[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

HEARING ON THE SMALL BUSINESS ADMINISTRATION FISCAL YEAR 2012 BUDGET
=======================================================================

HEARING

before the

COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

HEARING HELD
March 2, 2011

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[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

Small Business Committee Document Number 111-059
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HOUSE COMMITTEE ON SMALL BUSINESS

SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
CHUCK FLEISCHMANN, Tennessee
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts

Lori Salley, Staff Director
Paul Sass, Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director
C O N T E N T S

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Page
OPENING STATEMENTS

Graves, Hon. Sam................................................. 1
Velazquez, Hon. Nydia M.......................................... 2

WITNESSES

Mills, Hon. Karen G., Administrator, United States Small Business
Administration, Washington, DC................................. 3

APPENDIX

Prepared Statements:
Mills, Hon. Karen G., Administrator, United States Small Business
Administration, Washington, DC................................. 5

HEARING ON THE SMALL BUSINESS ADMINISTRATION FISCAL YEAR 2012 BUDGET

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WEDNESDAY, MARCH 2, 2011

House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., in room
2360, Rayburn House Office Building. Hon. Sam Graves (chairman
of the Committee) presiding.
Present: Representatives Graves, Chabot, Coffman, Ellmers,
Herrera Beutler, Fleischmann, Landry, West, Velazquez,
Schrader, Critz, Altmire, Clarke, Chu, Cicilline, Richmond,
Owens, and Keating.
Chairman Graves. I will call this hearing to order, and I
want to welcome everybody today.
At today's hearing we're going to hear about the
President's proposed fiscal year 2012 budget for the Small
Business Administration. I would like to welcome Administrator
Karen Mills back to the Committee.
The mission of the SBA is to promote the growth of small
businesses throughout the United States and in doing so, the
agency tries to be all things to all small businesses, from a
start-up in the inner city to a mature business in remote areas
of rural America.
Given the importance of the small business to the American
economy, the breadth of the mission is laudable. In a different
time, we might be able to afford funding for this broad mission
but unfortunately we do not have that luxury. The government's
fiscal situation is dire. Even agencies and programs that we
view as valuable will need to do their part in reducing
unsustainable federal expenditures.
The fiscal situation requires that the mission of the SBA
be pared back to core objectives, enabling small businesses to
obtain capital in credit so they can create jobs, assisting
small businesses and penetrating the federal procurement arena,
and counseling America's entrepreneurs. In assessing these core
functions, we must focus on those programs that are most
efficient in helping small businesses create jobs while
reducing the financial risk to the federal taxpayers. Programs
that do not meet these objectives are going to have to be cut,
and programs that meet these standards should be strengthened.
I look forward to hearing the Administrator's testimony and
explanation of the President's budget and how it meets these
core missions of the SBA while recognizing the current fiscal
constraints facing the Federal Government today. And again, I
welcome you and I will now turn to Ranking Member Velazquez for
her opening statement.
Ms. Velazquez. Thank you, Chairman Graves. And welcome
Administrator Mills.
As we begin our consideration of SBA's budget request, it
is critical that we do so with one eye on the small business
economy. Due to the financial crisis beginning in 2007 and
ensuing recession, small firms have faced challenges on several
fronts. However, it now appears that small firms are poised to
turn the corner. Importantly, credit conditions have eased and
optimism concerning revenue growth and the general economy has
improved. This result in increased business confidence suggests
small firms will increase employment within the next year. Ten
years ago, in fiscal year 2002, small businesses were facing
extremely similar challenges during a period of fiscal
restraint. As the country began to emerge from the recession
that began in early 2001 the SBA stood by ready to help. At
that time the agency spent $973 million, only one percent less
than its request of $985 million for fiscal year 2012.
Today we find ourselves in a familiar position trying to
make sure that small businesses have the tools they need to
succeed and create jobs, but also doing so in a manner that is
responsible to the taxpayer. With this in mind I am troubled by
the agency's continued use of limited budget authority to fund
unauthorized pilot programs. For fiscal year 2012, the SBA
proposes to operate seven such initiatives. This includes the
Small Loan Advantage Program, the Community Advantage Program,
the Impact Investing Fund, the Early Stage Innovation Fund,
Regional Clusters, the Distance Learning Program and the
Emerging Leader Programs. The cost of the last three alone
makes up nearly 10 percent of the SBA's non-credit programs'
budget submission.
Most worrying is that these programs were launched without
the public hearings and legislative record that accompanies
statutorily authorized programs. Therefore, it is impossible to
understand why these programs were created and whether or not
they are a good investment for the taxpayer. In addition,
several of these programs are clearly duplicative of other
agency offerings.
The reality is that these are lean times. Everyone has to
tighten their belt and this includes the SBA. Instead of using
these resources for pet projects, the agency should instead be
focusing on addressing the priorities raised by its own
inspector general. The first two programs the IG raises in its
own budget submission are especially critical and if addressed
properly will save taxpayers' money by reducing waste, fraud,
and abuse.
The first program the IG identifies is regarding the SBA
loan programs. It finds that the agency faces a heightened risk
of loss due to expedited loan processing initiatives and its
considerable reliance on outside financial institutions. It
further notes the majority of loans made under the 7(a) program
are made with little or no review by the SBA prior to loan
approval because SBA has delegated most of the credit decisions
to lenders.
Numerous IG criminal investigations have identified fraud
by borrowers, loan agents, lenders, and other participants in
SBA's business loan programs. In addition, the IG raises
concern about the award of contracts under the SBA programs. In
2009, $97 billion in prime contracts were awarded through these
programs. However, IG audits, as well as GAO investigations,
have identified numerous instances where firms that do not meet
this program's eligibility criteria were improperly given
contracts anyway.
These two issues are of such significant magnitude that
instead of being buried in the back of the budget submission
they should be front and center. I intend to work with members
of this committee to change this.
As part of the budget process, this committee is required
to submit its views and estimates to the Budget Committee. Per
tradition, the minority will be submitting its own letter, and
in it we will be recommending that the funding requests for all
pilot projects be either denied outright or made available to
reduce fraud and waste in the SBA programs. Doing so is but a
small step, but it is essential as we try to balance the
objective of being fiscally responsible while ensuring that
small businesses have the resources they need. This is a
challenge but it is imperative that we overcome it. If we can,
small firms will have the tools they need to succeed and create
jobs, while taxpayers can be assured that their money is being
managed responsibly.
In advance of her testimony, I want to thank Administrator
Mills for appearing here today and providing her insight into
the agency's funding for fiscal year 2012.
Thank you. And I yield back.
Chairman Graves. Thank you very much, Ms. Velazquez. And
now I will turn it to Administrator Mills, who is here as--I
talked to her about I guess it was a month ago or so about
coming in and talking to us, the committee, about what is
working, what is not working. And Administrator Mills, I will
turn it over to you and you have all the time you need.

