[Senate Hearing 109-430]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-430

 
    THE PRESIDENT'S FISCAL YEAR 2007 BUDGET REQUEST AND LEGISLATIVE 
                         PROPOSALS FOR THE SBA

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

                                HEARING

                               BEFORE THE

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 9, 2006

                               __________

    Printed for the Committee on Small Business and Entrepreneurship


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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                       ONE HUNDRED NINTH CONGRESS

                              ----------                              
                     OLYMPIA J. SNOWE, Maine, Chair
CHRISTOPHER S. BOND, Missouri        JOHN F. KERRY, Massachusetts
CONRAD BURNS, Montana                CARL LEVIN, Michigan
GEORGE ALLEN, Virginia               TOM HARKIN, Iowa
NORM COLEMAN, Minnesota              JOSEPH I. LIEBERMAN, Connecticut
JOHN THUNE, South Dakota             MARY L. LANDRIEU, Louisiana
JOHNNY ISAKSON, Georgia              MARIA CANTWELL, Washington
DAVID VITTER, Louisiana              EVAN BAYH, Indiana
MICHAEL B. ENZI, Wyoming             MARK L. PRYOR, Arkansas
JOHN CORNYN, Texas
                    Weston J. Coulam, Staff Director
                 Naomi Baum, Democratic Staff Director


                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Snowe, The Honorable Olympia J., Chair, Committee on Small 
  Business and Entrepreneurship, and a United States Senator from 
  Maine..........................................................     1
Kerry, The Honorable John F., a United States Senator from 
  Massachusetts..................................................    11
Vitter, The Honorable David, a United States Senator from 
  Louisiana......................................................    14
Landrieu, The Honorable Mary, a United States Senator from 
  Louisiana......................................................    15
Coleman, The Honorable Norm, a United States Senator from 
  Minnesota......................................................    22
Pryor, The Honorable Mark, a United States Senator from Arkansas.    23
Thune, The Honorable John, a United States Senator from South 
  Dakota.........................................................    39
Enzi, The Honorable Michael B., a United States Senator from 
  Wyoming, prepared statement....................................    72

                           Witness Testimony

Barreto, Hon. Hector V., Administrator, U.S. Small Business 
  Administration.................................................    23
    Prepared statement...........................................    51

          Alphabetical Listing and Appendix Material Submitted

Almeida, Ann Marie
    Prepared statement...........................................    95
Coleman, The Honorable Norm
    Opening statement............................................    22
Enzi, The Honorable Michael B.
    Prepared statement...........................................    72
Kasoff, Barbara
    Prepared statement...........................................   109
Kerry, The Honorable John F.
    Opening statement............................................    11
    Letter from James Morrison...................................   114
Landrieu, The Honorable Mary
    Opening statement............................................    15
    Prepared statement...........................................    17
McNeil, Chris Jr.
    Prepared statement...........................................   115
National Association of Development Companies
    Prepared statement submitted by Kurt Chilcott................    79
Pryor, The Honorable Mark
    Opening statement............................................    23
Schubert, Lynn M.
    Prepared statement...........................................    73
Snowe, The Honorable Olympia J.
    Opening statement............................................     1
    Prepared statement...........................................     5
    Letter from Pamela J. Mazza and Antonio R. Franco............   102
Thune, The Honorable John........................................
    Opening statement............................................    39
Vitter, The Honorable David
    Opening statement............................................    14
Wilson, Donald
    Prepared statement...........................................    88


    THE PRESIDENT'S FISCAL YEAR 2007 BUDGET REQUEST AND LEGISLATIVE 
                         PROPOSALS FOR THE SBA

                              ----------                              


                        THURSDAY, MARCH 9, 2006

                              United States Senate,
          Committee on Small Business and Entrepreneurship,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:10 a.m., in 
room SR-428A, Russell Senate Office Building, Hon. Olympia 
Snowe, (Chair of the Committee) presiding.
    Present: Senators Snowe, Coleman, Thune, Isakson, Vitter, 
Kerry, Landrieu, and Pryor.

OPENING STATEMENT OF THE HONORABLE OLYMPIA SNOWE, CHAIR, SENATE 
                COMMITTEE ON SMALL BUSINESS AND 
         ENTREPRENEURSHIP, AND A UNITED STATES SENATOR 
                           FROM MAINE

    Chair Snowe. The hearing will come to order. Good morning 
and welcome to today's hearing on the President's Budget and 
Legislative Proposal for the Small Business Administration. I 
want to thank Administrator Barreto for being here today as we 
examine the SBA's priority for the coming year.
    At a small business forum earlier this year, President Bush 
said, ``Small businesses have been a driving force behind the 
tremendous growth and job creation of recent years. By adopting 
sound policies that help our small businesses continue to grow 
and expand, we will keep the economy moving forward and extend 
prosperity and hope in our country.''
    Prosperity and hope do, indeed, embody the spirit of the 25 
million small business owners in this country. They take risks 
others do not. They transform their ideas and dreams into 
realities. Their hobbies become their professions. Their 
entrepreneurial spirit is everywhere, and their products and 
services have made the United States the most prosperous, 
powerful and generous country on earth.
    Small businesses represent 99 percent of all employers, 
create nearly 75 percent of all net new jobs, and employ 51 
percent of the private-sector workforce. They are the 
foundation, the base, the core of our economy. America is 
America because of our small businesses.
    Given these facts, I am truly disappointed by the proposed 
funding level of $624 million for the Small Business 
Administration for fiscal year 2007. Excluding the Disaster 
Loan Program, only $425 million will go to the SBA's core 
programs, which continues a trend of decreasing SBA budgets 
over the last 6 years that have reduced these programs by 25 
percent in that period, as you can see on this chart that I 
think illustrates the point, and what is happening with the 
steady erosion and decline of funding. Moreover, since 2001, 
SBA proposes to reduce its overall budget by an astounding 37 
percent. It is 25 percent of the core programs, and overall, it 
is 37 percent since 2001. The SBA's budget represents less than 
3/100ths of a percent of the total Federal budget. Is this 
really the place for the administration to find additional 
savings when you get more bang for the buck with small 
businesses in generating jobs in America?
    The SBA argues that it ``does more with less,'' but the 
Agency's resources and employees are stretched too thin. We 
cannot, on one hand, cite how important small businesses are to 
our country and our economy, and on the other hand, refuse to 
provide the Small Business Administration with the resources it 
requires to meet its mission.
    When Hurricanes Katrina and Rita hit to Gulf region, the 
SBA desperately needed a full complement of resources to 
respond to this unprecedented disaster. To date, the SBA has 
resolved 90 percent of small business disaster loans and 73 
percent of all disaster loan applications submitted by victims 
of Hurricanes Katrina and Rita. The 80,000 loans approved for 
victims of these hurricanes will provide a total of $5.7 
billion for the rebuilding of homes and businesses in the Gulf 
region. That is the good news.
    On the other hand, only $450.6 million, or 8 percent of the 
total $5.7 billion, has actually been disbursed thus far. We 
are here today to urge the SBA, as we have been doing over the 
last 6 months, to improve its processes and its procedures and 
to get more money out to the people that need it in order to 
rebuild these economies. In fact, as we have also learned, the 
Agency's Disaster Credit Management System was incapable of 
handling the high volume disaster loan applications, and we 
have been working with the Administrator on this question, 
which they have had more than 350,000 thus far, and the SBA 
failed to accurately monitor its disaster financial information 
to implement its disaster transformation workforce strategy, 
and this tragic response to a devastating disaster must not be 
repeated.
    We have consistently led efforts on behalf of this 
Committee to urge the Agency to improve its loan processing 
activities. We have consistently demanded that the SBA provide 
more effective relief to the hurricane victims. I have urged, 
and I know others as well in the Committee, and the Committee 
itself, has urged SBA officials to process hurricane disaster 
loans with greater urgency and efficiency.
    Specifically, among other things, I have asked the SBA to 
develop a comprehensive disaster response plan that 
accommodates different scales of disasters, improve the process 
for accurately predicting disaster loan volumes, work with 
local resource partners to determine individual needs to better 
coordinate disaster relief efforts, hire additional employees 
for processing centers, including business loan offices and 
data entry staff, to meet the current demand, and hire 
additional loan verification officers to analyze damaged homes 
and businesses.
    Beyond the doors of the SBA are volumes of small business 
success stories that remain untold. The SBA and its programs 
have generated a tremendous return on investment, helping to 
create or to retain more than 4.5 million jobs since 1999. 
Small businesses yearn to grow, flourish and thrive, and the 
SBA has the experience and the resources to be their bridge to 
success.
    However, a steady decline in the SBA's budget could 
jeopardize its ability to provide these positive economic 
stimulus in the future. More importantly, if we fail to provide 
sufficient support to SBA's core lending and business 
development programs, we threaten to reduce small businesses' 
ability to compete.
    In addition to analyzing the SBA's declining budget 
request, I am also deeply concerned about the SBA's plan to 
charge additional fees on small businesses in the 7(a), the 504 
and the Small Business Investment Company programs. These are 
highly successful programs. None of them receives 
appropriations to subsidize its loans. Last year, at no cost to 
the taxpayer, the 7(a) program provided $14 billion in small 
business loans, the 504 program provided more than $10 billion 
in loans, and the SBIC program provided $2.9 billion. Now the 
administration proposes to increase fees on small businesses to 
raise $7 million in revenue, which will be used for the SBA's 
administrative costs. Increasing fees paid by small businesses 
is not the way to reduce the budget. These small businesses are 
already paying fees and taxes to fund the Agency. Let's not 
make it more costly for them to access financing.
    SBA loan programs have produced success story after success 
story, which include Eric Thorson, the Administration's nominee 
to be the SBA's next Inspector General. At a hearing last week, 
Mr. Thorson told the Committee that he began his small business 
with an SBA veteran loan after returning from a tour of duty in 
Vietnam. SBA loans have assisted the founders of Federal 
Express, Outback Steak House, Calloway Golf, and thousands of 
other successful businesses.
    The administration is also proposing that disaster loan 
borrowers be required to pay a higher interest rate after the 
first 5 years of their loan to lower the cost of disaster loans 
by a total of $41 million for fiscal year 2007. Putting a 
greater burden on disaster victims is a short-sighted policy 
that Congress should not adopt, and I strongly oppose this 
proposal.
    I also intend to fight any attempt to eliminate the SBA's 
Microloan Program, which provides loans of up to $35,000 in 
technical assistance to new and growing small businesses. It is 
a relatively inexpensive program that helps entrepreneurs start 
and grow businesses throughout our Nation. In my own State of 
Maine, almost 90 loans have been made in this program over the 
last 2 years for a total of $1 million. It is a proven record 
or helping small businesses who otherwise could not secure 
financing, and I regret the administration's proposal would 
eliminate this crucial source of small business growth.
    I will continue to oppose the administration's proposal to 
insufficiently fund programs such as the Small Business 
Development Centers, Veterans' Business Development, and 
Women's Business Center, which served over one million clients 
in 2005. Not only have these programs been level funded for the 
last 4 years, but this year the SBA proposed to decrease their 
funding. These programs have exceeded their potential, and it 
is time to provide them with the necessary resources they need 
to reach and assist more small businesses.
    During the course of this hearing, I also wish to examine 
the Agency's funding and management of Government contracting 
and business development programs, which are subject to your 
executive direction as well.
    According to reports prepared by the GAO and the SBA's 
Inspector General last year, the SBA failed to review over 80 
percent of bundled contracts. The SBA's oversight of prime 
contract awards and of the 8(a) program are among the Agency's 
major management challenges, and large contractors at the 
Department of Energy have repeatedly overstated their 
subcontracting achievements. Despite the claims last year to 
increase the Government contracting and business development 
budget by 5 percent, the budget actually reflects a $5 million 
decrease, and I applaud your decision to reverse this decline 
in 2007.
    I think we can all agree in the final analysis that small 
businesses are essential to America's success. Therefore, a 
strong and vibrant Small Business Administration is 
instrumental to achieve that success. The status quo is simply 
not an option.
    Administrator Barreto, this Committee is here to assist you 
today, and hopefully we can reverse some of the directions that 
have been proposed, because, frankly, I think it is somewhat of 
a dismal direction where SBA is headed, and we will get into a 
number of these issues, but I am deeply concerned.
    Given the fact that Small Business, probably more than any 
other agency, can create more value for its money, and it seems 
counter-intuitive that we are moving in a direction that 
undercuts the very programs that created jobs and created 
businesses in America.
    [The prepared statement of Chair Snowe follows:]

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    Chair Snowe. I now recognize the Ranking Member, Senator 
Kerry.

       OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY, 
           A UNITED STATES SENATOR FROM MASSACHUSETTS

    Senator Kerry. Madam Chairwoman, thank you very much. Thank 
you for this hearing and for that important opening statement.
    When I think about it, as I was listening to your 
statement, it is a pretty remarkable statement to come from the 
chairperson of this Committee, which is the Committee of the 
majority which represents the same party as the administrator 
that has come here. This is not a party issue. It is not 
Republican/Democrat. It is sort of amazing that this budget 
would come to this Committee when you think of the past 
hearings that we have had over the last years with the same 
administrator and the same administration. It just seems like a 
Johnny-one-note process of repetition of the same-old, same-
old, that does not seem to hear what anybody sitting at this 
table or on this Committee is saying.
    I see this chart that shows increased loans, and I know 
what you are going to say. You are going to come in here and 
say we have got a big increase in the loans and so forth, but 
you did not do that. We did that. I mean you are going to come 
in here and show us a chart that says lending went up, and we 
did that. You did not propose it. You did not ask for it. You 
did not fight for it. We had to fight for it over your 
objection.
    There is a piece of me that really did not want to come to 
this hearing. I am going to tell you that frankly. I have been 
here 22 years, I have never said that. The reason is there is 
just no dialogue. I do not know if you called the chairperson 
of this Committee and said, ``Hey, how do we get this to be a 
working process this year? Why don't we sit down before we put 
the budget together?'' I do not know if you did that, but I 
know you did not do it with me.
    I take a look at this, and I sort of say to myself, are you 
trying to get rid of the SBA? I mean, is that really what is 
going on here over a period of time? Well, the budget request 
has $624 million for the SBA. What do we have? $650 billion 
that has been going to Iraq, or more, and we got less than a 
billion dollars going to the SBA in its entirety, which is a 
reduction of 17 to 18 million compared to the 2006 budget. This 
is the sixth consecutive year of budget cuts for the SBA, 
resulting in a 37 percent reduction to the SBA funding since 
the Bush administration came into office, a 41 percent 
reduction when compared to the fiscal year 2001 budget request.
    The SBA has experienced the deepest budget cuts of any 
Federal agency during the Bush tenure. It is the second year in 
a row SBA has been demoted as a major Federal agency. OMB no 
longer lists SBA among the major Federal agencies, which means 
it is impossible for Congress and the public to compare that 
budget with the previous years of other agencies. I have sent a 
letter to OMB, urging them to restore SBA to the list of major 
agencies, which I think it ought to be.
    For the second year in a row the administration is 
proposing to eliminate line items for contracting and 
counseling programs, including the 7(j) Technical Assistance 
Program, the HUBZone Program, which Senator Bond from Missouri 
worked hard to put in place, and I joined with him in 
cosponsoring it when he was chairman. The Native American 
Outreach Program. What is it? Native American Outreach is 
complete in America? We got what we need in terms of Native 
American participation in the full citizenship of our country? 
Who recommended we cut that? U.S. Export Assistance Center 
Program, we do not need to increase American exports among 
small business?
    Last year, I opposed that proposal, along with others, 
because it limits transparency and reduces the authority of 
this Committee, and the Appropriations Committee, to ensure 
that funds are allocated. It is almost as if it did not matter 
that we opposed it last year and changed it. You are back 
again, same old, same old, without a new rationale.
    For the third year in a row the administration has 
requested zero funding for the 7(a) program, claiming to 
realize a savings of $100 million for the taxpayer. That is not 
a savings of $100 million for the taxpayer. That is passing on 
all the costs to the small business borrowers and lenders. That 
is an increased tax on them. You come here and you tell us that 
you are making a savings by taxing people more. It is a 
pretense, it is just a shell game. It is unclear why the SBA 
would limit the level to $17.5 billion when people are 
requesting 18 billion, and the program requires no 
appropriation? So you pass on the cost and you still limit the 
level.
    You are also proposing to increase fees on loans, as the 
chairwoman said, a million dollars or more for 7(a) working 
capital, 504 loans for property and equipment, SBIC venture 
capital programs, and these new fees will result in combined 
savings of only $7 million. They will impact 3 percent of 7(a) 
borrowers, 15 percent of 504 borrowers, and the majority of 
SBIC deals. These administrative fees are the first time the 
SBA has attempted to pass along administrative costs to lenders 
and small business borrowers in that field.
    In addition, the pressure that puts on programs to make 
smaller loans is just a bad precedent, and if Congress were to 
go along, which I hope it will not, we will likely see another 
increase in administrative fees, or a larger number of those 
loans in coming years.
    In microloans, for the third year in a row, the President 
is proposing to eliminate the Microloan Program and microloan 
technical assistance counseling, the largest Federal program 
solely dedicated to supporting the credit needs of the smallest 
businesses and self-employed entrepreneurs.
    It is stunning when you look at the rate of return on that, 
the rate of compliance, the minimalness of loss versus gain, 
which is a net gain. Incidentally, you have to ask, what is the 
rationale? Why do that? That program serves a completely 
different kind of borrower. It serves a special need, and these 
are people that participate in the program that are not able to 
satisfy the minimum score of 680 to 700 required by most 
conventional lenders. Yet, in spite of the labeling, since its 
inception in 1992, the Microloan Program has had only two total 
losses, and the program creates one job for every $1,800 that 
is loaned, compared to the other loan programs which are about 
15 times, 15 times as expensive.
    Minority lending, I know you are going to claim you are 
doing a record lending to minorities, but the fact is, in the 
504 program, the number of loans and dollars of loans to 
African Americans have stayed at a flat 2 percent, the numbers 
of loans to Hispanics went up only 1 percent, and the dollars 
stayed at 6 percent, stayed the same, and loans in dollars to 
Asians have increased, but the 504 loans to women, which has 
always been a major focus of this Committee, have decreased 
from 19 percent to 15 percent, and dropped from 16 percent to 
14 percent in dollars. Loans to African Americans have dropped 
in number in the Microloan Program from 28 percent to 21 
percent, and dollars have dropped from $7.1 million to $5.7 
million. Loans to Asians and women are essentially flat, and so 
forth.
    In the Disaster Loan Program--and we have gone through 
this--amazingly, the President's budget includes a request to 
increase the cost of disaster loans to homeowners and small 
businesses by eliminating the low-interest cap of 4 percent, 
and raising the interest rates on these loans after the first 5 
years. Now, these loans are typically 30-year loans, so 
basically you are attempting to save money on the backs of 
disaster loan victims, no other way to describe it. That is 
where the savings comes. You raise the interest rates, you take 
away the cap that we have had in there, it is a disaster loan, 
disaster victims are going to pay more. I know that that will 
be a focus of some questions here today.
    As early as December 2005, you knew, Mr. Administrator, 
that you had underestimated the average size of disaster loans 
in the Gulf Coast by one half. You knew you would be running 
out of money, but you did not alert the appropriators until the 
end of January. You did not alert out the Committee until the 
second week of February. I wrote to the President to express 
our concerns about the late notice, and urged that the 
administration request full funding for disaster loan so that 
we would not be in the same situation in April, with the 
program on the brink of running out of money, and we finally 
managed to get something done. Congress had to step in three 
times so far this fiscal year to prevent the Disaster Loan 
Program from turning away hurricane victims.
    I could go on. There are other areas. I do not want to tie 
this all up. You know, it is stunning--and the Women's Business 
Centers being cut, what is the rationale for cutting Women's 
Business Centers? The Small Business Development Centers, which 
provide counseling and training for small businesses, has been 
at level funding since 2001, and this year you cut it, a one 
million dollar cut, down to $87 million. The fact is that years 
of level funding have eroded the SBDC network, challenging the 
very notion that it is possible to do more with less. In 
addition, the total of SBDC clients has been declining since 
2003 due to those budget cuts.
    I think you are on a terrific track to undo years of effort 
by this Committee and the SBA to grow small business in America 
in the most propitious fashion possible. I know you are going 
to be able to show, yes, sure, there are loans being made, yes, 
there are businesses that are still in business and they are 
still growing, but that is not the standard, that never should 
be the standard. The standard is, are we doing everything in 
our power that makes sense within all the limitations and 
choices of our budget to grow our small businesses and 
facilitate their lives, and help people in a disaster 
situation. There has always been a unanimity in this Committee, 
a bipartisan approach, with an understanding that we are not 
trying to have the Government makes these choices for people. 
When you look at the record at Intel and Callaway Golf and 
FedEx and a bunch of people who got started with loans through 
this effort under a different construct that you have created, 
we have repaid the budget of the SBA many times over in the 
taxes of just a few success stories alone. This is an 
unbelievably shortsighted, in my mind, and incomprehensible 
approach to the small business needs of the country.
    Thank you, Madam Chairman.
    Chair Snowe. Thank you, Senator Kerry.
    Senator Vitter.

       OPENING STATEMENT OF THE HONORABLE DAVID VITTER, 
             A UNITED STATES SENATOR FROM LOUISIANA

    Senator Vitter. Thank you, Madam Chairman, for this 
important hearing on the SBA budget, and thank you, 
Administrator Barreto for being here.
    Obviously, I guess it goes without saying, I am 
particularly focused on the SBA and this proposed budget with 
our recent disaster experience, Hurricanes Katrina, but also 
Rita. We always need to underscore that. There is enormous need 
and challenge in the Rita devastated area with all of that in 
mind. Certainly, I am going to work with you on this budget 
with all of those needs in mind.
    I have to say we continue to be frustrated in the disaster 
area with the lack of speed and lack of efficiency in terms of 
getting approved SBA loans to the people that need it. It has 
been ramping up. I thank you for that. We have much further to 
go. I am looking carefully at this budget to see how it can 
improve that dramatically and get us there.
    With that in mind, I do want to focus on one very specific 
issue that the Chairwoman mentioned, which I also have grave 
problems with, and that is the proposal to raise interest rates 
in the future after the first 5 years on disaster loans. I have 
to tell you flat out, in the present context, and with the 
recent experience on the Gulf Coast of last year, I really find 
this proposal offensive, quite frankly. I think it has no place 
in our continuing challenge to get needed help to those 
businesses.
    I realize it is prospective. I realize it will not impact 
the immediate Gulf Coast need, but again, just as a gut 
reaction in light of the failure of the SBA to meet the 
enormous challenge, which I understand is of historic 
proportions unlike the SBA has ever faced, I just think that 
proposal in particular is offensive, and certainly unacceptable 
to me. With that in mind, I will certainly be proposing a 
budget resolution amendment to reverse that.
    That is all I have, Madam Chairwoman.
    Chair Snowe. Thank you, Senator Vitter.
    Senator Landrieu.

  OPENING STATEMENT OF THE HONORABLE MARY LANDRIEU, A UNITED 
                 STATES SENATOR FROM LOUISIANA

    Senator Landrieu. Thank you. Madam Chair and Senator Kerry, 
thank you for your really extraordinary leadership in holding 
the SBA's feet to the fire on the Disaster Loan Program, and 
particularly, the number of hearings you have called, the 
number of letters that you have sent, and the bipartisan 
leadership that you have given to this issue. Those of us along 
the Gulf Coast, and speaking for our constituents, truly 
appreciate the extra efforts that are being made.
    Before Katrina and Rita hit, Mr. Administrator, Louisiana 
had more than 95,000 small businesses. Today the SBA is a 
lifeline for the 18,000 businesses that were completely 
destroyed in Louisiana by the storm, and the 365,000 residents 
that were left homeless, many of whom still are homeless in 
temporary, inadequate shelter throughout the country. The SBA's 
handling of the Disaster Loan Program, in my view, has been a 
disaster in itself. Loan processing delays, not enough loss 
verifiers in the region, consistent resistance to bridge 
loans--although they have proven to work in Florida, in 
Mississippi, and in Louisiana--consistent resistance to working 
in the right partnerships with banks and credit union to get 
loans to people more quickly.
    I was hopeful, after the hearings that we have conducted 
and the leadership of both of these leaders on this Committee, 
that this budget that we are considering would reflect the 
lessons we have all learned in painful ways, and unfortunately, 
it does not. Instead of budgeting for potential staffing needs 
to handle future disasters, the budget cuts Disaster Loan 
Program staff. Does that make any sense? We have already seen 
how long it took the SBA to staff up to handle the workload of 
Katrina and Rita. Do we think we are not going to have any 
storms again? The hurricane season starts again in June, just a 
few months from now.
    Back in late January, as Senator Kerry said, the SBA almost 
ran out of money for the Disaster Loan Program. In the midst of 
the worst, unprecedented natural and manmade disaster in the 
history of the country, we almost ran out of money in this 
program. I have put up a chart to express and to reiterate the 
timeframe of what happened along that line. As Senator Kerry 
said, we had to step in twice at the last minute to reprogram 
to keep this vital lifeline open for our businesses that want 
desperately to get back to work.
    Given all this information, the Disaster Loan Program is 
too important to have come that close to going belly up. That 
is why the Members of this Committee, both Republicans and 
Democrats, are tired of what seems like SBA mismanagement and 
the inability to grasp the magnitude of the disaster, and its 
inability to be agile and flexible, to listen, to hear what is 
happening on the ground and make those adjustments, and as a 
result, many businesses in Louisiana are suffering.
    One particular business that was highlighted, Hubig Pies, 
anybody from Louisiana has eaten many Hubig Pies. They come in 
all different flavors, apple, cherry, cinnamon, et cetera. Mark 
Ramsay, President of Hubig Pies, was on--this is one of our 
most outstanding businesses, 92 years in business, Hubig Pie 
trucks all over Louisiana, south Louisiana, Mississippi and 
throughout the Gulf Coast--applied for a loan just weeks after 
the disaster, still had not gotten response. They went through 
their own sources to get that company up.
    I brought the phone book in the event that this might be 
helpful to people that work at the SBA. Here is a whole list of 
businesses that were in business in Louisiana. If they want to 
verify if people were in business, you know, let your fingers 
do the walking, look right here to see if they were in 
business, and verify the fact that these loans need to get to 
these people. Without the SBA, I do not know how we rebuild the 
Gulf. I do not know how we rebuild it without small businesses. 
We do not have major Fortune 500 companies along the southern 
part of Louisiana and Mississippi that got hard hit. We have a 
few. The cluster, the backbone, the energy, the innovation, the 
strength, is in our small businesses.
    I just want to say, Madam Chair, the hurricanes did not do 
us in, it was the Federal collapse of a levee system that did. 
These businesses paid their taxes, they paid their insurance, 
they paid their bills, and they have been in business for 60, 
80, 90 years, and come to the Small Business Administration--
never before having to need help--but come to the Disaster Loan 
Program and either they cannot get processed, cannot get 
verified, and then to pour salt on the wound, as Senator Vitter 
said, what they get is a recommendation to increase their rate 
for next year to bail out the Federal Government. Who needs 
bailing out? These businesses need a hand up.
    Let me just end by saying that, Mr. Administrator, we do 
not need a cheerleader for a structure that does not work. We 
need a champion for small businesses in the Gulf that want to 
get back to work. We expect that from you. If we cannot get it, 
we will get someone else.
    Chair Snowe. Thank you, Senator Landrieu.
    [The prepared statement of Senator Landrieu follows:]

