[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
HEARING ON REAUTHORIZATION OF THE SBA
AND THE FISCAL YEAR 2001 BUDGET REQUEST
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, MARCH 1, 2000
__________
Serial No. 106-45
Printed for the use of the Committee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
71-971 WASHINGTON : 2001
COMMITTEE ON SMALL BUSINESS
JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
DONALD A. MANZULLO, Illinois California
ROSCOE G. BARTLETT, Maryland DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey CAROLYN McCARTHY, New York
SUE W. KELLY, New York BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania DONNA M. CHRISTIAN-CHRISTENSEN,
DAVID M. McINTOSH, Indiana Virgin Islands
RICK HILL, Montana ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania TOM UDALL, New Mexico
JOHN E. SWEENEY, New York DENNIS MOORE, Kansas
PATRICK J. TOOMEY, Pennsylvania STEPHANIE TUBBS JONES, Ohio
JIM DeMINT, South Carolina CHARLES A. GONZALEZ, Texas
EDWARD PEASE, Indiana DAVID D. PHELPS, Illinois
JOHN THUNE, South Dakota GRACE F. NAPOLITANO, California
MARY BONO, California BRIAN BAIRD, Washington
MARK UDALL, Colorado
SHELLEY BERKLEY, Nevada
Harry Katrichis, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
Page
Hearing held on March 1, 2000.................................... 1
WITNESSES
Alvarez, Aida, Administrator, U.S. Small Business Administration. 4
Wilkinson, Anthony R., President, National Association of
Government Guaranteed Lenders.................................. 45
Mercer, Lee, President, National Association of Small Business
Investment Companies........................................... 47
Giegel, John, Vice President for Congressional Relations,
National Association of Development Companies.................. 51
McCutchen, Woody, Executive Director, Association of Small
Business Development Centers................................... 53
Hayashi, Caroline, Association for Enterprise Opportunity........ 55
APPENDIX
Opening statements:
Talent, Hon. James........................................... 62
Velazquez, Hon. Nydia........................................ 64
Prepared statements:
Alvarez, Aida................................................ 66
Wilkinson, Anthony R......................................... 79
Mercer, Lee.................................................. 84
Giegel, John................................................. 93
McCutchen, Woody............................................. 101
Hayashi, Caroline............................................ 107
Additional material:
Statement of the Bond Market Association..................... 110
Talent Letter................................................ 115
HEARING ON REAUTHORIZATION OF THE SBA AND THE FISCAL YEAR 2001 BUDGET
REQUEST
----------
WEDNESDAY, MARCH 1, 2000
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to notice, at 10:00 a.m., in
Room 2360, Rayburn House Office Building, Hon. James M. Talent
(chairman of the Committee) presiding.
Chairman Talent [presiding]. If our first witness will be
seated, we will start.
Good morning. Today, the Committee is meeting to conduct
its annual ritual of considering the administration's request
for the SBA budget. We are also going to consider our triennial
ritual of reauthorization of the SBA's programs. I am hoping to
save the members a little time while still allowing them full
in put by combining the two exercises.
I want to start by saying that, in general, I am pleased
with the budget submission for the year 2001, which means that
the hearing this year will, as far as I am concerned, have a
happier tone than it has had in some years past. I am not
necessarily speaking for my friend, the distinguished
gentlelady from New York, and I have no inside knowledge in
saying that. I am just not necessarily speaking for her.
The SBA's budget request for 2001 is $1.06 billion. This is
a large increase over the current year's funding--approximately
$330 million. However, to be fair, a large portion of this is
disaster loan funding. Thankfully, the 2001 request for the
disaster loan program is straightforward and adequate. This
relieves us of a serious bone of contention from past years'
budgets.
SBA's request for financial programs is also, in my
opinion, generally good. It requests $332 million in new
subsidy budget authority, a $65 million increase over the 2000
request. Of this request, $132 million is for administrative
expenses to operate the financial programs. That represents a
small increase over the 2000 request but a significant $38
million increase over previous appropriations.
The request for the 7(a) loan program is $142 million to
provide $11.5 billion in overall loans. I believe this is a
reasonable request, as SBA forecasting is usually accurate. I
am more concerned about this year's loan availability. I will
be interested in hearing from the Administrator about her
projections for this year.
The 504 Program again requires no subsidy, and I believe
the Committee joins me in supporting the authority to make the
full authorized amount of loans under this program available.
However, like other members, I would like to hear about the
future of the program and its subsidy rate.
The SBIC Program also receives an adequate request and one
the Committee supported in its letter to the Committee on the
budget. If fully funded, the SBIC Program will be able to make
over $2 billion of venture capital available to small
businesses in Fiscal Year 2001.
The Microloan Program is targeted for the most significant
increase for 2001. It would, according to the request, jump
from $29 million to $60 million in microloans. While there is
no shortage of support for this program, and the real dollar
increase is only $2.5 million, there may be some question about
the ability to expand that quickly.
On the technical assistance side of the SBA's budget
request there is both good and bad news. The good news is the
Small Business Development Center Program receives an adequate
though not ample request of $85 million. There is also a $3
million request for Native American SBDCs, an excellent
proposal.
The bad news is that there is an increase in unauthorized
program funding that would take too much time to list here in
this opening statement, while at the same time an elimination
of funding for authorized programs, like the Drug Free
Workplace Program, which the Congress approved overwhelmingly 3
years ago.
Finally, let me state my support for the request for the
Office of Inspector General. This Committee has long supported
improved funding for that Office. The only comment I might make
now is that the increase should be divided between audit and
investigative functions.
I want to thank our various witnesses. I will introduce
them when they testify. We are going to have two panels: First,
Administrator Alvarez, and, second, the panel of witnesses from
the small business organizations.
Before we begin hearing the testimony, I will, as always,
turn the microphone over to my colleague, Ms. Velazquez, for
any statement she may wish to make.
[Mr. Talent's statement may be found in the appendix.]
Ms. Velazquez. Thank you, Mr. Chairman. I would like to
thank the Administrator and commend her for presenting an
ambitious budget request that clearly reflects the
administration's desire and ongoing efforts to help this
Nation's small businesses.
As we are all aware, this country is experiencing one of
the greatest economic booms in modern history. This
unprecedented growth has been fueled by the flourish of small
businesses throughout this country. Today, small businesses
make up 51 percent of the gross domestic product, and
contribute 47 percent of all sales in this country. In fact,
according to the Department of Labor and the Department of
Commerce, small business-dominated industries produced an
estimated 64 percent of the 2.5 million new jobs created during
1996.
With this in mind, I believe it is critical at this
historic juncture to assess where we are, how we got here, and
where we need to go to continue to have a strong and vibrant
small business community. We have gotten where we are today
based on the solid support of such established programs as
7(a), 504, 8(a), microloans, SBR, SBIC, and SBIR. These
programs, through access to capital, opening doors for minority
businesses and technology development are the bedrock that has
helped this Nation's small businesses lead the way into the
21st century.
The administration's budget presents a good mix of new and
existing programs. We are making improvements to the SBIR
Program through Phase 3 grants that will enable small
technology firms to be more competitive in the marketplace. One
priority for Democrats has been making small loans more
accessible to businesses. This can be done by increasing the
guarantee on loans of under $150,000 to 90 percent, offering
small businesses the economic chance they need to exist.
Innovative new programs that show consideration for future
businesses has been unveiled in this budget, like PRIME, which
help low-income communities, and the new Veterans Program,
which will help those who have served this country.
Most importantly, the administration attempts to address
what I believe is the most pressing issue facing our Nation:
The widening gap between those who have prospered from our
current economic boom and those that have been left behind. For
example, in my district of Brooklyn the unemployment rate is
still 10 percent. These are good, hardworking people who today
cannot afford to start their own businesses but who want to and
deserve an opportunity for economic prosperity.
That is exactly what the proposed new markets venture
capital company legislation will do. By providing equity
investment and technical assistance, businesses will have an
easier time obtaining capital or expanding their businesses in
poor or underdeveloped areas throughout the country. This is
not only the right thing to do, but it makes good business
sense.
This Committee has an opportunity to make changes, new
changes that will benefit small businesses and those who are
looking for economic opportunity in starting their own. Today's
hearing will assist us in making the kinds of economic
decisions that not only will help close that widening gap but
will hopefully keep us on the right economic track for
continued prosperity in the future.
I look forward to reviewing this budget in greater detail
and determining what changes need to be made to better enhance
small businesses. And I thank you ladies and gentlemen who are
here to testify before the Committee today.
Thank you, Mr. Chairman.
[Ms. Velazquez's statement may be found in the appendix.]
Chairman Talent. I thank the gentlelady.
We will go right to panel one, and our witness in that
panel is the Honorable Aida Alvarez, the Administrator of the
U.S. Small Business Administration.
Once again, Ms. Alvarez, it is a pleasure to welcome you
here.
STATEMENT OF AIDA ALVAREZ, ADMINISTRATOR, U.S. SMALL BUSINESS
ADMINISTRATION
Ms. Alvarez. Thank you so much, Mr. Chairman, Congresswoman
Velazquez, and distinguished members of this Committee. I
appreciate the opportunity to appear before you here today, and
I have submitted my written testimony for the record. I would
like to make some oral remarks accompanied by charts in a
moment.
But before getting to next year's budget, Mr. Chairman, I
wanted to address your concern about the availability of loan
dollars this year, which has been our concern as well. And I
would like to share some good news. Last spring, as you know,
we requested funding to meet the demand for $10.5 billion in
loans for our 7(a) Program; however, our appropriation was only
for a level of $9.8 billion in loans. And it turns out that our
projections were pretty much on target.
We now project the demand this year to be around $10.3
billion. To address this shortfall, the President has included
in his February 25th supplemental appropriation request, $7.6
million for the SBA. Through a combination of transfers and the
supplemental appropriation, we will increase the 7(a) Program
level to $10.3 billion. Our hope is that the program will
continue to operate as successfully as it has through the rest
of the year.
The supplemental also will enable us to transfer, and I
have requested, $1 million to fund PRIME grants. I know there
has been a lot of concern about the funding for the Program for
Investment in Microentreprenuers this year. I have also
requested a transfer of $0.5 million tosupport the Veterans
Corporation that was included in legislation passed last year. And in
addition, we are looking into the possibility of providing free office
space this year for the corporation at the SBA. We hope that this will
really get them started. We are already halfway through this year, so
we think that this might cover their needs. And then of course we have
requested $4 million for 2001.
Mr. Chairman, Congresswoman Velazquez, members of the
Committee, I urge you to please support the supplemental. And
of course I would be happy to meet with you and other members
of the Committee to discuss this request and the budget itself.
There is also another bit of good news I would like to
share this morning. We were informed late yesterday that for
the fourth year in a row SBA has received a clean opinion in
our financial audit report, which is the highest rating that a
Federal entity can receive. The report, I believe, provides
further assurance that we are keeping our financial house in
order.
So, now, without further ado, I would like to start the
discussion of the budget and our request for just over $1
billion for the SBA with charts that highlight why we are
making this request and what is the condition of this economy
that makes it appropriate that we request this kind of funding.
We begin with a chart that I think says it all, ``It is a
small business economy.'' Congresswoman Velazquez pointed to
the extent to which the new job creation, for example, is
attributed to the small businesses in this country. I think
that this chart presents the budget in the context of this
remarkable economic expansion, an expansion that is being
fueled, in large part, by small businesses.
You can see that the numbers just go up, up, up for our
core programs, and, as I said, at the SBA I believe we want to
keep doing our part to keep this historic economic expansion
going, which is why we are submitting this request. And also we
want to reach out to those in the inner cities, poor rural
areas, Native American reservations who have not been reached
yet.
The climate has never been better for small business. There
are now 25 million small businesses in the United States, which
is 5 million more than in 1990. And our chart reflects this
amazing economic expansion. What is interesting is since 1993
we have nearly tripled what is available for small businesses
while cutting the cost in half.
In 1993, we made available around $7.4 billion of capital
and credit at a cost of $352 million. This year, in Fiscal Year
2000, we estimate we will deliver $17 billion at a cost of $146
million, which is less then half the cost. Our Fiscal Year 2001
budget proposes $20 billion of support at a cost of $200
million. I think this shows that SBA is truly a great deal for
the American taxpayers.
Coupled with our desire to sustain the economic expansion
while penetrating new markets is our solid commitment to the
financial soundness of our portfolio. And I am very pleased to
report that in Fiscal Year 1999 we instituted, for the first
time ever, a Safety and Soundness Examination Program for the
agency's Small Business Lending Companies and examined all 14
Small Business Lending Companies. We expect to complete a
second round of reviews in September. We have established the
Office of Lender Oversight and a Risk Management Committee. We
have completed our first full cycle of reviews for participants
in the agency's Preferred Lender Program, and we expect to
complete a second round of reviews by April.
Yes, we have enjoyed dramatic growth in our core programs,
but speaking to the issues raised by Congresswoman Velazquez, I
think we are convinced that it is not enough just to continue
their growth. SBA's success in stimulating small business
growth is owed to its strategic investments in areas where we
have identified a gap. That is what we have historically done.
And this second chart illustrates the continuum of services and
programs that we provide and where there are still gaps that
need to be addressed.
Over time, SBA's programs have evolved to fill gaps in the
marketplace. This chart shows the continuum of services that
exist today to meet a spectrum of small business needs. On the
debt side, SBA first developed the 7(a) and 504 Programs. When
the need for very small loans was identified, SBA's Microloan
Program was established. On the equity side, Small Business
Investment Companies were established to fill the need for
investments in the range of $350,000 to $5 million.
Now, as you can see from the lighter shaded area, there is
a gap today for small businesses needing smaller equity amounts
in the range of $50,000 and up. And filling this gap is what
our New Markets Venture Capital proposal is all about.
Our next chart illustrates why that----
Chairman Talent. Ms. Alvarez, can I just interrupt for a
minute? Could you put that last chart up again?
Ms. Alvarez. Yes.
Chairman Talent. Now, I just want to make certain that I
understand, because my understanding was the New Markets
Program was targeted to--was developed to target additional
assistance to low-income areas. You emphasize the size of the
loan.
Ms. Alvarez. It is an equity investment.
Chairman Talent. Right, I am sorry. Yes, equity investment.
Ms. Alvarez. It is a combination of size and targeting to
areas that are underserved, significantly underserved. So, it
is geographic and income-based.
Chairman Talent. Right. So, the President's proposal hasn't
changed. It is still for--it is targeted for low-income
neighborhoods, but you also are talking about a size of
investment.
Ms. Alvarez. That is right, because in fact those targeted
areas, as the next chart will show you, have a huge absence of
availability of equity investments in those geographic areas.
Chairman Talent. Yes, and that is what I understood, and
that was my interest in the program.
Ms. Alvarez. You are absolutely right. That is what it is
all about.
Chairman Talent. I am sorry about that; appreciate it.
Ms. Alvarez. No, no, that is good.
The following chart shows the incredible differences in
availability of equity capital. For example, on the left, you
have the bar chart, which shows private venture capital firms
in 1999 with assets of nearly $130 billion. Their average
investment, the size issue, in both large and small businesses
is anywhere from $6 million to $10 million.
In 1999, SBA's Small Business Investment Companies reported
assets of $12.7 billion. Their investments typically range from
$350,000 to $5 million, with $1.5 million, on average. So, we
filled the gap there for smaller size investments through the
SBIC Program. What is interesting is that these SBICs with one-
tenth of the capital of their larger counterparts were actually
responsible for over half the investments by institutional
investors last year, which is phenomenal. And this highly
successful program has returned $131 million to the U.S.
Treasury as taxpayers' share of profits in SBA's Participating
Security Program. So, this program is really producing results.
Mr. Chairman, when I said that they produced half of the
investments, it is because they make many, many smaller size
investments, whereas there are huge investments made by the
private venture companies. It is not the dollar amount in this
case; it is the number of smaller investments.
On the very right, you see a sliver--it is practically not
there--and it shows the assets of the community development
venture capital industry. These firms are most like the New
Markets Venture Capital Companies that we are proposing. That
is where the gap exists. All that is available now--it is a
combination of what we are doing with our SBIC Program and
these community development venture capital companies.
SBICs invested nearly $800 million in low- and moderate-
income areas last year. The fact is that only $66 million of
that $800 million were New Market-type investments of $1
million or less. So, what does this mean? It means that out of
a universe of around $140 billion of venture capital in this
country, only $200 million was available in smaller New
Markets-type investments, which went to areas that include
inner cities, poor rural communities, and Native American
communities. Again, this is what the New Markets proposal is
all about.
The last chart on this topic, which speaks to this
geographic issue, is this map of targeted New Markets-type
investments. What this map illustrates is where the smaller New
Markets-type investments are being made today without the New
Markets Venture Capital Program. You can see there is a lot of
empty space here. The dots show the locations of community
development venture capital companies. There are only 25
located in 16 States and the Virgin Islands. These firms have
assets of $157 million, but only 14 of the 25 have assets of
over $5 million, which we consider to be the absolute minimum
for economic viability. The stars indicate the five states
where two-thirds of the smaller New Markets-type investments
were made by existing SBICs, Small Business Investment
Companies. As the map indicates, even if you combined the $66
million in comparable SBIC investments, which are concentrated
in just 5 states, with the SBIC locations, you see that there
was no New Markets-type investment, zero, in 21 States. There
is a gap, and there is a vacuum that we are trying to fill with
this program.
Chairman Talent. Just make one thing clear for me, and this
is very interesting--I am kind of glad you went to the depth on
this aspect of the budget submission--when you say the five
States in which the SBICs have made New Markets-type
investments, you are referring to investments that meet the
criteria both in being a low-income neighborhoods and of being
the size that you anticipate new markets.
Ms. Alvarez. Yes, correct.
Chairman Talent. Because they have bigger investments than
that in low-income neighborhoods----
Ms. Alvarez. Correct.
Chairman Talent [continuing]. But they were bigger size
loans.
Ms. Alvarez. That is right. They were not the type of
investment that we envision for new markets.
Chairman Talent. Okay.
Ms. Alvarez. The SBICs are primarily profit-driven, in
contrast to New Market Venture Capital Companies and the
Community Development Companies, which are more mission-driven.
NMVCs will provide a combination of equity financing and hands-
on operational assistance, which we have called technical
assistance.
The technical assistance we are talking about is an
ownership on the part of the new markets investor which results
in their taking an active role in the actual running of the
company in areas of corporate finance, structuring, key
executive recruitment, legal services. The New MarketsVenture
Capital companies will have the resources and flexibility to ensure the
long-term success of small businesses they invest in.
To establish this New Markets Venture Capital Program we
are requesting $21.6 million, which would support a program
level of $150 million, and we are requesting $30 million for
the technical assistance component.
What I would like to do is take a moment to talk about this
program's return on investment. First of all, a number of
people have noted that this is an expensive program. Well, it
is. It is, initially, because we calculated the cost of this
program using the most conservative assumptions. And what we
are anticipating is that the cost of the program will go down,
probably significantly, as we develop experience with the
program.
