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Washington CNN  — 

Congress is considering taking back some of the money it authorized last year for a small business aid program in order to pay for new Covid-19 vaccines, testing and therapeutics.

The Biden administration asked Congress to provide more money weeks ago, warning that funds are needed to continue fighting Covid-19. But lawmakers have disagreed on how to pay for the request. Senate Republicans have insisted any new funding be fully offset by repurposing money from Covid-19 relief legislation that Congress previously passed.

A bipartisan deal reached in the Senate earlier this month would fully offset the $10 billion legislation by reallocating a variety of Covid-19 relief funds that were previously authorized by Congress but have not yet been spent.

A majority of those unspent funds were left over from programs that have already expired. But the deal also proposes taking about $2 billion from a $10 billion small business program that hasn’t disbursed any funds yet.

“There’s a big difference between funds that have not been used and funds that have yet to be deployed,” said Katie Kramer, vice president of the Council of Development Finance Agencies, a national association dedicated to supporting economic development.

The program in question, known as the State Small Business Credit Initiative, provides money to states to help create small business financing programs. It’s a long-term aid program that is meant to help small businesses have access to capital as the economy rebounds, instead of providing emergency grants and loans like other Covid-19 aid programs.

Funding cut threat puts state plans on hold

After months of planning how best to use the money, the threat of the cut is putting states’ plans on ice.

Like many states, Oregon was ready to launch several small business financing programs as soon as it receives the money from the Treasury Department. If the funds are cut, it could mean big delays.

“The frustrating thing for us is that we’ve been engaging with communities for months, letting them know these resources are coming,” said John Saris, finance manager at Business Oregon, the state’s economic development agency.

He was expecting Oregon to receive more than $83 million, enough to potentially reach 1,000 businesses. But if Congress rescinds some of the money, the state could see a reduction by as much as $20 million, leaving it with resources to help just 700 small businesses.

“With these cuts, we will have to totally revamp our plans. Some programs might go away completely – that’s how dire this is,” Saris said.

The State Small Business Credit Initiative allows states to create a variety of financing programs for small businesses and startups emerging from the pandemic, including venture capital programs and loan guarantees to lenders, for example.

Governments are required to match some of the federal funds with private capital, and Treasury expects that the programs should generate small business lending and investment of at least 10 times the federal contribution amount.

That means that a $2 billion cut in federal funding from the State Small Business Credit Initiative could result in more than a $20 billion reduction in private investment for small businesses, according to the Council of Development Finance Agencies.

States are still waiting for the money

The State Small Business Credit Initiative was originally created in 2010 to help small businesses recover from the Great Recession. The American Rescue Plan Act, which was signed into law by President Joe Biden in March 2021, reauthorized the program and provided $10 billion in new funding.

States were required to submit applications to Treasury in February and tribal governments have until May 11. But no applications have been approved yet and none of the money has been disbursed by Treasury.

A Treasury official told CNN that the agency’s rollout of the State Small Business Credit Initiative “has been consistent with the statute and included outreach, input, and engagement with states, tribes, lenders, small businesses and experts, as well as technical assistance to ensure programs are set up to deploy these funds effectively.”

The official noted that Congress created some new elements for the program that weren’t included in 2010, including the addition of allocations for tribal governments and socially and economically disadvantaged business owners, along with a new technical assistance program.

Bill remains in limbo

After weeks of negotiation on the Covid-19 relief bill, lawmakers left for a two-week recess without voting on the bill. The latest hurdle came as Republicans demanded a vote on an immigration amendment to restore Title 42, a pandemic-era rule that allowed immigrants to be returned immediately to their home countries citing a public health emergency.

The bill calls for repurposing several buckets of previously approved Covid-19 relief funds to pay for the new health spending, in addition to the money it would take back from the State Small Business Credit Initiative.

The bill would use nearly $2 billion left over from the Shuttered Venues Operators Grant program, which gave money to live music venues, theaters and museums that were forced to shut their doors for some period of time due to the pandemic. The program stopped taking applications in August. It awarded more than $14 billion in grants.

The bill would also repurpose about $900 million that is remaining for the Covid-19 Economic Injury Disaster Loan advance program, which allowed some small businesses to receive up to $15,000 that did not need to be paid back. The program would be left with enough money to accommodate pending loan modifications and the recently announced six-month deferment on loan payments, according to a summary of the bill provided by Senate Democrats.

More than $2.3 billion would come from the Aviation Manufacturing Jobs Protection Program, which provided funding to businesses to cover up to half of their payroll costs for certain categories of employees for up to six months. In return, those businesses were required to make several commitments, including to not involuntarily furlough or lay off employees within that group during the same six-month period.

The bill would also use remaining unspent money in the Higher Education Emergency Relief Fund, totaling $500 million. That program provided funds to colleges so that they could give emergency financial aid grants to students whose lives were disrupted by the pandemic. Another $1.6 billion of unspent funds that were previously given to the US Department of Agriculture would also be repurposed.

Congress could take up the new Covid-19 relief legislation next week after lawmakers return from recess. Spokespeople for Senate Majority Leader Chuck Schumer and Republican Sen. Mitt Romney of Utah, who was negotiating the funding deal for Republicans, did not return emails from CNN requesting comment for this story.