses under more than one socioeconomic subcategory, it can be
difficult to identify how many contract dollars firms received based on
a particular designation. Small businesses can qualify for contracts
under multiple socioeconomic programs. For example, if a HUBZone
certified firm was owned by a service-disabled veteran, it could
qualify for contracts set aside for HUBZone firms, as well as for
contracts set aside for service-disabled veteran-owned businesses. The
contracting dollars awarded to this firm would count toward both of
these programs' contracting goals.
We reviewed FPDS-NG data on contracts awarded to HUBZone firms in
fiscal year 2006. We found that approximately 45 percent of contracts
awarded to HUBZone firms were not set aside for any particular
socioeconomic program (see fig. 8). The next largest percentage, about
23 percent, were 8(a) sole-source contracts awarded to HUBZone firms
that also participated in SBA's 8(a) business development program.
These firms did not have any competitors for the contracts awarded.
HUBZone set-aside contracts, or contracts for which only HUBZone firms
can compete, accounted for about 11 percent of the dollars awarded to
HUBZone firms.
Figure 8: Dollars Obligated to HUBZone Firms, by Types of Set-aside
Contracts, Fiscal Year 2006:
[See PDF for image]
This figure is a pie-chart depicting the following data:
Dollars Obligated to HUBZone Firms, by Types of Set-aside Contracts,
Fiscal Year 2006:
No set-aside used: 45.3%;
8(a) sole source: 22.9%;
HUBZone set-aside: 10.6%;
Small business set-aside: 9.4%;
8(a) competed: 8.4%;
Other: 3.5%.
Source: GAO analysis of FPDS-NG data.
Note: Percentages do not add to 100 percent due to rounding. The
"other" category includes various types of contracts, such as HUBZone
sole-source contracts (contracts awarded to HUBZone firms when a
contracting officer does not have a reasonable expectation that two or
more qualified HUBZone firms will submit an offer). 8(a) competed
contracts are those for which only 8(a) firms can bid. Small business
set-aside contracts are those exclusively set aside for small
businesses. HUBZone set-aside contracts are those set aside solely for
firms with a HUBZone certification. 8(a) sole-source contracts are
individual contracts awarded directly to 8(a) firms without any other
firms competing for those contracts. No set-aside used refers to
contracts awarded without a set aside for any particular program.
[End of figure]
This ability to count contracts toward multiple socioeconomic goals
makes it difficult to determine how HUBZone certification may have
played a role in winning a contract, especially when considering the
limited amount of contract dollars awarded to HUBZone firms relative to
the HUBZone goal. It can also make it more difficult to isolate the
effect of HUBZone program status on economic conditions in a community.
Conclusions:
The map contained on the HUBZone Web site is the primary means of
disseminating HUBZone information. The map offers small businesses an
easy and readily accessible way of determining whether they can apply
for HUBZone certification. However, those positive attributes have been
undermined because the map reflects inaccurate and out-of-date
information. In particular, as of May 2008, SBA's HUBZone map included
50 ineligible areas and excluded 27 eligible areas. As a result,
ineligible small businesses have been able to participate in the
program, while eligible businesses have not been able to participate.
By working with its contractors to eliminate inaccuracies and more
frequently updating the map, SBA will help ensure that only eligible
firms have opportunities to participate in the program.
Although SBA relies on federal law to identify HUBZone areas, statutory
changes over time have resulted in more areas being eligible for the
program. Specifically, revisions to the statutory definition of HUBZone
areas since 1999 have nearly doubled the number of areas and created
areas that can be characterized as less economically distressed than
areas designated under the original statutory criteria. While
establishing new HUBZone areas could provide economic benefits to these
new areas, as the program becomes less targeted and contracting dollars
more dispersed, the program could have less of an effect on individual
HUBZone areas. Such an expansion could diffuse the benefits that could
be derived by steering businesses to economically distressed areas.
Given the potential for erosion of the intended economic benefits of
the program, further assessment of the criteria used to determine
eligible HUBZone areas, in relation to overall program outcomes, may be
warranted.
The mechanisms that SBA uses to certify and monitor firms provide
limited assurance that only eligible firms participate in the program.
SBA does not currently have guidance on precisely when HUBZone program
staff should request documentation from firms to support the
information reported on their application, and it verifies information
reported by firms at application or during recertification in limited
instances. Also, SBA does not follow its policy of recertifying all
firms every 3 years. Further, SBA lacks a formal policy on how quickly
it needs to make a final determination on decertifying firms that may
no longer be eligible for the program. From fiscal years 2004 through
2007, SBA failed to resolve proposed decertifications within its
informal goal of 60 days for more than 3,200 firms. More routinely
obtaining supporting documentation upon application and conducting more
frequent site visits would represent a more efficient and consistent
use of SBA's limited resources. It could help ensure that firms
applying for application are truly eligible, thereby reducing the need
to spend a substantial amount of resources during any decertification
process. In addition, an SBA effort to consistently follow its current
policy of recertifying firms every 3 years, and to formalize and adhere
to a specific time frame for decertifying firms, would help prevent
ineligible firms from obtaining HUBZone contracts.
By not evaluating the HUBZone program's benefits, SBA lacks key
information that could help it better manage the program and inform
Congress of its results. SBA has some measures to assess program
performance, but they are not linked to the program's mission and thus
do not measure the program's effect on the communities in which HUBZone
firms are located. While SBA identified several strategies for
assessing the program's effect and conducted limited surveys, it has
not devoted resources to conduct a comprehensive program evaluation of
the program's effect on communities. We recognize the challenges
associated with evaluating the economic effect of the program, such as
isolating the role that HUBZone certification plays in obtaining
federal contracts and generating benefits for communities. Because
contract dollars awarded to firms in one small business program also
could represent part of the dollars awarded in other programs, contract
dollars awarded to HUBZone firms at best represent a broad indicator of
program influence on a community's economic activity. In addition, the
varying levels of economic distress among HUBZone areas can further
complicate such an evaluation. Despite these challenges, completing an
evaluation would offer several benefits to the agency and the HUBZone
program, including determining how well it is working across various
communities, especially those that suffer most from economic distress.
Such an evaluation is particularly critical in light of the expansion
in the number of HUBZone areas, the potential for erosion of the
intended economic benefits of the program from such expansion, and the
wide variation in the economic characteristics of these areas.
Recommendations for Executive Action:
To improve SBA's administration and oversight of the HUBZone program,
we recommend that the Administrator of SBA take the following actions:
* Take immediate steps to correct and update the map that is used to
identify HUBZone areas and implement procedures to ensure that the map
is updated with the most recently available data on a more frequent
basis.
* Develop and implement guidance to more routinely and consistently
obtain supporting documentation upon application and conduct more
frequent site visits, as appropriate, to ensure that firms applying for
certification are eligible.
* Establish a specific time frame for eliminating the backlog of
recertifications and ensure that this goal is met, using either SBA or
contract staff, and take the necessary steps to ensure that
recertifications are completed in a more timely fashion in the future.
* Formalize and adhere to a specific time frame for processing firms
proposed for decertification in the future.
* Further develop measures and implement plans to assess the
effectiveness of the HUBZone program that take into account factors
such as (1) the economic characteristics of the HUBZone area and (2)
contracts being counted under multiple socioeconomic subcategories.
Agency Comments and Our Evaluation:
We requested SBA's comments on a draft of this report, and the
Associate Administrator for Government Contracting, and Business
Development provided written comments that are presented in appendix
II. SBA agreed with our recommendations and outlined steps that it
plans to take to address each recommendation.
First, SBA stated that it recognizes the valid concerns we raised
concerning the HUBZone map and noted that efforts are under way to
improve the data and procedures used to produce this important tool.
Specifically, SBA plans to issue a new contract to administer the
HUBZone map and anticipates that the maps will be updated and available
no later than August 29, 2008. Further, SBA stated that, during the
process of issuing the new contract, the HUBZone program would issue
new internal procedures to ensure that the map is continually updated.