It is very important, I think, to look at the long-term
benefits of this program. We did an analysis of the Community
Development Venture Capital Companies where we learned that one
job is created for each $10,000 to $15,000 of equity
investment. Using this as a basis for comparison, $51.7 million
should generate between 13,300 and 20,000 jobs at a cost of
between $2,600 and $4,000 each. That is a bargain and does not
include the indirect jobs which would make the cost even less.
So, I think that with this modest investment proposed in
our budget, we would double the amount of capital available to
our distressed rural and urban communities, and we would create
a phenomenal potential for jobs in areas like Brooklyn--you
mentioned a 10 percent unemployment rate--and other rural parts
of the country.
Finally, I want to conclude, with the New Markets
Initiative--we are breaking new ground, which is why I took the
time to explain it this way. There is another area where we are
breaking new ground, and that is in the modernization of the
SBA. We are making substantial investment to really make the
SBA a cutting edge agency. And I am very enthused about the
vision that we have set out in our budget to build a new SBA.
It is what I call Project 2003, because 2003 is when we expect
to have completed all of this.
As you know, since 1990, our loan portfolio has grown from
$17.5 billion to about $50 billion. At the same time, the
number of our employees has decreased 22 percent, from 4,000 in
Fiscal Year 1990 to about 3,035 right now. And that number will
continue to go down. We will have gone down by 146 employees
this year.
Project 2003 continues the dramatic transformation. This
chart gives you an idea what SBA will look like in the year
2003. We expect to offer our customers online and real-time
services. This will allow us to give our customers quicker
decisions on their applications and servicing requests.
Internally, we will have real-time access to information and
sophisticated analysis tools to make better management
decisions--services anytime, anywhere. Obviously, SBA's store
will now be open 24 hours a day, 7 days a week. Small
businesses will be able to file applications from their offices
or even their homes.
We will do more paperless transactions with our lending
partners, reducing transaction costs. This is especially
important for smaller loans that are less profitable for
lenders. By this summer, we expect to have the majority of our
loan transactions to be conducted electronically. We will have
the majority of our lenders basically filing and reporting to
us electronically, which will be a real difference in what
information is available. We will be able to ask for and
collect data that we didn't have in the past or we have had it,
but it hasn't been accessible to us. This accessibility will
help us with our loan monitoring and risk management as well.
Coupled with our desire to sustain unprecedented growth and
to penetrate new markets is our solid commitment to maintaining
the financial soundness of our portfolio as well as the
security of the business that we conduct online. We are very
sensitive to the concerns that are being raised about the
security of the information.
Financial statements will be less costly and less time-
consuming to produce. Subsidy calculations will be improved in
both quality and timeliness.
Mr. Chairman, Ms. Velazquez, members of the Committee, this
budget, I believe, is a very sound budget for Fiscal Year 2001.
It fully funds the disaster programs and the Small Business
Development Centers. It supports expansion of the core
programs--7(a), 504, SBIC--increases microloan programs. It
does all of this while ensuring the safety and soundness of our
growing portfolio and building a modern SBA.
So, I really appreciate the opportunity to appear before
you here today, and I will be happy to take your questions.
Thank you.
[Ms. Alvarez, statement may be found in the appendix.]
Chairman Talent. All right, I will ask a few and then
defer, because there is a lot of members here, and I understand
some of them have to leave. So, let me just ask a couple of
mine.
Ms. Alvarez, I appreciate the efforts to support the
Veterans Business Development Corporation. I would hope that
$500,000 would be a beginning point and that you would be open
to more being shifted over.
Ms. Alvarez. Of course.
Chairman Talent. And, you know, my enthusiasm for this is
because I think it can work the way I have seen, for example,
senior centers work. I mean, I really think this model of using
a little Federal seed money to plant these centers in places
where then they leverage all these additional private-public
dollars and all the activity that the groups that want to
participate is very powerful, and I would like to get this
going. So, you are not closed to doing more than that if we can
get more than that done, are you?
Ms. Alvarez. No. We were working within our constraints.
Also, Mr. Chairman, you know we are working in conjunction with
the Department of Veterans' Affairs, with the Association for
Small Business Development Centers, with SCORE. We have entered
into agreements with all of them so that we can maximize and
not duplicate the efforts.
Chairman Talent. And what is the status of appointments to
the board now?
Ms. Alvarez. It is over at the White House, and they are
vetting the candidates right now. My understanding is if you
have individual requests, they would be happy to engage you
individually.
Chairman Talent. I think what we did was we--by we, I mean
the chairman and ranking members of the relevant committees on
both sides of the Capitol sent sort of a joint list.
Ms. Alvarez. Yes.
Chairman Talent. Because we are very concerned that this
initial group be very savvy veterans' advocates. And I will say
for my part--and I think the gentlelady feels the same way,
because she and I have talked of this--I am much less concerned
about party or political background than I am about just
getting strong vet advocates from a wide variety of different
places--some from veterans' organizations, some with experience
in business--because we have a real chance to draw a lot of
private business dollars into this.
I hope you take a moment and make a personal call over to
the White House and say, ``Let us really concentrate on getting
a good group,'' and I think we have submitted a very good list.
So, would you be willing to do that?
Ms. Alvarez. Absolutely. And I noted that in fact some of
the candidates recommended were recommended by members from
both sides of the aisle.
Chairman Talent. Yes. I know I recommended some--I mean, I
really don't care about that. I don't think the Committee does
either, but
Ms. Alvarez. We have been monitoring it. At this point what
they are doing is vetting the candidates, and that is the most
time-consuming part to make sure that once they are announced
they can get started.
Chairman Talent. Of course my wife is a veteran, and if the
President would be willing to consider her that would be fine.
But assuming that that is not going to be the case, I am very
interested in that. And let us get that. We all want that to
get off on the right foot. I know you do too.
Ms. Alvarez. Absolutely.
Chairman Talent. And your personal attention would be
appreciated.
Ms. Alvarez. Good.
Chairman Talent. All right. I have other questions to get
into, but I know some members have to leave. So, let me go
ahead and recognize the gentlelady from New York.
Ms. Velazquez. Thank you, Mr. Chairman.
Ms. Alvarez, why are the subsidy reestimates so high for
the 7(a) Program year after year? Doesn't this high reestimate
mean the regional subsidy estimate was significantly inaccurate
and that program users, both the small businesses and the
lenders, are paying fees beyond what is necessary to support
the program, and instead are paying fees and income that is
simply being used to reduce the Federal debt?
Ms. Alvarez. That is a very good question.
Ms. Velazquez. Yes, I know.
Ms. Alvarez. I will ask Greg Walter, as well, to join me on
that.
The answer is that we use a very conservative approach to
calculating these subsidies. We look at the life of the loan,
which is over a 14-year period, so that while one might argue
that these loans are performing very well as of recent years,
we need to go back to when they were not performing so well.
And, so it is those calculations that are factored in that
result in a much higher cost which then, of course, results in
a reestimate and a returning of funds to the Treasury. That has
been the practice of the OMB--it is not this administration;
every administration involved in subsidy rate calculations has
used this approach as a way of protecting the taxpayer.
Greg, do you want to elaborate?
Mr. Walter. Good morning. I am Greg Walter, the Deputy CFO.
I would like to just add one comment. We believe this is also a
very good reflection on the improved performance that we are
seeing in the portfolio as a result not only of the economy
that allows people to pay their loans back more frequently and
incur less defaults but also our improved attention to the
portfolio management of the agency. So, we see this as good
news, and the bottom line is the cost of the program is only
about 1 percent, or $1 for every $100 we loan. This is very
great news for small business, we think.
Ms. Alvarez. Right. As opposed to--it was $5 10 years ago.
Mr. Walter. Less than 10.
Ms. Alvarez. Right, less than 10 years ago, and it is $1.
So, the cost has gone down, notwithstanding the fact that we
are using a very conservative calculation.
Ms. Velazquez. Either the Administrator or Mr. Atkins?
Ms. Alvarez. Greg Walter.
Ms. Velazquez. What has 7(a) defaults averaged for the last
5 years, and what is the default factor in the current year
subsidy model?
Mr. Walter. First, you have to remember that the default
history is a long time period. We have a peak and a valley. The
peak occurs usually in 3 to 5 years after the loans are
disbursed. So, if you look at loans that have been made in the
last 5 years, they haven't really fully matured. But the
evidence that we are seeing so far is that the performance of
those loans is significantly better than the loans that were
made in the previous year. And the default history right now is
averaging probably in the 8 to 12 percent range. The model that
we are using for Fiscal Year 2001 still includes a subsidy
default rate of about 14 percent, because it takes into account
about a 12- or 13-year historical pattern.
Ms. Velazquez. Has there been a loan underwriting any
change or is OMB requiring SBA to overestimate loan defaults?
Mr. Walter. The process that we use for estimating defaults
is a standard acceptable practice that is used by all the
Federal credit agencies. OMB requires us to use a historical
analysis as far back as we have information. We like to try to
match the time period of the analysis with the average maturity
of the portfolios. These loans in 7(a) have a 14-year maturity,
so we would like to have 14 years worth of data to do the
analysis.
Ms. Velazquez. So, in essence, what you are telling me is
that the 7(a) Program is operating at a profit for the
Government under the present structure.
Ms. Alvarez. It is helping to reduce the deficit.
Ms. Velazquez. Ms. Alvarez, I am sure you are aware of the
troubling trend that during the nineties the number of
procurement center representatives has decreased from 73 in
1993 to 55 now. Of those, half performed this function on a
full-time basis. In that same period of time, contract bundling
has dramatically increased. We don't have any stronger tool to
make sure contract bundling is done fairly than CPRs.
On August 4, 1999, your former associate, Deputy
Administrator for Government Contracting and Minority
Enterprise Development, admitted here at a hearing that the
resources weren't there to handle the problem. In your
testimony before the Senate yesterday and in your testimony
today, you admitted that contract bundling is a problem. Given
that the agency admits there is a problem and in light of all
the new spending the agency is proposing, why has this not been
addressed in the budget submission?
Ms. Alvarez. This is certainly an issue that is brought
before us with some regularity. First of all, as the head of an
agency, I need to look at the overall needs of the agency and
the small business community, and we have made a commitment to
fiscal discipline and to continuing to streamline the agency.
And, so when we look at new hires, we try to make those
very strategically. We don't want to undermine a critically
important program, and we want to be able to introduce some new
ones that meet the gaps that we identified in the presentation.
Overall, we don't look to increase the number of employees at
the SBA, and that certainly affects our ability to hire people
in any program, including the contracting program.
I think, also, overall, there has been a change in the way
the procurement operates at the level of the Federal
Government. Part of the reinvention of Government was
streamlining processes. The result has been that the Government
is much more efficient and much more economical in how it does
its contracting, but there has been a downside. We have fought
ferociously on behalf of small businesses to ensure that they
continue to receive at this point 23 percent of all the
contracts that the Federal Government lets, and we monitor that
with great vigilance.
Contract bundling has been a concern. I will ask James
Ballentine to talk about new regulations that we think will go
a long way to addressing those issues. James, you may want to
address that.
I think, Congresswoman Velazquez, with the modernization of
the SBA, lots of things are going to be different in a very few
years. We are going to be able to free up people from other
areas, because we are going to be doing things electronically
in a paperless way which will reduce the need for people that
we now have in the mix. What that means is hopefully we will be
able to rehire new people or retrain in the near future but not
until we have completed this modernization. I think it would be
premature.
James, would you like to comment?
Ms. Velazquez. Before he comments, Ms. Alvarez, and with
all due respect, we conducted hearings on contract bundling,
and Mr. Ballentine was here, weren't you? Were you here?
Ms. Alvarez. This was before James became the ADA.
Ms. Velazquez. And my staff in the Small Business Committee
is conducting a review on Federal procurement and contract
bundling. And the members on this side aisle, and I am sure on
the other side of the aisle, has always been complaining about
the problems that small businesses are facing in terms of
Federal procurement and contract bundling. And you are telling
me today that there are new regulations and that it will be
implemented, but if you don't have the people there and the
staff to implement those regulations, what good does it make?
Ms. Alvarez. Your point is well taken. I hear you.
Ms. Velazquez. Let me just read this for you: In Oregon and
Idaho, in the Pacific Northwest, and the entire upper middle
section of the United States--and I have a map here--from
Montana to Wisconsin and south to Kansas does not have any
PCRs. The State of Hawaii is currently serviced by the one PCR
in Arizona who has no travel dollars to Hawaii. Virginia, one
of the largest procurement dollar volume States has not PCRs.
Would you be willing to commit today to performing a national
review for the current PCR allocation and propose a plan that
provides for more equitable distribution?
Ms. Alvarez. Yes, I will be happy to take a look at that. I
think it is a serious situation, and I will be happy to take a
look at that.
Ms. Velazquez. Thank you.
Ms. Alvarez. Would you like James to comment at all on the
regulations on contract bundling?
Ms. Velazquez. Sure.
Mr. Ballentine. Just to identify myself, I am James
Ballentine, Associate Deputy Administrator, Government
Contracting Minority Enterprise Development. We have completed
the regulations at the agency. They have completed public
comment. The closing date was December 27. We received limited
comments from the small business community, and we are moving
forward with the regulations. We hope to publish the final rule
on these regulations by the end of April in hopes of putting in
some really good things to control the contract bundling
situation.
Ms. Velazquez. Sure. Will you share those regulations at
some point with the members of our Committee?
Mr. Ballentine. Be happy to.
Ms. Velazquez. Sure. Thank you.
Ms. Alvarez. Thank you.
Chairman Talent. I thank the gentlelady and could not agree
with her more about bundling. As she knows, we are developing a
bill to deal with this, and we sent it over to you last week.
And I don't expect you to be able to comment on it now, but I
really hope that the agency will get behind us in doing this,
because we are not going to--the same situation you have in the
executive branch. The other committees of jurisdiction probably
fight for their own agency's right, and it doesn't help us a
lot to be trying to get some investments in small business and
that sort of thing in other areas if at the same time the
Government, with its procurement practices, is just withdrawing
huge amounts of contracts that small business people would
otherwise be able to compete for.
The gentlelady from New York, Ms. Kelly, I understand has
no problem with me recognizing Ms. McCarthy, because she has to
go. So, I am going to do that, and then what I will do is go
back to regular order, and I will correct that by recognizing
two on this side.
So, I will go to--Ms. McCarthy is next on the list, and so
we will just skip Ms. Kelly and go right to you, because you
have to go; is that right?
Well, I know, but--do you have time? If you want, we will
just--my understanding was that you needed----
Mrs. McCarthy. Fine.
Chairman Talent. Okay. We will go right to you.
Mrs. McCarthy. Thank you. And thank you for your comments.
One of the things I had gone over, and I just wanted to ask you
if you would clarify it, last year the majority of us here were
trying to work with small businesses, especially on a drug-free
workplace, and we see that there is no money--there is not
funding for this program. Could you explain why or are you
fitting into someplace else?
Ms. Alvarez. What we have had over a 2-year period is $4
million, which we have been able to let about 30 grants with
that amount of money. And, actually, we are in the process now
of just getting some preliminary results from those grants.
What we were looking to do is see how effective this investment
has been before acting. It was premature for us to be asking
for additional funding when we really didn't have any practical
experience on whether these grants were working or not. That
was the rationale behind not asking for the money this year.
Mrs. McCarthy. Okay. Just one other thing: On the Women's
Business Council, I know that, basically, the committees are
going to be asking you to explain why we had budgeted $400,000,
and you are asking for $1 million to increase it. Could you
explain to us why the increase?
Ms. Alvarez. We are also asking for an increase in the
number of Women's Business Centers.
Mrs. McCarthy. Right.
Ms. Alvarez. What we see is tremendous activity with women
in business and the need to correspondently respond to that
activity. Women have also become involved in the contracting
issue as well. Unfortunately, women are receiving less then 3
percent of Federal contracts right now. There is a huge
concern, and we have been working very closely with the Women's
Business Council and with our own office to expand that.
The Council is currently funded at $600,000 and is seeking
an additional $400,000 to expand its economic network,
procurement, equity capital and research program. There is
really a lack of data and information on women in business, and
really they are looking to branch out and bemore responsive to
what is occurring out there.
Mrs. McCarthy. Well, my whole point is I am hoping this
Committee will support the increase. I think it extremely
important, because working with business women on the Long
Island, we know that they are there, and we should be doing
everything possible to help them. So, I support the increase,
and I am hoping the Committee here will.
Ms. Alvarez. Yes, and I think, for example, many states
have asked for assistance in setting up their own councils,
which is something that we would be doing with this funding.
Also, there is an interest in creating a Women's
Entrepreneurial Fellows Program. There are a number of areas
where we have not had the resources to be responsive, and this
program would do that. This budget would do that.
Mrs. McCarthy. Thank you.
Ms. Alvarez. Thank you.
Chairman Talent. Okay. I will recognize Ms. Kelly, the
gentlelady from New York.
Mrs. Kelly. Thank you, Mr. Chairman.
Ms. Alvarez, there are a couple of things that I was
looking at. You spent a lot of your time talking about the $21
million new program and the New Markets Program.
Ms. Alvarez. Yes.
Mrs. Kelly. But there is about $950 million that you have
asked for in other areas, and I am interested in one particular
area, and that is the PRIME Act, which is actually already a
law. That is a $15 million program, and I would really like to
know what steps have been taken to implement the PRIME Act?
What have you done with that?
Ms. Alvarez. I am going to ask Charles Tansey to come up
here and join me, because he is the principal person
implementing PRIME. First of all, we are very enthusiastic
about what PRIME can do in conjunction with our microloan
program.
Mrs. Kelly. But what have you done?
Ms. Alvarez. Charles, do you want to lay out where we are,
because we have been working on regulations and setting this
up.
Mr. Tansey. Yes. Charles Tansey. I am the Associate Deputy
Administrator for Capital Access. We began work on the PRIME
implementation in December. We have convened several meetings
of interested parties, with a number of discussions as to how
to properly interpret the intent of the bill. We have drafted
regulations; we have run it by our General Counsel. They are in
circulation within the SBA right now. We expect that they
should be going over to OMB shortly.
We hope that we will be able to make awards this year if
funds can be made available. It would be essentially a pilot
this year and we hope that we can make awards as early as
August. That is our intent at this particular point.
Mrs. Kelly. So, you intend to get the awards ready and out
here by August?
Mr. Tansey. Yes.
Mrs. Kelly. Is that what I understand?
Mr. Tansey. Indeed.
Mrs. Kelly. Will you keep this Committee informed of your
actions with that, please?
Mr. Tansey. Yes, indeed.
Mrs. Kelly. I also wondered when you talked about 23
percent of the Federal contracting dollars going out, I am very
interested in how many of those contracting dollars went to
women-owned firms?
Ms. Alvarez. That is what I was mentioning a little bit
earlier. Less than 3 percent did, and we are alarmed by that,
although, frankly, we have been working very actively with the
women's community, the National Women's Business Council to try
to heighten awareness, and also working within the agency
structures. I actually have entered into agreements with just
about every agency, to develop a strategy targeted at
increasing the number of women-owned businesses receiving
contracts. So, we are pushing very hard to get that number up.
Our goal is 5 percent.
Mrs. Kelly. I recognize that, which is why I asked the
question. My question is when you are saying you are working
with agencies, are you developing a written plan for them to
follow----
Ms. Alvarez. Yes, absolutely.