STATEMENT OF KAREN MILLS, ADMINISTRATOR, UNITED STATES SMALL
BUSINESS ADMINISTRATION

Ms. Mills. Well, Thank you very much. Chairman Graves,
Ranking Member Velazquez, and members of the committee, I am
very pleased to testify before you.
Small businesses are the backbone of our economy. They
create nearly two out of three new jobs and more than half of
working Americans either own or work for a small business. The
SBA is a small agency but we have a big mission. We put the
maximum possible resources directly into the hands of small
businesses, focusing on the three Cs of capital, contracting,
and counseling. Last year we helped over 50,000 small
businesses get the capital to grow and hire. We helped put
about 100 billion in federal contracts in the hands of small
businesses, and we counseled more than a million small
businesses across your districts and throughout the country.
We put these resources in their hands while providing
taxpayers a big bang for their buck. For example, after credit
froze in 2008, the Recovery Act and the Small Business Jobs Act
supported more than 42 billion in SBA loans at a cost of just
1.2 billion in subsidy. Many small businesses suffered greatly
during the recession. Our job is to support them as they grow
and create jobs and that job is not done.
The President's proposed fiscal year 2012 budget for the
SBA of $985 million will support up to 27 billion in loan
guarantees, as well as many other tools and resources to help
them do just that. At the same time this budget reflects a
commitment to tighten our belts, streamline our processes, and
eliminate duplication. This includes some of your ideas. For
example, we looked hard at our technical assistance programs
and as a result we proposed eliminating the Prime Program. With
the work of our micro lenders and new efforts to recruit
community-based lenders, we can continue to provide this
important technical assistance but in a more cost effective
way.
In addition, due to process reengineering, our disaster
loan operations are now much more efficient. We can preserve
our level of preparedness with a steady stayed core staff level
of 850 instead of 1,000 along with our 2,000 reservists. The
largest increase in this budget reflects the fact that we have
reached the statutory limit for fees that we can assess. We
request additional subsidy because losses, including those from
loans approved when collateral such as real estate was
inflated, have pushed up subsidy costs. We also request a
legislative fix to return to near zero subsidy. We also request
incremental increases for the new women's contracting program
and continued efforts to remove waste, fraud, and abuse in
contracting.
Overall our priorities are twofold. Our focus is on SBA
programs that put money and support directly into the hands of
small business owners in the places they live, and we will
continue to invest in oversight to preserve the integrity of
these programs and to protect the interests of taxpayers.
I look forward to working with all of you to continue to
ensure that small businesses are succeeding because as you
know, when they succeed, America succeeds. Thank you very much.
[The statement of Ms. Mills follows:]
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Chairman Graves. We will now obviously move into questions,
and in fact, I am going to go ahead and start with the ranking
member and then move through the members because I know a lot
of times they are trying to get out of here. I have budgeted
the afternoon so I can ask my questions at the end. So ranking
member.
Ms. Velazquez. Ms. Mills, Administrator, the SBA budget
proposes spending $161 million more than it did in fiscal year
2010. However, while the overall budget is increasing, it
proposes to reduce core SBDC funding and microloan technical
assistance, while also eliminating the PRIME program. At the
same time it is flat funding the Women's business center and
veterans' business development programs. These cuts make it all
the more strange that the agency has found millions of dollars
to spend on seven programs that are unauthorized and untested.
To me it sounds like this is capricious. Why cut programs that
we know work and instead put the money in initiatives that are
unproven and lack any performance measures to even know if they
actually work?
Ms. Mills. Thank you, Ranking Member Velazquez, for this
question.
Let me start with our cutting the PRIME program. As you
know, it is very hard for us right now in this fiscal era.
Everyone has to tighten their belts. And so we are looking
across all of our technical assistance programs and our
counseling programs and looking for where we can identify
programs that are duplicative.
Ms. Velazquez. My question is not for you to come and
justify these programs or not justify those programs. My
question is why are you cutting programs that we have measured
metrics and it tells us that they work. Every member of this
committee can talk to us about the role that small business
development centers, the women's business development centers
play in their district, and yet, you are cutting those programs
that are working and creating seven new programs that have not
been authorized by this committee, by the Congress, that are
untested. So what is your rationale to cut those that have a
proven record versus those pilot projects that you are
creating?
Ms. Mills. Right. On an incremental cost basis we are
looking at all the places where we can tighten our belts.
Ms. Velazquez. Well, we, too. We are looking. And I will
strongly recommend to the Chairman and I will do my part on my
end that we recommend to cut all those new programs that are
untested, that do not have any proven record since we have to
act in a fiscally responsible way. My question to you----
Ms. Mills. Can we just come back to--go ahead.
Ms. Velazquez. In the grant announcement for the Jobs Act,
SBDC grants, the SBA states that this funding has the primary
objective of supporting job creation and retention. Based on
your testimony, however, you suggest that the Jobs Act funding
will be used to make up for the $10 million reduction to the
SBDC funding in fiscal year 2012. So my question is, is this
now the position of the agency that SBDCs can use the Jobs Act
funding to pay for core SBDC operations and in doing so satisfy
the job creation requirements?
Ms. Mills. As you point out, small business development
centers are a critical and important and valued part of our
activity at the SBA. And as you know, counseling is one of our
critical activities. We have many other places that we do
counseling, also as you point out, that are supported in this
budget, including the women's business centers. It is a very
hard decision where to tighten our belts. After much thought
and analysis we have lots of great programs. We note that the
$50 million that was given to the SBDCs in the Jobs Act was for
job creation.
Ms. Velazquez. I just need a yes or no answer. My question
to you is----
Ms. Mills. It is not----
Ms. Velazquez. Is it now the position of the agency that
the SBDC can use the Jobs Act funding to pay for core SBDC
operations?
Ms. Mills. It is not the position of the agency to change
anything in the Small Business Jobs Act direction for that $50
million.
Ms. Velazquez. In a release yesterday by GAO, they found
that the SBA has not yet developed outcome measures that
directly link to the mission of the HUBZone program. Nor has
the agency implemented its plan to conduct an evaluation of the
program based on variables tied to its goal. Furthermore, when
GAO inquired about the effectiveness of the program, SBA
provided a copy of an Office of Advocacy Report from May 2008
that stated that the program has had limited effect. So what
outcome measures and data can you provide us that will show
that this program is accomplishing its mission?
Ms. Mills. As you know, we have focused very hard on the
HUBZone program in a number of ways. The first focus, and I
think it was something that this Committee raised with me from
the beginning, was on eliminating fraud, waste, and abuse in
that program. And that we have attacked with great vigor. We
have reengineered the upfront criteria for that program to make
sure it goes to the intended recipients. We have increased our
oversight of the program on an ongoing basis. We used to, the
