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Small Business Administration HUBZone
Program

Robert Jay Dilger
Senior Specialist in American National Government
October 22, 2010
Congressional Research Service
7-5700
www.crs.gov
R41268
CRS Report for Congress
P
repared for Members and Committees of Congress
c11173008

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Small Business Administration HUBZone Program

Summary
The Small Business Administration (SBA) administers several programs to support small
businesses, including the Historically Underutilized Business Zone Empowerment Contracting
(HUBZone) program. The HUBZone program is a small business federal contracting assistance
program “whose primary objective is job creation and increasing capital investment in distressed
communities.” It provides participating small businesses located in areas with low income, high
poverty rates, or high unemployment rates with contracting opportunities in the form of “set-
asides,” sole-source awards, and price-evaluation preferences.
In FY2009, the federal government awarded contracts valued at $13.1 billion to HUBZone
certified businesses, with $3.4 billion of that amount awarded through the HUBZone program.
The program’s total administrative cost is an estimated $11.7 million. In FY2010, it received an
appropriation of $2.2 million, with the additional cost of administering the program provided by
the SBA’s appropriation for general administrative expenses.
Congressional interest in the HUBZone program has increased in recent years, primarily due to
U.S. Government Accountability Office (GAO) reports of fraud in the program. Some Members
have called for the program’s termination. Others have recommended that the SBA continue its
efforts to improve its administration of the program, especially its efforts to prevent fraud.
This report examines the arguments presented both for and against targeting assistance to
geographic areas with specified characteristics, such as low income, high poverty, or high
unemployment, as opposed to providing assistance to people or businesses with specified
characteristics. It then assesses the arguments presented both for and against the creation and
continuation of the HUBZone program, starting with the arguments presented during
consideration of P.L. 105-135, the HUBZone Act of 1997 (Title VI of the Small Business
Reauthorization Act of 1997), which authorized the program.
The report also discusses the HUBZone program’s structure and operation, focusing on the
definitions of HUBZone areas and HUBZone small businesses and the program’s performance
relative to federal contracting goals. The report includes an analysis of (1) the SBA’s
administration of the program, (2) the SBA’s performance measures, and (3) the potential effect
of the 2010 decennial census on which areas qualify as a HUBZone.
Congressional actions on several bills during the 111th Congress are also examined, including S.
3020, the HUBZone Improvement Act of 2010, which would extend for three years HUBZone
eligibility for firms that lose their HUBZone eligibility due to the release of 2010 decennial
census economic data and require the SBA to implement several GAO recommendations
designed to improve the SBA’s administration of the program; and H.R. 5297, the Small Business
Jobs Act of 2010, which was signed into law (P.L. 111-240) by President Obama on September
27, 2010. It amends the Small Business Act to remove certain language that had prompted federal
courts and GAO to find that HUBZone set-asides have “precedence” over other small business
set-asides.
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Small Business Administration HUBZone Program

Contents
The HUBZone Program .............................................................................................................. 1
Targeting Assistance to Geographic Areas ................................................................................... 2
Discussion ............................................................................................................................ 3
The Debate Over HUBZones ................................................................................................ 5
HUBZone Areas Defined ............................................................................................................ 7
Qualified Census Tracts ........................................................................................................ 7
Qualified Non-metropolitan Counties .................................................................................... 8
Qualified Indian Reservation/Indian Country......................................................................... 9
Military Bases Closed Under BRAC ..................................................................................... 9
Difficult Development Areas............................................................................................... 10
Redesignated Areas ............................................................................................................. 10
HUBZone Businesses Defined .................................................................................................. 11
HUBZone Federal Contracting Goals ........................................................................................ 13
Congressional Issues ................................................................................................................. 15
Program Administration ...................................................................................................... 17
SBA’s Office of Inspector General Audits...................................................................... 17
GAO’s Audits ............................................................................................................... 18
Legislation .................................................................................................................... 21
Performance Measures ........................................................................................................ 22
Legislation .................................................................................................................... 24
The 2010 Decennial Census ................................................................................................ 25
Legislation .................................................................................................................... 26
Concluding Observations .......................................................................................................... 26

Tables
Table 1. Federal Contracting Goals and Percent of FY2009 Federal Contract Dollars
Awarded to Small Businesses, by Type................................................................................... 14

Contacts
Author Contact Information ...................................................................................................... 27

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Small Business Administration HUBZone Program

The HUBZone Program
The Small Business Administration (SBA) administers several programs to support small
businesses, including the Historically Underutilized Business Zone Empowerment Contracting
(HUBZone) program. The HUBZone program is a small business federal contracting assistance
program “whose primary objective is job creation and increasing capital investment in distressed
communities.”1 It provides participating small businesses located in areas with low income, high
poverty rates, or high unemployment rates with contracting opportunities in the form of “set-
asides,” sole-source awards, and price-evaluation preferences.2
The Competition in Contracting Act of 1984 generally requires “full and open competition” for
government procurement contracts.3 However, procurement set-asides are permissible
competitive procedures. A set-aside restricts competition for a federal contract to specified
contractors. Set-asides can be exclusive or partial, depending upon whether the entire
procurement, or just part of it, is so restricted. In this case, the competition may be restricted to
SBA-certified HUBZone businesses if there is a reasonable expectation of at least two SBA-
certified HUBZone bidders and a fair market price. It is the most commonly used mechanism in
the HUBZone program, accounting for about 86% of HUBZone program contracts and 70% of
HUBZone program contract dollars. A sole-source award is a federal contract awarded, or
proposed for award, without competition. Sole-source awards account for about 8% of HUBZone
program contracts and 4% of HUBZone program contract dollars. Also, in any full and open
competition for a federal contract “the price offered by a qualified HUBZone business shall be
deemed as being lower than the price of another offeror if the HUBZone business price offer is
not more than 10 percent higher than the other offer.”4 Price-evaluation preferences account for
about 6% of HUBZone program contracts and 26% of HUBZone program contract dollars.5
In FY2009, the federal government awarded contracts valued at $13.1 billion to HUBZone
certified businesses, with $3.4 billion of that amount awarded through the HUBZone program to
1,725 HUBZone-certified businesses.6 The program’s FY2010 total administrative cost is an

1 U.S. Small Business Administration, Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual
Performance Report
(Washington: GPO, 2010), p. 33.
2 Henry Beale and Nicola Deas, “The HUBZone Program Report,” Washington, DC: Microeconomic Applications,
Inc., prepared for the U.S. Small Business Administration, Office of Advocacy, May 2008, p. i, http://www.sba.gov/
advo/research/rs325tot.pdf. Sole-source awards under the HUBZone program can be made only if the anticipated award
price of the contract will not exceed $6.5 million for manufacturing contracts or $4.0 million for other contract
opportunities, and the contracting officer believes that the award can be made at a fair and reasonable price. See 13
C.F.R. § 126.612; 15 U.S.C. § 657a(b)(2)(A)(i)-(iii) (statutory requirements); 48 C.F.R. § 19.1306(a)(1)-(6) (increasing
the price thresholds, among other things); and Department of Defense, General Services Administration, and National
Aeronautics and Space Administration, “Federal Acquisition Regulation: Inflation Adjustment of Acquisition-Related
Thresholds,” 75 Federal Register 53129, August 30, 2010.
3 41 U.S.C. § 253(b)(1); and 41 U.S.C. § 259(b). For more on competition in federal contracting, see CRS Report
R40516, Competition in Federal Contracting: An Overview of the Legal Requirements, by Kate M. Manuel.
4 Henry Beale and Nicola Deas, “The HUBZone Program Report,” Washington, DC: Microeconomic Applications,
Inc., prepared for the U.S. Small Business Administration, Office of Advocacy, May 2008, p. i, http://www.sba.gov/
advo/research/rs325tot.pdf.
5 Ibid.
6 Federal procurement data generated from the U.S. General Services Administration, Federal Procurement Data
System - Next Generation, Washington, DC, https://www.fpds.gov/fpdsng/. HUBZone program data provided by the
U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the author, May 4, 2010.
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estimated $11.7 million. It received a FY2010 appropriation of $2.2 million, with the additional
cost of administering the program covered by the SBA’s appropriation for general administrative
expenses.7
Congressional interest in the HUBZone program has increased in recent years, primarily due to
U.S. Government Accountability Office (GAO) reports of fraud in the program. Some Members
have called for the program’s termination. Others have recommended that the SBA continue its
efforts to improve its administration of the program, especially its efforts to prevent fraud.8
This report examines the arguments presented both for and against targeting assistance to
geographic areas with specified characteristics, such as low income, high poverty, or high
unemployment, as opposed to providing assistance to people or businesses with specified
characteristics. It then assesses the arguments presented both for and against the creation and
continuation of the HUBZone program, starting with the arguments presented during
consideration of P.L. 105-135, the HUBZone Act of 1997 (Title VI of the Small Business
Reauthorization Act of 1997), which authorized the program.
The report also discusses the HUBZone program’s structure and operation, focusing on the
definitions of HUBZone areas and HUBZone small businesses and the program’s performance
relative to federal contracting goals. The report includes an analysis of (1) the SBA’s
administration of the program, (2) the SBA’s performance measures, and (3) the potential effect
of the 2010 decennial census on which areas qualify as a HUBZone.
Congressional actions on several bills during the 111th Congress are also examined, including S.
3020, the HUBZone Improvement Act of 2010, which would extend for three years HUBZone
eligibility for firms that lose their HUBZone eligibility due to the release of 2010 decennial
census economic data and require the SBA to implement several GAO recommendations
designed to improve the SBA’s administration of the program; and H.R. 5297, the Small Business
Jobs Act of 2010, which was signed into law (P.L. 111-240) by President Obama on September
27, 2010. It amends the Small Business Act to remove certain language that had prompted federal
courts and GAO to find that HUBZone set-asides have “precedence” over other small business
set-asides.
Targeting Assistance to Geographic Areas
The HUBZone program was authorized by P.L. 105-135, the HUBZone Act of 1997 (Title VI of
the Small Business Reauthorization Act of 1997).9 Senator Christopher S. “Kit” Bond, the

