[Senate Hearing 109-578]
[From the U.S. Government Publishing Office]
S. Hrg. 109-578
NOMINATION OF STEVEN C. PRESTON TO BE ADMINISTRATOR OF THE SMALL
BUSINESS
ADMINISTRATION
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JUNE 21, 2006
__________
Printed for the Committee on Small Business and Entrepreneurship
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senate
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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
NORMAN COLEMAN, Minnesota JOSEPH I. LIEBERMAN, Connecticut
JOHN THUNE, South Dakota MARY LANDRIEU, Louisiana
JOHNNY ISAKSON, Georgia MARIA CANTWELL, Washington
DAVID VITTER, Louisiana EVAN BAYH, Indiana
MICHAEL B. ENZI, Wyoming MARK PRYOR, Arkansas
JOHN CORNYN, Texas
Weston J. Coulam, Staff Director
Naomi Baum, Democratic Staff Director
C O N T E N T S
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Opening Statements
Page
Bond, The Honorable Christopher S., a United States Senator from
Missouri....................................................... 1
Snowe, The Honorable Olympia J., Chair, Committee on Small
Business and Entrepreneurship, and a United States Senator from
Maine.......................................................... 6
Kerry, The Honorable John F., a United States Senator from
Massachusetts.................................................. 16
Coleman, The Honorable Norm, a United States Senator from
Minnesota...................................................... 18
Vitter, The Honorable David, a United States Senator from
Louisiana...................................................... 23
Durbin, The Honorable Richard J., a United States Senator from
Illinois....................................................... 23
Witnesses
Preston, Steven C., nominee to be Administrator of the Small
Business
Administration................................................. 24
Alphabetical Listing and Appendix Material Submitted
Allen, George
Prepared statement........................................... 90
Bond, The Honorable Christopher S.
Opening statement............................................ 1
Prepared statement........................................... 3
Letter from Deputy Director for Extramural Research, NIH to
the Director, Natural Resources and Environment, GAO re:
SBA's eligibility rules for Small Business Innovation
Research (SBIR)............................................ 4
Coleman, The Honorable Norm
Opening statement............................................ 18
Prepared statement........................................... 20
Durbin, The Honorable Richard J.
Opening statement............................................ 23
Kerry, The Honorable John F.
Opening statement............................................ 16
Landrieu, Mary L.
Prepared statement........................................... 93
Preston, Steven C.
Testimony.................................................... 24
Prepared statement........................................... 27
Response to written questions submitted by:
Hon. George Allen........................................ 30
Hon. John Cornyn......................................... 32
Hon. Mary L. Landrieu.................................... 33
Hon. John F. Kerry....................................... 37
Endorsement Letters:
Steven VanDenberg, President/CEO VVV Corporation............. 49
Steven Arcieri, President Arcieri & Associates............... 50
Daniel Kenary, President and Co-Founder, The Harpoon Brewery. 53
Association of Graphic Communications........................ 55
National Association of Federal Credit Unions (NAFCU)........ 56
NFIB praises Steve Preston's appointment as SBA Abministrator 57
U.S. Chamber of Commerce press statement..................... 58
Credit Union National Association (CUNA)..................... 59
Carpet and Rug Institute of America.......................... 60
Herbert Hess, President and CEO North America Management
Company.................................................... 61
Luis Iza of Iza Brothers, Inc................................ 63
James N. Hallene, Capital Concepts Holdings, LLC............. 64
Charles P. McCarsker, Patriot Capital, L.P................... 65
Illinois Delegation, U.S. House of Representatives........... 66
R. Bruce Josten, Government Affairs.......................... 68
Trevor Price, Nature Technologies, Inc....................... 69
Michael Isakson, Service Master Clean........................ 71
Congressman Harold Ford, Jr., U.S. House of Representatives.. 72
Daniel A. Mica, Credit Union National Association............ 73
Snowe, The Honorable Olymphia J.
Opening statement............................................ 6
Prepared Statement........................................... 10
Vitter, The Honorable David
Opening statement............................................ 23
NOMINATION OF STEVEN C. PRESTON TO BE ADMINISTRATOR OF THE SMALL
BUSINESS ADMINISTRATION
----------
WEDNESDAY, JUNE 21, 2006
U.S. Senate,
Committee on Small Business & Entrepreneurship,
Washington, DC.
The Committee met, pursuant to notice, at 10:30 a.m., in
room SR-428, Russell Senate Office Building, the Honorable
Olympia Snowe (Chair of the Committee) presiding.
Present: Senators Snowe, Bond, Coleman, Thune, Isakson,
Vitter, Kerry, and Pryor.
Senator Snowe. The hearing will come to order and before I
give my opening statement I am going to turn to Senator Bond
who was the former Chair of this Committee and provided
outstanding leadership on behalf of the small business
community throughout America. I know he has a very tight
schedule this morning with so many conflicts, so I would like
to turn to him before I give my opening statement.
OPENING STATEMENT OF THE HONORABLE CHRISTOPHER S. BOND, A
UNITED STATES SENATOR FROM MISSOURI
Senator Bond. Thank you very much, Madam Chair. It is great
to be back and see lots of old friends again and I thank you so
much for allowing me to go out of order, because I do have a
bunch of things backed up today as we all do. I have a longer
statement for the record which I will relieve you of hearing,
however, I do want to say that I have had the pleasure of
meeting Mr. Preston and talking with him over 2 weeks ago and I
have received numerous letters of support saying what a good
choice he is, and I believe that he will do an excellent job as
the new Administrator.
He has had 25 years experience in leadership at
ServiceMaster, First Data, and Lehman Brothers, and I think
this is going to give him the necessary business and financial
knowledge and skills to really do something for the small
business community that is still the driving force and the
generator of new jobs in the economy. We do not need Government
control, but where Government can assist through the SBA, I
think it is a vital role and the people who commented to me
about Mr. Preston say he has a reputation as a sensible,
results-oriented leader with a high level of integrity and
determination to work tirelessly. So I am strongly supportive
of him and I hope this Committee will report him out and then
we will get him confirmed quickly to get him on the job,
because I have something I would like to ask of him.
On June 16th the Deputy Director for extramural research at
the National Institutes of Health sent a letter to the Director
of Natural Resources and the Environment at the GAO regarding
the SBA eligibility rules for small business innovation
research. This is something that concerns me a great deal
because we have heard from too many people in the biotech area
and other areas, that the rules of the SBA are unnecessarily
restrictive. And that letter states that the rules for grants
are unduly restrictive and still exclude some business concerns
that may contribute to important medical research, particularly
in the biotech sector. NIH believes the impact of current
eligibility rules presents a significant roadblock in our
technology development pipeline and ultimately in the speed in
which important products to improve health are brought to the
market.
I will leave a full copy of the letter for the record and
ask that Mr. Preston, when you have an opportunity to review
it, that you review the letter and the suggested remedies that
they have and that you notify this Committee because this is
something we have been working on for a long time. Madam Chair,
thank you very much for your time. I really appreciate the
consideration.
[The prepared statement of Senator Bond and the information
referred to follows:]
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Senator Snowe. I thank you Senator Bond and I appreciate
your comments and we will include your entire statement and the
letters and follow-up information in the record without
objection. Thank you.
OPENING STATEMENT OF THE HONORABLE OLYMPIA J. SNOWE, CHAIR,
SENATE COMMITTEE ON SMALL BUSINESS, AND A UNITED STATES SENATOR
FROM MAINE
Senator Snowe. Mr. Preston, I want to welcome you and your
wife Molly to the Committee on Small Business and
Entrepreneurship, and I also want to thank Senator Kerry for
working with me to arrange this nomination hearing this morning
so that we can move expeditiously to provide the leadership at
the Small Business Administration at a crucial time. We intend
to work closely as a Committee with the SBA in the upcoming
months as we move forward with the reauthorization process of
the SBA programs.
In every Presidential Administration it can be remarkably
difficult to attract the best and the brightest to serve in
important Government jobs and we are very pleased that Mr.
Preston is making a sacrifice by leaving his business and his
profession for the opportunity to lead the Small Business
Administration, which is certainly a vital component of
economic growth in America.
Certainly the numbers speak for themselves when you know
that small businesses represent 99.7 percent of all employer
firms, employ half the private sector employees in the country,
as well as generating two thirds of all net new jobs that are
created in America on an annual basis. So our Nation of small
businesses deserve a true champion--one who is a megaphone for
small businesses and reflects the deep and unwavering
commitment to the success of America's 25 million small
businesses.
