[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                                                   S. Hrg. 102-000 deg.

   REVITALIZING AMERICA'S MANUFACTURERS: SBA BUSINESS AND ENTERPRISE 
                          DEVELOPMENT PROGRAM
                                   

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, JUNE 11, 2003

                               __________

                           Serial No. 108-18

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


                                 ______

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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             CHARLES GONZALEZ, Texas
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa                     BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan

         J. Matthew Szymanski, Chief of Staff and Chief Counsel

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Hairston, Daryl, Small Business Administration...................     4
Robinson, Anthony W., Minority Business Enterprise Defense and 
  Education Fund.................................................     6
Sanders, Lonnie, C&S Trading.....................................     8
Aleman, Alba, Cairo Corp.........................................     9
Street, Kaaren J., Small Business Administration.................    31
Hostetter, Kersten, Microbusiness Development Corporation........    34
Whitfield, Susan R., Small Business Development Center, McHenry 
  County College.................................................    36
Ratner, Hedy, Woman's Business Development Center................    39
Smith, Lee J., BusinessLINC......................................    42

                                Appendix

Opening statements:
    Manzullo, Hon. Donald........................................    56
    Bordallo, Hon. Madeleine.....................................    58
Prepared statements:
    Hairston, Daryl..............................................    59
    Robinson, Anthony W..........................................    65
    Sanders, Lonnie..............................................    69
    Aleman, Alba.................................................    76
    Street, Kaaren J.............................................    80
    Hostetter, Kersten...........................................    84
    Whitfield, Susan R...........................................    88
    Ratner, Hedy.................................................    96
    Smith, Lee J.................................................   113

                                 (iii)

 
   REVITALIZING AMERICA'S MANUFACTURERS: SBA BUSINESS ANDENTERPRISE 
                          DEVELOPMENT PROGRAM

                              ----------                              


                        Wednesday, June 11, 2003

                  House of Representatives,
                        Committee on Small Business
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 2:05 p.m. in Room 
2360, Rayburn House Office Building, Hon. Donald A. Manzullo 
[chair of the Committee] presiding.
    Present: Manzullo, Velazquez, Toomey, Graves, Schrock, 
Akin, Beauprez, Millender-McDonald, Udall, Ballance, 
Napolitano, and Bordallo.
    Chariman Manzullo [Presiding]. The hearing will come to 
order.
    Good afternoon. I would like to welcome everyone to the 
hearing on reauthorization of the SBA programs. Since our last 
hearing, fruitful discussions have taken place with the 
minority staff, administration and small business community. I 
look forward to continuing this dialogue and presenting to the 
House floor a reauthorization bill that rationalizes the 
management of the SBA and reorients many of its programs to 
help small manufacturers in the depressed economic communities 
in which they are located.
    The economic news concerning America's manufacturers 
remains bad. Factory production contracts and manufacturing 
employment spirals downward. The 33-month downturn represents 
the longest such decline since the Great Depression.
    April saw another 53,000 jobs in manufacturing disappear. 
Every time I drive through my district I see the suffering of 
the families that used to rely on good paying manufacturing 
jobs are not struggling to make ends meet. Replacing these jobs 
with new service sector jobs will not help stabilize the 
American economy.
    According to a University of Michigan study, 6.5 spin-off 
jobs are created for every new job created in manufacturing. 
Service sector jobs simply cannot generate the type of economic 
activity, and the reason for this, manufacturing jobs typically 
pay $5 more per hour than service sector jobs. That works out 
to about $10,000 more per worker per year. The additional 
income would give families greater purchasing power to spend on 
consumer goods, travel, dining and investing for the future. 
With a revitalized manufacturing sector, depressed communities 
will rebound, creating opportunities for our children and 
grandchildren. Manufacturing then represents true economic 
security for America.
    America's small manufacturers will be at the forefront of 
creating that economic security. The key question remains 
whether we in Congress and the government are doing enough to 
ensure the viability of America's small manufacturers. If the 
SBA wants to have an impact on the American economy, then it 
must ensure that its programs provide the help required by 
America's small manufacturers in economically depressed 
communities.
    Today's hearing will examine how the SBA business and 
enterprise development programs can help America's small 
manufacturers. These programs assist small businesses in 
obtaining Federal Government prime contracts. They also provide 
advice on a day-to-day management of small businesses from its 
initial creation to the development of sophisticated marketing 
plans.
    Do they provide the right type of assistance? Can they do 
more? If their programs are not helping small manufacturers, 
what changes need to be made?
    Let me make it clear that the Committee remains open to any 
suggestions that will help focus the SBA business and 
enterprise development programs on small manufacturers and 
their economically depressed communities. The actions that the 
Committee will take as it completes work in drafting 
reauthorization legislation may represent the most important 
legacy of this Committee.
    Now I will recognize the ranking member of the full 
Committee, the distinguished gentlelady from New York for her 
opening statement.
    Thank you.
    [Mr. Manzullo's statement may be found in the appendix.]
    Ms. Velazquez. Thank you, Mr. Chairman.
    Today, we are here to discuss the SBA's government 
contracting and business development programs as we undertake 
the most comprehensive reauthorization of the agency in more 
than a decade. These programs are critical to our economy 
because they contribute a key ingredient to the entrepreneurial 
equation: opportunity.
    Whether it is 8(a) zone, BusinessLINC or the small business 
development centers, the SBA programs plant the seeds for 
business development and growth in this nation. They are the 
fuel that feeds our entrepreneurial spirit. They also provide 
the most bang for the buck, giving the Federal Government a 
return on its investment of nearly two to one.
    This morning some of my colleagues and I have the 
opportunity to hear exactly how the SBA programs change 
peoples' lives. Entrepreneurs told us their amazing and 
inspirational stories. The SBA programs gave these 
entrepreneurs a chance and they turn it into a success. They 
are the real reason we are here today.
    And I would like to recognize Bob Salazar who is here. Bob, 
would you please stand up?
    Thank you for being here.
    Our Committee can also serve as another forum where 
entrepreneurs can tell us their stories. They show us just how 
great it is for these programs. Oftentimes in Washington the 
corporate giants get all the attention while small business 
owners, who make such a big contribution to this economy, are 
overlooked. But small businesses are the American economy. They 
create new jobs, make up half of our GDP and our responsible 
for the majority of new innovation.
    The SBA program fill an important gap by providing small 
businesses with management advice, technical expertise and 
assistance in accessing the federal marketplace. These programs 
give entrepreneurs the tool they need to grow and thrive.
    Take the SBA 8(a) program, the 8(a) program was created 
more than 30 years ago to help minorities gain access to the 
federal procurement arena. This program has helped almost 
20,000 small firms with nearly $100 billion in federal 
contracting awards. Yet the SBA has allowed this critical 
program to fall into disrepair, calling only for cosmetic 
changes to it. Programs that are newer and more flexible are 
crowding the 8(a) program out, leaving many minority firms 
without work. This is unacceptable.
    I can tell you what the SBA needs to do. The agency needs 
to modernize the 8(a) program and bring it into the twenty-
first century. The agency must focus on returning the 8(a) 
program to its core mission of minority business development 
using three key components: federal contracting opportunities, 
management and technical assistance, and access to capital. 
Right now the SBA is failing at all three.
    As many of you know, a big reason for the decline in 
contracting opportunities is contract bundling. President Bush 
said in his small business agenda last year that the 
administration was committed to breaking off large contracts, 
but today we have seen little action on that change. In fact, 
the Federal Government for the fourth straight year in a row 
has failed to meet any of its small business goals.
    The SBA needs to be a strong enforcer so that federal 
agencies meet their small business goals. Right now the SBA has 
little power when an agency cuts out small businesses.
    And to make matters worse, we have a legislative package 
from the SBA that fails any additional resources to help 
contract bundling. The agency's front line defense against this 
damaging practice amounts to not even one SBA staffer per 
state. I assure you that if the SBA is not going to request the 
additional resources, then Congress will simply legislate them. 
Without resources this program cannot operate effectively. Then 
they fail to have the effect they should to make a real 
different, not just in peoples' lives, but also in the larger 
American economy.
    For the millions of entrepreneurs in this country the SBA 
programs are the difference between success and failure. They 
provide opportunity and a chance to live the American dream. I 
think we owe it to small businesses to see to it that these 
programs are funded, staffed, and updated. Only then can SBA 
fully truly fulfill its mission of serving this nation's 23 
million small businesses, the true driver of our economy.
    Thank you, Mr. Chairman.
    Chairman Manzullo. Thank you. I think the way that we are 
organized to proceed here is we are going to be taking five-
minute statements from each of our four witnesses on the first 
panel, and then after that we will be proceeding to some 
questions for all four of you.
    And the first witness I would like to recognize would be 
Mr. Daryl Hairston. He is the Deputy Associated Deputy 
Administrator, Government Contracting and Business Development 
with the US SBA from Washington.
    Daryl, five minutes. Thank you.

     STATEMENT OF DARYL HAIRSTON, DEPUTY ASSOCIATE DEPUTY 
 ADMINISTRATOR, OFFICE OF GOVERNMENT CONTRACTING AND BUSINESS 
DEVELOPMENT, U.S. SMALL BUSINESS ADMINISTRATION, WASHINGTON, DC

    Mr. Hairston. Thank you, and good afternoon, Chairman 
Manzullo and Ranking Member Velazquez. Thank you for the 
opportunity to discuss the Office of Government Contracting and 
Business Development Programs. The U.S. Small Business 
Administration is committed to maximizing opportunity for all 
of the nation's small businesses and the millions of people 
they employ.
    I would like to request that my written statement be 
submitted for the record.
    Government contracting and business development continues 
to use the best practices of the marketplace to improve and 
modernize our programs. Some of our current initiatives 
include: launching a nationwide matchmaking event to match 
small business capabilities with federal, state and local 
agencies, and federal prime contractors; implementing the 
President's strategy to avoid unnecessary contract bundling; 
automating 8(a) applications, and centralizing annual reviews 
to streamline and simplify the process; simplifying the size 
standards to make them easier to use, and development a 
procurement academy to provide 7(j) eligible companies 
procurement training.
    When fully implemented, these initiatives will help to 
create an environment where small businesses will have better 
access to federal procurement opportunities. The 
reauthorization of government contracting and business 
development program will also help to ensure that small 
businesses receive their fair share of federal prime and 
subcontracting opportunities.
    These programs include: the Small Business Innovation 
Research; Rural Outreach Program, the Small Business Innovation 
Research Federal and State Technology or FAST Partnership 
program, the 7(j) Technical Assistance Program; the HUBZone 
Program, and the Procurement Marketing and Access Network, or 
PRO-Net.
    Through the government contracting prime and subcontracting 
programs, SBA provides policy direction and guidance to federal 
agencies and works with them to develop acquisition strategies 
that will help to increase opportunities for small businesses 
in federal procurement. We also leverage our PCR and CMR 
resources by working with the OSDBUs to reduce contract 
bundling and develop strategies that will provide maximum 
opportunities for small businesses. We will use technology to 
help provide broader coverage of our resources.
    The FAST and SBIR Rule Outreach Program are extensions of 
the SBIR program and the Small Business Technology Transfer or 
STTR Program. The SBA, in partnership with the FAST and Rural 
Outreach Program award recipients helps to create an increase 
the growth of each state small business population and provides 
states with grants to increase their participation levels. A 
list of the FAST and Rural Outreach Program awardees, along 
with examples of program success stories as reported by states, 
can be viewed on the SBA SBIR Web site at www.sba.gov/sbir.
    Through the FAST and Rural Outreach Program, state 
commercialization workshops deliver technology innovation and 
commercialization solutions directly to the small business 
owners. In addition, the FAST and Rural Outreach Program 
grantees are partnering with experienced mentors and 
manufacturers who will guide the small business owner through 
the commercialization process, serving as a resource for a full 
year following the workshops.
    Many of the FAST and Rural Outreach Program grantees have 
engaged with the Department of Commerce MEP centers within 
their respective states, establishing partnerships that can 
support the needs that those technology firms that require 
manufacturing services to get their technologies to the 
marketplace.
    Through the 8(a) Business Development Program, SBA provides 
business development opportunities, including federal contract 
opportunities and management and technical assistance to firms 
owned and controlled by socio- and economically disadvantaged 
individuals. The SBA encourages program participants to partner 
team a joint venture in support of their business development 
plans.
    Since 1968, there have been more than 600,000 contract 
actions worth about $94 billion, and 8(a) firms employed 
172,000 people during fiscal year 2002.
    S.B.A. is proposing to change the name of the 8(a) Business 
Development Program to more accurately reflect its mission and 
goals.
    The 7(j) program is an important component of the business 
development portion of the 8(a) program. Through the 7(j) 
program we are developing a procurement academy that will 
provide on-line training to 7(j) eligible participants.
    The HUBZone Program promotes job growth and economic 
development through contract assistance to firms that locate in 
and hire residents from distressed urban and rural areas. Each 
dollar spent on the program yields a return of $288 in contract 
awards. Based on fiscal year 2001 data from the Federal 
Procurement Data System, the program helped to support 12,782 
U.S. jobs, of which approximately 9,000 were located in 
distresses areas.
    PRO-Net is an Internet database for small firms seeking to 
do business with federal, state and local government and 
government prime contractors, and serves as a marketing vehicle 
for small businesses and a market research tool for the 
acquisition community.
    The system serves at the authoritative source of 
information on firms certified by SBA and 8(a) HUBZone and 
small disadvantaged businesses or SDB.
    On December 17, 2003, PRO-Net was integrated with the 
Department of Defense central contract registry, or CCR system 
to eliminate redundant small businesses data entry as part of 
the President's electronic government initiative for an 
integrated acquisition environment.
    In conclusion, we look forward to working with you as we 
continue to integrate the design and delivery of government 
contracting and business development services to the nation's 
small business community, and I will be pleased to respond to 
any questions you may have.
    Thank you.
    [Mr. Hairston's statement may be found in the appendix.]
    Chairman Manzullo. Thank you Daryl. You had that timed 
pretty good. I think you were within five seconds or so. Thank 
you.
    Now, Mr. Anthony Robinson is President of Minority Business 
Enterprise Legal Defense and Education Fund. Boy, you guys have 
got some long titles. You are trying to stump the new chairman 
here today. And that is from Lanham, Maryland, I believe. Is 
that correct, Anthony?
    Mr. Robinson. The base of the organization, Mr. Chairman, 
is here in Washington, D.C.
    Chairman Manzullo. Okay.
    Mr. Robinson. On New Jersey Avenue, 419 New Jersey Avenue.
    Chairman Manzullo. Thank you. You can go ahead, proceed. 
Thank you, Anthony.

STATEMENT OF ANTHONY W. ROBINSON, PRESIDENT, MINORITY BUSINESS 
    ENTERPRISE LEGAL DEFENSE AND EDUCATION FUND, LANHAM, MD

    Mr. Robinson. Thank you, Mr. Chairman, Madam Ranking Member 
Ms. Velazquez. Thank you for the opportunity to come and speak 
to you all today.
    Over the past 23 years----.
    Chairman Manzullo. Excuse me. Can I interrupt you? Would 
you just move your microphone a little bit closer?
    Mr. Robinson. Okay.
    Chairman Manzullo. And then also, without objection, we 
will submit all of your statements for the record if you want 
to submit those. Okay?
    Mr. Robinson. Thank you very much.
    Over the past 23 years, MBELDEF, which we affectionately 
refer to the organization as, has monitored barriers to market 
entry and growth, which prevent talented small business owners 
to exist and thrive in the marketplace. MBELDEF serves as a 
national advocate and legal representative for the minority 
business community by promoting policies and practices that 
provide equitable and full participation on behalf of the 
minority business community.
    Mr. Chairman and Madam Velazquez, I would say that there is 
a major disconnect between the manufacturing industry sector 
and minority economic programs. Today, I would like to 
highlight about four to five different areas that I think 
adversely affect full minority participation in the economic 
sector of the economy.
    The first would have to do with one of the more regressive 
policies that exists not only within the 8(a) program but 
generally within minority procurement, and that is this notion 
of net worth.
    As you know as the program now exists, it requires a net 
worth below $250,000 for entry into the program. And if you 
ever exceed that $250,000 over the life of your tenure in the 
program, you would have to exist the program. This seems to 
penalize success.
    We would suggest that there may be some justification for a 
net worth cap on entry into the program, but certainly to have 
that net worth cap existing throughout your tenure in the 
program would seem to penalize success of those firms that are 
in the program. And certainly for industries, particularly for 
manufacturing, a net worth cap of $750,000, depending on which 
industry you are pursing, has no relevance whatsoever.
    So we would suggest to the Committee that Congress look at, 
to the degree that they deem a net worth necessary in the 
program, and I would argue it is not necessary, but to the 
degree that you deem it is necessary for the program, that 
would be put on the front end, and that you would index it to 
industries. So that depending on the industry that that 
particular entrepreneur was pursuing, you would look at the net 
worth cap in reference to a particular industry.
    The existing support systems for the manufacturing sector 
of economy, specifically MST and MEP program have done little 
or no outreach to the minority business community. I think the 
number of manufacturing concerns in the 8(a) program is less 
than six percent. And anecdotally we know from talking with 
many of these firms that there has been no outreach in 
reference to the program.
    Now, I appreciate that this is outside the jurisdiction of 
this Committee, but certainly something can be done from the 
perspective of SBA to assuring some greater collaboration 
between the support services for the manufacturing sector 
within the Department of Commerce and the SBA 8(a) program to 
collaborate a great deal more than what is happening right now.
    Another issue that I think adversely affects the 
manufacturing sector has been what I am calling an abdication 
of SBA's business development agenda on behalf of minority 
enterprise programs.
    More recently, over the last several years, and for reasons 
that were understandable, the SBA has been in the process of 
delegating to agencies the responsibility for engaging 
procurement on behalf of minority enterprise programs.
    Public Law 95-507 envisioned a different kind of role for 
the SBA; that the SBA would be a great deal more proactive in 
identifying contracts on behalf of 8(a) companies which would 
better fulfill its business development function, and would 
also by it being the party that contracted with the federal 
agency could stand in the breach of protecting those minority 
firms should they come up against some program in the execution 
of their contract with particular agencies.
    We have gotten so engaged in a numbers game as it relates 
to minority business programs, whether or not we meet some 
statistical goal, that we have lost sight of the true, at least 
Congress's real intent for these program, and that was to build 
capacity within the minority business programs so they could be 
competitive in the marketplace. And I think by the delegation 
of responsibility, engaging in this numbers game as opposed to 
addressing real business development features that once existed 
to support capacity building in these programs no long exists.
    So I end with that. It seems that my time is short
    [Mr. Robinson's statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much. I appreciate your 
comments, and in keeping on the clock here pretty well.
    Mr. Lonnie Sanders is next. You are the President of C&S 
Trading from Washington, D.C. as well. Is that correct, Lonnie?
    Mr. Sanders. Yes, sir.
    Chairman Manzullo. Pleasure to have you. Please proceed.

