House, Senate at odds over small business research aid

Small business is high on the congressional list of Things One Must Appear to be For. So is innovation. So is scientific research. The Small Business Innovation Research Act would thus seem assured of easy passage, the political equivalent of a bill promoting motherhood, apple pie, and puppies for children.

The bill, which would earmark a percentage of federal research and development (R&D) funds for small business, was whooped through the Senate last December, 90-0. Proponents turned confidently to the House--and ran smack into fierce lobbying, concern about the bill's effectiveness, and the Great Dismal Swamp of the legislative process.

''It's been a lesson in power politics for all of us,'' says Paul Serotkin, communications director for the Smaller Business Association of New England, one of the bill's strongest supporters.

''This bill's only merit is that it has the name 'small-business' attached to it,'' counters Rep. Paul McCloskey Jr. (R) of California.

The Small Business Innovation Research Act proceeds from the premise that hungry, hard-driving, small businesses are a powerful force for innovation. Backers cite an MIT study that says firms with fewer than 500 employees accounted for 87 percent of the new jobs created in the United States between 1969 and 1976. A National Science Foundation survey found small companies produce 24 times as many innovations per R&D dollar as large firms.

The federal government pays for half of the R&D undertaken in the US. Currently, about 3.5 percent of Uncle Sam's R&D budget goes to small business.

''It is necessary for us to look at methods of giving small business its fair share of federal research and development dollars,'' said Sen. Warren Rudman (R) of New Hampshire when introducing the bill in the Senate.

The Small Business Innovation Research Act, as passed by the Senate, would set aside an extra 1 percent of federal research money for small business. Executive departments--such as the Departments of Defense and Health and Human Services, which have R&D budgets over $100 million--would be required to set up small-business-innovation-research systems, forums in which small firms could present their bright ideas.

If an idea looked like it could meet the agency's R&D objectives, a firm could be awarded up to $50,000 for a feasibility study. If the idea were successful, additional funds of up to $500,000 could be provided. Eventual commercial production would be financed with private funds.

''This is a national-interest piece of legislation,'' says a House staffer who has been working for the bill. ''There is a need for the federal government to give some support to near-term technology--and this is a way to do it.''

Backers say the bill, for the most part, would simply divert funds instead of spending new money. It seems to combine many elements designed to gladden the heart of a symbol-conscious congressman. So why do some people dislike this bill so much?

First of all, by the time SBIR went to the House, it was being opposed by another powerful special interest group - higher education. Universities, in particular Stanford and the Harvard Medical School, were fearful of losing chunks of their government funds to the new program. They lobbied hard against the legislation.

Secondly, doubts have been raised about the effectiveness of such forced, government largesse. Small business might become flabby, uncompetitive, and dependent on government contracts, say critics.

''The concept of a set-aside is improper,'' claims Kenneth Chilton, associate director of the Center for the Study of American Business at Washington University. ''Segmenting R&D dollars will not serve the taxpayer's best interest.''

''Of all the companies that do not need government help, small, high-tech firms are number one,'' says Mr. McCloskey. The House Republican also claims administrative costs associated with SBIRs will run $38 million a year.

Thirdly, SBIR's road to the House floor has become a parliamentary obstacle course. It was originally reported out by the Small Business Committee last November, but no less than six other committees--jealous of their turf--claimed partial jurisdiction over the bill and held hearings. In the arcane world of the congressional staffer, SBIR's tortured path of ''sequential referral'' has become almost a legend, the legislative equivalent of wandering in the wilderness.

''I've never seen such sequential referral for a bill of this scope,'' says one congressional staffer.

The referrals are a ''sign the House leadership wants the bill to fail,'' claims another.

Most committees that held hearings on the bill felt the Small Business Committee was trying to tell them how to spend their money. Many of them simply exempted programs under their jurisdiction from the legislation.

The Armed Services Committee tacked on an amendment exempting the Department of Defense, which spends over half the government's R&D money. The Energy and Commerce Committee exempted the National Institute of Health. Committees also altered the bill so that they could appropriate money every year, instead of having a mandatory ''set-aside.''

''The bill didn't fare well in committee, but we didn't expect it to,'' says a staffer working to pass it. He says backers hope to strip the bill of its amendments when it reaches the House floor (by March 16).

Will the bill be returned to its original form and then passed? Its backers think so. And Paul McCloskey--perhaps its staunchest congressional foe--says he has only a ''one-in-three'' chance to stop it.