7 U.S. Small Business Administration, Fiscal Year 2011 Congressional Budget Justification and FY 2009 Annual
Performance Report
(Washington: GPO, 2010), pp. 18, 72. Note: Congress provides an appropriation for the SBA’s
non-credit programs ($185.3 million in FY2010) and includes guidance in its accompanying committee report
concerning funding for the HUBZone program. The FY2010 appropriation amount cited here ($2.2 million) is the
appropriation amount provided by the SBA in its FY2011 congressional budget justification report.
8 U.S. Congress, House Committee on Small Business, Full Committee Hearing on Oversight of the Small Business
Administration and Its Programs
, 111th Cong., 1st sess., March 25, 2009, Small Business Committee Doc. 111-012
(Washington: GPO, 2009), pp. 1-3, 28-31.
9 The SBA officially established the HUBZone program on March 22, 1999, when it began to accept applications from
businesses interested in participating in the program. The SBA certified its first HUBZone business on March 24, 1999.
The first HUBZone contract was issued on April 8, 1999. See U.S. Congress, Senate Committee on Small Business,
(continued...)
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legislation’s sponsor, described it as a “jobs bill and a welfare-to-work bill” designed to “create
realistic opportunities for moving people off of welfare and into meaningful jobs” in “inner cities
and rural counties that have low household incomes, high unemployment, and whose
communities have suffered from a lack of investment.”10 Its enactment was part of a broader
debate that had been underway since the late 1970s concerning whether the federal government
should target assistance to geographic areas with specified characteristics, such as low income,
high poverty, or high unemployment, as opposed to providing assistance to people or businesses
with specified characteristics.
Discussion
The idea of targeting government assistance to geographic areas with specified characteristics, as
opposed to targeting government assistance to people or businesses with specified characteristics,
has its origins in a British experiment in urban revitalization started during the late 1970s. In
1978, Sir Geoffrey Howe, a Conservative member of Parliament, argued for the establishment of
market-based enterprise zones, which provide government regulatory and tax relief, in
economically distressed areas as a means to encourage entrepreneurs “to pursue profit with
minimum governmental restrictions.”11 With the support of Prime Minister Margaret Thatcher’s
Conservative government (1979-1990), by the mid-1980s, more than two dozen enterprise zones
were operating in England. Evaluations of the British enterprise zones’ potential for having a
positive effect on the long-term economic growth of economically distressed areas suggested that
providing tax incentives and regulatory relief in those areas were “useful but not decisive
economic development tools for distressed communities.”12
In the United States, the idea of targeting regulatory and tax relief to economically distressed
places appealed to some liberals who had become frustrated by the lack of progress some
economically distressed communities had experienced under conventional government assistance
programs, such as federal grant-in-aid programs. They tended to view the idea as a supplement to
existing government assistance programs. Some conservatives also supported the idea of
providing additional regulatory and tax relief to geographic areas because it generally aligned
with their views on reducing government regulation and taxes. They tended to view it as a
replacement, as opposed to a supplement, for existing government assistance programs.13 As a
result, support for targeting federal assistance to economically distressed places came from a
diverse group of individuals and organizations that were often on opposing sides in other issue
areas. Some of its leading proponents were the Congressional Black Caucus; the National Urban
League; the National League of Cities; the National Association for the Advancement of Colored

(...continued)
Small Business Reauthorization Act of 2000, report to accompany S. 3121, 106th Cong., 2nd sess., September 27, 2000,
S.Rept. 106-422 (Washington: GPO, 2000), p. 20.
10 U.S. Congress, Senate Committee on Small Business, Small Business Reauthorization Act of 1997, report to
accompany S. 1139, 105th Cong., 1st sess., August 19, 1997, S.Rept. 105-62 (Washington: GPO, 1997), p. 25.
11 Marilyn Marks Rubin, “Can Reorchestration of Historical Themes Reinvent Government? A Case Study of the
Empowerment Zones and Enterprise Communities Act of 1993,” Public Administration Review, vol. 54, no. 2
(March/April 1994), p. 162. Note: Sir Peter Geoffrey Hall, the Bartlett Professor of Planning and Regeneration at the
Bartlett School of Architecture and Planning, University College London, is often credited for developing the concept
of empowerment zones.
12 Ibid.
13 Stuart M. Butler, Enterprise Zones: Greenlining the Inner Cities (New York: Universe Books, 1981).
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People; President Ronald Reagan; Republican Representative Jack Kemp, who introduced the
first enterprise zone bill in Congress in May 1980 (H.R. 7240, the Urban Jobs and Enterprise
Zone Act of 1980); and Democratic Representative Robert Garcia, who co-sponsored with
Representative Kemp H.R. 3824, the Urban Jobs and Enterprise Zone Act of 1981.14
Opponents noted that targeting government assistance, in this case regulatory and tax relief, to
economically distressed places would “provide incentives in designated areas, regardless of the
nature of the industry which would benefit from the incentives.”15 They argued that it would be
more efficient and cost effective to target federal assistance to businesses that offer primarily
high-wage, full-time jobs with benefits and have relatively high multiplier effects on job creation
than to offer the same benefits to all businesses, including those that offer primarily low-wage,
part-time jobs with few or no benefits and have relatively low multiplier effects on job creation.16
Others opposed the idea because they viewed it as a partisan extension of supply-side
economics.17 Others, including the National Federation of Independent Businesses, an
organization representing the interests of the nation’s small businesses, were not convinced that
providing “marginal rate reductions or marginal reductions in taxes” would “stimulate the entry
of new businesses into depressed areas.”18 Also, some economists argued that it would be more
efficient to let the private market determine where businesses locate rather than have the
government enact policies that encourage businesses to locate, or relocate, in areas they would
otherwise avoid. In their view, “the locational diversion of economic activity reduces or may
outweigh gains from the creation of economic activity.”19
These disagreements may have had a role in delaying the enactment of the first, fully functional
federal enterprise zone program until 1993 (P.L. 103-66, the Omnibus Budget Reconciliation Act
of 1993).20 In the meantime, 37 states and the District of Columbia had initiated their own

14 Ibid; U.S. Congress, House Committee on Ways and Means, The Enterprise Zone Tax Act of 1982, Message from the
President of the United States transmitting proposed legislation entitled, “The Enterprise Zone Tax Act of 1982”, 97th
Cong., 2nd sess., March 23, 1982, H.Doc. 97-157 (Washington: GPO, 1982), pp. 1-5; and U.S. Congress, House
Committee on Banking, Finance, and Urban Affairs, Subcommittee on the City, Urban Revitalization and Industrial
Policy
, 96th Cong., 2nd sess., September 17, 1980, Serial No. 96-72 (Washington: GPO, 1980), pp. 205-224.
15 U.S. Congress, House Committee on Banking, Finance, and Urban Affairs, Subcommittee on the City, Urban
Revitalization and Industrial Policy
, 96th Cong., 2nd sess., September 17, 1980, Serial No. 96-72 (Washington: GPO,
1980), p. 283.
16 Ibid.
17 Marilyn Marks Rubin, “Can Reorchestration of Historical Themes Reinvent Government? A Case Study of the
Empowerment Zones and Enterprise Communities Act of 1993,” Public Administration Review, vol. 54, no. 2
(March/April 1994), p. 163.
18 U.S. Congress, House Committee on Small Business, Subcommittee on Tax, Access to Equity Capital and Business
Opportunities, Job Creation and the Revitalization of Small Business, 97th Cong., 1st sess., September 15, 1981
(Washington: GPO, 1981), pp. 22, 23.
19 Herbert Grubel, “Review of Enterprise Zones: Greenlining the Inner Cities, by Stuart M. Butler,” Journal of
Economic Literature
, vol. XX (December 1982), p. 1616.
20 In 1987, Title VII of P.L. 100-242, the Housing and Community Development Act, authorized the Department of
Housing and Community Development (HUD) to coordinate the community development block grant, urban
development action grant, and other HUD programs and to provide the waiver or modification of housing and
community development rules in up to 100 HUD-designated enterprise zone communities. No enterprise zone
designations were subsequently made. See Marilyn Marks Rubin, “Can Reorchestration of Historical Themes Reinvent
Government? A Case Study of the Empowerment Zones and Enterprise Communities Act of 1993,” Public
Administration Review
, vol. 54, no. 2 (March/April 1994), p. 162.
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enterprise zone programs.21 Evaluations of their effect on job creation and the economic status of
the targeted distressed areas “provided conflicting conclusions, with some finding little or no
program-related impacts, and others finding gains in the zones associated with the enterprise zone
incentives.”22 Evaluations of federal enterprise zones would later reach similarly mixed
findings.23
The Debate Over HUBZones
The federal enterprise zone program’s enactment in 1993 established a precedent for the
enactment of other programs, such as the HUBZone program, that target federal assistance, in this
case government contracts, to places with specified characteristics. For example, the Senate
Committee on Small Business’s report accompanying the HUBZone program’s authorizing
legislation in 1997 presented many of the same arguments for adopting the HUBZone program
that had been presented for adopting the federal enterprise zone program:
Creating new jobs in economically distressed areas has been the greatest challenge for many
of our nation’s governors, mayors, and community leaders. The trend is for business to
locate in areas where there are customers and a skilled workforce. Asking a business to
locate in a distressed area often seems counter to its potential to be successful. But without
businesses in these communities, we don’t create jobs, and without sources of new jobs, we
are unlikely to have a successful revitalization effort.
The HUBZone program attempts to utilize a valuable government resource, a government
contract, and make it available to small businesses who agree in return to locate in an
economically distressed area and employ people from these areas…. Contracts to small
businesses in HUBZones can translate into thousands of job opportunities for persons who
are unemployed or underemployed.24
HUBZone opponents expressed many of the same arguments that were raised in opposition to
federal enterprise zones. For example, some Members opposed contract set-asides because they
“unfairly discriminate against more efficient producers” and argued that “lower taxes, fewer
mandates and freer markets are what stimulate the growth of small business.”25 Others argued that