Mrs. Kelly [continuing]. And an awareness plan, so that
every procurement office there, including those that are
involved with our, for instance, our international people--the
embassies and so on--those people all understand that that is
where we are trying to go?
Ms. Alvarez. I have not only had conversations with them,
but I have in writing commitments from them, and we are
monitoring their commitments. There is a lot of good will and
good intent on the part of the agencies. It is a combination of
not only ensuring that it is a top priority for them, which I
believe it is, but also women have not been involved in this
arena in the past, and developing an awareness and a desire to
pursue these contracts is something that we also have to work
on the outreach part.
Mrs. Kelly. Well, I think women have been in business for a
long time. I started my first business in 1963.
Ms. Alvarez. Right, but they haven't been Federal
contractors.
Mrs. Kelly. Well, this is true. I also want to ask you,
Administrator Alvarez, about the fact that one of the major
emphasis that we have in Congress this year and past years has
been the Drug-Free Workplace Program, and I see there is no
request in this budget. I do not understand your total
disregard for the need for us to support drug-free workplace
programs. Why is there nothing included here?
Ms. Alvarez. We have $4 million. We have awarded 30 grants.
They were awarded towards the end of last year. We are in the
process now of evaluating the effectiveness of those grants. We
really had no basis, at this point, for requesting additional
funding, because it was very new, and there was no product, no
outcome. We are hoping to see how effective these grants have
been in reducing the use of drugs in the workplace and go
forward from there.
Mrs. Kelly. When did you award the first drug-free grant?
Ms. Alvarez. It was towards the end of last year, September
17th. It was a program that took awhile to get up and running.
We were working across agencies, and I wish we had awarded them
sooner, but we just couldn't. It was just very difficult to get
everybody agreeing on things.
Mrs. Kelly. Can you explain the difference to me between
the business information centers, One Stop Capital Shops, and
the assistance that is offered by the Small Business
Development Centers? I would like to have you further describe
how the efforts of these sites can be coordinated. It seems to
me we have a lot of different organizations out there that may
be overlapping in a way. And I also wonder how many businesses
are being served by these agencies?
Ms. Alvarez. We have an array of services. In fact, we have
an entire department devoted to programs that provide technical
assistance, because there are different needs, in some cases
specialized, and they require different programmatic responses.
Our biggest program, of course, is the Small Business
Development Center Program, which is, by and large, based out
of universities. The assistance received there by small
businesses is in helping them develop business plans, marketing
plans. They may involve one or a few sessions, but it is not an
ongoing involvement.
We also have SCORE volunteers, retired executives, who
operate out of various locations--sometimes out of the Small
Business Development Centers, One Stop Capital Shops, et
cetera.
One Stop Capital Shops are located in Empowerment Zones,
which is not where the Small Business Development Centers are
located. And One Stop Capital Shops, as the name implies, is a
coordination of different agencies, local government, and
community organizations, all located in one place to be of
assistance to small businesses in those communities. We have
within each One Stop center a Business Information Center.
A Business Information Center is a collaboration between
the private sector and SBA. The private sector normally
provides hardware and software packages and assistance in
setting it up. We work within the community and find the space
and maybe research assistance. The business person will come
in, and we will direct them to this library, if you will, and
we will even train them on how to use the software packages so
that they can develop their business plans. We have USEACs,
which is our U.S. export assistance centers. Again, that is a
coordination and collaboration across agencies, SBA, Commerce
Department, and Ex-Im Bank for the purpose of encouraging small
businesses and supporting them in their pursuit of exporting
transactions.
We have Women's Business Centers that provide specialized
support to women who often have specific circumstances in their
lives that are different from other business people. Some of
them specialize in helping women who are coming off of public
assistance and welfare. Some of them specialize in helping
women access venture capital where there is a huge lack of
venture capital available to women in business.
I actually have a chart here that goes through each one of
our assistance programs and outlines how it is that we help
small businesses in a particular way.
Mrs. Kelly. Are these centers linked? Because we really
want to make them linked--make sure that they are linked,
because the more assistance, the better. And do your district
offices administer all these programs and oversee all these
programs?
Ms. Alvarez. Our district offices, for example, with the
Small Business Development--
Chairman Talent. If you would yield just for a second?
Ms. Alvarez. Yes, sir.
Chairman Talent. Maybe the gentlelady can make this the
last one, and then we come back later if you have more.
Mrs. Kelly. Yes.
Chairman Talent. Okay. Go ahead.
Ms. Alvarez. And I would be pleased to meet with you and
talk with you in detail about this.
We have online Women Business Centers; we have SCORE
counselors online across the country, obviously, providing
advice and expertise wherever they are needed. I wish we could
link the Small Business Development Centers, but by law, they
are meant to stay within their states. I have repeatedly said I
would like to see all these SBDCs linked across the country so
that if one has a particular expertise, it could be accessed by
someone in a different state, but apparently that is not
possible right now.
Mrs. Kelly. Thank you very much.
I have run out of time. I do have more questions, but I,
unfortunately, am one of those people who has to leave, so I
hope you will hold the record open so I can submit those
questions in writing.
Chairman Talent. Sure. Well, let us do that right now, as a
matter of fact. Without objection, we will hold the record open
for 10 days.
And, also, I meant to mention, Ms. Alvarez, I would like
to--I didn't see some of your statements regarding the NMI in
your written testimony, so I would like to be certain that you
include and copies of those exhibits also for the record.
Ms. Alvarez. Yes, sir.
Chairman Talent. I thank the gentlelady. Her lines of
questioning was very good. I didn't interrupt for that reason
but only because we have other members.
Now, we are going to go in this order, which is the order
in which people came: Mr. Pascrell, Mr. Phelps, Ms. Christian-
Christensen, Mr. Hinojosa, Mr. Davis, Ms. Napolitano, Ms. Tubb
Jones, and Mr. Baird.
Mr. Pascrell?
Mr. Pascrell. Thank you, Mr. Chairman. Good morning,
Administrator; good to see you again.
Six contracts worth $3.7 million were awarded as a result
of the HUBZone preferences in Fiscal Year 1999. Based on the
numbers that I have, figures that I have seen, this works out
to be 0.002 percent of the Fiscal Year 1999 dollars rather than
the goal that we had established at 1 percent. If we are
spending $2 million on the program and there is only 3.7 in
contracts to show for it, to me, this does not seem like a very
good return.
I would ask you to look very carefully at that, because I
believe that the Federal contract preferences which were
associated with the HUBZone approval is a critical program, and
it can work out very nicely. And if there are difficulties in
implementing it, we want to know about it, not before the horse
is too far out of the barn and down the road.
Coupled to that is something I want to bring to your
attention. We had a Small Business Subcommittee field hearing
in my district not too long ago, and the HUBZone was one of the
targets, one of the focuses. We came up with this kind of a
situation, and I think it is pretty common: Some businesses can
take advantage of this program, but they are actually and
physically across the street from the zip code and the district
which enables them not--which would enable them to be part of
the HUBZone district. I think that this has to be reviewed, and
we need to be a little bit more flexible in who is eligible and
who is not eligible. Because what this does frequently is pit
one town against another town, and I think that that, in the
long run, will have a negative effect in terms of what we want
to do. Have you heard about this, and what do you think?
Ms. Alvarez. I think HUBZone has the potential to be a
terrific program, and I am pleased with the results we are
seeing already. Anytime you start a brand new program with
limited resources, it takes awhile to get it set up and also to
get the word out. Outreach is a key part of any new program.
And we started out with very limited resources, two employees.
One of the things that we did do that took time was we
decided that we wanted to create a new program that would be
consistent with a modernized SBA. The only government
contracting program right now where we can do everything
electronically is the HUBZone Program--everything from
identifying your eligibility to applying. It is the model, and
we intend to integrate the other contracting programs into that
model so that in the future, whether it is 8a or SDB it is
going to be a simplified application on line. That took 6
months to do in the first year of a program. That is not by way
of apology, but it is by way of explanation.
We had $2 million, which is not a lot. We are asking for $5
million. We need to hire more people. We need to do more
outreach. In the process, again, as with any program, we have
discovered that we need more flexibility; you are absolutely
right. And, so we have been rewriting our regulations and
revising them so that we can let more folks into this program,
because in the end it is going to be really a terrific program.
It is geographic and income-based, and it is going to create
jobs.
Mr. Pascrell. How soon can we see some changes and results
of that flexibility within this program?
Ms. Alvarez. James, do you want to comment on where we are
with the revised regs?
Mr. Ballentine. Yes, Congressman, we intend to publish the
revised regs at the end of April. We anticipate the revised
regs being final in July of this year.
Mr. Pascrell. And just one final question, Mr. Chair.
What can we look for--I mean, give me some parameters in
the example that I used, for instance. I think it is a good
example; this is happening all over the place. How do we bring
that community across the street, in another zone, in another
zip code to make it eligible?
Mr. Ballentine. The revised regs will not address that
issue. The HUBZone Program is designed by census tracks. The
census tracks are, of course, based upon the low income housing
tax credit program administered by the Department of Housing
and Urban Development. We would have to really revise the
program and refocus the program if you are going to change
these census tracks. And that would be something that we would
have to work with the Department of Housing and Urban
Development to do.
Mr. Pascrell. Then you are not answering my question,
really. If we are going to continue to use the same basis, the
same demographics, the same census tracks, or enumeration
districts, whatever, we are going to come out with the same
conclusion.
Ms. Alvarez. I think the key here, Congressman, is that
HUBZones were designed so that the principal place of business
for a company would be located in the HUBZone, because the
intent was that they would hire 35 percent of the employees
from the HUBZone, and they would generate economic activity in
the HUBZone. That is why it is hard to have flexibility around
the area of where the company is located. If the company wants
to relocate its principal place of business, they can do so. We
can have some flexibility. But otherwise we run the risk of
companies who are not in the HUBZone wanting to conduct
business away from the area where we desire to create jobs.
Mr. Pascrell. That is absolutely unsatisfactory, that
response. So, what you are telling me is that you don't intend
to change the definition of a HUBZone.
Ms. Alvarez. We will be happy to pursue it.
Mr. Pascrell. Excuse me, if I may. What I am talking about
is where you have a HUBZone on one side the street--I remember
the discussion and how this got started. And on the other side
of the street, which may happen to be a suburban community,
which hires many of the very people that live in the
communities and urban areas that we are trying to help--I live
in one of those areas. But it seems to me that we are punishing
the business simply because it physically is not inside that
HUBZone. That, to me, divides communities and has a
philosophical negative impact upon what we are attempting to
do. In the long run, we accomplish nothing. We are supposed to
be bridge builders.
Ms. Alvarez. The purpose of the program is to create not
only jobs but an infrastructure in communities that may be
across the street from a suburb, but the moment you physically
locate a business in an underserved community, you create the
need for other businesses to serve that business. You are
right, there is a philosophical difference. The point of the
program was that companies would be locating in places where
they might not ordinarily locate, hiring people from those
communities in their neighborhoods. That was really the intent
of the program.
Mr. Pascrell. You can't expect a business, simply because
it lives just out of the zone, to up and relocate physically,
if they could, into the HUBZone. I am talking, more important
than the example I gave, philosophically, that isn't reality.
And I tell you this from experience, being a mayor, being a
State legislator, we ought to be working with each other.
And this divides communities. It is like what we have in
New Jersey--enterprise zones. The enterprise zone stops at Main
Street. On the other side of the street is another town as if
it is a foreign country, and it is not. Believe me it is not.
Thank you.
Ms. Alvarez. Thank you.
Chairman Talent. I thank the gentleman, and I think the
message perhaps for the Administrator, not to speak for the
other members, is that there are some concerns we have. I mean,
I mentioned the Veterans Program, and I appreciate your
response there. And Ms. Velazquez talked about procurement
assistance, and Mr. Pascrell has talked about HUBZones. And
this is a cooperative effort. I mean, I understand that you
have your priorities, and most of them I think I agree with,
but we certainly want attention paid to----
Ms. Alvarez. I would be very happy to pursue this. I am
trying to set out what the thinking was behind the HUBZone
Program, and we are being flexible, which is why we have new
regs that are being proposed. This is one area that is not
included in that reg process, but we can look at it and try to
be as flexible as we can. I appreciate that.
Chairman Talent. Yes, if there are changes that are needed
in the statute for something----
Ms. Alvarez. Yes. Maybe there are changes needed in the
statute, because I think----
Chairman Talent. That would be very helpful.
Ms. Alvarez [continuing]. It goes beyond the regulatory
process.
Chairman Talent. It is very helpful with you having
grappled with it on a hands-on basis, to say, ``Look, we have
tried to do this, and we can't. Now we need this.'' And that
makes it much easier for us rather than trying to anticipate.
Because I would rather not have to go to the statute if you
have the regulatory authority.
Ms. Christian-Christensen is next.
Ms. Christian-Christensen. Thank you, Mr. Chairman.
Good morning.
Ms. Alvarez. How are you?
Ms. Christian-Christensen. Fine. I wanted to congratulate
you on your audit report and----
Ms. Alvarez. Thank you.
Ms. Christian-Christensen [continuing]. All of the other
successes that you have outlined for us this morning. And thank
you, of course, for the support that you have given to my
district in many of the areas that you discussed.
We are also very interested in the New Markets Initiative.
Ms. Alvarez. It looks good, doesn't it? I like it. I like
it. We need to get a camera. Sorry.
Ms. Christian-Christensen. That is okay. No, we like it
too.
We are very interested in the New Market Initiative also,
and as you reach out to the Native American and the other rural
areas, we hope that the territories will also be given some
special consideration.
I have maybe two questions. One is about farming, and the
Committee has had several hearings on agricultural issues. The
most recent was regarding saving the family farm. The Fiscal
Year 2001 budget submission has a component that addresses
Native American-owned business technical assistance, and the
Fiscal Year 2000 submission had a component that addressed
veteran-owned businesses. Is the SBA looking at each one its
technical assistance programs to see what kind of assistance
can be provided to farmers?
Ms. Alvarez. Yes, we are. And Charles may want to speak to
the fact. We have been involved in rural roundtables, looking
at all our programs to see how we can adjust and be responsive
to the needs of the rural communities. We also think, for
example, the New Markets Program will be terrific for rural
communities where there is really a lack of access to equity.
So, Charles, I don't know if you want to add something, but
we are actively pursuing a rural strategy at the SBA.
Ms. Christian-Christensen. Yes. And maybe in the comment
they might want to comment on a memorandum of understanding
that will allow USDA lenders to participate in the 7(a) Loan
Program that is being proposed?
Mr. Tansey. Yes. Charles Tansey, ADA Capital Access. We are
pursuing a memorandum of understanding with the USDA. The idea
was to try to build momentum back into rural areas of the
country. We have seen a distressing trend away from the use of
some of the SBA programs, particularly in states with large,
rural areas, and we want to find a way to rectify that. We have
determined an effective strategy would be to work hand-in-hand
with the USDA, particularly with their intermediary lending
partners, or lenders, who are already out in rural areas where
either our lending partners don't have a presence or our
districts don't have presence. They could use the 7(a) Program
in particular to augment their limited resources. That is the
first piece of it.
There are a whole series of other things that we are
looking at, and we are trying to make adjustments for our
program so that we can build momentum in the rural areas. I
think that is a general outline. Every month we are having a
rural roundtable in various parts of the country to hear what
people have to say about what needs to be done and how we can
work with other agencies in addition to USDA. We will have a
report on that sometime in June or July.
Ms. Christian-Christensen. Thank you for that answer.
We have several members on our Rural Business Enterprise
Subcommittee that might be interested in having some of those
roundtables held in their districts, and we will share that
with you.
Ms. Alvarez. We would be happy to pursue that.
Ms. Christian-Christensen. Thank you. And I have a question
also about the small, disadvantaged business. That is something
that I am very concerned about. And as of 10-1-99 if a firm is
not SBD certified, it won't be recognized as a minority-owned
business by the Federal Government as far as procurement. And
if they are not certified, also the large prime contractor
won't get credit for using the SBD as a supplier to meet its
goals.
The application seems very complex, and I would be
interested in hearing what is being done to make this
application process easier?
Ms. Alvarez. I agree. We are simplifying the application.
We are actually looking to combine the 8(a) and SBD application
and ultimately do it electronically.
James I don't know if you want to comment further on that
process.
Mr. Ballentine. We do indeed intend to simplify the
application. We agree with you, as well, that it is a
complicated application, and to some extent the 8(a)
application is also very complicated. As the Administrator
mentioned, we are planning to streamline that. We, in fact,
hope to have that totally completed, cleared through the Office
of Management and Budget by the end of this month.
Ms. Christian-Christensen. Thanks. Let me give my
colleagues an opportunity to ask some questions. Thank you very
much.
Ms. Alvarez. Thank you, Congresswoman.
Ms. Velazquez [presiding]. Yes, Mr. Hinojosa.
Mr. Hinojosa. Thank you, Madam Chairman.
I am very pleased to be able to listen to the presentation
that you made as to how you anticipate SBA will look in the
year 2003. We look forward to helping you get there, and that
it will indeed be easier to create those New Market Initiatives
that you talked about and access the capital for all women and
minorities to get into business or expand their businesses. In
this New Market Initiative, I know that there are some
regulations that are supposed to be published. When will they
be out?
Ms. Alvarez. Well, first, we need authorizing legislation.
We have a proposal from the Senate side, and we are hoping to
have one from the House side shortly.
Mr. Hinojosa. Do we have one?
Ms. Alvarez. We do have appropriations, but we don't have
the necessary legislation.
Mr. Hinojosa. Well, has anybody in the House of
Representatives initiated that?
Ms. Alvarez. We have been working very closely with
Congresswoman Velazquez to ensure that we will have some
legislation on the House side. She might want to comment on it.
Ms. Velazquez. There is going to be a meeting between the
staff of SBA and my staff. Once we finalize the changes that
have been made, it will be introduced probably next week.
Mr. Hinojosa. Excellent. Those of us who have empowerment
zones, especially rural empowerment zones, are desperately
waiting for that to get started, and if you need authorization,
Madam Chair, I want to be sure that you know that I want to be
part of that. I want to help, both in being a co-sponsor and
being on the House floor to speak in favor of it.
Ms. Alvarez. Very good.
Mr. Hinojosa. You and I also had a discussion at the end of
last year regarding efforts by some associations who were
trying to change the definition of a small business to be less
50 percent. And I just want you to bring me up to date. Has it
been cleared that we are going to stay with the 51 percent, as
I know I am in favor of?
Ms. Alvarez. Yes. The National Minority Suppliers
Development Council was exploring redefining what constitutes a
small business from the standpoint not only of ownership but of
control. I think their intention was to make as much equity
capital financing available to those businesses as possible.
We are very supportive of having more venture equity
capital available for minority-owned businesses, but we were
very clear that the law defines minority ownership as 51
percent ownership and that we will continue to support that. It
is the applicable law with respect to all Federal programs, and
we believe that it is a way of building minority businesses by
ensuring that there is 51 percent minority ownership and that
there is no misrepresentation of who really owns the company.
We have been on the record. I believe that the council did
go ahead and pass a resolution.
Ms. Velazquez. At the end of January they changed.