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    Senator Coleman.

   OPENING STATEMENT OF THE HONORABLE NORM COLEMAN, A UNITED 
                 STATES SENATOR FROM MINNESOTA

    Senator Coleman. Thank you, Madam Chair. I would second the 
comments of my colleagues from Louisiana in terms of what we 
need. My assessment is, well, a little less overall damning, 
but certainly in regard to Katrina, the issue about flexibility 
and agility, need to move quicker, is absolutely critical, and 
I think the overall response, the State response, the local 
response and the Federal response to Katrina was clearly a 
failure, and we simply have to do better, and so we need that 
greater flexibility.
    I have to pat you on the back for the success of the 7(a) 
program in terms of the number of loans and the number of 
dollars. I am going to applaud your efforts at joint increase 
efficiencies, not a bad thing to do. I even note in regard to 
the disaster loans, as I understand the proposal here, it is 
deep interest subsidies for those in need now, but then after 5 
years, when people are back on their feet, presumably, maybe we 
have to extend that time, maybe it has to be longer than 5 
years. At a certain point in time when folks are on their feet, 
then they will be treated as other businesses in the same 
category. It seems to be pretty logical. Again, when the need 
is great, we have to meet the need, and then when people get 
back on their feet, they are treated like other businesses, and 
that is probably not a bad thing, maybe a timing issue here.
    I do have concerns about the President's budget in regard 
to some very specific program. I share the concern of my 
colleagues about reducing, eliminating funding Small Business 
Development Center. I share the concerns expressed about the 
HUBZones, and I, in particular, share the concerns expressed by 
the Microloan Program. We went through this last year. I 
understand, by the way--I have read the rationale, I understand 
that the cost of the Microloan Program is significantly greater 
per loan than it is for 7(a) program, so 7(a) minimal costs, 
Microloan Program greater costs. The nature of Microloan 
financing is you are going to have greater costs, but these are 
the kind of programs we need.
    I chair the Western Hemisphere Subcommittee in Foreign 
Relations. We are touting microloans as one of the great U.S. 
initiatives that should be copied throughout the world, but 
then at home we are not funding them, and I just think that is 
a mistake. I understand there is a rationale on the table. The 
rationale has to do with cost of processing loans, in an effort 
to increase efficiencies, that all Government agencies should 
be looking at ways to do that, but I think when you weigh it 
out and you look at some of these, Microloan in particular, 
Small Business Development Centers, HUBZones, I think we have 
to go in a different direction.
    I think you have a challenging job. We all understand that 
the future, the growth of the American economy is tied to the 
success of small business, and Government does have a role to 
play here, it does have a role to play. I look forward to 
working with you. I do hope that we measure twice before we cut 
once, and if we do that, I think we will be well served.
    Thank you, Madam Chairman.
    Chair Snowe. Thank you, Senator Coleman.
    Senator Pryor, do you have any comments?

        OPENING STATEMENT OF THE HONORABLE MARK PRYOR, 
             A UNITED STATES SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Madam Chair. I really just have 
one. First, thank you for your leadership on this, and your 
vigilance on helping small businesses around the country.
    Secondly is that we received a call yesterday into our 
office here that there is a woman who is dislocated from 
Louisiana after the hurricane, and she has been denied an SBA 
loan, and she needs the SBA loan in order to establish the fact 
that she is going back to New Orleans to reclaim her property. 
Otherwise, her property may be taken away from her down there. 
She was denied the loan from the SBA, even though her credit 
score apparently was fine, because she missed two payments to 
the IRS after the hurricane. She lost her job, lost her 
business, lost her home, lost everything she owned. She misses 
two payments to the IRS, which I think most people would 
understand, but nonetheless, the SBA has denied the loan.
    I just bring that to your attention and to the Committee's 
attention because it shows sometimes how the SBA sometimes 
misses the forest for the trees, where they have to have all 
their boxes checked, and they really are not helping people 
that need the help the most, and certainly, we want to 
encourage people like this woman, Louisianian, living in 
Arkansas now--does not want to be in Arkansas, no offense to 
Arkansas--but she wants to be back home in Louisiana. She wants 
to get back there and get her life back together. I would like 
to visit with you about that when you have time.
    Thank you.
    Chair Snowe. Thank you, Senator Pryor.
    Administrator Barreto, please proceed. I think you can 
understand the depths of the concerns that have been expressed 
about the direction of these proposed cuts, and otherwise fees 
and so on, and also the response to disaster with the 
hurricane. I hope that we can have a discussion with respect to 
a variety of these issues that have been raised by Members of 
the Committee.
    I also inform the Committee Members that we intend to vote 
on the Eric Thorson candidate for the Inspector General off the 
floor after a vote.
    Please proceed, Administrator Barreto.

