[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
  SMALL BUSINESS DEVELOPMENT CENTERS: NEW OFFERINGS FOR A NEW ECONOMY

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, JULY 13, 2005

                               __________

                           Serial No. 109-25

                               __________

         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
SAM GRAVES, Missouri                 DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri                  ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania           DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado           DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire           ED CASE, Hawaii
STEVE KING, Iowa                     MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan          RAUL GRIJALVA, Arizona
RIC KELLER, Florida                  MICHAEL MICHAUD, Maine
TED POE, Texas                       LINDA SANCHEZ, California
MICHAEL SODREL, Indiana              JOHN BARROW, Georgia
JEFF FORTENBERRY, Nebraska           MELISSA BEAN, Illinois
MICHAEL FITZPATRICK, Pennsylvania    GWEN MOORE, Wisconsin
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas

                  J. Matthew Szymanski, Chief of Staff

          Phil Eskeland, Deputy Chief of Staff/Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Gangi, Mr. Rich, President, American Trim Manufacturing..........     4
Naranjo, Ms. Norma, Owner, The Feasting Place....................     6
Conroy, Mr. Christian, Associate State Director, Pennsylvania 
  Small Business Development Center, Wharton School, University 
  of Pennsylvania................................................     8
Kauten, Ms. Erica, State Director, Wisconsin Small Business 
  Development Center, University of Wisconsin....................    10
Chrisman, Dr. James, Ph.D., Professor of Management, Department 
  of Management and Information Systems, College of Business and 
  Industry, Mississippi State University.........................    12

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    25
    Sweeney, Hon. John E.........................................    27
    Fitzpatrick, Hon. Michael G..................................    30
    Udall, Hon. Tom..............................................    33
    Brady, Hon. Robert A.........................................    35
Prepared statements:
    Gangi, Mr. Rich, President, American Trim Manufacturing......    37
    Naranjo, Ms. Norma, Owner, The Feasting Place................    40
    Conroy, Mr. Christian, Associate State Director, Pennsylvania 
      Small Business Development Center, Wharton School, 
      University of Pennsylvania.................................    43
    Kauten, Ms. Erica, State Director, Wisconsin Small Business 
      Development Center, University of Wisconsin................    50
    Chrisman, Dr. James, Ph.D., Professor of Management, 
      Department of Management and Information Systems, College 
      of Business and Industry, Mississippi State University.....    56

                                 (iii)


  SMALL BUSINESS DEVELOPMENT CENTERS: NEW OFFERINGS FOR A NEW ECONOMY

                              ----------                              


                        WEDNESDAY, JULY 13, 2005

                   House of Representatives
                                Committee on Small Business
                                                     Washington, DC
    The Committee met, pursuant to call, at 2:00 p.m. in Room 
2360, Rayburn House Office Building, Hon. Donald A. Manzullo 
[Chairman of the Committee] presiding.
    Present: Representatives Manzullo, Fortenberry, Velazquez, 
and Udall. 
    Chairman Manzullo. Good afternoon. I would like to welcome 
everybody to the Committee's hearing on the Small Business 
Development Center, known as the SBDC program. Small Business 
Development Centers are located in every State associated with 
the American Higher Education System, and provide invaluable 
advice to entrepreneurs.
    Today's hearing focuses on four bills designed to provide 
additional focus for the delivery of services by SBDCs to 
America's small businesses. In 1980, the Senate Small Business 
Committee determined that the provision of advice and services 
to small businesses should follow the cooperative extension 
model.
    Congress created the SBDC program to take advantage of the 
knowledge and the dissemination capability of America's 
colleges and universities. The interim 25 years have seen more 
change in the American economy than occurred during the 75 
years between the establishment of the Cooperative Extension 
Service and the establishment of the Small Business Development 
Program.
    Small businesses today face new challenges in an 
increasingly global economy. In addition to market challenges, 
small businesses must cope with a regulatory regime far more 
complex than any during the country's history.
    The Committee must examine whether the Small Business 
Development Center programs will be even more effective because 
of the new tools offered by the bills we are considering today.
    Today's hearing will consider four bills that make modest 
adjustments to the SBDC program. Each bill is designed to offer 
targeted services and assistance by a select group of small 
business development centers.
    Mr. Sweeney's bill would provide additional resources for 
regulatory compliance counseling. Mr. Udall's bill would 
improve access to SBDCs by the rapidly growing population of 
Native American small business owners.
    Mr. Brady's bill would ensure that SBDCs begin educating 
our vocational and technical students about entrepreneurship. 
These bills have been routinely approved by overwhelming 
margins in the Committee and House during the past two 
Congresses.
    My goal is to act again in a similar bipartisan manner in 
order to prod the Senate into finally passing these 
noncontroversial measures. Finally, Mr. Fitzpatrick's bill 
targets assistance to so-called gazelles, small businesses that 
are facing rapid growth and create most of the new jobs 
generated by small businesses.
    This bill would use the SBDC network to help establish peer 
learning opportunities so that these dynamic small firms can 
solve business problems in a cooperative dialogue among their 
colleagues.
    I look forward to working with the members to ensure prompt 
passage of the legislation, and I recognize the ranking member 
of our full Committee, the distinguished gentle lady from New 
York, for her opening statement.
    [Chairman Manzullo's opening statement may be found in the 
appendix.]
    Ms. Velazquez. Thank you, Mr. Chairman. At a time when our 
economy continues to struggle through an economic recovery, 
with 40 thousand less jobs created last month than expected, it 
is clear that today's environment is not conducive to our 
Nation's entrepreneurs.
    Small businesses are the main job creators and are capable 
of turning these payroll numbers around if they have the right 
tools to do so. Clearly, aspiring entrepreneurs require 
management skills, organizational skills, and technical 
assistance, all of which are provided by the Small Business 
Development Centers.
    The SBDCs have the proven record of spearheading 
entrepreneurship and economic development. In 2003, long term 
counseling clients by SBDCs generated over 56 thousand new 
jobs. Studies have shown that for every dollar spent on SBDC 
services the program returned nearly three dollars to the 
Treasury.
    Despite all of the benefits that this program provides not 
only to small businesses, but also to our economy, the 
Administration has effectively cut this program by over 30 
percent in the last five years, when compared to the overall 
government spending during that time.
    If you look across the country, over half of the States are 
feeling the effects of these cuts. For example, the State of 
Illinois will receive $156 thousand less in Fiscal Year 2006 
than it did in Fiscal Year 2001 through the SBDC program. And 
New York will receive $403 thousand less.
    While the number of businesses only continue to grow 
throughout the country, States are receiving less for their 
SBDC programs. These cuts are clearly having an effect. For the 
first time in five years, the number of client hours of SBDCs 
has decreased.
    This is not because the demand is not there. Businesses are 
waiting in line for these services. It is because the funds are 
not there. While we are here to talk about some new 
enhancements to the program, the truth is that these 
discussions cannot take place until we examine the glaring 
funding shortfall.
    Clearly, this proposal sounds great, and who will find 
fault in steering business expansion, providing regulatory 
assistance, or helping Native American entrepreneurs. In fact, 
three of these bills have already passed in the House during 
past Congresses.
    We also review a new initiative, H.R. 3207, which is 
targeting larger businesses. Our intent is not only to maximize 
the role of the SBDCs, but to ensure that any changes to the 
program do not take it beyond its scope, which is to help small 
businesses.
    While we are here to discuss and evaluate these new 
initiatives, how are they ever going to reach their true 
potential if we continue to inadequately fund the underlying 
programs. It simply makes no sense.
    If the Administration is truly committed to SBDCs, they 
need to stop talking about the loans and contracting 
opportunities, and all of the other regularly field press 
releases, and start facing up to the question of are you going 
to fund this great program. So far the answer is no.
    The SBDC program enables entrepreneurs to take communities 
from poverty to prosperity. It is this program and the SBDC 
employees who are on the front lines talking to and serving our 
Nation's entrepreneurs every day, providing them with the 
necessary skills that they need to keep our economy growing.
    The thanks that we are given is insufficient funding. These 
are the same people that fill waiting rooms every day, and know 
firsthand the challenges in offering their services to 
entrepreneurs because of the lack of funding.
    Today is an opportunity to truly access the current 
conditions facing SBDCs. This is only the third time that this 
Congress and this Committee has held a hearing under its 
jurisdiction, which is clearly a contributing factor to why 
this agency is in such a state of disarray.
    Once again, this is an incomplete hearing. There is no one 
here from the Administration to explain why the SBDC is 
receiving insufficient funds. More and more it is evident that 
this Administration is allowed to skip this hearing because 
they won't be able to answer the questions, such as how will 
they turn around the job and client hours, and why isn't the 
Administration providing the resources that will enable SBDCs 
to perform at their fullest potential, and what are they doing 
to help develop small businesses.
    Unfortunately, this Administration has promised a lot, and 
delivered little to this Nation's entrepreneurs. If we want to 
move forward and provide new initiatives and strengthen the 
hours of our SBDCs, then this Administration and this Committee 
must start backing up its rhetoric with some action. And the 
first step is by providing adequate funding. Thank you, Mr. 
Chairman.
    Chairman Manzullo. Thank you. Our first witness is Mr. 
Richard Gangi, and Mr. Gangi hails from Durham, New York. Have 
any of you testified before Congress before? Is this your first 
time? Okay.
    There is a red light there, and the light system is that 
green is go, and yellow is where you have one minute, and when 
it is red, then the gong comes. So if you could follow that as 
close as possible.
    What we are interested in is your personal stories as to 
the impact of the legislation, et cetera. Gangi. Is that 
Italian, like Manzullo?
    Mr. Gangi. Yes.
    Chairman Manzullo. Then I should know how to pronounce it 
then. Okay. We look forward--
    Mr. Gangi. Wait a minute. Man--
    Chairman Manzullo. Manzullo. That is correct. I had Ms. 
Naranjo spelled out phonetically.
    Ms. Naranjo. Naranjo.
    Chairman Manzullo. It did not do me any good did it?
    Ms. Naranjo. No.
    Chairman Manzullo. We look forward to your testimony. Go 
ahead.
    Mr. Gangi. Shall I start?
    Chairman Manzullo. Yes, go ahead.

