The HUBZone program was established by the HUBZone Act of 1997 to stimulate economic development through increased employment and capital investment by providing federal contracting preferences to small businesses in economically distressed communities or HUBZone areas. The types of areas in which HUBZones may be located are defined by law and consist of the following: Qualified census tracts. A qualified census tract has the meaning given the term by Congress for the low-income-housing tax credit program. The list of qualified census tracts is maintained and updated by the Department of Housing and Urban Development (HUD). As currently defined, qualified census tracts have either 50 percent or more of their households with incomes below 60 percent of the area median gross income or have a poverty rate of at least 25 percent. The population of all census tracts that satisfy one or both of these criteria cannot exceed 20 percent of the area population. Qualified census tracts may be in metropolitan or nonmetropolitan areas. HUD designates qualified census tracts periodically as new decennial census data become available or as metropolitan area definitions change. Qualified nonmetropolitan counties. Qualified nonmetropolitan counties are those that, based on the most recent decennial census data, are not located in a metropolitan statistical area and in which 1. the median household income is less than 80 percent of the nonmetropolitan state median household income; 2. the unemployment rate is not less than 140 percent of the average unemployment rate for either the nation or the state (whichever is lower); or 3. a difficult development area is located. The definition of a difficult development area is similar to that of a qualified census tract in that it comes from the tax code’s provision for the low-income-housing tax credit program. For the low-income-housing tax credit program, difficult development areas can be located in both metropolitan and nonmetropolitan counties; however, for the HUBZone program, they can only be located in nonmetropolitan counties in Alaska, Hawaii, and the U.S. territories and possessions. Qualified Indian reservations. A HUBZone-qualified Indian reservation has the same meaning as the term Indian Country as defined in another federal statute, with some exceptions. These are all lands within the limits of any Indian reservation, all dependent Indian communities within U.S. borders, and all Indian allotments. In addition, portions of the state of Oklahoma qualify because they meet the Internal Revenue Service’s definition of “former Indian reservations in Oklahoma.” Redesignated areas. Redesignated areas are census tracts or nonmetropolitan counties that no longer meet the economic criteria but remain eligible until after the release of the 2010 decennial census data. Base closure areas. Areas within the external boundaries of former military bases that were closed by the Base Realignment and Closure Act (BRAC) qualify for HUBZone status for a 5-year period from the date of formal closure. In order for a firm to be certified to participate in the HUBZone program, it must meet the following criteria: the company must be small by SBA size standards; the company must be at least 51 percent owned and controlled by U.S. citizens; the company’s principal office—the location where the greatest number of employees perform their work—must be located in a HUBZone; and at least 35 percent of the company’s full-time (or full-time equivalent) employees must reside in a HUBZone. As of February 2008, 12,986 certified firms participated in the HUBZone program (see fig. 1). Over 4,200 HUBZone firms obtained approximately $8.1 billion in federal contracts in fiscal year 2007. A certified HUBZone firm is eligible for federal contracting benefits, including “sole source” contracts, set-aside contracts, and a price evaluation preference. A contracting officer can award a sole source contract to a HUBZone firm if, among other things, the officer does not have a reasonable expectation that two or more qualified HUBZone firms will submit offers and the anticipated award price of the proposed contract, including options, will not exceed $5.5 million for manufacturing contracts or $3.5 million for all other contracts. If a contracting officer has a reasonable expectation that at least two qualified HUBZone firms will submit offers and an award can be made at a fair market price, the contract shall be awarded on the basis of competition restricted to qualified HUBZone firms. Contracting officers also can award a contract to a HUBZone firm through “full and open competition.” In these circumstances, HUBZone firms are given a price evaluation preference of up to 10 percent if the apparent successful offering firm is not a small business. That is, the price offered by a qualified HUBZone firm shall be deemed as lower than the price offered by another firm (other than another small business) if the price is not more than 10 percent higher than the price offered by the firm with the lowest offer. As of October 1, 2000, all federal agencies were required to meet the HUBZone program’s contracting