   STATEMENT OF LONNIE SANDERS, PRESIDENT, C&S TRADING, LLC, 
                         WASHINGTON, DC

    Mr. Sanders. Mr. Chairman, Committee Members, my name is 
Lonnie Sanders. I am President of C&S Trading, LLC, in 
Washington, D.C.
    We are a certified HUBZone business located here in 
Washington. Our primary business is the exporting of 
commodities internationally.
    My purpose today is to bring to the Committee's attention a 
provision in the statute that precludes any HUBZone supplier 
from doing business with the Department of Agriculture's bulk 
grain program.
    The statute states in essence, the prime contractor cannot 
purchase the commodity through a subcontract in substantially 
its final form and supply it to the government.
    We believe there may have been serious violations of the 
Administrative Procedures Act as it relates to this matter. If 
this statute is left to stand as it, there will be no HUBZone 
suppliers eligible to do business with USDA's bulk grain 
program.
    The USDA interpreted the statute to preclude HUBZones from 
purchasing bulk grain commodities by stating ``Any such program 
constitutes subcontracting.'' That interpretation of 
subcontracting goes too far. Using the USDA's interpretation, 
every bulk grain supplier engages in some form of 
subcontracting, unless the supplier is the farmer. We should 
all play by the same rules.
    We submitted our application for approval in USDA's bulk 
grain program in September 2000. The statutory language I 
mentioned earlier was inserted in the HUBZone legislation in 
December of 2000. We were finally allowed to participate in 
early April 2002, and submitted our first offer the same month.
    After several submissions and not being successful, we 
applied for HUBZone certification with the Small Business 
Administration, and became a HUBZone business in September 
2002.
    We informed USDA about our certification and were told that 
we could not participate because of the non-manufacturing rule. 
That rule states a small business concern must be the 
manufacturer of the end item or qualify as a small business 
non-manufacturer.
    The SBA held that the non-manufacturing rule does not apply 
to firms supplying raw agricultural products. Therefore, we 
qualified as a small business non-manufacturer.
    Again, we informed USDA. They told us that two additional 
requirements were needed:
    One, an increase of our guarantee from 15 to 30 percent of 
the contract price on all contracts that exceeded $550,000; and 
two, a letter from our subcontractor stating that we had use of 
an approved export facility.
    These requirements were not in existence prior to our 
becoming a HUBZone business.
    We have submitted our HUBZone offer January 7, 2003, and 
awarded a contract the next day, January 8.
    After we submitted our offer and guarantee to USDA and 
purchased the grain from USDA, to be sold rather to USDA, USDA 
canceled our contract for the convenience of the government.
    The most disturbing part about the whole process is the 
fact that USDA mentioned for the first time the word 
``subcontracting'' in their December 2002 letter, after we had 
received our HUBZone certification. They then turned around and 
used the same subcontract wording, the language that was 
inserted in the HUBZone legislation in December 200, to cancel 
our contract.
    C&S Trading is the only HUBZone qualified to do business 
with USDA's bulk grain program. Why would USDA approve us in 
2002 when they knew in 2001 that they would not allow C&S 
Trading HUBZone participation?
    We have worked with two of the largest and most recognized 
food and grain companies in the world, ADM and Cargill. We bid 
using Cargill's export facilities and purchased wheat from ADM. 
After USDA cancelled our contract, we had to sell our wheat 
back to ADM at a loss.
    Our question is: Why the resistance from USDA?
    We do not think that Congress intended to penalize HUBZone 
businesses by precluding them from participating in the 
competitive marketplace in the same manner as any other 
business.
    In closing, let me demonstrate what this law really says. 
This apple is a commodity. Substantial means more than 50 
percent. USDA is saying do something more than 50 percent to 
this apple or commodity and make it still look like an apple. 
Then we will do business with you.
    Thank you.
    [Mr. Sanders' statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much for your comments, 
Lonnie, and we will go ahead and move to our fourth panelist in 
Panel 1, and that is Ms. Alba--is it Aleman?
    Ms. Aleman. Aleman.
    Chairman Manzullo. Aleman. And you are the President of 
Cairo Corporation from Manassas, Virginia; is that correct?
    Ms. Aleman. Yes.
    Chairman Manzullo. I thought Lonnie did so well. Maybe he 
had some St. Louis background, but maybe that was just my 
memory slipping or something.
    Mr. Sanders. You are stating your age.
    [Laughter.]
    Chairman Manzullo. Please proceed.