Second, SBA stated that it appreciates our concern about the need to
obtain supporting documents in a more consistent manner. In line with
its efforts to formalize HUBZone processes, the agency noted that it
was formulating procedures that would provide sharper guidance as to
when supporting documentation and site visits would be required.
Specifically, SBA plans to identify potential areas of concern during
certification that would mandate additional documentation and site
visits.
Third, SBA noted that the HUBZone program had obtained additional staff
to work through the backlog of pending recertifications and stated that
this effort would be completed by September 30, 2008. Further, to
ensure that recertifications will be handled in a more timely manner,
SBA stated that the HUBZone program has made dedicated staffing changes
and will issue explicit changes to procedures.
Fourth, SBA stated that it is aware of the need to improve the
effectiveness and consistency of the decertification process. SBA noted
that it would issue new procedures to clarify and formalize the
decertification process and its timelines. Among other things, SBA
stated that the new decertification procedure would establish a 60-day
deadline to complete any proposed decertification.
Finally, SBA acknowledged that using HUBZone performance measures in a
more systematized way to evaluate the program's effectiveness would be
beneficial and would provide important new information to improve and
focus the HUBZone program. Therefore, SBA stated that it would develop
an assessment tool to measure the economic benefits that accrue to
areas in the HUBZone program and that the HUBZone program would then
issue periodic reports accompanied by the underlying data.
We also provided copies of the draft report to Commerce, DOD, DHS, and
SSA. All four agencies responded that they had no comments.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to the Ranking
Member, House Committee on Small Business, other interested
congressional committees, and the Administrator of the Small Business
Administration. We will also make copies available to others upon
request. In addition, the report will be available at no charge on the
GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix VI.
Sincerely yours,
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
To review the Small Business Administration's (SBA) administration and
oversight of the HUBZone program, we examined (1) the criteria and
process that SBA uses to identify and map HUBZone areas and the
economic characteristics of such areas; (2) the mechanisms that SBA
uses to ensure that only eligible small businesses participate in the
HUBZone program; and (3) the actions SBA has taken to assess the
results of the program and the extent to which federal agencies have
met their HUBZone contracting goals.
To identify the criteria that SBA uses to identify HUBZone areas, we
reviewed applicable statutes, regulations, and agency documents.
Because the HUBZone program also uses statutory definitions from the
Department of Housing and Urban Development's (HUD) low-income-housing
tax credit program, we reviewed the statutes and regulations underlying
the definitions of a qualified census tract and difficult development
area. To determine the process that SBA uses to identify HUBZone areas,
we interviewed SBA officials and the contractor that developed and
maintains the HUBZone map on SBA's Web site. We also reviewed the
policies and procedures the contractor follows when mapping HUBZone
areas. Using historical data provided by SBA's mapping contractor, we
determined how the number of HUBZone areas has changed over time.
[Footnote 46] We also used these historical data to determine if SBA
had complied with its policy of asking the contractor to update the map
every time the HUBZone area definition changed or new data used to
designate HUBZone areas (for example, HUD's lists of difficult
development areas and unemployment data from the Bureau of Labor
Statistics or BLS) became available. To assess the accuracy of the
current HUBZone map, we compared the difficult development areas on the
map with the statutory definition of a difficult development area. We
also compared HUD's 2008 list of qualified census tracts to the areas
designated on the map and analyzed 2007 unemployment data from BLS (the
most recent available) to determine if all of the nonmetropolitan
counties that met the HUBZone eligibility criteria were on the map.
Once we identified the current HUBZone areas, we used 2000 census data
(the most complete data set available) to examine the economic
characteristics of these areas. The 2000 census data are sample
estimates and are, therefore, subject to sampling error. To test the
impact of these errors on the classification of HUBZone areas, we
simulated the potential results by allowing the estimated value to
change within the sampling error distribution of the estimate and then
reclassified the results. As a result of these simulations, we
determined that the sampling error of the estimates had no material
impact on our findings. For metropolitan and nonmetropolitan-qualified
census tracts, nonmetropolitan counties, and difficult development
areas in the 50 states and District of Columbia, we looked at common
indicators of economic distress--poverty rate, unemployment rate,
median household income, and median housing value.[Footnote 47] In
measuring median household income and median housing value, we compared
each HUBZone with the metropolitan area (for metropolitan-qualified
census tracts) in which it was located or with the state
nonmetropolitan area (for nonmetropolitan-qualified census tracts,
nonmetropolitan counties, and difficult development areas) to put the
values into perspective.[Footnote 48] We limited our analysis of Indian
Country to poverty and unemployment rates because Indian lands vary in
nature; therefore, no one unit of comparison worked for all areas when
reporting median housing income and median housing value. We could not
examine the economic characteristics of base closure areas because they
do not coincide with areas for which census data are collected.
To further examine the economic characteristics of qualified HUBZone
areas, we analyzed the effect of hypothetical changes to the economic
criteria used to designate qualified census tracts and nonmetropolitan
counties. (We report the results of this analysis in app. III.) First,
we adjusted the economic criteria used to designate qualified census
tracts: (1) a poverty rate of at least 25 percent or (2) 50 percent or
more of the households with incomes below 60 percent of each area's
median gross income.[Footnote 49] Second, we adjusted the criteria used
to designate nonmetropolitan counties: (1) a median household income of
less than 80 percent of the median household income for the state
nonmetropolitan area or (2) an unemployment rate not less than 140
percent of the state or national unemployment rate (whichever is
lower). In both cases, we made the criteria more stringent as well as
less stringent. We assessed the reliability of the census and BLS data
we used to determine the economic characteristics of HUBZone areas by
reviewing information about the data and performing electronic data
testing to detect errors in completeness and reasonableness. We
determined that the data were sufficiently reliable for the purposes of
this report.
To determine how SBA ensures that only eligible small businesses
participate in the HUBZone program, we reviewed policies and procedures
established by SBA for certifying and monitoring HUBZone firms and
internal control standards for federal agencies.[Footnote 50] We also
interviewed SBA headquarters and field officials regarding the steps
they take to certify and monitor HUBZone firms. We then assessed the
actions that SBA takes to help ensure that only eligible firms
participate against its policies and procedures and selected internal
controls. In examining such compliance, we analyzed data downloaded
from the HUBZone Certification Tracking System (the information system
used to manage the HUBZone program) as of January 22, 2008, to
determine the extent of SBA monitoring. Specifically, we analyzed the
data to determine (1) the number of applications submitted in fiscal
years 2000 through 2007 and their resolution; (2) the number of
recertifications that SBA performed in fiscal years 2005 through 2007
and their results; (3) the number of recertifications conducted of
HUBZone firms based on the number of years firms had been in the
program; (4) the number of program examinations that SBA performed in
fiscal years 2004 through 2007 and their results; (5) the number of
program examinations conducted of HUBZone firms based on the number of
years firms had been in the program; and (6) the number of firms
proposed for decertification in fiscal years 2004 through 2007. We also
analyzed Federal Procurement Data System-Next Generation (FPDS-NG) data
to determine the extent to which firms that had been proposed for
decertification or had actually been decertified had obtained federal
contracts.
Because the HUBZone Certification Tracking System does not readily
provide information on the extent to which SBA requests documentation
from firms or conducts site visits during certification and monitoring,
we conducted reviews of all 125 applications, 15 recertifications, and
11 program examinations begun in September 2007 and completed by
January 22, 2008 (the date of the data set). For applications, we
selected those that were logged into the system in September 2007. For
recertifications and program examinations, we selected those cases
where the firm had acknowledged receipt of the notice that they had
been selected for review in September 2007; we chose September 2007
because most of the cases had been processed by January 22, 2008.
Further, we analyzed (1) FPDS-NG data for fiscal year 2006 (the most
recent year available at the time of our analysis) and (2) Dynamic
Small Business Source System (DSBSS) data as of December 12, 2007, to
identify select characteristics of businesses that participated in the
program. DSBSS contains information on firms that have registered in
the Central Contractor Registration system (a database that contains
information on all potential federal contractors) as small businesses.
