[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
MEETING TO CONSIDER THE COMMITTEE'S VIEWS AND ESTIMATES ON THE SMALL
BUSINESS ADMINISTRATION FISCAL YEAR 2014 BUDGET
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HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
FEBRUARY 27, 2013
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 113-003
Available via the GPO Website: www.fdsys.gov
_____
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Sam Graves.................................................. 1
Hon. Nydia Velazquez............................................. 2
APPENDIX
Additional Material for the Record:
Views and Estimates of the Committee on Small Business on
Matters to be set forth in the Concurrent Resolution on the
Budget for Fiscal Year 2014................................ 5
MEETING TO CONSIDER THE COMMITTEE'S VIEWS AND ESTIMATES ON THE SMALL
BUSINESS ADMINISTRATION FISCAL YEAR 2014 BUDGET
Wednesday, February 27, 2013
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1 p.m., in Room
2360, Rayburn House Office Building, Hon. Sam Graves [Chairman
of the Committee] presiding.
Present: Representatives Graves, Luetkemeyer, Tipton,
Herrera Beutler, Hanna, Bentivolio, Collins, Rice, Velazquez,
Schrader, Hahn, Schneider, Barber and Murphy.
Chairman Graves. Good afternoon, and we will call the
meeting to order.
Today we are going to undertake our responsibility to
provide views and estimates on the Small Business
Administration's budget for Fiscal Year 2014. This job is made
significantly more difficult because the President has not
complied with his statutory responsibility to deliver a budget
by the first week of February.
Given the absence of budgetary data from the President or
the Administrator of the SBA, the views and estimates suggest
methods by which the Budget Committee can allocate resources to
improve the overall efficiency of the SBA programs. This
entails allocating more funds to critical core programs, while
eliminating funds for unproven and unauthorized SBA initiative
efforts.
The approach offered in the Committee's views and estimates
is confirmed by Administrator Mills' recent letter to the chair
of the Senate Appropriations Committee on the potential effect
of sequestration on SBA programs. Rather than use funds for
statutorily-mandated initiatives that create jobs, things such
as the 7(a) and 504 programs, or to prevent fraud in small
business government contracting programs, the Administrator
wrote that she would continue to fund an unproven and
unauthorized regional innovation cluster training program.
The regional innovation cluster concept has never been
explained to this Committee or demonstrated to create a single
job at a small business, but the example of the regional
innovation cluster simply is symbolic of an agency that
believes that it, rather than Congress, is the best determiner
of what will help small businesses.
The SBA frequently creates pilot programs without any input
from the public, so the agency is unable to determine what the
benefits will be or whether they will even work. This lack of
transparency is not just bad for its own sake--it empowers the
SBA to take risks with the taxpayer funds, and the public finds
out only after the pilot program goes bad. One such program has
cost the SBA $8 million that it is still trying to recoup.
Similarly the agency created a special type of small
business investment company without public input, yet the SBA
still lacks regulations or standard operating procedures that
specify the rules governing the issuance of licenses for
someone seeking to operate a small business investment company.
The views and estimates letter calls for a reallocation of
the SBA's budget to focus on it core programs, the ones
authorized by Congress. By necessity such a budget requires
hard choices, choices that neither the President nor the
Administrator have provided to this Committee.
The views and estimates letter recommends that the
inefficient and duplicative outreach and training programs
either be terminated or transferred to agencies that have
greater resources to operate them. Termination would include
the regional clusters initiative, a program whose only mention
is in a conference report, and not in any public law signed by
the President.
Furthermore, the views and estimates letter recommends the
allocation of funds only for the agency programs specifically
enacted by Congress. This will ensure that the SBA focuses its
scarce financial resources on programs that Congress has
considered to be effective. Allocating funds to the SBA's
capital access programs has proven to create jobs according to
the agency's own recently released research.
Devoting resources to small business contracting will open
markets and prevent abuse of those programs. Limiting SBA's
entrepreneurial development efforts to the largest and best-
funded programs will allow entrepreneurs to obtain the
necessary education necessary to operate their businesses.
Another way for the agency to save federal dollars is to
reduce appropriated funds that cover the costs of the capital
access programs. Appropriated dollars are needed because the
fees and recoveries on defaulted loans did not cover the cost
of the programs. One solution to this problem is increasing
recoveries on defaulted loans; yet the SBA has never broached
the subject with this Committee, even during a time when the
agency claims that its ability to deliver services to small
businesses will be significantly curtailed. The views and
estimates letter highlights this issue, and the Committee will
investigate legislative changes needed to increase recoveries
on defaulted loans.