 STATEMENT OF ALBA ALEMAN, PRESIDENT, CAIRO CORP., MANASSAS, VA

    Ms. Aleman. Thank you, Mr. Chairman, Ranking Member and 
Committee Members.
    Cairo Corporation is an 8(a) SDB woman-owned business. The 
company was started in April of 1999 by myself and my business 
partner, Raymond Roberts. The combination of my business 
partner's passion for business and my passion for excellence 
differentiates Cairo from most small businesses.
    With as much as I knew about the 8(a) program prior to 
starting the company, there was still a lot that I did not 
know. I had no idea that the application process would be so 
onerous and so invasive. I also had no idea that the annual 
recertification process would be as paper-intensive as it is. I 
also never imagined that it would take us over two years to 
land our very first 8(a) contract.
    Our vision is to be a $100 million company by 2010. There 
is no lack of effort, will or sacrifices that we are willing to 
commit in order to get there. We have grown over 7,000 percent 
since inception, and over 90 percent last year.
    We have had 15 profitable quarters in a row and 
aggressively reinvest the profits of the company back into the 
organization.
    With as competent as we are and as successful as we have 
been, we are still small and still very fragile. We are 
typically the first ones that large primes cut loose when 
budgets are cut, and always the last ones to be called upon to 
staff a program that we have won alongside them. It is not 
unusual or unexpected to receive the hard-to-fill slots on a 
contract, or the low-end labor categories and rates even when 
our core competencies suggest otherwise.
    We therefore need and rely on a certain percentage of prime 
contracts to ensure our long-term growth and survival.
    The 8(a) program gives competent minority and disadvantages 
owned organization, such as ours, the opportunity and the 
protection that we need in our early years of development to be 
successful. I often regret certifying as early as I did 
considering the amount of time it took us to obtain our first 
8(a) contract. Even when I found folks that wanted us to work 
with them for compelling business reasons, they refused to go 
the 8(a) route: too difficult, too time consuming and so on.
    With respect to the personal net worth issue, I feel 
strongly that we must raise the cap on economic disadvantaged 
into the program on entry, and eliminate the recertification 
cap altogether. The entry level cap should minimally be raised 
with inflation and cost of living for the last 15 years. 
Additionally, we need to eliminate the income cap for 8(a) 
business owners.
    Business owners make incredible personal and financial 
sacrifices to start their businesses. In our case, we went 
without income for 14 months. We cashed in all of our assets, 
put the dream of home ownership on the back burner, mortgaged 
my family's home, consumed every last penny in our savings 
accounts, and juggled credit card balances from one bank to 
another. It was clear that we were financially disadvantaged 
upon entry into the program.
    What value does it provide the program on requiring us to 
remain disadvantaged year after year for an additional nine 
years?
    Artificially keeping a business owner weak financially 
during the program works against the purpose of the program. 
8(a) companies need to be bankable during their tenure in the 
program in order to have access to capital for growth. This 
fact, coupled with the lack of parity and imposition of these 
same restrictions on all other SBA programs, such as the 
HUBZone program, make these caps unjust, unfair and 
counterproductive.
    With respect to the HUBZone program, it concerns me gravely 
that we continue to water down the strength of the 8(a) program 
by layering and prioritizing other programs in its stead. The 
HUBZone program is a resource-intense program to administer 
that requires constant monitoring in order to ensure 
compliance.
    The continued drain on the SBA's resources is hurting the 
8(a) program. We have already experienced considerable drops in 
8(a) procurement dollars since 1995 despite the fact that 
federal procurement dollars have increased steadily since that 
time.
    The HUBZone program preferences certain types of businesses 
and is most appropriate for certain NAICS codes. We need to 
look at the pay grades and more closely scrutinize the 
variables that lead to community development. It is critical to 
analyze the types of jobs that are HUBZone business is offering 
and the true impact of that business's employment in a HUBZone 
community.
    The 8(a) program is critical to the development and 
survival of small minority-owned businesses. Our economy needs 
us and companies like to be successful. We, in turn, need you 
to support the program and strengthen its objectives. We need 
to streamline the process of certification and governance. We 
need to eliminate caps that weaken a business owner's financial 
viability. And we need to more carefully consider the negative 
impact of other programs such as the HUBZone program that they 
are having in the 8(a) program. And most importantly, we need 
to significantly increase federal procurement dollars for 
qualified 8(a) firms.
    Thank you very much.
    [Ms. Aleman's statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much for your testimony, 
Alba.
    We are going to go ahead now to some questions, and I think 
I am going to start off here with a question for each of you. I 
will try to keep it a fairly short question.
    And that is, there are probably in your minds a number of 
things that you might like to see us do or change, places where 
we could make some improvement. I am interested in your number 
one top choice. If you could change one thing, today you had 
that magic wand and you could change one thing about the way 
the programs are set up, what would be your number one 
priority?
    A number of you, Anthony, you listed about four number of 
things, and Alba, you also mentioned a couple of things. I 
would like to know just number one priority. Let's just go in 
the same order of the witnesses. Go ahead, Daryl.
    Mr. Hairston. Well, I could say that we fully support the 
administration's budget request for fiscal year 2004 for the 
programs that are in consideration for reauthorization.
    Chairman Manzullo. So your priority would be to make sure 
you get the funding so you can do your job?
    Mr. Hairston. We would support the administration's budget 
request for those programs, yes, sir.
    Chairman Manzullo. That was pretty well restated. Okay, 
thank you very much.
    Next, Anthony.
    Mr. Robinson. Compliance is important, and the 
administration certainly has not requested sufficient resources 
in order to make compliance real, and I think that a great deal 
more could be done with existing situations where there is 
sufficient resources at SBA to make compliance real. So I would 
have to, with great reluctance, list that as my number one.
    Chairman Manzullo. So let me see if I understand what you 
are saying. What you are saying is there are certain agencies 
in the Federal Government that probably--I'm just guessing--
probably from a convenience point of view than anything else 
bundle a whole lot of stuff together and ship it out because it 
is less paperwork and less hassle to do.
    And you are saying if those large bundled types of 
contracts were broken down and were really given as 
possibilities for small businesses to compete for some of that 
business, that would, first of all, comply with the law; but 
second of all, would be the thing that would be the most 
helpful.
    Am I understanding what you are saying?
    Mr. Robinson. Yes, that plus other compliance issues that 
that infrastructure is designed to facilitate, yes.
    Chairman Manzullo. Can you give me an example of that, 
please?
    Mr. Robinson. I spoke relative to, you now, the PCRs, for 
example, and the multiple functions that PCRs are required 
relative to the identification of procurement opportunities, et 
cetera, on behalf of those companies, including the bundle 
situations that we are talking about. And my point relative to 
what SBA and what Mr. Hairston has indicated is that the 
administration's budget to carry out that compliance function 
in all of its areas is not sufficient in order to make that 
happen.
    Chairman Manzullo. How much bigger would it have to be?
    Mr. Robinson. I am not prepared to state that at this 
point. Certainly you have better than 40 percent of the budget 
that is not scrutinized by that process at present, and under 
the administration's budget. So whatever would be sufficient in 
order to have a greater percentage of the procurement process, 
oversight on that procurement process under review.
    Chairman Manzullo. Thank you. Thank you very much.
    Lonnie.
    Mr. Sanders. We would like to operate like every other 
business. What the statute that was inserted in the legislation 
did was to separate a HUBZone contractor and put him in a 
category that is impossible.
    I will go back to my illustration. This is a commodity.
    Chairman Manzullo. All right.
    Mr. Sanders. What they are asking us to do is do something 
more than 50 percent to this apple, and still make it look like 
an apple, and then we will do business with you. That is 
impossible to do. That is the manufacturing business.
    We are in the supplying business. No other business in bulk 
grain does that. They do not operate that way. Your major 
companies do not. They buy from farmers. They buy off the 
commodity exchange, they buy from each other. As a matter of 
fact, the agricultural program has a program that they sell 
some of the commodities that we store and we swap. If we bought 
from them, we would be ineligible based upon the way the 
statute was written to participate in the program.
    So the only thing we are asking is treat us like everyone 
else that is operating in the grain business, and that is it.
    Chairman Manzullo. Thank you. That seems fair. It would be 
innovative to see what they are going to do to the apple, 
change it 50 percent and still make it an apple.
    Mr. Sanders. And any other commodity.
    Chairman Manzullo. For that matter, yes. Right.
    Alba.
    Ms. Aleman. Thank you, Mr. Chairman.
    In sticking with your request to give you only one, I would 
have to say that statutory changes relative to 8(a) 
participation and percentages, both the agency's compliance and 
the compliance of large prime contractors.
    I met with someone just recently, an appointed official 
that seemed to feel that statutory changes were not necessary 
because people should just do the right thing. But in my 
experience, doing the right thing is a very subjective thing, 
and unless there are incentives and legislative requirements 
the right thing becomes a very nebulous thing.
    Chairman Manzullo. How complicated do you think it would be 
to try to--I think what I am hearing you say is that you have 
to put more teeth in the law.
    Ms. Aleman. Yes, sir.
    Chairman Manzullo. Okay. And how much additional complexity 
is that going to generate in the process of doing that?
    Ms. Aleman. Of changing the law or governance to----.
    Chairman Manzullo. Well, I am more concerned with after 
those changes were made. Let us just sort of say now everybody 
has just got to comply, and you have got to prove this, this 
and this. How much more paperwork and bureaucracy do we create 
if we try to do that?
    Ms. Aleman. Well, I am not sure it is additional, but 
annually, for instance, large primes are expected to report on 
their compliance. But the problem comes not in the reporting, 
but there are no disincentives, they do not lose their 
contracts if they do not comply year after year for five, six, 
ten years at times. There is no real reason for them to comply 
unless they wish to.
    Chairman Manzullo. Thank you very much.
    Ms. Aleman. Thank you.
    Chairman Manzullo. I would love to ask some more questions 
but I want to be fair to the other members of the Committee.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Hairston, why did you change the name of the memorandum 
of understanding used to delegate procurement functions to 
agencies to partnership agreements?
    Mr. Hairston. If I recall correctly, I believe we changed 
the name because partnership agreement, in terms of our view of 
a partnership agreement, was more indicative of the 
relationship that we viewed that we were having between the 
agency and then the procuring agency with which we were 
entering an agreement.
    Ms. Velazquez. Have you issued any policy notices providing 
guidance or procedures or clarification to the district offices 
in order to support these partnership agreements?
    Mr. Hairston. I think we did originally. I do not recall 
that we have done one recently.
    Ms. Velazquez. My understanding is that you have not.
    Mr. Hairston. I think we did when we first issued----.
    Ms. Velazquez. Will you submit to this Committee a copy of 
one of those notices?
    Some people contend that those partnership agreements have 
been the ones that caused the SBA to lose control over what 
8(a) firms are doing, thereby reenforcing the perception that 
the 8(a) program is contracting program rather than a business 
development program.
    How do you respond to that?
    Mr. Hairston. Under the partnership agreement, essentially 
what we are doing is delegating the authority that we once 
undertook under what we referred to as a tripartite agreement, 
which when we entered into a contract with a procuring activity 
we would sign that contract and at the same time have the firm 
sign that contract as a subcontracting action.
    Ms. Velazquez. The 8(a) program, is it a business 
development program?
    Mr. Hairston. Well, it is a business development program.
    Ms. Velazquez. Okay. How did these partnership agreements 
ensure disadvantaged businesses receive maximum practicable 
opportunity to participate in the fair marketplace and enhance 
the competitive viability of 8(a) firms, which is clearly the 
congressional intent?
    Mr. Hairston. What this partnership agreement does is it 
streamlines the execution process of a contract. It does not 
take the place of the business development assistance that we 
provide through our district office employees at SBA. We still 
provide those same services that we provided before we entered 
into those partnership agreements. We still advocate for 
contracting opportunities. We still will help negotiate on 
their behalf.
    Ms. Velazquez. Okay, you said to me before that the 8(a) 
program is a business development program. So can you tell me 
what kind of business development is currently being provided 
to the 8(a) firms?
    Mr. Hairston. Well, we provide business development through 
our 7(j) program. We provide business development through our 
resources under our entrepreneur development program, through 
program SCOREs, Small Business Development Centers.
    Ms. Velazquez. What about matching events?
    Mr. Hairston. Well, we provide that through match making. 
As a matter of fact, most of our matchmaking events, we have 
had large representation of 8(a) firms at our matchmaking 
events.
    Ms. Velazquez. But I am asking specifically about the 8(a) 
program, not the 7(j)?
    Mr. Hairston. No, I said most of our matchmaking events, we 
have had large representation from our 8(a) community at all of 
those events.
    Ms. Velazquez. Can you tell me what follow up was done to 
evaluate the effectiveness of this training? And does the SBA 
keep record of all of the business development assistance 
provide to 8(a) firms?
    Mr. Hairston. We keep track of the assistance provided to 
our 8(a) firms. Those programs that are provided under our 
entrepreneur development programs are tracked in their 
information system. Under 7----.
    Ms. Velazquez. Have you evaluated those?
    Mr. Hairston. I cannot think of an evaluation that has 
taken place in the last year.
    Ms. Velazquez. Ms. Aleman, what kind of business 
development assistance have your firm received through the 8(a) 
program?
    Ms. Aleman. Business development assistance as in helping 
us? I would have to say that we have aggressively attended a 
lot of the training session from the Small Business Development 
Centers if that is what you are referring to.
    Ms. Velazquez. No, I am not.
    Mr. Hairston here is telling us that they are providing to 
the 8(a) firms business development assistance. I am asking you 
if you have ever received any type of business development 
assistance that has been provided by the SBA.
    Ms. Aleman. Not if you are talking about something outside 
of the training. I am not familiar with something else that 
might be considered business--other than the training session.
    Ms. Velazquez. Well, he talked about matching events and 
some other----.
    Mr. Hairston. We also consider training as part of our 
business development assistance.
    Ms. Velazquez. Have you ever received any training?
    Ms. Aleman. I have attended a lot of the training for the 
Small Business Development Centers that are provided in our 
area.
    Ms. Velazquez. Provided by SBA through the 8(a) program.
    Ms. Aleman. I have, but what is not clear here is even when 
it comes to matchmaking events and the training sessions, they 
are very basic, the ones that the SBA provides. I went to one 
session at the SBA when I first was accepted into the program 
where they just talked about the program generally.
    If anything, I actually serve as a resource for the SBA to 
come and do training, and mentoring, and I mentor a lot of 
other businesses that are even smaller than my own. But even 
the matchmaking events, it is a far cry from attending a 
matchmaking event to an actual real contract.
    And maybe what we need to be measuring is contracts in 
hand. And if we can tie back a contract that came out of a 
matchmaking event, then that is really the goal. To just have 
an event where small business officers show up and attend, and 
I have got to tell you, depending on how many resources you 
have, it may or may not be valuable.
    Ms. Velazquez. Mr. Hairston, my concern is that the 8(a) 
program has been stagnant for the past 15 years. No statutory 
changes have been done to this program. The SBA has not changed 
the way the program has operated since the implementation of 
procurement reform in 1994, except to delegate contract 
functions to agencies that Mr. Robinson made reference to.
    And yet given the opportunity to at minimum increase the 
8(a) net worth beyond the $250,000 that has been since 1998, 
you have chosen to make only cosmetic changes to the program 
this year.
    And the cosmetic change you propose to make is to take the 
word ``minority'' out of the program. Would you please explain 
why the SBA is allowing the 8(a) program to fail?
    Mr. Hairston. Well, what I can explain is that we have 
undertaken a project to look at ways to modernize the 8(a) 
program. As I mentioned earlier, we are in the process of 
developing an electronic application process. We are 
centralizing our annual review process to reduce the paperwork 
and to make that an automated process. And we are also 
evaluating the program from an internal standpoint to develop 
methods that we can deliver a program.
    Ms. Velazquez. Mr. Hairston, when I asked you if you have 
done anything to evaluate the effectiveness of the training 
that you provide, you said that you have done none.
    Mr. Hairston. Not specifically at the training that has 
been recorded in our database. No, we have not looked at that.
    What I am saying is that we are taking an overall look at 
the program, to evaluate the program to determine if we are 
delivering it in the most effective manner.
    Ms. Velazquez. So you will do some changes to it that are 
substantive, that will respond to the issues and concerns that 
have been raised here beyond taking out the minority word of 
the 8(a) program.
    Mr. Hairston. Yes, we will continue to evaluate the 
program, and we will develop recommendations in terms of what 
would be appropriate in terms of delivering a program in the 
future.
    Ms. Velazquez. Well, you have been there for awhile, and 
nothing has happened. I can promise you that if you do not act, 
we will act.
    Let us talk about the PCRs and people mentioned here, the 
procurement center representatives. We have only 47, not even 
one per state.
    Ms. Angela Stiles, director of the OMB's Office of Fair 
Procurement Policy, in testimony before this Committee 
expressed concern regarding the lack of resources devoted to 
the President's bundling plan when I questioned her about the 
fact that President Bush last year in March announced his small 
business agenda, and in the top of that agenda was contract 