21 Ibid.; and Sarah F. Liebschutz, “Empowerment Zones and Enterprise Communities: Reinventing Federalism for
Distressed Communities,” Publius: The Journal of Federalism, vol. 25, no. 3 (Summer 1995), p. 127.
22 Marilyn Marks Rubin, “Can Reorchestration of Historical Themes Reinvent Government? A Case Study of the
Empowerment Zones and Enterprise Communities Act of 1993,” Public Administration Review, vol. 54, no. 2
(March/April 1994), p. 164. Also see Sarah F. Liebschutz, “Empowerment Zones and Enterprise Communities:
Reinventing Federalism for Distressed Communities,” Publius: The Journal of Federalism, vol. 25, no. 3 (summer
1995), p. 128; and Edward L. Glaeser and Joshua D. Gottlieb, “The Economics of Place-Making Policies,” Brookings
Papers on Economic Activity
(spring 2008), p. 157.
23 U.S. Government Accountability Office, Community Development: Federal Revitalization Programs Are Being
Implemented, but Data on the Use of Tax Benefits Are Limited
, GAO-04-306, March 5, 2004, http://www.gao.gov/
new.items/d04306.pdf; U.S. Government Accountability Office, Empowerment Zone and Enterprise Community
Program: Improvements Occurred in Communities, but the Effect of the Program Is Unclear
, GAO-06-727, September
22, 2006, http://www.gao.gov/new.items/d06727.pdf; and U.S. Government Accountability Office, Revitalization
Programs: Empowerment Zones, Enterprise Communities, and Renewal Communities
, GAO-10-464R, March 12,
2010, http://www.gao.gov/new.items/d10464r.pdf.
24 U.S. Congress, Senate Committee on Small Business, Small Business Reauthorization Act of 1997, report to
accompany S. 1139, 105th Cong., 1st sess., August 19, 1997, S.Rept. 105-62 (Washington: GPO, 1997), p. 26.
25 U.S. Congress, Senate Committee on Small Business, S. 208, The HUBZone Act of 1997, 105th Cong., 1st sess.,
February 27, 1997, S.Hrg. 105-64 (Washington: GPO, 1997), p. 68.
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the experiences under enterprise zones suggested that HUBZones would have, at best, a limited
impact on the targeted area’s economic prospects:
the record of enterprise zones demonstrates that businesses that locate in an area because of
tax breaks or other artificial inducements (such as HUBZone contract preferences), instead of
genuine competitive advantages, generally prove not to be sustainable…. Thus, the
incentives generally go to businesses that would have located in and hired from the target
area anyway…. Therefore, we should be realistic about the impact the HUBZone legislation
will have on business relocation decisions.26
HUBZone critics also argued that it would compete with, and potentially diminish the
effectiveness of, the SBA’s Minority Small Business and Capital Ownership Development 8(a)
program.27 That program provides participating small businesses with training, technical
assistance, and contracting opportunities in the form of set-asides and sole-source awards.
Eligibility for the 8(a) program is generally limited to small businesses “unconditionally owned
and controlled by one or more socially and economically disadvantaged individuals who are of
good character and citizens of the United States” that demonstrate “potential for success.”28 Small
businesses owned by Indian tribes, Alaska Native Corporations, Native Hawaiian Organizations,
and Community Development Corporations are also eligible for the 8(a) program under
somewhat different terms. In FY2008, 9,462 firms participated in the 8(a) program, and the
federal government spent $6.3 billion on contracts with 8(a) firms.29
Others argued that the HUBZone self-certification process “while laudable in its effort to reduce
certification costs and delays, invites inadvertent or deliberate abuses.”30
As will be discussed in greater detail later, in recent years, the SBA’s administration of the
HUBZone program and the program’s effectiveness in assisting economically distressed areas
have been criticized. For example, the U.S. Government Accountability Office (GAO) has argued
that the program is subject to fraud and abuse and has recommended that the SBA “take
additional actions to certify and monitor HUBZone firms as well as to assess the results of the
HUBZone program.”31 Also, Representative Nydia M. Velázquez, chair of the House Committee
on Small Business, has argued that

26 Ibid., p. 36.
27 U.S. Congress, Senate Committee on Small Business, S. 1574, The HUBZone Act of 1996: Revitalizing Inner Cities
and Rural America
, 104th Cong., 2nd sess., March 21, 1996, S.Hrg. 104-480 (Washington: GPO, 1996), p. 17; U.S.
Congress, Senate Committee on Small Business, S. 208, The HUBZone Act of 1997, 105th Cong., 1st sess., February 27,
1997, S.Hrg. 105-64 (Washington: GPO, 1997), p. 15; and U.S. Congress, Senate Committee on Small Business, S.
208, The HUBZone Act of 1997
, 105th Cong., 1st sess., April 10, 1997, S.Hrg. 105-103 (Washington: GPO, 1997), pp.
20, 23, 26, 27, 33, 35, 77, 147, 149, 153-157.
28 13 C.F.R. § 124.101.
29 For further analysis of the 8(a) program, see CRS Report R40744, The “8(a) Program” for Small Businesses Owned
and Controlled by the Socially and Economically Disadvantaged: Legal Requirements and Issues
, by John R. Luckey
and Kate M. Manuel.
30 U.S. Congress, Senate Committee on Small Business, S. 208, The HUBZone Act of 1997, 105th Cong., 1st sess.,
February 27, 1997, S.Hrg. 105-64 (Washington: GPO, 1997), p. 36.
31 U.S. Government Accountability Office, HUBZone Program: Fraud and Abuse Identified in Four Metropolitan
Areas
, GAO-09-440, March 25, 2009, p. 5, http://www.gao.gov/new.items/d09440.pdf. Also see U.S. Government
Accountability Office, Small Business Administration: Undercover Tests Show HUBZone Program Remains
Vulnerable to Fraud and Abuse
, GAO-10-759, June 25, 2010, pp. 2, 4, 5, http://www.gao.gov/new.items/d10759.pdf;
U.S. Government Accountability Office, HUBZone Program: Fraud and Abuse Identified in Four Metropolitan Areas
(continued...)
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When first introduced, the HUBZone program promised to create opportunities for small
businesses in low-income communities. It was designed to do this by helping entrepreneurs
access the Federal marketplace. In theory, the benefits will be twofold; HUBZones will not
only bolster the small business community, but will also breathe new life into struggling
neighborhoods.
However, the program has been undermined by chronic underfunding, inherent program
flaws and sloppy management. Instead of being incubators for growth and development,
HUBZones have become breeding grounds for fraud and abuse.32
HUBZone Areas Defined
There are currently five HUBZone types (or classes):
• qualified census tracts (QCTs),
• qualified non-metropolitan counties,
• qualified Indian Reservations/Indian Country,
• military bases closed under the Base Realignment and Closure Act (BRAC), and
• difficult development areas (DDAs).33
In addition, QCTs and qualified non-metropolitan counties that lose their eligibility due to the
release of new economic data may temporarily retain their eligibility by becoming a redesignated
area.
Qualified Census Tracts
QCTs are determined by the U.S. Housing and Urban Development (HUD) for its low-income
housing tax credit program. The current criteria are
• at least 50% of households with income below 60% of the median gross income
of the metropolitan statistical area (in metropolitan census tracts) or the median

(...continued)
(congressional testimony), GAO-09-519T, March 25, 2009, pp. 2-9, http://www.gao.gov/new.items/d09519t.pdf; and
U.S. Government Accountability Office, Small Business Administration: Status of Efforts to Address Previous
Recommendations on the HUBZone Program
(congressional testimony), GAO-09-532T, March 25, 2009, pp. 1-3,
http://www.gao.gov/new.items/d09532t.pdf.
32 U.S. Congress, House Committee on Small Business, Full Committee Hearing on Oversight of the Small Business
Administration and Its Programs
, 111th Cong., 1st sess., March 25, 2009, Small Business Committee Doc. 111-012
(Washington: GPO, 2009), p. 1.
33 P.L. 105-135, the HUBZone Act of 1997 (Title VI of the Small Business Reauthorization Act of 1997) designated
qualified census tracts, qualified counties (originally only in non-metropolitan areas) and qualified Indian
Reservation/Indian Country (originally lands within the external boundaries of an Indian reservation) as eligible. P.L.
108-447, the Consolidated Appropriations Act, 2005, provided HUBZone eligibility for five years to bases closed
under the Base Realignment and Closure Act (BRAC). P.L. 109-59, the Safe, Accountable, Flexible, Efficient
Transportation Equity Act: A Legacy for Users, provided eligibility to difficult development areas outside of the
continental United States.
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gross income for all non-metropolitan areas of the state (in non-metropolitan
census tracts) or
• a poverty rate of at least 25%.34
About one-fifth (11,865) of all census tracts have QCT status.35 Because QCT eligibility is
derived from decennial census data, QCTs change relatively infrequently, typically as new data
from each decennial census becomes available and when the Census Bureau undertakes a new
delineation of census tracts. The Census Bureau typically reexamines its census tracts following
each decennial census in an effort to keep them homogeneous with respect to population
characteristics, economic status, and living conditions.36 As a result of this delineation process,
some census tracts may be enlarged and others may be split into two or more census tracts. This
can cause a change in the census tract’s QCT status. The typical census tract has between 1,500
and 8,000 persons.
Qualified Non-metropolitan Counties
A qualified non-metropolitan county is any county that “was not located in a metropolitan
statistical area at the time of the most recent census taken for purposes of selecting qualified
census tracts under section 42(d)(5)(C)(ii) of the Internal Revenue Code of 1986,” and in which
• the median household income is less than 80% of the non-metropolitan state
median household income, based on the most recent data available from the
Bureau of the Census of the Department of Commerce or
• the unemployment rate is not less than 140% of the average unemployment rate
for the United States or for the state in which such county is located, whichever is
less, based on the most recent data available from the Secretary of Labor.37
About 44% (1,327) of all counties have qualified non-metropolitan county status.38
The non-metropolitan county’s median household income is derived from decennial Census data.
If a county qualifies on this basis, its HUBZone status “is secure until publication of the data from
the following census.”39 The non-metropolitan county’s unemployment rate is derived from
annual data released by the Department of Labor’s Bureau of Labor Statistics. As a result, if a
county qualifies, or fails to qualify, on this basis, its HUBZone status can change as new data is
released. As will be discussed, Congress created redesignated areas to delay the loss of HUBZone
status for areas that lose HUBZone eligibility due to the release of new economic data.