Ms. Alvarez. Yes.
Ms. Velazquez. From 51 percent.
Ms. Alvarez. But that does not affect the law, and it
doesn't affect our interpretation of the law. My concern was
that there shouldn't be confusion out there. A private entity
redefining what constitutes a minority-owned business has no
applicability to our definition of what constitutes a minority-
owned business. Fifty-one percent ownership is the law.
Mr. Hinojosa. I certainly support the law, and I think that
there are exemplary programs out there where large
corporations, like Burlington Factories, have gone in and found
medium-sized businesses and done limited liability partnerships
where they buy 49 percent equity in that company and thus
accomplish exactly what the other group was trying to do by
saying we needed to have it at less than 51 percent. And there
are still other large companies, like ConAgra, that are again
using that limited liability partnership example and doing it
successfully with only 49 percent.
So, I think that we need to just take those exemplary
programs, highlight them throughout the country so that those
medium size or small businesses can pursue moving to expand
their facilities into some of the empowerment zones and help us
create jobs in those places that just need so much help.
Lastly, there was another one here that--on e-commerce, it
seems that when you were meeting with the folks over at the
U.S. Senate, in your testimony you said that $5 million of your
budget is to expand training, offering classes on topics like
building a web site, conducting e-commerce on the Internet,
marketing your business online, and on and on. But according to
the staff, they feel that with the way this is going that the
money is dedicated for other items. What are they?
Ms. Alvarez. I don't know what they would be. We had a very
successful Y2K initiative at the SBA where we conducted
hundreds of seminars and forums around the country. We estimate
that about a million small businesses came to seminars,
summits, conferences that were focused on technology. And my
first reaction was let us keep the momentum going, because it
is clear that there are thousands, millions of small businesses
out there who recognize that they have to use technology to be
competitive.
Part of the proposal would cover e-commerce summits around
the country, a high level of visibility for the role of e-
commerce and technology in small businesses. We are only
beginning to scratch the surface on what we can do with online
classrooms and other online activities. We know that government
contracting is going to be conducted online more and more. And,
so we need to make an investment that involves people and
resources and activity to get our small businesses prepared.
Mr. Hinojosa. So, do you have the staff now that can go and
help us conduct an e-commerce summit in our region?
Ms. Alvarez. What we did was we took regional and local
staff, combined it with experts from central office, and we
pulled together the summit, and if you are interested, we would
do that.
Mr. Hinojosa. Yes, I am.
Ms. Alvarez. Yes.
Mr. Hinojosa. Thank you.
Thank you, Madam Chair.
Ms. Velazquez. Thank you.
Mr. Davis.
Mr. Davis. Thank you very much for your testimony and your
responses to the questions that have been raised.
Let me just begin by first of all commending and
congratulating your agency for the very aggressive work that it
has done throughout the country especially as you have promoted
the New Markets Initiative and especially as you have responded
to questions and concerns that we have raised about contract
bundling. And let me just say I appreciate the fact that there
are going to be new regulations coming soon, although I may as
well just state for the record that as far as I am concerned
looking for contract bundling to assist in the development of
small businesses is like looking for light in a dark place.
And I appreciate the fact that your agency has tried to
squeeze out some regs that might in some way prevent the
further harm that contract bundling can do for small business
development, but I think that you have been at a terrible
disadvantage in trying to implement that legislation and make
it consistent with the goals and objectives of the Small
Business Administration. So, I just want to say that----
Ms. Alvarez. Thank you.
Mr. Davis [continuing]. I appreciate the--the other concern
I have is with the New Markets Initiative. In the county in
which I live, Cook County, Illinois, which is the second
largest county in the country, 5.1 million people in our
county, and in that county only 14 percent of all loans that
have been made in Cook County have gone to low-income areas.
And there are a lot of low-income areas. As a matter of fact,
in my district alone, I have over 165,000 people who live at or
below the level of poverty.
And, so my question is that even with the proposed New
Markets Initiative--and I also know that many of the SBA
programs have been aggressively marketed, that people have in
fact attempted to make use of them. You have got some good
staff out there. But in spite of all that, when you look at the
bottom line, the real deal is that the resources are not
getting to the people who need them. The help is not getting to
the people, in many instances, nor the communities that really
need it. Do you think that the request in the New Markets
Initiative is really enough or I am saying, should we get
things moving, will this be enough to really make a
significance difference or impact throughout the country?
Ms. Alvarez. Thank you very much, Congressman. I think that
is a very thoughtful question. And the presentation I made on
the New Markets Venture Capital Program only highlighted a
program which is new and requires legislation, and therefore I
went to some length to explain what that was about. We actually
have a much bigger strategy to address precisely the concerns
that you have raised.
On the loan side, on the debt side, and on the technical
assistance side we have focused on smaller size loans, because
that is where the greatest need is in communities that are
underserved. And to address that we have asked to double the
size of the Microloan Program. It is the reason we are very
supportive of PRIME, which will help microenterprises and the
microlenders to really serve those communities.
We have also asked for an increase in the guarantee for
small size loans. The reason is that we have seen a significant
drop in activity by our regular lenders in the smaller size
loan area. When we introduced LowDoc we had a phenomenal
success with it. It had a 90 percent guarantee attached to it.
The moment we changed that guarantee to 80 percent, we started
to see the numbers fall off, and we started to see many of the
smaller lenders get out of the program.
So, in response to the criticism and the concerns we have
gotten from the lending community, we are proposing a 90
percent guarantee for smaller size loans. We hope that that
will encourage more activity on the loan side. That needs to be
accompanied by equity investments. A company that would receive
an equity investment through the New Markets Venture Capital
Program would be a growth company, and so they would be much
further along, for example, than a microborrower. Still, they
would operate in precisely those communities, and that kind of
an investment of capital would create jobs in those
communities.
And that also gets further, I think, enhanced through the
HUBZone Program. The idea behind the HUBZone Program was,
again, locating businesses in geographically distressed
communities to create employment for folks in those communities
as well as an infrastructure. So, I think we have really a
three-pronged strategy for New Markets that cuts across lending
and technical assistance, equity investments, and contracting.
We are looking at the smaller businesses, because that is where
we think that there is a lack of capital, credit, and presence.
Mr. Davis. Thank you very much.
And, Mr. Chairman, I also want to commend both you and the
ranking member for looking at these issues legislatively,
because I think that in many instances we have given the Small
Business Administration mandates, but at the same time they
have had some handcuffs on. We have said, ``Go out and do this,
but you have got to do it in compliance with the laws, the
rules, and regulations that are established legislatively.''
And as one who has been interacting with the Small Business
Administration in low- and moderate-income communities for
about 30 years now, I am convinced that in many instances what
we have done is we have set up programs, mandates, but in many
instances the restrictions were so tight that individuals
couldn't reach the goals that we had set for them. And I am
just pleased to know that there is a level of awareness that
have us trying to address legislatively some of the impediments
to the implementation of the Small Business Administration
mandate. So, I thank you very much.
Ms. Velazquez. Thank you, sir.
Chairman Talent [presiding]. The gentleman always makes a
very good point, and this is a--there is a kind of a creative
tension that works here. And what I would just encourage the
Administrator to do is where she feels she needs additional
flexibility to meet our time limits to be aggressive in letting
us know that so that we can work with her.
And conceding full marks for the difficulty of these
things, we still need to have them done. I think the point Mr.
Pascrell made about the HUBZones, the regulations should not
have taken as long as they have taken to produce. And if there
is problems, we need to work with them and get them done. And I
don't understand the Administrator to be saying anything
different than that. One of the reasons we have these hearings
and why I appreciate the members' participation is to flag for
the Administrator areas where we are concerned----
Ms. Alvarez. Yes; appreciate that.
Chairman Talent [continuing]. And make sure that--because
she is very busy, and make sure that we impress upon her in a
forum which can't be ignored, frankly, our intention to make
sure that these things are done.
Ms. Napolitano, I appreciate your patience.
Ms. Napolitano. Thank you, Mr. Chair, and with this
patience I learn, because I listen more than I can speak.
Thank you very much, and I echo the sentiments of my
colleagues about what I believe to be one of the best working
committees to address the issue that affects us at the local
level. One of the areas that really concerns me, Ms. Alvarez is
the Welfare to Work, and you had a request in 2000 of $761,000,
and you are requesting a lesser amount than last year, a
decrease of $193,000. With the enactment of the Personal
Responsibility and Work Opportunity Reconciliation Act in 1996,
along with the President's Welfare to Work Initiative, it
effectively ended the current welfare system as we all knew and
loved it.
The SBA is participating in this initiative by providing
training to individuals leaving public assistance, providing
technical assistance to welfare recipients who have potential
to become entrepreneurs, and we have discussed this at length,
and educating small business owners on the Welfare to Work
Program in order to obtain hiring pledges from them, which is
in my area the Private Industry Council that has been doing
that for a long time, and now we are asking them to do other
things, including, of course, look at the Welfare to Work
Program.
You state in your budget you have exceeded your three-year
goal for the business commitments to hire individuals
participating in this initiative. What kind of follow-up is
conducted with the small business community to determine if
those commitments are honored and to determine if there are
ways to improve the SBA's efforts, realizing that specifically
in California it really hasn't begun to hit the cap? In other
words, there was a limit. That limit is just barely becoming a
reality. How do we know that we won't be able to need more
assistance to help small business be able to take in those
Welfare to Work recipients and the training that goes along
with it?
Ms. Alvarez. The Welfare to Work Initiative is a very
important one that took very seriously. And I am happy to
report that we really accomplished quite a bit, which is why,
at this point, we don't think we need additional funding.
For example, we set three-year concrete numerical goals
which we actually exceeded. We had wanted to achieve at least
200,000 commitments which meant--commitments that small
businesses would either step up to the plate and commit to
hiring someone from the public assistance rolls or we could
assist an individual in becoming an entrepreneur. We actually
exceeded that goal.
Sixty-seven percent was business commitments to hire, and
33 percent was providing entrepreneurial training. We are
pleased to say that we reached 210,029 total commitments.
We produced and distributed a Welfare to Work tool kit for
small business owners. Small businesses told us that they had a
shortage of workers, and we said here is an opportunity for us
to connect the small businesses with the potential workers.
That is why the Welfare to Work tool kit was important, because
we needed to educate them.
We launched a public service campaign which got out the
word. We entered into formal partnerships with government
agencies, trade associations, not-for-profit organizations so
that we could expand the scope of what we were doing. And we
certainly worked with the private industry councils. Every
single district office entered into a different kind of
relationship with the PICs.
We also built a world-class Welfare to Work web site that
contained the tool kit, the pledge cards, the success stories,
and our award winners. That site averages 8,000 hits a week.
We feel we did what we set out to do, and we are continuing
to leverage our resources. We feltat this point in time we were
not looking for programmatic increases, and we were just looking to
keep pace with what we have done.
But it is an important challenge, and we don't want to be
asleep at the switch. I don't think we are, because I think we
have at the field level internalized these objectives. They are
holding events, outreach and acting on Welfare to Work goals
really as part of their day-to-day business, which is what we
wanted.
Ms. Napolitano. Okay. So, you don't think there is going to
be a demand or as high a demand possibly due to the economic
viability.
Ms. Alvarez. I think that the economy is so strong and
people are so eager to find workers and, that is what the New
Markets Initiative is all about. It is about finding another
way to give people employment and entrepreneurial
opportunities, because we don't want people overlooked because
structurally things haven't been set up to address those areas.
The New Markets Initiative will help a lot of folks who still
fall within the Welfare to Work category.
Ms. Napolitano. Now, you do work with Labor on that issue?
Ms. Alvarez. Yes, absolutely. I have had many conversations
with Secretary Herman, and we have formal relations with them
about this topic.
Ms. Napolitano. Thank you.
The other question, of course, has to do with the Drug-Free
Workplace grants, and unfortunately we don't hear the issue of
drug in the business being lessened. We seem to have a
tremendous problem in the United States. What can you tell us
about how the program has worked? What success have you had
with it, and also what performance measures have been used to
evaluate the success of your Drug-Free Workplace Program?
Ms. Alvarez. First of all, we think it is a good objective,
and we are very supportive of it. It is really too soon for us
to evaluate the outcome of the program, because, as I had
mentioned earlier, anytime you start up a new program, there is
a process of working across agencies that is more time
consuming than I would like. Setting up processes and
procedures, took us awhile, so that we didn't get those grants
out the door until the end of the fiscal year last year. The
reports that we are getting right now are still preliminary. We
would like to see what the result is of the 30 grants that we
awarded. We awarded them to not-for-profits and to Small
Business Development Centers in September of last year. So, it
is soon. I don't want to be premature in telling you how they
have worked. For that reason, we didn't pursue more funding,
because we didn't know what the $4 million investment was
yielding us, but we do think it is a very good idea, and there
is a need for it.
Ms. Napolitano. Great. Well, that answers part of my
question anyway.
Another area is the National Women's Business Council, and
while I read in here that you are requesting an increase, which
may be something that they are well deserving of, I am
wondering whether they are working with your Welfare to Work,
because a large segment of the Welfare to Work are women. To be
able to help them become the new entrepreneurs and being able
to assist the Women's Business Council do that outreach, what
is SBA recommending or what is being done in that area to bring
them together to be able to promote new entrepreneurships?
Ms. Alvarez. I may ask Sherrye Henry. I don't think Amy is
here. I didn't see Amy, but if Sherrye is here, you may want to
comment on this issue, Sherrye. Sherrye runs our Office of
Women's Business Programs. And we have really tried to work
across departments and across agencies on this issue of Welfare
to Work.
The National Women's Business Council really is positioned
to play a very important role. We are seeing an explosion of
women-owned businesses, which is why we are asking for an
increase. Not enough research is being done. There are topics
that we are not able to research, because we don't have the
funding; that is part of what this will cover. We are getting
requests at the State level for us to be involved. We can't do
it without more resources. Because the States now want to set
up their own councils.
There is an interest in bringing together local
policymakers with woman business owners to conduct summits, to
help them really develop legislation and regulations and other
programs to support women's entrepreneurship. All of that
requires support.
Sherrye, would you like to comment?
Ms. Henry. Yes, I am Sherrye Henry, and I run the Women's
Program.
I think it is important to know that our Women's Centers--
and we have a network of about 80 around the country--work very
hard to move women off welfare. We have been very successful at
it. In fact, about 20 percent of all of our clients are welfare
women, and the number of low-income women is up in the 40
percentile. We are very concerned already with this population.
Ms. Alvarez. Through the Microloan Program, for example,
more than half of our microloans are going to women, and these
are, again, low-income women, which is why we would like to
double that program. It makes a huge difference if they can
access a small amount of money accompanied by technical
assistance. Many of our Women's Business Centers are actually
microlenders as well. So, it really is an integrated strategy.
Ms. Napolitano. Good. May I suggest that for any of the
research that you may be wanting to ducktail with, a lot of the
educational institutions--the universities and junior
colleges--have done a lot of research on the population and the
business and the impact on the economy. So, may I suggest that
you bring them as partners, because they have already done part
of it if not most of the research that might be able to help
you, and you may be entering into some kind of agreement with
them to be able to add another segment to be able to provide
what you need.
Ms. Alvarez. I think that is good advice. In some cases, we
may be doing that already, but I think we need to expand it.
Thank you.
Ms. Napolitano. Thank you.
Ms. Jones. Don't go away Sherrye. Before you leave, I want
to ask you a quick question.
Before I ask the question of you, thank you, Madam
Chairman.
Chairman Talent. The gentlelady from Ohio is recognized.
Ms. Jones. Oh, you are back. See, you leave for a few
minutes.
Mr. Chairman, ranking member, Director, on behalf of the
11th Congressional District of Ohio, thank you for the support
that you have given me in the many--in the couple programs that
we tried to do with regard to small business in the district,
and I continue to look forward to working with you.
The question I wanted to ask of you, Ms. Henry, was in Ohio
the Women's Business Centers are in Columbus and where else?
Ms. Henry. Well, we have a network of about seven operating
centers. They are all graduated centers, Congresswoman.
Ms. Jones. Okay.
Ms. Henry. They have not been funded by the SBA for a
number of years now.
Ms. Jones. Okay.
Ms. Henry. They are all eligible because of the
sustainability legislation that was enacted in the last
session.
Ms. Jones. Make it plain to me, what are you telling me?
You are saying they are graduated but----
Ms. Henry. The program was set up by the Congress to
sunset. All of the grants were at first only for 3 years, and
it was extended to 5 years, and then last session the Congress
passed sustainability legislation, which now allows SBA to
recompete and refund a limited number of the network of
graduated centers. We don't have enough money to refund all of
them, but we expect to have about 12 graduated centers refunded
by the 1st of June.
Ms. Jones. So, in this budget the process is done. Okay.
Thank you very much, Sherrye.
My question goes to the issue of other agencies
administering some of the loan programs and other type of
programs that provide capital for small businesses. My question
is have you assessed their success as compared to the success
of SBA when SBA administered those programs? And if you have,
could you provide, at least I am interested for my district,
are they doing better, are they doing worse, what could happen
to improve it? Because very often, we do something to improve
or cut down on the administration process, but its result is to
have it not be advantageous to the small businesses themselves.
I have no knowledge one way or the other, but I think it might
be a useful evaluation for SBA as well as the Committee.
Ms. Alvarez. First, let me say that SBA is the premiere
lender to small businesses in the United States.
Ms. Jones. Yes.
Ms. Alvarez. We believe just by virtue of our experience,
and as I think you saw with our presentation, as we modernize
that we are on the cutting edge. And our numbers, the fact that
we are projecting $20 billion in overall activity, including
leveraging of private capital in the year 2000, is a success
story that I think can't be told with respect to small business
anywhere else.
Charles, you may want to comment. Obviously, the Department
of Agriculture has a program that addresses small business
needs in the agricultural area; HUD has its version of our
program.
Ms. Jones. Maybe my question wasn't clear. The question I
am raising is that at some point SBA decided to allow other
people to certify a business for a loan, like banking
institutions and the like. And I am asking have you assessed
whether or not, now that that certification happens in an
institution other than SBA, whether or not there is an increase
in funding for small businesses or a decrease based on the move
to another agency? I didn't mean--I think you are doing a
premiere lending operation as well, but I am just trying----
Ms. Alvarez. You are speaking about the contracting. That
is not you, Charles; that is James.
Ms. Jones. I thought maybe I wasn't clear in my question. I
apologize for that.
Ms. Alvarez. We have always been the agency to certify to
8(a) eligibility, for example, and so we have tremendous
experience in that area. We still are the agency who will
certify you for small, disadvantaged business status. But in
addition--oh, okay, now, Greg hands me this note. He says,
``No, she really means the banks.''
Ms. Jones. Yes, exactly.
Ms. Alvarez. So, we are not talking about small,
disadvantaged business. We are talking about PLP, preferred
lenders.
Ms. Jones. Exactly. Maybe I should have used your term.
Ms. Alvarez. All right. We are just into this jargon here.
Okay, I am going to turn this over to Charles to talk about how
the Preferred Lender Program is operating. We obviously create
the standards, and we review them for compliance to ensure that
they are meeting our missionobjectives as well as our policy
objectives.
Charles?