    STATEMENT OF RICHARD GANGI, AMERICAN TRIM MANUFACTURING

    Mr. Gangi. My name is Richard Gangi, owner and president of 
American Trim Manufacturing. I would like to take the 
opportunity to thank Chairman Manzullo, and ranking member 
Nydia Velazquez, and the Committee on Small Business of the 
United States House of Representatives for me to offer my 
testimony here today.
    I would also like to show my full support for 
Representative Sweeney's proposal on the H.R. 230. I am putting 
down my prepared statement, and I really want to talk from my 
heart.
    Chairman Manzullo. All of the prepared statements will be 
made a part of the record without objection. Go ahead.
    Mr. Gangi. We are truly a small business. My dad was an 
immigrant from Africa, and retained citizenship, country of 
origin, was Italian, and he came to this country in 1929, and 
started a business by the name of Sedaga, and literally built 
it up from a nothing company to a company that is well 
respected in the world for nomenclature of particular fabrics.
    We later bought it, myself, bought it, and changed the 
business name and doing business as American Trim. We are a 
small company. Three years ago, we were employing nine people, 
and we have now grown in the last three years to 58 people.
    Myself, along with two sons, Rick and Dan, run the 
operation, and we have a real difficult task in competing with 
the world market today. The imports, the outsourcing, and 
anything that has to do with killing American small business is 
happening. We have got to fight every day for what we need and 
for what we have to get.
    This bill that Representative Sweeney has prepared and is 
proposing I think is a needed bill. It gives us the background 
and it gives us the support laterally to be able to call on 
these people to understand what OSHA is, and what DEP, and EPA 
is, and things of that sort.
    We can't really and we do not have the resources to be able 
to sit down, and analyze these hundreds and hundreds of pages 
of where we fall, and our rights, and our wrongs. The Greene 
County Development of Greene County has been very helpful tome 
in the last two years, and the NYSBDC has been extremely 
helpful.
    They have guided us and shown us, and brought in people who 
can help us with our computer system, and they have given us 
wonderful ideas in business, and per se, our contact gentleman 
is Larry Larson, who has done a wonderful job for us.
    We have had in our office Senator Seward, and he is 
absolutely delighted at our progress and our growth, but we 
need help. Every drop of help that we can get from the 
government, from the State government, is needed. We are not a 
big business with resources to be able to contact people, or 
hire lawyers, or prepare statements, or delve into that.
    Our staffs are small, and our business is growing, and we 
really have to pay attention to where we are going and how we 
approaching it. Our competition is overseas. This is where we 
need the help. We need as much help from you people as we can 
get.
    The business climate in our industry is devastated. We are 
losing every day. The furniture industry, I just came back from 
my trip yesterday from High Point, and they are petrified. They 
are overseas. Even the people that own the company that are 
over there still don't know where they are going and what they 
are going to do.
    You speak of losing jobs in this country. We are hiring. We 
are proud to say that we are hiring. We are a company that has 
been growing and will grow. We have an initiative of designing 
and building our own equipment.
    We actually construct and manufacture yarns that we use in 
our products, and we are on a pattern of growth. But every bit 
of help that we can get from the NYSSBDC, and any organization 
such as this that can help us, and give us that pat on the 
back, to inform us.
    As a small businessman, I have not had time to delve into 
what programs are available for us. I have not had the luxury 
of being able to say that I have gone to the State. Actually, 
they have been brought to me by the Greene County people, and 
it was a wonderful find.
    The people up in Albany are doing a great job. They are 
helping us, and they have given us grants for training our 
people on computers, and for a small business, we are a big-
hearted business.
    But in closing, I would like to thank the Committee for 
inviting me here today, and I do terribly support strongly 
Representative Sweeney's H.R. 230 bill getting passed, and it 
will be a great help. I appreciate your time and thank you very 
much for inviting me here today.
    [Mr. Gangi's testimony may be found in the appendix.]
    Chairman Manzullo. I want to thank you very much. We held a 
hearing about a year ago on furniture and the threat from 
China, and maybe a year-and-a-half ago, and at that time, China 
had a 40 percent market of case good furniture, and now it is 
well over 50 percent, and I appreciate your concern on it.
    Our next witness is Ms. Norma Naranjo.
    Ms. Naranjo. Naranjo.
    Chairman Manzullo. Well, then my phonetic is wrong. Ms. 
Norma Naranjo, the owner of The Feasting Place, in Fairview, 
New Mexico. We were down there for a hearing about three years 
ago, and we uncorked the mess at Los Alamos. It was a very 
interesting time, and we look forward to your testimony.