The next Administrator will be assuming enormous challenges
that the agency has faced especially in the areas regarding the
SBA's disaster response. The SBA's response to Hurricanes
Katrina and Rita was subpar, leaving some disaster victims
waiting 3 months or more for loans to be processed. This
Committee consistently demanded more effective relief in hiring
additional employees to process loans and coordinating with
local resource partners. Significantly, the SBA waited 2 months
before taking action when it should have been the moment for
the SBA to shine and showcase its' abilities to contribute
substantially to the rebuilding.
Certainly the SBA was the lifeblood in the reconstruction
of the economic infrastructure in the Gulf region. Now, while
over 99 percent of all the applications have been resolved and
over $10 billion in loans approved 10 months later, it is
deeply disturbing that only 20.52 percent of the money has been
disbursed. If the disaster victims do not receive the vital
disaster loan funding, the rebuilding of the Gulf Coast region
cannot continue and it certainly cannot be sustained.
Looking forward it is essential that SBA collectively
develop a comprehensive and flexible disaster plan, find a
remedy for every problem that prevented or delayed the agency's
front-line employees working in the disaster zone from aiding
victims and be aggressive in responding to future disasters to
assist America's small businesses and disaster victims.
It is also essential that the next SBA Administrator is
fully committed to supporting the agency's mission ``to assist,
counsel, and protect the interests of small business''. Given
the clear importance of small businesses to maintaining a
strong and vibrant economy, strong leadership is clearly
required at the SBA to advocate for the innovators and risk
takers of the Nation.
While the challenges affecting the SBA are significant, we
are confronted with new beginnings--a chance to improve and
revitalize the Small Business Administration and its programs
and confirm a new administrator. We must take advantage of the
opportunity to build a new vision through the rebirth of the
Small Business Administration.
For example, since 1999, the SBA has helped to create or
retain over 5 million jobs. While this is a tremendous
contribution to our economy, we must collectively ask how we
can improve the SBA to assist more businesses, to create more
jobs and eliminate the many roadblocks entrepreneurs face.
Yet, for Fiscal Year 2007, I am truly disappointed by the
Administration's weak budget proposal of $634 million. The SBA
has continued a dangerous trend of reducing its budget by an
astounding 37 percent since 1999. Moreover, it concerns me that
the SBA failed to include the agency it has helped to create
and retain over the last year. Needless to say, this does not
recognize the tremendous investment that SBA has been able to
return on investment and has not obviously been amplified in
any respect. This is especially true when you consider the
SBA's return on investment versus the agency's budget that is
less than 3/100 of 1 percent of the total Federal budget.
With the uncertainly in the economy, the problems facing
small businesses are substantial and the SBA unquestionably
must be at the forefront in providing the financial and
business development tools for the success of entrepreneurs and
small businesses across the United States.
In 2005, the SBA programs disbursed record-breaking totals
of loans to small businesses, both in the number of loans and
total dollar value provided to small businesses. During the
last fiscal year, the SBA guaranteed over $24 billion in loans
and venture capital for small businesses, the highest level of
capital ever provided. SBA loan and investment programs have
produced success story after success story, which included
founding the Intel, Staples, America Online, Federal Express,
Outback Steakhouse, Ben & Jerry's, Callaway Golf, as well as
thousands of other successful businesses.
In April, I chaired a hearing that will lead to
reauthorization of the SBA's finance and entrepreneurial
development programs. The next SBA Administrator will be an
integral part of that process. I hope the reauthorization will
lead to a renewed SBA that is completely dedicated to fostering
small business ownership in America and, if confirmed, I look
forward to working closely with you, Mr. Preston, in this
effort.
The Administrator of the SBA has the ability to be not only
a spokesperson, but also an advocate for small businesses and
their issues.
In Maine and throughout the country, small business owners
have repeatedly told me that their primary concern is the cost
of health insurance. This crisis is real and an undue burden on
entrepreneurs throughout America and requires bold solutions.
We have been working on small business health insurance plans,
but regrettably, we have not been able to resolve that issue on
the floor of the U.S. Senate--hopefully, we can at some point,
before we adjourn this session and also the tax incentives to
provide employers with small firms with quality health
insurance at an affordable cost.
Mr. Preston, I know you understand our tax code is overly
complicated and time-consuming, and it certainly is expensive
for all Americans, and most especially for our Nation's small
businesses. Despite the fact that small businesses are the real
job creators for our nation's economy, the current tax system
places an entirely unreasonable burden on them as they seek to
satisfy their tax obligations. The Administrator of the SBA can
weigh in on these issues to promote solutions that benefit
small businesses.
The SBA Administrator must also uncover, monitor and
correct managerial mistakes, avoid lax implementation of laws,
and prevent the waste, fraud, and abuse of taxpayer funds. If
confirmed, this will require your urgent attention as well.
Looking at access to capital, I hope, Mr. Preston, that you
will join this Committee in rejecting any attempt to charge
additional fees on small businesses in the 7(a), 504, and SBIC
programs. The SBA has proposed a fee increase 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 for the Administration to be
balancing the budget. These small businesses are already paying
fees and taxes to fund the Agency and it is unacceptable to
make it more costly for them to access financing. There are
already zero subsidy programs and they have already paid their
price and now they are imposing additional fees and costs to
small businesses to access the lifeblood of SBA programs that
are so important to spurring economic growth in America.
We have seen what can happen without vigilant and precise
leadership which was epitomized by the December 2005 SBA
Inspector General's report that found eligibility could still
not be determined for 85 percent of the September 11th STAR
loans reviewed. The SBA must do everything possible to prevent
a similar bureaucratic fiasco.
Similarly, given recent discoveries of small businesses
losing prime contracting opportunities to large businesses due
to poor oversight of contracting laws, it is absolutely
essential for the next SBA Administrator to guarantee that 23
percent of the Federal contracts are given to small businesses,
which is required by law.
For an incoming SBA Administrator, these are only a few of
the challenges and problems that must be managed successfully.
And certainly I know we have had this discussion, Mr. Preston,
on a variety of these issues, but I really do think that there
are a wide array of challenges facing you as an SBA
Administrator; first and foremost, the disaster loans and the
response to the Gulf region and the hurricanes last fall and
the onset of another hurricane season. We have a lot of issues
that we are going to have to reconcile above and beyond the
budgetary and the authorization issues questions that I think
have undercut significantly these programs that have tremendous
value, not just to small businesses, but to America.
So, I am looking forward to working with you and appreciate
your energy and your sincerity and enthusiasm for moving
forward on these questions, and obviously we will explore them
further with you in this hearing. With that I will turn to the
Ranking Member of this Committee, Senator Kerry.
[The prepared statement of Senator Snowe follows:]
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OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY, A UNITED
SENATOR FROM MASSACHUSETTS
Senator Kerry. Thank you very much, Chair Snowe. I
appreciate your comments and want to thank you and your staff
for working with us as always on this nomination and on other
issues. We look forward to continuing to work in a bipartisan
fashion on this and othe Committee-related issues that come
before us. Senator Durbin is here; sometimes he's the one who
sits up here and hears the opening statements from the other
side, or provides them. I will try to keep my statement brief,
because I know he is busy and we want to get to the matter
ahead.
I think the Chair has made a very important and
comprehensive statement that really reinforces what we talked
about when we met with Mr. Preston. There really is a
bipartisan consensus here on this Committee. There are not a
lot of labels by either party attached to most of our concerns.
Our work is about small business and many of the businesses in
America are small, and most of the big businesses started in a
garage or in the back seat of a car or some similar placewhere.
Mr. Preston, we welcome you here today. We are glad you are
willing to take on this difficult task, made difficult not just
because of the issues, but frankly made difficult because of
some of the internal struggles you will face within the
Administration. We welcome your wife here and we are delighted
she is prepared to share with you this public effort.
We have talked about a number of the issues facing the new
Adminstration and I just would like to run through a few of
these issues publicly today. I certainly look forward to
hearing in a little greater detail how you plan to do a number
of things if confirmed.
Mr. Preston, you are a serious nominee and I think you are
an impressive nominee compared to some we have seen who come
from a more political background. I welcome your nomination. I
think you bring terrific business acumen. You bring a wealth of
management experience to an agency that is woefully in need of
real, solid management.
Chair Snowe talked about the disaster loan program.
Everybody on this Committee, though they are not all here
today, shares an enormous concern about the oversight of
Federal contracting and the disaster program. Here we have seen
the SBA falter badly. Ten months since Hurricane Katrina and
the delays in getting victims the loan money they badly need,
as the Chair mentioned, is critical. I am not going to spend
much time on that.