Mr. Tansey. Yes. It is a tremendously successful program. I
think about 60 percent of our total loan volume is done right
now under the PLP, the Preferred Lending Program. We do approve
eligibility at this particular point, but, essentially, they
are approving the credits under their own credit criteria in
light of guidance.
Ms. Jones. I understand that, and what I am asking----
Ms. Alvarez. Your question is are they really reaching the
people who need the help.
Ms. Jones. I am just asking have you used an evaluation to
determine that it is working as well as we conceptually think
that it is? And I am suggesting that maybe what we need to do
is take a look at that, and then maybe go to some of the
institutions and say, ``Well, why is the rate in 1999 less than
it was in 1998 when we have an increase in businesses
happening? What are you doing to keep people from being
involved in the process.'' I hope I am making sense.
Ms. Alvarez. Yes, it makes total sense.
Ms. Jones. Okay.
Ms. Alvarez. Yes. Do you want to comment?
Mr. Tansey. We are in fact doing that. Some of the
recommendations that we are putting forward right now, for
example, the 90 percent guarantee, comes directly out of our
discussions with banks as to what they need to do in order to
pursue the kinds of goals that we are looking for.
Ms. Jones. I am raising the question, because in my
district--I am on Banking and I also am on Small Business,
because I would like to know what the banks in my area are
doing, and if they are not doing what they ought to be doing,
then I want to have an opportunity to sit down and have that
discussion.
Ms. Alvarez. Well, they are here today. I hope you are
going to stay and ask them these questions.
Ms. Jones. I wish I were. They are not here from my
district.
Ms. Alvarez. They are hearing it. Well, we have national
representatives, and I am sure that Tony and others will be
happy to respond.
I think you are right. We are working to increase the
guarantee, because we have heard from them that that would make
a difference. We have set up SBAExpress, because we heard that
if they could only use their own applications, they would be
willing to accept a 50 percent guarantee, because it would make
it so much faster. That is for smaller loans, because we are
focused on smaller loans. We have the Community Express pilot
in which these same category of lenders are not only making
loans but they are providing technical assistance at their own
expense. We have had an ongoing discussion with them about what
they need to do to meet the mission objectives of the SBA. And
I am glad you are saying this with them present, because we say
it all the time.
Ms. Jones. I appreciate your responses.
Chairman Talent. If the gentlelady will suspend just a
second. Mr. Wilkinson----
Ms. Jones. I am sorry.
Chairman Talent. Oh, no, not at all. Mr. Wilkinson is here,
and unless there is an objection, I don't mind him answering a
question or two. Ms. Tubbs Jones, you are going to have to
leave, right, so you can't stay for the second panel?
Ms. Jones. Yes, sir, unfortunately.
Chairman Talent. We won't open this up to a huge--because
other members--but I am sure you don't mind, do you, Mr.
Wilkinson, going a little ahead of time and answering a
question or two?
Mr. Wilkinson. No, I would be happy to.
One of the issues that I raised in my testimony, and it has
been discussed here today somewhat, and that is the subsidy
rate estimate. And it has been our position that the
overestimate of the defaults in the model has been one of the
reasons contributing to some of the changes we have had to make
in the program.
If we go back to 1995 when Low Doc Program was rolled out
and the 90 percent guarantee, everything was rolling along
fine. We had to make some program changes to bring the subsidy
cost of the program down, and we moved from a 90 percent
guarantee to an 80 percent guarantee, and the loan volume since
then has gradually fallen off.
That is one of the issues we need to look at: How can we
get the subsidy rate cost down in line with the appropriations
that we receive? And appropriations have been dwindling. The
subsidy rate has not fallen, so the ability for lenders to
propose and implement small loan incentives has been very
difficult. And I think that is one of the reasons why we need
to keep focusing on the default estimate in the subsidy model,
and we need to have a discussion, as I pointed out in my
testimony, about a subsidy rate floor. What is the role of the
Federal Government going to be in the loan programs? What level
of Federal funding will we get? Because as funding goes down
and the subsidy rate doesn't move down, that means we have got
a smaller program or we have to raise fees or take away program
incentives.
Ms. Jones. And I thank you, Mr. Wilkinson for that
response, but that is the point I am trying to make: It might
not be a bad idea to take a look at that and say, ``Hey, how do
we adjust--not hey--how do we adjust that to the point that we
can''--that is not in the record, right? Strike that. Lawyers
can do that. [Laughter.]
Anyway, such that we are really moving down the path of
helping small business. And that is my point.
And, Mr. Chairman, Mr. Wilkinson, I thank you. My
questioning is done.
Chairman Talent. The gentlelady raises a very good point.
One of the problems is that, and in fairness to Mr. Wilkinson
who did step up unexpectedly there, we do send a mixed message,
and Congress does it, and the executive branch does it. We say
we want you to get more money to small businesses, more money
to low-income neighborhoods, more money that is a riskier loan.
At the same time, we want the subsidy rate to go down, and we
want the default rate to go down, and we want you to square the
circle, and it does put them in a little bit of light, but if
we don't put them under some pressure, we don't again make the
point that we would like to have this done.
The gentlelady from New York had another question or two, I
think.
Ms. Velazquez. Yes. Ms. Alvarez, when the HUBZone Program
was designed, you, Former Ranking Member LaFalce, and I, we
worked very hard on ensuring that this program did not
interfere with the 8(a) Program. So, I would like for you to
clarify for the record what the order of procurement preference
is for the HUBZone.
Ms. Alvarez. Fine, and I will also ask James to join me
here.
It has now been almost 2 years since we were engaged in
discussion about creating a new program called the HUBZone
Program, Historically Underutilized Business Zones. And at the
time, one of the concerns that was foremost for the
Administration as well as for Members of Congress was what
effect this would have on the 8(a) Program. Would it have a
damaging effect on the 8(a) Program? That really dominated the
discussion apart from the discussion about the virtues of the
HUBZone Program, which are many.
We got--we had some very serious discussions, and there are
letters on the record attesting to those concerns, and one
letter in particular, which I wrote to, at the time,
Congressman LaFalce, stressing that we would protect the 8(a)
Program. We then put forth, as I said, almost 2 years ago
proposed regulations. In those regulations we presented an
order of preference, and the order of preference had 8(a) at
the top of the list, because we wanted to ensure that 8(a)
would have the first priority in terms of receiving contracts
even within the context of the HUBZone Program.
We put it out for comment. We followed the appropriate
process, and, frankly, didn't get much in the way of comment
that challenged the order of preference we proposed. We went
ahead and we implemented it. And, to date, we have seen that
there have been HUBZone opportunities for 8(a) and non-8(a)
firms. We think that the order of preference protects the
interests of the 8(a) Program, of the 8(a) companies, but at
the same time it makes it possible for non-8(a) businesses to
obtain HUBZone contracts. We have seen it already; it is
happening. And that is really the status right now. The current
order of preference does protect 8(a), but I don't think it
creates any obstacles for non-8(a) businesses.
Ms. Velazquez. Yes, so that means it will not change.
Ms. Alvarez. We are not changing it. Someone else might
decide to change it, but we are not changing it.
Ms. Velazquez. I want to send a clear message that we
worked out a compromise, and I think it is 2 years too late for
other parties now to be challenging the order of preference,
and I just want to make it very clear that it was a compromise
that was worked out between this Committee and the Senate side.
Ms. Alvarez. Yes. I agree.
Chairman Talent. I recognize the gentleman from Illinois.
Mr. Davis. Thank you, Mr. Chairman. I just have one other
question I would like to ask the Director.
Ms. Alvarez. Yes, sir.
Mr. Davis. In terms of technical assistance, especially to
small, emerging business enterprises, how valuable does the
Department view that?
Ms. Alvarez. The smaller the business, the greater the need
for technical assistance. It is the reason why technical
assistance is a significant component in the Microloan Program.
It is the reason why we are so enthusiastic about PRIME, which
is totally focused on technical assistance. It is the reason
why technical assistance is a significant component of the New
Markets Venture Capital Program.
We just think that particularly with newer, smaller
businesses and in underserved communities, that it is not just
about the money. It is about helping people who have energy,
ideas, willingness, giving them tools to succeed. And, so we
can't stress enough how important the technical assistance is.
We have seen the success of technical assistance nationwide
with the Small Business Development Centers, with the SCORE
volunteers, with the Women's Business Centers, with the
Business Information Centers, with One Stop Capital Shops--in
each case it is really a different kind of support for a
different set of needs. There may be times when it appears they
are overlapping, but, overall, each one of these programs
really targets the needs appropriateto different businesses at
the stage of their development.
Mr. Davis. Thank you very much. I understand that you have
taken the position that I like, that if you give a person a
fish, they might eat for a day----
Ms. Alvarez. That is right.
Mr. Davis [continuing]. But if you teach them how to fish,
then they can have a business for a lifetime. So, I thank you
very much.
Ms. Alvarez. Thank you.
Chairman Talent. Okay. I have a few more questions, and
then we can go with the next panel.
Perhaps you want to have Mr. Walter address this; I don't
know.
Ms. Alvarez. All right. Greg, come on up here.
Chairman Talent. But the question that was raised initially
about the subsidy rate and how far back we go in looking at
experience on defaults.
Ms. Alvarez. Fourteen years.
Chairman Talent. Yes. Which I understand is the average
maturity of the loans.
Ms. Alvarez. Correct.
Chairman Talent. So, the idea there is that we want to go
back at least as far as it takes, on average, to dispose of
loans. Is that the theory behind it?
Ms. Alvarez. Yes, yes, so that we can watch the performance
throughout the life of the loan.
Chairman Talent. And I am getting at the difference between
the agency's views and OMB, because I think OMB is a looming
presence behind a lot of this, and I don't like the idea of the
programs this Committee oversees, which we all agree are
terribly important, being used as billpayers for other parts of
the Treasury, and I will just lay it--I think that is what
happens, and I think OMB structures it that way.
Now, a lot of these loans are prepaid, aren't they?
Mr. Walter. That is correct, Mr. Chairman.
Chairman Talent. Which means that, yes, maybe the average
maturity is 14 years, but that really isn't the average in
terms of disposing the loans, because if you included the
prepay, the average life of the loans is less than 14 years.
Mr. Walter. Many of the loans we do make have maturities up
to 25 years, especially in the larger real estate-backed loans.
So, the 14 years is the average length of time a loan is
outstanding.
Chairman Talent. So, in this case, average maturity is the
same thing as average life of the loans?
Mr. Walter. Not necessarily. It is just a mathematical
average, so it isn't necessarily the same thing.
Chairman Talent. Because my understanding is that the
average life of the loans is less than 14 years. And if it is--
in other words, if we went to figuring it based on how far back
we went based on average life rather than on average maturity,
it wouldn't be 14 years. And we are all in agreement that if we
don't have to go back that far, then the subsidy rate doesn't
have to be this high, and that frees up dollars for other
things. I mean, what is your opinion on that, either the
Administrator----
Mr. Walter. I think we would be happy to look at that and
see if there is a significant difference between the two and
enter into discussions with OMB and see whether there is any
ability to look at that.
Chairman Talent. Now, if there were a difference who would
have--would you have the authority to change to average life as
opposed to average maturity on your own or would you have to
get OMB's approval for that?
Ms. Alvarez. OMB.
Mr. Walter. We would have to get OMB concurrence on that.
Chairman Talent. I want to ask, could we change that here
or would that generate a jurisdictional problem with the Budget
Committee? Yes, we have a looming presence here too, so I
understand your problem.
Ms. Alvarez. So, you can relate.
Chairman Talent. I mean, let us be clear. It would be one
thing if because we were so conservative in figuring this
subsidy rate we had an extra pool of money which we put back
into our programs; that would be one thing. But it goes to the
Treasury and is then spread out all over the budget, and if you
can figure out a way to get that changed, I would be very
interested in hearing, I can assure you of that.
Ms. Alvarez. As Greg says, it would require changing the
Credit Reform Act.
Chairman Talent. Yes, that is unfortunately what we have
been told, although the other way to do it is just informally,
between the two of us institutionally, put OMB on the spot with
the small business communities to get them to change. I mean,
for example, the 90 percent default rate and I support--excuse
me, the 90 percent subsidy for certain kinds of loans, which I
support, that isn't in strict keeping with their standards. In
other words, they can deviate when there is enough pressure on
them to deviate, and that is true, isn't it?
Ms. Alvarez. Well, I think that from the standpoint of
judging the safety and soundness, they judge that it will have
practically an insignificant effect raising the guarantee to 90
percent on the cost of the program. And, so the judgment is
based on the fact that it really doesn't have a noticeable
effect on the program.
Chairman Talent. Which I think if they would let us make
that argument, we can make that argument, I think, for a number
of these other programs. And this gets to something Ms. Tubbs
Jones was getting at. I think the experience of the agency and
this Committee in overseeing these kinds of programs is greater
than the experience at OMB or Treasury or any other. I just
think we do it better. You have been living with it from the
beginning. This Committee has been living with it from the
beginning, and I don't think we are irresponsible. I would not
support a lowering of the subsidy rate--excuse me, a--yes, a
lowering of the subsidy rate to a point where it would be
risky. I don't want to impair all the credibility of these
programs. I think they are the ones, the ones outside this
Committee and this agency, who are adjusting these rates for
their own purposes, either to make money or for whatever other
reasons are at stake.
And, so one of the reasons I was grateful to the ranking
member for making sure that we still had oversight over PRIME,
because it isn't--to me, I don't hesitate--I have waived
jurisdiction over stuff that we had jurisdiction. I want to get
things done. So, where I felt it was appropriate to do, I have
done that. This is not a turf battle. We just do this better
than they do it. And I have pretty much pursued that course
pretty consistently, I think.
Would you explain to me more specifically than I now
understand it what the BusinessLINC Program is?
Ms. Alvarez. BusinessLINC--and that is not Greg's area----
Chairman Talent. No. If it is all right with you, you are
excused, Mr. Walter.
Ms. Alvarez. BusinessLINC actually falls within our New
Markets Initiative. It started out, in fact it is underway
right now, as a collaboration between big business and small
businesses. We have been working with the Chamber of Commerce
nationally. They have set up branch offices in different parts
of the country to create a mentoring networking and in some
cases a business relationship with smaller businesses. We think
that it is proceeding in a really promising way, but we
recognize that we are going to need some resources if we want
this to take off, because at some point we need to provide
support.
The formula is big business, small business, and not-for-
profit community development organizations that help make this
marriage occur. These not-for-profit organizations, these
economic development organizations, can't just sort of drop
everything else they are doing to continue to do this kind of
mentoring without some support, and we also need to develop
some kind of an infrastructure to institutionalize it. That is
why we need the funding for BusinessLINC. There is a lot of
support from the big business community, but we need to help it
happen.
Chairman Talent. Right. I am all for mentoring. I think,
actually, mentoring is a very promising way of getting small
businesses to the point where they can participate on their
own. But as you know, this program is not authorized, and we
are not even sure exactly what it is and how it operates. And I
am always a little concerned when the agency requests a
substantial appropriation. The staff tells me $6.6 million on a
program that isn't authorized. So, this is an area that we are
going to want to go into more with you and with staff to make
certain that this--particularly, does the money go to the
larger businesses?
Ms. Alvarez. No, it doesn't. And we didn't seek
authorization, because we are not providing grants where we
would certainly come before the Committee for authorization. We
are really going to be allowing these organizations to compete
for contracts to help create the--mediate and create the
relationship between the big and small businesses.
Chairman Talent. When you say these organizations----
Ms. Alvarez. In other words, not-for-profit organizations
who would have expertise in the business development world so
to put together the big and the small businesses and monitor
and move along these relationships.
Chairman Talent. But they will be applying for grants,
won't they? How else are you going to----
Ms. Alvarez. No, we won't do it through grants. It will be
a competitive contracting situation, which is what we do now.
We have the authority to do that now in most areas. That is why
we didn't----
Chairman Talent. So, this will be--can you give me an
example of maybe the kind of organization that would apply for
this contract?
Ms. Alvarez. James, do you want to share some examples
here?
Mr. Ballentine. Mr. Chairman, one of the good examples that
we often use is related to an organization that is affiliated
with the Washington Board of Trade here in D.C. It is called
the Community Business Partnership Project. They launched such
an initiative that we are dealing with now with BusinessLINC 2
or 3 years ago. Today the project really works with 45 local
businesses, and they, as the Administrator said, attempt to
match those businesses that they work with, the small
businesses, with their already established large businesses in
the community.
As a result of these relationships that they have
established in working with both sides, the large and the small
businesses, they have created 60 jobs by just bringing these
small businessestogether with the large businesses for
technical assistance and for sub and prime contracting opportunities.
While SBA has many outlet points, we don't have this type
of expertise, but these economic development type
organizations, such as the Community Business Partnership
Project, have this expertise. What they really need is seed
money to get this started to do this.
Chairman Talent. I get handed a lot of notes too. So, would
this be like a community development organization might do this
or a local chamber or any of the above?
Mr. Ballentine. Exactly.
Chairman Talent. And, so it sounds kind of like a grant to
me. I mean, what do you put out specs for a contract in a
particular area? You want to up this mentoring in a city or
something, so you put out specs for that city?
Mr. Ballentine. Exactly, under a contract.
Chairman Talent. And then they bid for the contract.
Mr. Ballentine. Yes.
Chairman Talent. So, this would be local, like in regions
you would do it. You identify regions that need----
Mr. Ballentine. We would identify regions, particularly
those in low- and moderate-income areas that, again,
traditionally do not have this type of investment opportunity
and do not have many large businesses working in those
communities. So, we would identify areas.
Chairman Talent. Have you got regulations about how this
operates or something in writing for us to look at?
Mr. Ballentine. We would be happy to meet with you and your
staff as well as the staff of Ms. Velazquez to go over how we
would lay out the project.
Chairman Talent. How much has been appropriated for this in
the past?
Mr. Ballentine. This is a new program.
Ms. Alvarez. This is brand new. This has been operating as
a voluntary initiative.
Chairman Talent. Okay. So, you have done it out of existing
funds without making it----
Ms. Alvarez. Yes.
Chairman Talent. Is this a separate line item this year? Is
this the reason this has come to my attention for the first
time?
Ms. Alvarez. Yes, this is the first time. We think that
there has been enough demonstrated potential here that if we
were to get some funding, we might really have it take off.
Chairman Talent. All right. Staff tells me you got $1.5
million last year. Is that a separate item or was that----
Mr. Ballentine. We received $1.5 million, but the
BusinessLINC Initiative was linked to the New Market Venture
Capital Initiative which did need authorization. In Fiscal Year
2001, we are not seeking authorization, because we are simply
not going through the grant process.
Ms. Alvarez. It was a different proposal, Mr. Chairman.
When we first started this as a voluntary effort, it was
conceived by James' predecessor, Richard Hayes, as a grant-
making program, so we sought authorization as part of the New
Markets Initiative. But when we revisited that issue, it didn't
appear to me that this needed to be a grant program, that this
could be a competitive contracting situation, and so we
delinked it, and now we are requesting $6.6 million.
Chairman Talent. You delinked it from NMI.
Ms. Alvarez. Yes.
