The SBA’s Historically Underutilized Business Zone (HUBZone) Program — IF12428 (June 15, 2023)

Summary

A Congressional Research Service product, IF12428, dated June 15, 2023, titled "The SBA's Historically Underutilized Business Zone (HUBZone) Program," by R. Corinne Blackford. It explains that the program, authorized by P.L. 105-135, gives federal contracting preferences to certified small businesses located in areas the SBA designates. It sets out eligibility rules under 13 C.F.R. §126.200, including that at least 35% of employees reside in a HUBZone, and the statutory goal of 3% of prime contract and subcontract awards under 15 U.S.C. §644(g)(1)(A). It reports that the government awarded 2.53% of prime contract dollars and 1.6% of subcontract dollars in FY2021, describes the types of HUBZones and map updates, and lists issues for Congress.

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                                                                                                                   June 15, 2023
The SBA’s Historically Underutilized Business Zone (HUBZone)
Program
Program Overview                                                    no preference applied and the large firm is not displaced by
The Small Business Administration’s (SBA) HUBZone                   the HUBZone firm. If a certified HUBZone small business
program provides federal contracting preferences to small           concern were to submit an offer of $98 and the large
businesses located in areas designated by the SBA. Known            business were to submit an offer of $93, the HUBZone firm
as HUBZones, SBA designates these areas based on Census             would displace the large firm as the lowest offeror because
data that indicate levels of high poverty, high                     the HUBZone firm’s offer is within 10% of the large firm’s
unemployment, or low income, or if they are located in              offer. For agricultural commodities purchased by the
qualified disaster areas, on Indian reservations, at some           Department of Agriculture, regulations limit the use of the
closed military installations, or in governor-designated            price evaluation preference to certain purchase volumes.
places that meet certain criteria. The program was
authorized by P.L. 105-135, the HUBZone Act of 1997.                Eligibility Criteria
                                                                    A firm must be certified by the SBA before it can
The HUBZone program is the only federal contracting                 participate in the HUBZone program and receive
program that assists firms based on their geographic                contracting preferences. Firms attain certification by
location rather than their characteristics or those of their        submitting an application to the SBA. According to SBA
owners (e.g., contracting programs for small businesses,            regulations available at 13 C.F.R. §126.200, a certifiable
disabled-veteran owned small businesses). Congress has              firm must:
established in statute an annual HUBZone procurement
goal of 3% of prime contract awards and 3% of subcontract           • meet the SBA’s small business size standards;
awards, as measured in dollars. This goal is codified at 15
U.S.C. §644(g)(1)(A). The government awarded 2.53% of               • be at least 51% owned and controlled by U.S. citizens, a
prime contract dollars and 1.6% of subcontract dollars in              community development corporation, an agricultural
FY2021, the most current fiscal year for which the SBA has             cooperative, or an Indian tribe (including Alaska Native
published data. The 3% goal has not yet been achieved by               Corporations and Native Hawaiian Organizations);
the government as a whole, although a few individual
agencies have met the goal in certain fiscal years.                 • maintain a principal office in a HUBZone, where
                                                                       principal office is defined as the location where the
Program Benefits for Eligible Firms                                    greatest number of the firm’s employees at any one
HUBZone contracting preferences include contract set-                  location perform their work;
asides, sole-source awards, and price-evaluation
preferences. While a set-aside restricts competition for a          • have at least 35% of its employees reside in a
contract to specified contractors (HUBZone firms), a sole-             HUBZone; and
source award is a contract awarded to a firm without
competition. Set-asides may be exclusive, if an entire              • certify that it will “attempt to maintain” having at least
procurement is set-aside, or partial, if part of it is restricted      35% of its employees reside in a HUBZone during the
to HUBZone firms.                                                      performance of any HUBZone contract; “attempt to
                                                                       maintain” is defined at 13 C.F.R. §126.103, which
As described at 13 C.F.R. §126.613(a)(1), a price                      describes the requirements for firms to document their
evaluation preference is granted where a contracting officer           maintenance efforts and specifies that firms with “less
will award a contract in full and open competition. In these           than 20% of [their] total employees residing in a
situations, the officer will “deem the price offered by a              HUBZone during the performance of a HUBZone
certified HUBZone small business concern to be lower than              contract [have] failed to attempt to maintain the
the price offered by another [non-small business] offeror.”            HUBZone residency requirement.”
The contracting officer may not grant the preference,
however, if that price is more than 10% higher than the             In December 2019, the SBA issued new regulations
price offered by the “otherwise lowest, responsive, and             intended, in part, to make the HUBZone program more
responsible offeror.” Regulations provide examples of how           attractive to procuring agencies. The “long-term investment
this preference is applied. In one example, “a certified            provision” in these regulations allows HUBZone firms to
HUBZone small business concern submits an offer of                  maintain HUBZone status for up to 10 years by owning or
$103” and “a large business submits an offer of $93.”               making a long-term investment (such as a long-term lease)
Because the HUBZone firm’s offer is more than 10%                   in a principal office in an area that qualifies as a HUBZone
higher than the large firm’s offer (the lowest offer), there is     at the time of the firm’s initial certification. With a
                                                   https://crsreports.congress.gov
                                                      The SBA’s Historically Underutilized Business Zone (HUBZone) Program