bundling; that they will be breaking up. And nothing has 
happened.
    And when I questioned her why, she said that she does not 
have the--that they do not have the resources.
    In her testimony on May 7 before this Committee, Ms. Stiles 
said, and I am quoting, ``I will certainly ask you to talk to 
SBA as well on their allocation of resources for PCRs.''
    Can you please tell me why is it that your office has not 
requested additional PCRs?
    Mr. Hairston. Based on our assessment of the circumstances 
at this time, we, and I think Mr. Robinson mentioned this, we 
presently cover 200, the top 200 buying activities in the 
country. We cover about 60 percent of the total federal 
expenditures with our existing PCR workforce. And we believe, 
with the implementation of the contract bundling report with 
the accountability being placed on agencies for meeting the 
goals, for the commitments that we are receiving from the 
agencies to achieve their goals, and with the education and 
training that we will provide to contracting officers, that we 
will see a greater--we will create an environment to create 
better opportunities----.
    Ms. Velazquez. Do not continue. Do not continue. Look, were 
you listening to my opening statement?
    Mr. Hairston. Yes, I was.
    Ms. Velazquez. I said that again this year we are going to 
issue a report that is going to show how the Federal Government 
failed to achieve small business goal, minority goals, and 
women business goal.
    And when I questioned Ms. Stiles about the fact that 
nothing had happened since the President announced his small 
business agenda, she said that there is a lack of resources, 
and that an important component to that is PCRs.
    And you can come here with a straight face and say that the 
President's budget request is sufficient.
    Mr. Hairston. Well, I had not gotten to that point. What I 
was going to say was that, as we go forward implementing the 
strategy we will reassess the application of our resources.
    Ms. Velazquez. What strategy? A year later, sir? The 
President made this announcement last year. You know, small 
businesses are suffering in our nation. We can lecture and we 
can go and campaign and say how wonderful they are. They are 
the backbone of our economy. And then listen to all these small 
businesses who are suffering, and nothing is being done.
    What about the Women's Business Center? You do not mention 
the Women's Business Center.
    Mr. Hairston. That does not fall under my program areas, 
ma'am.
    Ms. Velazquez. The women procurement program. We passed the 
legislation two years ago. When are you going to come before 
this Committee and inform us about the study for the study of 
the study?
    Mr. Hairston. Well, we have----.
    Ms. Velazquez. When?
    Mr. Hairston. We have issued a contract with the National 
Academy of Sciences to undertake the study that we believe we 
need.
    Ms. Velazquez. The study that was conducted already.
    Mr. Hairston. Right.
    Ms. Velazquez. And now you hire--you gave a contract for a 
firm to study the study.
    Mr. Hairston. That is correct, yes, to take a look at the 
methodologies and the approaches----.
    Ms. Velazquez. God bless America.
    Thank you, Mr. Chairman.
    Chairman Manzullo. We will proceed to other questions in 
the order as the members came. I think, just from a timing 
point of view, if we could I would like to see if we can keep 
this fairly close to--cut it off fairly close to maybe at the 
most a quarter past or so, because we have a whole second panel 
of witnesses. So if we could keep the questions sort of in the 
five-minute range, it would be great.
    Mr. Udall, you were next in line, I think.
    Mr. Udall. Mr. Hairston, when you talk about modernization 
in the 8(a) program, is part of that modernization effort 
raising the personal net worth restriction? Is that something 
that this administration supports? And where do you think it 
should be?
    Mr. Hairston. The immediate task that we are undertaking is 
the simplifying of the application which was mentioned earlier 
as being onerous. The paper-intensive annual review process, we 
are taking an effort to try and automate that to the extent 
that we can.
    As far as the overall assessment of the program in terms of 
looking at how it is delivered, is it being delivered 
effectively, I think many of the issues that have been raised 
here today are being considered in that process.
    Mr. Udall. But you do not have a position today on----
    Mr. Hairston. Not today, no.
    Mr. Udall [continuing]. Raising the personal net worth 
restriction?
    Mr. Hairston. No, no, I do not have a position on that 
today.
    Mr. Udall. The HUBZone program does not have that personal 
worth restriction. Are you looking at that as part of it also, 
as to whether or not those should be equalized in any way?
    Mr. Hairston. Well, the net worth restriction on the 8(a) 
is based on the original statute that requires that the 
individuals who own and operate an 8(a) must be determined to 
be socially and economically disadvantaged.
    One of the factors that is required in the economic 
disadvantaged determination is a look at the individual's 
personal net worth.
    The HUBZone program is a geographic-based program, places 
no restrictions on the well being of the individual. Only 
requires that the firm be located in a designated HUBZone area, 
that the individual be a U.S. citizen, and that they employ 35 
percent of those employees who are residents of a HUBZone, but 
there are no specific requirements for the individual 
eligibility other than their citizenship, sir.
    Mr. Udall. Do you think that that would open that up to 
abuse in terms of a HUBZone business, somebody moving in and 
just setting something up if they did not have this personal 
net worth restriction?
    Mr. Hairston. You mean in terms of HUBZones?
    Mr. Udall. Yes. Yes.
    Mr. Hairston. The HUBZone program does not have a personal 
net worth restriction.
    Mr. Udall. That is right.
    Mr. Hairston. The 8(a) does.
    Mr. Udall. No, I understand that.
    Mr. Hairston. Are you asking if we require an economic?
    Mr. Udall. Well, I am asking if it is not required in a 
HUBZone and the purpose there is to try and get businesses 
operating, small businesses----
    Mr. Hairston. Right.
    Mr. Udall [continuing]. With no personal net worth 
restriction, could you not have larger businesses set up and do 
things that would really be undermining the whole small 
business premise?
    Mr. Hairston. Well, if that were to occur, and we were not 
able to detect it, it would certainly be a violation of our 
rules, particularly our affiliation rules that would govern the 
size of a firm. We require that those firms be small 
businesses, and that they remain small businesses as long as 
they are in fact in the HUBZone program.
    Mr. Udall. Asking the other witnesses, I mean, do any of 
you have an opinion on this personal net worth restriction and 
whether or not it should apply to HUBZone and should it be 
raised up in the 8(a) program?
    Ms. Aleman. Well, if we are going to----.
    Mr. Udall. Ms. Aleman.
    Ms. Aleman. If we are going to give parity to HUBZone 
program with the 8(a) program, my only question would be how 
would we feel about it if Bill Gates started a HUBZone. He is 
definitely a much more financially bankable individual than 
myself and probably most of the folks here on this panel. And 
how fair is it to protect and provide these organizations with 
protected competition when they are not expected or required to 
do the same things, or go through the same hoops that we are?
    So that is my concern. If we are going to give parity to 
these programs, and we need to be careful because there is a 
damaging impact if I am forced to be disadvantaged, but those 
that we are giving parity to have no disadvantage requirements. 
So it is just an issue of how we are going to view the programs 
in general.
    Mr. Robinson. I would have a similar concern. If this 
Committee recalls in a recent hearing relative to large 
businesses and their involvement in the small business program. 
But absent some cap, if you will, relative to net worth and 
issues of that, you know, you stand to reason to invite that 
kind of continued abuse in these programs as well.
    So I would be also for some kind of net worth restriction 
and on the front end. It certainly do not make sense to me over 
the tenure of your life of the program that you would penalize 
success. But being that the policy is based on your entry into 
the program of being disadvantaged, it would seem to make sense 
on that, but again, geared toward some industry standard.
    Mr. Sanders. We have been, C&S Trading, we have been very 
blessed to have been able to work with two of the largest grain 
companies in the world, Cargill and ADM. It took a tremendous 
effort on our part to make that happen.
    Our biggest problem right now is the legislation that has 
been inserted in the HUBZone provision that does not allow us 
to do business like everyone else. As a matter of fact, it does 
not allow us to do business at all with the HUBZones.
    So I would really hope the Committee would take a look at 
that legislation and give us the same opportunity as anyone 
else, to execute, not undermine the program, and that is 
essentially what this legislation has done, undermining the 
HUBZone program.
    Mr. Udall. I thank the panelists, and yield back to the 
Chairman.
    Chairman Manzullo. Thank you, Mr. Udall.
    And let me--I have our list here. Mr. Ballance, I think, 
was next.
    Mr. Ballance. Mr. Chairman, thank you. I am going to be 
brief. I heard the last two witnesses and a part of Mr. 
Robinson's, and I did not hear Mr. Hairston's testimony.
    Mr. Hairston, I am very disturbed by what Mr. Robinson had 
to say--Mr. Sanders had to say, Lonnie Sanders.
    Do you have any jurisdiction in that area?
    Mr. Hairston. The provision in the statute referred to by 
Mr. Sanders is actually a provision that was inserted in SBA's 
2000 reauthorization bill.
    Mr. Ballance. I understand that, but do you have any 
jurisdiction in that area?
    Mr. Hairston. In terms of--yes, in terms of the regulatory 
process as it relates to----.
    Mr. Ballance. That is a pre-question. My question is, if 
you do have jurisdiction, and you heard his testimony, are you 
prepared to recommend to us that we make a change?
    Mr. Hairston. Well, I think Mr. Sanders characterized it 
very well. SBA, when we got involved in that particular----.
    Mr. Ballance. Mr. Chairman, I am a lawyer. I am going to 
have to ask him to answer this question.
    Are you prepared, are you prepared--now your title is--I 
saw it somewhere.
    Chairman Manzullo. It is complicated. It is a very long 
title.
    Mr. Ballance. Deputy Associate Deputy Administrator.
    Mr. Hairston. Right.
    Mr. Ballance. Are you prepared to make a recommendation to 
this Committee based on what you heard today or what you 
already know?
    Mr. Hairston. I would have to go back and look at that 
provision before I could give you any idea of what a good 
recommendation would be.
    Mr. Ballance. You are not as outraged as I am about his 
testimony?
    Mr. Hairston. Well, I certainly think that that is 
certainly a hindrance to him doing business.
    Mr. Sanders. No, no, it is not a hindrance. It is a block.
    Mr. Hairston. A block.
    Mr. Sanders. You cannot take this apple----.
    Mr. Ballance. I yield him 30 seconds, Mr. Chairman.
    [Laughter.]
    Mr. Sanders. You cannot take this apple and substantially 
change it 50 percent and still have it look like an apple. That 
is exactly what the legislation says, and we cannot, you 
cannot, no one can do that. That is impossible.
    Now, how can you sit there and say you would not help us? 
That is ridiculous.
    Mr. Hairston. No, no. What I am saying is that I need to 
look at the provision.
    Mr. Sanders. What you are saying is nothing. What you are 
saying is a lot of legalese.
    Mr. Ballance. Excuse my----.
    Mr. Sanders. We need some help.
    Mr. Hairston. If I could answer the question, I would be 
happy to answer the question.
    Mr. Ballance. I want to know if you are going to make that 
recommendation.
    Mr. Hairston. Well, I would be happy to answer the question 
now. It could be a situation that can be addressed through the 
regulatory process. I do not know that until I look at the 
statute. It may not be able--the statute may be written in such 
a manner that we cannot address it through the regulatory 
process.
    Mr. Ballance. Well, I will yield back----.
    Mr. Sanders. The statute was inserted, I think, if I am not 
mistaken, in violation of the Administrative Procurement Act, 
which did not follow the procedure as it relates to being 
asserted in the business.
    So you are saying you are going to look at something that 
did not occur, if I am not mistaken.
    Mr. Hairston. No, sir, I am saying that if it was inserted 
in our statute, it was done so by Congress. And in order for us 
to determine whether it is something that we can address from a 
regulatory process or whether it would require statutory 
change, we would need to review that.
    Chairman Manzullo. I appreciate the line of questioning. 
Perhaps we can kind of cut through this though.
    Mr. Hairston, could you look into that and report back to 
the Committee whether this is a rules and regs deal, or whether 
it is a statutory thing?
    If it is a statutory thing, I think we are going to want to 
revisit that question, and perhaps you would want to look at it 
the same way if it a rules and regs.
    Do you have the authority to change that rules and regs-
wise?
    Mr. Hairston. When the statute is written, we interpret the 
statute.
    Chairman Manzullo. I understand that.
    Mr. Hairston. I need to look at it to see if we can 
interpret it in a manner that we can address that from a 
regulatory perspective.
    Chairman Manzullo. Then you have the authority to change 
it.
    Ms. Velazquez. Mr. Chairman, may I----.
    Chairman Manzullo. Yes, I yield; yes.
    Ms. Velazquez. It is their interpretation. This is not a 
statute. It is a rule.
    Mr. Hairston. No, it is a statute. It was in our 
Reauthorization Act. It was Section 612 of the Reauthorization 
Act of 2000.
    Chairman Manzullo. Let us look into it and see if we cannot 
at least take care of one--get one blow for freedom in here 
today.
    We have got next, I think, Mr. Schrock. Were you going to 
make a--it is either questions or answers. I think this is 
answers time.
    Mr. Schrock. Well, I am not going to ask a question, I do 
not expect an answer, but I am going to make a comment.
    I was not here to hear the testimony of the four 
individuals here, but let me guess what happened. The 
government agency came in, and I am not trying to pick on you, 
Mr. Hairston, but the government agency came here and said what 
wonderful things they are doing for small business. And Mr. 
Robinson, Mr. Sanders and Ms. Aleman said, no, they are not. 
And we hear this time and time and time again.
    I share Ms. Velazquez's frustration. We study things to 
death up here, and I am sick of it. I am sick of agencies 
answering a question by saying we are studying it. We have got 
to stop that because these people out here a dying on the vine, 
and the backbone of this country is small business, and we are 
killing them with our regulations.
    And you know, bundling, I heard--the minute I walked in 
here I heard bundling, and my back got up, because that is a 
huge issue in the district I represent in Virginia. We have got 
to get these people to respond. They can come and testify week 
in, week out, month in, month out, but if they do not take 
action and help these people.
    I am glad to hear what Mr. Sanders said. I almost applauded 
but we are not allowed to do that. But I think you are 
absolutely right what you said. We have got to get government 
off these peoples' back. And if they are regulations that are 
supposed to help these people, then we need to put their feet 
to the fire, and Democrats and Republicans need to holler at 
them until they get it down.
    And I am not a lawyer, Mr. Ballance, but you know, I think 
I can understand what I am being hood wigged.
    Now that is not saying anything derogatory about you, Mr. 
Hairston, but we have heard this time and time again, just the 
names and the people--just the names have changed. Every time 
we have a hearing this goes on. Ms. Velazquez is sick of it. 
And I think--I think she is anyhow. And I think I am too. We 
have simply got to do something about it.
    Chairman Manzullo. She was about as eloquent as you are.
    Mr. Schrock. Well, thank you. Thank you. We will make a 
good team.
    Thank you, Mr. Chairman.
    Chairman Manzullo. I thought I was going to have to try and 
get law and order in here.
    [Laughter.]
    Chairman Manzullo. Thank you, Mr. Schrock.
    And let us see, yes, Ms. Napolitano. All right.
    Ms. Napolitano. Thank you, Mr. Chairman. I associate with 
the comments on both sides.
    We have been battling for a long time trying to get some 
relief and some assistance to the small businesses in my area 
who are losing literally their businesses because they cannot 
get assistance or they are not able to compete in the 
situations that have been covered before.
    Ms. Aleman, your comment in your testimony regarding what 
you would have to do to qualify for the HUBZone was 
interesting. Basically, you would have to get rid of 35 percent 
of your employees and move to a low income area; am I correct?
    Ms. Aleman. Yes, ma'am.
    Ms. Napolitano. What impact would this have on your ability 
to compete for federal contracts?
    Ms. Aleman. Well, relocating is not the worst of our 
problems, you know. We understand that training our folks is 
expensive as it is, and we have already got a core team of 
folks. But more importantly, we provide high-end technology 
services to the government. These types of services that have 
serious requirements both educational and years of experience, 
and folks that qualify for these particular types of labor 
categories and rates and the services we provide, I have not 
found any living in a HUBZone yet.
    But if I were to train someone, we would never be able to 
qualify for the years of experience that is required, and what 
it would mean is I would have to drastically change my business 
model, change the services that we are providing in order to 
comply, truly comply with the intent of the program.
    Ms. Napolitano. What kind of impact would this have on your 
firm if we were to include a new program for service disabled 
veterans that had priority over your 8(a) firm?
    Ms. Aleman. We would continue to water down the resources, 
the limited resources as you hear Mr. Hairston saying. They are 
already limited in the number of resources they have. It has 
been said over and over again. And if we continue to layer in 
programs that take precedence over the 8(a) program, and yet do 
not have the restrictions, do not have the restrictions, then 
that just makes it more difficult for us.
    Ms. Napolitano. Mr. Robinson, any comments?
    Mr. Robinson. Oh, I would absolutely agree. What you have 
is a continuing dilution of benefits to program participants. 
The more and more you add new folk, and it is not to say that 
people are not worthy, but it is the resources necessary to 
deliver. The benefits of these programs are just not there.
    Ms. Napolitano. Mr. Hairston, I understand the SBA has 
decided to put the SBA exchange project on hold. Is this 
correct?
    Mr. Hairston. That is correct.
    Ms. Napolitano. Was there any notice put out on this 
decision?
    Mr. Hairston. Yes, there was. We noticed--at the time we 
made the decision to put it on hold we notified the small 
business community that in fact we were putting it on hold. We 
explained the reason we were putting it on hold.
    Ms. Napolitano. Excuse me. What business community? How did 
you outreach to them? How did you get that information to them?
    Mr. Hairston. Well, we put a notice on our Web site first, 
and the firms that had already signed up to participate in the 
SBA exchange were notified in writing. Each firm was notified 
in writing.
    Ms. Napolitano. Any media coverage? Any newspaper articles?
    Mr. Hairston. Yes, there was.
    Ms. Napolitano. Any magazine outreach to be able to reach 
those firms?
    Mr. Hairston. Yes, there were a number of media interviews 
and inquiries about the status of SBA exchange at that time.
    Ms. Napolitano. But you really did not do any great 
outreach. You just put it out in the Web site and----.
    Mr. Hairston. And contacted the firms that had in fact 
already----.
    Ms. Napolitano. How many of them? Do you have any idea, 
ballpark?
    Mr. Hairston. It was in the neighborhood of probably about 
