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October 10, 2003

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Popular Program for Manufacturers May Get Reprieve

Capitalizing on the political heat over job losses and erosion in their sector, smaller manufacturers are expected to win a reprieve for a federally supported program designed to help them become more competitive.

At issue is the Manufacturing Extension Partnership, which runs a network of centers dedicated to aiding manufacturers with everything from making factory floor layouts more efficient to finding parts suppliers. The program is highly visible and politically popular, operating 65 centers nationwide, with 400 offices, many in states considered crucial to next year's presidential election. Moreover, the greatest potential for immediate job creation rests in small to midsize companies.

Although the program is relatively small in terms of funding, many manufacturers feel it represents a litmus test of the administration's resolve to help bolster the sector.

For the past two years, the administration has sought to cut most federal dollars for the program, arguing that funds are more urgently needed for defense and homeland security. After the program received about $106 million from the federal government in 2002, the administration's budget requested only $12.9 million for the program in 2003, an 88% cut. Full funding was later restored by Congress in the wake of a letter-writing campaign by small manufacturers. But the administration has asked for $12.6 million in its 2004 budget.

"The 2004 budget was considered a wartime budget that reflected our national security concerns at the time," says a senior administration official. Congress is still discussing what to do for next year, but is expected to at least partially restore the funding.

Michael Wojcicki, president of the Modernization Forum, a trade group representing the centers, says he thinks the administration is going to voice general support for the centers when it releases its long-awaited report on manufacturing this fall. "There's been such a clamor across the country about the troubles of manufacturing, I think the administration feels it needs to do something," says Mr. Wojcicki.

Some critics contend the centers should support themselves, since they are providing a service that manufacturers should be willing to pay for. Indeed, the original design for the program, which was created by the National Competitiveness Act of 1988, called for federal funding to be phased out eventually. Companies do pay for the program's services, but at a sharply lower rate than those charged by most consulting firms. A third of the program's funding comes from the federal government. Another third comes from state and local government, with the balance from fees charged for services.

Garrett Metal Detectors in Garland, Texas, used consultants from one of the program's centers to streamline operations on its factory floor, which allowed it to triple output after the terrorist attacks of Sept. 11, 2001, when demand for its security equipment exploded. Similarly, Tacony Corp., a vacuum manufacturer in St. James, Mo., got help locating parts from U.S. suppliers, allowing it to move vacuum production to the U.S. from a factory in Taiwan in 1998.

Mindful of the need to quantify the value of their work, the centers hire a third party to do regular surveys of clients. For the first three quarters of last year -- the latest period available -- the survey showed the program helped manufacturers create or retain 32,000 jobs and increase sales by $750 million.

"I'm rather stunned that this program was attacked," says Lawrence Rhoades, president and chief executive officer of Extrude Hone Corp. in Pittsburgh, who also serves on a panel studying the program at the National Academy of Public Administration. "It offers a good return on taxpayer investment." The first phase of the academy's study, released last month, concluded that small firms -- which employ seven million people and account for about 7% of gross domestic product -- need the help of such a program more than ever, particularly in the face of rising foreign competition.

Write to Timothy Aeppel at