year before I came, do seven visits. This year we will do over
1,000 and we are implementing, as you know, enforcement. So we
are cleaning up that program.
Ms. Velazquez. And so what are the bases for the GAO report
yesterday? So are you telling me that their conclusions are
wrong?
Ms. Mills. We are in ongoing evaluation of all programs. We
track all kinds of metrics about the HUBZone program which we
are pleased to share with you and GAO. But the priority when we
came in, and I think this was shared by a number of members in
this committee, was to get after the fraud, waste, and abuse.
And that has been our first priority.
Ms. Velazquez. When do you think you will be able to come
before this committee--and you have been here before,
specifically and particularly about the HUBZone program--when
do you think you will be able to provide reliable information
as to whether or not this program is effective?
Ms. Mills. Happy to take that back and come back to you
with a proposed timing for exactly that.
Ms. Velazquez. Well, last year you were here before us and
if we could go back to the congressional record of this
committee we will find the same question with the same answers.
With that, Mr. Chairman, I yield back.
Chairman Graves. Mr. Fleischmann.
Mr. Fleischmann. Thank you, Mr. Chairman. Ms. Mills, thank
you. I am Chuck Fleischmann. I represent Chattanooga, Tennessee
3 and was privileged yesterday to speak on the House floor
about our great job creation and small business in Chattanooga.
And I thank you for being here today.
I just have one question. What additional resources, if
any, does the SBA need to root out potential fraud in the SBIR
program?
Ms. Mills. The SBIR program, as you know, is something that
we oversee with 11 agencies participating. We have just
instituted what we call SBIR 2.0, where we have done a number
of things to improve the technical information gathering on
that program and also to improve the websites and the
accessibility of information on that. And we are engaged in I
think bringing the SBIR program forward in a more coordinated
way across the 11 agencies because each one implements it
slightly differently. And we believe that small businesses with
ideas to commercialize have really had a very strong record
from the SBIR program. About a quarter of R&D Magazine's top
100 innovations were actually funded by SBIR. So we are looking
at and continuously right now on an improvement track for that
entire program, particularly the data aspects of it.
Mr. Fleischmann. Thank you. Mr. Chairman, I yield back.
Chairman Graves. Mr. Cicilline.
Mr. Cicilline. Thank you, Mr. Chairman. And thank you,
Administrator Mills. Welcome to the committee. It is great to
see you.
I am a new member of this committee and very interested in
doing everything that we can to work with you and the agency in
supporting small businesses. As you know, I am from Rhode
Island and we estimate there are 96,000 small businesses in
Rhode Island and it really is the backbone of our economy. And
I want to compliment your staff in Rhode Island. The SBA office
has been a terrific partner in the work that I have done as
mayor of the capital city. And I have worked very closely with
Mark Hayward and others and I just want to compliment you on
the staff in Rhode Island.
I am particularly interested to know about the Small Loan
Advantage program and the New Markets Venture Capital program.
I recognize there is some interest in continuing existing
programs that our ranking member has discussed but I am also
interested in the SBA's ability to respond to kind of the new
economy and to particularly this venture capital approach. I
think as we are trying to build the knowledge economy and be a
state and a country of entrepreneurs and innovators, access to
capital in those early stages is very difficult and not an area
I think that government has traditionally been involved and
certainly the SBA. So it sounds as if you are responding to
that kind of new part of our knowledge economy. And I would
like you to know that in Rhode Island there is a very active
and thriving small business effort in a number of places that
our office interacts with.
Ms. Mills. We have announced, as part of a government-wide
program called Start Up America, several initiatives around
high growth, high impact, innovative companies. And we know
that job creation is really centered in a relatively small
number of very high growth companies. We also are serving Main
Street companies. You know, when a restaurant opens and a
restaurant closes on Main Street, we will be there for them.
But these high growth companies, we have a capital gap and our
SBIC program has traditionally been in that area. Now, this is
a zero subsidy program so it does not increase taxpayer cost,
but we have announced two funds focused on having an impact in
this area. One in early stages where there is a capital gap. I
think that this Committee has talked about this capital gap.
And the other in areas that are regions in transformation or
particular sectors in transformation. So there will be $2
billion of SBIC funds, which is within the existing authority
limits at zero cost to taxpayers going--available for public-
private partnerships to address these small businesses.
Mr. Cicilline. Thank you. In addition, I am particularly
interested in whether or not there are any initiatives underway
that are focused specifically on manufacturing. I think the
issue of both tax and trade policies obviously have a huge
impact, but we have a very robust manufacturing cluster in
Rhode Island and I am really committed to figuring out how we
help small businesses that are doing manufacturing. How do we
strengthen the manufacturing sector in our economy? And I don't
know if there is anything specific that the SBA is doing in the
area of manufacturing, but if there is I would love to know
more about that as well.
Ms. Mills. Well, we would be happy to come and talk to you
about an array of things that we do across our SBA programs. I
come from a manufacturing background. Manufacturing in this
country is not dead and we have many, many small businesses
doing innovative manufacturing in every single state. I visited
lots of them, you know, from metal steel slitting in Cleveland,
which we still--we just supported with a machinery loan. So we
are very actively engaged in supporting our manufacturers. In
addition, many of them have export potential, so our export
programs also give them the opportunity to get more sales and
create more jobs here.
Mr. Cicilline. Thank you so much. I yield back the balance
of my time.
Chairman Graves. Ms. Ellmers.
Mrs. Ellmers. Thank you, Mr. Chairman. And thank you, Ms.
Mills, for being with us today. It was a pleasure seeing you in
our office a couple of weeks back. And as a small business
owner I know what a vitally important piece to the puzzle you
are contributing to us here in this economy today and getting
things back on track. So thank you.
And I have a kind of a specific question for you in the
area along the fraud, waste, and abuse side, one that some of
my constituents have brought to me who are in the business of
getting government contracts. Basically, my understanding, and
maybe you can help me with this, as far as reaching out to the
certain percentage of Small Business Administration efforts,
grants and whatnot to women, minorities, in helping them to
gain some of the government contract positions, and then having
another entity actually, almost as a front and then another
entity coming forward and actually taking over the work section
of that, can you shed a little light on that and maybe what the
Small Business Administration is able to do to alleviate this
bit of fraud and abuse?
Ms. Mills. Fraud, waste, and abuse has been a primary focus
for the SBA since I took over because of exactly the reason
that you mention. These programs are intended for the small
businesses; they are not intended for the big business
masquerading as small businesses or for some pass through. We
have gone after that quite aggressively. We have a three-prong
strategy. We look at every single program, and what we do is we
try to strengthen the upfront criteria that they have to meet.
Then we are looking after the ongoing evaluations, the audits,
to make sure that they are small businesses performing the
tasks that are supposed to be performed. And the third is we