         STATEMENT OF NORMA NARANJO, THE FEASTING PLACE

    Ms. Naranjo. Thank you. Good afternoon, Mr. Chairman, and 
members of the board. I would like to thank you all for 
inviting me here today to give this important testimony. I am 
here today because this important bill is of great importance 
for me and for my Native people.
    I feel that Native American people need to be--have this 
SBDC establishment because we are able to become better 
entrepreneurs, and we will be able to become better business 
people. I am a member of the San Juan Pueblo Tribe in Northern 
New Mexico, and prior to owning my business, The Feasting 
Place, I was a U.S. Navy Vietnam veteran. I was also a 
commissioned officer with the U.S. Public Health Corps as a 
social worker. I feel that I have served my country, and now I 
am asking you, Mr. Chairman, and members of the board, to serve 
Indian country by supporting this bill.
    I feel that the SBDC in Espanola, New Mexico, has really 
given me a second career. I feel that they helped me over the 
hurdles of becoming a business woman, and without them, I would 
not be here today giving you this testimony.
    I feel that I am a proud owner of The Feasting Place in San 
Juan Pueblo. They have given me the help that I needed, and 
which I had no knowledge of. I had no knowledge of how to 
become a business person.
    And they have given me the help and support, and the 
confidence and encouragement to become this small pueblo person 
that knew nothing about becoming an owner. They helped me with 
the establishment of coming into my home and teaching me the 
marketing skills, critiquing my business, by coming in and 
helping me with my business brochures, and those types of 
things which are really critical and crucial in really starting 
up a small business.
    I live in Northern New Mexico, which is a very rural area, 
and I feel that the Small Business Development Centers came in 
and really understood my talent. My business is very unique, 
and I will go into that in a minute.
    But they understood my talent, and I feel that as Native 
Americans that we have beautiful talents to offer. We were at 
the museum this morning and I saw all the talent that there is, 
but we need the other side to make this happen as a business.
    And without the Small Business Development Center, I feel 
that this can't happen. We need the education, and we need the 
services that are valued. I feel very blessed that Julianna 
Barbee, who is the Director of the Small Business Development 
Center in Espanola, New Mexico, has given me this.
    My business, called The Feasting Place, is nested in San 
Juan Pueblo, New Mexico. It is out of my home. The reason why 
my business is very unique is because I offer Native American 
authentic cooking classes, and I offer Native American baking 
classes out of my Home.
    It is a beehive adobe hut that we do our baking out of, and 
I have had many people throughout the world come into my 
kitchen, and learn about baking, and about cooking. But they 
have not only taken away what they have baked, or what they 
have learned how to cook, but they have taken away a wonderful 
experience as to how our native people live, our traditions, 
our way of life.
    And they have taught me and left me with those wonderful 
experiences, and it has been just wonderful to see and to 
experience how people live. Especially in this day and age how 
we don't support that, and I feel that the SBDC has really 
given me the help of being profitable in a very short time.
    I have--and to some people it may be peanuts, but to me it 
is important that I have hired one full-time person and five 
part-time people at peak season. And to me that is important, 
that I am able to help my native people.
    And the SBDC has given me great exposure as well. If you 
look in the SBDC webpage, you will see my name there, and that 
I was chosen as business person of the year. I am very proud of 
that.
    And with that, I have gotten great exposure to the point 
where I have gotten many calls from magazines, and from 
newspapers, to hear my story. I got a call a couple of weeks 
ago from Gourmet Magazine. I am very proud of that and that 
there may be a featured story on my business.
    So there is success in SBDC. You start small, but as time 
goes, you grow. I feel so, so proud to be here to give you this 
story. And they have given me a lot, and I know that my time is 
getting shorter, but they have also given me--and we are able 
to collaborate with Native American clients.
    We are able to collaborate our services in terms of 
marketing ourselves with each other. There is a group called 
the ``Ancient Storytelling,'' which is also a client of the 
SBDC. They are going out to the trade shows out in Europe, and 
next week, they are going to Japan. I am part of their 
marketing service, because I am part of the tour.
    So I feel very blessed that we have this small office in 
Espanola, New Mexico, but yet we can become very global. I feel 
that with the services that are expanding through my business, 
and I am going to be doing a cook book by the year 2006, and 
with the help of the SBDC, they will help me market my book.
    And they will continue to support me by upgrading my 
brochures, and giving me the support that I need. So I feel 
that this is a very valuable bill that needs to be supported. 
So I wanted to thank you for having me here today, and I know 
that I will continue to be successful with the help of the 
SBDC.
    And I just want to end by saying that any time any of you 
are in Espanola, New Mexico, feel free to stop by The Feasting 
Place, and I can guarantee that you will have a wonderful 
Native American experience. With respects, thank you very much.
    [Ms. Naranjo's testimony may be found in the appendix.]
    Chairman Manzullo. I am getting hungry listening to you. I 
would like to order at least two of those cookbooks, one for 
Ms. Velazquez and one for myself.
    Ms. Naranjo. No problem.
    Chairman Manzullo. And I need an advanced order on them and 
that is exciting. Thank you so much for your testimony.
    Ms. Naranjo. Thank you.
    Chairman Manzullo. Our next witness is Mr. Christian 
Conroy. He is the Associate State Director of the Pennsylvania 
Small Business Development Centers, The Wharton School, 
University of Pennsylvania, and we look forward to your 
testimony.

  STATEMENT OF CHRISTIAN CONROY, PENNSYLVANIA SMALL BUSINESS 
 DEVELOPMENT CENTER, WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA

    Mr. Conroy. Good afternoon. Thank you, Mr. Chairman, and 
ranking member Velazquez, for inviting me here to testify on 
H.R. 527, the Vocational and Technical Entrepreneurship 
Development Act. A very common third type of entrepreneur is a 
little bit different from the two folks that you have heard 
testify so far today, folks who are looking to start a business 
based upon a skill or trade that they have.
    If you own a home or a car, you think of your auto 
mechanic, or your electricians, or your contractors, or anybody 
like that that you deal with. And that is not surprising. What 
is surprising though, I think, and I think maybe what is 
important, is that our vocational educational system is not 
really doing anything at this point to teach folks how to be a 
small business owner.
    They are focused on teaching people a skill or a trade, 
which they are very effective at, but they are not doing 
anything to teach them how to be a small business owner. And if 
you look at the measures that are used to evaluate the success 
of vocational education, that won't be surprising.
    Those measures don't include anything about being a 
business owner and about being an employer. Currently, when 
graduates of vocational programs decide to make the move to 
self-employment, which many will do, they find that starting 
and managing a firm requires a very different set of skills 
than those that they acquired from training at a vocational 
school.
    Many who are attempting to make this move are ill-prepared 
and regrettably too many will fail, and there is no reason for 
these students to fail as entrepreneurs when we have the 
resources that can help them to succeed.
    I firmly believe that the best resource available with 
respect to entrepreneurs nationwide who are interested in 
starting a new business is the Small Business Development 
Center program. I am not going to get into the details on the 
impact of the program since Dr. Chrisman is going to be talking 
about that in a few moments.
    But I am sure after you have heard his testimony that you 
will agree that the record of impact of this program is 
impressive. But the thing is, our resources are such that we 
cannot meet the demand for assistance in starting businesses, 
because the SBDCs are operating at capacity.
    Therefore, if the SBDCs are to serve more potential 
entrepreneurs, they must transfer our knowledge of the 
entrepreneurial process to those educational systems having the 
capacity to educate a much larger segment of the population 
than we can currently serve.
    The vocational education system is chosen as a starting 
point, because it is a system that is market based, and it is 
one through which a significant number of potential 
entrepreneurs will pass. Yet, with some isolated examples, very 
few of these schools currently provide any cohesive curriculums 
on small business management.
    The vocational educational system was also chosen based on 
the SBDC's past relationship with these institutions, and I 
will give you two examples. The Kutztown University Small 
Business Development Center has a very strong partnership with 
the Thaddeus Stevens College of Technology, which is a post-
secondary school in Lancaster, Pennsylvania.
    Every two months the SBDC offers its four week business 
planning for success course at the school, and approximately a 
hundred students throughout the year will attend that course.
    As the SBDC also operates an outreach office directly in 
the school, SBDC staff are frequently asked to speak during 
Stevens' classes. The location of the outreach office at the 
school also enables students who are considering starting their 
own business the opportunity to work one-on-one with an SBDC 
consultant to further explore their business dreams.
    In Northeast Pennsylvania, the University of Scranton SBDC 
is frequently called upon by teachers from schools such as 
Johnson Technical College, Northhampton Community College, and 
the McCann School of Business and Technology, to speak to 
students on the option of self-employment.
    During their time in the classroom, SBDC staff not only 
discuss what is involved in starting a business, but they also 
tailor their programs to provide specific information, trends, 
and demographics particular to the industry that the students 
are studying.
    While these two examples demonstrate how a partnership 
between the SBDC and vocational schools can be valuable, it is 
important to note that these joint programs are not occurring 
as part of a systematic formal program.
    Because of resource constraints, the SBDCs are not able to 
provide in-depth, ongoing educational or consulting services as 
part of the curriculum taught at these and other vocational 
schools.
    Nor do the SBDCs have the resources to provide training to 
vocational school teachers on how to incorporate small business 
management topics into their course curriculum. This bill will 
provide funding for the SBDCs to enable us to establish 
programs with more vocational schools.
    The primary benefit of this bill is that students 
graduating from both vocational and technical schools will not 
only be skilled in a particular trade, but will be armed with 
the knowledge and tools relevant to building a successful 
business in their field.
    As a result, you can expect to see more trades-people start 
and grow successful new businesses across the country. We feel 
that this bill represents an excellent vehicle to combine the 
resources of two well established, proven programs, to begin to 
make entrepreneurial education available to a larger pool of 
prospective business owners, if provided the resources to do so 
by Congress. Our economy and our communities depend upon it. I 
urge the Committee's approval of this bill. Thank you.
    [Mr. Conroy's testimony may be found in the appendix.]
    Chairman Manzullo. Our next witness is Erica Kauten, 
formerly the State Director of the Wisconsin Small Business 
Development Center, the University of Wisconsin Extension. I am 
sorry, still there.
    Ms. Kauten. Yes, still there.
    Chairman Manzullo. Since 1995, managing business and 
industry outreach at the University of Wisconsin systems. The 
top part of my Congressional District touches your State.
    Ms. Kauten. That is right.
    Chairman Manzullo. So, we look forward to your testimony.

