Small-business owners are bristling over a congressional proposal that would redirect unspent money from Covid-19 programs to provide $10 billion for the federal government’s pandemic health response, including vaccines and therapeutics.

       At issue is about $5 billion that Congress allocated for three small-business aid programs but which hasn’t yet been spent. Some lawmakers want to repurpose those existing funds for healthcare, rather than allocate new money, because they are increasingly focused on reining in the federal deficit and spending amid a surge in inflation, which is at a 40-year high.

       The debate underscores the struggle to fulfill requests made by the Biden administration to address pandemic needs, while also accommodating Republican demands to not spend new money. Lawmakers have been forced to make difficult choices about where to pull funding, including from broadly backed causes such as supporting small businesses.

       The proposal to claw back funding is “not in alignment with the professed need of small businesses and the professed desire on both sides of the aisle to help small businesses," said John Arensmeyer, chief executive of the Small Business Majority, an advocacy group.

       Small businesses are facing many challenges, including navigating supply-chain bottlenecks and rising prices. The overall economic recovery from the pandemic-induced downturn is showing continued signs of momentum, but optimism among small businesses deteriorated during March amid concerns about inflation, according to survey data from the National Federation of Independent Business.

       Congress is set to continue debating the Covid-19 funding measure when it returns from recess later this month. The White House, in March, requested Congress supply $22.5 billion for pandemic-related health needs. Republicans balked at appropriating any new spending. Instead, Senate lawmakers earlier this month negotiated a bipartisan deal that relies on repurposing unused funds to provide $10 billion.

       Since the start of the pandemic, Congress has appropriated more than $5 trillion for the federal Covid-19 response, according to the Pandemic Response Accountability Committee, a panel of inspectors general from across the government.

       Mr. Arensmeyer said he was most concerned about the $2.13 billion in budget authority the deal proposes rescinding from the State Small Business Credit Initiative, a Treasury Department program that Congress originally provided $10 billion through a coronavirus-aid package passed last year. The initiative is designed to direct money over three tranches to states, territories and tribal governments for programs that provide venture capital or encourage private lenders to issue loans to small firms.

       The clawback would come from money meant to be distributed in the program’s third tranche, and from funds intended to provide technical assistance to participating businesses, according to an overview of the deal from Senate Democrats.

       Sen. Mitt Romney (R., Utah), one of the deal’s lead negotiators, has insisted that the new Covid-19 funding come from repurposed money. “Importantly, this bill is comprised of dollar-for-dollar offsets and will not cost the American people a single additional dollar," he said earlier this month.

       Lawmakers decided on the size of the deal after considering what offsets from unused funds were acceptable to both Republicans and Democrats that were involved, according to a GOP aide familiar with the negotiations.

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       The White House says it is urging Congress to act quickly.

       “We asked Congress to provide urgently needed funds for treatments, tests, and vaccines without any offsets, just as lawmakers did on a bipartisan basis multiple times under the prior administration," said Abdullah Hasan, a spokesman for the White House Office of Management and Budget. “Senate Republicans insisted they would provide lifesaving protections for Americans only with offsets."

       The deal would also repurpose a combined $2.83 billion from two Small Business Administration pandemic programs: Shuttered Venue Operators Grants and Economic Injury Disaster Loans. The programs are no longer accepting applications, but some small businesses had hoped lawmakers would repurpose any unused funds to aid their recovery.

       The shuttered-venues program authorized $16 billion in grants to support small, independent venues, promoters and agents whose businesses were disrupted by the pandemic. The program closed to new applications last August and has awarded about $14.3 billion in grants, according to SBA data.

       “People say ‘business is back open, why would you need money now?’ We were shut for 16 months and those of us that are still left are carrying phenomenal debt," said Michael Strickland, founder of Bandit Lites, a Knoxville, Tenn., lighting company.

       The aid concerns come as the live-event industry is scaling up for what concert executives say will be a banner year for the business with more acts hitting the road, adding pressure to strained supplies of labor and materials.

       Though Mr. Strickland was able to keep his roughly 300 full-time workers on staff through the pandemic, he typically contracts out another 200 jobs during the busiest times. Now he says he can only find about 80 contract workers. The company, which has the equipment and time to service 60 tours, can only do about 40 because of staffing.

       “For the support and service people that have been left behind, it’s a gut punch," Mr. Strickland said. “These businesses have hung on with the belief that the government is going to do the right thing."

       Garth Brooks is among big touring artists who have lobbied Senate Majority Leader Chuck Schumer (D., N.Y.) to aid live-event businesses.

       “The funds were already in the system, they just need to be directed to those who deserved the help," said Mr. Brooks. “The real workers in this business are not the people you see, they are the people you don’t see."

       A spokesman for Mr. Schumer declined to comment.

       Coming up with additional Covid-19 aid has been a slog for lawmakers since the White House first requested it to pay for additional vaccines and therapeutics. Some lawmakers raised alarm about the $10 billion deal because it lacked money for global vaccines, but it seemed likely to pass when first announced.

       However, the additional aid quickly became bogged down over Republican efforts to amend the bill to extend a pandemic-era immigration policy called Title 42—which allows Border Patrol agents to quickly turn away migrants at the southern border.

       Senators ran out of time to cut a deal on that issue before Congress left on its two-week Easter break, meaning any final overall agreement is unlikely to come together before May.

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