We assessed the reliability of the HUBZone Certification Tracking
System, FPDS-NG, and DSBSS data we used by reviewing information about
the data and performing electronic data testing to detect errors in
completeness and reasonableness. We determined that the data were
sufficiently reliable for the purposes of this report.
To determine the measures that SBA has in place to assess the results
of the HUBZone program, we reviewed SBA's performance reports and other
agency documents. We then compared SBA's performance measures for the
HUBZone program to our guidance on the attributes of effective
performance measures.[Footnote 51] To determine the extent to which
federal agencies have met their contracting goals, we (1) analyzed data
from FPDS-NG and (2) reviewed SBA reports on agency contracting goals
and accomplishments, such as federal contracting dollars awarded by
agency for the various small business programs, for fiscal years 2003
through 2006. We also reviewed Federal Acquisition Regulation and SBA
guidance and other relevant documentation. In addition, we interviewed
small business and contracting officials at a nongeneralizable sample
of agencies (the Departments of Commerce, Defense, Homeland Security
and the Social Security Administration) to determine what factors
affect federal agencies' ability to meet HUBZone contracting goals.
[Footnote 52] We selected agencies that received a range of scores as
reported in SBA's fiscal year 2006 Small Business Procurement Scorecard
and awarded varying amounts of contracts to HUBZone firms. [Footnote
53]
To explore benefits that the program may have generated for selected
firms and communities, we visited a nongeneralizable sample of four
HUBZone areas: Lawton, Oklahoma; Lowndes County, Georgia; and Long
Beach and Los Angeles, California. In selecting these areas, we
considered geographic dispersion, the type of HUBZone area, and the
dollar amount of contracts awarded to HUBZone firms. During each site
visit, we interviewed officials from the SBA district office, the
Chamber of Commerce, a small business development center, and certified
HUBZone firms, with the exception of the city of Long Beach, where we
did not meet with the Chamber of Commerce.
We conducted this performance audit from August 2007 to June 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Comments from the Small Business Administration:
U.S. Small Business Administration:
Washington, D.C. 20416:
June 6, 2008:
The Small Business Administration (SBA) welcomes this review of the
Historically Underutilized Business Zone (HUBZone) program and its
procedures, and appreciates the suggested improvements and refinements.
This important program serves more than 13,000 small businesses within
the United States, and it is an important part of the effort to give
small business greater access to federal contracting opportunities.
SBA is dedicated to providing the highest quality service,
transparency, and accountability. As part of SBA's commitment to
transparency and accountability, we are grateful for the forthright
evaluation provided by GAO, and SBA takes seriously its
recommendations. In the process of assisting the GAO audit and in the
time since, certain facts have crystallized the need for an active and
vigorous rededication to the HUBZone program.
SBA has instituted new management and oversight over the HUBZone
program. New personnel are in place and they have been directed to
institute new procedures to ensure consistency and timeliness of
service. As part of this process several specific reforms are underway
and SBA is working to institute other, more in-depth reforms. Lastly,
the HUBZone program will update their contract to ensure the accuracy
of the geographic maps.
SBA appreciates the GAO's efforts and in response to the five specific
recommendations. we are taking the following steps:
Response to Recommendations:
1. Take immediate steps to correct and update the map that is used to
identify HUBZone areas and implement procedures to ensure that the map
is updated with the most recently available data on a more frequent
basis.
While HUBZone-eligible areas are defined by statute, the HUBZone
program generates a publicly available, user-friendly map that
delineates those areas. To be effective, this map must be accurate and
up-to-date. SBA recognizes the valid concerns raised by GAO concerning
the HUBZone map, and efforts are underway to improve the data and
procedures used to produce this important tool. SBA believes these
efforts will address these issues and, in short order, provide a
reliable map, and furthermore, ensure that the map is consistently
updated as new information becomes available.
SBA's HUBZone office is in the process of issuing a new contract to
administer the HUBZone map. The HUBZone program conducted market
research by issuing a "sources sought" notice on May 22, 2008;
responses were due by midnight, May 30, 2008. Seven responses were
received. SBA is reviewing these responses and will quickly move ahead
with the process. The established timeline for this new contract
anticipates that the maps will be updated and available no later than
August 29, 2008.
Further, during the process of issuing the new contract, the HUBZone
program will issue new internal procedures to ensure that the map is
continually updated. These new procedures will ensure that the
appropriate HUBZone program staff:
* Access the OMB Bulletin website monthly for the most up-to-date
statistical directives;
* Monitor the Bureau of Census quarterly for pertinent information;
* Monitor the Bureau of Indian Affairs website quarterly for the most
recent statistical data;
* Receive and act on the periodic and direct communications from the
Department of Defense on BRAC-related items; and;
* Monitor the Bureau of Labor Statistics unemployment data affecting
non-metropolitan county status.
2. Develop and implement guidance to more consistently obtain
supporting documentation upon application and conduct more frequent
site visits, as appropriate, to ensure that firms applying for
certification are eligible.
SBA appreciates GAO's concern about the need to obtain supporting
documents in a more consistent manner. In line with SBA's efforts to
formalize HUBZone processes, the new management team is formulating
procedures that will provide sharper guidance as to when supporting
documentation and site visits will be required.
Specifically, these new procedures will make better use of available
information to focus oversight efforts. They include:
* An electronic application with a function that evaluates certain
critical eligibility factors (i.e. size, principal office location, and
employment ratio) and alerts staff to possible anomalies;
* Data verification for cases where the application information is
contradictory (revenues vs. number of employees; phone area code and
address; etc.);
* Continue to use various internet search engines to obtain information
on additional locations, state filings, affiliations, etc., to compare
information submitted by firms seeking HUBZone certification;
* When necessary, SBA will use a third-party database-Dun & Bradstreet
to compare data and will maintain files that record the findings; and;
* Using the HUBZone tracking system, refer cases that appear fraudulent
and/or deceptive to the OIG.
These procedures will be used to identify potential areas of concern
during certification that will mandate additional documentation and
site visits.
3. Establish a specific timeframe for eliminating the backlog for
recertifications and ensure that this goal is met, using either SBA or
contract staff, and take the necessary steps to ensure that
recertification are completed in a more timely fashion in the future.
The HUBZone program has obtained additional staff to work through the
backlog of pending recertifications. This effort will be complete by
September 30, 2008. SBA has been processing an average of 392
recertification actions per month, and year-to-date completed
recertification actions total 3,314. SBA's goal of 5,297 will be
completed by the end of FY 08.
Further, to ensure that recertification will be handled in a more
timely manner, the HUBZone program has made dedicated staffing changes
and will issue explicit changes to procedures.
4. Formalize and adhere to a specific timeframe for processing firms
proposed for decertification in the future.
SBA is aware of the need to improve the effectiveness and consistency
of the decertification process. Consequently, SBA has revamped staff
responsibilities and will issue new procedures to clarify and formalize
the decertification process and its timelines.
Specifically, this new decertification procedure will:
* Establish a formal, written policy of certified mail notification
between SBA and a HUBZone firm proposed for decertification (this
procedure already exists but it is not a formal policy);
* Decertify any HUBZone firm that is determined to be non-responsive to
the proposed decertification notice;
* Decertify firms that submit information that indicates that they are
no longer eligible; and;
* Establish a 60 calendar day deadline to complete the process from the
date that the proposed decertification process is received by the
HUBZone firm.
5. Further develop measures and implement plans to assess the
effectiveness of the HUBZone program that take into account factors
such as (1) the economic characteristics of the HUBZone area and (2)
contracts being counted under multiple socioeconomic subcategories.
As GAO has acknowledged, SBA has some measures in place to assess the
performance of the HUBZone program. However, as GAO concluded, to be
more useful these measures should be used in a more systematized way to
provide evaluation of the program's effectiveness. SBA acknowledges
that this would be beneficial and would provide important new
information to improve and focus the HUBZone program.
SBA will develop an assessment tool to measure the economic benefits
that accrue to areas in the HUBZone program. This new assessment will
be developed by the economic and analysis staff of SBA's Office of
Policy and Strategic Planning in conjunction with the HUBZone program.