500 companies in all at that time.
    Ms. Napolitano. Were those companies refunding their $1500, 
what do they call it, the registration cost?
    Mr. Hairston. At this point I do not know that any firm has 
actually received a refund. We have had some inquiries 
regarding the refunds, and of course, we have gotten inquiries 
as well as the SBA exchange contractor has gotten inquiries 
regarding refund.
    And what we have indicated to them is that as it stands 
right now we have a project on hold. The project is being 
reviewed by OMB to make certain that it is consistent with the 
integrated acquisition environment mission and direction and 
goal, and that we intend to go forward with the project in the 
very near future, and we are asking them to be patient.
    But I do not know that there has actually been any refunds 
given to this point.
    Ms. Napolitano. How long ago was the decision made and when 
did you notify these businesses, roughly? Months?
    Mr. Hairston. It has been several, it has been at least two 
months I know.
    Ms. Napolitano. Will you be paying them interest?
    Mr. Hairston. We have not made any decisions regarding 
refunds at this point.
    Ms. Napolitano. Well, sir, if I were in business, and I am, 
a micro business, I would certainly be able to use that money 
or put it in the bank and get some interest on it, or at least 
use it to expand my business, or hire an employee or do other 
things with it.
    So my suggestion is that SBA be able to get on the ball and 
either refund the money, keep those people on a list, at a 
later time, unless you are going to pay them interest on that, 
sir, because if I had it in a bank, I would get interest.
    So it is quite a bundle. It is pretty close to a million 
dollars that you are holding onto peoples' money.
    Mr. Hairston. Well, we do not actually have the money, 
ma'am. We entered into a no-cost agreement with the SBA 
exchange provider. We received no funds, and we provided no 
funds.
    Ms. Napolitano. Who has the money?
    Mr. Hairston. The SBA exchange contractor would have any 
deposits that were made or any monies that were paid.
    Ms. Napolitano. Is that a private contractor?
    Mr. Hairston. That is a private contractor.
    Ms. Napolitano. They have $750,000 worth of business money, 
and I suggest somebody tell them either they are going to pay 
interest or maybe we will look at it legislatively and make 
sure that they do get refunded one way or another.
    Mr. Hairston. Yes, ma'am.
    Ms. Napolitano. Thank you.
    There are several other things I would like to, but I yield 
to my colleagues since Mr. Manzullo has come in.
    Chairman Manzullo. Thank you very much, Ms. Napolitano, and 
we have another gentleman who has joined us here in the far 
right, the Chairman's far right.
    Chairman Manzullo. I am sorry I was not here. We were on 
the floor.
    You are telling me the SBA hired a private company to do a 
government function at no cost, and charged 500 small business 
people $1500 a piece. Yes or no?
    Mr. Hairston. Yes, we entered into a no-cost----.
    Chairman Manzullo. What is the name of the company?
    Mr. Hairston. Nexgen.
    Chairman Manzullo. Could you spell that for me?
    Mr. Hairston. N-E-X-G-E-N.
    Chairman Manzullo. And they have done no work?
    Mr. Hairston. They have done some work, yes, sir.
    Chairman Manzullo. Some work? I want to tell you right now 
I want that money returned in 30 days. We are writing the 
reauthorization. I am going to put it in there or I will take 
it out of your budget.
    Do you understand that?
    Mr. Hairston. Yes, sir.
    Chairman Manzullo. Repeat to me what I just said.
    Mr. Hairston. You indicated that you would----.
    Chairman Manzullo. I did not indicate.
    Mr. Hairston. I am sorry. You stated that you would like 
for the money to be refunded.
    Chairman Manzullo. I did not state that. I did not say ``I 
liked.'' I want you to understand what I just said. Please 
repeat it for the record.
    Mr. Hairston. You stated that you wanted the money refunded 
within 30 days.
    Chairman Manzullo. The money shall be refunded within 30 
days. Do you understand that?
    Mr. Hairston. Yes, sir.
    Chairman Manzullo. Or I will have an oversight hearing. 
When is the next hearing we are having here? Who has got the 
book?
    Next week. When is it? Next Wednesday. I want you to be in 
this room next Wednesday at two p.m. with a document stating, 
and a copy of a letter going to every person, every small 
business that the money is going to be returned.
    Mr. Hairston. Yes, sir.
    Chairman Manzullo. You will be here.
    Mr. Hairston. Yes.
    Chairman Manzullo. No excuses. I want it done.
    Who was it that came up with this program?
    Mr. Hairston. This program was--the actual concept was 
started, I think, in 1998 or 1999.
    Chairman Manzullo. Okay.
    Mr. Hairston. When the original contract was entered into, 
the original no-cost agreement.
    Chairman Manzullo. Just a second. No cost to whom?
    Mr. Hairston. There is no cost to the government.
    Chairman Manzullo. No cost to the government.
    What is your budget for the SBA?
    Mr. Hairston. Our budget request for this year is in the 
neighborhood of 800 million.
    Chairman Manzullo. Well, that is correct. So do not tell me 
it is no cost. Those small businesses are paying taxes that pay 
to keep this thing going. And you are telling us that the SBA 
is charging $1500 to do a government function----.
    Mr. Hairston. No, sir.
    Chairman Manzullo. That is not a government function to 
make matches?
    Mr. Hairston. No, sir. We are not charging $1500. That was 
a price that the contractor was charging.
    Chairman Manzullo. That is bureaucratic gobbledygook. That 
is what makes small businesses irate around here. I mean, you 
confirmed 500 small businesses have paid $1500 a piece for a 
government function. You should be doing that for them free.
    Do you agree with that?
    Mr. Hairston. Well, the purpose of the contract was for the 
contractor to develop the system, and the cost associated with 
developing the system basically relates to the fees that they 
charge.
    Chairman Manzullo. It takes $1500 to develop a system to 
make matches? Have you no idea that you already have a 
matchmaking system, and that in the middle of June the SBA had 
a matchmaking seminar in Chicago, a copy of it was done in 
Orlando, and going to seven cities across the nation for 
matchmaking purposes? Are you not aware of that?
    Mr. Hairston. Yes, I am. The e-commerce system, SBA 
exchange is a much more sophisticated, it is a transaction-
based system serve the entire government, make the federal 
procurement process totally paperless. It is a little bit more 
sophisticated than the matchmaking----.
    Chairman Manzullo. Well, I want to tell you something. It 
is becoming unsophisticated. That already exists. I think I 
need something stronger than coffee. Thank you. That already 
exists.
    Mr. Hairston. It is not a duplication of any existing 
systems in the government at this time.
    Chairman Manzullo. You had better be prepared to defend 
that program Wednesday at two o'clock, and I am very serious. I 
will keep you here in this room as long as it takes next week 
until those people are assured that they are getting back their 
money, and you are going to have to break that contract with 
that company that has done very little
    Was that contract competitively bid?
    Mr. Hairston. No, it was----.
    Chairman Manzullo. Oh, it was not?
    Mr. Hairston. No, it was not.
    Chairman Manzullo. It was not competitively bid.
    Mr. Hairston. No, it was an 8(a) sole source contract.
    Chairman Manzullo. It was an 8(a) sole source program. Is 
that what it was?
    Mr. Hairston. It was an 8(a)----.
    Chairman Manzullo. There was no competition at all on this 
thing?
    Mr. Hairston. No.
    Chairman Manzullo. What is the background of this company?
    Mr. Hairston. It is an e-commerce company. It has been in 
the IT business for several years; had developed the prototype 
of the system, and at that time the individuals who were 
evaluating the system saw great potential and what it could do.
    And as I said, as I indicated, the system is now being 
currently--it is being currently reviewed by the integrated 
acquisition environment, and it is part of the overall----.
    Chairman Manzullo. Well, you can just tell them to stop it. 
If you want to keep that going, you pay it out of your own 
budget. Those small business people have been screwed, and I 
want them to get their money back. That is an embarrassment for 
the small business community in this country into the SBA to 
have such an outrageous thing like that.
    I mean do you know how many free programs there are out 
there offered by the government for match making, for 
international trade, for all types of--I mean, we have a PTAC. 
Do you know what a PTAC is?
    Mr. Hairston. Yes, sir.
    Chairman Manzullo. Procurement Technical Assistance Center.
    Mr. Hairston. Yes.
    Chairman Manzullo. Jonathan Jackomo in Rockford, Illinois; 
one of 91 PTEC offices was named number one in procurement 
technical assistance. We had people come out from DoD. Deidra 
Lee came herself, 254 people showed up for purposes of match 
making. We have had the Department of Commerce come out. We 
have had conference after conference after conference of 
government agencies willingly offering matchmaking programs. 
Not one has ever charged anything except the SBA to these 
people. That is a disgrace.
    I will see you Wednesday at two o'clock with that document.
    Ms. Velazquez. Mr. Chairman.
    Chairman Manzullo. I will yield.
    Ms. Velazquez. Yes, please. Thank you.
    I just would like to make a clarification here because I am 
a little bit confused. I do not think the issue here is the 
contract, but the fact that SBA--it is not that the contractor 
did not fulfill its obligation; it is the fact that SBA put it 
on hold that contract, is it not?
    Mr. Hairston. That is correct.
    Ms. Velazquez. And it is SBA who is not allowing for the 
contractor to fulfill its obligation?
    Mr. Hairston. That is correct.
    Ms. Velazquez. Why not?
    Mr. Hairston. Well, as I indicated, the Office of 
Management and Budget, the integrated acquisition environment 
is reviewing this system for inclusion in the overall 
integrated acquisition environment e-government procurement 
process, and they are looking at it to make certain that it is 
consistent with the mission and objectives of the e-government 
initiative in terms of single point of entry, simplifying 
acquisition opportunities for all federal agencies.
    This system will allow for on-line transactions to take 
place. It is not really a matchmaking system. It is a system 
that will allow federal procurement officers to simplify their 
buying. They go on line. They make a purchase on line. They 
actually pay their bills on line, and it will allow small 
businesses a greater access to more federal procurement 
opportunity with a focus on procurement particularly under 
$2500.
    We are losing about $14 billion a year to credit card 
purchases where there is no control. This system gives agencies 
the ability to control those purchases. That is what was being 
looked at for the purposes of this system.
    Ms. Velazquez. Is the contractor under the impression that 
SBA will not continue with this program?
    Mr. Hairston. No, he is not.
    Chairman Manzullo. I would just say that the charging of 
these people by the Small Business Administration is 
incompatible with the administration's belief and with that of 
the marvelous Administrator Mr. Barreto. He understands small 
business people. He was out of my district and the Speaker's 
district for two entire days traveling all over the place. And 
this is the type of thing that I am sure that he does not want 
to take place.
    Mr. Hairston. Well, one of the things that is being 
evaluated in this process at this time is the cost model, and 
we do expect to see a change in the pricing structure.
    Chairman Manzullo. Well, there will not be any price at 
all. I am telling you I do not want those guys charged, period. 
Do you understand that?
    Mr. Hairston. Yes.
    Chairman Manzullo. Thank you, Mr. Chairman, and we also 
have Ms. Millender-McDonald. Do you have a questions or an 
answer?
    Ms. Millender-McDonald Question. An answer? SBA does not 
have answers. Why would you think that I have any answers here 
this evening?
    Chairman Manzullo. Well, it seems some other people have 
been sharing some.
    Ms. Millender-McDonald No, really. I thank you, Mr. 
Chairman, and it is good to see our Chair Chairman here today. 
I follow your lead in terms of saying that small businesses 
have been, and then the blank, you fill in the blank of what 
you said.
    We have got to really revitalize America if we are going to 
really get down to the crux of what really moves the engine of 
this economy, which is small business. Then, you know, we are 
sitting here talking to a man who says he is going to look into 
everything. So clearly, to me, we do not have the person who 
should be at this table. It should be your boss, Mr. Fred 
Amedeous, or it should be the man who the buck stops at, and 
that is Mr. Barreto.
    Mr. Chairman, I suggest that we call all of these folks in 
here, and talk with them because we are failing in doing our 
due diligence on small businesses, and there is no point in my 
sitting here when we know that your personal net worth of 8(a) 
owners is $250,000, when you do not have a limit on the 
HUBZone.
    So I mean there is a disparity here, and it is even more so 
with minority businesses. So I do not see beating up on you, 
Mr. Hairston, because the buck does not stop with you. We need 
to call the guy who is your boss or the guy who is the boss of 
that boss, and all of them to sit in this table here and talk. 
And until we do that, I am not going to waste anymore time 
talking with the gentleman who is going to look into the 
issues.
    I yield back my time, and I have a statement for the 
record.
    Chairman Manzullo. With no objection.
    Chairman Manzullo. Let us see, and Ms. Bordallo.
    Ms. Bordallo. Thank you, Mr. Chairman.
    I have a question for Mr. Hairston. The unemployment, this 
has to do with my territory of Guam, the unemployment rate on 
Guam is double the national average. Yet only selected areas 
have been designated HUBZones by SBA.
    If I understand correctly, Guam is only 212 square miles in 
total land mass. Why is the entire island not designated as a 
HUBZone?
    Mr. Hairston. The determinations for actual areas that are 
designated by HUBZones is done by the Census Bureau. We take 
that data and it is based on a formula that they use, and we 
translate that data to those designated census tracts and areas 
by HUBZones. So it would be predicated on their analysis of the 
economic data related to those particular areas.
    Ms. Bordallo. So you are saying population?
    Mr. Hairston. It would be the income, unemployment.
    Ms. Bordallo. Economic stats, right?
    Mr. Hairston. Right.
    Ms. Bordallo. All right, thank you.
    Thank you, Mr. Chairman.
    Chairman Manzullo. Thank you, and no questions from Mr. 
Toomey.
    Okay, this concludes the first panel hearing.
    [Recess.]
    Chairman Manzullo. [Presiding] The hearing will come to 
order.
    Congressman Jim Colby from Arizona is going to be 
introduced, and thank you for joining our panel. Glad to have 
you hear, Jim.
    Mr. Colby. Thank you.
    Chairman Manzullo. Do you want to go ahead and introduce 
your witness?
    Mr. Colby. Well, thank you very much, Mr. Chairman. I am 
delighted to introduce one of the very distinguished panel of 
witnesses that you have here, and hopefully we can set them all 
at ease. I understand they said that they thought that it was 
the last part of your hearing was a little rough, that you were 
a little tough on the people testifying, so I said you will not 
be nearly as tough with the private sector ones.
    We have only just begun. Okay, that should set them well at 
ease.
    [Laughter.]
    Mr. Colby. Mr. Chairman, I am delighted to have the 
opportunity to introduce the--it looks like the male member of 
the panel that is up here today--Lee Smith who is the program 
manager for Southern Arizona Business, what is called the 
BusinessLINC program. And he is going to be talking about this 
program and its national validity. He is going to describe the 
funding, the grant funding for BusinessLINC and how it has 
become really an investment in new domestic, and I might add, 
for southern Arizona international commerce.
    It is a combination of the interactive vendor database and 
the staff outreach has become really a very highly productive 
tool to encourage mentor and protegee interaction.
    BusinessLINC has been uniquely productive, over $54 million 
in new regional contracts, $2.7 in new international contracts, 
and that is just in the initial 18 months that this program has 
been in place. It has generated an estimated 680 new and 
retained jobs, 28 mentor protegee projects, already has 1600 
business profiles in its database, and new tax revenues are 
estimated to be about $3.1 million in the southern Arizona 
area.
    So it has prompted the Arizona Department of Commerce to 
use the program as a model for the statewide expansion of 
BusinessLINC, which is what I hope you are going to hear about 
today. We think it is enjoying widespread interest and support 
from all aspects of the Arizona business community, and we are 
delighted to be able to share this with you here today,and I am 
delighted to have Mr. Smith, who is so well known, prominently 
known in our Tucson community, here to talk about this problem.
    Thank you very much, Mr. Chairman, for this chance to give 
you this brief introduction to this program.
    Chairman Manzullo. Well, thank you, Mr. Colby. Normally I 
would start with the administration witness. If you wanted to 
stick around and ask questions of your constituent, I could 
have him go first.
    Mr. Colby. That is alright. Please go ahead. No, go ahead 
in regular order. I will have to leave anyhow because of some 
other business.
    Chairman Manzullo. Okay. Thank you, Congressman Colby.
    Our first witness will be Kaaren Street, Associate Deputy 
Administrator, U.S. Small Business Administration, Office of 
Entrepreneurial Development. We welcome your testimony.
    Let me just say, once in awhile I get excited in Committee 
here. Today is the day. You are fine. But you know, notice how 
few people are left in here which gives you an indication as to 
how many from the agency were here. And Hector Barreto has done 
a tremendous job at the SBA. I spent two whole days with him, 
and traveling the nation. He has gone all over the place for 
the purpose of encouraging small business people to get 
engaged, and to go to these seven--now there are six regional 
conferences of actual match making taking place.
    And I guess what really got me upset about this so-called 
program on hold, $750,000 to develop something you do not need, 
is that with the small businesses who go to these matchmaking, 
it is two and a half days of concentrated--there are about it--
it is a concentrated study, so the small business people can 
get involved in procurement and also in selling to larger 
companies that are involved in selling to the government for 
the purpose of fulfilling the small business set asides, and 
also for the purpose of allowing small business to get involved 
in the procurement.
    There are 80 agencies and businesses, many with contracts 
in hand, that will come to the seminar. The total cost of the 
seminar is $125 with scholarships available, and that includes 
all the materials and the food. I mean, it is a marvelous 
program, and it is state-of-the-art computerized matchmaking 
taking place with NAICS numbers.
    And as people call in or go to the Web site, they can 
register, they can put in their NAICS numbers. They can set up 
their own appointments with government people or the people at 
the SBA will provide the matchmaking. And so when the small 
businesses show up you will have what happened in Orlando, 
Florida, where people came from 18 states, $2 billion worth of 
government procurement and private contract dollars, 2500 
actual interviews were done face to face for the purpose of 
fulfilling the mission of the SBA.
    I mean that is tremendous testimony to the job that Hector 
Barreto is doing. And I just cannot be that Hector even knew 
about 500 people paying $1500 a piece to get onto a computer 
program that does not exist.
    After that introduction, Ms. Street, I just want to let you 
know I am not that bad.
    Ms. Street. Okay. I am shaking over here. I am a little 
nervous.
    Chairman Manzullo. And we look forward to your testimony. 
Thank you.