Despite the hard choices set forth in the views and
estimates letter, the SBA still will be able to make capital
available, provide advice, increase utilization of small
businesses as federal government contractors. Ultimately these
selective reductions in the SBA's budget will reduce federal
spending without undermining assistance to America's job
creators--the small businesses.
Now I recognize Ranking Member Velazquez for her opening
remarks.
Ms. Velazquez. Thank you, Mr. Chairman.
As we sit here, we are hours away from $85 billion in
across-the-board budget cuts. In that light I will suggest the
SBA budget offers a stark example of how reducing successful
programs, some of which actually generate $2 of tax revenue for
every $1 we invest, is penny wise and pound foolish.
Consideration of this year's views and estimates certainly
comes at an odd time, before we have a proposed budget to
examine. While submission of this document to the Budget
Committee is an important aspect of the committee's work, doing
so without an actual budget to critique seems like a
questionable exercise.
Some parts of the majority's views and estimates do make
sense. For example, eliminating many unauthorized initiatives
or so-called pilot programs is a wise move, especially given
current fiscal constraints. Time and again these initiatives
have been found to be ineffective and costly. They divert
valuable resources away from proven programs authorized by
Congress. Pilot programs are simply a luxury the SBA can no
longer afford.
However, there are several areas of concerns with the views
and estimates. First and foremost, eliminating funding for most
entrepreneurial development programs is absolutely the wrong
direction. Doing so would leave start-ups without support to
succeed when we need those enterprises to grow and create jobs.
Make no mistake, the ED programs need reforms. However, drastic
across-the-board cuts without a legislative fix is as ill
conceived as the sequester.
If the views went too far in terms of the ED program, they
fall short in terms of small business contracting. For yet
another year the government failed to meet its 23 percent small
business goal, depriving small firms of $3.1 billion in
contracting dollars. The solution proposed in the draft views
is to reallocate funds and rely on the existing structure of
PCRs and OSDBUs. This has not worked in a decade, and there is
no evidence suggesting it will work now. We should begin
exploring innovative ways to meet contracting goals, not
maintaining the current broken system that fails small
businesses.
Taken in its entirety, these views are a mixed bag.
However, I think we all agree more must be done at SBA in terms
of setting priorities. I look forward to working with the
chairman and all my colleagues to achieve this goal.
The success of the American economy depends on small
businesses accessing capital, receiving technical support, and
securing federal contracting opportunities. We should continue
supporting the SBA in delivering these services. However,
accomplishing more with less requires the SBA to make changes
like recommitting itself to existing programs that actually
work. Doing so will bring tangible benefits to small businesses
and make sure taxpayers see a positive return on their
investment.
Mr. Chairman, thank you, and I yield back.
Chairman Graves. Are there any other Members that wish to
be recognized for a statement on views and estimates?
Seeing none, the Committee now moves to consideration of
the views and estimates. The clerk will please read the title
of the document.
The Clerk. Views and Estimates of the Committee on Small
Business on Matters To Be Set Forth in the Concurrent
Resolution on the Budget for Fiscal Year 2014.
Chairman Graves. Thank you. I would ask unanimous consent
that the views and estimates be considered as read and open for
amendment in its entirety.
Does any Member seek recognition for the purpose of
offering an amendment?
Seeing no amendments, the question is adopting the views
and estimates. All those in favor, say aye.
All opposed, no.
In the opinion of the chair, the ayes have it, and the
views and estimates is adopted.
And I now recognize our Ranking Member Velazquez for a
motion.
Ms. Velazquez. Yes, Mr. Chairman, I want to provide the
committee notice that the Democratic members will be filing
separate and dissenting views with the Budget Committee.
Chairman Graves. Without objection, it is so ordered, and I
ask unanimous consent that the Committee be authorized to
correct punctuation and make other necessary grammatical and
technical corrections on the document considered today.
And without objection, that is so ordered.
And the Committee is now adjourned. Thank you.
[Whereupon, at 1:12 p.m., the Committee was adjourned.]
A P P E N D I X
Views and Estimates of the Committee on Small Business on Matters to be
set forth in the Concurrent Resolution on the
Budget for Fiscal Year 2014
Pursuant to clause 4(f) of Rule X of the Rules of the House
and 301(d) of the Congressional Budget Act of 1974, 2 U.S.C.