enforce against bad actors. And you have seen us act
aggressively on all three of those activities.
In addition, the President's task force on procurement
addressed this specific issue and it was further addressed in
the Small Business Jobs Act. We have also clarified in the new
8(a) Regulations, the first redo of the regulations in 10
years, exactly what--and closed loopholes so that when a small
business gets the contract they are performing the anticipated
amount of the work.
Mrs. Ellmers. Thank you so much, Ms. Mills. And Mr.
Chairman, I yield back the rest of my time. Thank you.
Chairman Graves. Mr. Critz.
Mr. Critz. Thank you, Mr. Chairman. Ms. Mills, it is good
to see you. Thanks for coming in.
I do have some concerns, and I think the ranking member
brought up some of the concerns that I have. Being based in
rural Pennsylvania, rural America, is that with reducing or
leveling funding for programs like SBDCs, WBCs, Veterans
Assistance, these are programs that have worked very well, I
believe, in our part of the world. And I have three SBDCs that
aren't actually in my district but they are just outside and I
know scores of people that go to them. And as we are leveling
or reducing funding for these, we are increasing funding for
programs that are actually unauthorized programs or programs
that are not authorized by this committee. So I am reading them
to see, because I am a reasonable human being, what a regional
innovation cluster is, which I see that is one of the programs
that is receiving funding. And, you know, what is unfortunate
for my area of the world is that when you talk about clusters,
rural America is not usually a place where you are going to
have a cluster. It is not someplace that unless something major
happens like the discovery of a natural gas deposit, that you
are going to see things like this. So it is hit or miss for us.
And then I also read another program which is called the
Emerging Leaders program, which is a great program training
executives in inner city urban areas, Native American, but let
me tell you. In rural America we have poor people, too. And we
have people that could use help and that are underserved. And
you are pulling money out of programs that help folks in my
neck of the woods to go to other programs. I am just curious
what the rationale is for that.
Ms. Mills. Well, let me clarify, number one, that clusters
exist absolutely in rural America. My first involvement with
clusters was in rural Maine, which is my home state. And the
cluster was the Maine Boat Builders. And there is probably
nobody less likely to cluster than Maine Boat Builders but in
fact they did. And the Maine economy, which had been relying on
textiles and shoes and pulp, is now----
Mr. Critz. If I may interrupt one second. So you had the
Boat Builders already there. So there already was a cluster of
companies that were trying to form together. See, in my area
there is nothing like that. It is a very diverse group of
people who are really just scraping by sometimes to get the
work. So I am sorry to interrupt but I think there is, like I
said, there is something there already that provided the
impetus for the cluster.
Ms. Mills. But once again, across rural America, and I just
did a call yesterday with Secretary Vilsack and we are very
strongly partnered with USDA in a number of areas. We just did
a MOU with them on exactly the kind of activities you talk
about, which is to engage in rural America with our joint
programs and activities. But I will tell you that one of the
clusters that we awarded with the funding that we just did a
competition on is in the agriculture area. Do not make the
mistake of thinking that these are urban cluster activities.
They go everywhere from Akron, Ohio. They go from the Gulf
Coast in Louisiana. They are in the smart grid. They are in
upper Michigan. There is a Green Aviation Coalition. They are
everywhere. They are everywhere, including rural America. The
reason why they are important is that they use the assets on
the ground of the small businesses and the small business
development centers who are generally at the heart of these
cluster activities. And they link, leverage, and align
resources around collections of small businesses. Small
businesses do not have the power to access research and
development, community college curriculum in the way that big
businesses do. They don't have the market power until they
cluster together. That is what we learned in rural areas, as
with the Boat Builders. And they may have existed but they were
not part of the economy in an active way. When they cluster
together we got research on composites from the university
driven to that cluster. That is how you access resources in a
region and develop a transforming economy. So these are
critical programs.
We used to do our programs, our fabulous programs in silos.
Now to get more bang for the buck you need to link, leverage,
and align all the things that are happening on the ground. That
is what happens in a cluster for very, very small investments.
Mr. Critz. And before I run out of time I want to bring up
one item that is very near and dear to my heart is the veterans
of our country. And President Obama authored or had the
Military, Reservists and Veterans Small Business
Reauthorization Opportunity Act, and I noticed in the budget
that there is no request for funding to help our veterans who
are experiencing, especially from Iraq and Afghanistan an
inordinate amount of unemployment. And we have a lot of smart
people in our military and I want to just get that out there. I
am out of time. I yield back but it seems that we are missing
an opportunity here.
Chairman Graves. Mr. Coffman.
Mr. Coffman. Thank you, Mr. Chairman.
My question is what programs that you have right now do you
think are most effective in terms of job creation that the SBA
does? Give me a single program that you think is the most
effective right now.
Ms. Mills. We have a three-pronged approach we call our
three Cs. Capital, contracts, and counseling. And they go
together. Our most, largest program is actually making sure
$100 billion of government contracts go into the hands of small
business. Our most known program I think is the 41 billion that
we put in the hands of small business at a time when they could
not get credit at a cost of only 1.2 billion. But in fact,
counseling pulls it all together, and sometimes if you give a
small business the money and you do not give them the advice
and the counseling that they need it is not a complete formula.
Mr. Coffman. And let me just say, Madam Secretary, these
people who do counseling, when I was in small business I
noticed that some of them really did not have the kind of
business background that were helpful to me. Are all the people
that do this kind of work former small business entrepreneurs?
Ms. Mills. We have a series of activities that help small
business in all different kinds of counseling. They range from
our small business development centers to our retired
executives who are in our SCORE activity who generally have
come out of entrepreneurship or business, to our microloan
technical assistance intermediaries who help and counsel and
advise and provide technical assistance to those in our women's
business centers and our veterans centers. And in the large
part they are day-to-day very well versed not only in how
business operates but in what is available.
Mr. Coffman. What percentage would you say that, let us
take the SBDC, what percentage of those folks would you say
were former small business owners?
Ms. Mills. I am happy to provide that to you.
Mr. Coffman. Could you? Thank you very much.
And then I have a question about the 8(a) program. And I
think it was raised by Congresswoman Ellmers about the fraud
issues in the program. And I think you said, and I am happy to
hear it, that since you have been Administrator of the SBA,
that in fact you have been very focused on these issues of
fraud where you have these shell entities come in and engage in
fraud. Can you give me, you might not be able to do it today;
but I would like to know how many successful investigations
there have been on fraud? Once these 8(a) designations are
made, how many successful entities have been investigated?
Because I think that this is rampant. And I know when I had
competitors in small business going for government contracts,