STATEMENT OF ERICA KAUTEN, WISCONSIN SMALL BUSINESS DEVELOPMENT 
                CENTER, UNIVERSITY OF WISCONSIN

    Ms. Kauten. Thank you, Chairman Manzullo, and ranking 
member Velazquez. I am very pleased to be here today to be able 
to present both Wisconsin and a new program for second stage 
entrepreneurs.
    I am the State Director of the Wisconsin SBDC, and I find 
it particularly significant that I am here today at the same 
time actually when in Madison, Wisconsin, we are holding a 
memorial service for Gaylord Nelson, the actual founder and 
originator from the House of the Small Business Development 
Center.
    So it is again my pleasure. The SBDC in the State of 
Wisconsin operates through all of the University of Wisconsin 
four year campuses, and we also have three specialty centers, 
one of which specializes in market feasibility and product 
innovation; and the other one in prototype design, and the 
other one in taking tech transfer opportunities from the 
private sector, and offering them to small businesses.
    We are in our State the largest provider of small business 
services around. We, two years ago, were charged to take a 
leadership role and to provide a strategic planning session for 
economic development, and in particular for entrepreneurship in 
our State.
    And we did that by assembling 40 leaders from the business 
community, and also from the economic development community, 
and putting them on a bus for six hours going to Chicago.
    We asked them to give up some of their weekend, and we 
conveyed a strategic planning session at the Edward Lowe 
Foundation in Casapolis, Michigan, and the Edward Lowe 
Foundation is one that centers all of its resources on 
entrepreneurs, and in particular second-stage entrepreneurs is 
a term that they have coined to identify entrepreneurs, and 
distinguish those that are starting on the new venture side, 
and those that are more experienced, and are ready to grow, and 
have both the intent and the capacity to grow.
    We ended up at that facility, and we came away from there 
after a day-and-a-half with two charges, one of which was that 
we were going to redouble our efforts to work with more 
businesses in the State of Wisconsin.
    And we have really been using collaboration with other 
partners that I think in a way has exploded what we have been 
able to do. Additionally, we thought that it was time for us to 
identify a market segment that we felt that we heretofore not 
paid as much attention to as we might have.
    And one that has statistically and by research shown to 
have the greatest job growth and the greatest ability to grow 
outside of the communities, and those are that category that we 
are calling second stage.
    I want to be careful and identify that group not as large 
businesses. They are in no way large. They are much represented 
by many of the same small businesses that we serve on a regular 
basis.
    And in my testimony, I identified 4 or 5 of those 
businesses, and I would just like to give you a profile. One of 
them produces sweet and dried cranberries in the Central 
Wisconsin area, but does it nationally and internationally.
    Another one in our Madison area is a biotech firm, and 
another minority-owned business in Milwaukee that provides 
hydraulic analysis. Another cyber-defense agency in Wisconsin 
Rapids, which is a community of about 10 thousand, is a company 
that actually improves security to both the government and to 
commercial services.
    That CEO found me just after I came off of the plane today 
just to make sure that I had his opinion as part of my 
thinking, and to try to reinforce how significant this 
particular learning experience has been to him.
    Now, the SBDC, as the Committee well knows, has been in the 
educational business for 25 years and primarily we do 
counseling one-on-one, sitting down with clients, and working 
with those much in the line of what our former testimony 
identified.
    We also do training. With the help of the Edward Lowe 
Foundation, and trying to better identify what this new segment 
was looking to us to help them with, in terms of a new 
educational experience, we found that both a classroom and a 
consulting kind of relationship was not the optimal way to 
learn for this particular segment.
    They identified that they really wanted to learn from each 
other, and there are many of those kinds of peer learning 
roundtable activities going on both in the private sector and 
probably many of which are in your States.
    What I think significantly differentiates this program from 
those is two points. One, for example, is that we have been 
able to be successful. We have 11 groups going on the State 
now, and we have less than one year of operation.
    We have been able to identify and put together groups in 
communities that the private sector has attempted to find 
groups in, but has not even after putting in one case $40 
thousand in marketing efforts towards it.
    And it has not found the density that it needed to put a 
group together. It is imperative that there are 10 to 12 people 
in noncompeting industries put together, and commit to a 
particular time frame that is really quite ambitious.
    In our case, we meet monthly for about five hours per month 
in this facilitate roundtable group, and they commit to it for 
a 10 month period. The private sector was not as ambitious into 
that area and was unable to find success. Whereas, the SBDC, 
because of their long tradition of working with those 
businesses, was able to identify those firms that fit the 
profile and were looking for a way to learn from one another.
    The kind of testimonials, in terms of PeerSpectives, is 
that in my testimony I welcome questions from the Committee, 
and would welcome any opportunity to have those Wisconsin folks 
that are in these groups be able to talk to you about just how 
successful that has been as an educational process.
    And I look forward to the Committee considering this as one 
pilot to try to broaden the scope of education activities for 
the SBDC.
    [Ms. Kauten's testimony may be found in the appendix.]
    Chairman Manzullo. Thank you. I appreciate your testimony. 
Our last witness is James Chrisman, with the Department of 
Management and Information Systems for the College of Business 
and Industry at Mississippi State University. I look forward to 
your testimony.