632(d), the Committee on Small Business is transmitting
herein: (1) its views and estimates on all matters within its
jurisdiction or functions to be set forth in the concurrent
resolution on the budget for Fiscal Year 2014; and (2)
recommendations for improved governmental performance.
Unlike in previous years, the views and estimates set forth
herein provide no comments on the President's budget since none
has been submitted for consideration by the Committee; nor has
the Committee received any testimony from the Administrator of
the Small Business Administration (SBA) concerning its budget
request for FY 2014. Given the paucity of information
forthcoming from the President and the SBA, the views and
estimates contained herein provide the Committee's
recommendations on ways to improve performance of the SBA.
These views and estimates also incorporate by reference the
views and estimates provided by the Committee on Small Business
during the 112th Congress.
The Administrator has noted on multiple occasions before
the Committee that the SBA provides entrepreneurs with the
three Cs--capital, contract assistance, and counseling. The
views and estimates will consider these seriatim.
Capital Access Programs \1\
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\1\ The SBA disaster loan program provides funds to homeowners and
small businesses after the President has declared a major disaster as
that term is defined in the Robert T. Stafford Disaster Relief and
Emergency Assistance Act, 42 U.S.C. 5121-5208. Funding for the
Disaster Loan Program was addressed in the Disaster Relief
Appropriations Act, 2013, Pub. L. No. 113-2. That legislation provides
sufficient funds for the SBA to meet expected needs for disaster relief
in the coming year. However, those funds will not be adequate if there
is another major event such as Hurricane Katrina or Superstorm Sandy.
In those instances, it is likely that the President would seek a
supplemental appropriation.
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Unlike large enterprises that can seek out funds from
commercial debt and equity markets, small businesses must rely
on their own personal assets, retained earnings, and commercial
bank funds for needed capital. For 60 years (since the 1953
creation of the SBA during the Eisenhower Administration), the
SBA has sought to fill gaps in the commercial debt and equity
markets.
Program Costs
The four major programs overseen by the SBA are the: 7(a)
Guaranteed Loan Program (7(a)); Certified Development Company
(CDC) Loan Program; Small Business Investment Company (SBIC)
Program; and Microloan Program. In none of these programs does
the SBA directly provide funds to small businesses; instead,
the SBA provides funds by guaranteeing the repayment of
issuance of credit and equity by private-sector partners.\2\
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\2\ The textual explanation constitutes an oversimplification of
these four programs but suffices for the purposes of these views and
estimates.
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The SBA must operate these programs within the parameters
established by the Federal Credit Reform Act, 2 U.S.C. 661-
61f (FCRA).\3\ The statute requires that all federal agencies
calculate the current cost \4\ of their credit programs. Id. at
661(a), 661a(5). The FCRA, in essence, requires that
sufficient funds are deposited in those accounts to cover the
cost of the loans made in any given year. Funds may be obtained
from fees charged to borrowers, the private sector partners
that provide the credit, monies appropriated by Congress, or
some combination of the three. If the programs do not require
any appropriated dollars, they are considered to be operating
at zero-subsidy.
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\3\ Of course, the SBA is required to operate these lending
programs according to the strictures established by Congress in the
Small Business and Small Business Investment Acts.
\4\ When stripped to its bare essentials, the definition of cost in
the FCRA simply means the dollar value t of loans year made minus (the
dollar value of the loans repaid plus the amount of monies recovered
from defaulted loans). A net present value of this calculation is made
to obtain the amounts that must be set aside in a current account to
cover the costs of each lending program.
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Two of the programs--7(a) and CDC Loan Programs--were
redesigned by Congress during the 1990s and the early 2000s to
operate, to the extent possible, with a zero subsidy. However,
recent economic conditions required Congress to appropriate
funds for use by the 7(a) and CDC Loan Programs because the
fees charged to borrowers and lenders did not cover the cost of
the programs. To the extent that the President's budget reveals
the need for appropriations to cover the costs of the loan
programs as the term cost is defined in the FCRA, the Committee
believes that the budget resolution should provide sufficient
funds to do so.
When this issue has arisen in the past, the Committee has
considered and rejected increasing the fees charged by
borrowers and lenders. Given the economic data that small
businesses generate most of the new jobs in the United States,
it would be counterproductive at this time to increase the cost
of credit to small businesses and thereby restrict their
capacity to create new jobs.
