[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                       FULL COMMITTEE HEARING ON
                          DISASTER RELIEF AND
                     ACCESS TO CAPITAL LEGISLATION

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 8, 2007

                               __________

                          Serial Number 110-6

                               __________

         Printed for the use of the Committee on Small Business


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


JUANITA MILLENDER-McDONALD,          STEVE CHABOT, Ohio, Ranking Member
California                           ROSCOE BARTLETT, Maryland
WILLIAM JEFFERSON, Louisiana         SAM GRAVES, Missouri
HEATH SHULER, North Carolina         TODD AKIN, Missouri
CHARLIE GONZALEZ, Texas              BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington              MARILYN MUSGRAVE, Colorado
RAUL GRIJALVA, Arizona               STEVE KING, Iowa
MICHAEL MICHAUD, Maine               JEFF FORTENBERRY, Nebraska
MELISSA BEAN, Illinois               LYNN WESTMORELAND, Georgia
HENRY CUELLAR, Texas                 LOUIE GOHMERT, Texas
DAN LIPINSKI, Illinois               DEAN HELLER, Nevada
GWEN MOORE, Wisconsin                DAVID DAVIS, Tennessee
JASON ALTMIRE, Pennsylvania          MARY FALLIN, Oklahoma
BRUCE BRALEY, Iowa                   VERN BUCHANAN, Florida
YVETTE CLARKE, New York              JIM JORDAN, Ohio
BRAD ELLSWORTH, Indiana
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


WILLIAM JEFFERSON, Louisiana         DAVID DAVIS, Tennessee, Ranking
HENRY CUELLAR, Texas                 ROSCOE BARTLETT, Maryland
GWEN MOORE, Wisconsin                SAM GRAVES, Missouri
YVETTE CLARKE, New York              TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)

  
?

           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


WILLIAM JEFFERSON, Louisiana         LYNN WESTMORELAND, Georgia, 
RICK LARSEN, Washington              Ranking
DAN LIPINSKI, Illinois               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               STEVE KING, Iowa
GWEN MOORE, Wisconsin                MARILYN MUSGRAVE, Colorado
JASON ALTMIRE, Pennsylvania          MARY FALLIN, Oklahoma
JOE SESTAK, Pennsylvania             VERN BUCHANAN, Florida
                                     JIM JORDAN, Ohio

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


JUANITA MILLENDER-McDONALD,          LOUIE GOHMERT, Texas, Ranking
California                           LYNN WESTMORELAND, Georgia
CHARLIE GONZALEZ, Texas
RAUL GRIJALVA, Arizona

                                 (iii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2
Jefferson, Hon. William..........................................     3
Baker, Hon. Richard..............................................     5

                               WITNESSES


PANEL I
Mitchell, Herbert L., Small Business Administration..............     8
Witt, James Lee, James Lee Witt Associates.......................    10
Alford, Harry C., National Black Chamber of Commerce.............    13
Dorfman, Margot, U.S. Women's Chamber of Commerce................    14

PANEL II
Hager, Michael, Small Business Administration....................    29
Roth, Kathleen, DDS, American Dental Association.................    31
Rodman, Jeffrey, Credit Union National Association...............    32
Main, David, National Association of Development Companies.......    35

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    43
Chabot, Hon. Steve...............................................    44
Altmire, Hon. Jason..............................................    45
Mitchell, Herbert L..............................................    47
Witt, James Lee..................................................    52
Alford, Harry C..................................................    60
Dorfman, Margot..................................................    64
Hager, Michael...................................................    66
Roth, Kathleen...................................................    71
Rodman, Jeffrey..................................................    78
Main, David......................................................    83
National Association of Federal Credit Unions....................    86

Proposed Legislation:
H.R. 1361, To Improve Disaster Relief Programs of the Small 
  Business Administration........................................    87
H.R. 1332, To Improve Access to Capital Programs of the Small 
  Business Administration........................................   113

                                  (v)

  


                        FULL COMITTEE HEARING ON
                          DISASTER RELIEF AND
                     ACCESS TO CAPITAL LEGISLATION

                              ----------                              


                        THURSDAY, MARCH 8, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2360 Rayburn House Office Building, Hon. Nydia M. Velazquez 
[chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Jefferson, Gonzalez, 
Bean, Moore, Altmire, Clarke, Sestak, Chabot, Akin, Musgrave, 
Westmoreland, Davis, Fallin, Buchanan and Jordan.
    Also Present: Representative Melancon (LA).