    STATEMENT OF JAMES J. CHRISMAN, COLLEGE OF BUSINESS AND 
             INDUSTRY, MISSISSIPPI STATE UNIVERSITY

    Mr. Chrisman. Thank you. Chairman Manzullo, Ranking Member 
Velazquez, and Members of the Committee on Small Business. I 
thank you very much for inviting me here. My purpose today is 
to talk about the SBDC program in general, rather than to 
comment on specific bills before the Congress.
    In my experience as a professor, I have studied the SBDC 
program for 23 years, and have done approximately 250 studies, 
including studies of the national program, and studies of 
individual States; studies of States which are represented by 
most of the members of the Committee.
    I have also published 23 peer-reviewed journal articles 
based on my research. My overall conclusion is that the SBDC 
makes a positive impact on the economic development of the 
United States in terms of job creation and sales growth of its 
clients.
    In addition, the tax revenues generated by the incremental 
improvements of these clients exceeds the costs of the program. 
Before I talk a little bit more about the specifics, I thought 
it was important to explain why I think that this program has 
an impact.
    And I think that it is particular important given the bills 
before the Committee, because those bills tend to be about 
programs that are educational in nature, and the impact of the 
program, and the cause is because of its educational nature.
    As you know the SBDC provides information, research 
assistance, advice, and mentoring to clients. However, one of 
the big components of the program is that the clients 
themselves perform much of the work under the guidance of an 
experienced counselor.
    This leads to knowledge generation. First, explicit 
knowledge, where they gain facts and theories, is very 
important. And second, which I call tacit knowledge, or the 
experiential knowledge that they gain by going through the 
process of counseling, is more important.
    In other words, clients learn how to better manage their 
business, and as a consequence, they gain competitive 
advantages that have advantages for them in terms of their 
survival, growth, and success in achieving their own 
objectives.
    Briefly, here are some of the results. Some of these have 
already been mentioned, but my most recent study of the 
national program and 2002 clients, of those 61 thousand long 
term clients, they generated approximately 56 thousand new 
jobs. That is almost one per client.
    They generated about $5.9 billion in incremental sales. 
That is about a hundred-thousand dollars per client. In terms 
of jobs, the cost of a new job is about $3,400 a job. That is a 
pretty good investment.
    It is also a good investment for the government, because 
the tax revenues, the incremental tax revenues generated by 
these clients exceeded the cost of the program by a ratio of 
approximately 2.5 to 1.
    Now, I want to emphasize that this is a result of just one 
study. These results have been consistent over time in the 
national studies that I have conducted, and they have been 
consistent in the studies that I have conducted in individual 
States.
    They are also consistent across different types of clients, 
different types of businesses, and different types of 
objectives that the client businesses have been trying to 
achieve.
    Now, these studies have been designed to measure the 
effects of the program. What I think is also important is the 
other work that I have done, which has tried to gain an 
understanding of the causes.
    Now, part of that I have already discussed. As well as to 
test the cause and effect relationships that are implied. In a 
recent study that I did on the Pennsylvania program, a long 
term study, I found a direct relationship between the amount of 
assistance received and the survival, sales growth, and 
employment of the clients 4 to 8 years after receiving 
counseling.
    So these are documented results and I think pretty 
impressive. So, in conclusion, I think it is clear based on the 
work that I have done over the years that the SBDC makes an 
important contribution to economic development and it is a 
sound, cost effective investment for the government to be 
engaged in.
    Critical is the educational component, and these bills, and 
again today I want to mention, have an educational component 
that I think make them particularly consistent with the mission 
and capabilities of the SBDC program. So, thank you very much.
    [Mr. Chrisman's testimony may be found in the appendix.]
    Chairman Manzullo. Thank you. Let me recognize Congressman 
Udall of New Mexico to talk about his bill, H.R. 2981.
    Mr. Udall. Thank you very much, Chairman Manzullo, and I 
appreciate the panel, and I appreciate your testimony here 
today. You have already heard from one of my constituents here, 
Norma Naranjo, from the San Juan Pueblo.
    Ms. Naranjo is, as I am sure you have heard, is the owner 
of The Feasting Place, a dining establishment featuring Native 
American cuisine. You may not have known that in January of 
2002 that she was recognized by the New Mexico State 
Legislature and the Governor's Office as one of New Mexico's 
SBDC's successful clients during New Mexico's SBDC Day in the 
legislature.
    She joined 17 other successful SBDC clients at a 
recognition ceremony held in the Capital's rotunda in Santa Fe, 
and she is an excellent example of an entrepreneur who has been 
successful through her ambition and diligence, mixed in with a 
little help from the New Mexico SBDC.
    With additional funding to SBDCs who seek it, they can 
provide assistance to more entrepreneurs like Ms. Naranjo. And 
I thought I would take a few minutes, Mr. Chairman, to talk 
about my bill, but on the whole, I would like to put my entire 
statement in so that we can go to questions.
    [The information follows:]
    Mr. Udall. Some of you I know that are on this Committee 
are very familiar with my bill since it has passed several 
times through the Committee and through the House. It will 
establish a three year pilot project, offering grants to SBDCs 
to assist the Native American, Native Alaskan, and Native 
Hawaiian populations with small business development needs.
    Those of us on this Committee know how important small 
business entrepreneurship is to the health of our economy. The 
25 million small businesses in America create 75 percent of all 
new jobs and help provide economic growth and development to 
their communities.
    However, there are places in this country where economic 
development and the prosperity experienced by so many has yet 
to reach. These areas deserve our attention and assistance. 
Consider this. Nowhere in America has poverty persisted longer 
than on or near Native American reservations.
    These lands suffer an average unemployment rate of over 45 
percent according to the Bureau of Indian Affairs, which is 
almost four times the national average. Nevertheless, there is 
reason for hope. Small business creation has dramatically 
increased on tribal lands, and this has led to some job growth 
in these areas.
    In fact, in recent decades, Native American business growth 
and gross receipts have vastly surpassed overall small business 
growth rates and total growth receipts. I would like to 
continue the growth and expansion of small business enterprises 
with H.R. 2981, which passed the House overwhelmingly in the 
past two sessions of Congress.
    My bill ensures that Native Americans, Native Alaskans, and 
Native Hawaiians seeking to create, develop, and expand small 
businesses have full access to the counseling and technical 
assistance available through our Nation's small business 
development centers.
    This bill helps SBDCs extend these resources to areas that 
will benefit greatly from their assistance. The bill permits 
State SBDCs to apply for additional SBDC grants to establish 
one or more Native American small business development centers 
on or near Native American lands. That the business development 
tools offered by these SBDCs can assist Native Americans with 
the training, mentoring, and technical assistance to build 
sustainable businesses in their communities.
    In an effort to ensure the quality and success of the 
program, my proposal requires grant applicants provide to the 
SBDC with their goals and objectives for services to be 
provided for the grant, including their experience in assisting 
entrepreneurs with the difficulties in operating a small 
business.
    Additionally, the applicant must show their capability to 
provide training and services to a representative number of 
Indian tribal members, Native Alaskans, and Native Hawaiians. 
Most importantly, this bill ensures the participation of 
governing bodies of tribal organizations to ensure that these 
business development tools are provided in a culturally 
sensitive manner.
    While the current economic situation on Native American 
lands is grave, it holds great promise for the future. It is 
clear that we can and must do more to aid Native American 
entrepreneurs.
    I believe that this legislation will help the Native 
American population with the opportunity to build sustainable 
businesses in their communities, which will in-turn create 
further economic opportunities for those that need them with 
the most. And with that, once again I thank the panel, and I 
yield back to the Chairman.
    Chairman Manzullo. Thank you. Let me ask the first question 
of Ms. Naranjo and Congressman Udall. You testified on the same 
thing. As I understand it, Congressman Udall, your bill would 
make an extension, and not exactly another office, but an 
extension of a nearby SBDC to a Native American tribe at the 
reservation site? Is that the thrust of your bill?
    Mr. Udall. Chairman Manzullo, and ranking member Velazquez, 