Chairman Talent. Okay. Well, I just want to, just to let
you know up front, I believe in mentoring. I certainly don't
want to inhibit the agency from taking these kinds of
initiatives. But, for example, I am just sitting here thinking
we don't have any standards for measuring results or
accountability or anything like that. If the program is
unauthorized and we don't have from the agency some set of
standards that you are going to follow----
Ms. Alvarez. We will be happy to sit down with you and any
members of the Committee and share with you our approach, our
standards, the plan, and get your input on what makes sense.
Chairman Talent. All right. Well, I am going to direct the
staff to do that on a quick basis, because I don't want to hold
up this authorization bill. But I may--and I haven't talked
with the ranking member about this, but we may want to do
something in this bill on this, because you are going now to a
pretty significant amount of money. I mean, $6.6 million. We
talked about some of the needs that haven't been met, and I
want to make certain that we know how this ducktails with other
programs, what areas of the country you are picking to go for,
what the standards are for the specs, all that sort of stuff,
and we don't really have that yet. So, I think we are going to
have to look into that.
I am told that the other services line item in your budget
increases from $44 million to $85 million. Can you give us a
summary of the items that were covered under that and why you
need an additional $40 million for that?
Ms. Alvarez. Greg is telling me that these are the non-
credit programs.
Mr. Walter. Mr. Chairman, a number of the non-credit
programs are not executed through grants, but we use contracts
and other vehicles to do that. If that is the case, then they
would be shown in the other services line instead of the grant
line. So, a lot of the increases you see there is for those
non-credit programs that you have heard us talk about today.
Chairman Talent. Okay. Give me some examples now of what
you are talking about, so when you say non-credit----
Mr. Walter. For instance, HUBZones is an example. We have a
specific line item for HUBZones, and to the extent funds for
the HUBZone Program are spent as a contract or things under
object class 25, as defined by OMB, they would be shown under
the other services line. So, a significant portion of the
HUBZone money would be going out in contracts to do outreach
and other types of things, so those funds would be shown under
the other services line.
Chairman Talent. All right. Do you have a breakdown of
which programs this extra $41 million is associated with so you
can tell us it is the contracts for HUBZones, it is the
contracts for PRIME or whatever it is?
Mr. Walter. Certainly, we can provide that to you.
Chairman Talent. Yes, I would be very interested, because,
again, we are talking about a significant amount of dollars,
$41 million.
So, you are saying reason having to do with how you submit
your budget, you don't include that in the line item of the
program with which it is associated.
Mr. Walter. There is a separate object class breakdown that
is required in the budget where you take the entire request for
the agency and break it by sub-object class. So, depending on
how the funds are spent, whether they are on compensation and
benefits or grants or other services or travel, we have to
allocate them into those various buckets. So, what you are
seeing is the allocation of the agency's budget into that
category called ``Other Services.''
Chairman Talent. Why the reason for the big jump this year?
Mr. Walter. Because of the increases that we are asking for
in the various programs, such as HUBZones going from $2 million
to $5 million. If the majority of that increase is in that one
object class area, you would see an increase in that category.
Chairman Talent. Okay, I am informed that there is a $41
million increase in other services. That is what I am talking
about. But, in addition, a $40 million increase in grant
subsidies and contributions. It sounds like two kinds of catch-
all categories. What is the difference between the two of them?
Mr. Walter. That is correct. It depends on how the funds
are actually spent by the agency. If we put them out in the
form of a grant, then they would be shown in the grant line. If
we put them out in the form of a contract, then they would be
shown in the other services line. So, what you are seeing in
the two categories is generally the total increase that we have
shown in the budget for the non-credit programs. For instance,
the PRIME Program, the $15 million, or the E-commerce Program.
Those types of programs would be distributed between the two
object-class categories depending on how we spend the funds.
Chairman Talent. Okay. Well, I would like that breakdown,
and we would like that expeditiously.
Mr. Walter. Absolutely.
Chairman Talent. And, also, I am told by staff, Ms.
Alvarez, that sometimes we have made requests subsequent to
these hearings for information, and it has taken some time to
get them to the Committee. Now, I was not given specific
instances, but figures like three months were given to me. It
took that much time to get requests answered from the agency.
That strikes me as too long. I am sure it strikes you the same
way.
Ms. Alvarez. Yes.
Chairman Talent. So, let us expedite information requests.
Ms. Alvarez. Yes, I agree, I agree.
Chairman Talent. I don't want to get anybody in trouble,
maybe I do. It just depends on----
Ms. Alvarez. We will talk later.
Chairman Talent. Okay.
We have this markup coming up very quickly, according to
the plan, and the ranking member and I would like to bring this
up next week. So, we are going to have to move pretty quickly.
We don't want to have to keep postponing this. But those are
some issues I think we need to address, because there is a lot
of money in those two areas I just covered.
Ms. Alvarez. Mr. Chairman, the overall increase in this
budget is $185 million over last year. And 1 percent of that
increase goes to the disaster funding, which we are fully
funding; 6 percent of the increase goes to new programs; 14
percent of the increase is to the existing traditional core SBA
programs. So, the majority--the largest part of the increase is
to our standard SBA programs and then to disaster, and really a
smaller fraction goes to the new programs.
Chairman Talent. I made one note to myself, which I can't
find because of all these other notes people have given me.
Where is the note about the NMI stuff I want to bring up? Don't
take my note until I am done with it. [Laughter.]
Let me go a little bit into your presentation on NMI just
to make some points. And we, as you know, are working up that
bill with you on this.
Ms. Alvarez. I appreciate that.
Chairman Talent. You made a point measuring--or it may have
been Mr. Ballentine who made this point, I don't know--about
the number of jobs that were associated with NMI.
Ms. Alvarez. Yes, that is right. That was a point I made.
Chairman Talent. Now, is it your anticipation that we would
measure performance from these NMI investments by jobs created?
And let me tell you why I would have some concern about that.
We all expect and hope and would be very pleased with job
creation from these investments in these low-income areas, and
there will undoubtedly be some.
Ms. Alvarez. Yes.
Chairman Talent. I think it is a mistake to overemphasize
that going in because of all the collateral benefits that we
get from small business creation in these neighborhoods, even
if there isn't an immediate or a very substantial impact on
jobs in the neighborhoods right away. In part, just renewing,
if you will, the infrastructure of those neighborhoods and
having the functioning small contractor with his headquarters
in that neighborhood is a tremendous plus even if you don't go
out and hire right away a bunch of folks from the
neighborhoods. Obviously, we hope that happens, but it means
that when the child walks to school in the morning and is going
by the drug store, says hello to the guy--you see what I am
getting at? And, so give me your thinking on that. You are not
tying this directly to job creation.
Ms. Alvarez. When I made the presentation and talked about
the job creation, I used the word ``long-term,'' because in the
New Markets Venture Capital Program, you are talking about
investments in growth companies but companies that will need
significant involvement, hence the TA component on the part of
the investor. These are companies that are already a going
concern, that are promising, but they really need expertise,
hands-on management to really make them take off. And about
patient capital for these New Markets ventures, we are talking
about not paying interest for a period of 5 years. We want to
allow these companies an opportunity to produce a return, and
it is not going to happen immediately. So, it would not be wise
to judge the success in terms of immediate job creation.
In studying the results produced by the community
development venture capital companies, they look at job
creation ultimately as one of the outcomes of telling the
success story, and we should look that way too.
Chairman Talent. Yes, no question. I think--tell me if you
think we are in disagreement here. I don't think we are.
Ms. Alvarez. No, I don't think so. I totally agree with
you. I made the point, though, because if you look long-term
and you look at the investment, it really is a very modest cost
to create those jobs.
Chairman Talent. I think that is true in the longer-term.
One of the gripes I have about the current enterprise-owned
system is that the only tax relief in there is for hiring folks
from the neighborhood, which is a very good thing to do, but
people don't open businesses to hire employees. They open
businesses to eventually make money to support themselves, and
if we lose that focus, if we go wrong--one of the tricky things
about this is if you go wrong with the focus at any point, the
program can end up being ineffective.
So, as long as we are in agreement that, yes, this is a
benefit we expect to enjoy in the longer-term but it is not a
criteria for performance measurement necessarily in the short-
term, then we are in agreement. I do agree totally with you
that not only will it create jobs, maybe even more important,
be a model for entrepreneurship for young people in that
neighborhood. So, even if it doesn't create a job, they go
start their own business then, which----
Ms. Alvarez. That is right, that is right.
Chairman Talent. Now, another point you mentioned about NMI
investments and you said, okay, one of the reasons the program
is expensive is that we do expect losses. I think you said
that, didn't you?
Ms. Alvarez. We are using the most conservative estimates.
The analogy would be the kind of subsidy rates that we
estimated for the SBIC Program not too long ago and in the
Microloan Program where we started off using very conservative
estimates, and over the course, really, of a relatively short
amount of time, we saw in actual experience that we were too
conservative. In fact we didn't require as much. And we expect
that those experiences will be not unlike what we will
experience with the New Market Program.
Chairman Talent. You said there is going to be--I think you
said it is going to be mission-driven rather than profit-
driven.
Ms. Alvarez. Obviously, the investors will want a return on
investment. This is not throwing away money, but to the extent
that they won't expect the same kind of return that the SBIC
investor would expect, it is mission-driven. To the extent that
we are talking about patient capital so that you don't expect
an immediate return but you expect it down the road, and to the
extent that these New Markets Venture Capital Companies will be
located in those communities, they will know those communities
and will be investing in the well-being of the community not
simply their own profit motive. That is the distinguishing
characteristic.
Chairman Talent. No question about it. Would you agree with
me-- I hope you do--that it is a very fine line we have to walk
here, because one of the--where something is investment-driven
in the sense that people expect to go in business from which
the investors get a rate of return, you have a hedge against a
lot of things that you don't want entering into that program.
Ms. Alvarez. Correct.
Chairman Talent. Because once decisions are made other than
on those criteria, unless you are very careful, you start
having to declare what is the mission? Who gets the investment?
And I am not going to be here after this year, and--well, I
don't know whether you will still be in control of the agency
or not--but we don't know what will happen a year, 2 years, how
decisions will be made if they are not made based on we expect
to have a working, functioning business there that is
eventually producing for the investors. Do you see what I am
saying?
Ms. Alvarez. Absolutely.
Chairman Talent. It isn't so much that profit is the key.
It is that profit is a way of not letting other considerations
enter into it--who knows somebody and therefore gets the
investment.
Ms. Alvarez. There is a profit motive, and, I don't know if
you want to comment, Don Christensen.
Chairman Talent. Yes, I know--this is worth a little extra
time, and I know the members have been patient, but this is an
important program, and if he would like to comment, I would
like to have him comment.
Ms. Alvarez. These programs are meant to produce a return
on investment, and they are meant to be investments in growth
companies.
Don.
Mr. Christensen. Yes. I am Don Christensen, the Associate
Administrator for Investment.
Yes, a fundamental concept of the New Markets Venture
Capital Program is that it is sustainable. If you have an
investment program, to be sustainable, you have got to have a
profit. Now, the difference that the Administrator is referring
to is our SBICs target profitability of between 20 to 30
percent per year. Those profits will not be available in the
LMI areas that we are trying to address. So, for those funds to
be redirected toward LMI areas, there has to be a mission
component. It is what we speak of as a double bottom line, that
you make a profit, but you also look at some of what you have
contributed to the community. And the contribution is, as you
pointed out, more than just employment.
One of the things we speak of is that we are trying to
build wealth in the community. The wealth is both economic,
being able to stand up and be proud of your community, to feel
it is safe. These are the things that small business can make a
very significant contribution to.
Chairman Talent. Now, the contribution to the community,
isn't the establishment by somebody of a functioning small
business in a community that doesn't have a good skeleton of
that, that is the contribution. We are not going to ask them,
Okay, in addition to this, you have to attend every board of
alderman meeting and fight for community policing in your area
and this sort of thing. We assume they will do that, because we
want their businesses to be successful, right?
Mr. Christensen. Yes, sir.
Chairman Talent. Okay. That is fine. I mean, I hear what
you are-- if what you are saying is we are doing what all our
programs do at some level is skim below where the market might
generate on its own----
Ms. Alvarez. Exactly.
Chairman Talent [continuing]. And get some others that are
slightly riskier but will be sustainable, and that is the
mission you are talking about. That is the line I think we need
to walk.
Ms. Alvarez. And I think that word sustainable is very
important, because it means that you expect something.
Mr. Christensen. We expect earnings of the order of 8 to 10
percent per year for the new market investment.
Chairman Talent. I want this to work. I want it to work. I
don't want any 5 years down the road some huge--some expose on
20/20 from the same people who are screaming now that we need
to do this, and then a few years from now they say, ``Oh, it
didn't work, so-and-so got this.'' So, as long as your
conscience of that, we are all on the same page. We may
disagree on the details, but we are going in the same
direction.
Ms. Alvarez. That is right.
Chairman Talent. That is, I believe, all I have unless you
have another note to pass to me. Do you have any more notes or
questions? Okay.
I thank you all. It has been a very good hearing so far,
and we have another panel.
Ms. Alvarez. Thank you, sir.
Chairman Talent. Thank you, Ms. Alvarez.
Mr. Davis. Mr. Chairman, I have a young brother traveling
with me today. I just want him to be----
Chairman Talent. Well, why don't you put his name on the
record, if the gentleman wants to do that?
Mr. Davis. His name is Greg Creole. He is part of a program
called Talent Search, and what they are doing is growing
cucumbers. [Laughter.]
Chairman Talent. Well, thank the gentleman for introducing
him.
We will have the second--he looks sufficiently below the
constitutional age that I don't thinkthe gentleman from
Illinois has any concerns from him in the short-term.
[Recess.]
Chairman Talent. We have already had a taste from Mr.
Wilkinson, and our appetite having been wetted now, we are
eager to get onto the second panel, who all I think are
veterans except Ms. Hayashi. This is your first appearance;
welcome.
Other than Ms. Hayashi these are the usual suspects. We
have rounded them up and gotten them before the Committee.
All right. Rather than introduce everybody and then
reintroduce them, we will just start off with Mr. Tony
Wilkinson, who is the president of the National Association of
Government Guaranteed Lenders.
STATEMENT OF ANTHONY R. WILKINSON, PRESIDENT, NATIONAL
ASSOCIATION OF GOVERNMENT GUARANTEED LENDERS
Mr. Wilkinson. Mr. Chairman, Ms. Velazquez, thank you for
inviting us here today. We appreciate the opportunity to
testify on SBA's budget request.
You have my written statement for the record, so in light
of the fact that we are running a little late today I am going
to abbreviate my testimony.
Chairman Talent. Well, as to that, let me just say that
this is the only hearing we are going to have specifically for
this purpose, and I felt it important to give everybody the
full opportunity. So, whether we are late or we just had a full
exposition, I think it was necessary.
But I do appreciate you all summarizing. You all have
testified many times, so just tell us what you think is
important.
Mr. Wilkinson. Sure. First, I want to thank the Committee
for your consideration and passing of H.R. 2615 last year. We
look forward to that moving forward this year. As you know,
that includes a prepayment provision that we think is necessary
in our program.
The Fiscal Year 2001 budget request confirms that we are
incurring higher costs in this program due to prepayments.
Specifically, the subsidy rate increase is primarily the result
of an increase in the loss of fee income due to prepayments and
the Treasury earnings on these fees.
Chairman Talent. What luck have you had in convincing our
counterparts in the Senate of the need for change in that area?
Mr. Wilkinson. We continue to have dialogue. We are trying,
we are trying.
Second, I raise the issue of our funding shortfall for this
year, and we are pleased to hear today from Administrator
Alvarez that efforts are being made to address the 7(a)
shortfall.
Next is the Fiscal Year 2001 budget request, and we agree
with SBA that we will need $11.5 billion net for the 7(a)
Program, as we estimate that to be the demand for the program
next year. We detail our recommendations for authorized levels
for 2001, 2002, and 2003: $14.5 billion for 2001, $15 billion
for 2002, $16 billion for 2003. These amounts should be
sufficiently above the current budget levels to provide
flexibility of the Appropriations Committee should a change in
the economy necessitate consideration of a higher level of loan
guarantees without the necessity of authorizations being
changed.
I would like to thank SBA Administrator Alvarez and her
staff. We have had an excellent ongoing working relationship
with her and her staff. I don't want the discussion of the
subsidy model and the excess--the conservative estimate of
defaults in the model to overshadow the fact that we have had
an excellent, ongoing working relationship. We are pleased with
the budget request; shows that the 7(a) Program continues to
perform well. The recovery rate on defaulted loans remains
high, but unfortunately the subsidy model does include a
default estimate that we continue to believe is materially
overstated.
And, so I thought I would just spend a minute on what
happens--or some of the discussion that occurred this morning.
I am no expert on this entire budget package, but in looking at
the budget for Fiscal Year 2001, there is a line item on the
status of guaranteed loans. It shows that the outstanding
balance of guaranteed loans at the end of the 1999 was $36
billion. We did $9.5 billion last year and roughly $9 billion
each the 3 years before. So, my simple math tells me that we
have spun the entire 7(a) Program out in 4 years.
I know that is simplistic, and that is not the right answer
for the average life of the loan, but it is a lot less than 14.
It is probably more than four, but there is a number of
somewhere in between that better reflects what is actually
happening in this program.
So, I would hope that we could continue to have dialogue on
the estimate of defaults in the subsidy model. Perhaps your
staff can meet with the Budget Committee staff, a joint
hearing, a letter down to OMB, something to have a discussion
about what is going on with the default estimate.
I also heard Mr. Walter say today in his comments that they
thought the range of defaults was from 8 to 12. Yet, in the
model, they use 14.25. Why not at least the highest level of
the range they anticipate of 12. That was what I understand to
be about 34 basis points per 1 percent decrease in default
estimate. That is a lot of money to either reduce the subsidy
rate so we need less appropriations or we now have some subsidy
dollars to spend on small loan incentives. So, again, I hope
that we can continue to take a look at that.
Mr. Chairman, I raised briefly, when I was up at the table
earlier, the concept of a subsidy rate floor, and since we have
already gone through that once before, I won't do it again. We
would ask that that be considered.
And I would like to close today by saying that since this
will probably be the last time I appear before you as chairman
of this Committee, I want to thank you for the leadership that
you have brought to this Committee, and I appreciate the
bipartisan effort that you and Ms. Velazquez have brought to
Committee affairs.
[Mr. Wilkinson's statement may be found in the appendix.]
Chairman Talent. Thank you, Mr. Wilkinson. I have a lump in
my throat, I think.
Mr. Lee Mercer, president of the National Association of
Small Business Investment Companies.
STATEMENT OF LEE MERCER, PRESIDENT, NATIONAL ASSOCIATION OF
SMALL BUSINESS INVESTMENT COMPANIES
Mr. Mercer. Thank you, Mr. Chairman and Ms. Velazquez and
members of the Committee who will be considering the testimony.
And I would like to echo Tony's remarks regarding appearing
before you and working with you and your staff and the
bipartisan way in which this Committee has been run. It is
really a model for how legislation ought to be done, and I
think you are both to be commended.