STATEMENT OF HON. HECTOR V. BARRETO, ADMINISTRATOR, U.S. SMALL 
                    BUSINESS ADMINISTRATION

    Mr. Barreto. Thank you, Madam Chairman, Ranking Member 
Kerry and Members of the Committee. Thank you for inviting me 
here today to discuss the President's budget request for the 
U.S. Small Business Administration, and related legislative 
issues.
    Since 2001, the SBA has been on a mission, a mission to 
deliver more services to the Nation's small businesses as 
efficiently and as effectively as possible. We are proud of the 
SBA's successes in that quest, and the fiscal year 2007 budget 
reflects a continuation of this goal.
    Lending is at an all-time high, more clients than ever are 
being served by our Entrepreneurial Development Programs, and 
we are improving methods to assist small businesses gain fair 
access to Government contracting opportunities. Many measures 
have been implemented to further that goal. We realize that any 
time that you strive to be more results driven, as President 
Bush has directed us, there are going to be challenges. 
Nonetheless, we remain keenly focused on our efforts to serve 
the needs of America's small businesses.
    By restructuring key Agency operations and re-engineering 
the Agency's largest loan programs, the SBA has achieved record 
program growth, while reducing its total budget by 37 percent 
since 2001. The SBA has also improved effectiveness of the 
taxpayers' dollars by supporting small business development.
    With these improved efficiencies in fiscal year 2007, SBA 
will be able to serve record numbers of small businesses with a 
total budget request of $624 million.
    SBA lending has seen record setting growth in our Flagship 
Loan Program. Since 2001, the number of loans has more than 
doubled in the 7(a) and 504 loan programs. In fiscal year 2005, 
we made nearly 98,000 small business loans in our two primary 
lending programs, compared with only 42,000 in 2001. In 2005, 
minorities received 31 percent, and women received 17 percent 
of 7(a) and 504 dollars that we funded. The fiscal year 2007 
request will support 28 billion in financing to the U.S. small 
business community. This represents a 42 percent business 
lending increase over fiscal year 2005 through the 7(a), 504 
and SBIC debentures programs.
    In all of these programs, SBA will be able to continue to 
meet the growing demand for loans in fiscal year 2007 without 
fear of shutdowns or caps because all three programs operate at 
a zero subsidy. Zero subsidy is still the best policy for 
promoting the long-term stability and growth of the SBA's loan 
programs. As you can see with our results over the last year, 
it has not impacted our lending.
    In addition to better results, we have also increased 
efficiencies in lender oversight functions, loan processing and 
liquidating, saving the taxpayer millions of dollars. Further 
consolidations and efficiencies planned for 2006 and 2007 will 
result in additional savings.
    In keeping with these savings and efficiencies, the 
administration is proposing an administrative fee for 7(a) and 
504 and SBIC financings over $1 million. This fee will cover 
the cost of making these loans and will save the taxpayers $7 
million in fiscal year 2007.
    On the Entrepreneurial Development side of our mission, we 
continue to focus on making our programs more effective and 
efficient as well. The key to this is close collaboration with 
our resource partners, the Small Business Development Centers, 
the Service Corps of Retired Executives, which are the 
counselors to America's small businesses, and Women Business 
Centers. With the help of these partners, as well as through 
our extensive online resources, we provided training, education 
and counseling to over 1.1 million clients.
    To reach new clients, SBA is encouraging our partners to 
utilize online development and maximize the resources we 
provide to them to increase capacity for outreach. We are 
certainly going to use technology at the SBA to the greatest 
extent possible to reach additional clients.
    With respect to Government contracting and business 
development, I can report that we now have 58 Procurement 
Center Representatives. That is the most since the 
administration began, and the most in many, many years. They 
are assisting small business with Federal procurement issues.
    SBA Office of Government Contracting and Business 
Development has also instituted enhanced practices and 
technological improvements. These have provided many benefits 
and increased efficiencies concerning Government contracting 
opportunities and monitoring. Strides have been made to 
maximize staff resources and monitor contracting activities, as 
well as to improve the communication and interaction with the 
small business community through the automation of many of 
these basic systems.
    SBA's focus in fiscal year 2007, as it has been since I 
became Administrator, and also part of the President's small 
business agenda, will continue to be to work to increase small 
business participation and competition in the Federal 
procurement arena.
    I would also like to speak about what is the top priority 
right now at the SBA, and that is our disaster response. To 
date, we have received an unparalleled 386,000 disaster loan 
applications from homeowners, renters and businesses, more than 
9 times what we received after Hurricane Andrew. Approximately 
$6 billion in disaster loans have been approved to over 83,000 
victims. Our response has been Agency-wide, not only the 4,000 
people that are working in our Office of Disaster Assistance, 
but also it includes hundreds of staff in our district offices 
across the country who are helping us to process these loans. I 
am very proud of their hard work, of their dedication, of their 
compassion, and the urgency our staff is demonstrating.
    The SBA has already surpassed by almost $2 billion what was 
previously the largest disaster response in U.S. history. That 
was the 1994 earthquake in Northridge, California. I remember 
that well. I lived in California at the time. Following that 
disaster, it took over a year for the SBA to process 250,000 
applications. In the response to the 2005 Gulf Coast 
hurricanes, the SBA has already processed more than 251,000 
applications in half the time.
    The fiscal year 2007 budget requests funding to support 
$900 millon for loans to homeowners and businesses struck by 
natural disaster. That is an estimate based on the 5-year 
average. The fiscal year 2007 budget proposed to continue 
providing preferential loan terms to victims of disasters. 
However, in order to contain escalating costs of these loans, 
the budget proposes to adopt a graduated interest rate for the 
disaster loan program. Without such an action, the subsidy 
costs of disaster loans will increase 20 percent over this 
year's rate.
    During the first 5 years after a disaster, interest rates 
will remain deeply subsidized, as they are currently 
structured, although the interest rate caps would be 
eliminated. Thereafter, rates would revert to a rate reflective 
of comparable Treasury instruments determined on the approval 
date of a loan, and still below the market rate. This structure 
would continue to provide borrowers with deep interest 
subsidies when they need them the most, immediately after a 
disaster, and after 5 years the subsidies would be reduced for 
the remainder of the loan term.
    The SBA operates like the businesses that it helps to 
succeed, by continually meeting challenges and evaluating cost 
effectiveness. The SBA has succeeded in achieving record growth 
in its programs, while at the same time reducing the overall 
budget request through focused, practical implementation of the 
President's management agenda, the PMA, and related 
initiatives. To maintain these trends and build on the Agency's 
achievement, SBA's budget reflects a commitment to the 
improvement of management systems and processes, to investing 
in new and upgraded infrastructure, to improving the efficiency 
and skill level of our staff, and to continuing transformation 
of Agency operations.
    The Agency is committed to continuing our mission and 
legacy, to deliver more services efficiently to the Nation's 
small businesses. The SBA's fiscal year 2007 budget request 
does just that.
    Madam Chair, Members of this Committee, thank you again for 
the opportunity to meet with this Committee this morning. I 
would be happy to answer any of your questions.
    Chair Snowe. Thank you, Administrator Barreto. Let's just 
begin with respect to the overall decline, because, obviously, 
there is a disconcerting trend since 2001. Now, I understand we 
have to make cuts somewhere, but as I said earlier, it seems to 
me that Small Business is one of the areas of the Federal 
Government that actually generates and leverages jobs and job 
creation in creating new business in America. It just simply 
does not make sense that we are undercutting the very programs 
that are contributing to job growth and economic growth in 
America. The one value we get from one of the programs in the 
Federal Government is the very one that we are targeting for 
significant reductions.
    Now, in looking at the budget request, as I said in my 
opening statement, and looking at the chart here in the SBA 
non-disaster programs, as you have seen the decline, 25 percent 
over the last 5 years, the last 6 years. I mean, that is 
significant, and then overall, 37 percent for all combined. 
That is non-disaster and disasters, 37 percent, 25 percent for 
the disaster. That is a serious decline in a budget that has 
never been robust, but clearly, as you can see from the 
figures, the 2007 request is $425 million when it comes to non-
disaster, and $624 million overall, combined disaster and non-
disaster. That is, I think, troubling.
    Then, as you mentioned, in addition to that, which I found 
curious in the budget, generally on each of the programs within 
SBA, you talk about the number of jobs created, and for the 
first time those numbers have been eliminated in the budget. Is 
there a reason for that?
    Mr. Barreto. One of the things----
    Chair Snowe. Would you not want to elaborate and tout the 
value of each of these programs when it comes to job creation, 
and have the job creations numbers alongside the program? Now 
they have been eliminated in this year's budget. Why would that 
be?
    Mr. Barreto. First of all, let me say that I agree with you 
100 percent that small businesses are the engine that fuels the 
economy. We talk about that all the time. Let me address all 
parts of that question. First of all, as I look at the budget 
request up there, and the comparison, one of the things that is 
clear to me as I look at that, is that, obviously, in 2005 and 
2006, you had a number of supplemental appropriations that are 
included, which are not included in our 2007 request because we 
do not know what disasters may befall us in 2007. Right there, 
that is not a complete apples to apples comparison. Also, one 
of the things that we do not ask for are congressional 
initiatives, and congressional initiatives would be included in 
2005 and 2006. In fact, that number has steadily gone up, and 
of course, we know that much of that money does not go into the 
programs of the SBA.
    With regard to the numbers that we talk about, we classify 
those numbers in two ways. One is that we say the programs that 
the SBA provides--enable businesses to create and retain jobs, 
and both of those are very important to us. Oftentimes the way 
that we get that data is because when somebody, for example, 
takes out an application for a 504 loan, oftentimes they will 
tell us how many jobs will be created when they purchase that 
building or purchase that equipment. I just want to be really 
clear that----
    Chair Snowe. Are they providing that now, or they are not 
anymore?
    Mr. Barreto. Oh, they do, and I----
    Chair Snowe. What is the answer to the question? Why are 
those numbers not associated with the programs any more to tout 
the impact that they have in job creation? I think it is 
important for Members of Congress to appreciate the value of 
these programs. What better way to emphasize the contribution 
that these programs are making?
    Mr. Barreto. What I am trying to explain is that we take 
that information and make those estimates based on the 
information that our small businesses give to us and I would be 
happy to provide that because the number----
    Chair Snowe. They have traditionally been provided in the 
budget is the point I am making here, Administrator Barreto, 
and now for the first time they are not being included in the 
budget alongside each of the programs. It is simple as that. I 
am just asking the question, yes or----
    Mr. Barreto. I am happy to provide that to you, Chair, and 
I----
    Chair Snowe. It should have been in the budget.
    Mr. Barreto. I apologize for it not being there, because we 
are proud of the jobs that are retained and created by SBA 
programs. In fact, our Office of Advocacy, that does research 
on this, continues to tell us that on a year-to-year basis, the 
small businesses of the United States are still creating 60 to 
80 percent of the net new jobs in the economy. That is an 
incredible success story, and that is one of the reasons that 
we continue to refer.
    Chair Snowe. I know. That is why I am asking as to why the 
budget does not include what has traditionally been part of the 
budget, the number of jobs that each program leverages, because 
it is important. It is important information for Members of 
Congress, and it was not part of the budget this year, and I 
think it is very vital.
    Mr. Barreto. I think that was an omission.
    Chair Snowe. Oversight? Okay. That is fine, and that would 
be great if we could get it, because I think----
    Mr. Barreto. I promise you that you will have that. We are 
proud of those numbers.
    Chair Snowe. It will help me and the Members of this 
Committee to do our job in explaining this, because, 
unfortunately, I do not think many Members of Congress 
appreciate the value of these programs, and I am not so sure 
many in the administration, for that matter.
    Mr. Barreto. Oh, we appreciate it.
    Chair Snowe. Because if you did, you would be doing more. 
It seems as simple as that. I do not know any program that gets 
more bang for the buck than these programs.
    Mr. Barreto. I agree, and that is why we are so proud that 
every year that we have been here, we have broken historic 
levels. I mean I think that is part of the story too that 
people do not talk about. We have literally doubled the number 
of loans in every category. We have trained millions of small 
businesses, facilitated billions of dollars worth of contracts.
    One thing that I am very clear of when I appear in front of 
this Committee is that we want the same thing. We want to help 
more small businesses, and every year we do more than we did 
the year before and we break new records.
    Chair Snowe. That gets me to my next point, which we 
disagree with, that you are serving more with less.
    Looking at the second chart here, for a Small Business 
Development Center in the SCORE Program, as you will see, these 
counseling programs, in fact, the impact of the level funding 
over the last 5 years has had an impact in serving less clients 
and fewer clients. For the SCORE Program, a difference of over 
84,000 clients. Between SBDC and SCORE, 84,000 clients between 
2004 and 2005. The SBA's declining budget is jeopardizing your 
ability to serve more clients, to help create more small 
businesses. I mean that is a fact. That is what is happening 
here. That chart illustrates it, and that is disconcerting in 
terms of the fact we are moving in the wrong direction, 
contrary to your numbers. Okay. We are getting these numbers 
from your budget.
    Mr. Barreto. I understand. May I explain how you got those 
numbers? May I explain that?
    Chair Snowe. Are you saying they are wrong?
    Mr. Barreto. No. I am saying that they are more accurate 
then ever is what I am saying.
    One of the things that we noticed a couple of years ago is 
that in a lot of our programs there was a lot of double and 
triple counting. For example, sometimes somebody, a client, 
would go to an SBDC and get some service, and then they would 
partner up with a SCORE counselor, and they would get some 
service. We would treat that as two separate businesses. It was 
not two separate businesses, it was one business who was 
receiving training and counseling. One of the things that we 
have done is we have been a lot more precise in our counting to 
make sure that we are not double and triple counting.
    You talked about the job numbers. It is critically 