The Microloan Program operates with a small subsidy due to
the interest rate charged to microloan intermediaries (the
entities that actually provide credit to small businesses).
However, no microloan intermediary has ever defaulted on its
loans and the minimal historic costs given the benefits of job
creation strongly militate in favor of providing appropriated
funds to cover the interest rate differential.
The primary issue related to the SBIC program is not
whether it can still operate at zero-subsidy. Given historical
data, the Committee would expect that the SBIC program will
continue to operate without any need for appropriations to
cover the cost of the program as that term is used in the FCRA.
Rather, the issue with the SBIC program is whether the program
level will be sufficient to enable it to meet the demand of
small businesses seeking equity capital. The Committee believes
that a program level of $4 billion will be sufficient to meet
the needs of small businesses seeking capital.\5\
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\5\ This represents an increase in the program level from FY 2013
of $1 billion. Given the zero subsidy nature of the program, the
increase will have no effect on the program cost or the deficit.
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Recoveries on Defaults
As already noted, one of the key components of the FCRA
cost calculation is the amount of monies obtained in recoveries
on defaulted loans. In previous views and estimates, the
Committee has noted that the SBA is ill-equipped to handle
recoveries in its capital access programs. This is true whether
the recoveries involve defaults in the 7(a) or CDC loan
programs or through receiverships in the SBIC program.
The inability to manage the recoveries on defaults
increases the costs of these programs on lenders, borrowers,
and taxpayers. For example, the SBA frequently fails to sell
portfolio companies of SBICs placed into receivership even when
there are sound offers for such companies. In a more glaring
example, the credit supplement to the FY 2013 budget revealed
that returns on defaulted CDC loans were approximately 23 cents
on the dollar (and only about half of what was received in the
7(a) loan program).\6\ Simply put, SBA personnel do not have
the industry expertise (in managing portfolio companies of
SBICs in receivership) or, in the case of commercial real
estate, sufficient local knowledge to effectively manage
distressed properties and businesses. Simply appropriating more
funds for the SBA will not solve an underlying management
issue; the Committee will continue to assess legislative
changes that ensure experts with solid local and industry
knowledge are placed in charge of conducting recoveries and
workouts in the SBA capital access programs. In turn, this will
ensure that the subsidy costs (and the need for appropriated
monies) will decrease.
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\6\ Historically, recoveries in the CDC loan program have been
between 20 and 25 cents on the dollar. The Committee is unaware of any
reason that recoveries would be outside this range for FY 2014.
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Information Technology and Capital Access Programs
The information technology needed to manage the SBA
guaranteed loan portfolio is outdated and poses a significant
risk to the federal fisc. The loan accounting system, first
developed by the SBA in the 1970s, utilizes COBOL in a
mainframe environment. The efforts at modernizing this system
(even a scaled-back version) are behind schedule, lack an
overall enterprise technology management plan, and suffer from
cost overruns. This is unacceptable because a modern loan
accounting system would enable the SBA to manage its loan
portfolio in a manner that protects the taxpayer, mainly by
improving returns on recoveries of defaulted loans. Until the
SBA completes the tasks already established for modernizing its
loan management accounting system, no additional funds should
be provided for the agency's information technology.
Lender Oversight and Credit Risk Management
The problems associated with the development of a modern
loan management accounting system also undermine the ability of
the SBA to perform proper lender oversight. If the SBA is
unable to obtain timely and accurate data on the loans made by
its private sector partners, the agency will not have the
information needed to assess the credit risk of its loan
portfolio or the underwriting standards of its lending
partners. For a $90 billion loan portfolio, that is simply
unacceptable, and the SBA must refocus its efforts to ensure
its loan management accounting system can provide the needed
data to perform credit risk assessment \7\ and lender
oversight.
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\7\ Although the SBA has a separate credit risk database, the
accuracy of that system is based, in part, on the data obtained from
the loan management accounting system. Therefore, absent an accurate
and modern loan management accounting system, the SBA's credit risk
database remains flawed.
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Information technology is not the only problem facing the
SBA in performing adequate lender oversight. The agency
resources are not allocated properly to ensure such lender
oversight or to take action against a risky lender. As an
example, the SBA, for the first time in its existence, revoked
the authority of a CDC to operate in December 2012.\8\ That
process took nearly two years and a not insignificant portion
of that time involved the SBA arranging for services to take
over the loan portfolio of the shuttered CDC. It remains an
open question whether the SBA has allocated sufficient
resources to undertake the necessary actions should it revoke
the authority of other lending partners.