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    Chairwoman Velazquez. Good morning. I am pleased to call 
this hearing to order.
    First, I want to thank each of the witnesses that will be 
testifying today presenting their views and comments regarding 
the proposed legislation that we have before this Committee.
    This morning's hearing will discuss two very important and 
different roles that the Small Business Administration plays. 
Access to Capital and Disaster Assistance.
    This Committee has held two hearings on these topics and 
today we will review legislation that attempts to address many 
of those issues brought up during those discussions. The 
Disaster Loan Program was created for the purposes of providing 
financial assistance to entrepreneurs. However, as most of you 
recall Hurricane Katrina tested this initiative and uncovered 
many problems. After the storm the effected small businesses 
were brought down with paperwork and substantial delays in 
receiving much needed aid. There is no question that this 
cannot happen again and that our small businesses better.
    For the SBA to assist entrepreneurs they must have a 
disaster plan in place. Processes need to be streamlined and 
tools should be available to provide relief in a faster, more 
efficient matter. We also need to move away from the current 
one size fits all approach and broaden the type of aid for 
small businesses.
    This includes using vehicles such as bridge loans and 
grants to respond to the diverse needs of the experience. The 
disaster relief legislation being reviewed today, the RECOVER 
Act of 2007 does just that.
    Clearly small businesses do not just need capital following 
a disaster. They need each and every day to start and expand 
their ventures. The SBA loan programs, while valuable, could be 
doing so much more. They were first developed to provide long 
term financing. For these initiatives to live up to their 
original intent, we need to make them more affordable and 
accessible for small business owners.
    The Small Business Lending Improvement Act of 2007 
introduced by Ms. Bean and Mr. Chabot will reduce the financial 
and regulatory burden placed on small businesses. Most 
importantly, it will make loans more economical while providing 
long term ability.
    HR 1332 will accomplish a number of important public policy 
goals. This legislation provides incentives for medical 
professionals to locate to low income areas and establishes a 
rural lender program to attract small lenders back into the 
program.
    Also, veterans returning from Iraq and Afghanistan will be 
able to secure funds to further expand their funds should they 
choose to do so. After all they have done for our country this 
is the least we can for them.
    This bill touches all aspects of the SBA lending 
initiatives, including 504.
    One thing about this program that has always stood out are 
the ties between local CDCs and the community. The Small 
Business Lending Improve Act of 2007 strengthen these ties by 
making much needed and long overdue changes. It also keeps the 
initiative affordable by enabling CDCs to improve the 
liquidation process allowing fees to remain reasonable.
    Today's hearing will provide members with an opportunity to 
provide input and fine tune these proposals in preparation for 
next week's markup. This country's 26 million small businesses 
must have the ability to secure affordable capital in order to 
continue spurring economic development and job creation. It is 
not only important that they are able to start their 
businesses, but if effected by a disaster such as Katrina, 
entrepreneurs must be able to receive reliable and efficient 
aid.
    I believe the legislation being reviewed today strengthens: 
The Disaster and Access to Capital Programs giving small 
businesses the tools they need to be competitive and success. 
And I look forward to hearing the witnesses testimony.
    And now I will recognize Mr. Chabot for his opening 
statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr. Chabot. Thank you, Madam Chair. And I'd like to thank 
Chairwoman Velazquez for holding this hearing in which we'll 
review access to capital and disaster legislation.
    I also want to thank our witnesses for taking the time to 
share their thoughts and experiences regarding these important 
issues. And I especially want to thank David Main, a 
constituent from my District Cincinnati, and the President of 
the Horizon Certified Development Company who I will be 
introducing shortly for making the trip from Cincinnati today.
    Already this Congress, this Committee has held hearings on 
the SBA's response to the Gulf Coast hurricanes as well as the 
SBA's primary loan programs, the 7(a) and the 501 programs.
    During these hearings the Committee has had the opportunity 
to hear the experiences of a cross section of witnesses who use 
and participate in these important programs. After hearing 
these personal stories it became apparent that some adjustments 
need to be made to make these programs better.
    For instance, I strongly believe we need to evaluate ways 
to expand the 7(a) and 504 loan programs to provide 
opportunities to small business owners in rural areas and urban 
areas. However, I believe this should be accomplished without 
reverting back to the days when the viability of these 
important lending programs was dependent on receiving 
appropriations.
    Furthermore, I feel that veterans who choose to open a 
business deserve every opportunity to be successful 
entrepreneurs in their new lives as private citizens. And the 
SBA should be able to assist them. While this should also be 
done in a fiscally responsible manner, the terms of 7(a) loans 
for veterans should reflect their selfless contribution to 
defending our nation.
    Also of great interest to I think many of us, and I am sure 
every member of this Committee is rethinking the procedures 
used by the SBA to respond to a future national disaster, one 
that may or may not be similar to Hurricane Katrina's 
devastation. I would certainly that we do not have a repeat of 
that anytime in the near or distant future because of the 
devastation that that caused.
    Reevaluation of disaster plans, including SBA coordination 
with FEMA and the mobilization of a standby personnel force to 
process disaster loans is crucial who will need help from the 
SBA Disaster Loan Program in the future.
    The legislation we will discuss today is critically 
important for existing small businesses, Americans who dream of 
starting their own business and those who may have the 
misfortune of having to pick up the pieces following a national 
disaster.
    I look forward to listening to today's testimony and 
working with Chairwoman Velazquez in finding ways to improve 
these important loan programs.
    And I yield back the balance of my time.
    Chairwoman Velazquez. Thank you, Mr. Chabot.
    And I now I recognize Mr. Jefferson for an opening 
statement.