The SBIC Program is in the best shape of its long history
and providing substantial money in equity investments and
subordinated debt investments to small businesses, $4.2 billion
in Fiscal Year 1999. If you did it on a calendar year basis, $5
billion in calendar 1999. More important than just the gross
number is the size of individual investments. You heard the
testimony from SBA about the private venture capital funds
investing at the rate of about $6 million, $7 million, and even
up to $10 million per deal, per investment.
For all SBIC investments, the average is about $1.4
million, but what is more impressive is the median. The median
is only $375,000, and for debt SBICs that are making
subordinated debt investments, the median drops down to about
$181,000. So, clearly, there are a substantial number of
transactions going on at the very lowest levels of capital
necessary.
This is true. About 34 percent of all SBIC investments last
year were made in companies that had been in existence for less
than a year, and if you raise that bar to 3 years, it jumps up
to over 50 percent. So, those are the companies that need--with
the exception of dot.coms that burn substantial amounts of
money, those are the companies that need these smaller levels.
The other interesting note is in the technology area, SBICs
probably invested about 27 percent in technology-oriented
businesses, and in the private world it is much higher of
course, mainly driven by Silicon Valley and other areas.
As far as----
Chairman Talent. Lee--and I would encourage the ranking
member also to jump in if she wants to. Unless she has a
problem, I will keep this informal. Is that because of
incentives or persuasion from the Government that your
portfolio looks different? Is that just the nature of the way
this investment operates?
Mr. Mercer. No, it is just the nature of the business. What
you have, I think, in the SBIC Program more than in the
strictly private funds is a couple of things working. One, SBIC
managers are always looking for a niche. They are profit-
driven, so they are looking for niches. They come from probably
more varied backgrounds than perhaps some of the managers of
the strictly private funds. They end up looking at probably
more Main Street businesses because of that, because of their
backgrounds. Also, they are investing much smaller amounts, and
that kind of drives them into more Main Street businesses also.
When you are managing a $500 million fund or even a $1
billion fund, like a private fund manager is, you are going to
have to be investing $10 million, $15 million, $20 million at a
time. So, the only way you are going to be able to put that
kind of money to work is to look for a business, typically a
technology business, that has a significant burn rate for
capital in its development years. So, those are some of the
things. It is just the market dynamics that are at work, and
good ones for small business and the SBIC Program.
As far as the--does that answer the question? We can pull
more statistics if you want, but does that get at the question?
As far as the budget is concerned, we support the budget
with what we understand to be the amendment that is going to be
coming from the administration. For participating securities,
they have proposed $2 billion which would cost an appropriation
of $26.2 million, and that level, which is a 33 percent growth
in available leverage for only a 7.8 percent increase in
appropriation, we think is well justified by the growth of the
program. All participating security leverage has been used for
the last 2 or 3 years. It is the program that has the steepest
growth rate.
With regard to the Debenture Program, although the budget
submission calls out for a positive subsidy rate of 0.78
percent, which would require a $3.9 million appropriation to
support $500 million in debentures, SBA and OMB have now
admitted that a simple mathematical error was done. I don't
want to get into an argument about what should be the subsidy
rate formula. We arenot--we just said to them, even using your
formula, it doesn't make sense. And they went back and checked their
math, and in fact there is no positive subsidy rate. In fact, the
subsidy rate fell by over a point, so it is a negative subsidy rate,
and we understand the OMB and the Administration will be proposing to
change the law that imposes the mandatory 1 percent interest that was
imposed in 1996 to reduce that for the Debenture Program this year to
0.88 percent for the leverage that will apply in Fiscal Year 2001. And
we would support that, obviously.
So, the availability of debenture leverage next year will
literally be driven by whatever the authorization levels are
that the Committee decides to insert in the language of the
reauthorization bill.
As far as suggested levels for reauthorization, in my
testimony I have said for debentures $1 billion in 2001, $1.5
billion in 2002, and $2.0 billion in 2003. For participating
securities, it would be $2.5 billion in 2001, $3.25 billion in
2002, and $4.0 billion in 2003. For participating securities,
clearly, the growth curve supports those numbers. On the
debenture side, although the utilization is nowhere near those
numbers, we feel that there will be--there are things in play
right now that may increase the likelihood that a greater
number of debenture--more debenture leverage will be used,
namely the zero coupon debentures that are not yet available
that will be available to SBICs for making investments in LMI
areas, and also the fact that last year Congress, with your
leadership, passed a bill which would make the use of royalty
agreements much more attractive to SBICs. Actually, they
weren't attractive at all, but under the new legislation they
will be. SBA has yet to issue their implementing regulations,
but when they do, we believe we will see more debenture use
there as well.
Importantly, I would like to draw your attention to the
four proposed changes to the Small Business Investment Act that
we have proposed. We have dealt with both your staffs on these,
so I don't want to spend a lot of time on them unless you have
questions of me, but one of the changes has to do with the
subsidy rate and allowing the administration to have continuing
authority, like in the 504 Program, to adjust the subsidy rate
when the model shows that it goes below zero.
The other three amendments pertain to the operations of
SBICs and, more importantly, to the resources that SBA has to
expend in regulating SBICs. In the first case, we propose that
SBA's definition of long-term, which they say is a 5-year
period, be reduced to be 1 year, and this would put, for all
SBICs, a definition that they have already made for companies
in LMI areas and that they proposed for their New Markets
Venture Capital Program. It is really just a recognition of the
fact that in this environment, as in tax law and accounting
law, the term ``long-term'' is denoted by a period greater than
1 year. SBA has recognized that for LMI investments, and they
should recognize it for the entire program.
The second is with respect to control of a small business
that has been invested in. SBA has a imposes a blanket
prohibition on an SBIC controlling a small company, having a
controlling interest in a small company that it invests in. It
then sets out four broad exceptions. You can take control for
up to 5 years where reasonably necessary for the protection of
your investment, if there has been a material breach of the
financing agreement, if there has been a substantial change in
the small businesses operations or such a change as intended by
the financing, and the SBIC and the investor group is providing
a major source of the capital, or in the case of a start-up.
So, you can see that what they have done is given four
exceptions that cover almost every conceivable thing you can
think of in providing financing to a growing small business.
So, what happens? SBICs are forced to jump through hurdles
to try to comply with the exception rules, and then SBA spends
an inordinate amount of time and resources when they go out to
examine an SBIC to make sure that all the exceptions have been
complied with, and the exceptions pretty much take up the
universe.
In the Gramm, Leach, Bliley Act, that bill recognizes it,
and for the first time, under that act, banks will be able to
have venture capital funds without regard to having an SBIC
license. This will be the first time in history that has been
allowed. In that act, the way they deal with the control is
they specifically say in the Gramm, Leach, Bliley Act that the
venture capital firm, the bank venture capital firm, can take
control of the small business during the investment period.
Well, SBA's exceptions permit it for up to 5 years which is
typically an investment period. So, we say that should be
changed.
And the final one is another one which is just technical in
nature which would permit SBICs to make tax distributions once
during any calendar quarter. The law right now says they can
only make it at the end of the calendar quarter. What happens
is that SBICs like to make distributions as quickly as they can
in order to make higher internal rates or returns for their
investors. So, they make a distribution as soon as they can in
the quarter, and then they make another tax distribution at the
end of the quarter. Well, each time they make a distribution,
they have to fill out sets of forms, and SBA has to review
them. So, we think that if you change the rule--and I think SBA
would be supportive of this--it would just, again, reduce time
and effort by SBA.
Chairman Talent. Lee, I am going to have to ask you to
suspend or we are going to miss the vote.
We will be right back.
I understand Mr. Wilkinson has to leave to catch a flight,
and neither Ms. Velazquez nor I have further questions,
although we may submit some to you in writing. So, thank you
for coming, Tony.
And we will be back in a few minutes.
[Recess.]
Chairman Talent. Okay. Mr. Mercer, by our timing you have
been on for 30 minutes, but do you have any closing comments? I
have to say the Committee wasn't actually in session during
that entire period of time.
Mr. Mercer. But I want you to know that I thought about it
for 30 minutes, and the only thing I would close by saying is
the four suggestions we have made, at least three of them would
simplify the regulations. This guide to the SBIC Regulations is
what we publish each year for SBICs. Over 600 pages. It is the
regulations, the forms, the policies, the procedures. It is
everything an SBIC needs to know, and it is obviously a complex
program. So, we think that the changes we have suggested will
take some of the complexity out.
So, I am going to stop now with just two more comments:
One, although SBA has left, I would like to commend SBA for the
work they have done in supporting the SBIC Program, sometimes
without enough assets, and in terms of personnel we have been
told that Administrator Alvarez has allocated another 15 people
to the SBIC program.
Chairman Talent. I was going to ask you about that. So, you
think that will clear up the backlog in applications?
Mr. Mercer. Well, there is obviously going to be a learning
curve and a hiring curve. Of that, Mr. Christensen has the
ability to hire 5 from outside the agency, we have been told,
and 10 from inside the agency. So, there will be some lag, but
for a program that has grown over 280 percent over the last 4
or 5 years they obviously need some new help, and I think at
least we have been told that help is on its way.
I would just like to close, in a sense, where I began and
thank you both and your staffs for taking the time to really
try to understand what is an exceedingly effective but
exceedingly complex program. It really is performing up to the
expectations of Congress. We think it can do more, but it is a
pleasure to work with you, and we look forward to continuing
that work.
Thank you.
[Mr. Mercer's statement may be found in the appendix.]
Chairman Talent. Appreciate your comments very much, Lee.
Next witness is John Giegel who is the vice president for
Congressional Relations at the National Association of
Development Companies.
Mr. Giegel.
STATEMENT OF JOHN GIEGEL, VICE PRESIDENT FOR CONGRESSIONAL
RELATIONS, NATIONAL ASSOCIATION OF DEVELOPMENT COMPANIES
Mr. Giegel. Good afternoon, Mr. Chairman and Representative
Velazquez. I also want to thank the chairman and ranking member
for their bipartisan cooperation on this Committee. NADCO would
like to thank the Committee for your continued support of our
504 Program and the CDC industry, including the passage of H.R.
2614. It was another step towards the improvement and expansion
of the 504 Program to the benefit of all our small business
borrowers.
It is our understanding that this bill is being considered
by the Senate Committee on Small Business at this time, and we
would strongly urge the Committee to work with the Senate to
obtain quick passage of this bill, which is crucial for the
improvement of the 504 Program.
I want to take an opportunity this morning to briefly
address certain items in the SBA Fiscal Year 2001 budget. SBA
has proposed that the authorization level for the 504 Program
for Fiscal Year 2000 in the amount of $3 billion to $3.75
billion. NADCO supports this increase in the authorization
ceiling for two reasons: First, we have seen a rise in the
long-term interest rates, and we have also seen private sector
lenders starting to become a little bit more conservative in
their lending practices. And this may be very early in this
time frame, but there are possibilities of liquidity concerns,
credit tightening, and the increase in authorization will help
504 meet those challenges this year and in the future.
There is also a 3-year reauthorization of the Small
Business Act which provides for an authorization for the
guaranty authority for the Small Business Administration to
provide financing under 504 or the CDC Program, but it
restricts the maximum amount of loan guarantees it may provide
in any given year.
Historically, legislation has been enacted to provide this
program authority for 3 years. The most recent law authorized
SBA to guarantee CDC debentures in the amount of $3 billion,
$3.5 billion, and $4.5 billion for each of the last respective
3 years. We certainly agree that the next 3 years should be
increased to provide debenture guaranteed levels at $3.75
billion for 2001, $4.5 billion in Fiscal Year 2000, and $5
billion in Fiscal Year 2003.
These program authorization levels are not contained in
H.R. 2614, referred to the Senate last year, and we urge that
they be included in your bill as without program
reauthorization, the 504 financing cannot be provided. In other
words, we will be shut down without those numbers being
included.
We believe these guarantee authorities are in line with
expected program utilization, again, particularly as commercial
lenders may begin to tighten as the economy might slow down as
the result of interest rate increases.
The SBA budget also addresses the subsidy level, and I know
the chairman is quite interested in that. SBA's proposed budget
decreases the annual fee charged for each 504 business borrower
from 0.6 percent to 0.472 percent. This is an actual 21 percent
decrease for the upcoming fiscal year, and it is the fourth
decrease in a row. Now, certainly, we in the industry have
always felt the subsidy rate has been too high, but at least
there has been some reflection with the OMB subsidy calculation
that the need to continue these high rates has been reduced,
and this lowered subsidy rate will in fact result in smaller
costs to our small business community.
However, the budget also talks about the industry has a
concern about the forecasts, again, contained in the budget
concerning the recovery of defaulted loans and also the number
of defaulted loans. Historically, 4 years ago, the default rate
was around 18 percent, and now it has fallen, and recoveries
have also fallen except for the last year. It reached a low of
25 percent, and now it has risen to 31 percent. This does,
again, raise the question of the subsidy rate. We in the
industry, of course, and the small business community and I
believe the participating lending institutions would all agree
that the fees are probably too high. And indeed the 504 Program
is a positive contribution to the revenue, project revenue over
and above total costs.
Chairman Talent. Let us get into that loan liquidation
issue a little bit, Mr. Giegel. I, too, am impatient for more
discretion for 504 investors to be able to liquidate defaulted
loans. Do you have any idea--we had a pilot. Any idea how well
it has done? I know the report isn't ready yet, but do you
know?
Mr. Giegel. We have only a secondary evidence, but the--and
it is a small sample--but, clearly, the pilot liquidation study
has shown a recovery rate better than what has been projected.
The SBA budget talks about 25 percent to 31 percent. The
limited sample evidence that we have not probably puts that
close to 50 percent or better, and we only have--there is,
obviously, recently an asset sale as well. And while we do not
have access to the final reports and the numbers, there is
certainly some evidence out there that indicates that the
assets sales have resulted on 504s to be considerably higher
than the recovery rates posted by OMB.
Chairman Talent. Is anyone from the agency prepared to
comment? Ms. Butler, I notice you are here. Will this report be
ready soon for our inspection? I hate to penalize people for
sticking around, but----
Ms. Butler. Actually, we appreciate it. We are very
interested in the outcome of this as well. I am Jane Butler. I
am the Associate Administrator for Financial Assistance.
We did issue a report on September 30 that covered the
first 2 years of the pilot. Unfortunately, because of the
length of time that is required to complete liquidation actions
and the pilot only included loans coming into liquidation
within the 2-year period, so it is not a complete record of the
total activities on all the loans in the pilot. We are
continuing to monitor those, and we will report to you
periodically.
But what Mr. Giegel said is absolutely correct. We have
seen on both the control group, that is the liquidations
handled by SBA, as well as those liquidations handled by the
CDCs, that our activities show higher recoveries than what have
been proven on a long-term basis with regard to the subsidy
model. So, we are continuing to watch that program.
Chairman Talent. Now, if this report turns out to be
positive, as preliminary results indicate, you have the
authority to move it from a pilot to just a general program
where they can liquidate their own defaults; is that correct?
Ms. Butler. Actually, the legislation that authorized the
program did not have a sunset date, so we are continuing the
pilot with the group that was originally participating, and in
the reauthorization bill passed by the House and pending at the
Senate, you would make the program permanent.
Chairman Talent. Okay.
Ms. Butler. But we are continuing it without interruption.
Mr. Giegel. And that is a key element. We are taking, I
think, measures included in the House bill, and hopefully to be
adopted by the Senate, will make permanent both the Premiere
Certified Lending Program, which provides for a reserve by CDCs
on PCLP loans, as well as provide for making permanent the
Liquidation Pilot Program, which would include a litigation
authority to, we think, and working with the SBA, to make
recoveries even better. And I think it will be certainly
positive for our consideration of the subsidy rate as soon as
we are able to let it count.
Chairman Talent. Okay. Thank you, Ms. Butler.
Mr. Giegel. Well, those are the key points of my
presentation. We certainly want to thank you, Mr. Chairman, for
all your efforts and your past efforts, and all the Committee
members and ranking member and the staff for working so well
over the last several years. The bipartisan effort has made the
504 Program a better, better program.
CDC are major stakeholders in the 504 Program, and we want
to do everything we can to ensure its long-term viability. We
have considered these recovery problems, the subsidy rate
issues to be a very serious matter, and we look forward to
working with your Committee and the SBA in reversing that
trend. Only with this effort can we make the 504 fees come back
to a reasonable level for all small businesses.
Thank you.
[Mr. Giegel's statement may be found in the appendix.]
Chairman Talent. Thank you, Mr. Giegel.
Next, Mr. William McCutchen, the executive director of the
Association of Small Business Development Centers. Woody, thank
you for your patience. Proceed.
STATEMENT OF WOODY McCUTCHEN, EXECUTIVE DIRECTOR, ASSOCIATION
OF SMALL BUSINESS DEVELOPMENT CENTERS
Mr. McCutchen. Thank you, Mr. Chairman and Ms. Velazquez,
and I, too, would like to thank you for this opportunity for
the association to testify this morning.
I would also like to express our gratification for your
leadership of this Committee, leadership that continues an over
20-year tradition of bipartisan interest and support for the
SBDC Program, a bipartisanship that has proven very productive
and positive for our program.
Today's SBDC Program is truly a national delivery system.
We have got over 1,000 locations in all of the 50 States,
District of Columbia, Puerto Rico, the Virgin Islands, Guam,
and just recently American Samoa. In the last 20 years, SBDCs
have provided counseling and training for almost eight million
existing and pre-venture clients.
We also would like the record to reflect today our
appreciation for the administration's and Administrator
Alvarez' decision this year to fund the program at a level of
$85 million. We think it demonstrates a new renewed awareness
within the SBA of the importance of the SBDC Program and the
clients we serve.
We have included a chart in our written presentation that
documents the performance of the SBDC Program, performance that
we are tremendously proud of. If you look at the chart, in
Fiscal Year 1999, our funding was up by less than 1 percent,
but in Fiscal Year 1999, total clients--African-American
clients, Hispanic clients, women clients--were all up by at
least 9 percent, up to almost 16 percent. So, the program is
certainly making effective use of the dollars that the Congress
supports us with.
This morning, Mr. Chairman, we are asking that this
Committee approve and recommend to the full House that the SBDC
Program be reauthorized at $100 million in Fiscal Year 2001,
$105 million in Fiscal Year 2003, and $110 million in Fiscal
Year 2003. We believe these levels of authorization are crucial
if the program is to maintain a level service capacity.
Additionally, we believe that at a minimum the SBDC Program
will need an appropriation of $90 million net of earmark from
section 21 funds to address the growing needs of the Nation's
exploding entrepreneurial population.
There is a crying need for vastly expanded and more
comprehensive small business regulatory compliance assistance.
The SBDC is also working with the Association of Disabled
Veterans and other veterans' groups to provide improved and
expanded services to the Nation's veterans. The program for 2
decades now has utilized the dollars that Congress invested to
create a strong and viable infrastructure that includes over
3,400 strategic resource partners. The SBDC Program is the only
Federal small business M&TA Program that is subject to a
congressionally mandated certification program. The ASBDC also
contracts with an independent consultant for a biennial
economic assessment of the long-term effects of SBDC clients.