STATEMENT OF KAAREN J. STREET, ASSOCIATE DEPUTY ADMINISTRATOR, 
 U.S. SMALL BUSINESS ADMINISTRATION, OFFICE OF ENTREPRENEURIAL 
                  DEVELOPMENT, WASHINGTON, DC

    Ms. Street. Chairman Manzullo, Ranking Member Velazquez, 
and Members of the Committee.
    Chairman Manzullo. I'm sorry. Could you move the microphone 
closer? Thank you.
    Ms. Street. Sure. Is that better.
    Chairman Manzullo, Ranking Member Velazquez, and Members of 
the Committee, thank you for inviting me here today to discuss 
the reauthorization package for the U.S. Small Business 
Administration for fiscal year 2004.
    The SBA is committed to serving America's small business 
men and women as an effective and efficient twenty-first 
century organization. SBA is reforming its programs and 
management to be dynamic and responsive, and to aggressively 
reach out to those entrepreneurs who needs its services. SBA 
particularly seeks to expand its reach into emerging markets. 
Above all, SBA is working hard in the Office of Entrepreneurial 
Development to integrate its services and programs into a 
client-based organization that answers the needs of 
entrepreneurs whether they come to SCORE, Small Business 
Developments Centers, our Women'S Business Centers, our Native 
American program or any other SBA program.
    An example of an innovative and adaptive program is SCORE. 
SCORE operates in a dynamic, innovative fashion and leverages 
its grant funding with strategic alliances and seasoned small 
business volunteers. These volunteers annually donate more than 
a million hours of hands-on, real-life experience to the pre-
venture and start-up entrepreneurial market. SCORE works 
aggressively to deliver its services to entrepreneurs wherever 
they may be. In fact, SCORE pioneered small business e-mail 
counseling in 1997, which now accounts for 25 percent of 
SCORE's total counseling.
    Innovation requires flexibility, and many ED programs 
simply do not have the flexibility they need to improve 
efficiency, institute new ideas, and reach out to emerging 
markets. One example, in particular, is the Women's Business 
Center Program, and its sustainability pilot, which is about to 
expire.
    The Women's Business Program provides valuable services to 
an underserved community, but its cost per client makes it one 
of our most expensive programs within the ED structure.
    Currently, there are 52 centers receiving Women's Business 
Center grants. The sustainability pilot requires SBA to spend 
30.2 percent of the program budget, which equates to $3.6 
million 2003, on WBCs that have already graduated from the 
original five-year program.
    Under this formula SBA is awarding grants to 81 centers 
leaving little or no budget resources available for new 
centers, innovation, marketing, or outreach. As a result, SBA 
will be unable to fund new WBCs in some of our largest urban 
areas which are not now being served; including Cleveland, 
Miami, Los Angeles, San Diego, Pittsburgh, Tampa, Little Rock, 
Minneapolis, Las Vegas, and many more. By redirecting the 30.2 
percent allocated to the sustainability pilot, SBA could 
instead offer grants to a number of new centers.
    Unfortunately, with the sustainability pilot in place, the 
budget will be entire accounted for. There will be no expansion 
into larger markets like Los Angeles and Miami and elsewhere. 
All WBC funding will be concentrated on simply maintaining the 
status quo. SBA is requesting that this pilot program be 
allowed to expire. Our goal is not to close or hinder existing 
centers, but to encourage growth and innovation in the current 
program.
    Another important ED program is the Small Business 
Development Center program. The SBDC program is the largest 
non-credit program at SBA, and provides a wide array of 
information and services to new and existing entrepreneurs, 
counseling hundreds of thousands of small businesses and start-
ups every year.
    Like the WBC, however, SBA believes that the SBDC program 
could benefit from a new sense of innovation. The agency 
proposes a competitive grant process to select the lead center 
in each state on a five-year basis. This competition would 
affect only the lead center. It does not threaten the networks 
of individual centers themselves.
    Current lead centers would, for the first time, be asked to 
find new and better ways of serving small businesses, or face 
the possibility of being replaced. The resulting competition 
would ensure dynamic administration of the program at the 
critical lead center level, and result in better service to our 
clients, America's entrepreneurs.
    The SBA's proposal does not mandate change in lead center 
administration; rather, it introduces the potential for 
competitive leadership concepts. Competition is the backbone of 
American society, and leads to efficiency and innovation. This 
process will not result in a wholesale turnover of lead centers 
despite the dire predictions of certain groups. Lead centers 
that perform well will continue to be successful and continue 
to be part of the network.
    Finally, I want to bring you up to date on our recent 
activities within SBA's Office of Native American Affairs. SBA 
appointed Thelma Siffarm to head this office and lead our 
Native American initiative. Thelma has over 30 years experience 
working with tribes and Indian organization, and is a former 
elected official to her tribal council of the Fort Bellnet 
Indian Reservation.
    Recently, the agency received approval from the Committee 
on Appropriations on its proposal for allocating the $2 million 
received in fiscal year 2003 for the Native American 
initiative. To develop this initiative, SBA gathered input and 
support from tribal leaders, and is currently working with the 
Bureau of Indian Affairs and other government and tribal 
agencies to maximize its effectiveness.
    The initiative is not based on any one office, building, or 
organization. Instead, SBA will reach underserved communities 
using all possible means: tribal colleges, correspondence 
courses using e-mail or CD-ROM, collaboration with tribal and 
private organization, e-government initiatives, and more.
    The goal is not merely to deliver government funds to 
Indian country. The initiative is to bring new investment, 
jobs, and skills to Native American entrepreneurs--building 
economic growth within the Indian community. A dynamic, 
innovative approach will be the rule in the new Office of 
Native American Affairs.
    To conclude, small businesses create over two-thirds of all 
new jobs in the American economy. That is what the President's 
management agenda is all about--creating jobs and growth for 
the American people, while protecting the assets of hard 
working taxpayers.
    The changes we propose to Congress in this reauthorization 
share a common goal: success through innovation. To achieve 
innovation, SBA must be able to invest in the marketplace of 
new ideas, and the agency asks for your support in this effort.
    Thank you for your leadership and support in the small 
business community. SBA looks forward to continuing to working 
together.
    Thank you. I would be happy to answer any questions at the 
appropriate time.
    [Ms. Street's statement may be found in the appendix.]
    Chairman Manzullo. Really appreciate it.
    We are going to have a vote here in a few minutes.
    Mr. Beauprez, you have a witness here, constituent here, do 
you not?
    Mr. Beauprez. I have both, Mr. Chairman. Thank you.
    Chairman Manzullo. Why do you not go ahead and introduce 
your constituent and then we will continue our testimony and 
see how far we get.
    Mr. Beauprez. Thank you, Mr. Chairman.
    It is a real pleasure today to introduce Kersten Hostetter, 
both a friend and a constituent of mine. Having managed several 
small businesses, Kersten Hostetter was asked to serve as the 
executive director of the MicroBusiness Development 
Corporation.
    Since the merger between Colorado Capital Initiatives, Pace 
Works, and Colorado MicroCredit, the new organization has 
rapidly become one of the premier microenterprise agencies in 
the country.
    Kersten brings the force of her considerable skill in 
business and even greater vision, and energy to an agency 
dedicated to creating opportunities for success in 
microenterprise clients throughout the state. Because of the 
scope and effectiveness of the MBD's various programs, she has 
achieved national recognition for her work in her field.
    Kersten is striving beyond her commitment to financial 
opportunity throughout Colorado. She is also a champion for the 
financially disenfranchised throughout the nation. In addition 
to serving as chairperson of the board of directors for the 
Colorado Alliance of Microenterprise Initiatives, she also sits 
on the board of the national association, the Association of 
Enterprise opportunities.
    Her goal is economic justice through community involvement 
for all people, and under her leadership MicroBusiness 
Development Corporation is meeting that goal on a larger scale 
every year.
    Mr. Chairman, we are also joined today by Roberto Salazar. 
Roberto Salazar, and you can hold your hand up. Bob is the 
founder of a company called Safety Support Systems in Colorado, 
and is a user of the vary programs that we are conducing this 
hearing about today. And I had a chance to visit with him this 
morning; very proud of what he has accomplished, and living 
testimony to what these programs are all about.
    Lastly, Mr. Chairman, I would point out that it was a 
woman, a Mary Madison, who was running an SBDC office in one of 
the toughest parts of Denver in the Five Points area, that 
showed me around that neighborhood a few years ago, and ended 
up being a cause for the company I used to run, opening a bank 
in a very, very underserved community, and collaborating with 
Kersten and others in seeing the credit needs of microbusiness 
entrepreneurs as well as other small business people were met 
in a community that previously were going very underserved.
    So my compliments, and thank you for yielding to me, Mr. 
Chairman.
    Chairman Manzullo. Well, that is quite a introduction. 
After that, Kersten, we expect some great testimony. I am sure 
it is going to come.
    Ms. Hostetter, we will start with you and see how far we 
get before these bells of tyranny come into disrupt our 
hearing. Look forward to your testimony.
    The lights there, green is go, yellow is you have got one 
minute, and red is put the brakes on.
    Ms. Hostetter. You have got it.
    Chairman Manzullo. So we appreciate it. Look forward to 
your testimony.

