SBA Updates—Reduction in Force/Reorganization, Taking Over Loans, and “Restoring Accountability for Career Senior Executives”

This will address three main points: (1) The SBA’s Reduction in Workforce and Reorganization in accordance with EO 14210 ; (2) the interplay between the Reorganization and the Memorandum entitled “Restoring Accountability for Career Senior Executives; and (3) the SBA now handling federal student loans.

 SBA’s Reorganization and Reduction in Personnel

As most of you may or may not know, the SBA announced it will begin an agency side reorganization citing EO 14210 “Implementing The President’s “Department of Government Efficiency” Workforce Optimization Initiative.” This is to reduce the SBA workforce by 43%. Cited as one reason is the Biden Administration doubling of the SBA workforce.

 Key features of SBA’s reorganization include:

·       Promoting business formation and growth by shifting resources to expand capital formation functions and personnel, removing the emphasis from partisan programs of the past.

·       Prioritizing risk management and fraud prevention by centralizing these functions within the Office of the Chief Financial Officer, in the effort to restore integrity to agency programs, audits, and financial statements.

·       Expanding disaster response support by transferring disaster loan servicing functions and additional personnel into the Office of Disaster Recovery and Resilience. Additionally, the agency will cross-train field office personnel to support disaster recovery efforts.

·       Eliminating redundant pandemic-era positions associated exclusively with processing pandemic-era loans within the Office of Capital Access.

·       Ensuring that 30% of the agency is located in the field, by decentralizing services and working to better serve Main Streets across America.

·       Promoting veteran businesses and American manufacturing by preserving existing staffing levels within the Office of Veterans Business Development and the Office of Manufacturing and Trade.

·       Exempting key accountability offices from reductions at this time including the Office of Advocacy and the Office of the Inspector General.

According to the SBA release, the functionality of the reorganization is to reverse Biden era policies and the intense scope increase of SBA as well as the fraud in various loan and disaster programs. It is also examining the average salary of SBA employees compared to the national average. “Much of the reorganization is targeted to reverse the broad and costly expansion of the SBA under the Biden Administration. Since the pandemic, the agency has nearly doubled in size, in part to support a suite of new progressive programs like the Green Lender Initiative, the Community Navigator Pilot Program, and DEI activities.”

 Memorandum on “Restoring Accountability for Career Senior Executives.”

The White House Memorandum on “Restoring Accountability for Career Senior Executives has been accompanied by OPM [U.S. Office of Personnel Management] and OMB memos on toughening standards of review for Career Senior Executives a/k/a SES federal employees. This White House memo, while issued in January of 2025, seems to play into reorganization of other agencies and may play into the reorganization of the SBA. For example, on February 25, 2025, OPM issued its memo/guidance for the WH memo in which it states that reviewing language was immediately updated to comply with the January 25, 2025, WH memo and that it applied to all agencies—with very few exemptions for SES employees.

 The OPM memo is designed to implement plans to fix a rating system that “is broken and falls short of [Congressionally established] standards.” It goes on to state that senior executive employees ratings were “systematically inflated” and poor performers were not accountable as there was no meaningfully differentiation in the ratings given between poor/mediocre performance across the SES as less than ½ of 1 percent were rated as below “Fully Successful” while 96 percent received “Outstanding” or “Exceeds Fully Successful.” The memo goes on to cite investigations done in the VA and services rendered to veterans versus the ratings given to those that oversee those services. It cites the disparity between the services rendered being far below par to the ratings received by those SES employees. The new evaluation systems is to be put in place and used no later than September 30, 2025 (close of Government fiscal year).

 The OPM gives guidance on a new system and having it place to “ensure greater accountability for senior executives” by “implementing new critical elements and performance requirements.” Key takeaways on new systems from the Memo by OPM:

1.      Updated Critical Elements and Performance Requirements: OPM has aligned the SES Critical Elements and Performance Requirements to comply with SES Accountability. The revamped critical elements will evaluate senior executives on whether they faithfully administered the law and advanced the President’s policy priorities; promoted government efficiency; demonstrated merit and competence; held others accountable and treated them fairly; and achieved organizational goals.

2.      Monitoring Performance: At least quarterly, supervisors and executives must meet to discuss, and document, progress toward meeting the critical elements in the senior executive’s performance plan.

3.      Distribution of Ratings: For agencies with five or more executives, no more than 30% of total ratings shall be Levels 4 and 5, unless the President waives the provision by certifying that the performance of the agency’s executives was outstanding during the relevant time period. OPM will revise and finalize the necessary rulemaking before issuing final guidance for implementation.

4.      Pay Adjustments and Performance Awards: Only executives rated Level 4 or Level 5 should receive a performance award or performance-based pay adjustment exceeding 5% of their rate of basic pay. An executive rated Level 3 should only receive a performance award equal to 5% of their rate of basic pay.

5.      Performance Actions: Agencies must: 1) remove from the SES or else transfer or reassign an executive who receives a Level 1 final summary rating; and 2) remove from the SES an executive who has been assigned two final summary ratings at less than Level 3 within a three-year period.

 Student Loan System Moving to SBA

·       At this time, very little is known about the full extent of the Administration’s announcement regarding moving the Federal student loan system to SBA.

·       Legal challenges are expected to arise as the Administration has announced its intent to “dismantle” the Federal Department of Education.

·       Whether or not the keeping of Pell grants in the Department or HHS and splitting out the massive loan portfolio—between 1.6 and 1.8 Trillion Dollars—to SBA where some estimate around 40% of loans are behind in payments—will be subject to legal challenge remains to be seen.

·       SBA says it stand ready to handle the portfolio as it is the “government’s largest guarantor of business loans.”

·       More to come.