Deep budget cuts have taken place--37 percent--the deepest
experienced by any Federal agency in this Administration, and
they have left key programs understaffed. Efforts to eliminate
key programs, like the Micro-Loan program, the PRIME and the
New Markets Venture Capital program, have undermined access to
capital and business counseling for small businesses,
especially the smallest of firms who are most in need.
The morale at the SBA is frankly at an all-time low--it is
certainly as low as it has been at anytime in the 21 years I
have been on this Committee, and capable employees have moved
on. There is a great deal to be done to invigorate this Agency.
I am confident from our conversation that you intend to be an
aggressive advocate for small business. I hope you will be true
to that intention. There has been too much politics and too
little effort at marshaling a bipartisan consensus to help make
good things happen. My sense is you do not come to this
appointment with a political agenda and I urge you to trust
your instincts to do the right thing on behalf of small
business.
This Agency needs to live up to its full potential; with
the investment and counseling and intervention capacity that it
has, it can make a huge difference in people's lives all across
the country, particularly with this amazing transition that is
taking place with globalization. Americans are increasingly
becoming involved with startup cottage industry type efforts,
and the SBA can play a role in this transition.
It is also important that you fight for a realistic budget.
Every Member of this Committee is exasperated from seeing these
budgets that are driven by OMB and frankly, by a lack of
commitment and respect for the SBA. It is clear that there is
an ideological disbelief in what the SBA does and that this
Administration is content to watch it wither on the vine. As
the SBA is choked of funding, the SBA Administrator has spent
his time traveling around the country, advocating
administrative proposals that often do not reflect the real
needs of small business.
What small businesses really need is an Administrator who
will consider the impact of budget cuts on small businesses and
disaster victims, who will vigorously fight for a budget that
fully funds SBA programs against budgets that propose
unprecedented administrative fees on small business loans. When
you raise fees that high, you make it difficult for this agency
to do what it was set up to do, which is to help provide a
cushion for some of the lending that will not happen normally
in the private sector. As fees continue to increase, the loans
become comparable to those in the private sector. By raising
the fees, we are eliminating the differential that is at the
fundamental purpose of the Agency itself.
Small businesses also need you to be a watchdog when it
comes to Federal contracting, a point I made privately during
our meeting. The record of the last few years is just plain
appalling. There has been an overstating of Federal small
business contracting numbers that is dishonest. The SBA has
closed its office dedicated to veteran's contracting, which is
hard for me to believe when we have so many veterans coming
back from Iraq and Afghanistan. Implementation of the Women's
Contracting Program continues to be delayed. It has been
delayed now for 6 years. The SBA IG reports and the GAO reports
reveal a real pattern of neglect, a pernicious pattern of
neglect when it comes to SBA's oversight of Federal contracting
to assure fair access to small firms.
I hear it all over the country when I meet with small
firms. They keep telling us that they are getting squeezed out,
that contracts are either bundled for large firms or they go to
a firm that did not really qualify. Report after report
indicates that the SBA needs more staff to oversee Federal
contracting. When this Committee requests accurate data on
small business contracting numbers, it is rebuffed.
Contracting oversight is a serious problem and I would like
a commitment from you today, sir, to press for better data and
be willing to acknowledge that the Agency has got to step up
and provide greater oversight. Above all, what we really are
asking is that you do not to come back here and repeat the
mantra of the last few years, which is that the SBA finds it
possible to do more with less. For a year or so that may have
been true, but at some point, and I believe we have reached
that point, it is just not possible. The mantra is worn out.
Small Business Development Centers have had to reduce services.
Many have waiting lists for small businesses just to meet with
a counselor. Some of our womens' business centers are on the
verge of shutting down, and lending to minorities has been
generally flat or has gone down, particularly dollars loaned to
African-Americans and women.
The SBA has a unique role to play in fostering
entrepreneurship, and I am confident you will be confirmed. As
I said, we welcome the strengths you bring to this job. In the
21 years that I have been on this Committee, I have never seen
the SBA in as great a state of crisis and disarray as it is
today.
My final comment is this: Whatever that ideology is that
has been driving this starvation policy, it is misplaced. The
Chair listed a number of the businesses that have been
successful and started with small business lending, and chief
among them are companies like Intel, FedEx, Callaway Golf, and
so forth. The entire budget of the SBA, pre-cuts, has been paid
many times over by the taxes paid by the companies they have
loaned to that have been successful. It is so shortsighted,
particularly in this new globalized marketplace that
entrepreneurs are trying to compete in. You know a lot about
that. So we welcome you. We look forward to your service and we
hope to have, frankly, a different era in the 2 years that
remain of this Administration, to really see the SBA turn the
curve and do what it is capable of doing. Thank you.
Senator Snowe. Thank you, Senator Kerry. You can see there
is a lengthy agenda awaiting you, Mr. Preston.
Senator Coleman, do you care to make any remarks?
OPENING STATEMENT OF THE HONORABLE NORM COLEMAN, A UNITED
STATES SENATOR FROM MINNESOTA
Senator Coleman. With respect to the Assistant Democratic
Leader, I will keep my remarks very brief and ask that they be
submitted for the record.
Just two observations: One to Chairman Snowe, what you
articulated about the importance of an advocate, about the
importance of a champion and that is all very clear. And then I
think it is clear that Katrina was not one of the shining
moments of the SBA and the hurricane season is on us again. Let
us learn from our experience.
I have a deep concern about the micro-loan program; we tout
it internationally that this is a great thing, yet at home we
are continually rebuffing efforts to get rid of it. It is
important and we need to continue moving forward in that
regard.
And last, we have a special concern about rural
development. Rural small business is important and I would hope
that you would explore this in further questioning, that we do
not kind of turn a blind eye to some of the needs and
opportunities in the rural communities. With that I look
forward to supporting this nomination and I appreciate your
commitment to serve and the skills you bring, but there are
certainly challenges ahead and we need to work together to
resolve them. Thank you.
[The prepared statement of Senator Coleman follows:]
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Senator Snowe. Senator Vitter.
OPENING STATEMENT OF THE HONORABLE DAVID VITTER, A UNITED
STATES SENATOR FROM LOUISIANA
Senator Vitter. Thank you, Madam Chair. I will be very
brief as well. Obviously coming from Louisiana, my primary
concern with regard to this nomination to the SBA is disaster
response. Mr. Preston and I had a very good meeting focused
primarily on that and I was quite frankly very impressed by his
ideas, what he said with regard to that, and with regard to
management and reform of the Agency overall. I thank you, Mr.
Preston, for really exhibiting a very real eagerness to have a
very hands-on management approach--really personally get your
hands around these management issues which have been so
frustrating, particularly through Hurricanes Katrina and Rita.
I very much look forward to working with you in that effort of
really getting your hands around these management issues, both
disaster response and all other aspects of making the SBA fully
effective. Thank you, Madam Chair.
Senator Snowe. Thank you very much, Senator. Now we welcome
our colleague, Senator Durbin, who is here to introduce our
nominee Steven Preston, and who is a resident of Hinsdale,
Illinois. I welcome you, Senator Durbin, and any comments you
care to make in introducing Mr. Preston.
STATEMENT OF THE HONORABLE RICHARD J. DURBIN, A UNITED STATES
SENATOR FROM ILLINOIS
Senator Durbin. Senator Kerry, Senator Coleman, Senator
Vitter and Madam Chair, thank you for the opportunity to
introduce Steve Preston to the Small Business Committee.
When a tornado struck in my hometown of Springfield,
Illinois earlier this year, in fact, two tornados in about a 3-
week period, I saw first hand how crucial it was that the Small
Business Administration respond with disaster relief loans
quickly and efficiently. Particularly as we approach another
hurricane season, I am sure Senator Vitter can speak to this
issue better than any of us, it is essential that the SBA
remains ready and able to help on an emergency basis.
The SBA needs the best leadership to meet its goals of
helping as many entrepreneurs as possible in my home State of
Illinois and across the Nation, to help this country grow more
jobs as quickly as possible. Second, to provide disaster loans
to businesses and communities when they need them.
Thirty years ago, Madam Chairman, to confess my conflict of
interest here, I applied for and received an SBA loan to open a
little restaurant in Springfield, Illinois. It never made
franchise status, but it survived for 5 years and it did
because the SBA believed in us and gave us our chance. My story
can be repeated thousands if not millions of times over across
the United States.