important that we give you accurate job numbers, and at the 
same time it is critically important that we also give you 
accurate counts----
    Chair Snowe. You are saying it is not accurate though? I 
mean I am just asking because I am not clear on that. Is it 
accurate or is it not?
    Mr. Barreto. It is the most accurate that it has ever been.
    Chair Snowe. Okay. That means we are serving fewer clients 
then.
    Mr. Barreto. No. It means that before when we used to give 
these numbers, we used to give aggregate numbers that were 
double and triple counting sometimes, and we are not doing that 
anymore.
    Chair Snowe. I would like to see the justification and 
rationale.
    Mr. Barreto. Sure, I would be happy to provide it.
    Chair Snowe. I really would, because to say--then you 
should be clarifying, making that distinction in your budget if 
that is what you are suggesting. I would like to see those 
numbers.
    Mr. Barreto. Be happy to provide those.
    Chair Snowe. Because the numbers in your budget would very 
much indicate to the contrary, and that is disconcerting. It, 
frankly, would stand to reason. If you are moving a different 
direction in the budget, which is a major decrease as opposed 
to any increases over time----
    Mr. Barreto. It has been actually pretty level funding for 
the last couple of years. We are not eliminating any major 
programs, closing any major offices. The good news is that what 
I am here to tell you is that we are going to do more loans 
this year and more loans next year.
    The real story, the real bottom line to this budget is $28 
billion in lending authority, $28 billion, that is historic 
levels of lending authority.
    Chair Snowe. Finally, one other question here. On the 
proposal to increase fees in the 7(a) and the 504, you are 
saying that zero subsidy has had no impact. Now you are 
proposing increases on these major programs.
    Mr. Barreto. Let me make sure I clarify that. The fee 
increase we are talking about has nothing to do with the 
subsidy rate. It is not going to affect the subsidy rate. We 
are----
    Chair Snowe. I understand that. I know that. Now you are 
going beyond that. There is no subsidy, and now you are 
proposing to charge fees associated with these programs. That 
is a major departure and direction in terms of these programs.
    Mr. Barreto. On the million dollar loans which represent 3 
percent of the borrowers, yes, we are proposing to increase 
that. By the way----
    Chair Snowe. It would be paid for by the borrowers or the 
lenders?
    Mr. Barreto. This is a fee that is going to go up to the 
lenders, and if it is passed on--and oftentimes they are passed 
on--the differential in the payment is going to be $10 a month. 
For a lot of small businesses that can afford a million 
dollars, $10 a month differential on payment for them to be 
able to access a loan whenever they wanted in the larger 
amounts is not a significant amount of difference for them.
    Chair Snowe. It is also unclear whether these fees are 
legal under the Federal Credit Reform Act. Do you have any 
idea----
    Mr. Barreto. I have no knowledge that they would not be 
legal.
    Chair Snowe. Because it prohibits agencies from making a 
profit from loan programs, so I think we will have to, 
obviously, evaluate that.
    Mr. Barreto. I am not sure that we would be making a 
profit.
    Chair Snowe. The fees vary, obviously, under the SBIC 
program, up to $45,000. They vary under each of these programs. 
Some $623 per loans. The 504 could be $11,000 for loans of 
maximum 10 million.
    Mr. Barreto. That would be about 12.
    Chair Snowe. SBIC was $45,360, so they vary considerably.
    Mr. Barreto. Absolutely. As I said, on the 7(a) side, 
again, 3 percent of the loans of all the loans that we did, are 
those million dollars loans. The differential payment is going 
to be about 8 to 10 dollars. On a 504 loan, which is 15 percent 
of all the loans in that portfolio over a million dollars, it 
would be about $12 a month differential. And, yes, you are 
right, on the SBIC, which is the venture capital portfolio, you 
are talking about loans that are much, much larger, and so the 
fee is going to be larger, but it is also something that can be 
financed. It is not something that it is going to be a lump sum 
differential. It is something that will be spread over the 
length of that loan.
    Chair Snowe. Thank you.
    Senator Landrieu.
    Senator Landrieu. Thank you, Mr. Administrator. Let me ask 
a couple of very specific questions about your disaster plan. 
You have stated in previous hearings that the Small Business 
Administration was conducting an unprecedented response to 
Katrina and Rita. Do we have on the record of this Committee a 
proactive disaster plan that was in place prior? A proactive 
disaster plan, did the SBA have one?
    Mr. Barreto. Sure. As you know, Senator, SBA has responded 
to every disaster in the last 50 years, and so there is a 
disaster model that we employ and that we execute.
    Senator Landrieu. Is that in writing?
    Mr. Barreto. Yes, it is.
    Senator Landrieu. Could you submit it to my office and to 
the Committee?
    Mr. Barreto. I would be happy to.
    Senator Landrieu. Considering that we have learned many 
lessons since Rita and Katrina, and you have just submitted the 
new budget for next year, do we have a revised model of that?
    Mr. Barreto. That is something that we are working on right 
now. Let me say this, one of the things that we are very clear 
about, you know, SBA right now is responding to other disasters 
in other parts of the country. On a year-to-year basis there 
is, on average, about 50 disasters that the SBA responds to, 
from things as large as 9/11 or the four hurricanes that we had 
the year before. We execute basically the same way in every one 
of those disasters and we have been----
    Senator Landrieu. That is the problem. Let me just say, 
that is the problem.
    Mr. Barreto. I agree.
    Senator Landrieu. Hold on, that is the problem. There are 
all sorts of disasters, and what we are trying to get this 
administration to understand in many different committees, is 
that not every disaster is the same.
    Mr. Barreto. I agree.
    Senator Landrieu. A tornado coming through a town and 
wrecks 14 house and knocks down trees and disrupts one farm is 
one kind of disaster, but a disaster that puts a major American 
metropolitan area out of business, that is in the heart of 
America's energy coast, is a whole other disaster, and that is 
what the problem is. There does not seem to be an understanding 
of the magnitude of this across many different departments. It 
is imperative that this department understand it as quickly as 
possible.
    My question is, I would like you to submit as soon as 
possible, a revised disaster management plan, in hopes that we 
never experience this again. Given everything we know about the 
hurricane season, the predictions of more storms, the 
importance of the coast from Maine--although they do not get 
hurricanes up there, they get Northeasters and very tough 
storms--all the way through to Texas, I think we might want to 
look at a revision. If you could get that for us, that would be 
appropriate.
    Mr. Barreto. Yes, ma'am.
    Senator Landrieu. For loan approvals, what is the specific 
days--how many days does it take the SBA right now to approve 
business and homeowner loans under our disaster program? Do we 
know how long that takes?
    Mr. Barreto. I will give you an up-to-date real-time 
estimate. I will tell you that the velocity of those approvals, 
as you know, has increased significantly. It took us 90 days to 
do the first billion dollars. We have done 4-1/2 billion in the 
next 90 days. The velocity of the approvals and the processing 
has increased significantly.
    Senator Landrieu. I know we are trying to go faster. The 
question is, are we going fast enough for the disaster that we 
are dealing with? That is the question, and the record 
reflects, according to our data--and I would like your staff to 
confirm this--that it takes 81 days for a business loan to be 
approved, and then another 21 days for closing, so that is over 
100, 103 days. That might be the best we can do. I do not know. 
I suggest that since the recovery really begins with small 
business--and I know there are many complications, housing, 
health care, schools, you name it--but truly the small 
businesses of this region will help to lift this region back 
up. I am asking you, is there an industry standard, and is it 
lower than this, and if so, what can we do to expedite this 
timeframe?
    Mr. Barreto. I do not know if there--I would not call it an 
industry standard, but I think that we have our own standard 
from every disaster that we have ever responded to. Obviously, 
in this disaster, because of the scope of it, things have not 
gone as quickly as any of us would like to see it, but let me 
say this. We have now processed almost 100 percent of the 
economic injury disaster loans, and over 90 percent of the 
small business loans. I think that is very important to note. 
We do not have a huge backlog of small business loans right 
now. We put a lot of focus, a lot of resources, a lot of 
priority on those loans, and we are almost done processing 
business loans. We still have a number of homeowner loans, and 
one of the things that is also very important to note, we 
continue to receive applications all the time. In fact, the 
deadline, as you know, Senator, is this Saturday for physical 
damage, and we do not know if that deadline is going to change, 
but we know that we are going to get a huge spike up this week.
    We are constantly receiving applications, but, a lot of the 
stuff that we were talking about before have already been 
processed. Now, you mentioned----
    Senator Landrieu. Can I just say this, Madam Chair, and I 
am going to leave the record open at this point, because that 
is just not what we are hearing from our people at home, and 
there has to be some sort of meeting of the minds on this, 
where the Small Business Administration is saying they 
processed 90 percent, they do not have a backlog. Yet every 
time--and you have gone down and hear the same thing--we hear 
that there are loan applications pending, so people have just 
sort of given up and gone elsewhere. Now, maybe some people 
found help elsewhere, but that is my point. Let me leave it 
open and ask one more.
    Chair Snowe. I think one of the real problems is that they 
have been processed, but the money has not been disbursed.
    Mr. Barreto. Right, yes.
    Chair Snowe. That is 8 percent out of the $5.7 billion, 8 
percent. That is $480 million.
    Senator Landrieu. Thank you, Madam Chair, because process 
is different than getting money into the hands or lines of 
credit----
    Mr. Barreto. Yes, that is very true.
    Senator Landrieu. Businesses can repair their roof, put 
their trailers next door for their workers to live, and start 
firing up the printers or the ovens or the manufacturing, the 
tools necessary to produce their products. This is a major 
disconnect.
    My last question that my business leaders asked me to ask--
and I have asked it before but I will ask it again because they 
keep saying, please get this answer. The GO loans, you all 
touted GO loans as the answer. To date, how many GO loans have 
we processed? 86 businesses have received GO loans. 18,000 were 
destroyed, 86 businesses have processed GO loans. Could we 
agree that at least this is not working? Could we agree that 
maybe we should try a different approach that some of our 
bankers and credit unions have suggested and that this 
Committee passed within 4 weeks I think of the storm? Could we 
try to revisit that, and agree that this GO Loan Program that 
has only given 86 loans to date is not working very well?
    Mr. Barreto. Can I just clarify that a little bit?
    Senator Landrieu. Please.
    Mr. Barreto. GO loans are part of the SBA working capital 
loan portfolio. It is a 7(a) loan. The only thing that is 
different on a GO loan, because our lenders asked us to, is 
they said, ``We would like to look at making some of those 
small loans, but we want you to put a higher guarantee on it.'' 
Usually with SBA Express loans the guarantee is 50 percent, and 
they said, ``Look, this is a different situation. We would like 
you to raise the guarantee to 85 percent,'' and we did that.
    The important thing to note, Senator, and I want to be very 
clear about this, is that the SBA has done about a quarter of a 
billion dollars in working capital loans and in our regular 
7(a) loan portfolio since the hurricane, a quarter of a billion 
dollars. GO loans was just one tool inside of our 7(a) loan 
portfolio. The lenders choose which one of those that they want 
to use. Do they want to do regular SBA Express loans? Do they 
want to do GO loans? Do they want to do the larger working 
capital loans? Do they want to do 504 loans? They are the ones 
that choose which one they want to do.
    Senator Landrieu. I understand that. Let me, on their 
behalf, just say they do not like the GO Loan Program. The 
prepayment penalties, the high interest rates are not 
appealing. Could we just revisit that? Thank you.
    Mr. Barreto. Absolutely. If I can also, just because I know 
that we are going to go on to some other questions, I do want 
to clarify. There is a difference between processing loans and 
disbursing the monies. There is a big difference, and I want to 
just spend 1 minute on what is happening with that.
    When SBA approves a loan, the money is available 
immediately, subject to the borrower arranging the closing. It 
is up to the borrower to arrange the closing.
    Now, what is the problem with the closing? First of all, 
this is not like any other disaster the SBA has ever responded 
to. Normally, when there is a disaster, even a big disaster, 
people are still in the general vicinity. This is something 
that you know very well, Senator. We have borrowers that are 
spread over 40 different States. It is not like we can set up 
an appointment and they can drive down to the office or we can 
go to their office and we can do the closing. A lot of the 
closings are happening by mail. I would not say mail. They are 
happening by Federal Express. That is not the whole story.
    One of the requirements to be able to get a long-term 
disaster loan, is that if your business or home is located in a 
floodplain, a Federal requirement--not my requirement--Federal 
requirement is that you must have flood insurance, and many of 
these individuals are struggling to get flood insurance. Over 
40 percent of the approved loans have still not been able to 
provide flood insurance.
    That is not the only thing. These are construction loans. 
Some of these folks have not been told whether or not they will 
be able to rebuild their business, their home, whatever that 
they had before. They are having trouble getting permits.
    That is not the only thing. Oftentimes a small business 
would come to us and say, ``Look, I got the flood insurance, I 
got the building permit, but I can't find a contractor to come 
and rebuild my property. I called the contractor, and he said, 
call me in 6 months. I don't want to take the loan until''----
    Senator Landrieu. Mr. Administrator, hold on a second. I do 
not mean to interrupt you and I want to be respectful, but I 
know everything. I represent the State. You are describing to 
me my life. This is what I live through. What I am suggesting 
is, you are the Administrator of the Small Business 
Administration. You have thousands of businesses spread out all 
over America, desperately trying to get back. We would like 
some creative suggestions how to change the system, make it 
better, and work with this Committee to do that. I do not want 
to take any more of the Chairwoman's time, but we do not need 
problems, we need solutions. That is what the Small Business 
Administration should be doing instead of cutting budgets and 
raising interest rates.
    Mr. Barreto. The solution would be to waive the Federal 
requirement for flood insurance and the local requirements for 
building permits. That would be the only way that we would 
legally be able to disburse those monies.
    Chair Snowe. Could I just say--suggest to you? I would be 
interested in having a breakdown on every problem you have just 
suggested, so we get a true picture here.
    Mr. Barreto. Be happy to provide it.
    Chair Snowe. It says subject to SBA's approval, how many of 
those applications are subject to SBA's approval? How many are 
subject to getting an inspection----
    Mr. Barreto. They have been approved.
    Chair Snowe [continuing]. Of flood insurance. We would like 
to have all the information so we can deal with the actual 