Using this methodology, the HUBZone program will then issue periodic
reports accompanied by the underlying data.
The development and discussion of this methodology is underway, and the
final product is expected by August 1, 2008. To ensure the
participation of stakeholders in the HUBZone program, SBA will publish
this methodology and then accept public comment for four weeks.
Subsequently SBA will publish a final methodology detailing the
measures and procedures that will be used to provide this assessment of
the HUBZone program's effectiveness.
It is important to note that in developing this new assessment SBA will
rely on data that is already available to SBA, the HUBZone program,
and/or publicly available through other Executive agencies. Reducing
the burden of government is an important goal, and the small business
community and their local and state governments will not be required to
submit any new information in furtherance of this objective. This
methodology will address GAO's concerns about the varying economic
characteristics of the HUBZone areas and contracts being counted under
multiple socioeconomic subcategories, which is a long-standing Federal
government practice.
Signed by:
Fay E. Ott:
Associate Administrator:
Office of Government Contracting and Business Development:
U.S. Small Business Administration:
[End of section]
Appendix III: Economic Characteristics of HUBZone Areas:
In this appendix, we provide information on the economic
characteristics of three types of HUBZone areas: (1) qualified census
tracts, which have 50 percent or more of their households with incomes
below 60 percent of the area median gross income or have a poverty rate
of at least 25 percent and cannot contain more than 20 percent of the
area population; (2) qualified Indian reservations, which include lands
covered by a federal statutory definition of "Indian Country;" and (3)
qualified nonmetropolitan counties, or those having a median household
income of less than 80 percent of the median household income for the
state nonmetropolitan area or an unemployment rate that is not less
than 140 percent of the state average unemployment rate or the national
average unemployment rate (whichever is lower). Other types of HUBZone
areas are base closure areas and difficult development areas.
First, we report economic data for those HUBZone areas that are
nonmetropolitan-qualified census tracts and Indian Country areas.
[Footnote 54] Second, to further illustrate the economic diversity
among qualified HUBZone areas, we provide data on the effect of
hypothetical changes to the economic criteria used to designate
metropolitan-qualified census tracts and nonmetropolitan counties.
Based on poverty rates, nonmetropolitan-qualified census tracts appear
to be as economically distressed as metropolitan-qualified census
tracts. About 99 percent of nonmetropolitan census tracts (excluding
redesignated areas, which no longer meet the economic criteria but by
statute remain eligible until after the release of the 2010 decennial
census data) had a poverty rate of 20 percent or more (see fig. 9).
Similarly, about 93 percent of metropolitan census tracts (excluding
redesignated areas) met this criterion.[Footnote 55] However, there are
some differences between the economic characteristics of
nonmetropolitan-and metropolitan-qualified census tracts. For example,
402 of the 1,272 nonmetropolitan census tracts (about 32 percent) had
housing values that were less than 60 percent of the area median
housing value, while 57 percent of metropolitan census tracts had
housing values that met this criterion.
Figure 9: Comparison of Indicators Associated with Economic Distress,
by HUBZone Nonmetropolitan-Qualified Census Tracts and Redesignated
Tracts:
[See PDF for image]
This figure is a horizontal bar graph depicting the following data:
Poverty rate: 40% or more;
Nonmetropolitan counties (no redesignated areas): Number: 240;
Nonmetropolitan counties (no redesignated areas): Percentage: 18.87%;
Redesignated nonmetropolitan counties: Number: 0;
Redesignated nonmetropolitan counties: Percentage: 0%.
Poverty rate: 30.0 - 39.9%;
Nonmetropolitan counties (no redesignated areas): Number: 503;
Nonmetropolitan counties (no redesignated areas): Percentage: 39.54%;
Redesignated nonmetropolitan counties: Number: 25;
Redesignated nonmetropolitan counties: Percentage: 3.73%.
Poverty rate: 20.0 - 29.9%;
Nonmetropolitan counties (no redesignated areas): Number: 520;
Nonmetropolitan counties (no redesignated areas): Percentage: 40.88%;
Redesignated nonmetropolitan counties: Number: 357;
Redesignated nonmetropolitan counties: Percentage: 53.28%.
Poverty rate: 10.0 - 19.9%;
Nonmetropolitan counties (no redesignated areas): Number: 5;
Nonmetropolitan counties (no redesignated areas): Percentage: 0.39%;
Redesignated nonmetropolitan counties: Number: 275;
Redesignated nonmetropolitan counties: Percentage: 41.04%.
Poverty rate: Less than 10%;
Nonmetropolitan counties (no redesignated areas): Number: 4;
Nonmetropolitan counties (no redesignated areas): Percentage: 0.31%;
Redesignated nonmetropolitan counties: Number: 13;
Redesignated nonmetropolitan counties: Percentage: 1.94%.
Unemployment rate: 20% or more;
Nonmetropolitan counties (no redesignated areas): Number: 136;
Nonmetropolitan counties (no redesignated areas): Percentage: 10.69%;
Redesignated nonmetropolitan counties: Number: 4;
Redesignated nonmetropolitan counties: Percentage: 0.60%.
Unemployment rate: 15.0 - 19.9%;
Nonmetropolitan counties (no redesignated areas): Number: 185;
Nonmetropolitan counties (no redesignated areas): Percentage: 14.54%;
Redesignated nonmetropolitan counties: Number: 11;
Redesignated nonmetropolitan counties: Percentage: 1.64%.
Unemployment rate: 10.0 - 14.9%;
Nonmetropolitan counties (no redesignated areas): Number: 418;
Nonmetropolitan counties (no redesignated areas): Percentage: 32.86%;
Redesignated nonmetropolitan counties: Number: 121;
Redesignated nonmetropolitan counties: Percentage: 18.06%.
Unemployment rate: 5.0 - 9.9%;
Nonmetropolitan counties (no redesignated areas): Number: 454;
Nonmetropolitan counties (no redesignated areas): Percentage: 35.69%;
Redesignated nonmetropolitan counties: Number: 412;
Redesignated nonmetropolitan counties: Percentage: 61.49%.
Unemployment rate: Less than 5%;
Nonmetropolitan counties (no redesignated areas): Number: 79;
Nonmetropolitan counties (no redesignated areas): Percentage: 6.21%;
Redesignated nonmetropolitan counties: Number: 122;
Redesignated nonmetropolitan counties: Percentage: 18.21%.
Percentage of state nonmetropolitan area median household income: Less
than 40%;
Nonmetropolitan counties (no redesignated areas): Number: 40;
Nonmetropolitan counties (no redesignated areas): Percentage: 3.14%;
Redesignated nonmetropolitan counties: Number: 2;
Redesignated nonmetropolitan counties: Percentage: 0.30%.
Percentage of state nonmetropolitan area median household income:
40.0 - 49.9%;
Nonmetropolitan counties (no redesignated areas): Number: 66;
Nonmetropolitan counties (no redesignated areas): Percentage: 5.19%;
Redesignated nonmetropolitan counties: Number: 0;
Redesignated nonmetropolitan counties: Percentage: 0%.
Percentage of state nonmetropolitan area median household income:
50.0 - 59.9%;
Nonmetropolitan counties (no redesignated areas): Number: 228;
Nonmetropolitan counties (no redesignated areas): Percentage: 17.92%;
Redesignated nonmetropolitan counties: Number: 2;
Redesignated nonmetropolitan counties: Percentage: 0.30%.
Percentage of state nonmetropolitan area median household income:
60.0 - 69.9%;
Nonmetropolitan counties (no redesignated areas): Number: 366;
Nonmetropolitan counties (no redesignated areas): Percentage: 28.77%;
Redesignated nonmetropolitan counties: Number: 60;
Redesignated nonmetropolitan counties: Percentage: 8.96%.
Percentage of state nonmetropolitan area median household income: 70%
or more;
Nonmetropolitan counties (no redesignated areas): Number: 572;
Nonmetropolitan counties (no redesignated areas): Percentage: 44.97%;
Redesignated nonmetropolitan counties: Number: 606;
Redesignated nonmetropolitan counties: Percentage: 90.45%.
