In Congress, Small Business Research Is a Lame Duck Loser

Despite a surprisingly productive lame-duck Congress, Senate Democrats fell short last week on a last-minute attempt to spur U.S. innovation.

A bill (S. 4053) to enlarge and broaden two long-running federal research programs that help high-tech startups was rushed through the Senate by unanimous consent on the morning of the final day of the 111th Congress. But it failed to win the approval of the House of Representatives in those waning hours. The failure to reauthorize the Small Business Innovation Research (SBIR) and Small Business Technical Transfer (STTR) programs leaves in limbo the fate of the programs, which expire on 31 January 2011, and ensures that a debate among legislators, biomedical researchers, and venture capitalists over the size and scope of the programs will continue into the new Congress.

The SBIR and STTR programs, which were begun in 1982 and 1992, respectively, make competitive awards intended to move discoveries into the market. Funding comes from a small tax on the budgets of each of the 11 participating agencies, which generates more than $2.5 billion a year. The grants help companies develop their technology and win additional funding from investors.

Advocates for the programs want the government to do more to get those fledgling companies off the ground.

But the Senate and House disagree on the appropriate size of the tax, currently 2.5% for SBIR and 0.3% for STTR. The Senate bill, which was approved by unanimous consent, would boost the SBIR percentage set aside to 3.5% by 2021, and STTR to 0.6% by 2016. House members would prefer to let the programs grow automatically as agency budgets increase rather than by taking a bigger bite out of them. In contrast, the Senate favors a lower ceiling than the House on the maximum size of the awards, currently $750,000, although both bodies agree that the ceiling needs to be raised.

Biomedical lobbyists say that the programs are not the best use of scarce National Institutes of Health (NIH) funds. In particular, they say that the quality of the proposals are not up to NIH standards. In the current tight fiscal climate, they add, increasing the tax will further raise the odds of scientists competing for funding from NIH's regular programs.

Those concerns helped persuade Congress to exempt NIH from spending any of the $8.2 billion it received from the 2009 stimulus package on the two programs. But that decision infuriated some legislators. Indeed, a press release from the chair and ranking member of the Senate small business committee, who pushed through the last-minute legislation, emphasizes that the increased percentages for both programs apply to NIH as well.

There's also a dispute over how to fix a 2002 change in the programs' rules that exclude companies in which venture capitalists hold a controlling interest. The Senate bill would allow three key research agencies—NIH, the National Science Foundation, and the Department of Energy—to spend up to 25% of their SBIR and STTR funds on such start-ups, and the other eight agencies up to 15%. House members are divided on the best way to proceed.

The House was said to be prepared to accept the Senate version, which is practically unchanged from a bill that the small business panel approved in June 2009, on the theory that half a loaf would be better than nothing. But time ran out before the House Democratic leadership could schedule a vote. With Republicans taking over the House next month, the two programs must look for new champions. And there's no guarantee that the new Senate will be as supportive.