Steve Preston comes before you today with the right
experience to lead this critical Agency at this moment in
history. He graduated from two great Illinois schools, first
from Northwestern University and then an MBA from the
University of Chicago. He has worked as an investment banker on
Wall Street before returning to Illinois to become Executive
Vice President of ServiceMaster, based in Downers Grove outside
of Chicago, one of the most respected corporations.
Steve has spent nearly his whole career bringing effective
management to business operations, and we need his
organizational expertise at the SBA now more than ever and your
opening statements demonstrate that. We need an Administration,
with Steve's leadership, that will help America's small
business entrepreneurs to continue to create good jobs in our
Nation.
Finally, let me say to Mr. Preston, what you have heard
this morning from Chairman Snowe, as well as Ranking Member
Kerry and others, makes it clear that this Committee and our
commitment to small business are bipartisan, and we are
dedicated to promoting ownership and entrepreneurship without a
political agenda. I am confident this Committee will give you a
fair hearing, I believe they will support your nomination and I
hope that they will become a valuable partner as you do your
important work at the SBA. Thank you, Madam Chair.
Senator Snowe. Thank you very much, Senator Durbin, for
your comments.
Rule 3 of our Committee requires that the witness during a
confirmation hearing has to give testimony under oath, so would
you please stand and raise your right hand.
[Witness sworn.]
Senator Snowe. I would like to welcome you to the
Committee, Mr. Preston, and would you care to introduce your
family members who are here, I know your wife, Molly, is here.
I understand you had a wedding anniversary on Monday; is that
true?
Mr. Preston. That is true.
Senator Snowe. See, no better way to spend your
anniversary.
STATEMENT OF STEVEN C. PRESTON, NOMINEE TO BE ADMINISTRATOR,
SMALL BUSINESS ADMINISTRATION
Mr. Preston. I would like to thank you, Chair Snowe,
Ranking Member Kerry and the Members of the Committee on Small
Business and Entrepreneurship for meeting with me today. I
would also like to thank all of you who met with me or whose
staff met with me. Those meetings were very beneficial to me in
understanding your perspectives on how to increase the impact
that the SBA has had on the constituencies it serves. I would
also like to thank President Bush for nominating me to this
position and the many legislators, trade organizations and
individuals who have been kind enough to endorse my nomination.
Finally, I would like to thank Senator Durbin for his kind
introduction and his support.
Many of you have asked why I would like to be a candidate
for this position. Very simply, I believe in the value of
public service and would like the opportunity to serve in a
capacity that is relevant, that I am passionate about, and that
draws on the competencies I have developed over almost 25 years
in financial and operational leadership positions.
It is easy to get excited about serving small businesses.
Small businesses help drive our economy, transform communities,
create jobs, and enable people to realize their dreams. It is
through small business that we see innovation thrive and grow
to become companies like the two that you mentioned, Senator
Kerry, FedEx and Callaway Golf who have received SBA support.
Small businesses take risks that others just will not take,
because they have a vison and because that every dollar that
they put into that business will be matched with $10 of sweat
equity.
Small businesses are often the first to venture into
neighborhoods needing renewal or rebuilding. In recent
conversations with a Member of this Committee, I recalled a
striking example of that in New Orleans when I visited there
this past spring and spent several hours touring the
devastation down there. After leaving the Lower Ninth Ward and
seeing almost no activity whatsoever for miles, we came upon
one conspicuous anomaly--a small independent grocery store,
freshly painted white, with sparkling windows and a bright sign
out front. Several people were at work scrubbing the sidewalks
in front, stocking the shelves and cleaning the floor,
apparently in preparation for a re-opening. As I looked at the
empty houses all along this lonely sight, I could not help but
wonder who would come to shop, would the venture be successful,
and how much of the owners' lives were invested in that store.
During the same trip I was also fortunate to hear from several
small business owners about the challenges they have in trying
to claw their way back to viability and a number of them are
relying on the SBA to help them in that process.
Some of you have wondered about my experience with small
business. I have been in the middle of small business activity
my entire professional life. I have worked with investors in
the portfolio companies on strategic and operational issues. I
have worked as investment banker with successful small
businesses who are now big enough to tap the capital markets. I
have worked with small business owners in a major franchise
network to become more effective through training and funding
and business support. In some ways, I think the most impactful
experiences I have had have been in rolling up my sleeves to
advise friends and family members on the issues that they face
everyday as small business owners.
As a result, I have seen firsthand how small businesses
evolve from an idea, to a fledgling operation, to a sustainable
enterprise, to a growing force and I understand the type of
support they need each step of the way. I have also witnessed
what happens when a small business person with an idea and all
the energy in the world to pursue it, lacks funding, lacks
training, and lacks good advice and that is an opportunity lost
for all of us.
I have listened to the stories of small business people who
seek more affordable health care, who are confounded by a
regulatory environment the disproportionately burdens small
business, and who would sell goods and services to the Federal
Government, but are so daunted by the difficulty and cost in
becoming qualified to do so that they just give up. I know how
important it is for them to have a strong advocate.
In addition to my commitment to small business, I believe
my background is well suited to lead the SBA because it is deep
in finance strategy and operational change, with experience
investment banker, treasurer of a major financial and
technology services organization, and later as the Chief
Financial Officer and Leader of Operational Change at a company
with about 40,000 employees, multiple operating units and
thousands of locations. I hope to bring relevant competencies
to the SBA.
If I am confirmed, I will be taking on the leadership of a
large organization with thousands of employees, millions of
customers and billions of dollars in financial risk. The SBA is
like a big business that serves the needs of small businesses
and it is an organization that requires sophisticated financial
management, operational responsiveness, and a customer service
culture among the workforce. None of this happens by accident.
It requires dogged focus to move the ball forward each and
every day.
I also believe that to be an effective leader, one needs to
paint a compelling vision and be a tenacious champion of the
vision, willing to be outspoken and lead on principle. In
addition, my leadership style promotes respect, openness,
honesty, accountability, and collaboration. If I am confirmed,
I plan to work hard to drive these operating principles into
the organization and to be a visible advocate for the interests
of small business.
Finally, and very importantly if I am confirmed, I look
forward to having a close and open relationship with the
Members of this Committee, with its' staff and to building and
enduring relationship between the Agency and the Congress. This
relationship, which I believe can be a collaboration, will be
vitally important in realizing the opportunities before us.
So thank you once again Chair Snowe, Ranking Member Kerry
and other Members of the Committee for your openness, for your
honesty throughout the process, and I would welcome your
questions at this time.
[The prepared statement of Mr. Preston follows:]
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Senator Snowe. Thank you, Mr. Preston. We appreciate your
statement and the last point that you made with respect to
communication and collaboration are key ingredients, I think,
they are critical to the success of the Agency. That is one of
the things that we try to impart in working with the Agency is
to work together on the issues. We are all moving in the same
direction--we would like to move in the same direction as you
have heard here today. The wide-ranging concerns that exist
with the failure of the SBA to prominently elevate these
programs and be an advocate for these programs that have been
so instrumental to the success of economic growth in this
country and a single greatest contributor to job growth in
America.
So, there are a wide array of challenges and as I said
earlier, there is a lengthy agenda awaiting you. You have
already been down to the Gulf, you understand the dimensions of
the problems where SBA failed to respond in a very quick,
expeditious, and efficient way. I will not go through chapter
and verse as we did in the conversation that we had in respect
to what went wrong. Suffice it to say, that it was an
unprecedented event that required an unprecedented response.
This was SBA's moment to shine and to showcase all it could
provide in one critical dimension of rebuilding the economy in
the Gulf region.
So, with that, tell me, in hearing all the challenges you
have heard today and obviously through your discussions with
Members of this Committee, how do you intend to begin your
leadership with the Agency and where will you begin, what first
will you do?
Mr. Preston. Thank you for your question. I think there are
a couple of things; I know disaster assistance is job No. 1. I
was fortunate enough to speak with Senator Vitter and Landrieu,
as you have mentioned, I have been down there and I know it is
absolutely critical that we serve the needs of those Americans
in their dire time of need effectively and responsively.
Senator, I heard a comment a little earlier about some
earlier issues--I was across the street from the World Trade
Center in 1993 when the first terrorist bomb went off, and I
have lived in many parts of this country that suffer from
tornados, so I feel like this is something that is very
important to me. What I need to do is dig very deep in
understanding the issues behind this problem. The process of
making a disaster loan is multi-faceted and has steps all along
the way and it is a classic opportunity to dig deep with good
business solutions.