facts.
    Mr. Barreto. Happy to provide it.
    Chair Snowe. Another point that Senator Landrieu was 
referring to, you have suggested rejecting over 50 qualified 
loan offices. I do not want to take Senator Coleman's time. I 
just want to get to this point--and I am going to get to it in 
a moment--but the fact is you have rejected 50 of them to 
conduct on-site inspections, 50 qualified, trained, on-site 
loss verification inspectors, and I do not understand that when 
you have 2,700 applicants that are waiting for on-site 
inspections. 1,200 of those applications are 42 days or older, 
and the average has been 57 days or older. I want you to talk 
about that point, her point, but I am going to go to Senator--
--
    Mr. Barreto. I would be happy to.
    Senator Coleman. Madam Chairman, I have to be on the floor 
at 11:30, Madam Chair, so I am just going to actually make some 
comments and speak to the Administrator.
    Two programs. You talked about in your opening statement 
about collaboration with partners, one of the great 
collaborative efforts of the Small Business Development 
Centers. In my State they have helped create or retain 2,000 
jobs in 2005 alone. I could walk through the Federal taxes that 
have been paid. This is a net positive. Last year I think we 
funded that, supported $110 million in funding. This year I 
believe the administration is proposing $88 million in funding, 
so I have concerns about lessening of funding for a program 
that really is, I think, one of the hallmarks of collaboration 
which you touted.
    Then the second issue, which a number of us have talked 
about again, Microloan and Microloan Technical Assistance 
Program, I went through in my opening statement. The bottom 
line is I think we are doing $300 million through USAID to 
encourage micro enterprises in Africa, and we are proposing to 
eliminate this program here at home. Big mistake, big mistake. 
Again, I understand. I think people looking at it with green 
eyeshades and cost per loan, and they are really missing the 
impact that this Microloan Program has.
    I have to be on the floor, but those two issues in 
particular. Then I would associate myself with the comments of 
the colleague from Louisiana. Help us come up with some ways to 
fix the problem. I think we all understand what the problem is, 
but we are depending on you as the Administrator to say, ``Here 
is what we can do.'' If part of it is changing, let us know, 
but let us sit down and figure out a way so that in the end we 
are not looking at what the problems are, but we are seeing 
people moving forward to build a brighter future.
    With that, you have a very tough job. I appreciate what you 
are trying to accomplish and I look forward to working with 
you.
    Mr. Barreto. Thank you, Senator.
    Senator Coleman. Thank you.
    Thank you, Madam Chair.
    Chair Snowe. Thank you, Senator Coleman.
    Is there anything you care to respond to for the record in 
response to Senator Coleman's comments?
    Mr. Barreto. I can provide you some responses in writing. I 
would be happy to talk about any of those issues.
    Chair Snowe. Senator Pryor.
    Senator Pryor. Thank you, Madam Chair.
    Let me start by asking about the fiscal year 2007 Disaster 
Loan funding. SBA is requesting funding to support lending, 
almost $900 million to homeowners and businesses struck by 
natural disasters. Your testimony says that the request of $900 
million is based on a 5-year average. However, that amount is 
not significantly higher than $810 million the President 
requested in 2006. It does not seem to be a factor that you are 
factoring into this, the cost of the hurricanes. It seems like 
we have an enormous need out there that you are not factoring 
in. Explain how you have come up with that $900 million figure.
    Mr. Barreto. Sure. One of the things--and I think people 
understand this--SBA does not have thousands of people sitting 
in offices all across the United States waiting for the big 
one. We just do not. We never know where a disaster is going to 
hit. Now, the way that we budget is based on what has happened 
in the past. We take a 5-year look-back when we are trying to 
calculate what it is we are going to need. What always happens 
when there is a disaster--and this happened after 9/11 several 
times, this happened after the four hurricanes in Florida--no 
one could have predicted that. This is happening now for 
Hurricane Katrina and Rita and Wilma, and it will happen again 
in the future. At a certain point in time when those things 
happen, and we do not have enough resources in hand, we must go 
back and ask for a supplemental.
    This allows us the necessary operating funds that we are 
going to need to operate going forward next year. Should there 
be another major, major one--and I think Senator Landrieu said 
this, it is not even a question of if, it is when--sometime in 
the future there will be another major one. We will need to go 
back and request more money.
    Let me also say that after the four hurricanes, we 
requested money for those hurricanes that went unspent, and we 
got a little criticism on that saying, wait a second, you asked 
for this money and it did not get spent. Why did you do that? 
The best barometer that we have is the look-back period, 
because there is no way for us to predict what is going to 
happen in the future. What actually happened is that money that 
was left over carried over into this year, and that is one of 
the things that helped us hit the ground running when the 
hurricane came, because usually, by that time, we would have 
been very low on funds.
    Senator Pryor. Let me see if I understand your answer then. 
You are basically saying that you will be relying on a 
supplemental? You are pretty much acknowledging to the 
Committee that $900 million is probably not enough?
    Mr. Barreto. There is no way to predict what is enough.
    Senator Pryor. We do know about last year's hurricane 
season.
    Mr. Barreto. We just cannot predict it will happen again 
next year.
    Senator Pryor. Do you have enough in this budget to handle 
the aftermath of those hurricanes last year?
    Mr. Barreto. Yes, we did. We had billions of dollars left 
over from the hurricanes from the year before, and we got a 
little criticism for that. People said, wait a second, Congress 
appropriated this money for you and you did not use it all up.
    Senator Pryor. I heard you say that.
    Mr. Barreto. That money carried over into this next year.
    Senator Pryor. Well, also, on the Disaster Loan funding, in 
February, the SBA's Disaster Loan Program almost ran out of 
money twice; is that right?
    Mr. Barreto. No. I do not think we ran out of money twice, 
but one of the things that has happened--I mentioned this 
before--it took us 90 days right after the hurricane to do the 
first billion. We have done 4\1/2\ billion in the next 90 days, 
and so the pace of those approvals--and I know from this 
Committee that it is critically important that we approve loans 
as fast as possible, to get the money out.
    The other thing that happened, Senator, and I think it was 
alluded to in a prior comment, is that the average loan size 
for hurricane----
    Senator Pryor. I am not asking about that. Stop. You are 
just talking. You are just filling time. Let me ask my 
question.
    Mr. Barreto. Trying to explain it.
    Senator Pryor. Let me ask my question.
    Mr. Barreto. Yes, sir.
    Senator Pryor. You have kind of gone off on a tangent here. 
I am not even asking about that. Here is my question. As I 
understand it, in February, the Disaster Loan Program was in 
danger of running out of money.
    Mr. Barreto. We would have run out of money if we did not 
get reprogramming.
    Senator Pryor. That is right. As I understand it, your 
staff, maybe you, but your staff, your key people at the SBA, 
had a series of briefings with, as I understand it, Senator 
Snowe's staff, Senator Kerry's staff, the Committee staff 
generally, our Member staff that is on the Committee. We were 
not told about that. Do you know if that is true?
    Mr. Barreto. Well, we briefed Senator Snowe in our meeting 
with her as to what we were doing on the issue, and, obviously, 
we were working very closely with the Appropriations Committee 
to help to do the reprogramming.
    Senator Pryor. That is the point. Apparently, there is a 
letter that you sent to the Appropriations Committee, but we 
were not copied on it. No one on this Committee was copied on 
that letter, and it appears to me that this Committee is just 
an afterthought to the SBA.
    Mr. Barreto. Absolutely not.
    Senator Pryor. Are you saying that this Committee and its 
staff was always in the loop?
    Mr. Barreto. I am not sure--when you say who on the 
Committee was in the loop and who was not, but we did have this 
conversation with the Chair, and we were in regular 
communication with the Appropriations Committee about doing the 
reprogramming. Yes, that is true.
    Senator Pryor. Let me also ask this about--I want to 
continue on this issue of transparency with you--and that is, 
Senator Kerry and Senator Landrieu have sent you a letter 
requesting that you provide them with information on daily 
reporting of the funding in a Disaster Loan Program similar to 
what the SBA provides on loan activity and what Homeland 
Security provides on FEMA funding. Are you aware that you have 
that letter?
    Mr. Barreto. Yes, I am.
    Senator Pryor. They have requested that you start providing 
that information this Friday.
    Mr. Barreto. Sure.
    Senator Pryor. You will be doing that?
    Mr. Barreto. Absolutely. We are doing it already. One thing 
that I am very clear about is that this Committee knows what 
has been appropriated to us because they are involved in voting 
on the appropriation, and they are also receiving our daily 
reports of what our production is. It would be very easy to 
figure out how much money we have left based on what was 
appropriated to us and what we are producing. We will provide 
the information in any format, any way this Committee would 
like it, on a daily basis or more frequently if necessary.
    Senator Pryor. I think that Senator Kerry and Senator 
Landrieu have requested that. As I understand that, to be done 
daily, and I think that is important.
    Mr. Barreto. We are happy to provide it daily, and as I 
said, we are providing regular reports on our production. Of 
course, we know what has already been appropriated because this 
Committee has been involved in the voting on that.
    Senator Pryor. Let me ask this about disaster generally, 
because I have been to New Orleans, and I am going to tell you, 
you can look back at 5-year averages and all you want, New 
Orleans is in a class by itself.
    Mr. Barreto. I agree.
    Senator Pryor. Anyone who has been down there and seen it 
knows it. You have probably been down there.
    Mr. Barreto. Five times.
    Senator Pryor. I am telling you, it is in a class by 
itself. You all have a plan specific for New Orleans, or are 
you just going to sort of be generally available to the people 
in New Orleans if they need your help, or do you have a 
specific plan?
    Mr. Barreto. No. We are working in many different ways. I 
mentioned to you that we have already processed over 90 percent 
of the business loans. We have not closed all those loans yet 
for some of the reasons that we talked about. We have processed 
about 70 percent of the homeowner loans, and we anticipate that 
we will be completely done with our processing within the next 
45 days.
    On top of that, one of the things----
    Senator Pryor. Processing does not necessarily mean paid.
    Mr. Barreto. Processing means that we have gone through the 
application and made a determination about whether or not we 
are going to have to decline that loan for a variety of 
reasons, or whether or not that loan can move towards closing.
    We are also helping people every day in our regular SBA 
operations. We are doing the regular loans. I mentioned to you 
that we have done about $250 million in regular loans. We are 
training people on the ground, our regular SBA office is 
already open back down there. We are working with our resource 
partners, and of course, we are trying to help businesses 
access Federal contracts. There are a number of efforts under 
way right now to help the small businesses in New Orleans, and 
for that matter, the whole Gulf Coast.
    Senator Pryor. Madam Chairman, I have one last question.
    I mentioned in my opening statement we received a call 
yesterday from a Louisiananian, who is temporarily living in 
Arkansas until she can get her life back together and move back 
down there. She has been denied, apparently been denied an SBA 
loan because she is not current with her IRS payments. Is that 
consistent with this policy?
    Mr. Barreto. No, it really is not, and I would be happy to 
personally follow up on that. Oftentimes, there is a 
misunderstanding of folks of how our process works, and if 
there is a misunderstanding, that is our responsibility to 
clarify it and make sure they know exactly what the status of 
their loan application is.
    Senator Landrieu mentioned that there was a baker who had 
not gotten any response on their loan. I do not know if it was 
the same baker that was written up in a big profile piece in 
the Washington Post. We went back and we researched that, and 
that individual never submitted a loan application. It was very 
difficult for us to give them an answer on their loan 
application when we never got a loan application. They actually 
admitted to us later on, well, we thought it was going to take 
too much time, so we did not actually submit a loan 
application.
    Any time those situations come up and are brought to our 
attention, we will follow up on it and get them an answer 
immediately. We would be happy to work with your office and get 
the particulars on that individual.
    Senator Pryor. We will be in touch on that. I guess what 
you are saying for the record is, that because someone is late 
on their IRS payments, that does not----
    Mr. Barreto. That would not be a normal reason. There would 
have to be something much more extensive. For example, it is 
true that we look at judgments by the IRS. If the IRS has made 
a judgment on a small businessperson for prior years' 
activities, that is something that is factored into our 
decision. That is part of our requirement. There are other 
issues like that, but being late, you know, being current on a 
recent tax bill because you have been dislocated, that does not 
sound right to me and we will look at that.
    Senator Pryor. Thank you.
    Thank you, Madam Chair.
    Chair Snowe. Thank you, Senator Pryor.
    Just mentioning on the question of the supplemental, we did 
meet, Administrator Barreto, it was about a week from running 
out of money. I think the issue here is being able to be 
forewarned long in advance. That trend is occurring long before 
it actually happens. If you are running out of money in the 
Disaster Loan program, you must sense the fact that you need 
that additional lending capability.
    Mr. Barreto. Absolutely.
    Chair Snowe. The problem is that we did not find out until 
less than 2 weeks out from actually running out of money, and 
that is something that you ought to be able to establish in 
your office long before it actually occurs, to see the trend 
lines in what is happening in the demand on those loans and the 
need for additional money.
    Mr. Barreto. We put a lot of controls in place to do that. 
We are monitoring this on a daily basis, as we always have 
been, but we have our CFO now doing some very extensive reports 
and modeling to make sure that this does not happen. The truth 
of the matter is, as I mentioned to you before, the rate that 
we are approving right now, and also the average loan size, 
that affects how much money that we have left.
    Normally, a disaster loan is about low 30s, $30,000, 
$35,000, and that has to do with the fact that SBA is not the 
only funding. Meaning they are getting money from insurance or 
something else. In this particular case the average loan size 
has been double, double what we normally see, which makes the 
money not go as far when you are seeing loans that are twice 
what the average would be for any hurricane that you have ever 
done before. That has to do with a lot of folks who are being 
told now by their insurance companies that they are not going 
to get anything paid because the insurance company does not 
consider it to be a valid claim. That is not something that we 
normally see, and it is something that we have to deal with, 
and something that we are factoring into our modeling going 
forward.
    Chair Snowe. Senator Thune.