some of the things that they did. So I am wondering if you
could get back to the committee on some specifics on that.
Ms. Mills. I will be happy to get back to you, and I will
be happy to tell you that the number of investigations is going
up.
Mr. Coffman. Mr. Chairman, I yield back.
Chairman Graves. Mr. Schrader.
Mr. Schrader. Thank you, Mr. Chairman. Just appreciate all
the work that Director Mills has done particularly in the fraud
area. It has been a breath of fresh air compared to what had
been going on, I guess, in previous administrations. So I
appreciate all the heavy lifting in that area.
I would, however, also reiterate the ranking member's
concern about the SBDC program being reduced and new programs
coming on. And maybe there is an opportunity in the future for
you to line out the comparative advantages and disadvantages
that led the Department and you to that decision because they
are a big source of advocacy and a good source of knowledge for
a lot of people who have lost their jobs who are now out there
creating their new businesses. And so we want to make sure the
SBDCs are still out there able to do their good work.
A question I guess I have is one of the changes that we had
made in the 7(a) program last time. We increased the loan
subsidy amount available, go up to $5 million. And a little
concerned. We had talked about that at the time. There was
concern from my part and others about, you know, these bigger
loans squeezing out lots of loans for smaller small businesses.
And my information would indicate almost two-thirds of the
loans went to businesses, you know, wanting between a million
and $5 million worth of revenue or loan. And wondered, you
know, if you had figured on that amount when you raised the
loan ceilings for the program.
Ms. Mills. Yes. We pay a lot of attention to the small loan
size. And in fact, as we look at the numbers what we see is
that small loans, prior to any raising of the loan limits, but
small loans are the last to recover because they are more
expensive to deliver from the banks. And that is why we
introduced two programs under the 7(a) rubric so that they live
and are authorized as 7(a) programs. But the first is called
Small Loan Advantage and the second is called Community
Advantage. Small Loan Advantage is designed to make sure that
banks give small loans. And it streamlines our paperwork. And
as you and I have discussed before, streamlining our paperwork
is good for borrowers, it is good for processing, and it keeps
the same underwriting standards so that we can deliver a more
streamlined product but more cost effective in the small loan
size. So we have taken Community Advantage, as well as the
program for small loans. That is designed to make sure that
institutions that are in underserved markets, community
development financial institutions (CDFIs), CDCs, can have
access to SBA's 7(a) program. And a limited number of
experienced CDFIs will come into the program, providing more
points of access for small loans. Those are critical programs
to give access and opportunity on the small loan size while
still preserving the ability for a large manufacturer to get a
larger loan.
Mr. Schrader. All right. Is it possible at some point to
get for the current budget that you are proposing subsidy
breakouts, the fee portion versus the increased loan portion
versus the defaulted loan portion? Is that possible at some
point in the future?
Ms. Mills. We would be happy to answer any of your
questions.
Mr. Schrader. Good. We also passed a bill last session on
performance-based budgeting and wondered what actions the SBA
has taken to implement performance-based budgeting along all
its different program areas.
Ms. Mills. As you know, we are very metrics-oriented and we
track the outcomes of all of the budget areas. And you will see
some of them in your budget book. But the focus is on a higher
level to put as much money in places where it is delivering
value into the hands of small business. So overall that is the
first line of assessment.
Mr. Schrader. I just would encourage you to set targets,
you know, for the various programs, whether it is the fraud,
waste, and abuse or a certain amount of loans, not just
counting loans out but jobs created and that sort of thing. I
think that helps sell the programs to at least this group here
and hopefully to the American public.
With that I yield back, Mr. Chairman.
Chairman Graves. Mr. West.
Mr. West. Thank you, Mr. Chairman and Madam Ranking Member.
Ms. Mills, good to see you again.
In light of the GAO report, the 345 page report yesterday
that came out with the duplicitous programs, on page 103 of the
budget submission the SBA lists a variety of programs in which
the agency is attempting to improve coordination of services.
My question is has the SBA considered whether these programs
are duplicative, and if so, are you seeking to eliminate any of
them? Thank you.
Ms. Mills. Overall, as I said earlier, this is a time where
everybody has to tighten their belts, streamline as much as
possible, and eliminate duplication. We are on continuous watch
for that. And we have taken some programs that we like and we
care about to a lower level because we find that we think we
can find a more cost-effective way of delivering those services
and we are working very, very closely across all our programs
with everybody from the U.S. Department of Agriculture and
their operations and Department of Commerce, the export
operations, the import-export bank, to make sure if somebody
else can do it better and we can pull back, that is what we are
going to do.
Mr. West. Mr. Chairman, I yield back the balance of my
time. Thank you.
Chairman Graves. Ms. Chu.
Ms. Chu. Ms. Mills, I am from Los Angeles. It is a port
city and there are many who are interested in exports. And I am
glad to see that according to a U.S. Commerce Department
report, California's exports climbed 19.3 percent in 2010 to
143 billion. And these are levels that are close to pre-
recession levels. But most of California's exporters are small
and do not venture too far. They go to Mexico and Canada. These
are the top two countries for the state's exports. So in order
to grow these industries even more the businesses will have to
start looking towards other markets beyond North America and
they will have to find trusted overseas partners to handle
distribution and sort out complicated shipping logistics and
import duties. There are multiple agencies involved with the
National Export Initiative, including the SBA, but of course,
Commerce International Trade Administration, the Minority
Business Development Agency. But which is the lead agency and
what is the exact role that SBA will play in this initiative?
And how will you monitor and assess its progress?
Ms. Mills. Thank you, Congresswoman.
We lead the small business working group for the Combined
Trade Promotion Coordinating Committee of the federal
government around exports. And that is an interagency effort to
make sure small businesses' share of exports grow. Right now
small businesses are about 30 percent of exports. There is only
about 250,000 small businesses who export out of the six
million that have employees and the two million who potentially
could. So there is much room for growth. Small businesses are
the fastest piece of growing piece of it, and we have a goal of
doubling exports as you know over the next five years.
So we have initiated a series of activities around this
coordinated small business approach which involve our major
role in the frontend which is we try to get more small
businesses into the funnel and then we try to direct them to
some of the resources that are available everywhere, including
the commercial service and the import-export bank, our loan
programs. We are counseling a very, very high number and
increasing number of small businesses on just entry into export
right now.
Ms. Chu. I notice that in SBA's budget your agency is, in
fact, stating that it is committed to enhancing the ability of
those small businesses to export. How does your new budget
structure, how is it structured to help the business person?
For instance, I have many business persons that come and ask
for help and assistance in navigating export regulations. How
exactly would your budget help them?
Ms. Mills. Right. In addition to our budget, which funds
the core operations, it is not visible here that the Small