goals. Currently, the annual federal contracting goal for HUBZone small businesses is 3 percent of all prime contract awards—contracts awarded directly by an agency. In the HUBZone Act of 1997, Congress increased the overall federal contracting goal for small businesses from 20 percent to 23 percent to address concerns that the HUBZone contracting requirement would reduce federal contracts for non-HUBZone small businesses. Each year, SBA issues a small business goaling report that documents each department’s achievement of small business contracting goals. SBA administers the HUBZone program, and the HUBZone program office at SBA headquarters is responsible for certifying firms, publishing a list of HUBZone-certified firms, monitoring certified firms to ensure continuing eligibility, and decertifying firms that no longer meet eligibility requirements. A HUBZone liaison at each of SBA’s 68 district offices is responsible for conducting program examinations—investigations that verify the accuracy of information supplied by firms during the certification process, as well as current eligibility status. HUBZone liaisons also handle program marketing and outreach to the economic development and small business communities. Federal agencies are responsible for trying to meet the HUBZone contracting goal and for enforcing the contracts awarded to HUBZone firms. Each federal agency has an Office of Small and Disadvantaged Business Utilization (OSDBU), or an equivalent office, that helps the agency employ special contracting programs and monitor the agency’s overall small business and special contracting goals. In addition to the HUBZone program, SBA has other contracting assistance programs. The 8(a) program is a business development program for firms owned by citizens who are socially and economically disadvantaged. SBA provides technical assistance, such as business counseling, to these firms. While the 8(a) program offers a broad range of assistance to socially and economically disadvantaged firms, the Small Disadvantaged Business (SDB) program is intended only to convey benefits in federal procurement to disadvantaged businesses. All 8(a) firms automatically qualify for SDB certification, and federal agencies are subject to an annual SDB contracting goal of 5 percent of all federal contracting dollars. Small businesses also can be certified as service- disabled veteran-owned, and the contracting goal for these firms is 3 percent of all federal contracting dollars. SBA relies on federal law to identify qualified HUBZone areas, but its HUBZone map is inaccurate and the economic characteristics of HUBZone areas vary widely. The map that SBA uses to publicize HUBZone areas contains ineligible areas and has not been updated to include eligible areas. As a result, ineligible small businesses have participated in the program, and eligible businesses have not been able to participate. A series of statutory changes has resulted in an increase in the number and types of HUBZone areas. HUBZone program officials noted that such an expansion could diffuse (or limit) the economic benefits of the program. We found that different types of HUBZone areas varied in the degree to which they could be characterized as economically distressed (as measured by indicators such as poverty and unemployment rates). In recent years, amendments to the HUBZone Act and other statutes have increased the number and type of HUBZone areas. The original HUBZone Act of 1997 defined a HUBZone as any area within a qualified census tract, a qualified nonmetropolitan county, or lands within the boundaries of a federally recognized Indian reservation. Qualified census tracts were defined as having the meaning given the term in the tax code at the time— areas in which 50 percent or more of the households had incomes below 60 percent of the area median gross income. Qualified nonmetropolitan areas were counties with low median household income or high levels of unemployment. However, subsequent legislation revised the definitions of the original categories and expanded the HUBZone definition to include new types of qualified areas (see fig. 2). A 2000 statute (1) defined Indian reservation to include lands covered by the Bureau of Indian Affairs’ phrase Indian Country and (2) allowed all lands within the jurisdictional areas of an Oklahoma Indian tribe to be eligible for the program. The 2000 statute also amended the HUBZone area definition to allow census tracts or nonmetropolitan counties that ceased to be qualified to remain qualified for a further 3-year period as “redesignated areas.” Also in 2000, Congress changed the definition of a qualified census tract in the tax code by adding a poverty rate criterion; that is, a qualified census tract could be either an area of low income or high poverty. A 2004 statute revised the definition of redesignated areas to permit them to remain qualified until the release date of the 2010 census data. In that same statute, Congress determined that areas within the external boundaries of former military bases closed by BRAC would qualify for HUBZone status for a 5-year period from the date of formal closure.