In 1996, SBDC clients experienced sales growth at almost
four times the rate of the average U.S. business, and job
creation for SBDC clients was 1.29 compared to 0.22 jobs for
average U.S. businesses. We have expressed our concerns this
year regarding the need for essentially technical changes in
our funding formula, and we have also expressed concerns
regarding the need to maintain client confidentiality that is
so essential to our client relationship. We are most
appreciative that the staff of this Committee has always been
available to us and extremely helpful.
In summary, Mr. Chairman, the SBDC Program is the Federal
Government's largest and most successful small business M&TA
outreach and assistance program. The network is well positioned
to deliver an increased level of management and technical
assistance to a significantly expanded client base if the
program is provided the resources to do so by Congress. And we
ask for this Committee's support for the program's
reauthorization at funding levels that will allow the program
to remain innovative and meet the needs of the Nation's 23
million small businesses.
We want to make sure that the record reflects that the
ASBDC and SBDC network are solidly committed to helping open
doors of economic opportunity for individuals in communities
and new markets. In fact, new markets are not new to the SBDCs.
In 1999, 42 percent of our clients were women, 23 percent were
minorities, and almost one-fourth of our service centers are
located in targeted economic revitalization areas, such as
HUBZones, empowerment zones, and enterprise communities. SBDCs
are therefore well positioned to play a significant role in
publicizing these important Federal initiatives.
The Congress has invested significant dollars in this
program over the last 20 years, and in return for that
investment, what has resulted is an unprecedented network, a
distribution network, of over 1,400 outlets to deliver small
business services to all Americans. We think that therecould be
no better investment for any small business services than in utilizing
the distribution network that Congress has already generated.
I will end my remarks with that, and I would be happy to
answer any questions that you may have about our program.
[Mr. McCutchen's statement may be found in the appendix.]
Chairman Talent. Thank you, Woody, Mr. McCutchen.
And our last witness is Caroline Hayashi, the Association
for Enterprise Opportunity. Appreciate your patience; proceed.
STATEMENT OF CAROLINE HAYASHI, ASSOCIATION FOR ENTERPRISE
OPPORTUNITY
Ms. Hayashi. I would like to thank the chairman of the
members of the House Small Business Committee for providing me
with the opportunity to testify before you today.
My name is Caroline, and I am a member of the Association
for Enterprise Opportunity, or AEO, and I am also the program
director of the ECDC Enterprise Development Group in Arlington,
Virginia. My views today represent AEO's views as well as those
of my organization and the Association of Women's Business
Centers.
AEO was founded in 1991. It is a national organization of
organizations committed to microenterprise development. They
provide over 490 organizational members with a forum,
information, and a voice to promote enterprise opportunity for
people and communities with limited access to economic
resources. AEO members represent many SBA microloan
intermediaries as well as Women Business Centers.
We all know that small businesses are the backbone of the
U.S. economy. According to the Small Business Administration's
Office of Advocacy, small business accounts for 53 percent of
all jobs. What I am here to talk to you about today is the
growing importance of the smallest firms within that group of
small businesses. These are microenterprises employing less
than five employees. Despite this critical role, many
microentrepreneurs have trouble accessing management assistance
and the capital they need to grow and start their businesses.
Microenterprise development organizations are there to provide
these resources to this growing market.
Over the past decade, the microenterprise development
sector has grown rapidly, reaching over 55,000 entrepreneurs in
1997. Yet the demand for microenterprise services far exceeds
the limited resources of the field.
Largely through the loan and grant funds from the SBA, the
ECDC Enterprise Development Group has provided over 150 in the
past 4 years to small businesses, totaling over $1.6 million.
It has created 320 jobs and provided management assistance to
over 2,500 entrepreneurs, and I would like to add out of all
those individuals served that over 85 percent of those
individuals were minorities, over 95 percent were low- to
moderate- income individuals, and over 50 percent were women.
So, again, as Mr. McCutchen noted, when we are talking about
new markets, in terms of microenterprise organizations and who
we serve, we are serving the new market.
Chairman Talent. When you talk about--excuse me----
Ms. Hayashi. Yes.
Chairman Talent. When you talk about the ECDC----
Ms. Hayashi. Yes.
Chairman Talent [continuing]. Now, help me a little bit.
That is the Association of Micro----
Ms. Hayashi. AEO is the Association of Enterprise
Opportunity, which is the national association of
Microenterprise organizations of which we are a member.
Chairman Talent. Okay.
Ms. Hayashi. And I am actually the director of the ECDC
Enterprise Development Group, which is a non-profit
organization based on Arlington, Virginia which provides direct
microenterprise services.
Chairman Talent. Okay. So, I am trying to get a handle on
how significant that $150 million figure is. You are one
microlending intermediary.
Ms. Hayashi. We are one microlending institution that
serves the Washington, D.C. metropolitan area.
Chairman Talent. I want to be clear. So, when you are
talking about an Enterprise Development Group, that is a plural
group, but you are one micro----
Ms. Hayashi. Yes, we are one organization, one program.
Chairman Talent. Because I thought the $150 million,
actually, if that had been a number of microlenders, would have
been kind of a small figure over 4 years.
Ms. Hayashi. Yes, it would be very small. Actually, there
is another number there of, a national number, 55,000
entrepreneurs being served in 1997----
Chairman Talent. Yes, a little more like it.
Ms. Hayashi [continuing]. Which is more like it, yes.
Chairman Talent. Okay, thank you.
Ms. Hayashi. Sure.
ECDC assists businesses that don't have access to capital
and other business resources elsewhere. Although these loans
are very uneconomical for non-profits to provide, these
businesses promote economic self-sufficiency through the income
and jobs they create and promote local economic development
through the goods and services they provide. They also help
keep individuals off of welfare and help build the local tax
base.
I would like to give you an example of an entrepreneur that
demonstrates the kind of impact that these kinds of small
business can have on the owner as well as the community. Ms.
Kyung Hee Park is a 40-year-old woman who 5 years ago found
herself living in a homeless shelter with her two small
children. She found the opportunity through an acquaintance to
start a siding and flooring business. After the first year in
business, when the company did not made a profit, her partner
gave up his portion of the business. However, she decided to
continue the business to try to make a better life for her and
her children.
Two years ago, Ms. Park came to ECDC to get a loan to
expand her business. Ms. Park had approached over 20 other
financial institutions and was turned down partially because of
credit problems she experienced while living in the homeless
shelter. Since that loan 2 years ago, she has experienced more
than 500 percent. She went from hiring 5 contractual employees
to more than 20 full-time employees. She went from doing small
residential jobs to obtaining large-scale financial contracts
from companies such as U-Haul and has received a sub-contract
for a 90-unit housing complex through the U.S. Department of
Housing and Urban Development.
SBA has been a critical resource partner for ECDC. ECDC has
$1.5 million in loan funds from the SBA, which constitutes
approximately half of our capital pool.
Chairman Talent. Ms. Hayashi, how many of--I was going to
ask you, actually, to give us a particular example, so I am
glad you did on your own. Is that typical? I mean, somebody--
here, she had a working business up and going.
Ms. Hayashi. Yes.
Chairman Talent. But because her paper, in essence, wasn't
good because when she had that difficulty in her life her
credit went bad, and so the bank--she didn't even get through
the front door of the bank, right?
Ms. Hayashi. No, she is actually a very tenacious woman, so
she did actually approach 20 other financial institutions,
which not a lot of people do either. But, yes, was pretty much
immediately turned away by----
Chairman Talent. So, of the 150 loans that your group has
given out, how many of them are situations where the person
can't get through the front door because of a paper problem? In
other words, you had a credit--I assume that the bank officer
looks at this, ``Wait a minute. You mean to tell me you have
had a bankruptcy or this credit report is bad on you. Forget
it. We are not even talking to you.'' Is that----
Ms. Hayashi. Is that common?
Chairman Talent. Yes.
Ms. Hayashi. Very common, yes. A lot of the clients we
serve either have had credit problems in the past because of
this kind of life difficulty or we also have a surprising
number of clients who do not have any credit history because we
also serve a number of immigrants.
Chairman Talent. Okay.
Ms. Hayashi. And no credit, as we all know here in the
U.S., is considered to be pretty much the same as bad credit.
Chairman Talent. Yes, because you haven't had a history of
credit.
Ms. Hayashi. Exactly.
Chairman Talent. So, the bank never even gets into
performance of the business in the past or profit-loss
statements or the rest of it, because they don't even get
through the front door.
Ms. Hayashi. Pretty much not. In some cases where they are
able to get to a certain level, the business itself would
probably not be able to get funded through a bank anyway
regardless of the credit because of, for example, being a
start-up, being too young of a business.
For instance, in Kyung Hee Park's case, although her
business was a going concern, it did not have sufficient good
credit history banks look at in order to take a risk of giving
her a loan.
Chairman Talent. Would these folks be in a situation where
50 years ago if they were in a small town what you do for them
is what the local banker might have done given--it is an
overused term--but a character loan?
Ms. Hayashi. Exactly. In fact, I was just speaking to
someone in my office about this who remembers being on a family
farm and having that kind of bank there where the manager knew
everybody in the town, and, yes, would give loans based upon
the fact that they knew who they were, and they knew they would
pay back.
Chairman Talent. Yes, you mention George Bailey. Hey, I am
the one who brings up old movies in this hearing.
Ms. Hayashi. That is quite a good analogy, yes.
Chairman Talent. I would say it is very applicable, isn't
it?
Ms. Hayashi. Yes, very good analogy.
Chairman Talent. And often those individuals may end up
being better credit risks, because they don't have--it is not
like if they fail they are going to get another shot at it.
Ms. Hayashi. That is exactly what we found is this is sort
of we are working with individuals who had had a tough break in
life, things have happened to them, and this is sort of like a
second chance or in the case of immigrants sort of like of
first chance type of loan program. And we have found in our
program that these individuals are normally very good credit
risks. We have----
Chairman Talent. Let me ask--jump in, because we are going
to have to run, unfortunately.
Ms. Hayashi. Sure.
Chairman Talent. So, I wrap up, because I don't think I
will, unless the gentlelady wants me to, I don't think I will
bring everybody back. Are you allowed to loan to ex-convicts?
And I don't ask this to trap you. I think----
Ms. Hayashi. I think we are allowed to.
Chairman Talent. But do you very often?
Ms. Hayashi. Not that I know of.
Chairman Talent. You don't.
Ms. Hayashi. We don't----
Chairman Talent. That is another set of people who----
Ms. Hayashi. We don't necessarily ask--we don't ask that
question in our application process, but we usually get to know
quite a bit about the person's life through the process.
Chairman Talent. Okay. I may go into that a little bit more
through staff.
All right. Well, go ahead and finish up.
Ms. Hayashi. Okay. I just wanted to quickly outline five
recommendations that AEO has based upon the experience of its
membership of the SBA Microloan Program.
First, we would recommend that we give successful State
programs a better chance to access assistance. AEO believes
that States with successful or capable microlending
intermediaries should not be limited by an arbitrary formula
which regulates how much funding is available State-by-State.
By eliminating this formula, we believe that the best programs,
serving the most people, will be able to access assistance
based on need and demand and not on geography.
Second, AEO recommends reducing confusing interest rate
regulations. It is often confusing, both to program
participants, as well as to the SBA, to administer different
interest rates for different loans, which are tied to the 5-
year Treasury bill interest rate. SBA should allow for a
singular interest rate buy down for all intermediaries.
Third, AEO recommends that you let local programs determine
the best forms of technical assistance. We think that it is
duplicative and unnecessary for the SBA to proscribe how much
technical assistance is available before a loan and after one.
This type of micromanagement restricts program flexibility.
Chairman Talent. You know why I bet that happens, because
we had a discussion after the first panel up here about it.
Everybody who gets into this field understands how important
technical assistance is.
Ms. Hayashi. Yes.
Chairman Talent. None of us are comfortable that we have a
handle on what it really is, much less that we can have any
kind of accountability for it.
Ms. Hayashi. Sure.
Chairman Talent. So, we are in sort of a situation where we
appropriate more money, we know how much--but we are also in
the back of our minds afraid that somebody will mess up
someplace and there will be some 20/20 program, and then we
will all be hung by our thumbs for the thing.
Ms. Hayashi. Yes.
Chairman Talent. So, I would love to get a working group of
people together to try and get a better handle on what is
working, what isn't working, how we do this. Because it would
be great--I mean, you are absolutely correct. Really, we ought
to be letting the microlenders have greater control of what
kinds of technical--but, you see, the fear from this standpoint
is what is the money being spent on, which is a legitimate
issue.
Ms. Hayashi. If I can just speak to that for quickly. As
you said, technical assistance is critical, and as you can see
from the written testimony, for instance, in ACDC's case, we
have maintained a less than 5 percent default rate, which is
quite incredible considering the clientele that we are dealing
with. And the way that we do that is through what we are
broadly calling technical assistance, which is basically
personal one-on-one business management--anything from business
management assistance to personal problem assistance that they
need in order to make their businesses successful.
Chairman Talent. All we need, though, is one intermediary
that uses the technical assistance to fly somebody to Paris for
some seminar. And, look, I am not saying this happens, okay? I
am saying if you put yourself--you are volunteering for that, I
can imagine.
So, really, if you all would understand the perspective we
have to come from up here and find ways of putting some kind of
accountability measures in there that is consistent with the
flexibility for you that you need, then we have solved the
problem.
If you were sitting up here, what would you put in the law
to make sure that you have some accountability while giving the
flexibility you want? And I am very interested. We have got an
reauthorization bill coming up. I am very interested in this,
so go to work and let us know.
Ms. Hayashi. AEO is very interested in actually having
standardized, I guess, measures for the field, and perhaps that
could be used, worked into the process to have more
accountability in terms of technical process.
Chairman Talent. At least begin the process, if you would,
and I am going to--because we are going to have to--do you have
a question you want to submit?
Ms. Velazquez. No. I will submit.
Chairman Talent. All right. Can you finish up in a minute.
Ms. Hayashi. I just want to--there are just two more
recommendations that AEO has. One is to raise the loan cap to
represent the increases in the cost of doing business. When the
initial $25,000 maximum loan was set in 1991, as we all know,
inflation has since eroded that cap, and we would like the SBA
to look at raising that cap to reflect the cost of living
increases.
Chairman Talent. What should it be at?
Ms. Hayashi. I don't know if AEO has a specific amount in
mind right at this time.
Chairman Talent. You give me a number, I was going to say
okay. [Laughter.]
Ms. Hayashi. Someone saying to say $40,000.
All right, the last recommendation is encourage greater
cooperation among microenterprise Programs. We would also like
Congress to lift the maximum allowable loan in joint ventures
so that microenterprises can pair with other organizations to
help to expand their businesses beyond the microenterprise
stage.
Chairman Talent. Ms. Velazquez said 60.
Ms. Hayashi. Okay, great. [Laughter.]
Chairman Talent. Eighty, all right.
Ms. Hayashi. That sounds good.
[Ms. Hayashi's statement may be found in the appendix.]
Chairman Talent. We have got 4 minutes, all right.
Thank you, Ms. Hayashi. I am sorry we were getting a little
punchy there at the end, but we will certainly take your
recommendations under advisement.
I appreciate everybody coming. I think I have done the
house keeping details.
The hearing is adjourned.
[The statement of the Bond Market Association is located on
page 110.]
[Whereupon, at 2:05 p.m., the Committee was adjourned.]
[GRAPHIC] [TIFF OMITTED] T1189A.001
[GRAPHIC] [TIFF OMITTED] T1189A.002
[GRAPHIC] [TIFF OMITTED] T1189A.003
[GRAPHIC] [TIFF OMITTED] T1189A.004
[GRAPHIC] [TIFF OMITTED] T1189A.005
[GRAPHIC] [TIFF OMITTED] T1189A.006
[GRAPHIC] [TIFF OMITTED] T1189A.007
[GRAPHIC] [TIFF OMITTED] T1189A.008
[GRAPHIC] [TIFF OMITTED] T1189A.009
[GRAPHIC] [TIFF OMITTED] T1189A.010
[GRAPHIC] [TIFF OMITTED] T1189A.011
[GRAPHIC] [TIFF OMITTED] T1189A.012
[GRAPHIC] [TIFF OMITTED] T1189A.013
[GRAPHIC] [TIFF OMITTED] T1189A.014
[GRAPHIC] [TIFF OMITTED] T1189A.015
[GRAPHIC] [TIFF OMITTED] T1189A.016
[GRAPHIC] [TIFF OMITTED] T1189A.017
[GRAPHIC] [TIFF OMITTED] T1189A.018
[GRAPHIC] [TIFF OMITTED] T1189A.019
[GRAPHIC] [TIFF OMITTED] T1189A.020
[GRAPHIC] [TIFF OMITTED] T1189A.021
[GRAPHIC] [TIFF OMITTED] T1189A.022
[GRAPHIC] [TIFF OMITTED] T1189A.023
[GRAPHIC] [TIFF OMITTED] T1189A.024
[GRAPHIC] [TIFF OMITTED] T1189A.067
[GRAPHIC] [TIFF OMITTED] T1189A.025
[GRAPHIC] [TIFF OMITTED] T1189A.068
[GRAPHIC] [TIFF OMITTED] T1189A.026
[GRAPHIC] [TIFF OMITTED] T1189A.069
[GRAPHIC] [TIFF OMITTED] T1189A.027
[GRAPHIC] [TIFF OMITTED] T1189A.028
[GRAPHIC] [TIFF OMITTED] T1189A.029
[GRAPHIC] [TIFF OMITTED] T1189A.030
[GRAPHIC] [TIFF OMITTED] T1189A.031
[GRAPHIC] [TIFF OMITTED] T1189A.032
[GRAPHIC] [TIFF OMITTED] T1189A.033
[GRAPHIC] [TIFF OMITTED] T1189A.034
[GRAPHIC] [TIFF OMITTED] T1189A.035
[GRAPHIC] [TIFF OMITTED] T1189A.036
[GRAPHIC] [TIFF OMITTED] T1189A.045
[GRAPHIC] [TIFF OMITTED] T1189A.046
[GRAPHIC] [TIFF OMITTED] T1189A.047
[GRAPHIC] [TIFF OMITTED] T1189A.048
[GRAPHIC] [TIFF OMITTED] T1189A.049
[GRAPHIC] [TIFF OMITTED] T1189A.050
[GRAPHIC] [TIFF OMITTED] T1189A.051
[GRAPHIC] [TIFF OMITTED] T1189A.052
[GRAPHIC] [TIFF OMITTED] T1189A.053
[GRAPHIC] [TIFF OMITTED] T1189A.054
[GRAPHIC] [TIFF OMITTED] T1189A.055
[GRAPHIC] [TIFF OMITTED] T1189A.056
[GRAPHIC] [TIFF OMITTED] T1189A.057
[GRAPHIC] [TIFF OMITTED] T1189A.058
[GRAPHIC] [TIFF OMITTED] T1189A.059
[GRAPHIC] [TIFF OMITTED] T1189A.060
[GRAPHIC] [TIFF OMITTED] T1189A.061
[GRAPHIC] [TIFF OMITTED] T1189A.062
[GRAPHIC] [TIFF OMITTED] T1189A.063
[GRAPHIC] [TIFF OMITTED] T1189A.064
[GRAPHIC] [TIFF OMITTED] T1189A.065
[GRAPHIC] [TIFF OMITTED] T1189A.066