Business Jobs Act added significant resources around exports,
including $30 million annually for something called step grants
which are state-based grants that we will give out, we just
announced them, that will help support small business activity
in state export organizations. Generally, they would also be
coordinated with our export people and our small business
development centers. So most of the activity in the funding for
the incremental efforts actually is in the Small Business Jobs
Act.
Ms. Chu. Some business groups have also voiced some fear
that their intellectual property will be stolen if they sell a
product overseas. Does the SBA's budget have some means of
handling this or at least to strengthen relationships between
the Department of Justice and the U.S. Trade Representatives'
Office so that these businesses can feel more confident about
exporting?
Ms. Mills. This is a very big issue for small businesses
who are exporting, and we have a coordinated effort with
Commerce who runs the intellectual property and the patent
issues to make sure that these things are very, very, very
strongly addressed.
Ms. Chu. Okay. Thank you. I yield back the balance of my
time.
Chairman Graves. Mr. Landry.
Mr. Landry. Thank you, Mr. Chairman. Ma'am, in looking
through your budget I noticed that some of the cost savings you
are calculating is in a decrease of about 150 employees in a
disaster program. And being that my district seems to be the
epicenter of disaster over the last five years I am concerned
about the sacrifice the employees who are on the ground working
with my constituents after a disaster will be limited while
there may be too many bureaucrats here in Washington. The
Department of Agriculture employs more than 90,000 people and
its secretary has just 13 people in his office. Secretary Gates
is running two wars in Afghanistan and has a mere 15 people in
his office. The Department of Energy has both a deputy
secretary and a chief operating officer serving in a dual
capacity. You all employ about 3,400 people if I am correct,
but you all have two separate people serving as a deputy
secretary and a chief operating officer. Is that correct?
Ms. Mills. No, sir. We eliminated the chief operating
officer position.
Mr. Landry. Oh, good for you. I hadn't gotten that far.
Thank you.
Do you know how many currently are in your personal staff?
Ms. Mills. I don't have a particular number for you on that
but I would be happy to follow up.
Mr. Landry. Okay. Well, my point is just I want to make
sure that we are examining how heavy we are up here before we
start sacrificing people on the ground.
Ms. Mills. Well, I totally agree with the principle that
the most important priority is to get people on the ground who
are actually helping small businesses one by one by one. And
that is one of the two critical priorities for the budget.
Making sure the resources that are most effective that are on
the ground are the number one priority. And the second priority
is going after fraud, waste, and abuse and making sure our
programs have integrity.
Mr. Landry. Are you going to go back and make sure that if
we have some problems and disasters, it might not even be in my
district but others, that do you have a way to increase those
number of field agents in an emergency?
Ms. Mills. Yes, we do. And I just want to assure you that
the reduction that I described is in the steady state of
readiness. We fluctuate up and down depending on how many
disasters there are and how severe. And sometimes we are in as
many as 40 areas of the country so we employ a ready reserve
staff of 2,000 who are not on the payroll but they are ready to
go on the payroll and get on a plane and get down to the area
when necessary. So the reason we believe we can make a
reduction in our average steady state and maintain the same
level of preparedness is that we worked very hard to reengineer
our disaster processing centers so that we were more efficient
on average. But you should expect us to deliver and be ready to
deliver what you need in those times of disaster and to
maintain the new level of preparedness that we have come to
post-2005.
Mr. Landry. Thank you, ma'am. Mr. Chairman, I yield the
balance of my time.
Chairman Graves. Ms. Clarke. Sorry for the delay.
Ms. Clarke. Thank you, Mr. Chairman. And thank you, Ranking
Member. Administrator Mills, I would like to warmly welcome you
back to the committee today and I would like to just let you
know that I, too, share a lot of the concerns that were raised
by Ranking Member Velazquez with respect to SBDCs and HUBZones.
I hope that you will revisit your thinking with regard to
your support for the SBDCs. It appears to me that perhaps there
are places where these SBDCs have been much more effective than
maybe other places in the nation, and perhaps there needs to be
some level of comparative analysis so that we can focus the
resources where they, you know, you get the best bang for the
buck. And I hope that you will also dedicate some of your staff
time to the reform of the HUBZone program so that you can
report back to the committee sooner rather than later.
But I would also like to take this opportunity to express
my appreciation to you and the Small Business Administration
for your willingness to work on issues relating to economic
development in underserved communities, as well as minority,
women, and veteran-owned businesses. In the 111th Congress, I
introduced H.R. 3771, which would have established mentorship
and assistance programs for minority, women, and veteran-owned
businesses, and I appreciate President Obama's budget request
for the SBA to promote investment in these people-based
entrepreneurial initiatives. I have applauded your announcement
of the implementation of Women-owned Small Business Federal
Contract program, which increases access for women-owned
businesses to federal contracts, and I was also encouraged by
your announcement of the Community Advantage program, which
provides community development financial institutions as an
avenue to participate in 7(a) loan programs. As I understand
it, the transition from the ineffective Community Express
program to Community Advantage also saves $10 million.
During my time in Congress I have been a champion for the
CDFI program at the Treasury Department. And when the long-term
CR revealed a $200 million cut to that program, I, along with
16 of my colleagues, sent a letter to the majority leadership
requesting that they restore that funding. As we all
understand, our economy will not fully recover unless there is
a robust recovery amongst all of our small businesses. So given
the strides that we have made thus far, can you say that the,
or make comments on whether the agency feels that it has taken
the right steps in ensuring that the cuts to the budget will
not come at the expense of the economic development of these
disadvantaged areas that I have been so concerned about?
Ms. Mills. We, too, are very focused. I want to thank you
for your leadership in this area. We are very, very focused on
underserved markets. And as you know from the data, these areas
were very, very hard hit in the recession. Small businesses in
these areas have not yet recovered and we felt it was very
critical to get as many points of access into these communities
to our main programs as possible. That is why we are opening up
our program to selected CDFIs and CDCs who are operating in
that community, who provide not just capital but often
technical assistance and other support, and we are looking
forward to I think some better penetration of these communities
with these numbers because the small businesses in these
communities create the jobs in these communities and we need to
be there to support them.
Ms. Clarke. Again, I would like to emphasize perhaps
another glance at the SBDC infrastructure because certainly in
a place like New York City that has become almost a brand for
small business. With the challenges that we are facing with the
banks and the lending for small business, the access to
capital, the lines of credit, those SBDCs help those business
owners to really navigate this very choppy water that we find
ourselves in financially. And it becomes very difficult for
individuals to sort of reorient themselves once they become
accustomed to a particular brand. I stick with Crest; I don't