34 13 C.F.R. § 126.103 and 26 U.S.C. § 42(d)(5)(C)(i).
35 Data provided by the U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the
author, May 4, 2010.
36 U.S. Census Bureau, “Census Tracts and Block Numbering Areas,” Washington, DC, http://www.census.gov/geo/
www/cen_tract.html.
37 13 C.F.R. § 126.103.
38 Data provided by the U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the
author, May 4, 2010.
39 Henry Beale and Nicola Deas, “The HUBZone Program Report,” Washington, DC: Microeconomic Applications,
Inc., prepared for the U.S. Small Business Administration, Office of Advocacy, May 2008, p. 146, http://www.sba.gov/
advo/research/rs325tot.pdf.
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The qualified non-metropolitan county designation is the only type of HUBZone that is
determined by the SBA. The formula is set in law and the data is derived from other agencies, but
the designation is made by the SBA.40
Qualified Indian Reservation/Indian Country
P.L. 105-135, the HUBZone Act of 1997 (Title VI of the Small Business Reauthorization Act of
1997), provided HUBZone eligibility to “lands within the external boundaries of an Indian
reservation.” Since then, the term “Indian reservation” has been clarified and expanded to include
• Indian trust lands and other lands covered under the term “Indian Country” as
used by the Bureau of Indian Affairs,
• portions of the state of Oklahoma designated as former Indian reservations by the
Internal Revenue Service (Oklahoma tribal statistical areas), and
• Alaska Native village statistical areas.41
There are 659 qualified Indian reservations, Oklahoma tribal statistical areas, and Alaska Native
village statistical areas.42 A private firm’s analysis of Indian reservation’s economic
characteristics conducted on behalf of the SBA indicated that
for the most part—and particularly in states where reservations are numerous and
extensive—mean income of reservations is far below state levels, and unemployment rates
and poverty rates are far above state levels. There are some interesting exceptions, however,
where reservations are basically on a par with the states they are in. Examples include Osage
reservation in Oklahoma and reservations in Connecticut, Rhode Island, and Michigan. The
factors at work here may be casinos and oil.43
Military Bases Closed Under BRAC
P.L. 108-447, the Consolidated Appropriations Act, 2005, provided HUBZone eligibility for five
years to “lands within the external boundaries of a military installation closed through a
privatization process” under the authority of P.L. 101-510, the Defense Base Closure and
Realignment Act of 1990 (BRAC—Title XXIX of the National Defense Authorization Act for
Fiscal Year 1991). The military base’s HUBZone eligibility commences on the effective date of
the law (December 8, 2004) if the military base was already closed at that time, or on the date of
formal closure if the military base was still operational at that time.

40 Ibid., p. 146. About 13% of qualified non-metropolitan counties were redesignated in 2003 as a metropolitan county
due to a change in the criteria for determining metropolitan county status. Those counties were allowed to retain their
HUBZone status pending the results of the 2010 decennial census.
41 Ibid., p. 160.
42 Data provided by the U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the
author, May 4, 2010.
43 Henry Beale and Nicola Deas, “The HUBZone Program Report,” Washington, DC: Microeconomic Applications,
Inc., prepared for the U.S. Small Business Administration, Office of Advocacy, May 2008, p. 163, http://www.sba.gov/
advo/research/rs325tot.pdf.
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Two military bases closed under BRAC are currently designated as a HUBZone.44 It is
anticipated that the provision of HUBZone eligibility to military bases closed under BRAC will
be most useful to the 20 military bases targeted for closure during the 2005 BRAC round of
closure reviews, “since the HUBZone status can be factored into the planning for the facility’s
use.”45 The most common projected final closure date for military bases under the 2005 BRAC
round is during 2011.46
Difficult Development Areas
P.L. 109-59, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for
Users (SAFETEA), provided HUBZone eligibility to difficult development areas (DDAs) within
“Alaska, Hawaii, or any territory or possession of the United States outside the 48 contiguous
states.”47 These areas are designated annually by the Secretary of HUD “in accordance with
section 42(d)(5)(C)(iii) of the Internal Revenue Code” which applies to HUD’s low-income
housing tax credit program.48 This section of the Internal Revenue Code defines a DDA “as areas
designated by the Secretary of Housing and Urban Development as having high construction,
land, and utility costs relative to area median gross income.”49 These areas may not exceed 20%
of the population of a metropolitan statistical area or of a non-metropolitan area.
There are 67 HUBZone DDAs.50 Most of Alaska (26 boroughs), American Samoa (4 districts),
Hawaii (4 counties), much of Puerto Rico (25 counties), and all areas of the other U.S. territories
and possessions are currently designated as a DDA.51
Redesignated Areas
One of the implicit goals of the HUBZone program is to improve the economic standing of the
geographic areas receiving assistance so that they are no longer an economically distressed area.
As a result, it could be argued that it is a program success when a QCT or a qualified non-
metropolitan county loses its qualification as a HUBZone area when new economic data are

44 Data provided by the U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the
author, May 4, 2010.
45 Henry Beale and Nicola Deas, “The HUBZone Program Report,” Washington, DC: Microeconomic Applications,
Inc., prepared for the U.S. Small Business Administration, Office of Advocacy, May 2008, p. 171, http://www.sba.gov/
advo/research/rs325tot.pdf.
46 Ibid.
47 P.L. 109-59, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users.
48 Ibid.
49 U.S. Department of Housing and Urban Development, “Statutorily Mandated Designation of Difficult Development
Areas and Qualified Census Tracts for 2010,” 74 Federal Register 51305, October 6, 2009. Note: In making this
determination, HUD calculates a ratio for each metropolitan area and non-metropolitan county of the fair market rent
(based on the 40th-percentile gross rent paid by recent movers to live in a two-bedroom apartment) to the monthly low-
income housing tax credit-based rent limit, which was calculated as three-twelfths of 30% of 120% of the area’s very
low-income households (which is based on 50% of area’s median gross income).
50 Data provided by the U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the
author, May 4, 2010.
51 U.S. Small Business Administration, “HUBZone Program Map,” Washington, DC, http://map.sba.gov/hubzone/
init.asp; and U.S. Department of Housing and Urban Development, “Qualified Census Tract Table Generator: Difficult
Development Area Tables,” Washington, DC, http://qct.huduser.org/.
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published. However, because “small business concerns that locate to a HUBZone may lose their
eligibility in only one year due to changes in such data” and out of concern that some HUBZone
areas could “shift in and out of eligibility year after year,” Congress included a provision in P.L.
106-554, the HUBZones in Native America Act of 2000 (Title VI, the Consolidated
Appropriations Act, 2001), to address this issue.52 The provision provided census tracts and non-
metropolitan counties that lose HUBZone eligibility due to the release of new economic data an
automatic extension “for the 3-year period following the date on which the census tract or
nonmetropolitan county ceased to be so qualified.”53 The act labeled census tracts and non-
metropolitan counties that receive an extension of HUBZone eligibility “redesignated areas.”
Subsequently, P.L. 108-447, the Consolidated Appropriations Act, 2005, effectively extended the
eligibility of HUBZone redesignated areas by allowing them to retain eligibility for three years or
until the public release of data from the 2010 Census, whichever is later:
Redesignated area means any census tract or any non-metropolitan county that ceases to be a
qualified HUBZone, except that such census tracts or nonmetropolitan counties may be
‘‘redesignated areas’’ only until the later of: (1) The date on which the Census Bureau
publicly releases the first results from the 2010 decennial census; or (2) Three years after the
date on which the census tract or non-metropolitan county ceased to be so qualified.
The date on which the census tract or non-metropolitan county ceases to be qualified is the
date that the official government data, which affects the eligibility of the HUBZone, is
released to the public.54
In 2008, GAO compared the economic characteristics of QCTs and qualified non-metropolitan
counties to redesignated areas. It reported that it “found a marked difference” in their economic
characteristics. For example, GAO reported that approximately 60% of QCTs (excluding
redesignated areas) had a poverty rate of 30% or more compared to approximately 4% of
redesignated QCTs. Also, about 75% of QCTs (excluding redesignated areas) had a median
household income that was less than 60% of the metropolitan area median household income
compared to about 10% of redesignated QCTs.55
HUBZone Businesses Defined
Firms must be certified by the SBA to participate in the HUBZone program. There are currently
7,567 certified HUBZone businesses.56 To become certified, firms complete and submit specified
SBA HUBZone application forms to the SBA, either online or by mail. Firms must
• meet SBA size standards for the firm’s primary industry classification;

52 U.S. Small Business Administration, “Small Business Size Regulations; Government Contracting Programs;
HUBZone Program,” 67 Federal Register 3828, January 28, 2002.
53 P.L. 106-554, the HUBZones in Native America Act of 2000 (Title VI, the Consolidated Appropriations Act, 2001).
54 13 C.F.R. § 126.103.
55 U.S. Government Accountability Office, Small Business Administration: Additional Actions are Needed to Certify
and Monitor HUBZone Businesses and Assess Program Results
, GAO-08-643, June 17, 2008, p. 18,
http://www.gao.gov/new.items/d08643.pdf.
56 Data provided by the U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the
author, May 4, 2010.
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• be at least 51% owned and controlled by U.S. citizens, or a Community
Development Corporation, an agricultural cooperative, or an Indian tribe
(including Alaska Native Corporations and Native Hawaiian Organizations);
• maintain a principal office located in a HUBZone;
• ensure that at least 35% of its employees reside in a HUBZone;57
• represent, as provided in the application, that it will “attempt to maintain” having
35% of its employees reside in a HUBZone during the performance of any
HUBZone contract it receives;
• represent, as provided in the application, that it will ensure that it will comply
with certain contract performance requirements in connection with contracts
awarded to it as a qualified HUBZone small business concern (such as spending
at least 50% of the cost of the contract incurred for personnel on its own
employees or employees of other qualified HUBZone small business concerns
and meeting specified subcontracting limitations to nonqualified HUBZone small
business concerns);
• provide an active up-to-date Dun and Bradstreet profile and Data Universal
Numbering System (DUNS) number that represents the business; and
• provide an active Central Contractor Registration profile for the business.58
Until recently, the SBA’s goal was to make its determination within 30 calendar days after receipt
of a complete application package, subject to the need for additional information or clarification
of information contained in the application. As will be discussed, in response to reports of
applicant fraud, the SBA has reengineered its applicant review process and now takes, depending
on the complexity of the application and the need for additional information, from 5 to 12 months
to make its determination.
If the SBA approves the application, it will send a written notice to the business and automatically
enter it on a list of certified HUBZone businesses. A decision to deny eligibility must be in
writing, and state the specific reasons for denial.59
Until recently, the SBA’s staff conducted random program examinations “to verify the accuracy
of any certification made or information provided as part of the HUBZone application process, or
in connection with a HUBZone contract.”60 Examiners typically verified that the business met the
program’s eligibility requirements, and that it met such requirements at the time of its application
for certification, its most recent recertification, or its certification in connection with a HUBZone