Percentage of state nonmetropolitan area median housing value: Less
than 50%;
Nonmetropolitan counties (no redesignated areas): Number: 216;
Nonmetropolitan counties (no redesignated areas): Percentage: 16.98%;
Redesignated nonmetropolitan counties: Number: 44;
Redesignated nonmetropolitan counties: Percentage: 6.57%.
Percentage of state nonmetropolitan area median housing value: 50.0 -
59.9%;
Nonmetropolitan counties (no redesignated areas): Number: 186;
Nonmetropolitan counties (no redesignated areas): Percentage: 14.62%;
Redesignated nonmetropolitan counties: Number: 54;
Redesignated nonmetropolitan counties: Percentage: 8.06%.
Percentage of state nonmetropolitan area median housing value: 60.0 -
69.9%;
Nonmetropolitan counties (no redesignated areas): Number: 241;
Nonmetropolitan counties (no redesignated areas): Percentage: 18.95%;
Redesignated nonmetropolitan counties: Number: 116;
Redesignated nonmetropolitan counties: Percentage: 17.31%.
Percentage of state nonmetropolitan area median housing value: 70.0 -
79.9%;
Nonmetropolitan counties (no redesignated areas): Number: 236;
Nonmetropolitan counties (no redesignated areas): Percentage: 18.55%;
Redesignated nonmetropolitan counties: Number: 147;
Redesignated nonmetropolitan counties: Percentage: 21.94%.
Percentage of state nonmetropolitan area median housing value: 80% or
more;
Nonmetropolitan counties (no redesignated areas): Number: 393;
Nonmetropolitan counties (no redesignated areas): Percentage: 30.90%;
Redesignated nonmetropolitan counties: Number: 309;
Redesignated nonmetropolitan counties: Percentage: 46.12%.
Total:
Nonmetropolitan counties (no redesignated areas): Number: 1,272;
Redesignated nonmetropolitan counties: Number: 670.
Source: GAO analysis of 2000 decennial census data.
Note: This figure only provides descriptive statistics for those
nonmetropolitan-qualified census tracts that are located within the 50
states and District of Columbia and that were considered to be
nonmetropolitan as of 2006.
[End of figure]
Overall, we found that qualified Indian Country areas tend to be
economically distressed (see fig. 10). For example, 310 of the 651
Indian Country areas (about 48 percent) had poverty rates of 20 percent
or more. In addition, Indian Country areas had much higher rates of
unemployment than any other type of HUBZone area. For example, 160
Indian Country areas (about 25 percent) had unemployment rates of 20
percent or more. In contrast, metropolitan census tracts and
nonmetropolitan counties (excluding redesignated areas) had
unemployment rates that met this same criterion of about 18 percent and
just less than 2 percent, respectively.
Figure 10: Comparison of Indicators Associated with Economic Distress,
HUBZone-Qualified Indian Country Areas:
[See PDF for image]
This figure is a horizontal bar graph depicting the following data:
Poverty rate: 40% or more;
Indian Country areas: Number: 87;
Indian Country areas: Percentage: 13.36%.
Poverty rate: 30.0 - 39.9%;
Indian Country areas: Number: 85;
Indian Country areas: Percentage: 13.06%.
Poverty rate: 20.0 - 29.9%;
Indian Country areas: Number: 138;
Indian Country areas: Percentage: 21.20%.
Poverty rate: 10.0 - 19.9%;
Indian Country areas: Number: 154;
Indian Country areas: Percentage: 23.66%.
Poverty rate: Less than 10%;
Indian Country areas: Number: 187;
Indian Country areas: Percentage: 28.73%.
Unemployment rate: 20% or more;
Indian Country areas: Number: 160;
Indian Country areas: Percentage: 24.58%.
Unemployment rate: 15.0 - 19.9%;
Indian Country areas: Number: 68;
Indian Country areas: Percentage: 10.45%.
Unemployment rate: 10.0 - 14.9%;
Indian Country areas: Number: 113;
Indian Country areas: Percentage: 17.36%.
Unemployment rate: 5.0 - 9.9%;
Indian Country areas: Number: 125;
Indian Country areas: Percentage: 19.20%.
Unemployment rate: Less than 5%;
Indian Country areas: Number: 185;
Indian Country areas: Percentage:28.42%.
Total, Indian Country areas: Number: 651.
Note: We limited our analysis of Indian Country to poverty and
unemployment rates because Indian lands vary in nature; therefore,
there was no one unit of comparison that worked for all areas when
reporting median housing income and median housing value.
[End of figure]
As discussed above, qualified HUBZone areas are economically diverse;
therefore, adjustments to the qualifying criteria could affect the
number and type of eligible areas. Qualified census tracts must meet at
least one of two economic criteria: (1) have a poverty rate of at least
25 percent or (2) be an area in which 50 percent or more of the
households have incomes below 60 percent of the area's median gross
income.[Footnote 56] By using a poverty rate of 10 percent or more for
metropolitan census tracts, however, 14,258 additional metropolitan
census tracts could be eligible for the program (an increase of about
143 percent), depending on whether they met the other eligibility
requirements (see table 7). In contrast, by using a poverty rate of 40
percent or more for metropolitan census tracts, the number of
metropolitan census tracts (those tracts that currently meet
eligibility criteria and those that are redesignated) could decrease
from 9,959 to 2,270 (a decrease of about 77 percent).
Table 7: Effect of Selected Hypothetical Changes to the Eligibility
Criteria for Metropolitan-Qualified Census Tracts:
Criteria: Percentage of households at the poverty rate, 40 or more;
Number of census tracts: 2,270;
Change in the number of census tracts: (7,689);
Percentage change from current number of eligible census tracts:
(77.2).
Criteria: Percentage of households at the poverty rate, 10 or more;
Number of census tracts: 24,217[A];
Change in the number of census tracts: 14,258;
Percentage change from current number of eligible census tracts: 143.2.
Criteria: Percentage of households with incomes below 60 percent of an
area's median gross income, 75 or more;
Number of census tracts: 2,128;
Change in the number of census tracts: (7,831);
Percentage change from current number of eligible census tracts:
(78.6).
Criteria: Percentage of households with incomes below 60 percent of an
area's median gross income, 25 or more;
Number of census tracts: 38,271[A];
Change in the number of census tracts: 28,312;
Percentage change from current number of eligible census tracts: 284.3.
Source: GAO analysis of 2000 decennial census data.
[A] Number includes census tracts currently eligible for the program
(including redesignated tracts), as well as additional census tracts
that could be eligible if the criteria were made less stringent.
[End of table]
Qualified nonmetropolitan counties are also determined by two economic
criteria: (1) a median household income of less than 80 percent of the
median household income for the state nonmetropolitan area or (2) an
unemployment rate not less than 140 percent of the state or national
unemployment rate (whichever is lower). By using a county median
household income of less than 90 percent of the median household income
for the state nonmetropolitan area, 29 additional nonmetropolitan
counties could be eligible for the program (see table 8). By using a
county median household income of less than 70 percent of the median
household income for the state nonmetropolitan area, the number of
eligible HUBZone-qualified nonmetropolitan counties could decrease from
1,162 to 43 (about 96 percent).
Table 8: Effect of Selected Hypothetical Changes to the Eligibility
Criteria for Nonmetropolitan Counties:
Criteria: Percentage of median household income compared with median
household income for state nonmetropolitan area, Less than 70;
Number of nonmetropolitan counties: 43;
Change in the number of nonmetropolitan counties: (1,119);
Percentage change from current number of eligible nonmetropolitan
counties: (96.3).
Criteria: Percentage of median household income compared with median
household income for state nonmetropolitan area, Less than 90;
Number of nonmetropolitan counties: 1,191[A];
Change in the number of nonmetropolitan counties: 29;
Percentage change from current number of eligible nonmetropolitan
counties: 2.5.
Criteria: Percentage of unemployment rate compared with state or
national unemployment rate, Not less than 160;
Number of nonmetropolitan counties: 328;
Change in the number of nonmetropolitan counties: (834);
Percentage change from current number of eligible nonmetropolitan
counties: (71.8).