move to Colgate.
Thank you, Madam Chair, and I yield back the balance of my
time.
Chairman Graves. Mr. Keating.
Mr. Keating. Thank you, Mr. Chair. And thank you to the
Ranking Member, Madam. And thank you, Administrator Mills for
being here.
I have one question I would like to focus on. In
Massachusetts, there are 400,000 veterans in the state. My
district happens to have the largest number of those veterans,
and according to the U.S. Department of Veterans Affairs, there
are more than a million unemployed veterans in our country and
as many as one-third of them want to start their own
businesses. I would like to know, you know, your views on what
SBA is doing, what success they are having, to assist these
unemployed entrepreneurs.
Ms. Mills. Well, veterans are a very big focus actually at
the SBA because as you just mentioned, veterans over index in
wanting to start their own business or in having their own
business. So we have, from the beginning over the last two
years, developed very strong relationships with the Veterans
Administration so that we can cross-educate our people and our
small businesses as to all the programs and the resources that
are available to them. Our notion is that every single point of
access, whether it is a district office or an SBDC or a SCORE
representative, should be able to point a veteran to some of
the particular counseling and contracting programs.
We also did incremental programs. One was the service
disabled veteran and women veteran entrepreneurial boot camp
through the Syracuse University. It is just a fabulous program.
The stories are really strong. But we are focused on this day-
to-day. We have a joint task force with General Shinseki that
he and I run, which is focused on making sure that we keep
these veterans' interests understood and a priority throughout
both of our organizations and make all the changes that we can
to provide access and opportunity.
Mr. Keating. Do you happen to know, too, that among those
other veterans organizations, whether vet centers, I know
they're usually, you know, for counseling and other purposes,
but are they included too as an access point? Are you aware of
that?
Ms. Mills. Yes. We have veteran centers, a limited number.
And we also believe that we want to have that expertise in
every center, our 900 small business development centers, our
district offices as well.
Mr. Keating. Great. Thank you, Administrator. And Mr.
Chairman, I yield my time back.
Chairman Graves. Mr. Richmond.
Mr. Richmond. Thank you, Mr. Chairman and Ranking Member.
Madam Administrator, I would just echo the concerns that my
colleague, Congressman Landry, talked about in terms of making
sure that as we cut personnel and we streamline our disaster
department that we do not sacrifice timeliness in terms of the
response to people who need that assistance when the time
comes.
One thing I would like to do is in conversations with at
least two of my local entities convey to you what they
expressed to me in both instances. They were very positive and
they wanted to thank you. One was Vaughn Fauria, who runs
NewCorp CDFI business development center in Louisiana who
bragged about how accessible your office is and the fact that
they can give you ideas and that you all understand how
important it is for them to get money to small businesses in a
time of need, but also the technical assistance and those other
things that you provide so that their customers and their
client base can succeed.
And the other one would be Zena Tech, which is a Baton
Rouge-based company who your export express loan allowed them
to expand their business and trade, really to sell their
product overseas which while the recession was hitting here and
their clientele dropped in the United States, they were able to
expand to a new market that kept them afloat. And both of those
companies wanted to--wanted me to do that so I thought I would
take this opportunity to do it.
One quick question. When you talk about, and a lot of the
initiatives that I see including the New Market Tax Credit
program and others in the state legislature, a lot of times we
would get a detailed analysis back even on New Markets,
although it was a federal program we had a state piggybank, the
return on investment that we receive from each of those
programs in terms of every dollar that we invest in it what
we're getting back in terms of tax dollars created, jobs
created and so forth. Do you have reports like that on
different programs within your department?
Ms. Mills. Yes. In fact, we have a number of metrics about
jobs created, about activity created. And some of them are in
the budget book and I would be happy to provide any others you
might wish.
I appreciate your comments, and as you know, I have been to
Louisiana a number of times in a number of circumstances. And
it is good to see the small businesses flourishing there. We
have a terrific cluster we funded in Geospatial, right in the
area which I think will provide some interesting new job
opportunities and create some innovation and small business
success.
Mr. Richmond. The other thing I would like to talk about is
just a better coordination between departments. And I will give
you an example. Because you mentioned just as the President
mentioned in the State of the Union, that he would like to
double exports over the next five years. If you look at the
mouth of the Mississippi, which exports in terms of agriculture
and grain, 60 percent of all products in the country come
through the mouth of the Mississippi when we export, when we
are trading. However, if we do not dredge the mouth of the
Mississippi it significantly impacts the ability to load ships
to an economic level. So if we are not dredging and the Corp is
not dredging the mouth of the Mississippi, then we are really
tying our hands behind our backs in terms of trade. And we have
a trust fund, which is the Harbor Maintenance Trust Fund. So as
you continue to help us create products so that we can trade
overseas and trade around the world, we have to make sure that
the Corp is dredging our waterways because that is our
superhighway and how we are going to get our goods to market.
So I don't know if you can help me there but I can tell you
that we can create the product, but if we cannot be competitive
in terms of shipping then we are still tying the hands of our
American businesses.
And I will yield back. Thank you, Mr. Chair.
Chairman Graves. Thank you. I have a couple of questions.
One of them deals with the Office of Advocacy, which falls
under--and I am curious. I want you to explain to me how that
relationship works. Because I was talking to them this morning
and they said some of the number one things that they do is
dealing with the Regulatory Flexibility Act which you all do
not really have anything--any part of.
Now, explain to me why they are under your budget. And, I
am just looking for places to find some savings. And talk to
me, too, about the fact, you requested an additional $10
million, I think, for overhead and costs for them and I think
your overhead is $56 million, which is 20 percent of your total
overhead. Well, my question is how much of Office of Advocacy
do you actually have a part of? And why are they under your
budget if you do not have a part of them? And let us go through
that for a little bit.
Ms. Mills. So under the first there is no additional
request for $10 million of additional overhead.
Chairman Graves. I think it just suggested that. But
regardless, talk to me about, because I am having trouble
figuring out, exactly, who they answer to.
Ms. Mills. The Office of Advocacy is independent and it
operates under our umbrella. And this year, because of a
provision in the Small Business Jobs Act, it has a separate
budget line item. But the amounts are relatively the same. So
they are just broken out as per the mandate in the Small
Business Jobs Act. They do have a very strong role in
regulatory fairness. We also are extremely active in making
sure that the excess costs of regulations do not unduly affect
small businesses. We have our ombudsman activity, which deals
with that issue on a one-on-one basis as well.
Chairman Graves. Okay. Because it is frustrating to me. If
one of their biggest focuses, and they like to talk about the
Regulatory Flexibility Act, but it does not seem to me like
they are doing it or doing a very good job at least of pointing