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\8\ The Committee is unaware of any instance in which the SBA has
revoked the authority (for mismanagement or credit riskiness) of a
lender in the 7(a) Program. Many lenders have lost their authority due
to the failure to make sufficient loans but none have had their
authority revoked for mismanagement even when their upper level
managers committed fraud.
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Federal Contracting Programs \9\
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\9\ An adjunct to the government contracting programs is the SBA
Surety Bond program that enables small businesses access to surety
bonds when they otherwise would be unable to obtain such bonds. The
program operates as zero-subsidy and the Committee expects that it will
operate without the need for appropriations in FY 2014.
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One of the primary missions of the SBA is to ensure that
small businesses receive a ``fair proportion of the total
purchases and contracts for property and services for the
Government in each industry category....'' 15 U.S.C. 644(a).
To achieve this objective, Congress created a number of
programs designed to increase opportunities for small
businesses in a federal market for goods and services that
reaches $515,697,897,218.85.\10\ SBA utilizes personnel to
expand opportunities for small businesses; other resources are
devoted to managing the contracting programs targeted at
specific subsets of small businesses.
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\10\ The statistic was derived from the Federal Procurement Data
System on February 9, 2013 at 4:30 pm. While some may quibble with the
accuracy of this figure, it is certainly more accurate than is
available on the SBA's loan management accounting system.
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Budget allocations for the operation of the SBA's
government contracting programs are subsumed within the
agency's overall request for salaries and expenses. With
respect to the contracting programs, it is not the overall
allocation amount of salaries and expenses that is the problem;
rather it is how the SBA allocates those resources to the
government contracting programs that inhibit its ability to
carry out the various mandates set forth in the Small Business
Act.
A key type of personnel at the SBA is the Procurement
Center Representatives or PCRs. These individuals are located
at contracting activities (i.e., other federal agencies) and
constitute the SBA's front line in promoting the use of small
businesses and first line of defense against contract bundling.
Despite their importance in achieving the objectives Congress
set out in 15(a) of the Small Business Act, less than 3
percent of the personnel at the agency are PCRs. Funds should
be reallocated so that the SBA actually dedicates the necessary
personnel so that PCRs can perform their jobs in an effective
manner, rather than the current situation in which the
approximately 60 PCRs must each review about $8.6 billion
dollars in government contracts.
The SBA oversees the operations of a number of contracting
programs targeted at specific segments of the small business
community. These contracting programs present a number of
vulnerabilities: (1) small businesses might misrepresent their
size (and not actually be small); (2) small businesses may
misrepresent their status for purposes of eligibility, such as
not being a woman-owned and controlled business; or (3) small
businesses do not perform the necessary quantum of work on the
contract. Given these vulnerabilities, there are key defenses--
adequate personnel to check the small businesses and updated
databases for use by contractors and federal contracting
officers. While the SBA has made strides in correcting these
vulnerabilities, greater resources need to be allocated to
ensure that only eligible businesses obtain contracts in
programs established pursuant to the Small Business Act.
Counseling Programs \11\
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\11\ The SBA denominates these programs as entrepreneurial
development but all provide counseling to small business owners and
those individuals wishing to embark on entrepreneurship. Given the
overall theme of these views and estimates, the Committee will utilize
the term ``counseling'' rather than the SBA programmatic designation.
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While the SBA underallocates resources in critical areas,
such as lender oversight and government contracting programs,
the agency overallocates funds and personnel to provide
counseling for small business owners. No one should question
the value of training for small business owners and those whose
wish to start small businesses. However, in times of budgetary
restrictions, hard choices must be made. This is particularly
true when the counseling programs at the SBA overlap each other
and often duplicate the educational services provided by other
agencies.
The Government Accountability Office (GAO) identified 54
programs at the SBA and the Departments of Commerce,
Agriculture, and Housing and Urban Development that provide
counseling services to small businesses.\12\ Other studies have
found similar duplication in outreach efforts for veterans.\13\
Presumably other areas of entrepreneurial outreach and
duplication exist between the SBA and other federal agencies.
In addition to overseeing counseling programs authorized by
Congress, the SBA exacerbates this overallocation of resources
to entrepreneurial outreach by creating its own programs
unauthorized by Congress, such as the development of regional
clusters and establishment of an Emerging Leaders Program;
programs which utilize scarce federal resources and have no
proven track record of success.