I also know from the limited conversations I have had with
people at the Small Business Administration that a lot of work
has been done on the technology side and otherwise, but I
really need to get in there and kick the tires. I also need to
understand, and we all do, whether or not the private sector
can be effective in helping us out, because there are
situations--we have heard many situations where the SBA has
done well. Senator Durbin mentioned a situation in Illinois. I
have heard from other people on the Committee where they did do
well. This obviously is a type of disaster we need to be
prepared for and we need a plan in place and we need to be able
to accommodate all kinds of disasters. So this is job No. 1.
The other thing I would like to say is very quickly after
coming through the door, if I am confirmed, I need to get out
on a listening tour. I need to spend time with our employees,
the employee morale issue is gravely concerning to me. The SBA
is a service organization, it has got a terrific mission and we
need to have an employee base that is driven by that mission
every day to fulfill the needs of those customers, and that is
tough to do with low morale. So I have got to get out there and
talk to the employees. I have got to get out there and listen
to the people we serve. I have got to spend time with people on
your staffs to really build a picture to make sure that we are
effective. And I would like to say in noting that, I think 90
percent of the good ideas in how to improve an organization are
generally out there, they just need to be captured and
crystalized.
Finally, I think I need to get deep into some of those
pragmatic evaluations and understand where they are effective
and where they are not and how we can bring good solutions to
them.
Senator Snowe. I appreciate that because obviously this is
an agenda that is laden with some serious concerns and serious
issues. When we receive reports that list all the agencies, SBA
is basically in last place when it comes to the level of
morale. Frankly, I think it gets back to the original issues
that many of us raised, and Senator Kerry as well, and that is
the undercutting of so many of these prime programs and
resources. Granted there are agencies that can do more with
less, but how much less? When you are really handicapped by
shortages of resources and personnel, and as we say on the
front lines in a disaster area as large and as great as in the
Gulf region that went on for months on end, that is seriously
troubling at a time which this Agency should have been at the
forefront and should have been able to move immediately to
weigh in to provide that front level and that front line
support to rebuilding the economic infrastructure.
Can you tell this Committee what, in your views, what
corrective actions could take place with respect to how to
respond and how we complete this process in the Gulf region?
From here on out, what should the Agency be doing to fix this
as efficiently and as quickly as possible. Since we are only at
20 percent of disbursed loans, which never should have
happened, there is so much lag time involved in all of this, it
was just no sense of urgency given the level and depth of the
disaster in the Gulf region, and yet they just did not step up
to the plate quickly and for many months there was hesitation
and procrastination.
Mr. Preston. When I was down in the Gulf I had a chance to
speak with several business owners who were in the process of
getting disaster loans. It was very helpful for me to see
firsthand what their stories were and the issues they had. What
I understand of the disaster lending process, it is a multi-
step process which involves, reaching out to people, bringing
them in, taking them though a credit approval process, taking
them through a closing process, taking them through a
disbursement process and any step- line. That way, there are
multiple steps within each one of those and there is an
opportunity for a failure point. It is a highly complex set of
business processes.
So I think we need to get very deep operationally to
understand exactly whether there are failure points along that
way, whether those processes can be redesigned, whether we can
leverage the private sector in some way to accelerate the
process along the way. With respect to the disbursement side
specifically, I think I will need to understand much more
deeply what the root causes are there. I know some of them may
be within the SBA process, some of them might be outside the
SBA with respect to people getting insurance or building
permits.
When I look at that I wonder, cannot we be helpful in
understanding what those problems are outside the SBA in
working to help the people in need even if it is collaborating
with other agencies or other people in the private sector? So,
my view is I need to get very deep very quickly and work with
the people and get this along the way of becoming a much more
effective process.
The other thing I would like to say Senator, is the process
has to be sized for a lot of different kinds of events and I
think it is important that we think about something like
Katrina as being a surge event, where you have just a
tremendously dramatic need and it is almost like an emergency
plan in place that you have. We have to look at what we can do
at different levels of activity and how we perform up to
standard at those different levels.
Senator Snowe. I appreciate that and one of your first
duties when you are confirmed is having to deliver a report to
Congress on how SBA intends to respond to having a disaster
response in place for the 2006 hurricane season as well.
Senator Kerry.
Senator Kerry. Mr. Preston, some concerns have been raised
by members of the small business community that given your
history with ServiceMaster and ServiceMaster's history with the
Committee itself and the Comp/Demo program, that you may find
yourself in a perceived conflict of interest when you are
confirmed with regard to the SBA policy on franchises. There is
now a proposal in the Manzullo reauthorization Bill out of the
House, which changes the definition of a franchise with respect
to the Small Business Act. That provision gives the
Administrator pretty broad discretion. I am wondering, should
you be confirmed, if you see a need to recuse yourself from
situations such as that where there may be a perceived sense of
conflict of interest.
Mr. Preston. First of all, let me just say, Senator, that
if I am confirmed, when I walk through that door I am the chief
advocate of small business, period. I have no concern about
whether or not I will be able to fully advocate on their
behalf. I think it would be very important for me when these
types of issues come up, to seek the advice of conflict
counsel. But in terms of my commitment to the small business
cause, it will be unwavering.
Senator Kerry. Well, what is your view then, about this
issue of franchises? For years franchises that tend to be
wholly owned and have significant support structures from the
very large corporate entities with significant flow of capital
have not been considered small businesses. Do you see anything
that merits the notion that all of a sudden they should be
qualified for SBA assistance? Should they be defined as small
businesses?
Mr. Preston. I think there are a lot of flavors of
franchises and there are a lot of different ownership
structures, Senator. My experience has been that the franchise
organization I am associated with, almost entirely enables them
to become prime contractors in any situation, even if we are
helping them out in a business situation. So I think I would
need to take into consideration the structure of those entities
and specific intent of those laws.
Senator Kerry. What would guide you as you do that? What
would your concern be with respect to whether or not franchises
should qualify as small businesses?
Mr. Preston. My concern would be whether or not it truly
fosters the small business community and small business growth.
Senator Kerry. Would the concern extend beyond that to a
longer list of criteria about what kind of financial support
structure they may have, what the nature of the franchise is--
and I do not disagree with you, there are different kinds of
franchises in principle. Would you be guarded about this
concept?
Mr. Preston. I think we would have to take all those issues
into consideration and I am not especially close to the
legislation you are discussing; I know it is relatively recent.
But certainly I would feel the need to get very deep in
understanding those relationships.
Senator Kerry. Did you play any role yourself personally as
Vice President of ServiceMaster with respect to formulation of
ServiceMaster's history and the comp/demo program?
Mr. Preston. No, I really learned about comp/demo in the
process of this nomination, and have been briefed on it to some
degree since then.
Senator Kerry. So that is not a policy that you have
personally developed and/or taken a position on with respect to
any public advocacy?
Mr. Preston. I would say even further, Senator, it is not
even something that I was aware of or understood until
recently.
Senator Kerry. Good. I assume you will look carefully at
this question of any perceived conflict of interest with
respect to franchising issues?
Mr. Preston. Yes.
Senator Kerry. Commit to the Committee that that is an
advice from counsel that you will seek?
Mr. Preston. Are you commenting on a potential recusal on
my part or conflict of interest?
Senator Kerry. Yes.
Mr. Preston. I would need to seek the advice of counsel on
whether or not to recuse myself and would certainly need to
abide by that advice.
Senator Kerry. Also ServiceMaster has a history with the
Committee of lobbying to put an end to small business set-
asides in industries such as landscaping and pest control in
the Defense Department comp/demo program. What is your position
on ServiceMaster's efforts to include those industries in a
small business demonstration program?
Mr. Preston. Once again, this is for the part and parcel of
the issue that I became aware of in the process of my
nomination. I do not fully understand the potential impact of
that change in the set-aside requirements on small business,
and what I would like to do is understand it more fully. I know
that--my understanding is there are a lot of different views on
the impact of that legislation on small business, but frankly,
I do not feel like I have the depth of understanding or the
data to understand really what the impact is at this point.
Senator Kerry. You cannot tell us at this point whether or
not you would support the small business community in its
efforts to end the program? The Small Business Committee, as a
whole, is seeking to do that. Since you are going to be an
advocate for the small business community, are you going to
stand with them on that effort, which is contrary to what
ServiceMaster did?
Mr. Preston. I would absolutely seek the input of the small
business community on any legislative issue and work hard to
understand their needs and view myself as their chief advocate.
Once again, I do not view any history that I have had as being
contrary to the interests of small business and in fact, it has
given me a gateway to understand their needs and concerns.