the basic thrust of the bill is to try to get SBDCs in a 
culturally sensitive way to reach out there on to the 
reservation and provide services, and generate entrepreneurs, 
and train them, and mentor them, and move them along in the 
process to really get businesses going.
    And if you look at 200 years, and you look at people on 
many of these tribal and Native American lands, and you ask why 
there has not been a job growth, and why there has not been 
development.
    And I think it really comes down to the fact that some of 
our economic developments, and economic development projects 
have not in a culturally sensitive way tried to work with the 
people that are there that want to do these kinds of things.
    She is a good example of the success, but I think we could 
do a lot more. And I am convinced that with your support of the 
support of the ranking member of the Committee that we can get 
this done. We can really move forward with tackling this 
unemployment situation, which is as I said four times, or many, 
many times more on some of these tribal lands, and four times 
the national average.
    Chairman Manzullo. Ms. Naranjo, how far do you live from 
the Espanola SBDC office?
    Ms. Naranjo. The San Juan Pueblo is located like five miles 
away from where the office is located at.
    Chairman Manzullo. Okay. What would this bill do in your 
situation?
    Ms. Naranjo. Well, as I mentioned--
    Chairman Manzullo. You are pretty close to the office 
there.
    Ms. Naranjo. Yes, and I am fortunate that I am. But there 
is other tribes that live a lot further away than I do.
    Chairman Manzullo. There is a distance problem?
    Ms. Naranjo. There is, and as I said, we are a rural 
community, and that is why I invite you all to come to my home.
    Chairman Manzullo. I raise beef cattle, and so we don't do 
those in the city. But there are areas in this country where 
Native American reservations are located huge numbers of miles 
away from the nearest SBDC. Is that the thrust of your bill, 
Tom?
    Mr. Udall. Yes, Mr. Chairman, it is. And she is fortunate 
because it is close, but there are other--we have 22 tribes in 
New Mexico. We have the largest tribe in three States, the 
Navajo Nation, which is the size of probably many of the good-
sized States up in the northeast; bigger than Connecticut, and 
New Hampshire, and Vermont put together, the national 
reservation itself.
    The SBDCs are sometimes--I think the two SBDCs that I am 
familiar with are 20 to 30, to 40 miles on the outside of the 
reservation's boundaries, and we are just talking about the 
Navajo Reservation. So we are talking about trying to nudge the 
SBDCs that are in operation right now to be more culturally 
sensitive, and to reach out in these particular areas.
    Chairman Manzullo. Is there a need for more staff?
    Mr. Udall. More staff, more programmatic efforts to push 
the kinds of good things that we know that SBDCs do into the 
reservations, so that you can have on reservation businesses.
    I mean, many of these Native American people in New Mexico 
want to remain on their tribal lands, where they have been for 
in some cases thousands of years. And the effort I think will 
work out the best when you do it in a culturally sensitive way, 
and reach out on to the reservation.
    Chairman Manzullo. You could put Norma in charge of the 
program couldn't you?
    Mr. Udall. Hey, I would be happy to do that, Mr. Chairman. 
I don't have any problem with that. We have some good SBDC 
directors, but I think that this really targets the Federal 
SBDC efforts in a very specific way to help Native Americans.
    Chairman Manzullo. The second question is what is there--
let me try and frame the question. How would you direct a 
program--and I know that you used the word culturally 
sensitive, but give me some parameters.
    Mr. Udall. Why don't I let her start, and then I will try 
to--
    Chairman Manzullo. Well, she has a unique situation there. 
Do you understand my question, Norma?
    Ms. Naranjo. Yes. Mr. Chairman, and Members of the 
Committee, as I mentioned earlier, and maybe I did not make my 
point as clear as I wanted to, but I feel that people need to 
understand how you live, and where you live.
    They need to understand that the talents that you have, a 
lot of times people think that, well, Native Americans have 
this to offer, but they don't know how to go about getting this 
information out.
    And reaching out to get the services that are needed, and 
that is why I said that Native American people are very 
talented. Like I mentioned earlier, I went to the museum next 
store, and you will see all this talent, but the people don't 
know how to go about getting the services. And I think many 
times that people forget that we are part of the economy of the 
State of New Mexico.
    Chairman Manzullo. Let me ask you a question. The bill has 
passed the House a couple of times, and the Senate sits on it, 
and if you were made the director of this program, what would 
you do? Is that a valid question?
    Ms. Naranjo. Well, I think the first thing I would do is I 
would lead and educate the tribal leaders, because they are the 
ones that you would have to meet with as protocol. Just like 
you have to come here and meet, you have to meet your native 
leaders as protocol to let them know and educate them that you 
are getting funding for this particular program.
    And then if you get the funding, you come on to the 
reservation, and you educate the people as to what the money is 
about so that they can have an understanding. I had no clue 
that there was an SBDC in Espanola, New Mexico. I didn't know.
    I didn't know how to go out and get some help. I just came 
upon them by accident.
    Chairman Manzullo. I think you have answered my question. 
People have to know that it is available.
    Ms. Naranjo. Yes. You need to educate people in terms of 
what is available to them, and what does that office there for.
    Chairman Manzullo. I appreciate that. Tom, if you wanted to 
add a footnote to that.
    Mr. Udall. Well, I just wanted to speak a little bit 
further. I think that what she is emphasizing is that when thee 
communities have been in one spot, and in particular in New 
Mexico, where you are talking thousands of years where they 
have lived, and for many it is an agricultural life, or a 
pastoral life where they are herding sheep, and yet in a very, 
very talented people.
    But there is a kind of protocol as she has said within the 
community in terms of bringing things on to the reservation or 
on to the tribal lands. And part of that is the government to 
government relationship and having the individuals go out and 
talk to pueblo leaders.
    And the pueblo leaders then introduce the program, and the 
ideas and things to the community, and help with it. And that 
is what I mean when you asked me what does culturally sensitive 
mean. It means that you deal with the community that is there.
    You try to break through what some would call barriers. To 
me, it is just cultural traditions, and to get through them, 
and then when a very capable person like Ms. Naranjo discovers 
this, and gets the training and assistance, and all of that, 
everything takes off from there.
    And I think that she is a great example of exactly what we 
are trying to do in a dramatic way across the board on these 
tribal and Native American lands in these bills.
    Chairman Manzullo. Thank you. Ms. Velazquez.
    Ms. Velazquez. Ms. Naranjo, you have the talent, the skill, 
the creativity of cooking, but you don't know how to go about 
it, how to market the business?
    Ms. Naranjo. Exactly.
    Ms. Velazquez. You are in the business of cooking and you 
are not in the business of teaching other people how to be 
successful?
    Ms. Naranjo. Exactly.
    Ms. Velazquez. And that is what this center would do, and 
also what are the type of programs. What are the type of 
programs that exist, and provided by the Federal government 
there, but you don't know. Information is power and you don't 
have it.
    So once you know that there is loan guarantees by the 
government, that will help you get a loan, and that will allow 
for your business to expand, and then you will benefit. And the 
other thing is that people need to know that you have to build 
credit and to have a credit history.
    But it takes more than just putting your profits or your 
money under the mattress. That you need to have a savings 
account, a credit account, and you have to show that you are 
responsible in paying your bills.
    So that is the type of technical assistance that can be 
provided through this program, and we have to understand the 
cultural uniqueness of certain communities that we might think 
that, hey, it does not make sense to them, but to them it does 
make sense, and we have to get into their mind frame to 
understand that.
    But I would like to address my question to the SBDC 
directors. I have talked with a number of directors of local 
and State centers, and they tell me that the cost of running 
their centers is getting more expensive.
    As with most small business owners, whether it be with 
increased rents, health care costs, or even energy costs, 
prices, they are starting to be hit with rising costs. Yet, 
funding for their centers remains flat.
    Do you find it more difficult to deal with the funding 
provided by the Federal government in light of these increased 
costs? Is it more difficult to retain veteran works on your 
staff?
    Ms. Kauten. I think the ranking member is absolutely 
correct. One of the things that I think has happened at the 
national level is a new phenomenon to embrace entrepreneurship 
as a strategy for States. I think that five years ago, and 
certainly 10 years ago, as we were talking about economic 
development in the broader sense, and ways of kind of 