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\12\ GAO, Economic Development, Efficiency and Effectiveness of
Fragmented Programs are Unclear 3-4 (2011) (GAO-11-651T).
\13\ Institute for Veterans and Military Families, Syracuse
University, A National Veterans Strategy: The Economic, Social and
Security Imperative 5 (2013), available at http://vets.syr.edu/wp-
content/uploads/2013/02/National-Strategy-PublicationFINAL.pdf.
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Given tight budgetary constraints and the need for the SBA
to reallocate resources in other critical areas,
entrepreneurial outreach at the SBA should be limited to one
program with a broad mission, the access points needed to
provide assistance in the most locations, and capable of
obtaining non-federal funds to help defray costs. Only one
counseling program overseen by the SBA meets this standard--the
Small Business Development Center (SBDC) Program. All other
entrepreneurial outreach efforts at the SBA either overlap with
the SBDC Program or duplicate efforts at other federal
agencies. As a result, they either should be folded into the
mission of the SBDC Program or their responsibilities should be
taken over by other agencies.\14\ This consolidation should
include the cessation of any entrepreneurial outreach efforts
created by the SBA without the express authorization of
Congress. Once that action has been taken, the SBA should work
with these other agencies and the SBDCs to coordinate the
delivery of counseling services for entrepreneurs.
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\14\ For example, the Department of Agriculture has greater
resources to provide training and outreach to small businesses located
in rural areas than the SBA. Thus, the functions and mission of the
Office of Rural Affairs at the SBA can be transferred to the Department
of Agriculture.
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Pilot Programs, Lack of Transparency and Ad Hoc Decisionmaking
The SBA also establishes its own initiatives in the capital
access programs (colloquially denominated at ``pilot
programs''). In some instances the agency does so under broad
legislative mandate;\15\ at other times it does so without any
express authorization from Congress. Frequently, these
initiatives are established while programs specifically
authorized by Congress have yet to be implemented.\16\
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\15\ Congress ceded to the agency limited authority to create pilot
programs in the 7(a) loan Program. 15 U.S.C. Sec. 636(a)(25).
\16\ For example, the SBA has yet to promulgate regulations for the
establishment of the renewable fuels investment companies under the
SBIC program that Congress authorized in 2007. Despite this failure,
the SBA created two other initiatives within the SBIC program during
the past two years--the Impact Investment and Early-Stage Innovation
Funds. Such derogation of Congressional mandates is inexcusable.
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Generally, these capital access pilot programs are created
through the issuance of standard operating procedures (SOPs).
These SOPs are never issued pursuant to the notice and comment
process set forth in the Administrative Procedure Act
(APA).\17\ Absent input from the public, the SBA has no way to
assess whether these pilot programs will meet the equity and
debt needs of small businesses or be used by its lending
partners. In certain instances, these initiatives place the
federal taxpayer at risk.\18\ SBA must be more transparent in
promulgating regulations and guidance to ensure that changes in
their capital access programs provide necessary assistance to
small businesses.
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\17\ To be sure, the loan programs are specifically excluded from
the requirements of notice and comment in the APA, 5 U.S.C.
Sec. 553(a)(2). However, the SBA codified a regulation that requires
the agency to conduct rulemaking pursuant to the notice and comment
requirements of the APA even though the rulemaking otherwise would be
exempt. 13 C.F.R. Sec. 101.108. It is an abecedarian tenet of
administrative law that an agency must comply with its own regulations.
Accardi v. Shaughnessy, 347 U.S. 260, 265-67 (1954); Brock v. Cathedral
Bluffs Shale Oil Co. 796 F.2d 533, 536 (D.C. Cir. 1986). Some of the
SOPs create obligations on both the agency and small businesses,
including pilot programs. As a result, these SOPs must be issued
pursuant to notice and comment. Cf. Appalachian Power Co. v. EPA, 208
F.3d 1015, 1028 (D.C. Cir. 2000) (imposition of monitoring guidance for
power plants must be issued through notice and comment); National Ski
Areas Ass'n v. United States Forest Serv., 2012 Lexis 197335, at *24-27
(D. Colo.) (directives placed in Forest Service Manual constitute rules
requiring notice and comment).
\18\ One pilot program, a liquidation pilot in the CDC program,
cost the agency about $8 million dollars, which it is trying to recoup.
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The lack of transparency in the operation of the capital
access programs goes beyond the failure to obtain public input.