qualified long-term investment in a HUBZone, a firm can           of 50,000 or fewer, and (3) have an unemployment rate that
continue to be considered to meet the principal office            is at least 120% of the unemployment rate for the nation or
program requirement and participate in the HUBZone                state in which it is located, whichever is less.
program, even if the area loses its HUBZone designation.
                                                                  HUBZone Updates and Revisions
Types of HUBZones                                                 The locations of HUBZones are shown in an online
The six types of HUBZone designations are described               HUBZone map available at https://preview-
below, including: qualified census tracts, qualified              maps.certify.sba.gov/hubzone/map/help. The map has most
nonmetropolitan counties, qualified Indian lands, certain         recently been updated to reflect 2020 Census data. These
closed military installations, qualified disaster areas, and      updates will become effective as of July 1, 2023. The map’s
governor-designated areas.                                        qualified census tracts and nonmetropolitan counties will be
                                                                  updated again in July 2028, according to a five-year
Qualified Census Tract                                            revision cycle that is required by the National Defense
A qualified census tract is any census tract (1) that is          Authorization Act for Fiscal Year 2018. Throughout any
designated by the Secretary of Housing and Urban                  given year, the SBA makes governor-designated and
Development (HUD) for the low-income housing tax credit           disaster area updates.
program, and (2) in which either of the following is true:
50% or more of the households have an income of less than         Expired HUBZones are granted a three-year grace period,
60% of the area median gross income, or the federal               starting from the date on which the area ceased to be a
poverty rate is at least 25%.                                     qualified census tract or a qualified non-metropolitan
                                                                  county. During the grace period, the areas are known as
Qualified Nonmetropolitan County                                  redesignated areas. SBA is to revise the map’s redesignated
A qualified nonmetropolitan county is any county that is          areas in 2026. According to the SBA, most currently
not located in a metropolitan statistical area and in which       redesignated areas have exhausted their three-year grace
one of the following is true: (1) the median household            period and will not appear on the map on July 1, 2023.
income is less than 80% of the state median household
income, (2) the unemployment rate is not less than 140% of        Issues for Congress
the average unemployment rate for the United States or for
the state in which such county is located, whichever is less,     HUBZone Procurement Goal Attainment
or (3) the county has been designated by the Secretary of         A 2018 program evaluation report prepared for the SBA
HUD as a “difficult development area” within Alaska,              found that major “barriers and challenges preventing some
Hawaii, or any territory or possession of the United States       federal agencies from reaching the 3 percent [HUBZone
outside the 48 contiguous states.                                 procurement] goal” included a “combination of perceptions
                                                                  of HUBZone small businesses’ capabilities and skills and
Qualified Indian Lands                                            untargeted marketing strategies.” Congress may wish to
P.L. 105-135 provided HUBZone eligibility to lands within         explore how the SBA and purchasing agencies are working
the external boundaries of an Indian reservation.                 to improve program utilization.

BRAC Areas                                                        Economic Development Impacts
P.L. 108-447, the Consolidated Appropriations Act, 2005,          The SBA stated in its FY2024 Congressional Budget
provided HUBZone eligibility for five years to lands within       Justification that the program “promotes job growth, capital
the external boundaries of a military installation closed         investment, and economic development in economically
through a privatization process under the Department of           distressed areas designated as HUBZones.” Although the
Defense’s Base Realignment and Closure (BRAC) process.            Budget Justification statement did not include supporting
                                                                  data, a 2021 evaluation of the program’s impact
Disaster Areas                                                    commissioned by the SBA “estimated the total
P.L. 114-92, the National Defense Authorization Act for           employment, earnings, value added, as well as gross output
Fiscal Year 2016, provided HUBZone eligibility to                 impacts” of HUBZone firm contracts. Using an input-
qualified disaster areas. These areas are defined as “any         output model for its analysis, the study found that the
census tract or nonmetropolitan county for which the              HUBZone program had “a moderate impact on all 30
President has declared a major disaster ... or located in an      counties [studied] in terms of value added and employment
area in which a catastrophic incident has occurred ... if such    supported by contract awards to HUBZone firms.”
census tract or nonmetropolitan county ceased to be               Recommendations included further analysis, such as case
qualified [as a HUBZone] ... during the period beginning          studies, and a “monitoring tool” for the HUBZone program.
five years before the date on which the President declared        Congress may be interested in further impact assessments
the major disaster or the catastrophic incident occurred and      and/or regular updates to previous analyses.
ending two years after such date.”
                                                                  R. Corinne Blackford, Analyst in Small Business and
Governor-Designated Areas                                         Economic Development Policy
P.L. 115-91, the National Defense Authorization Act for
Fiscal Year 2018, authorized governors to petition the SBA                                                            IF12428
annually to grant HUBZone eligibility to areas that (1) are
located outside of an urbanized area, (2) have a population

                                                 https://crsreports.congress.gov
                                                  The SBA’s Historically Underutilized Business Zone (HUBZone) Program




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