increasing the economy of States, we would be talking about 
strategies of working with existing businesses, or talking 
about in the worst case scenario of perhaps going to other 
businesses in other States, and bringing those businesses 
across our borders.
    I think that there is a lot less acceptance certainly of 
the recruitment strategy, and as we have become I think more 
sensitive to how it is that we grow in our State--we have a 
State of 5 million people, and we have budget deficits that 
continually keep us looking for ways to try to create a more 
robust economy.
    But as we look in those areas, we are becoming I think more 
aware of what entrepreneurship is, although a long term 
strategy, and although one that is risky, is certainly in many 
communities the only alternative that they have to try to grow 
and to be more successful, and to try and get the tax revenues 
that they need to keep themselves going. And that means that 
they are looking to us.
    Ms. Velazquez. Ms. Kauten, could you please answer my 
question? Do you feel that you are getting less money than you 
were getting like in the early 2001 from the Federal 
government?
    Ms. Kauten. The capacity, and what we find is that all that 
means is that we do not have the capacity to deal with what 
these natural phenomenon are. And as the costs go up and the 
capacity remains the same, and the demand goes up, obviously 
that means that we are struggling to try to find ways to 
continue to keep our payrolls.
    Ms. Velazquez. Mr. Conroy, if rents are going up, and if 
health care is going up, if prices are going up, if energy is 
going up, and if your money is getting less in terms of your 
budget, are you afraid that the services provided by SBDCs will 
be diluted?
    Mr. Conroy. That is something that is of concern to us. In 
Pennsylvania, over the past 12 years, we have taken a 25 
percent cut in Federal funding of this program, and it has been 
a real challenge to try to come up with other sources of 
resources to be able to make up for that.
    And with advances in technology, and other approaches that 
we take towards maximizing efficiency, we have been able to 
pretty much keep our service delivery stable. but it is 
becoming increasingly difficult, and quite frankly there are 
portions of the state that are terribly under-served.
    And anything--and one of the things that is interesting, I 
come down here and meet with a lot of the members to talk about 
what has been happening in their districts, and if you look at 
the district profiles of service delivery, it varies 
substantially among the 19 different districts that we have in 
Pennsylvania.
    And that is because it is a factor of resources, and when 
those programs came into the SBDC program.
    Ms. Velazquez. Ms. Kauten, this bill, 3207, provides an 
additional $1.5 million to set up the second stage 
PeerSpectives networking program. How do you think you are 
going to achieve the goals that are set out by this program 
with such a small amount of money?
    Ms. Kauten. The bill establishes a pilot in one of each of 
the regions within the SBDCs, and I think it provides an 
opportunity for the SBDCs to identify and to be able to 
demonstrate the impact of a program like this.
    It certainly is only a start, but nevertheless it is a 
start in a target market that I think all the SBDCs around the 
country have been trying to access more aggressively, and I 
think that because that market is there, and one that we want 
and think is appropriate for us to service, we think that those 
pilots will be one way that we can show that we have a 
particular set of services that is very compatible with the 
learning needs of growing businesses.
    So only because it is a pilot, and only because there are a 
few States that would be designated to begin that service, I 
think is the $1.5 million adequate.
    Ms. Velazquez. Well, it would be adequate if you are taking 
resources from programs that are already in existence under the 
SBDC to be able to provide the services required under these 
new proposals.
    But I think that we should be in the business of providing 
the resources that you need to continue to do the job that you 
are doing. Dr. Chrisman, you said before that they created 56 
thousand new jobs, and that is a way to increase the tax 
revenue base of our economy.
    Don't you think that by increasing resources so that SBDCs 
continue to do their job of generating more jobs by providing 
the technical assistance that would allow entrepreneurs to 
continue to create those jobs, don't you think that instead of 
the $88 million that we are providing, if we provide the $108 
million that is authorized that this is a way to reduce the 
deficit?
    Mr. Chrisman. That would be my conclusion, yes.
    Ms. Velazquez. So sometimes there are certain things that 
do not make sense, because if we want to get our economy back 
on track, we should provide the economic tools that would allow 
for small businesses to continue to do what they do best, and 
that is creating the jobs.
    After all, they create 75 percent of all the new jobs, but 
instead of providing those economic tools, we are cutting the 
budget in those programs that are precisely tackling the issue 
that our economy is facing today, and that is to get it back on 
track.
    Mr. Chrisman. Yes, I think that putting money into the SBDC 
program is a very good investment, and accomplishes the kinds 
of things that I think the government wants to accomplish. In 
other words, growing the economy out of a deficit position, and 
I think that this makes a material contribution to that.
    Chairman Manzullo. Mr. Fortenberry.
    Mr. Fortenberry. I want to thank you, Mr. Chairman, for 
holding this important meeting, and I want to apologize for 
coming in late, but I was trying to do a little catch up and 
Dr. Chrisman, the ranking member actually preceded me in a 
similar line of questioning.
    And I just wanted you to summarize your findings in terms 
of the economic multiplier impact that this government 
investment has overall, and if you can, compare it to other 
governmental investment.
    In other words, when we look at the Highway bill, for 
instance, it has been suggested that there are significant 
economic multiplier effects there because of the job creation 
and increased tax revenue from further economic development.
    Have you done any cost comparisons in terms of this 
investment by the government and its return as measured in 
increased economic activity, and therefore, tax revenue? And do 
you have other measures by which you are suggesting that this 
is a good investment?
    So could you quantify those in a way and then compare it to 
other government investments, or have you ever done that?
    Mr. Chrisman. Unfortunately, I have never done that. The 
numbers that I have given in my reports are direct impacts. 
They don't include a multiplier effect. If you would include a 
multiplier effect, then the numbers would be greater, which of 
course the suggestion of the multiplier effect is that when new 
businesses are created, and when existing businesses grow, they 
create opportunities for still other businesses. But that has 
not ever been done and this is just the direct effect.
    Mr. Fortenberry. Well, I liked your analytical findings as 
well, in terms of pointing out the cessation that can sometimes 
occur through these centers of insufficient placement of 
resources. In other words, stopping bad business decisions.
    I know that is terribly difficult to qualify and I don't 
know how you measure the economic benefit of stopping a bad 
decision, but that is an important factor as well.
    Mr. Chrisman. Yes, I think that that is a very important 
thing that the SBDC does, and it is very, very difficult to 
measure the negative case. In my written testimony, I discussed 
one example that I was directly involved in back early in my 
career when I was a Ph.D. student.
    I was a staff counselor and I worked with one client in 
particular who was planning on getting a $5 million government 
grant to begin printing and distributing some books that they 
had prepared. I did a detailed analysis for them, and my 
results suggested that in a five year period that they would 
eat all that $5 million, and need another $3 million before 
they reached a positive cash flow.
    So at the time, I figured that we probably saved the 
government about $5 million, and the cost of running the SBDC 
in Georgia at that time was something like a million-and-a-half 
a year. So that was one case.
    And that was an extreme case, but it was pretty 
substantial, and I think if you had a chance that you would 
find that there are a number of those kinds of cases that occur 
every year.
    Mr. Fortenberry. And, Mr. Chairman, if I may follow up on 
that right quick. Perhaps those of you who run the centers 
might be able to comment on that, in terms of how many clients 
you have, and that you convince that they do not need to do 
something, and therefore place resources inefficiency, 
resulting in a negative multiplier effect if you will, when 
they could have been placed more efficiency elsewhere?
    And I don't mean to put you on the spot. That is a hard 
time to calculate, I know.
    Mr. Conroy. Well, actually, it is funny, because it is 
something that we have struggled with as long as I have been 
with the program. I think that one of the greatest things that 
we do is that we help people preserve their assets so that they 
don't take out another mortgage on their house, or they don't 
spend their kids' college funds, or retirement savings on 
something that as Dr. Chrisman pointed out may not be viable.
    But we sort of feel that our job is to create positive 
economic impacts and it is very difficult to measure a 