Senator Kerry. With respect to contracting, one of the most
egregious failures of recent years at the SBA is the failure to
insure that agencies are meeting their contracting goals. The
SBA is supposed to be a watchdog in that effort. IG reports
reinforce the need for more staffing, and last year's IG report
indicated that a significant amount of small business contracts
went to large firms and not small businesses. So my question to
you is, under your leadership, do you commit to meeting what
are already deemed to be, both by Congress and the executive
branch, reasonable goals for underserved communities?
Mr. Preston. Yes, and let me comment on your question. I
think if there is inappropriate activity occurring anywhere in
here, it is unacceptable. I want to thank you all for
confirming the IG and I think that group is going to be a very
important partner of mine in insuring that the operations of
the SBA are moving forward effectively. I know it is our job to
work with the other agencies to meet their contracting goals
and my view is we have tools available to us to help them do
that and it is our job to help them as fully as we can to meet
those goals.
Senator Kerry. I see a vote has started, so I am going to
end my questioning. I understand we will have until Friday of
this week to submit questions in writing?
Senator Snowe. Yes.
Senator Kerry. Thank you Chair Snowe.
Senator Snowe. Recognizing Senator Coleman.
Senator Coleman. Thank you, Madam Chair.
Mr. Preston and I talked a little bit about the micro-
lending program and this Committee has expressed very strong
support for that program in the past, the Administration keeps
coming back with wanting to cut the program. Can you give me
your general views on micro-lending?
Mr. Preston. The micro-lending industry overall is
absolutely critical for serving the tier of businesses that do
not have access to capital otherwise. It is a tier of
businesses that serve a vital role in the economy. In fact, as
an aside, we see micro-lending taking hold in developing
economies and a way to drive them forward. So it is an
absolutely vital capital source. I also know that the market
for small loans in the private sector has grown dramatically
over the number of years and the SBA provides small business
loans through a number of its programs. I absolutely believe in
the value of small business loans. I understand that this issue
with respect to the micro-loan program at the SBA has been a
concern for many members in the Committee, and I would
absolutely look forward to digging in more deeply if I am
confirmed.
Senator Coleman. What we need you to do here is have the
courage and strength to go back to OMB and one, clearly express
the views of the Committee. We would try to express it
personally, but you are in a position where you have to
articulate the Administration's position, we understand that,
but this is one where I would hope that you would go back and
consistently keep in mind the Committee's strong support for
micro-lending.
I serve on foreign relations--these are the programs we
tout internationally. This is one of the great opportunities
for development in Africa, and Latin America, and Asia. I would
just hope that the message that is coming from this Committee
is loud and clear, and though I understand the responsibility
for presenting the Administration's positions, I think there is
also responsibility that you need to go back and not to simply
meekly accept it, but to articulate what their concerns are.
Let me just say a little bit about rural development. Can
you give me a little sense--have you given much thought to what
the SBA--what more they can do, what role they play in rural
development. Oftentimes rural communities are struggling,
regional incentives are very strong, the SBA can play a vital
role. There is a lot going on now and with the use of
technology in rural communities, things we are seeing with
ethanol and the possibilities of developing there,
biotechnology, etc., I think there is a real role for SBA here
and I would like to get your sense, or have you given much
thought to the rural aspect of it and how you would further
develop it.
Mr. Preston. Senator, as you know I grew up in Wisconsin,
my parents live in a town of about 1,500 people and a fact that
you did not see on my resume is I was the treasurer of the
Future Farmer's of America in high school. So rural America is
sort of an important part of my roots. One of the things that I
think is most exciting about the opportunities the SBA can
bring to people is the opportunity both to work with people in
both urban and rural settings where there is a dramatic need
for businesses, a dramatic need for job creation, and to do so
in innovative ways. I was encouraged when I spoke with Senator
Burns about a business in his home State called Printing for
Less. One of the things that struck me about it was, here is a
business in rural America that has been enabled through the
Internet and through the advancement of the logistic industry.
So even while we are seeing transition in rural areas that
is impacting in the negative ways, I think the business
infrastructure in our economy is available to help them in very
positive ways to transform. And I would very much look forward
to spending time with you and people in your home State and a
number of people on this Committee who have very strong rural
interests, to understand how we can be more effective in
serving rural communities.
Senator Coleman. I share that optimism. I share that sense
of possibility. There is opportunity out there, but SBA can and
must be a part of it. I look forward to working with you on
that. Thank you.
Mr. Preston. Thank you.
Senator Snowe. Senator Vitter.
Senator Vitter. Thank you, Madam Chair.
Mr. Preston, going back to disaster loans and disaster
recovery, will you be completely open to new and significant
roles possibly for local private financial institutions,
particularly in a surge situation like Katrina and Rita clearly
are, to not only help administer the program but conceivably
maybe even be direct lenders with a guarantee versus SBA being
direct lenders?
Mr. Preston. Senator, I really think we need to be open to
all possibilities and the bigger the disaster I think the more
creative we have to be in serving the needs of disaster
victims. I know that you have spent a tremendous amount of time
with people in Louisiana dealing with this issue. I would very
much look forward to spending time with you and the people that
you think understand this issue the best in crafting the right
solutions for the disaster recovery effort. So this is
something I care very deeply about and as you and I discussed,
I intend to spend a very significant amount of my time in
addressing the issue.
Senator Vitter. Great. I am also very interested in the
small business innovation research program and we touched on
that when we met. As you know right now, that program reserves
2.5 percent of R&D budgets for small business, and I quite
frankly, would like to increase that, I would personally like
to double that 5 percent. As we reauthorize that program and
you go into the SBA, will you be open to that--looking at that
small business innovation research program?
Mr. Preston. Yes, this is actually an interesting issue
because as I have come into this process, I know there are a
number of issues and concerns that people have that deal with
the amount that goes to the program, it deals with the
ownership of the companies that are engaged in the program, it
goes with the geographic focus of the program. One message I
have gotten very strongly from Members of this Committee is
that is something I need to give my attention to and to help
understand, really, how to serve the needs of the business
community most effectively in this program. I would look
forward to spending time with you and hearing from you in that
process.
Senator Vitter. Great. And a final question for me, and
this goes back to the hurricanes and one of our biggest
frustrations, at least on this Committee, is some of the no-bid
mega contracts that are sort of thrown out there as FEMA was
trying to play catch-up after the fact and get some things
done. In most of those cases, what happened is you had multiple
layers of subcontractors built up under a huge mega contract. A
good example is the Blue Roof contract, at least in Louisiana,
there were so many layers of subs beneath the pond that the
folks actually putting the tar on roofs--two things were
happening; one, the amount we were paying per square to the
pond was more than it takes to put a permanent roof on houses.
Mine is not a shoddy roof, but the roof on my house was less
expensive than that square of blur tar.
Secondly, the person actually putting on the roof was
getting on order of literally 3 percent of the pond contract
funds. Now it takes something to manage a lot of subs, a big
geographic area, to do paperwork, to do reports--it takes
something to do that. It should not take 97 percent of the
contract price to do that.
I have introduced a bill to create a whole new model to
avoid those layers. Other Members have similar ideas to create
a new model to avoid those layers. Will you be actively engaged
in that discussion, looking at my legislation, looking at other
legislation, helping lead a discussion in the Administration
because it does--it is probably not primarily in SBA, there is
a broader issue, but it certainly impacts small business.
Mr. Preston. I would love to dig into that with you all. I
think that when we address this problem more broadly, we have
to understand that there needs to be a mechanism in place that
contemplates something very large, and I am sure in this
process we have seen people who wanted to be responsive, but
their best intentions of trying to serve people--and we find
ourselves in situations like this because they are expeditious.
In looking forward, I think we need to pre-contemplate what
could happen and what mechanisms need to be in place to enable
the outcomes that we hope will be there ultimately. I would
look forward to spending time with you and anybody else who is
engaged in this issue because I think it is a very important
one for us to understand.
Senator Vitter. Thank you, Madam Chair.
Senator Snowe. Thank you, Senator Vitter.
Senator Pryor.
Senator Pryor. Thank you, Madam Chair. I just have a few
questions, I know we are on a time crunch on a vote. Large
businesses that acquired small businesses before the end of
2004, according to current SBA guidelines, the small business
that has been acquired is allowed to keep their status as a
small business for up to 20 years. The IG has looked at this
and they conclude that this needs to be fixed, that there
should be an annual recertification; do you agree with that
recommendation?
Mr. Preston. Senator, I have not spent enough time with the
IG to understand the basis of the recommendation and what
alternatives were looked at. I do think this is a very
important issue to the Committee, it relates to that, it
relates to small businesses that become big businesses, and it
relates to other ways in which, I guess, small businesses can
get small business contracts. I know that I will have to spend
time on this issue and understanding it.