57 Employees must live in a primary residence within that area for at least 180 days or be a currently registered voter in
that area. The HUBZone definition of employee changed on May 3, 2010. Previously, the definition was based on full-
time equivalency and only permanent positions were counted. Effective May 3, 2010, “employee means all individuals
employed on a full-time, part-time, or other basis, so long as that individual works a minimum of 40 hours per month.
This includes employees obtained from a temporary employee agency, leasing concern, or through a union agreement
or co-employed pursuant to a professional employer organization agreement.” See U.S. Small Business Administration,
“HUBZone and Government Contracting,” 74 Federal Register 56702, November 3, 2009.
58 13 C.F.R. § 126.200.
59 13 C.F.R. § 126.306.
60 13 C.F.R. § 126.401.
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contract.61 In response to reports of fraud, the SBA, in addition to reengineering its applicant
review process, now conducts program examinations of all firms that received a HUBZone
contract in the previous fiscal year.62
Certified HUBZone small business concerns must recertify every three years to the SBA that they
meet the requirements for being a HUBZone business.63 They must also immediately notify the
SBA of any material change that could affect their eligibility, such as a change in the ownership,
business structure, or principal office of the concern, or a failure to meet the 35% HUBZone
residency requirement.64
HUBZone Federal Contracting Goals
Since 1978, federal agency heads have been required “to establish goals for small business
participation in specified federal procurement contracts and to consult with and report to the SBA
about such goals and their realization.”65 In 1988, Congress authorized the President to annually
establish government-wide minimum participation goals for procurement contracts awarded to
small businesses and small businesses owned and controlled by socially and economically
disadvantaged individuals. Congress required the government-wide minimum participation goal
for small businesses to be “not less than 20% of the total value of all prime contract awards for
each fiscal year” and “not less than 5% of the total value of all prime contract and subcontract
awards for each fiscal year” for small businesses owned and controlled by socially and
economically disadvantaged individuals.66 Each federal agency was directed to “have an annual
goal that presents, for that agency, the maximum practicable opportunity for small business
concerns and small business concerns owned and controlled by socially and economically
disadvantaged individuals to participate in the performance of contracts let by such agency.”67
The SBA was also required to report to the President annually on the attainment of the goals and
to include the information in an annual report to the Congress.68
The SBA negotiates contracting goals with each federal agency and evaluates the agencies’
performance against these goals annually, using data from the Federal Procurement Data System
– Next Generation, managed by the U.S. General Services Administration. This information is
compiled into the official Small Business Goaling Report, which the SBA releases annually.
There are no punitive consequences for not meeting the small business procurement goals.
However, the SBA’s Small Business Goaling Report is distributed widely, receives media
attention, and serves to heighten public awareness of the issue of small business contracting. For
example, agency performance as reported in the SBA’s Small Business Goaling Report is often

61 Ibid.
62 U.S. Small Business Administration, Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual
Performance Report
, Washington, DC, pp. 72, 73, http://www.sba.gov/idc/groups/public/documents/sba_homepage/
fy_2011_cbj_09_apr.pdf.
63 13 C.F.R. § 126.500.
64 13 C.F.R. § 126.501.
65 P.L. 95-507, a bill to amend the Small Business Act and the Small Business Investment Act of 1958.
66 P.L. 100-656, the Business Opportunity Development Reform Act of 1988.
67 Ibid.
68 Ibid.
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cited by Members during their questioning of federal agency witnesses during congressional
hearings.
P.L. 105-135, the HUBZone Act of 1997 (Title VI of the Small Business Reauthorization Act of
1997), increased the federal government-wide goal for contracting with small businesses from
20% to 23%. It also established the following contracting goals for the HUBZone program: not
less than 1% of the total value of all prime contract awards for FY1999, not less than 1.5% for
FY2000, not less than 2% for FY2001, not less than 2.5% for FY2002, and not less than 3% for
FY2003 and each fiscal year thereafter. P.L. 111-240, the Small Business Jobs Act of 2010,
amended the HUBZone contracting goal to include the total value of all prime contract awards
and subcontract awards.69
The current federal small business contracting goals are
• at least 23% of the total value of all prime contact awards to small businesses for
each fiscal year,
• 5% of the total value of all prime contact awards and subcontract awards to small
disadvantaged businesses for each fiscal year,
• 5% of the total value of all prime contact awards and subcontract awards to
women-owned small businesses,
• 3% of the total value of all prime contact awards and subcontract awards to
HUBZone small businesses, and
• 3% of the total value of all prime contact awards and subcontract awards to
service-disabled veteran-owned small businesses.70
As shown in Table 1, in FY2009, federal agencies met the federal contracting goal for small
disadvantaged businesses, but not the other goals. Federal agencies awarded 19.9% of the value
of their contracts to small businesses, 6.2% to small disadvantaged businesses, 3.8% to women-
owned small businesses, 2.4% to HUBZone small businesses, and 1.8% to service-disabled
veteran-owned small businesses.71
Table 1. Federal Contracting Goals and Percent of FY2009 Federal Contract Dollars
Awarded to Small Businesses, by Type
Percentage of FY2009
Business Type
Federal Goal
Federal Contract Dollars
Smal Businesses
23.0%
19.9%
Smal Disadvantaged Businesses
5.0%
6.2%
Women-Owned Small
5.0% 3.8%
Businesses
HUBZone Smal Businesses
3.0%
2.4%

69 P.L. 111-240, the Small Business Jobs Act of 2010, Sec. 1347. Small Business Contracting Parity.
70 15 U.S.C. § 644(g)(1)-(2).
71 U.S. General Services Administration, Federal Procurement Data System - Next Generation, Washington, DC,
https://www.fpds.gov/fpdsng/.
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Percentage of FY2009
Business Type
Federal Goal
Federal Contract Dollars
Service-Disabled Veteran-
3.0% 1.8%
Owned Smal Businesses
Source: U.S. Smal Business Administration, “FY2008 Government-Wide Scorecard,” Washington, DC,
http://www.sba.gov/idc/groups/public/documents/sba_homepage/goals_08_gov_wide.pdf (federal goals); and U.S.
General Services Administration, Federal Procurement Data System - Next Generation, Washington, DC,
https://www.fpds.gov/fpdsng/ (contract dollars).
Note: By statute, in FY2009, federal contracting goals for small businesses overall and for HUBZone small
businesses do not include the value of subcontract awards.
Congressional Issues
As mentioned previously, congressional interest in the HUBZone program has increased in recent
years, primarily due to reports of fraud in the program. GAO was asked by Congress to review
the SBA’s administration of the HUBZone program and it has issued several recommendations
designed to strengthen the SBA’s fraud control measures.72 GAO has also argued that the SBA
lacks adequate performance measures to determine the HUBZone program’s effect on the
economically distressed areas it is designed to assist.73
Another issue of congressional interest is the potential effect of the release of 2010 decennial
census data on HUBZone area eligibility. About one-third of QCTs (3,364 of 9,964) lost their
HUBZone eligibility following the release of the 2000 decennial census data and almost as many
census tracts (3,313) gained HUBZone eligibility.74
As will be discussed, Congress is currently considering legislation that would require the SBA to
implement GAO’s recommendations concerning the SBA’s administration of the program and to
revise the SBA’s HUBZone performance measures. Congress is also considering legislation that
would extend HUBZone eligibility for those HUBZone areas that lose eligibility due to the
release of 2010 decennial census data.
In addition, Congress recently addressed the potential consequence of two Court of Federal
Claims decisions that directed federal agencies to provide HUBZone set-asides preference when
two or more set-aside programs could potentially be used.75 Providing the HUBZone program

72 U.S. Government Accountability Office, HUBZone Program: Fraud and Abuse Identified in Four Metropolitan
Areas
, GAO-09-519T, March 25, 2009, p. 2, http://www.gao.gov/new.items/d09519t.pdf.
73 U.S. Government Accountability Office, Small Business Administration: Additional Actions are Needed to Certify
and Monitor HUBZone Businesses and Assess Program Results, GAO-08-643, June 17, 2008, pp. 3-5, 22-30, 33-37,
http://www.gao.gov/new.items/d08643.pdf; U.S. Government Accountability Office, Small Business Administration:
Status of Efforts to Address Previous Recommendations on the HUBZone Program, GAO-09-532T, March 25, 2009,
pp. 3, 8, 9, http://www.gao.gov/new.items/d09532t.pdf; and U.S. Government Accountability Office, Small Business
Administration: Undercover Tests Show HUBZone Program Remains Vulnerable to Fraud and Abuse, GAO-10-759,
June 25, 2010, http://www.gao.gov/new.items/d10759.pdf.
74 Henry Beale and Nicola Deas, “The HUBZone Program Report,” Washington, DC: Microeconomic Applications,
Inc., prepared for the U.S. Small Business Administration, Office of Advocacy, May 2008, p. 136, http://www.sba.gov/
advo/research/rs325tot.pdf.
75DGR Assocs., Inc. v. United States, 2010 U.S. Claims LEXIS 588 (August 13, 2010); and Mission Critical Solutions
v. United States
, 2010 U.S. Claims LEXIS 36 (March 2, 2010).
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preference over other small business contracting programs could have resulted in an increase in
the percentage of federal contract dollars awarded to HUBZone small businesses and a decrease
in the percentage of federal contract dollars awarded to other small businesses. P.L. 111-240, the
Small Business Jobs Act of 2010, amended the Small Business Act (15 U.S.C. 657a(b)(2)(B)) to
remove the language that the court relied upon in finding that HUBZone set-asides have
“precedence.” Specifically, P.L. 111-240 struck “a contract opportunity shall” and replaced it with
“a contract opportunity may.”76 The court had ruled that the use of the word shall made the
HUBZone program mandatory, whereas the use of the word may in the Section 8(a) contracting
program for small businesses owned and controlled by the socially and economically
disadvantaged made it a discretionary program, and mandatory programs took precedence over
discretionary ones.77
A related procurement issue is the potential consequence of changes to the definition used to
determine eligibility for the SBA’s 7(a) and 504/CDC programs for the federal government’s
small business procurement goaling program. P.L. 111-240, established an alternative size
standard for the 7(a) and 504/CDC programs, which is expected to increase the number of
businesses that are considered small. It could be argued that increasing the number of businesses
considered small will make it easier for federal agencies to meet their goal of awarding at least
3% of the total value of all prime contact awards and subcontract awards to HUBZone small
businesses. In addition, on October 1, 2010, the maximum contract award amounts that federal
officials can set-aside for sole source awards under various small business contracting programs
were increased to adjust for inflation.78 For example, the maximum sole source contract award
amounts for the HUBZone program were increased from not exceeding $5.5 million for
manufacturing contracts or $3.5 million for other contract opportunities to not exceeding $6.5
million for manufacturing contracts or $4.0 million for other contract opportunities. It could be
argued that these changes will make it difficult to compare the results of the federal government’s
small business procurement goaling program with previous year results and diminishes the
goaling program’s value as a tool to measure federal agency progress in awarding contracts to
small businesses. It is possible that Congress may consider proposals to adjust the goals to
account for these changes.