        OPENING STATEMENT OF THE HONORABLE JOHN THUNE, 
           A UNITED STATES SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Madam Chair, for holding this 
hearing.
    Thank you, Administrator Barreto for coming and testifying 
about the fiscal year 2007 budget. If you look at SBA numbers 
over time, there is one thing that is very clear, and that is 
that you are being asked to do more, and are doing more with 
less. If you look at the growth in many of the programs at the 
same time that total budget expenditures are reducing by about 
37 percent, and that is something clearly that with the 
budgetary constraints that we have to operate this year under, 
it would be nice if there were other agencies who could bring 
that kind of record to the table.
    Obviously, we recognize that as the economy continues to 
grow and expand and create jobs, that most of those jobs are 
created by small businesses. That is the driver in this 
economy. It is the economic engine that keeps the economy going 
forward, and so it is critically important that we have 
policies in place that enable small businesses to continue to 
grow and prosper, and it seems to me at least that there are a 
couple of things, in talking to small business owners, that are 
of particular interest to them. One, clearly, is taxes and 
regulation, which you hear a lot about, and I think that 
extending or making permanent the tax relief that has been 
passed earlier so that small business owners will know with 
some predictability what their tax rates are going to be going 
forward, and particularly being able to pay at the lower rate 
is going to be critically important to their ability to invest 
more in their businesses by purchasing new equipment and hiring 
new employees.
    Also, the cost of health care, which is a huge problem for 
small businesses, and we just have to address that. I believe 
we are going to get a vote on association health plans. It is a 
reform that many of us have supported for some time, and I am 
hopeful that we will be able to get a vote on that on the floor 
this year, and maybe finally put some of those reforms in place 
that will enable small businesses to join larger groups and 
thereby drive down the cost of their health care.
    I do have a couple of questions with the budget. One, of 
course, that has been, I think, probably noted before I got 
here, some of these proposals, fee increases on loan programs 
including 7(a), 504 and SBIC. My understanding is that those 
fees are proposed on high dollar loans, and I guess I would be 
curious to know if you could explain how you think that will 
impact the demand for those types of loans. Secondly, do you 
see that fee increase altering the decisionmaking process for 
the entrepreneurs who are considering some of these programs or 
applying for some of these larger loans?
    Mr. Barreto. Thank you, Senator. The fee increase that we 
are talking about is on a very small percentage of loans. For 
example, in the 7(a) loan portfolio, the working capital loan 
portfolio, it is 3 percent of the loans that we make. The 
differential in their monthly payment is going to be somewhere 
between 8 and 10 dollars a month.
    On the 504 loan portfolio, which is usually the larger 
loans--that is the real estate and fixed asset portfolio--you 
are looking at about 15 percent of the lenders fall into the 
category of more than a million dollars, and their differential 
in payment is going to be about $12 a month.
    What these small businesses have told us, and what the 
lenders have told us, is, ``Look, the main thing to us, and 
what we are glad that we are not facing any more, is that a 
couple of years ago we were always nervous that you guys were 
going to run out of money because you were always on this 
continuing resolution, and you are depending on that $100 
million appropriation to be able to fund your programs.'' The 
bankers would tell us, ``Look, we cannot afford for the program 
to be even shut down 1 day. We have millions of dollars 
dedicated to these programs, thousands of people working in 
these offices and our banks all across the country trying to 
generate these loans. You close the loan program for 1 day, 
that kills us, and if you keep doing it, we are not going to do 
7(a) loans any more.''
    What they would also tell you is that they did not want any 
caps on the loan. What would happen to us, a couple years ago--
and you are very familiar with the Agency. I like to brag that 
you used to be an SBA employee, that is, that when you put caps 
on those loans, that also kills the lenders and the borrowers. 
If you are a borrower and you are ready to take your business 
to the next level, and I say, ``Hey, we are sorry. We are 
running through some budgetary problems here. I cannot do a 
million dollar loan. I can only do 500,000.'' That ruins that 
small business's game plan.
    The main thing for the lenders and the bankers, what they 
have told us, is they want a consistent program. They do not 
want the program to shut down because we are worried about 
budgets, and they do not want the program to have caps on it. 
This differential in payment, you know, $10 a month, $12 a 
month, for somebody that can get a million dollars, that is not 
going to be a determinant whether or not they take that loan or 
not.
    Senator Thune. Your best guess is based on--obviously, you 
have a lot of data over time, loan applicants, that people who 
are in that, applicants who are in that range, or are asking 
for that sort of financing, are unlikely to be influenced in a 
negative way, in an adverse way in terms of whether or not they 
are going to continue to----
    Mr. Barreto. That is absolutely correct. The proof is also 
that since we have gone to zero subsidy, our loan programs are 
at all-time highs. The 7(a) loan program was up 30 percent last 
year. The 504 loan program is up 30 percent this year. All 
across the board, you know, a third of those loans now are 
going to minorities, a lot of those loans are going to women-
owned businesses, which are the fastest growing segments of 
small business. I think we are on a good course to continue 
that growth.
    Senator Thune. I have one other question that pertains a 
little bit to my area of the country. One of the things in your 
statistics and the data that was provided I observed that about 
30 percent of 7(a) loans and 25 percent of 504 loans were made 
to members of minority groups. These numbers are up 
substantially from previous years, which is commendable. I 
guess, as you know, my State has 9 Indian reservations which 
are in desperate need of economic development, and I am 
wondering if the SBA has seen increased loan volume among 
Native American populations, specifically? If not, what do you 
think we might be able to do to make that number go up?
    Mr. Barreto. There has been an increase, but, you know, I 
will be perfectly frank. When your level is so low, any kind of 
an increase is good, but there is still a lot more to do. One 
of the things that we have done is we brought on a full-time 
director of our Native American office, and I am very excited 
about that. This is an individual that is very well respected 
in the Native American community. His name is Bill Largent. He 
has really hit the ground running. We have had different people 
working in that office over the years, but to have somebody 
with his entrepreneurial background and the network that he has 
I think is going to be able to help us. He is very creative, 
very energetic, and I think we are going to be able to do some 
pretty exciting things in the Native American community.
    Senator Thune. We look forward to engaging in dialogue with 
him because it is an area in my State, and I would say in a 
broader way--and we have had some correspondence with your 
office--the South Dakota congressional delegation has about 
just increasing the presence of SBA in western South Dakota, an 
office in Rapid City. The reservations, the larger ones at 
least, fall on the western part of the State. I am very 
interested, obviously, in pursuing that with this office and 
seeing what we might be able to work together on because it is 
an area of our State that just desperately needs economic 
development. It needs job creation, and we just have to, I 
think, double down and figure out how we get that done.
    Thank you for your testimony, and, Madam Chair, thank you.
    Chair Snowe. Thank you. I want to inform the Members of the 
Committee we have a 2 o'clock vote on Eric Thorson, who is the 
nominee for Inspector General.
    In response to the question that Senator Thune raised on 
the loan programs, the loan programs are already at a zero 
subsidy.
    Mr. Barreto. Yes, they are.
    Chair Snowe. The caps and shutdowns are irrelevant to this 
process because we do not get any appropriations, it is not 
subsidized. These fees that you are recommending to be imposed 
on the loan programs would go towards administrative costs.
    Mr. Barreto. That is correct, that is absolutely correct.
    Chair Snowe. Caps and shutdowns are not a problem any more, 
not subject to appropriations.
    Mr. Barreto. I am just making the argument that the loan 
program has grown since we went to zero subsidy, and I think it 
will continue to grow.
    Chair Snowe. Well, it is a risk in imposing these fees in 
this direction.
    Furthermore, in talking about increasing the--getting back 
to the Disaster Loan verification officers, as I understand it, 
that the SBA rejected 50 qualified Disaster Loan verification 
officers that had been trained and were ready to report to the 
Gulf region to assist with on-site inspections. Is that true?
    Mr. Barreto. I want to make sure that we clarify that. We 
are constantly training people. I mean, one of the reasons I 
think we are able to make so much progress in such a short 
period of time is that we brought on a significant amount of 
these inspectors in January. We spent all of December training 
them. There was a class that started at the beginning of this 
year. In fact, toward the end of January, we started a new 
class.
    One of the things that has happened is that the inspectors 
that we have had on board have been so productive that we are 
very close to being done with our inspections. In fact, the 
people, the resources that we already have on the ground are 
perfectly capable of finishing the inspections that we have.
    Chair Snowe. There is still a backlog for that process, as 
I understand it. Maybe our figures are wrong.
    Mr. Barreto. No. I think----
    Chair Snowe. It says there are 2,700 applicants waiting for 
an on-site inspection of their home and business by loss 
verification officer. Over 1,200 of those applications are 42 
days or older. The average age just for this process is an 
outstanding 57 days. That is the question, why would you send 
back 50 trained officers when you have a backlog?
    Mr. Barreto. My understanding is--and I will be happy to 
get you all the specifics on this--but we literally have 
hundreds of inspectors in the field.
    Chair Snowe. It does not matter how many you have. How many 
do you need? That is the issue here. We are trying to solve the 
problem, Administrator. We want to get it down. It is easy for 
us to sit here in this room in Washington in the comforts of 
our surroundings, but talk about the people who are trying to 
rebuild their lives and their businesses in the Gulf region. 
That is the issue here. We have to meet with haste. We have to 
get a tempo here.
    Mr. Barreto. Absolutely.
    Chair Snowe. The fact is, I think you would appreciate it 
if we could move things along.
    Mr. Barreto. Sure.
    Chair Snowe. I mean we are not talking about a normal 
situation here, the normal process.
    Mr. Barreto. I agree.
    Chair Snowe. We are talking about a disaster that happened 
last fall. Six months later they need to get it done. That is 
what this is all about. Let's move with a sense of urgency with 
respect to all of this. That is the issue here.
    Mr. Barreto. Absolutely. We are committed to----
    Chair Snowe. I do not care if you have hundreds. If you 
need thousands, then we have to get thousands. We have to get 
it done for these people who need to rebuild their lives, their 
homes, their businesses, and to rebuild their communities.
    Mr. Barreto. Absolutely.
    Chair Snowe. That is the issue here. Do not send any 
qualified officers back when you have a backlog of 2,700 
applications for on-site inspections.
    Mr. Barreto. Again, I think you are referring to a trainee 
class, not an experienced----
    Chair Snowe. I do not know if it was a trainee class. I do 
not know what it is.
    Mr. Barreto. It is a trainee class that started at the end 
of January.
    Chair Snowe. Great. If they are now trained, let us use 
them.
    Mr. Barreto. I am not sure that they are completely 
trained. In fact, some of those individuals that you mentioned, 
we wanted to get them into the field. They refused to go into 
the field for training.
    Chair Snowe. You are going to raise a thousand reasons, Mr. 
Administrator. I know you are going to raise a thousand 
reasons.
    Mr. Barreto. Oh, now.
    Chair Snowe. You know what the bottom line is here?
    Mr. Barreto. We want to get done.
    Chair Snowe. We want to solve the problem now.
    Mr. Barreto. Absolutely.
    Chair Snowe. It is easy for you to sit there and all of us 
to sit here and talk about it----
    Mr. Barreto. It is actually not easy.
    Chair Snowe. Meanwhile, these people need to rebuild their 
lives. We have to move with the program here, and get this 
tempo moving. That is the issue.
    Mr. Barreto. I agree.
    Chair Snowe. In the final analysis that is what this is all 
about.
    Mr. Barreto. I agree.
    Chair Snowe. A thousand reasons and rationales are not 
going to make their lives easier. What they need are solutions, 
and if there is a problem, we would like to know about it on 
the Committee, we would like to do something about it, we would 
like to pave the way, and chart a course for them to get this 
done sooner rather than later. Saying, well, it will take 
another month, and then it will take a new month, think about 
the circumstances they find themselves in. Just think about it. 
We are talking about rebuilding a whole community. Eighty-five 
percent of the businesses in New Orleans were small businesses. 
You have only 8 percent of the 5.7 billion being disbursed in 
financing. That is a serious problem.
    You can tell me a thousand reasons why it is not happening 
today. We want solutions.
    Mr. Barreto. I agree.
    Chair Snowe. We need solutions here, and we are more than 
happy to assist you in any way. We have had that conversation, 
but we have to get this job done for these people. I just want 
you to understand that. I am hearing all this stuff this 
morning with the whys and why nots. We need to get this done.
    Mr. Barreto. I agree.
    Chair Snowe. We are prepared to help you and assist you in 
any way. Do not send back verification officers. Do not send 
back loan officers. Do not send back anybody.
    Mr. Barreto. Sure.
    Chair Snowe. Because it is clear we need them on the ground 
in the Gulf region. I would hope that you understand that.
    Mr. Barreto. I am crystal clear.
    Chair Snowe. Okay, great. Finally, on imposing fees on the 
disaster loans, out of probably a billion dollars, we are now 
talking about $41 million imposing fees on 5 years beyond. Is 
that a new precedent? Would that be setting a new precedent?
    Mr. Barreto. I do not think the proposal is a new 
precedent, because my understanding is that that proposal has 
been made in the past.
    Chair Snowe. But has it become a reality anyplace?
    Mr. Barreto. I was not here for all those budget 
discussions, but I am not sure if it has become. Here is what 
we are saying: One of our responsibilities is to come in front 
of the Committee and tell you what the reality of our situation 
is. The bottom line is that the cost of the Disaster Loan 
Program, if we do not do something about it, it is going to 
increase about $41 million. One of the ways to mitigate that is 
to subsidize those future loans the first 5 years when they 
need it the most, and then allow the interest rate to float 
what a Treasury instrument would be. That by itself will close 
that $41 million hole.
    If this Committee and Appropriations disagrees with that, 
then they will make that decision. I think it would have been 
irresponsible for us to come and say, hey, we have a $41 
million hole, but we do not have any way to close that hole.
    Chair Snowe. On the Microloan Program, why is it you are 
recommending elimination? I know it is the third consecutive 
year. It creates jobs, obviously. These entrepreneurs would not 
otherwise access financing either because of their credit 
history--it is a risk, obviously, that is why they cannot 
secure from conventional lenders. The question is--it has been 
a very successful program overall. It certainly has been in my 
State which creates 308 jobs, and in other part of the country. 
It is really how you nurture a lot of entrepreneurs that may 