      STATEMENT OF KERSTEN HOSTETTER, EXECUTIVE DIRECTOR, 
       MICROBUSINESS DEVELOPMENT CORPORATION, DENVER, CO

    Ms. Hostetter. Thank you, Mr. Chairman, Ranking Member 
Velazquez, and Members of the Committee, especially 
Representative Bob Beauprez, for the opportunity to testify 
before you today.
    My name is Kersten Hostetter, and I am the Executive 
Director of the MicroBusiness Development Corporation, a 
microenterprise development organization Colorado, as well as 
the Director of the Association for Enterprise Opportunity, the 
national association of microenterprise development 
organization.
    I am here to testify today on the Program for Investment in 
Microentrepreneurs, known as PRIME, and in support of the 
Women's Business Centers program. Before I discuss those 
programs specifically, I would like to tell you a little bit 
about microenterprises and their important role in the U.S. 
economy.
    Americans have always cherished the idea that they can 
build better lives for themselves and their children through 
hard work and sacrifice. Many people are trying to achieve this 
ideal by starting their own microbusinesses. These 
microbusinesses are small businesses with five or fewer 
employees and initial capital needs of $35,000 or less. They 
are located in both urban and rural communities. Many of these 
microentrepreneurs are low income, women, minorities, or 
disabled individuals.
    Unfortunately, hard work and sacrifice is not always 
enough. Two of the biggest obstacles these individuals face are 
lack of capital and the need of technical assistance. With 
capital and technical assistance, microentrepreneurs can grow 
their businesses, increase their personal income and support 
economic revitalization by providing job and commerce in 
economically distressed communities.
    In Colorado, there are more than 412,000 microenterprises--
providing nearly one-fifth of the state's total employment. In 
some rural communities these entrepreneurs create over 40 
percent of the total employment. In other states, these figures 
are even higher.
    Locally-based microenterprise development programs provide 
access to credit, training, and technical assistance. Clients 
receive assistance in business plan development, market 
analysis, financial management, business assessments and other 
support services working with a provider for 10 or more hours 
of service in a given year. Microenterprise development 
programs are able to provide these services due in large part 
to several federally funded programs, including the Office of 
Women's Business Ownership and PRIME.
    The SBA's Office of Women's Business Ownership is the only 
federal office that specifically targets women business owners. 
Its Women's Business Centers provide training and technical 
assistance to women starting or expanding businesses. The 
centers are required to target services to economically and 
socially disadvantaged women, some of whom are 
microentrepreneurs. Last year alone, Women's Business Centers 
provided consulting, training, and technical assistance to more 
than 80,000 women. The Women's Business Centers are one of 
AEO's top priorities. We echo the testimony of the Association 
of Women's Business Centers, particularly on the issue of 
sustainability grants.
    The PRIME program was developed in concert with the 
microenterprise development industry, which saw the incredible 
unmet demand for services among very low-populations and the 
impact these services had on them. PRIME is unique among 
federal programs in that it specifically targets the needs of 
very low-income clients who may not need or want to borrow 
funds, but require a longer time frame for assistance.
    The PRIME program, along with private matching dollars, 
supports the work of MicroBusiness Development Corporation. 
Through the program, we were able to develop a business 
assessment tool that provides the small business owner with a 
clear technical assistance strategy to meet both short and 
medium range goals.
    We then work with the client over an 18-month period to 
review the use of recommendations, set new goals, develop and 
implement an action plan.
    Like you, the microenterprise industry believes in 
demonstrable outcomes for federal programs. In the first 17 
months of the PRIME program, MBD has served 168 clients, using 
less than $700 of federal funds per client. Eighty-eight 
percent of clients are low income, 50 percent are women, 51 
percent are minority, and 18 percent come from the rural 
communities of Colorado.
    The PRIME program is currently authorized to receive $15 
million per year--this needs to be increased. Last year's $5 
million appropriation underfunded the program. The budget 
request to eliminate the program would have dire consequences 
for real businesses in Colorado and throughout the United 
States.
    Demand for microenterprise business is on the rise as many 
more families are turning to business ownership. Without your 
support, organizations like mine will have to reduce services 
to rural entrepreneurs like Roberto, who with time and 
consistent business development will change an industry, save 
lives and support his family and his community through a 
microenterprise.
    Chairman Manzullo. How are you doing on time? We have got a 
vote coming up on my amendment.
    Ms. Hostetter. I was just about to say thank you very much 
for this opportunity.
    Chairman Manzullo. Thank you.
    Ms. Hostetter. And I will be happy to answer any questions 
at the appropriate time.
    [Ms. Hostetter's statement may be found in the appendix.]
    Chairman Manzullo. This hearing is in recess for about a 
half an hour.
    [Recess.]
    Chairman Manzullo. The Small Business Committee will come 
to order.
    Our next witness is Sue Whitfield who is my constituent. 
Sue has been the Director of the Small Business Development 
Center in care of the Entrepreneurship Department at McHenry 
County College since February of 1994. She has counseled over 
1900 business owners entrepreneurs. She holds a professional 
certificate as one of three certified business consultants in 
the State of Illinois, recognized by the Illinois Small 
Business Development Association, and she is also one of their 
certified business specialists.
    We look forwards to your testimony.

   STATEMENT OF SUSAN R. WHITFIELD, DIRECTOR, MCHENRY COUNTY 
  COLLEGE SMALL BUSINESS DEVELOPMENT CENTER, CRYSTAL LAKE, IL

    Ms. Whitfield. Thank you. Chairman Manzullo, Ranking Member 
Velazquez, and Members of the House Committee on Small 
Business, I am Susan Whitfield, Director of the Small Business 
Development Center at McHenry County College in Crystal Lake, 
Illinois.
    Thank you for the opportunity to share the critically 
strategic role of SBDCs in renewing our country's economy, 
particularly manufacturing.
    The Committee suggested that I present a typical day within 
SBDC, to describe some of the services that SBDCs provide to 
manufacturer. I assure you that there is a real constituent 
behind each example that I present.
    The day begins at 7:30 a.m. with a meeting at the local 
chamber of commerce. The SBDS director requests the city staff 
refer a restaurant building purchaser to the SBDC for help with 
their business plan and loan proposal, gets an industrial part 
layout sheet from a developer for a client that is looking for 
a new location, and is pleased to find out that a local bank is 
adding a commercial loan officer to their branch expansion. 
This is a good start to the day.
    At the office, today's e-mail list is long, and the phones 
start ringing with existing clients and new referrals from the 
SBA Web site, our congressional representatives, state 
representatives, banks, the county clerk's office, chambers, 
the counseling center, and wildly advertised book on free 
government services. Callers frequently act surprised to be 
talking to a real, live person.
    Our office provides free counseling to approximately 250 
clients per year. About half of our clients are already in 
business and are usually contacting us for assistance with 
expansions, loans, and marketing.
    Our phone call and e-mails deal with questions about I am 
starting a business and do not know where to start. Do you have 
any seminars or classes, Women's Business Center PRIDE 
certification, Minority Business Enterprise, Small Business 
Innovation Research grants, and how do I get a government grant 
or loan for my small business?
    Our office tracks over 40 programs at the federal, state 
and local level. These programs are constantly changing their 
size, qualifications, purposes, missions, and how to be 
contacted.
    Seminars, entrepreneurship courses, Web sites and books are 
suggested, and if needed, appointments for counseling are made.
    Today we are called about a manufacturing client that is 
within 30 days of becoming insolvent. After analysis of her 
situation, we suggested that she should instead, rather than 
getting a loan, try to renegotiate the terms of purchase with 
the original owner of the company. This strategy worked, and 
she avoided additional debt.
    This same business owner was afraid that a disgruntled 
employee might call OSHA. We recommended the free OSHA 
consultation available from the state that allows sufficient 
time to make improvements without penalties.
    We fit our context around our counseling session. Our 
morning client is in the electronic component industry. He 
wants to take advantage of the currently low interest rates to 
purchase his building, and he is writing a loan proposal that 
we will review. Our close relationship with the SBA 504 
Certified Development Corporation will link him with a bank 
that is aggressively pursuing commercial loans.
    In addition, he needs to expand his sales, and we find out 
that he has done work for a government research lab in the 
past. We immediately call our procurement technical assistance 
center director to arrange an appointment to get him on the 
government bid lists. We also urge the client to attend the SBA 
business matchmaking event in Chicago this month.
    In the case of manufacturers, we try to visit their 
facilities, so let us go on a site visit. Our afternoon visit 
is to a metal fabricator that has the opposite problem of our 
morning client. This company recently won some defense 
government contracts and is also producing a component destined 
for export. Their manufacturing floor is so crowded that it is 
obvious that they need to expand their facilities.
    We work on a financing strategy to expand their current 
facility that may include an industrial revenue bond, the SBA, 
and a local revolving loan fund. Our host institution can also 
assist them with international trade, ISO certification and 
noncredit employee training.
    We end the day with an evenings ``Starting a Business'' 
seminar. This director enjoys doing the start-up presentation 
for two reasons: It provides us the opportunity to urge clients 
to use the resources of the SBDC, SBA, State of Illinois, and 
our host institution. We know that long-term SBDC clients 
create ten times the number of jobs, grow four times faster, 
and is twice as likely to survive five years than non-SBDC 
businesses.
    The SBDCs create more revenue than they cost the taxpayer, 
generating $2.09 in tax revenues for every dollar spent on the 
program.
    Second, the seminar reconnects us to the real reasons why 
SBDCs exist. As with our clients who are already in business, I 
see both the fear and excitement in the eyes of these potential 
small business owners. As a small business owner myself, I have 
been in their shoes as were my immigrant grandparents.
    These seminar attendees are on the verge of making a life-
changing decision, to achieve one of the great American dreams, 
the dream of owning their own business.
    It is the role of the SBDC to support their efforts so that 
their business will be successful.
    I close this presentation to you in the same manner that I 
always close the seminar. We consider it to be our great 
privilege and our great pleasure to work with you who seeks 
success in small business.
    Thank you.
    [Ms. Whitfield's statement may be found in the appendix.]
    Chairman Manzullo. Well, thank you very much.
    Our next witness is Hedy Ratner, co-founder and President 
and co-president of the Women's Business Development Center in 
Chicago, the largest and oldest, 18 years of most comprehensive 
women's business assistance center in the United States.
    I have had the opportunity to visit the center. And Hedy, 
during the course of your testimony, have not had a chance to 
read it, but why do you not bring forth what you are doing for 
the people who are working to get off government assistance, 
and that Internet program--not the Internet--the----.
    Ms. Ratner. BusinessLINC?
    Chairman Manzullo. Whatever that program is where you are 
teaching them and training them to be home care providers for 
children.
    Ms. Ratner. It will be my pleasure.
    Chairman Manzullo. Thank you.
    Ms. Ratner. Before I start, I am trying to sweeten up the 
Committee.
    Chairman Manzullo. What have you got there?
    Ms. Ratner. I want to sweeten up the Committee.
    Chairman Manzullo. I should really give this----.
    Ms. Ratner. It is from Chicago.
    Chairman Manzullo. I really should give this to Daryl 
Hairston.
    [Laughter.]
    Chairman Manzullo. I am serious, because I am going to call 
and apologize profusely for taking out a bad program on him. He 
has done a marvelous job at the SBA, and the poor guy just 
happened to be sitting in the wrong seat at the wrong 
particular time. Sometimes, Hedy, as you know, I get very 
passionate about small business.
    Ms. Ratner. That is why we love you.
    Chairman Manzullo. Well, yes, but there was no reason for 
me to take out my anger on him. I should have taken it out on 
the program.
    And Tee, did you call him and tell him I will be calling 
him to apologize?
    Mr. Tee. Yes, sir. He will be in until six.
    Chairman Manzullo. Okay, I appreciate that. Thank you very 
much.
    Well, that is quite an introduction, and this has never 
happened before, and it does violate the gift ban.
    Ms. Ratner. No, it does not. No, no, I did not think so.
    Chairman Manzullo. Hedy, we look forward to your testimony.

  STATEMENT OF HEDY M. RATNER, CO-PRESIDENT, WOMEN'S BUSINESS 
                DEVELOPMENT CENTER, CHICAGO, IL

    Ms. Ratner. Thank you, Chairman Manzullo, the distinguished 
legislator from my home state of Illinois, and esteemed Members 
of the Small Business Committee who were here before.
    My name is Hedy Ratner. I am the co-founder and co-
president of the Women's Business Development Center in 
Chicago. The Women's Business Development Center since 1986.
    Chairman Manzullo. Hedy, could you move the microphone back 
just a little?
    Ms. Ratner. Oh, yes.
    Chairman Manzullo. Not closer.
    Ms. Ratner. Oh, farther away.
    Chairman Manzullo. Yes, just a little.
    Ms. Ratner. I have no voice.
    Chairman Manzullo. That is okay. We are hearing you.
    Ms. Ratner. Is that better?
    Chairman Manzullo. We are getting a little bit of a 
feedback.
    Ms. Ratner. Good.
    Chairman Manzullo. Please.
    Ms. Ratner. Better? Yes. Okay.
    We provide business--I need another minute, you know.
    [Laughter.]
    Ms. Ratner. Okay, all right.
    Chairman Manzullo. Let us restart the clock.
    Ms. Ratner. Good.
    Chairman Manzullo. You do not miss anything either.
    Ms. Ratner. No. Since 1986, we provide business assistance 
to women and men in English and Spanish in the metropolitan 
area of Chicago and in the collar counties of northern 
Illinois.
    I am also representing the Association of Women's Business 
Centers as a founding member, and a member of the Association 
for Economic Opportunity and supportive of their 
recommendations.
    Special thanks, Chairman Manzullo, for your interest in our 
Women's Business Development Center.
    Chairman Manzullo. Hedy, Manzullo was the alderman for----.
    Ms. Ratner. Manzullo, Manzullo.
    Chairman Manzullo. Manzullo was----.
    Ms. Ratner. Leader Manzullo, you are absolutely right.
    Chairman Manzullo. This is a bad point, but we will restart 
the clock. No, you go ahead, please.
    [Laughter.]
    Ms. Ratner. I said Manzullo. Oh, dear. Only this time. It 
tells you how old I am, you know, and he is long gone. All 
right.
    [Laughter.]
    Ms. Ratner. I would also like to thank the Ranking Member 
of the Committee, Congresswoman Velazquez, for her tremendous 
efforts on support of Women's Business Centers.
    The Association of Women's Business Centers founded in 1996 
represent women business centers and the women business owners 
they serve. But let me cite a few pertinent statistics in order 
to provide the context for my testimony, and to support my 
entreaties to this distinguished Committee.
    Women-owned businesses are increasingly recognized as an 
important economic force. We number 6.2 million, employ 9.2 
million, and generate $1.15 trillion in sales nationwide. In 
1973, before the Women's Business Centers existed, only five 
percent of all businesses were run by women. It is now over 28 
percent.
    There are over 1.2 million women-owned firms, one in five, 
the fastest growing trend, that are minority-owned businesses, 
minority women-owned businesses. 1.4 percent of women-owned 
businesses, 1.4 have over 100 employees. The revenues of women-
owned-and-run businesses is only four percent of majority-owned 
firms. But recent statistics indicate that 35 percent of all 
women-owned businesses still earn less than $10,000. But 
113,000 majority-owned, privately-held women-owned businesses 
have revenues over a million, but that is only 1.8 percent.
    Although we are the fastest growing segment of the economy, 
we are earning nothing compared to male-owned businesses. We 
need your help to grow, to be successful, to thrive, to create 
jobs, to stimulate the economy.
    Many, many, many of these women business owners have 
received and continue to need information, guidance and 
training from the country's Women's Business Centers. Struggle 
they do, but empowered they become in child care, construction, 
technology, design, retailing, manufacturing, finance, 
agriculture and a multitude of service businesses.
    I am here today to talk about the future of the Women's 
Business Center program. This 15-year-old-program has provided 
business training and counseling to tens of thousands of women 
in rural, urban and suburban communities throughout the U.S. In 
Illinois alone, our Women's Business Development Center served 
over 35,000 women and men--we do not discriminate--since our 
inception.
    There are now centers in 48 states that receive funding 
from the SBA Office of Women's Business Ownership at a time 
when women are starting businesses at twice the rate of their 
male counterparts, women who are losing jobs and starting 
microenterprises to support their family, minority women and 
low-income women who are establishing businesses in order to 
sustain their families.
    We believe that the contributions of the Women Business 
Centers has been significant and are potential to make an even 
greater contribution to this entrepreneurial economy even more 
promising.
    Today, I want to address an important issue which to me is 
the burning issues facing our Women's Business Centers, and 
that is sustainability, sustainability.
    As you can see by the sheer weight of numbers, demand for 
the services of the Women's Business Centers has never been 
higher than it is now. In fact, in the past six months women's 
participation in the Women's Business Development Centers 
programs has doubled, doubled, doubled. But we, the supporters 
of women's business assistance and directors of these 
successful programs are gravely concerned about the long-term 
viability of this program and our ability to continue to serve 
this dynamic, growing, demanding, and needy population of women 
entrepreneurs.
    As you asked, the Women's Business Development Center was 
founded in 1986. We have served 35,000 women from those seeking 
to start small businesses as a means to transition off of 
welfare to those who are launching or expanding high-growth 
businesses.
    All our programs are taught in English and in Spanish in 
our downtown Chicago and neighborhood and suburban satellite 
sites. Fifty-five----.
    Chairman Manzullo. You are over by about a minute. Are you 
about ready to close?
    Ms. Ratner. Oh, no, I cannot.
    Chairman Manzullo. Yes.
    Ms. Ratner. Oh, God. Well, no, you gave me an extra minute.
    Chairman Manzullo. No, what I will do is part of my 
questions I will ask you that question. Okay?
    Ms. Ratner. Yes, but can I finish?
    Chairman Manzullo. How much time is it going to take?
    Ms. Ratner. I want to make some recommendations and then I 
will end. I promise.
    Chairman Manzullo. I will let you make recommendations on 
my time.
    Ms. Ratner. Your time.
    Chairman Manzullo. Right. All right. Okay, there will come 
a question time.
    Ms. Ratner. Can I conclude at least?
    Chairman Manzullo. Yes.
    Ms. Ratner. Oh, good.
    Chairman Manzullo. All right.
    Ms. Ratner. A fast conclusion.
    Chairman Manzullo. Go ahead.
    Ms. Ratner. I want to thank you for providing us this 
opportunity to share our passion and our concerns for the 
future of the program. If we are to succeed in our joint 
mission to serve and prepare women business owners to run 
successful businesses, we need your support for sustainability. 
Give us the resources, let us work together to build on the 
program's successes, and wisely protect the investment. To do 
otherwise is to standby and helplessly watch a great economic 
trend reversed. Please be that champion for us.
    Thank you.
    Chairman Manzullo. Thank you.
    Ms. Ratner. You promise I can still give you the 
recommendations?
    Chairman Manzullo. You bet.
    Ms. Ratner. Okay.
    [Ms. Ratner's statement may be found in the appendix.]
    Chairman Manzullo. Let me explain something to the 
witnesses here. Members of Congress come and go from these 
hearings. We are on multiple Committees. The testimony here 
goes up on the Internet, up on our Web site, is that right, 
Barry? And your testimony also filters through a live Internet 
system that has been accessed across the country, gosh, 
including my remarks. That must have been great.
    [Laughter.]
    Chairman Manzullo. It is good it wasn't televised.
    Ms. Whitfield. Springfield is listening.
    Chairman Manzullo. What is that?
    Ms. Whitfield. Springfield is listening.
    Chairman Manzullo. Oh, okay. But I do not want you to be 
disappointed that there are not a lot of members of Congress 
here because that testimony, a lot of the testimony is to build 
support for your programs with the general public, and then it 
comes back to us again in terms of people contacting the 
members of Congress, and you know, we have heard this, we have 
read this information, et cetera, on it. Okay?
    Our next witness is Lee Smith. Mr. Smith, you have already 
been introduced by your congressman. We look forward to your 
testimony.