Criteria: Percentage of unemployment rate compared with state or
national unemployment rate, Not less than 120;
Number of nonmetropolitan counties: 1,327[A];
Change in the number of nonmetropolitan counties: 165;
Percentage change from current number of eligible nonmetropolitan
counties: 14.2.
Source: GAO analysis of 2000 decennial census data.
[A] Number includes nonmetropolitan counties currently eligible for the
program (including redesignated counties), as well as additional
nonmetropolitan counties that could be eligible if the criteria were
made less stringent.
[End of table]
[End of section]
Appendix IV: Characteristics of HUBZone Firms as of 2007:
To examine the characteristics of HUBZone firms, we analyzed data from
SBA's Dynamic Small Business Source System (DSBSS) as of December 12,
2007. DSBSS contains information on firms that have registered as small
businesses in the Central Contractor Registration system (a database
that contains information on all potential federal contractors). With
the exception of information on the firms' HUBZone, 8(a), and Small
Disadvantaged Business certifications, the data in the system are self-
reported.[Footnote 57] We found that HUBZone firms vary in size,
ownership, types of services and products provided, and additional
small business designations leveraged. Specifically, our analysis
showed the following:
* The size of HUBZone firms varies. We chose two measures to describe
the size of HUBZone firms--number of employees and average gross
revenue. The average number of staff at HUBZone firms was 24. However,
half of HUBZone firms had 6 or fewer employees. The average gross
revenue for HUBZone firms was almost $3.5 million per year. However,
half of HUBZone firms earned $600,000 or less annually.
* Ownership status is diverse. Approximately 30 percent of HUBZone firm
owners were women, while 37 percent were minorities. Table 9 breaks out
the owners of HUBZone firms based on race and ethnicity.
Table 9: HUBZone Firms' Ownership by Race and Ethnicity, 2007:
Race/ethnicity: African-American;
Number of firms: 2,269;
Percentage: 16.7.
Race/ethnicity: Asian-American;
Number of firms: 546;
Percentage: 4.0.
Race/ethnicity: Hispanic;
Number of firms: 1,138;
Percentage: 8.4.
Race/ethnicity: Native American;
Number of firms: 1,062;
Percentage: 7.8.
Race/ethnicity: White;
Number of firms: 8,568;
Percentage: 63.1.
Race/ethnicity: Total;
Number of firms: 13,583;
Percentage: 100.0.
Source: GAO analysis of DSBSS data as of December 12, 2007.
[End of table]
* HUBZone firms operate in a variety of industries as defined by North
American Industry Classification System (NAICS) codes, and many operate
in multiple industries.[Footnote 58] Table 10 lists the top 10
industries in which HUBZone firms operated and the number of HUBZone
firms that provided a service or product related to that industry.
Table 10: Top 10 Industries in Which HUBZone Firms Operated, 2007:
Industry (NAICS code): Commercial and institutional building
construction (236220);
Number of firms: 1,761;
Percentage of firms: 2.4.
Industry (NAICS code): Site-preparation contractors (238910);
Number of firms: 1,353;
Percentage of firms: 1.8.
Industry (NAICS code): Engineering services (541330);
Number of firms: 1,277;
Percentage of firms: 1.7.
Industry (NAICS code): Highway, street, and bridge construction
(237310);
Number of firms: 1,177;
Percentage of firms: 1.6.
Industry (NAICS code): Computer systems design services (541512);
Number of firms: 1,153;
Percentage of firms: 1.6.
Industry (NAICS code): Industrial building construction (236210);
Number of firms: 1,146;
Percentage of firms: 1.6.
Industry (NAICS code): Other heavy and civil engineering construction
(237990);
Number of firms: 1,129;
Percentage of firms: 1.5.
Industry (NAICS code): All other specialty trade contractors (238990);
Number of firms: 1,117;
Percentage of firms: 1.5.
Industry (NAICS code): Custom computer programming services (541511);
Number of firms: 1,107;
Percentage of firms: 1.5.
Industry (NAICS code): Administrative management and general management
consulting services (541611);
Number of firms: 1,076;
Percentage of firms: 1.5.
Industry (NAICS code): Water and sewer line and related structures
construction (237110);
Number of firms: 1,036;
Percentage of firms: 1.4.
Source: GAO analysis of DSBSS data as of December 12, 2007.
[End of table]
* HUBZone firms often have other small business designations. Although
the majority of HUBZone firms had only the HUBZone designation, 32
percent had one additional designation, which was most often the
service-disabled, veteran-owned designation.[Footnote 59] Table 11
shows the extent to which HUBZone firms had other small business
designations.
Table 11: HUBZone Firms' Small Business Designations, 2007:
HUBZone firm designation only;
Percentage of HUBZone firms: 56.2;
HUBZone firms: 7,639;
HUBZone firms that are also 8(a) firms: 0;
HUBZone firms that are also service-disabled veteran-owned firms: 0;
HUBZone firms that are also small disadvantaged businesses: 0;
HUBZone firms that are also women-owned firms: 0.
HUBZone firm with one additional designation;
Percentage of HUBZone firms: 32;
HUBZone firms: 4,350;
HUBZone firms that are also 8(a) firms: 8;
HUBZone firms that are also service-disabled veteran-owned firms: 679;
HUBZone firms that are also small disadvantaged businesses: 191;
HUBZone firms that are also women-owned firms: 3,472.
HUBZone firm with two additional designations;
Percentage of HUBZone firms: 7.8;
HUBZone firms: 1,065;
HUBZone firms that are also 8(a) firms: 848;
HUBZone firms that are also service-disabled veteran-owned firms: 127;
HUBZone firms that are also small disadvantaged businesses: 951;
HUBZone firms that are also women-owned firms: 204.
HUBZone firm with three additional designations;
Percentage of HUBZone firms: 3.8;
HUBZone firms: 516;
HUBZone firms that are also 8(a) firms: 514;
HUBZone firms that are also service-disabled veteran-owned firms: 89;
HUBZone firms that are also small disadvantaged businesses: 516;
HUBZone firms that are also women-owned firms: 429.
HUBZone firm with four additional designations;
Percentage of HUBZone firms: 0.1;
HUBZone firms: 13;
HUBZone firms that are also 8(a) firms: 13;
HUBZone firms that are also service-disabled veteran-owned firms: 13;
HUBZone firms that are also small disadvantaged businesses: 13;
HUBZone firms that are also women-owned firms: 13.
Source: GAO analysis of DSBSS data as of December 12, 2007.
[End of table]
[End of section]
Appendix V: Details of Site Visits to HUBZone Areas:
We conducted site visits to four HUBZone areas--Lawton, Oklahoma;
Lowndes County, Georgia; and Long Beach and Los Angeles, California--to
better understand to what extent benefits have been generated by the
HUBZone program. These four areas represent various types of HUBZone
areas (see table 12), and we found that the perceived benefits of the
HUBZone program varied across these locations. The majority of the
individuals we interviewed indicated that their firms had received some
benefit from HUBZone certification. In most cases, they cited as a
benefit the ability to compete for and win contracts, which in some
cases had allowed firms to expand or become more competitive. However,
representatives of a few firms indicated they had not been able to win
any contracts through the program, which made it difficult to realize
any benefits. We also asked local economic development and Chamber of
Commerce officials if they were familiar with the HUBZone program. We
found varying levels of familiarity with the program, and some
officials representing economic development entities stated they lacked
information on the program's effect that could help them inform small
businesses of its potential benefits.
Table 12: Economic Characteristics of Site Visit Locations:
Location: Lawton, Okla.;
County: Comanche;
County population: 114,996;
FY 2006 contract dollars awarded to HUBZone firms in county (in
millions): $42.9;
County median household income (in 1999 dollars): $33,867;
County poverty rate (1999): 15.6%;
Type of HUBZone area: Indian Country.