Senator Pryor. That is an area--that whole little realm
there is an area we ought to spend some time on. Given what you
know right now about the SBA, do you see any programs that need
to be eliminated or scaled back in the SBA?
Mr. Preston. I come in, to a degree, with the presumption
that in large part what the SBA does, that its programmatic
structure is valid and important, so to a degree, I come in
with a focus on how to be more effective with those programs in
serving the objectives. Are we reaching out to the right
people? When they come in the door, are we treating them well
and helping them, and at the other end, are we producing the
outcomes that we hope to produce?
So, I do not come in with the presumption that
programmatically we have got big issues, but I do know that I
need to understand the differences out there around these
programs.
Senator Pryor. One program that we have discussed is the
Women's Business Centers which I think is an initiative that
has had a lot of success, but they are really starved for
funding now. It may be too early to ask you if you plan to
restore that funding or work to restore that funding, but I
would strongly encourage you to do that. Also, that raises a
larger question about your intention as it stands today, of
fighting for dollars for SBA. I am convinced that when you put
Federal dollars into SBA programs that are structured correctly
and that actually work--and most of them have great track
records--that it can have a huge positive ripple effect in the
economy. So I would just like to hear your intentions of
whether you will go to bat for your Agency with OMB and the
White House to try to make sure that you have adequate funding
to get things done, that Congress wants you to get done.
Mr. Preston. My job, Senator, is to work very hard to
deliver this service of the SBA as effectively and fully as
possible and to the extent that that requires budgetary issues,
I have to be all over it.
Senator Pryor. Thank you, Madam Chair.
Senator Snowe. Thank you, Senator Pryor.
Senator Thune.
Senator Thune. Thank you, Madam Chair. I know we have to go
vote; so I will keep this brief, but I appreciate your being
here, Mr. Preston, and entertaining the idea of public service
which I think is a very high calling. It seems to me that your
past experience in finance as a CFO will serve you very well in
managing the multiple loan programs that exist at the SBA. Of
course, in recent years, SBA is always being asked to do more
with less, you know, more loans, more disaster response, more
business development assistance, all with fewer dollars. So you
have a big challenge ahead of you and we want to be helpful and
work with you as much as we can to make sure you have the
resources and the manpower to undertake and serve the purpose
and the mission for which SBA was created.
I am also interested, as my colleague from Minnesota, Norm
Coleman mentioned, in what we can do to develop economic
opportunity in rural areas of the country. We see increasing
out-migration. There are some silver linings--I should not say
silver linings, but there are some opportunities there for
economic development particularly in the area of renewable
fuels and we have seen a considerable amount of success with
ethanol and bio-fuels and those sorts of things that are
creating jobs in rural areas, but we want to continue to pursue
those sorts of opportunities in order to keep young people in
rural areas of the country.
Let me just, in the interest of time, propose one question,
if I might, and if we have others I will submit them for the
record as well, Madam Chair. Some of the critics of the SBA at
times voice concern over the lack of any clear indicators for
effectiveness when it comes to loan programs currently
administered beyond simply the number of loans approved. I am
wondering if you have any thoughts about measurements that
could be taken to see how those SBA loan programs are helping
small businesses succeed and are they helping the economy at
large, are they creating jobs, are there better ways we can
measure that?
Mr. Preston. I have spent a lot of my time in the matrix
world, as you can probably appreciate, that is sort of what I
have had for breakfast most of my life. I think it is very
important when we look at these programs to think about the
outcomes that we are generating. Once again, are we reaching
the right people, are we helping them get access to our
programs, and once they get access, are we producing the right
outcomes? And many times, statistics really do not tell you
that. I have always loved the phrase from a prior chairman at
the company I am with right now, he says, ``Did you hear the
story about the man who drowned crossing the river with an
average depth of 3 feet?'' You know, somehow it sounds that it
is shallow, but you have got a problem along the way
potentially.
Looking at the right information and looking at the right
outcomes is very important to understanding our success. Then
taking that and advocating and communicating it on behalf of
the people we serve is very important. So I understand the
issue and it is something I think I will be devoting a lot of
time to if I am confirmed to this position.
Senator Thune. I appreciate that. I think the good work
that the Agency does sometimes does not get recognized. Part of
it is communication and part of it is figuring out how better
to measure some of those statistics that I think give evidence
to that good work. We look forward to working with you on that,
as well, as on focusing those programs on the outcomes, on the
results that you have mentioned and that we all want to see
achieved. These programs are really impacting and making a
difference in the economy, helping small businesses grow and
expanding great jobs which is what this Committee is interested
in and I think it is what the purpose of the Agency is and we
welcome the opportunity to work with you to that end.
Thank you for your willingness to serve and we anticipate
and look forward to moving your nomination forward.
Senator Snowe. Thank you, Senator Thune. We have another
vote pending on this, and I am going to recess. I have a few
more questions, Mr. Preston, so if you can bear with us a few
more moments, I will cast two votes and I will be right back.
[Recess.]
Senator Snowe. The hearing will come back to order. I am
sorry for the interruption. I just have a few more questions
about some of the several key issues, as I mentioned in my
opening statement, concerning the lending program and the fees
that had been recommended by the Administration, additional
fees beyond the fact that there are no zero subsidies and they
are now recommending in this latest budget for increased fees
in 7(a) and 504.
So I would like to hear your views on how you intend to go
about it because I really see this as moving in an entirely
different direction in terms of supporting the core programs
that are so essential. It seems to me it is a contradiction to,
on one hand, tout SBA and its programs, and yet on the other
hand, I think moving in a direction that ultimately undercuts
the value of these programs that going to make it so much more
expensive for small businesses to access these programs.
So I see it as contradictory and counterintuitive when we
should be elevating these programs and at the very least, not
imposing additional costs on the very businesses we are trying
to help. So I would like to have your views on this approach
because this is entirely new. It is one thing to go to zero
subsidy, but this is now going even further, that represents
additional and very expensive costs to small businesses who
want to take advantage of these SBA programs.
Mr. Preston. I know that every dollar counts for the small
business person and every dollar is valuable when you are
looking at paying your employees and your vendors and moving
your business forward. This is something I know I will have to
spend some time on and hear from you and other Members of the
Committee on your views, and also really understand the impact
these have on the programs. I also think much more broadly, I
need to dig into the programs to understand whether or not we
are reaching enough people, and if there are other ways that we
can expand participation to programs, whether we have the right
vehicles in place to reach people, and through the program and
serving their needs and producing the outcomes on the other
side.
So I look at this, Senator, as being the issue that you
brought up and additionally, I look at it as a broader issue to
see how we can serve people more effectively.
Senator Snowe. I appreciate that and I think that you
really should examine what the impact is going to be on
requiring these additional fees. The Administration has not
exactly indicated yet how they intend to go about--who they are
going to impose these fees on, the lenders or the borrowers.
That is another dimension to this question. You have critical
lending programs and to now impose these additional fees, in
fact, look at the 7(a), 504 and the SBIC programs, on the 7(a)
program, the fee would be 4/100 of a percent or about $623 per
loan; the 504 the fee would be 11/100 or up to $11,000 per
loan, maximum $10 million under that program, and finally, the
SBIC programs 64/100 of a percent for an average of $45,360.
So these additional burdens are over and above what small
businesses already pay. They have not issued a program yet in
terms of who will be paying these fees, but again, I think in
the final analysis, someone is going to bear the cost that
ultimately has an impact on these programs and the vitality of
these programs. I think this especially conflicts with the
notion that you were trying to help people who cannot access
financing elsewhere. That, I think, even makes it more
difficult and creates another barrier.
So I see it moving entirely in the opposite direction from
what we should be espousing when it comes to the three very
important core programs to the Small Business Administration.
So I hope you can examine that very carefully because as we
move ahead on the reauthorization process, it is going to be
even more critical to get your input and see if we can work
through some of these issues because it is clearly not
something that I intend to accept at this point, and I know
that it is a view shared by other Members of the Committee as
well.
On the budget, and you have heard that from other Members
of the Committee, it is just that it has been consistently a
declining budget over the past 6 years to the point now it
represents a 37 percent decrease from 2001. Even the disaster
loan programs have declined more than 25 percent over the past
6 years. We are seeing not much support from the Administration
in terms of reinvigorating the SBA programs where we really get
more bang for the buck. There is no question about it; the
leveraging of jobs--we do not tout the leveraging of jobs which
is something I have recommended.