  STATEMENT OF LEE SMITH, PROGRAM DIRECTOR, SOUTHERN ARIZONA 
                    BUSINESSLINC, TUCSON, AZ

    Mr. Smith. Okay, thank you very much for the opportunity. I 
am excited and honored to have the opportunity to share my 
experience and some of my perceptions regarding the SBA 
BusinessLINC program.
    I brought some visuals because I think it is important to 
recognize what we have done with our--at least with our program 
and the difference between other programs that may exist in the 
SBA.
    Identifying and applying best practice methodology 
generally improves business operational efficiencies, and in 
most cases result in a more competitive posture in the 
marketplace. Facilitating the exchange of knowledge and 
expertise between large and small manufacturers is in itself a 
worthy goal of the SBA BusinessLINC program.
    Without question, market competitiveness is a key element 
of business success. However, many small business owners face 
other equally important challenges such as advertising, 
marketing and sales. In most cases, we know that small 
businesses tend to focus critical internal resources on 
delivery of products and services, and really lack the 
expertise and the resources to move beyond that.
    And what we are saying is in this part of the program the 
mentor protegee, which again several other programs that are 
represented today do a terrific job in helping businesses 
become educated about better practices and how to implement 
those practices, but we thought, at least in our area, that was 
not enough for what our small business community was indicating 
to us where their need went.
    To more efficiently respond to the unique needs of and 
issues of southern Arizona's manufacturing associated 
businesses, we expanded our BusinessLINC program focus, and we 
will show that on the next chart, to include and encompass all 
areas of business operation. Our goal was to maximize small 
business retention and expansion impact to the region through 
the leveraging of collective local, state and federal economic 
development resources, and the utilization of public and 
private sector expertise to work in concert with us with this 
effort.
    We prioritized areas of program focus and identified tasks 
and associated resources in our community that could support 
each of those areas of focus. We also at the same time 
developed an overall program coordination and accountability 
system that included tracking and reporting of field staff 
activity and deliverables. And we used this information for 
continuous improvement and evaluation, and also for our 
investment for our partners' consideration.
    We engaged southern Arizona economic development community 
organizations to enlist program support and participation, and 
we have been very, very successful at doing that.
    The areas of focus are, of course, mentor protegee, and our 
goal there was to identify and apply best practices. Our 
methodology there was to facilitate access to existing 
resources that could provide that sort off support, and we 
certainly have parallel working relationships with our local 
SCORE, SBDCs, Women Business Centers, and a number of economic 
development organizations as well as community volunteers.
    The second issue which we think is the most important of 
where we were going is we wanted to maximize product and 
service awareness of our local resources, and we did that by 
creating a database at the grass roots level that is much more 
than a yellow pages directory. We wanted an interactive 
database that buyers could quickly go in. They could quickly 
screen on all sorts of levels and only get the pertinent 
companies that they are looking for. And instead of looking for 
50 machine shops on a return, you would get I want woman-owned, 
I want ISO certified, I want--our database is up and running 
and we are very proud of that.
    We currently have over 1500 companies listed in our 
database, and please understand that our program started 18 
months ago from scratch. We developed this database. We 
implemented the field staff to promote companies coming in 
through partnerships throughout the region.
    A very important element of what we do is identify needs, 
and we do that with our field staff that aggressively engages 
in our big business communities with Mexico, looking at 
products and services that we can sell in Mexico, and the 
success of that is the engagement of our staff in those levels 
of community.
    So once we identify those needs, we also want to know why 
people are making the decision to buy outside of our area, and 
so that is where we have put a lot of our focus.
    I hope that my testimony today has provided you cause to 
consider larger possibilities for the BusinessLINC program 
through what we have done in a short amount of time. I urge you 
to continue funding for the program. It means a lot to our 
small business community.
    Thank you.
    [Mr. Smith's statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much.
    Mr. Smith, this database that you developed, could you 
explain how you developed it and how people access it?
    Mr. Smith. I would be proud to.
    I have been in the business for about 2,000 years, both on 
the government side and the private sector side, and we are 
very integrated into our small business community in southwest 
Arizona. We represent five counties in the area in our program.
    What I felt was imperative was to be able to create a 
database that not only we could coach companies to totally 
profile their capabilities, their products and services, their 
capacities, all the things that a buyer would be interested in 
knowing about a company before he made contact, he or she made 
contact with the company.
    There is a lot of--it is kind of counterproductive in the 
procurement areas. All small businesses want access to buyers. 
Buyers are overwhelmed with people wanting to get in and do 
that. And so they sort of shut down when it comes to that 
interaction.
    What we have tried to do through this database is to--we 
actually go out and train procurement offices how to use that 
database, how to effectively use it, that it exists. We also 
provide assistance with staff members to work with procurement 
people if they do not find those resources to again network in 
the community. So we actually from scratch developed a database 
that has--you can search by word capability, you can search by 
products and services. We have made it very easy for anyone to 
go in and search and look for products and services that exist.
    Chairman Manzullo. So you get the companies that want to 
buy. You have about 1500 companies?
    Mr. Smith. That want to sell.
    Chairman Manzullo. I am sorry. That want to sell.
    Mr. Smith. The ones on the database is the sellers.
    Chairman Manzullo. Are those government agencies also or 
just private companies?
    Mr. Smith. Most of what we, and I will be frank with you, 
we have several large defense companies in our area.
    Chairman Manzullo. That is okay. They buy.
    Mr. Smith. They are tough to work with. They are very tough 
to work with, and where we are finding our success is small 
businesses collaborating with other small businesses or selling 
to other small businesses. That is the backbone of our program.
    What we have done through the database is provided a 
central place where people can look locally and find 
opportunities there.
    Chairman Manzullo. And they can be accessed at their home 
or business?
    Mr. Smith. Anywhere.
    Chairman Manzullo. So they just key into it, and is it done 
according to NAICS numbers?
    Mr. Smith. We decided not to do that, and I will tell you, 
and we have had the--the state has been so excited about our 
model, they want to now move it statewide. We decided to get it 
to its simplest form so that small--most small businesses 
cannot tell you what their codes are.
    Chairman Manzullo. What the number is. Go ahead.
    Mr. Smith. Most buyers do not buy by code. Most buyers will 
go in and say I am looking for machine services. I am looking 
for plastic injection molding. They do not use the code.
    So what we did is tried to take it to the simplest 
interactive understandable database, and we think we have done 
a terrific job in doing that. But now the state is coming in 
and say, well, we need those kind of codes primarily for 
documenting information on who is using what codes and so 
forth; not so much what buyers are telling us.
    We developed this working with small businesses and working 
with buyers in concert to bring together something that made 
sense to everybody.
    Chairman Manzullo. The success of the database, in how many 
months, how many months has it been up?
    Mr. Smith. Eighteen months from scratch.
    Chairman Manzullo. The success of it, how many hits, how 
many times----.
    Mr. Smith. We average 20,000 hits a month.
    Chairman Manzullo. Okay.
    Mr. Smith. We average 1500 visits, and the visits are what 
are really the key number, because those are folks looking for 
something.
    Chairman Manzullo. And how about completed contracts, 
actual contracts?
    Mr. Smith. We have had--in 18 months we have had over, a 
total of about $57 million in new contracts to small 
businesses.
    Chairman Manzullo. And how many contracts would that be?
    Mr. Smith. We are looking at in excess of 70 companies, 70 
contracts that make up those. The majority of those--we had one 
large defense contractor that came into southern Arizona that 
was typically buying, and this is probably not good in 
commerce, but Congressman Colby has been a good mentor for me 
this, typically came from California because of competitive 
pricing perception in Arizona, but they continue to buy 
products and services out of California and offshore.
    And what we were able to do through the BusinessLINC 
program, we go in and work directly with procurement agencies 
and officers. We do not represent any individual company. We 
represent whatever is in that database. And what we do is open 
doors. We want to know why you are not buying it; going back to 
our small businesses and saying here is some hurtles.
    Chairman Manzullo. So when a small business attempts to get 
a contract and is rejected, then you can tell them why that 
happened.
    Mr. Smith. I absolutely go in. I talk the language of 
procurement.
    Chairman Manzullo. Does anybody else have a computer like 
this? Hedy?
    Ms. Ratner. We have a BusinessLINC project in Illinois with 
SBA funding.
    Chairman Manzullo. Is it similar to his?
    Ms. Ratner. I am not sure if the exact system is similar. 
But the way the system works, yes. But ours is targeted only to 
minority and women-owned business, so that is all certified 
women and minority-owned businesses that are certified in any 
capacity, either private sector or government sector.
    Our program has about 600 minority and women-owned 
businesses that are registered with a full profile. It is a 
very, very detailed profile. And our corporations, and we work 
with corporations as well as local government agencies, so we 
now have six corporations that we train, and we train their 
buyers, so we train individual buyers of products and services 
that minorities and women can provide.
    And then we are----.
    Chairman Manzullo. You train the buyers?
    Ms. Ratner. Pardon? We train the buyers.
    Chairman Manzullo. You do too?
    Ms. Ratner. Yes, we do to.
    Mr. Smith. We absolutely. For example, we have spent, I 
have a staff person through the funding we have been able to 
acquire. Thank you for your investment. And we have leveraged 
that. I have a full-time person, for example, that literally 
moves throughout Sonora, Mexico, going to the large 
manufacturing companies, sitting down with their staff, making 
them aware that the database exists, and working to close deals 
in terms of introductions between our small businesses and 
their needs.
    Chairman Manzullo. You have the same thing, Hedy?
    Ms. Ratner. We do exactly the same thing, but not just 
corporations. What we work with is major corporations, with 
their purchasing departments, but with their specific buyers, 
but we also work with small--with the City of Chicago, Chicago 
Housing Authority, Chicago Park District, Chicago Public 
Schools.
    Chairman Manzullo. Government buyers.
    Ms. Ratner. Smaller--yes, the government buyers from the 
various government agencies who have a commitment to do a 
certain percentage of their business with minorities and women, 
and are not reaching their goals.
    Chairman Manzullo. Okay. And then the cost, Mr. Smith?
    Mr. Smith. There is no cost to either participate in the 
database and there is no cost to use the database to search.
    Ms. Ratner. Same thing with us.
    Chairman Manzullo. May have a job for you.
    [Laughter.]
    Chairman Manzullo. An additional job.
    The cost to set up the system?
    Mr. Smith. We have an investment to date of about, and this 
would be the--well, we have a two-year approval of about 
$250,000 each year of federal funding, and we have equally 
matched that, and this is significant. The State of Arizona is 
not rich, and MEPs, for example, have not been able to get one 
dime out of the state to support an MEP program. We were able 
to acquire matching funding to the tune of $50,000 each year 
because of leveraging what you have.
    As a matter of fact, this year, as of March, the state has 
appropriated $200,000 to the City of Tucson to consult with 
them again to open this database up statewide.
    A key that I think we have is we do not focus on government 
work. Maybe we should. But right now we focus on--our community 
is saying we need new revenue opportunities regardless where 
they come from, and we focus on just matching those 
opportunities. We work very closely with the U.S. Department of 
Commerce Trade Office and they give us international leads, and 
we also work with the Arizona Department of Commerce, their 
international department.
    One thing that Congressman Colby has indicated, would it 
not be wonderful to expand our program to export our products 
and services, and one small example, we had Bombardier, 
Ireland, which is an aircraft manufacturer, send out a national 
seeking for aircraft parts and components. We, in conjunction 
with their team, had two Tucson companies qualify for those 
parts. One of those companies was less than 25 employees and 
was woman-owned.
    This program is huge. It is baby steps, but I think it is 
taking us in the direction where we are delivering, through 
BusinessLINC we are delivering what the small business 
community needs. They need training. They need information, but 
they need opportunity. And I think the City of Tucson, our 
government, the state, the feds, it carries clout when we go in 
with a program.
    I have in your package, you will see a letter from the 
machiladores in Mexico saying this is a great program because 
they are losing trade to China. We are in there trying to bring 
business solutions at the small business level which requires a 
lot of collaboration. I have never seen in my tenure with 
public service so many communities coming together with the 
same goal as what can we do to get in the next level of 
manufacturing supplier development.
    More so the governor of the State of Arizona, this is one 
of their top three initiative, is supply chain development 
based on what we have built in the BusinessLINC program.
    Chairman Manzullo. Next time you are in town I would like 
to sit down and have coffee with you and discuss further.
    Mr. Smith. It has been 30 years, sir, since I have been in 
Washington.
    Chairman Manzullo. I will be Strom Thurmond's----.
    Mr. Smith. But I will come anytime. This program has merit.
    Chairman Manzullo. It is great.
    Mr. Smith. And I am available.
    Chairman Manzullo. We will talk to you later on. Thank you.
    Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman, and I guess I am 
going to borrow a page from the other side of the aisle just 
for two seconds. But it seems to me that the bureaucrats here 
in Washington do not understand the importance and the rule 
that BusinessLINC and microenterprise programs are doing for 
small businesses in America.
    How could you explain with the success that Mr. Lee is 
explaining to us, that this program is not even mentioned in 
the legislative package that was submitted by the 
administration.
    So, Mr. Chairman, it is really nice to say you are doing a 
wonderful thing, but it is another to make sure that this 
program is put back into the legislative package; that we 
provide the necessary funding to make sure that it works.
    Chairman Manzullo. If you would prepare a letter to that 
effect, I would be glad to sign onto it to help restore the 
funding on that.
    Ms. Velazquez. All we need to do, Mr. Chairman, is to put 
it in that reauthorization. They did not include it. We are 
going to send a message back.
    Chairman Manzullo. We will do it.
    Ms. Velazquez. Okay, thank you.
    You see, we solved one of your problems today.
    Mr. Smith. Thank you very much.
    Ms. Ratner. Ours too.
    Ms. Velazquez. Okay. But we have some people here from the 
administration, especially from SBA, so Ms. Johnson, you are in 
the hot seat today. I am sorry. Kaaren?
    Ms. Street. Street.
    Ms. Velazquez. Oh, yes, okay. I am sorry.
    Ms. Street. That is okay.
    Ms. Velazquez. Ms. Street, in your testimony you talk about 
the numerous achievements of the entrepreneurs development 
programs, and we all, the members of this Committee, we all 
recognize that many of these SBA programs have been extremely 
successful, especially in a district like the one that I 
represent.
    However, as I mentioned before, the legislative package 
submitted by the administration sends a very different message. 
The package called for nearly flat funding for all ED programs 
over the next six years.
    Do you recall believe that this program will be able to 
continue operating effectively if they are continually flat 
funded, which is effectively a cut with inflation?
    Ms. Street. I think the funds that we have put in the 
budget for the 2004 budget is adequate in order to meet the 
needs of the requirements. We have--this year's funding, we 
have reached 1.5 million small businesses or new pre-start-ups, 
and that is with the current funding, and that is an increase 
of about at least over 200,000.
    Ms. Velazquez. When was the legislative package submitted 
to us?
    Ms. Street. The 2004 legislative package?
    Ms. Velazquez. Yes.
    Ms. Street. I am not sure.
    Ms. Velazquez. When was it submitted?
    Ms. Street. February. February.
    Ms. Velazquez. Okay. Even factoring September 11, the 
economic recession, unemployment rate, you come here and you 
tell us that that is sufficient.
    Ms. Street. Yes, because what we have done, even with all 
that you just mentioned, we were able to increase our numbers 
with the flat level funding for the previous year. So we are 
assuming that with flat level funding, and with more 
technology, using more of the Internet, that we will be able to 
reach far more than even the 1.5 million with the current 
existing budget.
    Ms. Velazquez. Ms. Ratner, would you comment on that?
    Ms. Ratner. Yes. Is this the time that I can give my 
recommendations?
    Ms. Velazquez. No, this is on my time.
    Ms. Ratner. Oh, sorry.
    Ms. Velazquez. You can give it on his time.
    Ms. Ratner. No. Because of the changes in the priorities 
and the various initiatives, it would be very difficult. Our 
organization has been in existence for 18 years. The federal 
funding that we have, for instance, our BusinessLINC project, 
and Office of Women's Business Ownership is critical to sustain 
our program, and to continue our program.
    We serve thousands and thousands of minorities and women, 
especially helping women off of welfare, working with low-
income people. No, we could not continue our programs.
    Ms. Velazquez. Thank you.
    Ms. Hostetter, in your testimony you discussed the success 
of PRIME in serving low-income entrepreneurs in Colorado. As 
you know, the administration has again requested zero 
authorization for the PRIME program.
    Can you please tell the Committee what will happen to the 
MicroBusiness Development Corporation services if PRIME Is not 
funded again?
    Ms. Hostetter. Absolutely. Our microbusiness assessment 
program would not be available for any rural microenterprises 
in Colorado, and we would have to cut at least in half the 
businesses that we are serving in the urban area of Denver 
metro.
    Ms. Velazquez. What would you say to those program critics 
that say that PRIME is duplicative of exiting services 
available to low-income entrepreneurs?
    Ms. Hostetter. I would say that the SBDC programs are 
important and they are wonderful, but they do not reach 
microentrepreneurs. Microentrepreneurs have very specific needs 
and challenges, and need programs that are within their 
community to serve them.
    The PRIME program very specifically targets 
microentrepreneurs, women, minority-owned businesses, low-
income entrepreneurs. And without PRIME, there are 
microbusinesses all over the country who would not receive very 
specific individualized services for their business to help 
them grow and flourish.
    Ms. Velazquez. Thank you. Ms. Street, in your testimony you 
stated that the Women's Business Center has generated the least 
revenue per dollar spent in comparison to other entrepreneurial 
development programs. This seems to suggest that the 
administration believes that the nature of this program is 
being called into question.
    Can you please clarify your statement for this Committee?
    Ms. Street. Sure. I mentioned that the Women's Business 
Centers cost per client was higher than other programs within 
ED; not that they were not doing their--providing the services. 
They do an excellent job. They have been--in fact, trained and 
counseled more than 85,000 women-owned businesses. So we are 
very happy with the Women's Business Program.
    We think it is a great program, and certainly reaches the 
market that is not being reached by other programs. So we are 
not proposing an end to this program. We think the program----.
    Ms. Velazquez. I hope you are not.
    Ms. Street. No, no, absolutely not. I would not be commit 
doing it, that is for sure, but that is not our intention at 
all. Our intention is to expand this service throughout the 
country. We have so many organizations around the country who 
want to be part of this network, and to provide those services, 
and that is what we are looking to do in the reauthorization.
    Ms. Velazquez. The administration has taken the position 
that sustainability pilot for the Women's Business Centers 
should be allowed to expire. This could mean that those centers 
who focus on serving low income and minority populations could 
be shut down. While the clients are plentiful in this area, it 
can often be difficult to raise dollars in this area that are 
necessary to become self-sufficient.
    In your testimony you rationalize this cut by claiming that 
dollars need to be used to set up new centers. My question is, 
at what cost will these new centers come? Would you agree that 
if we increase the overall funding that would meet two goals--
continuing to serve low-income areas where the program has been 
successful, as well as expanding the program to serve new 
areas?
    Ms. Street. We could also reach those same goals by those 
centers who can sustain themselves beyond. It is not that 
proven that because sustainability expired that all the centers 
would close. We do not even know if any of them will close. We 
have not had that experience yet.
    However, with the $3.6 million, which is part of the 
funding, we could open 24 new centers with those dollars. I am 
not saying that--I am sorry?
    Ms. Velazquez. How are we going to serve in low-income 
communities those minority, low-income people who have been on 
welfare, get off welfare, and raise the money to run the 
center? How do you think they could achieve that?
    Ms. Street. Well, hopefully, the 24 that would be coming 
in, there would be also adding more minority and low-income 
people to those rolls. It is not that there are going to be 24 
new centers going into high-income areas. Those areas would 
also be serving minority that are not being served currently.
    Ms. Velazquez. When we look at the numbers, and we show you 
the numbers of the clients that come to those centers----
    Ms. Street. Right.
    Ms. Velazquez [continuing]. We know because the numbers are 
telling us that some of these centers are--for the most part 
these centers are not reaching out to minority women. So if we 
have those centers that are reaching out and serving that 
population that has been neglected, now you are going to tell 
me that we are not going to provide the resources for those 
centers to continue to do their job.
    Ms. Street. Well, no, that is not what I am saying. What I 
am saying is that with the opportunity to open new centers, you 
certainly expand the base for minority and women and low-income 
women to provide that service.
    We are not saying that because we are not----.
    Ms. Velazquez. If they are unable to raise the money and 
they do not get the sustainability grants, how do you think 
they will continue to operate?
    So you are going to open 24 to serve other people.
    Ms. Street. Okay. The congressional intent was for the 
Women's Business Centers to be able to sustain themselves over 
a period after the five-year period was up in the first phase. 
Many of those centers are now in the seventh and eighth year, 
and part of their agreement with us was that they were supposed 
to be able to self-sustaining, that the sustainability pilot 
was just that, a pilot. It is not written into law that it is a 
continual, and that is what is on the table now----
    Ms. Velazquez. Okay.
    Ms. Aleman [coninuing]. In terms of for you all to decide.
    Ms. Velazquez. We will decide here.
    Chairman Manzullo. Mr. Beauprez.
    Ms. Velazquez. Thank you.
    Mr. Beauprez. Thank you, Mr. Chairman. This has been a good 
hearing. I am glad I could attend.
    From my personal perspective, I want to pursue another, I 
think, part of the issue, and Ms. Whitfield, I think you 
brought it up, bank referrals. And I know there is a perception 
out there, at least by some, that banks do not like to make 
loans. I would just state for the record that banks are in the 
lending business. Banks have another obligation. They are not 
loaning their own money. They are actually loaning the public's 
money. The public thinks they ought to get that back, so banks 
tend to like to reduce risk of that.
    Sometimes that means that good credits, good characters, 
good ideas that lack either the historical track record, 
ability to repay or perhaps collateralization in some cases are 
not ``bankable'' but banks nonetheless see them as credit 
worthy.
    I know from my own experience we made a number of referrals 
to the SBA or appropriate microcredit agency. We worked with 
Kersten.
    I would invite you, Ms. Whitfield, Kersten, Hedy, whomever, 
to respond to that, and I am wondering if there is anything 
that maybe this Committee, the network could do to further 
enhance that relationship, because working the other way too. 
Banks always like to see more credit worthy borrowers, and 
there has been a good exchange at least, I think in Colorado, 
Kersten, of kind of migrating people through that. And Mr. 
Smith, you spoke of it, growing the business to the next level, 
where do you go from here.
    So can you respond? Is there anything really that we could 
be doing to improve that whole network arrangement of finding 
people, and putting people in the right place at the right 
time?
    Ms. Whitfield. One of the things that we do, because we are 
frequently approached by businesses who are in the process of 
trying to get a loan, so we develop a comprehensive financial 
strategy. It is not just let us go to the bank and get an SBA 
loan. We take a look at all of the possible resources that are 
available in structuring that loan.
    We assist in writing that business plan and reviewing it, 
and this really assists the bankers because they get a much 
better prepared client, a client who is more likely to be 
successful. It makes them a better customer, a better repeat 
customer as that business continues to grow and to go on.
    That is the resources that we offer. One of our challenges 
is getting that detailed financial analysis. As long as they 
have got to bring in their existing financials, we could be 
doing very detailed ratio analysis for them. We have computer-
assisted software that we could use if we have the time and the 
personnel to provide that service.
    We are working at absolute capacity at this time. We can 
help them with break-even analysis, decisions as far as how 
they are supposed to be pricing their product, but we do not 
have that ability because of lack of resources.
    Mr. Beauprez. Yes, let me pursue that just a little bit if 
I can.
    Chairman Manzullo. Mr. Beauprez, could I interrupt you a 
second? Could you mind chairing the rest of the meeting? I have 
to be at a manufacturing meeting at five o'clock.
    Mr. Beauprez. Be glad to.
    Chairman Manzullo. To finish up with the rest of the 
questions, a couple of suggestions from Ms. Ratner. Do you want 
to come around here and take this? And I have to leave.
    Mr. Beauprez. [Presiding] Thank you, and if I can, I will 
continue my questioning. I was hoping you would not take this, 
Mr. Chairman.
    [Laughter.]
    Mr. Beauprez. That is really the only reason I came up 
here.
    [Laughter.]
    Mr. Beauprez. One of, again, my personal observations is 
that many credits come in my case to the bank that are a great 
idea, maybe they have even initiated their own business. They 
know how to make a product or provide the service. Sometimes 
they get very intent on that because they know it, they love 
it, they do it well. They kind of, you know, bend over, all you 
see is elbows and the producing, and some of them work 
themselves literally to the bone almost to the point of death, 
and then they raise up some day and say, I have been working 
very hard but the harder I work, the behinder I get, that 
phrase.
    Talk to me about what you can provide or ought to be 
providing that somehow is not being done.
    Mr. Smith, I was very intrigued by what you are doing with 
your database, but I think that there is elements even beyond 
that. I like the mentoring idea. I love that word at least.
    And let me start with Ms. Hostetter and then anybody else 
who maybe wants to jump in because I think the assistance that 
we need to be providing, and I want to make sure we are in this 
program, goes far beyond just the credit necessary. Ms. 
Hostetter.
    Ms. Hostetter. Thank you.
    Through the PRIME program we were able to create a program 
called the microbusiness assessment, which is a business 
assessment tool unique and individualized for each one of the 
businesses that we serve. It looks at nine fundamental elements 
of business ranging from market plan and sales development, all 
the way through human resources. There is two hours spent on 
the site with the business owner, with the business consultant, 
and a tool that we had developed through PRIME for the business 
consultant to use while interviewing the client.
    After the business consultant meets with the client, they 
then meet with a group of seven to nine other consultants and 
staff members from MBA who review the report, review all the 
materials from the client, and then develop a report to the 
client specifically looking at the weaknesses and the strengths 
of the business, looking at the goals of the business owner, 
and how the business owner can get to their stated goals.
    We primarily have developed the program not to receive 
credit, but to grow business. That is why we developed the 
program. PRIME asked us to be innovative and to create 
something that could be replicable throughout the country, and 
that is what we did, and it is very, very specific to the 
business owners, and it specifically looks at those stumbling 
blocks, those barriers that the business owner has created or 
are happening in the particular sector. But because the 
business owner is wearing all of the hats of a 
microentrepreneur, they cannot see. And so it allows them to 
have an outside view, and it is something that big businesses 
get often, but they do it for thousands and thousands of 
dollars. These are low-income individuals who cannot afford 
that.
    So the PRIME program has enabled us to develop this unique 
program for business owners, and then we track that. We get in 
touch with them within two weeks after receiving their report 
to make sure that they have understood it, and that they agree 
with it, and that they know what their next steps are. And then 
six months, 12 months and 18 months, we continue to get 
together with the business owner, review the report, and make 
sure that they are implementing the plan.
    Mr. Beauprez. I think that is critically important, and I 
applaud you for that, and I think it important that we got it 
in the record, because that is part of the resources that are 
being expended in this program that I think bear good fruit. It 
goes well beyond, again, just the credit part.
    Mr. Smith?
    Mr. Smith. May I give an example of how our program works 
in concert with these type of programs, exactly this type of 
thing?
    We had a local company that was in the recycling business. 
Their product was taking plastics, believe it or not, plastics 
and sawdust, recycling that, and turning it out in products. 
They needed to buy a large piece of equipment that could 
greatly improve their efficiency to do that, and of course 
we're looking for where do we go to find loans, where do we go 
to find grants.
    BusinessLINC is not so much in that area of where we direct 
our attention. We are more in the area of can we deliver 
commerce for your company. But in working with this company and 
finding other resources, as a matter of fact we found companies 
that were taking sawdust to our city landfills, and they were 
paying to do that. And we networked them with this company that 
was looking for that raw material, and so now they are not 
paying, he is not buying raw material.
    We have large pecan orchards south of our city. They heard 
about the program, and said how can we get rid of all of our 
shells. They indicated, the guy that does the environmental 
stuff said, hey, let us try it, and it actually made the new 
product look like wood, red. So now he gets free there.
    He builds components. We built is revenue up. The pecan 
orchard is now buying containers of this new environmental 
material to ship their product, and we have helped direct them 
to a PRIME organization now because they have the revenue, now 
because they have potential sales, it looks like they are going 
to be able to get loans for that equipment.
    So that is a great example of how the programs that you see 
do work in concert when I think they are done well, when we do 
not try to duplicate what we are doing. And I think each of us 
on the panel would agree, we work very hard to make sure that 
we are not duplicating because it is everything in terms of 
funding consideration. It is everything in terms of investors 
looking at us and saying, well, why should we pay three places 
for the same thing.
    Mr. Beauprez. Well said, sir.
    Mr. Smith. So there is an example for that.
    Mr. Beauprez. Ms. Ratner, memory serves me that you had 
some recommendations you wanted to enter into the record.
    Ms. Ratner. Yes, I do. Yes, exactly.
    Mr. Beauprez. This would be a good time.
    Ms. Ratner. Thank you very much. I appreciate that.
    Mr. Beauprez. You can call me Manzullo or whatever you want 
to call me.
    Ms. Ratner. I would also like to just comment on something 
that Congressman Velazquez said, and some estimate of numbers 
of programs that would not continue if they were not 
continually funded.
    We are estimating that approximately 50 to 75 percent of 
all Women's Business Centers would close or severely curtail 
their operations if the SBA in its business centers grants were 
eliminated, 50 to 75 percent.
    And without the strong network of experienced sites, we are 
doomed to repeat old mistakes. The centers that have been 
funded under the sustainability grants pilot project have 
developed the resources, contacts, relationships, and support 
systems to sustain the women business owners.
    Some of the newer centers that will be developed and the 
ones that have been developed will have a very difficult time 
being able to provide the services and programs that the 
existing centers currently have.
    So my recommendations are that the sustainability program 
be made permanent, and allow all compliant Women's Business 
Centers to be evaluated for federal funding every five years.
    The second recommendation would be what seemed to us in the 
testimony that sustainability was obviously not a priority, but 
to make sustainability a priority for the Women's Business 
Center program and a plan for the program's future. 
Sustainability grants support Women's Business Centers with a 
demonstrated capacity to meet the goals of the Women's Business 
Center program.
    Some of the comments you were saying about how do we have 
bankable businesses, that is what we are about. We are here to 
build the capacity of microenterprises, small minority and 
women-owned businesses to be able to be bankable, and we 
provide the technical assistance to build their capacity so 
that they are, and we develop partnerships with banks to do 
just that.
    We can do that because we have been in business a long 
time. Some of the smaller centers that are just getting started 
cannot build those relationships because they have not 
established their credibility.
    There are currently Women's Business Centers in 48 states. 
We urge, the Association of Women Business Centers, Congress to 
invest in what it has already created. In fiscal year 2004, 
when the 25 Women's Business Centers funded in 1999 are 
eligible for sustainability grants, the funds allocated under 
this program will not be adequate. Experienced programs with 
capacity will not be funded. This does not make good business 
sense.
    My third and last recommendation is to increase the 
authorized funding levels for the Women's Business Center 
program to $14.5 million for fiscal year 2004, $16 million in 
2005, $17.5 million in 2006.
    Over the past 15 years, Congress and the SBA and the 
Federal Government have invested in the development of an 
infrastructure for Women's Business Centers. It now provides 
essential training and technical assistance. The fiscal years 
2003 appropriation for the program stands at 12.5. It is 
inadequate if the program is to cover the country.
    Thank you. Thank you very much.
    Mr. Beauprez. Thank you, Ms. Ratner.
    This has been an exceptionally good hearing. I thank all of 
the witnesses that have come. Thank you for your patience with 
bells of tyranny that we had to deal with in the middle, and I 
especially appreciate your testimony. It has been most helpful 
and I look forward to a good appropriations season, and 
certainly this Committee will be advocating on your behalf.
    Thank you all very much.
    Ms. Ratner. Thank you.
    Mr. Beauprez. This hearing is adjourned.
    [Whereupon, at 5:34 p.m., the Committee was adjourned.]

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