hypothetical negative impact. We do track to some extent the 
number of folks who decide not to go into business as a result 
of working with us.
    But what we have done is that we have set up a process for 
delivering services in such a way that most of these folks 
self-select themselves out before they invest a significant 
amount of time. So, for instance--
    Mr. Fortenberry. So you don't have to deliver the bad news 
is what you are saying?
    Mr. Conroy. Well, they come to realize it on their own. The 
first thing we do is we make them go through a course called 
the First Step Course, and it is kind of a cold shower, and 
this is what is involved in being an entrepreneur.
    And then we have a series of other things. What we have 
found is that of the folks that work with us in a consulting 
capacity to start a business, 25 percent of them go on to start 
a business, and 80 percent of those are still in business eight 
years later. So I think it is a process that works.
    Mr. Fortenberry. So, 25 percent of those who start, of 
those 25 percent, 80 percent are still in business eight years 
later?
    Mr. Conroy. Yes.
    Mr. Fortenberry. That is your track record?
    Mr. Conroy. Yes.
    Mr. Fortenberry. Now, is that a self-selective figure based 
upon your work with them, or other determining factors that you 
point out, such as many more advanced experience or education 
in the area?
    Mr. Chrisman. The study that Christian is referring to 
looked at the amount of assistance and compared it with 
survival and growth rates. We controlled for factors such as 
business experience, management experience, industry 
experience, start-up experience, general education, business 
education, entrepreneurial education, and other assistance 
received, gender, ethnic background, and type of business, and 
a variety of other factors. So those were all controlled for in 
the study.
    Mr. Fortenberry. [Presiding] Excellent. Thank you. Are 
there any further questions?
    Ms. Velazquez. Yes, Mr. Chairman. Thank you, Mr. Chairman. 
Ms. Kauten, while I understand that the definitions in H.R. 
3207 are taken directly from the Edward Lowe Foundation study, 
I am troubled that this definition is very confusing.
    According to the way that I understand it, if a company has 
five employees, and less than $750 thousand in sales, or 
working capital, it is not eligible. But if a company has 98 
employees, and $10 million in sales or working capital, it is 
eligible.
    This seems to penalize smaller companies, and I would like 
to understand the logic of that. Can you please comment on 
that?
    Ms. Kauten. Absolutely. As I tried to describe in the 
earlier testimony, this was in Wisconsin an attempt to target a 
particular stratum of businesses that we found that we were not 
serving as adequately as we thought that we needed to.
    It was the result of a planning session that we know that 
there is a group of businesses that have been in business for a 
while, and that all of the criteria that the ranking member 
just identified, and that seldom use the SBDC services.
    We thought that there was an opportunity to help them grow 
and the research suggested that these companies that now have 
been in business for several years are really posed to grow. 
That there is a lot of return in working with them.
    The definition is as the ranking member identified always a 
difficult one. The problems surrounding that is that there is 
nothing in the research that very definitely identifies those 
businesses that have the potential to grow and the intent to 
grow in definitive terms.
    It may not be perfect, but in Wisconsin, we have found that 
they have identified a group that has enough similarity and 
that the problems that they identify within those roundtables 
are similar enough that they can learn from each other.
    The definitions were not meant to exclude businesses. They 
were simply meant as a way--
    Ms. Velazquez. But it does.
    Ms. Kauten. And roundtables could be appropriate for other 
groups as well. This is only the Wisconsin experience, and what 
we have done is identified a group and created an educational 
activity around them.
    The similar activity could also be identified for those 
that are in other categories. But the thinking is that the 
experience of having been in business for a while and having 
employed people, and having understood now not the start up 
issues, but the growth issues, are those things that are being 
discussed in Wisconsin in those roundtables.
    Ms. Velazquez. Ms. Kauten, the lowest measure of the Small 
Business Administration size standards is 50 employees. In 
fact, SBA size standards are focused more on making sure that 
true small businesses receive assistance. After all, it is 
small businesses that we are supposed to focus on.
    They are the ones in need of technical assistance, and the 
mission of the Small Business Development Center is to provide 
technical assistance, and capacity building for small 
businesses.
    This bill allows companies with as many as 500 employees to 
participate as long as they meet the revenue criteria. If you 
go by the SBA size standards, most of these companies will not 
qualify for any other small business programs government wide.
    So I just want you to explain to me why this double-
standard? One for small businesses for every other program, and 
different measures for this initiative? If we are going to 
adopt this proposal shouldn't it be more in line with SBA size 
standards?
    Ms. Kauten. It certainly should, and the criteria of 
between six employees and 99 was meant to be a ceiling of 99, 
and the criteria of $750 thousand to $18 million was meant to 
be a ceiling of $18 million.
    So in Wisconsin, the kinds of businesses that are in those 
groups, that is the way that we interpreted those rules. There 
is no business that is larger than 99, and in fact the reality 
is that most of those businesses are precisely in the category 
that the ranking member mentioned; less than 50, and many with 
20 and 30. It is that size category specifically that we are 
looking for.
    Ms. Velazquez. But do you recognize that $18 million in 
working capital does not represent a small business?
    Ms. Kauten. Working capital was a definition that we tried 
to use in order to not exclude those businesses that in fact 
are based on IP, the biotechnology business, that have capital, 
but don't have revenue. So that was the thinking behind that.
    Ms. Velazquez. Okay. Another question that I have is with 
respect to the working capital measure in the bill, is how this 
will be verified? Unless a company provided financial 
statements to the SBDC, which I don't see them doing 
voluntarily, who is going to evaluate this eligibility factor?
    Ms. Kauten. I can only tell you what we have been doing in 
our State. We tried to get the kind of cohorts together to do 
what it is that we have been trying to do. We established those 
standards and in fact the participants self-identified 
themselves to be within those categories.
    Because the roundtable in and of itself is a dynamic among 
businesses that have as I said like issues, we found that was 
adequate to bring people to the table that were alike, and we 
have not found in our 103 participants that we have had in this 
pilot year that we put together that people self-identified 
themselves inaccurately. So they followed the criteria. We did 
not ask for a financial statement.
    Ms. Velazquez. So you don't see any room here for abuses?
    Ms. Kauten. I can only say that in Wisconsin, with the 
experience that we have had now for a year, and a hundred 
people and 11 sessions, that there have been none. That has 
been our experience.
    Now, if the Committee saw that there needed to be more 
criteria in there, in terms of self-identification not being an 
appropriate way, that certainly could be built in. I am only 
saying that that has not been built into it.
    And to tell you the truth, my whole objection and concern 
is that in light of the insufficient money that is provided by 
the Federal government, and the President's request for the 
budget for the SBA and programs such as the SBDCs, when we know 
that you are diluting services because you don't have the 
resources that you need in order to provide the kinds of 
services that your clients are demanding, now to come and 
dilute what you are doing much more to service a segment that 
really have been quite successful.
    Our mission is to provide for those who we need to help 
them in order to grow and to expand their businesses. But if 
you are talking here about $10 million given the financial 
constraints regarding the budget, I have a question with that.
    Ms. Kauten. And I understand the ranking member's 
precaution there. Those businesses are in fact posed to growth, 
and in our experience, they are also needing assistance for 
growth.
    Ms. Velazquez. But not at the expense of those which the 
mission, the core mission of the SBDCs, is to help those start-
ups and those that are growing, but to take away those services 
that you are supposed to be providing to those businesses that 
are doing quite well at the expense of those, then the first 
order should be let us get the funding that you need to get, 
$109 million authorized by this Committee, and then we can talk 
about other programs. Thank you, Mr. Chairman.
    Mr. Fortenberry. Thank you, Ms. Velazquez. With that, we 
will conclude today's hearing. Thank you all so much for 
coming, and I appreciate your willingness to join us, and for 
the portion of the time that I had with you, your insightful 
comments. We are very grateful that you took the time to be 
with us today. We are adjourned.
    [Whereupon, at 3:25 p.m., the Committee was adjourned.]

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