76 For further information and legal analysis, see CRS Report R40591, Set-Asides for Small Businesses: Recent
Developments in the Law Regarding Precedence Among the Set-Aside Programs and Set-Asides Under Indefinite-
Delivery/Indefinite-Quantity Contracts
, by Kate M. Manuel. Also see U.S. Government Accountability Office, Mission
Critical Solutions
, B-401057, May 4, 2009, http://www.gao.gov/decisions/bidpro/401057.pdf; and Office of Legal
Counsel, Department of Justice, “Permissibility of Small Business Administration Regulations Implementing the
Historically Underutilized Business Zone, 8(a) Business Development, and Service-Disabled Veteran-Owned Small
Business Concern Programs,” August 21, 2009, http://www.justice.gov/olc/2009/sba-hubzone-opinion082109.pdf.
77 For further analysis of the 8(a) program, see CRS Report R40744, The “8(a) Program” for Small Businesses Owned
and Controlled by the Socially and Economically Disadvantaged: Legal Requirements and Issues
, by John R. Luckey
and Kate M. Manuel.
78 P.L. 108-375, Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Sec. 807. Inflation
adjustment of acquisition-related dollar thresholds requires an adjustment for inflation every five years of all
acquisition-related thresholds. See Department of Defense, General Services Administration, and National Aeronautics
and Space Administration, “Federal Acquisition Regulation: Inflation Adjustment of Acquisition-Related Thresholds,”
75 Federal Register 53129, August 30, 2010.
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Program Administration
SBA’s Office of Inspector General Audits
The SBA’s administration of the HUBZone program has been criticized for a number of years. In
2003, the SBA’s Office of Inspector General (OIG) completed an audit of 15 HUBZone firms
operating in Idaho Falls, ID, after receiving a complaint that a relatively large number of certified
HUBZone firms in that city may not be qualified to participate in the program.79 At that time,
HUBZone businesses self-certified in their application materials that they met the requirements
for being a HUBZone business. Validating documentation, such as a copy of a business owner’s
birth certificate as proof of U.S. citizenship or a copy of the lease agreement to verify the
business concern’s principal office’s location within a qualified HUBZone, were not required.
The SBA OIG’s audit found that
over two-thirds of the 15 subject companies were either not in compliance with HUBZone
eligibility requirements or had presumably gone out of business. We also found that the
Office of HUBZone Empowerment’s internal controls were inadequate to ensure that only
eligible firms are certified and remain certified. Therefore, there is little assurance that the
program will provide increased employment, investment and economic development for
depressed areas. Since ineligible companies could receive HUBZone contracts, the program
is also vulnerable to federal contacting fraud.80
As a result of that audit, the SBA revised its program examination and recertification processes to
provide “a more careful review” of HUBZone applications and implemented an online
application process that was designed to “prescreen” potential applicants, “resulting in only those
most-qualified actually submitting a completed application.”81 Citing the efficiencies brought
about by the automation of HUBZone applications, the SBA reduced the number of staff in the
Office of the HUBZone Program, which was responsible for program examinations, from 12 full-
time equivalent employees in 2004 to eight in 2006.82
In 2006, the SBA OIG reported that there was a two-year backlog in HUBZone program
examinations. It reported that it was concerned “that workload resources had not been adequately
devoted to eliminating this two-year backlog” and firms that should be decertified from the
program remained on the list of certified HUBZone businesses and potentially were
“inappropriately receiving HUBZone contracts between the time they are initially certified and
subsequently examined/recertified.”83

79 U.S. Small Business Administration, Office of the Inspector General, “Audit Report of the Eligibility of 15
HUBZone Companies and a Review of the HUBZone Empowerment Contracting Program’s Internal Controls,”
Washington, DC, January 22, 2003, http://www.sba.gov/idc/groups/public/documents/sba/oig_gcbd_03-05.pdf.
80 Ibid., p. 3.
81 U.S. Small Business Administration, Office of the Inspector General, “HUBZone Program Examination and
Recertification Processes,” Washington, DC, May 23, 2006, p. 5, http://www.sba.gov/idc/groups/public/documents/sba/
oig_gcbd_6-23.pdf.
82 U.S. Small Business Administration, “SBA Budget Request & Performance Plan: FY2004 Congressional
Submission,” Washington, DC, p. 44, http://www.sba.gov/idc/groups/public/documents/sba_homepage/
serv_abt_budget_3.pdf.
83 U.S. Small Business Administration, Office of the Inspector General, “HUBZone Program Examination and
Recertification Processes,” Washington, DC, May 23, 2006, pp. 3, 6, http://www.sba.gov/idc/groups/public/documents/
sba/oig_gcbd_6-23.pdf.
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As a result of the SBA OIG’s second, follow-up audit of the HUBZone program, the SBA
committed to reviewing 5% of all certifications “through a full-scale program of examinations.”84
The audit also resulted in heightened congressional attention to the issue of potential fraud within
the HUBZone program.
GAO’s Audits
In 2007, Representative Nydia M. Velázquez, chair of the House Committee on Small Business,
asked GAO to review the HUBZone program, including the criteria and processes that the SBA
uses to identify and map HUBZone areas, the mechanisms the SBA uses to ensure that only
eligible small businesses participate in the program, and the actions the SBA has taken to assess
the program’s results.85
GAO conducted its audit of the SBA’s administration of the HUBZone program from August
2007 through June 2008. It reported on June 17, 2008, that
• the map used by the SBA to publicize qualified HUBZone areas was inaccurate,
resulting in ineligible small businesses participating in the program and
excluding eligible businesses;
• the mechanisms used by the SBA to certify and monitor HUBZone firms
provided limited assurance that only eligible firms participated in the program;
• the SBA had not complied with its own policy of recertifying HUBZone firms
every three years (about 40% of those firms had not been recertified); and
• the SBA lacked formal guidance that would specify a time frame for processing
HUBZone firm decertifications (1,400 of 3,600 firms proposed for decertification
had not been processed within the SBA’s self-imposed goal of 60 days).86
GAO released another report on the HUBZone program on July 17, 2008. It reported that it had
“identified substantial vulnerabilities in SBA’s application and monitoring process, clearly
demonstrating that the HUBZone program is vulnerable to fraud and abuse.”87 Using fictitious
employee information and fabricated documentation, GAO obtained HUBZone certification for
four bogus firms. In one of its applications, GAO claimed that its principal office was the same
address as a coffee store that happened to be located in a HUBZone. GAO argued that if the SBA
“had performed a simple Internet search on the address, it would have been alerted to this fact.”88
Two of GAO’s applications used leased mailboxes from retail postal services centers. GAO
argued that “a post office box clearly does not meet SBA’s principal office requirement.”89 In

84 U.S. Congress, House Committee on Small Business, Full Committee Hearing to Consider Legislation Updating and
Improving the SBA’s Contracting Programs
, 110th Cong., 1st sess., October 4, 2007, Serial Number 110-50
(Washington: GPO, 2007), p. 6.
85 U.S. Government Accountability Office, Small Business Administration: Additional Actions are Needed to Certify
and Monitor HUBZone Businesses and Assess Program Results
, GAO-08-643, June 17, 2008, p. i, http://www.gao.gov/
new.items/d08643.pdf.
86 Ibid., pp. 1-5.
87 U.S. Government Accountability Office, HUBZone Program: SBA’s Control Weaknesses Exposed the Government
to Fraud and Abuse
, GAO-08-964T, July 17, 2008, pp. i, 4, 5, 7-9, http://www.gao.gov/new.items/d08964t.pdf.
88 Ibid.
89 Ibid.
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addition, it identified “10 firms from the Washington, D.C. metro area that were participating in
the HUBZone program even though they clearly did not meet eligibility requirements.”90
The SBA responded to GAO’s findings by announcing that it would undertake “a complete re-
engineering of the program” designed to
• ensure that its HUBZone maps were up-to-date, and
• minimize program risk by collecting additional supporting documentation of all
HUBZone applicants to support program eligibility.91
In response to GAO’s findings and the SBA’s response to those findings, Representative
Velázquez asked GAO to determine “whether cases of fraud and abuse in the HUBZone program
exist outside of the Washington, D.C. metropolitan area” and to assess the SBA’s efforts to
establish an effective fraud prevention system for the HUBZone program.92
On March 25, 2009, GAO reported that, as of that date
• the SBA had updated its HUBZone map but had not implemented procedures to
ensure that it remains accurate,
• had made little progress in ensuring the eligibility of firms in the HUBZone
program, and
• had eliminated its backlog of recertifications but had not established a process or
procedures to prevent future backlogs.93
GAO also reported that it had selected four geographical areas for analysis to determine whether
cases of fraud and abuse exist for HUBZone businesses located outside of the Washington, DC,
metropolitan area: Dallas, TX; Huntsville, AL; San Antonio, TX; and San Diego, CA. GAO
conducted its analysis of HUBZone businesses in those four areas from September 2008 through
March 2009. GAO reported that it found “fraud and abuse” in all four metropolitan areas,
including 19 firms that “clearly are not eligible” and highlighted 10 firms that it “found to be
egregiously out of compliance with HUBZone program requirements.”94
The SBA responded to GAO’s audits and congressional criticism of its administration of the
HUBZone program by “reengineering business processes to reduce fraud and abuse within the
program.”95 In 2009, it “moved from verifying a sample of HUBZone firms to verifications of