In some instances, the SBA creates new procedures, such as for
licensing of SBICs, without the concomitant changes in the SBA
regulations or even the SOPs. For example, the extant SOP for
licensing of SBICs was issued in 1984, has not been updated,
and has not been followed by the agency for years. In other
cases, the SBA will cite its authority to waive any of its
regulations. 13 C.F.R. Sec. 120.3, to operate the capital
access programs in any manner that the agency believes is
appropriate.
This makes it quite possible for the SBA to create ad hoc
unwritten determinations that treat similarly situated
individuals differently--agency action that has been prohibited
since the enactment of the APA in 1946.\19\ This lack of
transparency does not represent good agency management, will
not ensure that proper assistance is provided to small
businesses, and may place the federal taxpayer at increased
risk from faulty operation of the capital access programs. The
Committee will consider legislative action to foreclose the ad
hoc decisionmaking by the agency.
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\19\ Morton v. Ruiz, 415 U.S. 199, 232 (1974).
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SBA Management and Administration
The views and estimates already established the case for
the reallocation of resources within the SBA. One potential
avenue for finding the needed resources is the current
structure of the agency.
Personnel in the 10 Federal Regions
The SBA provides most of its services to small businesses
through 84 district offices that are staffed with personnel who
are knowledgeable on a variety of small business related
topics. When a small business owner or entrepreneur has contact
with an agency official, it is typically at a district
office.\20\ Those district offices are overseen by an Office of
Field Operations at SBA headquarters in Washington, DC. Despite
this agency structure, the SBA also has ten regional
administrators, regional communication officials and support
staff. It remains unclear what management function or
responsibility these regional administrators or regional
offices have. Given that, the Committee believes that the
position of regional administrator should be eliminated.
Without regional administrators, there would be no reason to
have regional offices and the Committee recommends that those
offices be shuttered.
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\20\ The primary exception to this would be when an individual is
applying for a disaster loan. In those cases, the applicant will be
dealing with on-site field personnel and disaster loan call centers.
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Another office at the SBA with ten regional representatives
is the Office of the Chief Counsel for Advocacy. The primary
responsibility of that office is to monitor agency compliance
with the Regulatory Flexibility Act, a statute mandating
agencies examine the impact of their proposed and final rules
on small businesses. While input from small businesses is quite
useful in performing that role, the office does not need
regional representatives to obtain that input. As a result, the
Committee believes that the Office of the Chief Counsel's
regional personnel should be eliminated. However, rather than
simply eliminate all ten positions from the Office of the Chief
Counsel for Advocacy, the Committee recommends that five
additional positions be created to review federal agency
compliance with the Regulatory Flexibility Act. This would
result in a net savings of five individuals in the office while
boosting its capability to fight burdensome regulations
inhibiting the ability of small businesses to create jobs.
District Personnel
As already noted, the SBA's primary contact with small
businesses is through its district offices. The district
offices are, logically enough, headed by a district director.
However, in about 75 percent of the offices, there also is a
deputy district director. The Committee is of the opinion that
district offices do not need a separate, dedicated individual
to be the deputy. If the district director is unavailable (due
to vacation or illness), that person simply can appoint someone
to act temporarily as the district director. The Committee
strongly recommends that no monies be allocated to pay for
individuals whose sole job is to act as a deputy district
director. Instead, deputy district directors should be
reassigned to other functions at the agencies that provide
direct assistance to small businesses.
Headquarters Structure
According to the agency, there about 600 people at SBA
headquarters leaving approximately 1,600 people to interact
with small businesses in their field operations.\21\ Given the
fact that there are about 28 million small businesses in the
United States, the Committee finds that the agency structure is
too concentrated at headquarters in Washington, DC. This would
include an Office of Policy with an apparently amorphous
mission and a personal office of the Administrator that is the
same size as that of the Secretaries of Defense or
Agriculture.\22\ This is unacceptable to the Committee and it
recommends a 10 percent reduction in funds for the Office of
the Administrator and that no funds should be provided to fund
the Office of Policy.
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\21\ Not all field personnel are located at district offices. The
SBA also has major employment centers to process loans (thereby
speeding credit to small businesses) and a disaster loan call center
(to help those seeking to rebuild after a disaster).
\22\ Secretary Vilsack and Secretary Panetta are able to manage
much larger agencies (the Departments of Agriculture and Defense,
respectively) with only 13 individuals in each of their personal
offices.