Location: Valdosta, Ga.;
County: Lowndes;
County population: 92,115;
FY 2006 contract dollars awarded to HUBZone firms in county (in
millions): $13.9;
County median household income (in 1999 dollars): $32,132;
County poverty rate (1999): 18.3%;
Type of HUBZone area: Redesignated Nonmetropolitan County.
Location: Long Beach, Calif.;
County: Los Angeles;
County population: 9,519,338;
FY 2006 contract dollars awarded to HUBZone firms in county (in
millions): $62.2;
County median household income (in 1999 dollars): $42,189;
County poverty rate (1999): 17.9%;
Type of HUBZone area: Census Tract.
Location: Los Angeles;
County: Los Angeles;
County population: 9,519,338;
FY 2006 contract dollars awarded to HUBZone firms in county (in
millions): $62.2;
County median household income (in 1999 dollars): $42,189;
County poverty rate (1999): 17.9%;
Type of HUBZone area: Census Tract.
Sources: 2000 census data, FY 2006 FPDS-NG data, and SBA HUBZone Web
site.
[End of table]
Various representatives of HUBZone firms with whom we spoke stated that
the HUBZone program provided advantages. The majority of
representatives of HUBZone firms we interviewed stated that HUBZone
certification had provided them with an additional opportunity to bid
on federally funded contracts. Additionally, some of the business
owners we interviewed who had received contracts stated that winning
contracts through the HUBZone program had allowed their firm to grow
(for example, to hire employees or expand operations). Representatives
from two HUBZone firms located in Lawton, Oklahoma, that had received
contracts through their HUBZone certification stated that the primary
benefits associated with their HUBZone certification had been winning
contracts that allowed them to hire additional employees and continue
to build a reputation for their firms, which in turn had placed them in
a better position to compete for additional contracts. Representatives
of a HUBZone firm located in Valdosta, Georgia, stated that they had
utilized the HUBZone program to obtain more contracts for their
construction firm. They added that the program had allowed their firm
to enter the federal government contracting arena, which provided
additional opportunities aside from private-sector construction
contracts. Representatives from three HUBZone firms in Los Angeles
stated that they had won contracts through the program and had been
able to build a stronger reputation for their firms by completing those
contracts. Representatives of two of these firms also stated that the
contracts they won through the program had helped their firms to grow
and hire additional employees. For example, representatives from one
HUBZone firm we interviewed stated that the firm had hired 10 to 15
full-time employees partly as a result of obtaining HUBZone contracts.
However, representatives of some HUBZone firms stated that the program
has not generated any particular benefits for their firm. For example,
representatives of two HUBZone firms in Lawton, Oklahoma, and one
HUBZone firm in Valdosta, Georgia, stated that their HUBZone
certification had resulted in no contracts or not enough contracts to
provide opportunities to "grow" their firm. They noted that the HUBZone
certification alone was not sufficient when competing for federally
funded contracts, particularly because--based on their experience--few
contracts were set aside for HUBZone firms. Our interviewees indicated
that they planned to stay in the program but were unlikely to see any
benefits unless additional contracts were set aside for HUBZone firms.
A representative from one HUBZone firm located in Long Beach,
California, stated that her HUBZone firm had not been awarded any
contracts directly through the program, but because of the firm's
HUBZone status, it had been able to perform work as a subcontractor on
contracts that had HUBZone subcontracting goals. However, her firm had
not grown or expanded employment through the program.
We also found that, while some local economic development and Chamber
of Commerce officials with whom we spoke were familiar with the HUBZone
program, others were not. For example, in Lawton, Oklahoma, local
economic development and Chamber of Commerce officials were familiar
with the program and its requirements, largely because the city of
Lawton has been designated a HUBZone area. In Valdosta, Georgia,
Chamber of Commerce officials and officials from various economic
development authorities were not familiar with the program and its
requirements, but the small business development center official we
interviewed was familiar with the program. In Long Beach and Los
Angeles, California, most of the small business development center and
economic development officials with whom we met also were relatively
unfamiliar with the program, its goals, and how small businesses could
use the program. Finally, officials representing economic development
entities in Lowndes County, Georgia, and Los Angeles, California,
stated that they lacked information on the program's impact that could
help them inform small businesses of its potential benefits.
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
William B. Shear, (202) 512-8678 or shearw@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Paige Smith (Assistant
Director), Triana Bash, Tania Calhoun, Bruce Causseaux, Alison Gerry,
Cindy Gilbert, Julia Kennon, Terence Lam, Tarek Mahmassani, John
Mingus, Marc Molino, Barbara Roesmann, and Bill Woods made key
contributions to this report.
[End of section]
Footnotes:
[1] GAO, Tax Administration: IRS Needs to Further Refine Its Tax Filing
Season Performance Measures, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-03-143] (Washington, D.C., Nov. 22, 2002).
[2] HUBZone Act of 1997, Pub. L. No. 105-135, Title VI, § 602(a), 111
Stat. 2592, 2627 (1997).
[3] The low-income-housing tax credit program aims to increase the
availability of low-income housing by providing a tax credit to owners
of newly constructed or substantially rehabilitated low-income rental
housing. Projects located in qualified census tracts are eligible for
up to 30 percent more tax credits than identical projects not in
qualified census tracts.
[4] Difficult development areas have high construction, land, and
utility costs relative to area median income, and HUD designates new
difficult development areas annually using a process that compares
these costs.
[5] SBA's size standards are almost always stated either as the average
employment or average annual receipts of a business concern and vary by
industry.
[6] Qualified HUBZone firms can also be owned and controlled by Alaskan
Native Corporations, Indian tribal governments, community development
corporations, and agricultural cooperatives.
[7] While a small business must have its principal office in a HUBZone
area, it does not have to limit its work to that HUBZone. Certified
HUBZone businesses can bid on and receive federal contracts for work to
be performed anywhere; that is, HUBZone contracts are not limited to
HUBZone areas.
[8] Prior to that, a select number of agencies were subject to HUBZone
goals.
[9] HUBZones in Native America Act of 2000, Pub. L. No. 106-554, Title
VI, Subtitle A, § 604, 114 Stat. 2763, 2763A-698 (2000).
[10] Pub. L. No. 106-554, § 1(a)(7) (title I, § 135(b)), 114 Stat.
2763, 2763A-613 (2000).
[11] Small Business Reauthorization and Manufacturing Assistance Act of
2004, Pub. L. No. 108-447, Div. K, ch. 3, subtitle E, § 152(c), 118
Stat. 2809, 3457 (2004).
[12] Pub. L. No. 109-59, § 10203, 119 Stat. 1144, 1933 (2005).
[13] Because the boundaries of qualified HUBZone areas can overlap,
some geographical areas qualify for multiple designations.
[14] A small business can find the location of HUBZone areas using
mapping software available on the HUBZone Web site. The system allows
searches by address, county, city, or state and displays HUBZone areas
with labels identifying the designations under which the area qualifies
(for example, census tract, nonmetropolitan county, Indian Country,
BRAC area, and difficult development area).
[15] More specifically, 47 were in Puerto Rico, 2 were in Alaska, and 1
was in Hawaii. Puerto Rico consists of 78 municipios, which are the
equivalent of counties; the 47 difficult development areas on the
HUBZone map cover about half of Puerto Rico.
[16] SBA officials told us that, in September 2006, SBA began the
process of having the contractor update the map. However, this update
never occurred.
[17] The figure for residents of HUBZone areas includes only those
areas within the 50 states and District of Columbia.
[18] We do not report on the economic characteristics of qualified base
closure areas because these areas do not coincide with areas for which
census data are collected.
[19] For example, the Georgia Secretary of State's Web site contains a
search feature that provides information such as the principal office
address for firms incorporated in Georgia.
[20] CCR is a database managed by the Department of Defense that
maintains information on all businesses that want to contract with the
federal government. Businesses are required to provide information such
as their address and the goods and services they provide. Contracting
officers use the data to make contracting decisions.
[21] According to HUBZone program officials, they plan to use data from
the standard company reports that Dun and Bradstreet maintains. They
noted, however, that such data may not be available for all firms that
apply for the program.