90 Ibid., pp. 5, 10-20.
91 U.S. Small Business Administration, Fiscal Year 2010 Congressional Budget Justification, Washington, DC, p. 65,
http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_budget_2010_justification.pdf.
92 U.S. Government Accountability Office, HUBZone Program: Fraud and Abuse Identified in Four Metropolitan
Areas
, GAO-09-440, March 25, 2009, p. 2, http://www.gao.gov/new.items/d09440.pdf.
93 U.S. Government Accountability Office, Small Business Administration: Status of Efforts to Address Previous
Recommendations on the HUBZone Program
, GAO-09-532T, March 25, 2009, pp. 5-8, http://www.gao.gov/new.items/
d09532t.pdf.
94 U.S. Government Accountability Office, HUBZone Program: Fraud and Abuse Identified in Four Metropolitan
Areas
, GAO-09-440, March 25, 2009, p. 7, http://www.gao.gov/new.items/d09440.pdf.
95 U.S. Small Business Administration, Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual
Performance Report
, Washington, DC, pp. 72, 73, http://www.sba.gov/idc/groups/public/documents/sba_homepage/
fy_2011_cbj_09_apr.pdf.
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100% of HUBZone firms receiving contracts in the previous fiscal year.”96 In 2010, the SBA
reported that its standard HUBZone business process
now requires all firms to submit supporting documentation verifying the information and
statements made in their application. Previous practice required firms only to submit an
electronic application.
In addition, the Program Office implemented a new business process for recertifying
HUBZone firms which requires all firms that are due for recertification to certify via wet
signature that they still conform to the eligibility requirements. Previous practice required
firms to submit an electronic verification.97
Karen Mills, the SBA’s Administrator, testified before the House Committee on Small Business
on April 21, 2010, that the SBA is “working to ensure that only legitimate and eligible firms are
benefiting from HUBZone” and has “made dramatic increases in the number of site visits to
HUBZone firms—from less than 100 in 2008 to over 900 in 2009. We’re on track to do more
than 1,000 this year.”98
The SBA’s new, more labor intensive certification process, coupled with an increase in
applications for HUBZone certifications, resulted in what the SBA described as “significant
delays in the processing of new applications for certification.”99 Noting that individual
applications “can very greatly depending on the complexity of the case and the applicant’s
responsiveness to any requests for supporting information,” the SBA reported that the final
HUBZone determination time frames currently “vary from 5 months to 12 months, with an
average of 8 to 10 months.”100
Recognizing that its processing time to certify HUBZone businesses may have adverse
consequences for at least some of these businesses, the SBA placed on its website an explanation
for the processing delays and the following notice to HUBZone applicants:
The SBA processing delays are a serious issue for applicants, especially for those wishing to
bid on upcoming HUBZone contracts. Therefore, if you are a firm which has a pending
application in process for more than 4 months and has an upcoming HUBZone set-aside
contract on which it would like to bid, please contact our Help Desk to determine if we can
provide you with a decision quickly.101
On June 25, 2010, GAO released another report concerning the SBA’s efforts to reduce fraud in
the HUBZone program. GAO submitted applications for HUBZone certification for “four new
bogus firms … using false information and fabricated documents ... fictitious employee

96 Ibid., p. 76.
97 Ibid., pp. 72, 73.
98 Testimony of Karen G. Mills, SBA Administrator, before the U.S. House of Representatives Committee on Small
Business, “Accountability Update,” Washington, DC, April 21, 2010, http://www.house.gov/smbiz/democrats/hearings/
hearing-04-21-10-oversight/Mills.pdf.
99 U.S. Small Business Administration, “Application processing times remain significant, but are now decreasing,”
Washington, DC, http://www.sba.gov/hubzone/new/index.html.
100 Data provided by the U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the
author, May 4, 2010.
101 U.S. Small Business Administration, “Application processing times remain significant, but are now decreasing,”
Washington, DC, http://www.sba.gov/hubzone/new/index.html.
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information and bogus principal office addresses” including “the addresses of the Alamo in
Texas, a public storage facility in Florida, and a city hall in Texas as principal office locations.”102
The SBA certified three of the four bogus firms and lost GAO’s documentation for its fourth
application “on multiple occasions,” forcing GAO to abandon that application.103 GAO reported
that “the SBA continues to struggle with reducing fraud risks in its HUBZone certification
process despite reportedly taking steps to bolster its controls.”104 It reported that
A simple Internet search by SBA could have revealed these as phony applications. While the
agency has required more documentation in its application process since GAO’s July 2008
report, GAO’s testing shows that SBA does not adequately authenticate self-reported
information and, for these cases, did not perform site visits to validate the addresses. Further,
the changes have significantly increased the time it takes SBA to process applications.
Specifically, SBA took 7 or more months to process each of the bogus applications—at least
6 months longer than for GAO’s previous investigations.105
GAO also reported that in response to their test, SBA officials “stated that it was unreasonable to
expect them to have identified our fictitious firms because of bogus documentation that we
included in our applications,” that “the submission of false affidavits would subject an applicant
to prosecution,” and that “competitors may identify fraudulent firms and likely protest if those
firms were awarded a HUBZone contract.”106 GAO also reported that SBA officials stated that
“because of resource constraints, they primarily conduct site visits on certified firms that receive
large prime HUBZone contracts.”107 GAO argued that “while the threat of prosecution is an
important deterrent, it does not help to identify firms that attempt to commit fraud, as our testing
shows.”108 GAO also argued that “while competitors may identify some ineligible firms that were
awarded contracts, SBA is responsible for ensuring that only eligible firms participate in the
HUBZone program.”109 GAO also reported that “if the SBA had conducted site visits at the
addresses of the firms represented in our applications, those applications would have been
identified as fraudulent.”110
Legislation
S. 3020, the HUBZone Improvement Act of 2010, was introduced on February 23, 2010, and has
been referred to the Senate Committee on Small Business and Entrepreneurship. It would require
the SBA to implement GAO’s recommendations to

102 U.S. Government Accountability Office, Small Business Administration: Undercover Tests Show HUBZone
Program Remains Vulnerable to Fraud and Abuse
, GAO-10-759, June 25, 2010, Highlights section and p. 2,
http://www.gao.gov/new.items/d10759.pdf.
103 Ibid., p. 4.
104 Ibid.
105 Ibid., Highlights section.
106 U.S. Government Accountability Office, Small Business Administration: Undercover Tests Show HUBZone
Program Remains Vulnerable to Fraud and Abuse
, GAO-10-920T, July 28, 2010, p. 3, http://www.gao.gov/new.items/
d10920t.pdf.
107 Ibid.
108 Ibid.
109 Ibid.
110 Ibid.
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• maintain a correct, accurate, and updated map to identify HUBZone areas;
• implement policies that ensure only eligible firms participate in the program,
• employ appropriate technology to control costs and maximize efficiency,
• notify the Small Business Committees of any backlogs in applications or
recertifications with plans and timetables for eliminating the back log, and
• ensure small businesses meet the 35% HUBZone residency requirement at the
time of bid as well as contract award.111
The SBA has not formally responded to the legislation. It has argued at congressional hearings
and in its FY2011 congressional budget justification report that it is taking steps to implement
GAO’s recommendations.112
Performance Measures
As part of its 2008 audit of the HUBZone program, GAO reported that the SBA had taken
“limited steps” to assess the effectiveness of the HUBZone program.113 It noted that the SBA’s
performance measures—the number of applications approved and recertifications processed, the
annual value of federal contracts awarded to HUBZone firms, and the number of program
examinations completed—provide data on program activity but “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).”114 GAO recommended that
the SBA “further develop measures and implement plans to assess the effectiveness of the
HUBZone program that take into account factors such as the economic characteristics of the
HUBZone area.”115
The SBA responded to GAO’s findings by announcing that it “would develop an assessment tool
to measure the economic benefits that accrue to areas in the HUBZone program” and that they
“would then issue periodic reports accompanied by the underlying data.”116

111 Senator Olympia Snowe, “Statements on Introduced Bills and Joint Resolutions,” remarks in the Senate,
Congressional Record, daily edition, vol. 156 (February 23, 2010), p. S702.
112 U.S. Congress, House Committee on Small Business, Full Committee Hearing on Oversight of the Small Business
Administration and its Programs
, 111th Cong., 1st sess., March 25, 2009, Small Business Committee Document
Number 111-012 (Washington: GPO, 2009), pp. 4-27, 32-38; Testimony of Karen G. Mills, SBA Administrator, before
the U.S. House of Representatives Committee on Small Business, “Accountability Update,” Washington, DC, April 21,
2010, http://www.house.gov/smbiz/democrats/hearings/hearing-04-21-10-oversight/Mills.pdf; and U.S. Small Business
Administration, Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual Performance Report,
Washington, DC, pp. 72, 73, http://www.sba.gov/idc/groups/public/documents/sba_homepage/
fy_2011_cbj_09_apr.pdf.
113 U.S. Government Accountability Office, Small Business Administration: Additional Actions are Needed to Certify
and Monitor HUBZone Businesses and Assess Program Results
, GAO-08-643, June 17, 2008, p. 5,
http://www.gao.gov/new.items/d08643.pdf.
114 Ibid., p. 34.
115 Ibid., p. 45.
116 Ibid., p. 46.
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On March 25, 2009, GAO reported that, as of that date, the SBA had not developed measures or
implemented plans to assess the program’s effectiveness.117 GAO noted that the SBA did
commission an independent review of the HUBZone program’s economic impact. That study was
released in May 2008. It concluded that the HUBZone program
has not generated enough HUBZone contract dollars to have an impact on a national scale.
When spread over an eight-year period across 2,450 metropolitan areas and counties with
qualified census tracts, qualified counties, and Indian reservations, $6 billion has a limited
impact….
About two-thirds of HUBZone areas have HUBZone businesses; just under one-third have
HUBZone vendors that have won HUBZone contracts; and about 4 percent of HUBZone
areas have received annual-equivalent HUBZone contract revenues greater than $100 per
capita, based on HUBZone population….
The program has a substantial impact in only a very small percentage of HUBZones. Where
the impact is largest, there generally is at least one very successful vender in the HUBZone.
Thus, the program can be effective. At present, however, the impact in two-thirds of all
HUBZones is nil.118
GAO also noted that the SBA had issued a notice in the Federal Register on August 11, 2008,
seeking public comment on a proposed methodology for measuring the economic impact of the
HUBZone program.119 The notice presented a two-step economic model that the SBA had
developed to estimate the impact directly attributable to the HUBZone program, the SBA’s non-
HUBZone programs, and other related federal procurement programs on HUBZone areas. The
notice indicated that economic impact “will be measured by the estimated growth in median
household income and employment (or a reduction in unemployment) in a specific HUBZone
area.”120
GAO criticized the SBA for relying on public comments to refine the proposed methodology
“rather than conducting a comprehensive effort” that considered relevant literature and input from
experts in economics and performance measurement.121 GAO concluded that “based on our
review, we do not believe this effort was a sound process for developing measures to assess the
effectiveness of the program” and reported that the SBA had abandoned that proposal and “had
initiated a new effort to address this issue.”122

