The HUBZone (Historically Underutilized Business Zone) program was created in 1997 to provide government contracting incentives to small firms to establish themselves in places where unemployment is above the norm, to hire employees from areas of high unemployment, and to stimulate capital investment in those areas. The goals are laudable; the execution has fallen short. It’s time to take a look at this program and reengineer it for success.

When the HUBZone program was created, federal agencies were assigned goals of placing 3% of their contracts with companies certified to be headquartered in designated HUBZones and employing residents of HUBZones. The government’s overall small business contracting goal was increased from 20% to 23% to assure that HUBZones would make their own contribution to the advancement of small business.

In FY2012, the most recent figures available, HUBZone contracts amounted to 2.01%, down from 2.35% in FY2011. FY2010 was 2.77% and FY2009 was 2.81%. Where are we going here? What is causing the decline of this valuable program?

Historic vs. Annual

The HUBZone program is intended to revitalize geographic areas that historically have faced elevated unemployment, yet the designation criteria can change annually the areas that qualify. Small business owners take on many risks in establishing and managing a small business. It takes a number of months to apply for and become certified as a HUBZone business. An interested firm faces the risk that a specific geographic area could be decertified a year or two after qualifying, or even while in the process of being certified.

One would think that an area of historically-high unemployment or low income would require a number of years to recover. If the firms that come into that area to help it improve are successful, they should be rewarded with stability, especially if they have made a significant capital investment in permanent facilities such as factories and warehouses. After all, they took on the task that the government wanted accomplished, and succeeded. Further, if those firms pull up stakes and move their headquarters to another HUBZone, unemployment may return to the place they left.

Too Many Cooks

Decisions as to whether an area is designated as a HUBZone are vested in the departments of Defense, Housing and Urban Development, Labor and Interior as well as the Census Bureau and the Internal Revenue Service. The Small Business Administration’s role is to meld these stovepipes into a comprehensive mapping tool. Yet each agency does its work and establishes its qualified areas on varying schedules. The HUBZone map tomorrow might look quite different than it did today. One would think that since the U.S. Census is done every ten years, at least that component would be stable, but that is not the case.

Excessive Granularity

The prior government program, Labor Surplus Areas, used common, well-defined geographic boundaries, namely counties and independent cities. You could see the lines on most any map. But in today’s HUBZone program, most urban area designations are based on census tracts. You won’t find those lines in your local Rand McNally or Mapquest or even local street atlases. Census tracts are as small as 10 blocks. Why on earth must we use this micro-granular approach to area designations?

Worse yet, this granular approach leads to appearances of arbitrariness, such as for the current HUBZone-designation for K Street NW, a popular location for lobbying firms and law offices in Washington DC. Or for the Southern Tower apartment complex in Alexandria VA, sitting as a HUBZone across the street from DOD’s busy new headquarters. Look for your nearest college campus and chances are good that it may be in a HUBZone.

PO Boxes and Rural Routes

Despite the granularity noted above, when it comes to rural areas, you may have great difficulty getting qualified. The online mapping tool accepts traditional addresses containing house number, street, city and state. I grew up in a rural area of Northern Illinois. Half of my friends lived on farms and in small villages nearby, and they had rural route addresses. Indian reservations are a key target of the HUBZone program, and yet many tribal companies are thwarted when their headquarters and their employees’ homes are served by rural routes. While there is a provision on the online mapping tool for entering latitude-longitude designations, I am aware of companies well qualified and highly suited for the HUBZone program--even companies that previously have been certified--that are being denied certification or deterred from participation in the HUBZone program due to mapping issues for rural routes.

Call to Action

It’s time to set this program right so that it can provide the benefits intended. Here is what is needed:

1. Return to designations at the county/independent city level – designations that are easy to understand, assess and evaluate.
2. Certify HUBZone firms for at least five and perhaps ten years, so that a firm is encouraged to apply and get certified, and is rewarded for sticking with the program long enough to establish the benefits in the designated community.
3. Fix the rural route/PO box conundrum.
4. Establish a fixed schedule of when areas are added/removed so that the HUBZone map remains stable and reliable for a reasonable period.

Tom Johnson is pubisher of Set-Aside Alert He encourages your reactions and comments. Please email him at tjohnson@setasidealert.com.