those things out. But it is frustrating to me. And we can come
back to that, too.
I also want to talk just a little bit about when we changed
the amount of fees you all can recover, which I think is
essentially zero now, is not it? Did not we zero out the fee
structure for anyone, at least on some of the loan programs? Or
at least we reduced them to almost nothing. How much is that
costing you now? Because I don't think you can cover--are you
covering your costs when it comes to administering these loans
and stuff? I mean, that has got to be a big problem right now.
Ms. Mills. The program that you refer to where we took the
fees down to zero in many places has terminated. It was $41
billion we were able to do under that program. It was part of
the Recovery Act, the extensions and the Small Business Jobs
Act. A request to continue to do that is not included. Now we
are back to charging fees. You know, it is a difficult fiscal
time and we are determined to bring these programs as close to
zero subsidy as we can so it will not be a cost to taxpayers.
Chairman Graves. Which is perfect. And that is what I asked
you for. In fact, I am very happy that I asked you to bring us
some suggestions on cuts, which you have, and I appreciate that
very much.
I am concerned though about and this is another issue all
together, and Mr. Keating brought up. I am just going to use
the veterans' programs for a minute. I mean, how much
duplication is there with that? I know they have got counseling
programs and then you all have counseling programs. In fact,
there is a lot of counseling programs out there with different
agencies. And how much of that is duplicated? How much of that
could we shrink down or transfer? Let them do it. If they are
doing a better job of it, let them do it; if you guys are doing
a better job of it then let us get them out of the business of
doing it. I am not saying we take away these programs; I am
saying why do we have two agencies doing counseling for the
same thing? And that would be an area that has been brought to
my attention that we should be looking at for instance. I mean,
how much duplication is out there? We can just talk about the
veterans' programs.
Ms. Mills. We are in continuous look for duplication and
what we have done in our coordination with the Veterans
Administration is, you know, share back and forth where we can,
you know, get more bang for the buck. And we are trying to take
on the small business aspect of veterans because they really do
when they come back have a very, very high interest in starting
small businesses. So we provide a lot of the entrepreneurship
training. It is just our core counseling program. So if we can
bring them into our structures as they are and they feel
comfortable and have access and opportunity under our core
counseling programs, that is a very good effective use of
money.
Chairman Graves. Well, I think that I would love--just have
to figure out how to figure this out because there is no reason
to have all this duplication. I just assumed you all were doing
it as have it spread out over every other agency. I cannot
believe that they would not be interested in transferring that
out, which is one area that again I want to take a look at.
And I do worry a little bit, too. I know you talked a
little bit about streamlining some of the programs and you
specifically mentioned, somebody asked the question under some
of the micro loan programs when you streamline. I am a little
concerned because it seems like every time you streamline a
program then the default rate tends to go up and we do not want
to see that. I am just voicing that as a concern overall. What
is your default rate, what is it running approximately overall?
Just percentage-wise?
Ms. Mills. The default rates, as you mentioned, in our
credit programs are up, as they are in actually all. The
cohorts that are defaulting you should know are the 2005, 2006,
2007, and some of the 2008 cohorts. And the issue there is that
those loans were done at a very frothy time with very high real
estate collateral. High real estate values used as collateral,
and that value does no longer exist in some of that real estate
and that is causing losses.
Chairman Graves. What is the percentage? Do you know just
overall?
Ms. Mills. We have it by cohort and by activities and by
program as you please.
Chairman Graves. Just overall by, I mean, you know, what is
your percentage?
Ms. Mills. We do not have one percentage so I can----
Chairman Graves. 7(a).
Ms. Mills. 7(a)? I would really rather give you the correct
number because there is----
Chairman Graves. Why don't you give me that because I would
like to see it.
Ms. Mills [continuing]. Because we have it by cohort. We
have it by everything. I am happy to give it to you. We have
more than----
Chairman Graves. Because that is obviously very important.
And to be quite honest with you, I have seen some of those
numbers and I was surprised that it was not higher, which is--
--
Ms. Mills. Yes.
Chairman Graves. And I understand. You are working with
these banks and the banks have to make the decision obviously
but keeping that default rate down is obviously a big part of
this. We have got to make good loans out there making bad
loans. And I also understand, too, that the real estate value
in a lot of cases is much lower now than it was before, which
brings me to another question. When it comes to liquidation of
these assets when there is a foreclosure, I know in some cases
the banks handle that. In some cases the SBA handles that. Do
you have any suggestions on that on what we could do different
there? Is it better in the private sector or is it better
through you all just out of curiosity from your point of view?
Ms. Mills. Well, once again, this is something that we
spend a lot of time on. And we are pushing very hard because,
as I said, a lot of these collateral values that were higher,
you know, in the high real estate times are not there. Are not
there. So we are looking at ways that we can get the most back.
Chairman Graves. Well, that is, I mean, again, it comes
back to we have got to figure out if we are better off just
doing it all through the private sector or if unless I have a
compelling argument to tell me that you all would do it better.
But we obviously have to do the best we can recovering those.
Ms. Mills. We have to do the best we can and I do not think
that there has been one single answer to that question but we
are working hard on it.
Chairman Graves. I hate to dominate the time. I have got
more questions but I know we have got a vote and I will lose
everybody once the vote is over.
So Ms. Herrera Beutler, if you have a question. Do not have
one?
Unidentified Speaker. Thank you, Mr. Chairman. As to the
veterans' benefits assistance, Lieutenant Colonel Allen West,
Retired United States Army just left the room but I know that
he would agree with me that members of the United States Army
leaving need substantial help where members of the United
States Marine Corps leaving are highly self-sufficient. And if
you take that into account I would really appreciate it. Thank
you.
Ms. Mills. Thank you.
Chairman Graves. We need to work that out because we are
showing an increased request for the Office of Advocacy. And
again, I have a real problem with the Office of Advocacy and
just exactly what they do and who they answer to. And I am
frustrated by where they are falling underneath your budget
because I would much rather see that money going to business
startups and loan programs, things that work. And we are going
to be pouring over that. I will be working with the Ranking
Member and the rest of the Committee to go over the budget
requests and all. And I do appreciate you coming in and giving
us your suggestion with the PRIME program. I do not know what
we are going to suggest when it comes to the Budget Committee
yet but I am afraid that if we come back we are going to lose
all the committee so I will probably adjourn at this point. But
again, I do appreciate you coming. We will ask you back. I
promise you that. We will ask you back and ranking member, I
appreciate your questions.
So with that the hearing is adjourned and I ask that each
of the members have five legislative days to correct the record
if they so like. This hearing is adjourned.
[Whereupon, at 2:16 p.m., the committee was adjourned.]