[22] Until the online recertification system became available in 2005,
the annual recertification process consisted of firms e-mailing HUBZone
program officials a statement that the firms continued to meet the
eligibility criteria.
[23] We excluded from our analysis three applications submitted in
September 2007 and two firms that began the recertification process in
September 2007 because these actions were still in process as of
January 22, 2008 (the date we received the data). Of the 125
applications, SBA approved 90 and declined 7. The remaining 28 were
withdrawn by either SBA or the firm. The 15 recertifications resulted
in 14 firms being recertified and 1 firm being decertified.
[24] GAO, Internal Control Management and Evaluation Tool, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-01-1008G] (Washington, D.C.,
August 2001).
[25] The HUBZone status protest process allows SBA, contracting
officers, or any interested party to protest the qualified HUBZone
status of any awardee or apparent awardee of a federal contract. An
interested party is any firm that submits an offer for a specific
HUBZone contract or submits an offer in full and open competition and
whose opportunity for award will be affected by a price evaluation
preference given to a qualified HUBZone firm.
[26] In fiscal years 2005 and 2006, there were 21 protests; in fiscal
year 2007, there were 23 protests.
[27] Before fiscal year 2004, program examinations were conducted on an
as-needed basis.
[28] The selection factors are: the top 250 firms (based on dollar
volume of contracts), firms that have had their eligibility questioned
by the public or others in a given year, and a random selection of
other firms (to reach the total of 5 percent of firms).
[29] We excluded one program examination that was begun in September
2007 from our analysis because this action was still in process as of
January 22, 2008 (the date we received the data).
[30] As noted previously, SBA officials generally limit their
recertification reviews to the information provided by firms but can
request documentation or conduct site visits.
[31] In May 2006, the SBA IG found that firms proposed for
decertification as a result of 2004 program examinations were not
processed timely and therefore recommended that the HUBZone program
office set a maximum timeframe for decertifying firms and removing them
from the SBA list once they no longer meet the eligibility criteria.
See SBA Inspector General, HUBZone Program Examination and
Recertification Processes, Report Number 6-23 (Washington, D.C., May
23, 2006).
[32] See SBA Inspector General, Rep. No. 6-23.
[33] See [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-143] and
GAO, Small Business Administration: Additional Measures Needed to
Assess 7(a) Loan Program's Performance, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-769] (Washington, D.C., July
13, 2007).
[34] SBA also measures its cost per small business assisted and cost
per federal contract dollar for the HUBZone program, but these are
classified as efficiency measures.
[35] Our assessment of the databases that contain information on the
agency's performance measures--the HUBZone Certification Tracking
System and FPDS-NG--concluded that these data were sufficiently
reliable for the purposes of reporting on services provided to HUBZone
firms and contracts awarded to HUBZone firms.
[36] OMB's PART evaluation rates programs on four critical elements--
program purpose and design, strategic planning, program management, and
program results/accountability. The answers to questions in each of the
four sections result in a numeric score for each section from 0 to 100
(100 being the best). These scores are then combined to achieve an
overall qualitative rating of Effective, Moderately Effective,
Adequate, or Ineffective.
[37] Small Business Administration, Report to the Committees on Small
Business of the House of Representatives and the Senate on
Implementation of the HUBZone Program (Washington, D.C., 2002).
[38] The Small Business Reauthorization and Manufacturing Assistance
Act of 2004 required SBA's Office of Advocacy to conduct a study that
measured the effectiveness of definitions relating to HUBZone qualified
areas for the purposes of economic impact on small business development
and jobs creation. The study was also to contain any proposed changes
to existing definitions. We were unable to incorporate the results of
the study in our review because the report was not issued until late
May 2008.
[39] The HUBZone Act established participation goals for certified
firms starting with fiscal year 1999. The fiscal year 1999 goal was 1
percent of the year's total value of prime contract awards, and the
fiscal year 2000 goal was 1.5 percent. The act increased the goal by
one-half percent each year, reaching 3 percent in fiscal year 2003 and
each fiscal year thereafter.
[40] We limited our analysis to the 24 agencies that SBA assessed
through its Small Business Procurement Scorecards, which provide an
assessment of federal achievement in prime contracting to small
businesses by the 24 Chief Financial Officers Act agencies.
[41] Small Business Administration, Office of Government Contracting,
Goaling Guidelines for the Small Business Preference Programs for Prime
and Subcontract Federal Procurement Goals and Achievements (Washington,
D.C., July 2003).
[42] Report of the Acquisition Advisory Panel to the Office of Federal
Procurement Policy and the United States Congress (Washington, D.C.,
January 2007). The Acquisition Advisory Panel was authorized by Section
1423 of the Services Acquisition Reform Act of 2003. The Panel's
statutory charter was to review and recommend any necessary changes to
acquisition laws and regulations as well as government-wide acquisition
policies with a view toward ensuring effective and appropriate use of
commercial practices and performance-based contracting.
[43] The FAR Council oversees development and maintenance of the
Federal Acquisition Regulation (FAR), which governs federal agency
acquisitions of goods and services.
[44] See 73 Fed. Reg. 12699 (Mar. 10, 2008) for the proposed
regulation.
[45] NAICS was developed as the standard for use by federal statistical
agencies in classifying business establishments for the collection,
analysis, and publication of statistical data related to the business
economy of the United States. NAICS was developed under the auspices of
the Office of Management and Budget (OMB) and adopted in 1997 to
replace the old Standard Industrial Classification system.
[46] Because updates to the map were completed on an as-needed basis,
the contractor did not have a history file for each year. In instances
where there was no history file for a given year, we kept values
unchanged until the next year for which data were available.
[47] We excluded the U.S. possessions and territories because census
data were not available for all of them.
[48] Median housing value is the median value for specified owner-
occupied housing units in 1999 dollars.
[49] In addition, there is a requirement that the population of all
census tracts that satisfy either one or both of these criteria cannot
exceed 20 percent of the total population of the respective area. While
varying the poverty and income criteria independently of each other may
have resulted in a violation of the population cap, our analysis is for
illustrative purposes only.
[50] GAO, Internal Control Management and Evaluation Tool, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-01-1008G] (Washington, D.C.,
August 2001).
[51] See GAO, Tax Administration: IRS Needs to Further Refine Its Tax
Filing Season Performance Measures, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-03-143] (Washington, D.C., Nov. 22, 2002).
[52] Because in a nongeneralizable sample some elements of the
population being studied have no chance or an unknown chance of being
selected as part of the sample, results from nongeneralizable samples
cannot be used to make inferences about a population.
[53] For fiscal year 2006, SBA issued its first Small Business
Procurement Scorecard, which provides an assessment of federal
achievement in prime contracting to small businesses by the 24 Chief
Financial Officers Act agencies.
[54] We provided similar data for metropolitan-qualified census tracts,
nonmetropolitan counties, and difficult development areas previously in
this report. We cannot provide similar data for base closure areas
because they do not coincide with areas for which census data are
collected.
[55] For more information on the economic characteristics of
metropolitan-qualified census tracts, see figure 5.
[56] In addition, there is a requirement that the population of all
census tracts that satisfy one or both of these criteria cannot exceed
20 percent of the total population of the respective area. While
varying the poverty and income criteria independently of each other may
have resulted in a violation of the population cap, our analysis is for
illustrative purposes only.
[57] The 8(a) program is a business development program for firms owned
by citizens who are socially and economically disadvantaged. SBA
provides these firms with technical assistance, such as business
counseling. While the 8(a) program offers a broad range of assistance
to socially and economically disadvantaged firms, the Small
Disadvantaged Business program is intended only to convey benefits in
federal procurement to disadvantaged businesses.
[58] NAICS, a data collection and analysis tool developed by the
federal government, is a classification system that groups businesses
based on similarities in the processes they use to produce goods or
services.
[59] Section 308 of the Veterans Benefit Act of 2003 (P.L. 108-183)
established a procurement program for service-disabled veterans. This
program provides that contracting officers may award a sole source
contract or set-aside contracts to service-disabled veteran-owned
firms.
[End of section]
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