We need to include in the budget of the SBA, the number of
jobs that these programs create. The fact that since 1999 we
have created more than 5 million jobs, is not something that we
celebrate, herald, or anything. And yet, probably very few
agencies or programs are the equivalent of what the SBA has
been able to generate in terms of job creation, in terms of its
value in producing a dividend for our Government and for the
economy.
So I would be interested in what your views are and how you
intend to look at these budgetary issues as you move forward.
Mr. Preston. One of the things I mentioned earlier is the
importance of my getting out there on a listening tour. I need
to hear the comments of the people we serve and I need to hear
the comments of the people in our field offices. These are the
people on the front line touching constituents everyday and I
need to understand the people on the Committee more deeply,
because obviously, when we look at putting together a budget
and presenting it, there are a number of aspects of that
budget. It is going to be my job to deliver a budget to this
Committee and to the Senate that I believe meets the objectives
of the Agency.
Senator Snowe. In lieu of hearing your letter, if have not
already seen it, that was sent to the Senate Subcommittee on
Commerce that indicated--it was signed by all 18 Members of the
Small Business Committee, reflecting our concerns with the
proposed SBA budget request that included all the cuts and
imposition of fees that I just talked about. These concerns
were increasing fees to the 7(a), 504 and SBIC that I
mentioned, changes to disaster loan interest rates, which I did
not even get into today, but again, at a time in which people
are in desperate straights needing disaster assistance, the
Administration's proposing increasing the interest rate.
Elimination of the Micro-Loan program is also of interest.
The program is strongly supported in this Committee and
certainly by me, and this program is another way in which I
think that should spur economic growth and job creation, can do
so much with so little and it just really works very well and
very effectively. Proposed elimination by the Administration is
lower funding for the programs at the Women's Business Center
that you heard about, the Small Business Development Centers
and the Veterans' Business Development Program and SCORE. For
the first time in 5 years, the Administration is proposing a
decrease in funding for the SCORE program which provides
invaluable assistance and counseling for thousands of small
business owners across the country.
Clearly we are moving totally in a contradictory direction,
at a time in which we should be making greater investments in
programs and this kind of assistance because it creates jobs.
The net result is it creates jobs, it is definitive and we have
seen the end result of these programs. Again, we are moving in
the opposite direction.
And finally, the removal of the line-item request for
HUBZone Programs and the U.S. Export Assistance Tax. The
HUBZone Program, here again, is a great way of being able to
utilize what--the Federal Government already spends money on
for example, on contracting programs. I know that is the main
reason the staff was up there in, I think, in December,
conducting seminars on how we could make available to small
businesses, in the key areas that are effected by high
unemployment, to make available some of the money that is
available for the contracting process on which the Federal
Government spends $350 million, another way of creating a win-
win situation in areas that are adversely affected by declining
economy and losing jobs.
So, I would hope you would review that letter, but most
importantly, the programs and the budget requests that are made
by the Administration in this regard. This is something that we
are deeply concerned about here on the Committee.
Mr. Preston. Thank you. I do not have the letter, but I
look forward to reading it and spending time with your staff
and understanding it fully, Senator.
Senator Snowe. I appreciate that and we will have,
obviously, further discussions regarding these budget requests.
And finally, I know that when we had flooding in Southern
Maine, it really came home again, just as in the Gulf region,
that you need people on the ground. It is so much more
effective. I do not see why it makes sense to centralize all
these people in Washington, DC when they should be out there
trying to tout these programs, make them available to small
business owners and in the case of disaster, evermore critical
to have field and resource people on the ground to assist them
on a daily basis and make sure of the working system to get the
loans and the assistance that they desperately need at that
time.
And so again, the direction that we are moving in simply
does not make sense to me. Why we would want to centralize all
of those resources here in Washington, DC when it can do so
much more out in the field in conducting outreach to the people
who obviously need the support of these programs.
Mr. Preston. Certainly this type of issue is one that
businesses face all the time. What can you centralize to be
more effective and efficient through better training and sort
of critical mass, and at what point do you lose sensitivity to
the person you are serving by not being physically there. One
of the things that strikes me in this regard is the SBA, as you
have noted, has not only its own network, but a number of other
networks that it partners with, certainly it has the ability to
partner with local organizations. One of the things that will
be important for me to understand is, how do you get those
touch points out there with the people you need to service when
they need the service? And how do you be effective in
delivering at the back end? I think that this is something
certainly, Senator, that I want to dig into and understand more
broadly, how to be effective in those situations.
Senator Snowe. I appreciate that and again that is
something we will follow-up with you on as well. It gets back
to the issues you raised in your opening statement about
collaboration and communication. It really can work well and
resolve a lot of issues and it certainly would help to buttress
the very programs of people we want to serve. If we could be
working together to the extent possible on some of these
issues, I think in terms of the disaster loan assistance, we
worked mightily to move a block of legislation in the U.S.
Senate on the unanimous consent basis to help address and
mitigate the problems in the Gulf region.
One of the components of that bill was a bridge loan to
assist small businesses until they could actually get their
loan. But they needed to get started and we heard that from so
many small business owners down in the region, we heard it from
representatives of the government both state and local, we
heard it through testimony here during the course of our
hearing, and yet we could not get the Administration and the
SBA Administrator to agree to support the bridge loan, yet they
said that that was one of the things they needed in order to
bridge the gap until small business owners could actually get
the loans and get going. Yet, they would not give support to
the idea of giving bridge loans. It was an unprecedented
disaster, yet on the other hand they were not willing to seek
the tools or advocate the tools that would have been so vital
to getting the job done. And still, it is in limbo today. It is
mystifying to me because it makes so much sense, it would
certainly simplify the process and ease the burdens of the
people we were trying to help.
On small business investments, the SBIC programs, this is
an area that also enjoys broad support here on the Committee. I
have introduced legislation to rebuild the participating
securities dimension of the SBIC. Again, why is the SBIC
program and the participating securities part of it, is so
critical that it benefits, especially the manufacturing sector,
in providing venture capital, but otherwise would not be
available through the conventional lending process. The program
invested over $17 billion in small businesses since 1999, so it
has had the result of creating thousands of jobs.
I have introduced legislation to continue this program, to
improve it, to address some of the problems that did develop
over the last few years. But what is interesting about it is,
the SBA recommended in 2005 $4 billion, and then this year and
next year, zero. So it went from $4 billion to zero. Again, we
were not able to make any headway with SBA on this program and
they did not obviously, include it in their future budget of
2007. So they are really not committed to continuing this
program.
I just wanted to know if you have any opinions on the whole
notion of providing venture capital to small businesses, and
second, having your commitment to work through it with the
Committee to at least see what can be done to restore this
program because, otherwise, there is a dimension of our economy
when it comes to manufacturing, that basically will not get the
kind of access to capital that is so essential, and in fact, 4
percent of the funding went to those in the manufacturing
sector important to my area of the country, and so many areas
of the country. It is otherwise a sector of the economy that
does not get help through the conventional lending process.
Mr. Preston. Certainly, the venture capital industry
overall, Senator, is a critical source of capital in our
economy and I think a very important drive for both job
creation and in innovation, which was really birthed in our
country. I also think that the SBIC program probably has
enabled SBIC investors to stretch harder. I spoke with a number
of people who are SBICs and I had a chance to chat with them to
ask what impact this has on your ability to invest?
I know, as I am sure all of you have noticed and are
concerned about, the degree of loses in the existing program
and that is why there is a new proposal out there. My hope is
as I dig into this, having a background in finance and
specifically having a lot of exposure to the venture capital
industry, I am hopeful that I will be able to bring some good
thinking to that opportunity, but certainly I will need to
spend time with you, your staff, and other people who are
interested in advancing a new program to understand what your
views are.
Senator Snowe. I appreciate that and certainly we will be
working with you on the dimension of the issues and concerns
that have been raised here at the Committee today by myself and
so many of the Committee Members. I know that you have had a
number of letters of endorsement on behalf of your nomination
and I will include those in the record.
Mr. Preston. Thank you.
Senator Snowe. Also, your resume is indeed impressive and
given your wide range of business experience, that certainly
will serve to benefit the Small Business Administration at a
crucial time and at a critical juncture in terms of the type of
leadership advocacy that it requires and necessitates to
bolster one of the most invaluable programs within our Federal
Government in terms of producing benefits for the overall
economy.
So, I appreciate your testimony here today and the record
will remain open until Friday, June 23rd for any additional
questions that may be presented to you and for any additional
testimony and information to be submitted for the record. So
with that, this hearing is adjourned.
Mr. Preston. Thank you.
[Whereupon, at 12:24 p.m., the Committee was adjourned.]
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