117 U.S. Government Accountability Office, Small Business Administration: Status of Efforts to Address Previous
Recommendations on the HUBZone Program
, GAO-09-532T, March 25, 2009, p. 8, http://www.gao.gov/new.items/
d09532t.pdf.
118 Henry Beale and Nicola Deas, “The HUBZone Program Report,” Washington, DC: Microeconomic Applications,
Inc., prepared for the U.S. Small Business Administration, Office of Advocacy, May 2008, pp. i–iii,
http://www.sba.gov/advo/research/rs325tot.pdf.
119 U.S. Small Business Administration, “Notice of methodology for measuring the economic impact of the HUBZone
Program,” 73 Federal Register 46698-46703, August 11, 2008.
120 Ibid., p. 46701.
121 U.S. Government Accountability Office, Small Business Administration: Status of Efforts to Address Previous
Recommendations on the HUBZone Program
, GAO-09-532T, March 25, 2009, p. 9, http://www.gao.gov/new.items/
d09532t.pdf.
122 Ibid.
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The SBA indicated in its FY2011 budget justification report to Congress that it had developed “a
methodology for measuring the economic impact of the HUBZone program” in order to “provide
for the continuous study and monitoring of the program’s effectiveness in terms of its economic
goals.”123 However, it did not provide any details concerning the methodology and used its
previous performance measures—the number of small businesses assisted (applications approved
and recertifications processed), the annual value of federal contracts awarded to HUBZone firms,
and the number of program examinations completed—to assess the program’s performance.124
Legislation
S. 3020, the HUBZone Improvement Act of 2010, would require the SBA to implement GAO’s
recommendation to “develop measures and implement plans to assess the effectiveness of the
HUBZone program.”125 It would require the SBA to “identify a baseline point in time to allow the
assessment of economic development under the HUBZone program, including creating additional
jobs” and take into account “the economic characteristics of the HUBZone and contracts being
counted under multiple socioeconomic subcategories.”126
The SBA has not formally responded to the legislation. It has argued at congressional hearings
and in its FY2011 congressional budget justification report that it is taking steps to implement
GAO’s recommendation.127
One possible option available to Congress to further evaluate the HUBZone program’s impact on
small businesses and economically distressed communities is to require the SBA to commission a
multi-year time series study of the HUBZone program’s impact on small businesses and
economically distressed communities similar to the multi-year time series study currently
underway for the SBA’s education and training programs.128 That ongoing study, started in 2003,
includes an annual survey of small business owners who have received SBA education and
training services. The study’s latest report, released in September 2009, “measures attitudinal
assessments, perceptions of changes in management/marketing practices, and business growth for
firms that utilized the SBA’s Office of Entrepreneurial Development Resources [Small Business
Development Centers, SCORE, and Women Business Centers] during the fourth quarter of 2006,
2007 or 2008.”129

123 U.S. Small Business Administration, Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual
Performance Report
, Washington, DC, p. 73, http://www.sba.gov/idc/groups/public/documents/sba_homepage/
fy_2011_cbj_09_apr.pdf.
124 Ibid.
125 S. 3020, the HUBZone Improvement Act of 2010.
126 Ibid.
127 U.S. Congress, House Committee on Small Business, Full Committee Hearing on Oversight of the Small Business
Administration and its Programs
, 111th Cong., 1st sess., March 25, 2009, Small Business Committee Document
Number 111-012 (Washington: GPO, 2009), pp. 4-27, 32-38; and U.S. Small Business Administration, Fiscal Year
2011 Congressional Budget Justification and FY2009 Annual Performance Report
, Washington, DC, pp. 72, 73,
http://www.sba.gov/idc/groups/public/documents/sba_homepage/fy_2011_cbj_09_apr.pdf.
128 U.S. Small Business Administration, Office of Entrepreneurial Development, “Impact Study of Entrepreneurial
Development Resources,” September 10, 2009, http://www.sba.gov/idc/groups/public/documents/sba_program_office/
ed_finalreport_2009.pdf.
129 Ibid., p. 2.
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The 2010 Decennial Census
As mentioned previously, P.L. 108-447, the Consolidated Appropriations Act, 2005, effectively
extended the eligibility of redesignated HUBZone areas by allowing them to retain eligibility for
three years or until the public release of data from the 2010 decennial census, whichever is later.
At that time, based on past practice, it was anticipated that the Census Bureau would take at least
a year, and probably longer, to release the economic data contained in the 2010 decennial census
that would be used in the determination of HUBZone area status.130 In the past, such data were
derived from the decennial census long form. However, the census long form has been replaced
by the American Community Survey (ACS), an ongoing mailed survey of about 250,000
households per month that gathers largely the same data as the long-form. The ACS collects and
produces population and housing information at one-year, three-year, and five-year intervals,
instead of every 10 years.131 Specifically, the ACS
provides annual data for areas with populations of at least 65,000 persons, including the total
United States, all states and the District of Columbia, all congressional districts, about 800
counties, and 500 metropolitan and micropolitan statistical areas. For less populous areas, the
Bureau is producing multi-year averages based on ACS data collected over several years. In
2008, the Bureau released the first three-year averages for areas with 20,000 or more
persons, and by 2010, five-year averages will be available for areas with fewer than 20,000
persons.132
The ACS is expected to release data that will be available for use in the determination of
HUBZone QCT eligibility status in late 2010. As a result, it is possible that some redesignated
HUBZone areas may lose their eligibility status sooner than previously expected. Also, other
areas currently not HUBZone eligible may gain eligibility sooner than previously expected.
Because this is the first time that ACS data will be used in the determination of HUBZone area
status it is possible that questions might be raised concerning the reliability of the survey data.
However, the census long form was also a survey, with a 17% sample size in 2000.
It is also possible that questions might be raised concerning the impact of having economic data
at the census tract level that was formerly available once every 10 years now being available once
every five years. For example, Congress will now have the option, should it decide to exercise it,
to require ACS economic data to be used to re-determine QCT eligibility once every five years
instead of waiting for the release of the next decennial census data. It could be argued that using
ACS data every five years may increase the HUBZone program’s effectiveness in targeting
assistance to areas most in need. The counter-argument is that increasing the frequency of QCT
determinations could limit the ability of at least some certified HUBZone businesses to benefit
from the program.

130 Henry Beale and Nicola Deas, “The HUBZone Program Report,” Washington D.C., for the U.S. Small Business
Administration, May 2008, p. 159, http://www.sba.gov/advo/research/rs325tot.pdf.
131 U.S. Bureau of the Census, “About the ACS: What Is the Survey?” Washington, DC, http://www.census.gov/acs/
www/SBasics/What/What1.htm. For further analysis see CRS Report R40551, The 2010 Decennial Census:
Background and Issues
, by Jennifer D. Williams.
132 CRS Report R40551, The 2010 Decennial Census: Background and Issues, by Jennifer D. Williams.
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Legislation
S. 3020, the HUBZone Improvement Act of 2010, would effectively prolong the eligibility of at
least some redesignated HUBZones. It would amend the Small Business Act to allow
redesignated HUBZone areas to retain their HUBZone eligibility for three years or until three
years after the first date on which the Administrator publishes a HUBZone map that is based on
the results from the 2010 decennial census, whichever is later. Current law allows HUBZone
redesignated areas to retain eligibility for three years or until the public release of data from the
2010 decennial census, whichever is later. As mentioned previously, about one-third of QCTs in
2000 (3,364 of 9,964) lost their HUBZone eligibility following the release of the 2000 decennial
census data and almost as many census tracts (3,313) gained HUBZone eligibility.133
Concluding Observations
Congressional interest in the SBA’s HUBZone program has increased in recent years to levels not
seen since the initial debate over whether the program should be authorized. Debates over the
program’s effect on economically distressed communities, as reflected in GAO’s recommendation
for new SBA performance measures; concerns, which were addressed by P.L. 111-240, the Small
Business Jobs Act of 2010, over the potential impact of the U.S. Court of Federal Claims ruling in
Mission Critical Solutions v. United States providing the HUBZone program preference in federal
contracting when two or more federal contract set-aside programs could be used; and the potential
impact of the 2010 decennial census on which areas qualify as a HUBZone have all served to
elevate congressional interest in the program. But perhaps the most influential reason for the
increased level of congressional interest has been GAO’s finding of fraud in the program.
Responding to GAO’s reports of HUBZone fraud, Representative Nydia M. Velázquez, chair of
the House Committee on Small Business, declared on March 25, 2009, that it was time for the
“SBA to make a decision, either overhaul the program or scrap it completely.”134
The SBA has attempted to overhaul the program. It reported in its FY2011 congressional budget
justification that it has “met its primary goal during FY2009” to reengineer its “business
processes to reduce fraud and abuse with the program.”135 On April 21, 2010, SBA Administrator
Karen Mills testified before the House Committee on Small Business that progress has been made
but “we know there’s more work to do.”136 She testified that “At the front-end, it means more
upfront certification and eligibility. For small businesses already in the program, it means more

133 Henry Beale and Nicola Deas, “The HUBZone Program Report,” Washington, DC: Microeconomic Applications,
Inc., prepared for the U.S. Small Business Administration, Office of Advocacy, May 2008, p. 136, http://www.sba.gov/
advo/research/rs325tot.pdf.
134 U.S. Congress, House Committee on Small Business, Full Committee Hearing on Oversight of the Small Business
Administration and Its Programs
, 111th Cong., 1st sess., March 25, 2009, Small Business Committee Doc. 111-012
(Washington: GPO, 2009), p. 2.
135 U.S. Small Business Administration, Fiscal Year 2011 Congressional Budget Justification and FY 2009 Annual
Performance Report
(Washington: GPO, 2010), p. 72.
136 Testimony of Karen G. Mills, SBA Administrator, before the U.S. House of Representatives Committee on Small
Business, “Accountability Update,” Washington, DC, April 21, 2010, http://www.house.gov/smbiz/democrats/hearings/
hearing-04-21-10-oversight/Mills.pdf.
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.
Small Business Administration HUBZone Program

efforts with compliance and site visits. And if they’re found to be out of compliance, it means
pursuing and removing bad actors.”137
One of the immediate by-products of the SBA’s new business processes was an increase in the
processing time for new HUBZone certifications. Until recently, the SBA had a self-imposed goal
of making those certifications within 30 calendar days after receipt of a complete application
package, subject to the need for additional information or clarification of information contained in
the application. Now, depending on the complexity of the application and the need for additional
information, the SBA takes 5 to 12 months to make those certifications. It remains to be
determined if the SBA’s new processes will reduce the incidence of fraud within the program.
The resolution of that question could determine the future of the HUBZone program.

Author Contact Information

Robert Jay Dilger

Senior Specialist in American National Government
rdilger@crs.loc.gov, 7-3110


137 Ibid.
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