represent, obviously, because of their collateral, their 
business history, so on and so forth, but that there are other 
mitigating factors, that potentially could offer enormous 
possibilities for them to start a business.
    In any event, why is it that you are recommending 
eliminating this program once again?
    Mr. Barreto. Microloans are smaller loans, under $35,000, 
and oftentimes those loans go to new businesses, which are 
oftentimes minority businesses and women-owned businesses. Some 
years ago, at SBA, the only small loans that it did was in the 
Microloan Program. That is not the case today. Last year the 
SBA did over 50,000 loans under $35,000, and almost 40 percent 
of those loans under $35,000 went to minorities, and a large 
percentage went to women.
    Senator Coleman mentioned the cost, and there is a cost 
involved. It costs us almost a dollar for every dollar that we 
lend out in that program, and at the same time, in our Flagship 
Loan Program, the 7(a) loan program, it costs us one third of 
one cent for every dollar that we facilitate through there.
    On top of that, SBA is not the only microloan program. By 
the way, SBA did about 2,500 microloans nationwide. At the same 
time that we were doing 53,000 7(a) loans of that size, we did 
2,500 microloans nationwide. The truth of the matter is that 
there are many microlenders in the United States. We did a 
survey, and there are about 400 microlenders in the private 
sector. Many of those are nonprofit, who do a much better job, 
and are much less expensive than our program. Every year we 
come and we let you know that.
    Now, as you have mentioned, Congress has disagreed with us, 
and we understand that, but we think that that is something 
that we need to bring to your attention and let you know, at 
least the good news, which is that we are doing 52,000 of those 
loans in our regular Flagship Loan Program.
    Chair Snowe. Now, how many of these microloans would be 
able to access 7(a)?
    Mr. Barreto. Those were all 7(a).
    Chair Snowe. How many would be able to be eligible if you 
did not have the Microloan Program?
    Mr. Barreto. You are talking about the microlenders? I do 
not know. I would have to see what each of those 2,500 cases 
are. I am sure that a microlender customer is probably 
different in Maine, as it is in Texas, as it is in California, 
so we have to look at that. As I said, many of the people that 
we are making loans to are very new businesses, businesses with 
very little track record, minority businesses, women-owned 
businesses, that is who are getting a large share of those SBA 
Express loans.
    Chair Snowe. The uniqueness of the microloan is that they 
cannot access other conventional lending. The point is, how 
many would be able to secure a loan under the 7(a) program if 
the Microloan Program did not exist?
    Mr. Barreto. What we like to tell small business people 
that come to us, because a lot of small business people 
actually are entrepreneurs----
    Chair Snowe. The point is 7(a) lenders say none. That is 
the point. They are saying none. That is the issue here.
    Mr. Barreto. Our job is to get them ready to be bankable.
    Chair Snowe. I understand, but these are otherwise--you 
created 308 jobs in Maine, for example. I do not know what the 
total numbers are across America, but it has worked very well 
in Maine, because 62 different enterprises were able to benefit 
from the Microloan Program. The question is, how many of those 
who benefited from the Microloan Program would be able to 
benefit under the 7(a) program? The 7(a) lenders are saying 
none.
    Mr. Barreto. I do not know what they base that ``none'' on 
because I am sure that they do not know all 2,500 of those 
microloan customers, but we would have to take a look at that 
on a case-by-case basis.
    Chair Snowe. The point is, you are losing capability there. 
You are denying a capability for small businesses to start up 
be accessing microloans because of their credit history, 
collateral or their business history, something that represents 
a risk to conventional lenders but on the other hand there are 
other factors that sort of mitigate. That is the point here.
    Mr. Barreto. We do a lot of those kinds of loans that you 
are referring to in our Community Express Loan portfolio. 
Actually, we do twice as many Community Express loans than we 
do microloans, and a lot of those same cases that you are 
referring to.
    Chair Snowe. Senator Pryor.
    Senator Pryor. Thank you, Madam Chair.
    Let me just follow up in that same line that you were 
asking there about microloans, but let me just change the area 
of the budget just slightly, and that is, Small Business 
Development Centers. I am sure, as in Arkansas, Maine has had 
some very positive success with Small Business Development 
Centers. They help small business clients. In fact, last year, 
2004, they helped more than 16,000 new businesses get going, 
created more than 74,000 new jobs. They saved 80,000 jobs in 
2004. At the same time, Small Business Development Centers 
helped generate $234 million in Federal revenue, and that 
resulted in economic growth. It was $234 million in Federal 
revenue. All that with a Federal investment of only $88 
million.
    To me, that is a very good return on Federal tax dollar 
investment. It has a positive ripple effect around the country.
    However, when I look at your budget this year, you are 
cutting, I think, it is $743,000. It is a modest cut, but 
nonetheless, you are cutting that program. If anything, if you 
adjust for inflation, it might be more than that in relative 
dollars, but if anything, it would seem like we would be 
putting more money there and trying to stimulate the economy. 
Again, we have talked about in this Committee many times 
already today, that small business really is where the action 
is in the U.S. economy.
    Why not--I am not saying double the money--but why not add 
money to this program and spur the economy, and have a positive 
ripple effect? Why are we cutting that?
    Mr. Barreto. I do not know that we are cutting the program. 
We have actually been asking for level funding for that program 
for some time now, but there was a congressional rescission 
last year across the board that affected all of these programs. 
I think that is where that $743,000 comes from. I think it was 
a one percent rescission, and that is what brought that down.
    One of the other things that I think is very important to 
note, Senator, is I kind of think of that program as a $200 
million program, not an $88 million program. The reasons I say 
that is because, as you know, what the Government basically 
does is that they provide money, an investment, if you will, to 
those SBDCs, which they leverage, which is a great thing. They 
match every dollar that we give to them. It is not an $88 
million program. I mean just a one-on-one match would be about 
$176 million, but many SBDCs also raise money from other 
sources as well. They do an incredible job.
    What we have seen is that they are very focused on 
increasing the number of people that they are providing 
training and counseling on. We work very closely with them. We 
have a very good relationship with them. We participate in a 
lot of their national events, and host them at our offices 
often. I think the key thing is that we have been asking pretty 
much for flat funding for that. The rescission you brought it 
down, $800,000, and then again, remember that they leverage the 
dollars that we give them.
    By the way, they have to. SBA cannot just give them money 
if they do not have that match already lined up.
    Senator Pryor. Why are you asking for flat then? Why are 
you not asking for an increase?
    Mr. Barreto. Obviously, what we have seen in the budget, 
what we are presenting is, that it is a tight budget. It has 
been a tight budget for us for the last couple of years. We 
believe that it is fiscally responsible, but it still allows us 
to accomplish the things that we have been talking about doing. 
I think it would be very difficult for me to come in front of 
you and say, ``We are asking for less money, and by the way, 
last year I did less loans, and I guaranteed less dollars 
unless people had access to training, and forget about 
Government contracting. Government contracting has gone way 
down.'' That is not what has happened, and that is not what I 
believe is going to happen this year or next year or in the 
years to come for the SBA.
    I think we have a much more agile model. I think we are a 
lot more entrepreneurial. I think we have a lot of partners now 
that help us to accomplish our mission.
    Senator Pryor. Thank you, Madam Chair.
    Chair Snowe. Thank you, Senator Pryor.
    Just one final question, Administrator. On Government 
procurement, you mentioned that the current number of SBA 
Procurement Center representatives are 58, which is more than 
ever before.
    Mr. Barreto. Yes, ma'am.
    Chair Snowe. Although----
    Mr. Barreto. More than ever before for us.
    Chair Snowe. Oh, okay. A point of clarification.
    Mr. Barreto. In our tenure.
    Chair Snowe. Okay, in your tenure. So you understand that.
    Mr. Barreto. I think that 20 years ago or something there 
was probably a lot more of them.
    Chair Snowe. Well, I guess 7 years ago, 1993, actually. The 
GAO submitted a report to this Committee in 2000, indicating in 
1993 that SBA had about 58.
    These representatives obviously have an enormous challenge 
in reviewing the Federal contracts in the contract centers, 
which are now at 2,250, as I understand it. Is that correct, 
procurement centers, SBA?
    Mr. Barreto. I would have to verify that number.
    Chair Snowe. Since 1993 the volume of Federal contracts has 
doubled to 300 billion. I think that the point is here, that 
these representatives, their volume of contracts has more than 
doubled over the last few years, and this trend has a major 
impact on small businesses, small contractors, as you well 
know, because we know that many of the agencies are not 
complying with the requirements, and small businesses are being 
overlooked, and larger contractors are accessing these 
contracts, or representing themselves as small contractors. 
Here we have 80 percent of the potential bundled contracts not 
being reviewed due to the lack of these Procurement Center 
representatives, according to the Inspector General's report 
within the SBA.
    That is a major problem. What can we do to alleviate this 
problem? Obviously, I think we need more representatives 
without question, but there is something much beyond that.
    Mr. Barreto. We have hired more than we had before. By the 
way, just to put this in perspective, we have them report to 
us, and we monitor their activities. These 58 PCRs are covering 
255 of the major buying activities, the major procurement 
activities, and that represents $200 billion of the Federal 
procurement. In other words, 75 percent of that $300 billion is 
being right now covered by these 58, and the reason is, as you 
know, that there is a lab or some other major procurement 
entity, where a tremendous amount of contracting is occurring, 
and we will have PCRs that are dedicated to that.
    We are looking at different ways. One of the things that we 
have talked to this Committee about is to use technology for 
these folks. If you have this great tool called technology, you 
should be able to use it so that you do not necessarily have to 
have a physical body driving someplace to be in communication 
or relationship with these. We are working on an electronic 
procurement center representative program. We should have that 
online definitely by the 2007 budget, and we are working very 
closely with these other agencies to make sure that we are 
doing everything that we can to--a lot of the examples of these 
contracts that may be going to a large business, I think there 
is a lot of misinformation about that. We have done a review.
    I had a meeting with the IG this week on this issue, and a 
lot of times it is not because the business did anything wrong. 
Sometimes it is because a lot of these procurement officers 
have never been trained on small business procurement. You have 
people in agencies that are doing small business procurement 
that have never had any training on small business procurement. 
There is a lot of miscoding, or sometimes there is a situation 
where a small business gets a contract, but then over a period 
of time grows, and they outgrow that size standard. Or 
sometimes that small business gets bought by a larger entity, 
and then somebody will say, well, the larger entity took a 
contract away from a small business. No, they did not. They 
bought a small company that had a small business contract.
    By the way, we think it is a good thing when small 
businesses grow, and oftentimes if they grow too big they will 
exceed the size standard. That is a good thing. Or if they grow 
so big that they decide to sell their business, that is their 
decision. That is not a bad thing.
    We know that there is more work to be done. We need to work 
even closer in concert with these agencies to make sure that we 
are minimizing contract bundling, and we need to make sure that 
these PCRs have all the tools that they need, electronic and 
otherwise, for them to continue covering the majority of 
procurement opportunities in the Federal Government.
    Chair Snowe. I think we need more, obviously. That is what 
the Inspector General's report indicated, that 80 percent of 
the bundled contracts are not being reviewed because of the 
lack of these representatives, and of the 58, 5 are down in the 
Gulf region. It is clear to me that you need far more to 
address this problem. We have to get to the bottom of it. I am 
just surprised that you would not have recommended more 
representatives.
    Mr. Barreto. Well, we have more now than ever before, but--
--
    Chair Snowe. I know, but that does not solve the problem. 
It may well be, relatively speaking, but it is not solving our 
problem and so we have a huge problem. I know it does not match 
up.
    Mr. Barreto. As you said, the problem keeps getting bigger 
because Government keeps buying more and more. When I first 
started, Federal Government was buying about $200 billion. Now 
it is buying $300 billion.
    Chair Snowe. That is exactly right, and small business is 
being left behind. That is the key issue.
    Mr. Barreto. Last year the Federal Government bought $69 
billion from small business. That was about 23 percent. By the 
way, that was the second year in a row that we hit 23 percent. 
I do not think that has ever happened before. I do not think we 
have had 2 consecutive years, as I understand it, where the 
Federal Government did 23 percent, but we got 23 percent the 
year before last, we got 23 percent last year, and obviously we 
are working hard to make sure we get 23 percent this year.
    Chair Snowe. Eighty percent of the potential bundled 
contracts are not being reviewed. That is the point. 80 percent 
is a very high figure. That is the point. We need more. Maybe 
we have more than ever before, but we certainly need a greater 
number than exists today, and especially where you have 5 down 
in Gulf region, so that leaves you with 53.
    Mr. Barreto. We are trying to focus attention on the Gulf 
and make sure that----
    Chair Snowe. That is fine. Obviously, I do not dispute 
that, I do not question it. The point is, you need more. 58 is 
not sufficient. There is a gap in coverage now, but there will 
continue to be in the future, because, obviously, this 80 
percent did not occur recently. It has been over time, and so, 
obviously, even before the hurricanes. We have a problem there, 
and I hope that we can work to address it.
    Mr. Barreto. Sure.
    Chair Snowe. I want to just thank you for your testimony.
    Mr. Barreto. Thank you, Madam Chair.
    Chair Snowe. We will be working with you, Administrator. 
Obviously, there are a number of issues. You have heard them 
here today, with a variety of Members of this Committee, but we 
want to make sure that you continue to have the resources you 
need to address the immediate of what is occurring in the Gulf 
until we can complete our responsibilities and obligations, and 
it is really critical that we discharge them to the best of our 
ability, and to make sure that those who want small businesses' 
resources and assistance, that they get them, and that is what 
it is all about.
    The record for this hearing will remain open for an 
additional 2 weeks until noon on March 23rd. In addition, any 
written questions for the Administrator must be submitted to 
the Committee by noon on March 16th, and we will forward them 
to Administrator Barreto for written responses.
    Again, I just want to thank you, Administrator Barreto for 
being here.
    Mr. Barreto. Thank you.
    [The prepared statement of Mr. Barreto follows:]

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    Chair Snowe. This Committee hearing is adjourned.
    [Whereupon, at 12:10 p.m., the Committee was adjourned.]

                      APPENDIX MATERIAL SUBMITTED

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