               OPENING STATEMENT OF MR. JEFFERSON

    Mr. Jefferson. Thank you, Madam Chairlady. And I want to 
express my appreciation to you as well for the leadership you 
are providing in this area and to Mr. Chabot in support of the 
work.
    I would like to also welcome Richard Baker from my home 
State who we will hear from just a minute and who is co-
authoring one of the important bills under consideration.
    I will just limit my remarks to the disaster issues. In the 
Gulf Coast region SBA received about 422,000 disaster 
assistance applications for the Gulf Coast hurricanes. Of these 
applications, 159,000 or 38 percent were subsequentially 
approved and funded in the amount that just exceeds $10.8 
billion. 193,751 applications were denied, and nearly 70,000 
applications were withdrawn by the borrower for various reasons 
for complications and the rest.
    Of the funds approved for victims of these hurricanes, just 
under $5 billion has been dispersed as of January 22, 2007.
    The SBA also lacked adequate service and support for its 
information and telecommunications systems making it difficult 
to contact perspective borrowers and for them to communicate 
with the agency.
    We had in the Gulf Coast, of course, the kind of experience 
that no one has ever seen before where you had people who were 
both homeowners and business owners out of both places at the 
same time and trying to qualify and provide records and 
information to the SBA that they were not just prepared to 
provide any flexibility for. And that is a big set of issues.
    I want to make two other small points, Madam Chair, if I 
can.
    There will be some discussion today bout the SBA lending 
program and its coordination with the so called Road Home 
Program that we are trying to use CDC money to get people back 
in their homes and to whether some of the efforts that we are 
pushing now to get some relief for small business people for 
homeowners, particularly is double dipping.
    I just want to say to you that for most people back home 
the big problem is they have a mortgage on their house they 
have to pay. They get an SBA loan and the question is whether 
they can qualify for it because they may or may not have their 
jobs back in place. And the Road Home Grant comes along and 
they have to pay off the SBA loan, and they are just about 
where they were when they started out. And so we have got to 
make some sense out of that because no one wants to have our 
folks double dip with the Federal Government, but you also want 
to make some real sense out of what is happening to people in 
real a life situation.
    The other issue that we will talk about a little later, and 
Mr. Alford testifies perhaps I will ask him about, is the 8(a) 
program that is authorized by the SBA statutes. And what 
basically has happened there is that there is a nine year life 
for 8(a) contractors to enjoy the opportunities that the 
program presents. That life was interrupted by the storm. And 
so the question is to what extent are we going to extend that 
so that the program participant who was there in 2005 in August 
gets the same length of time and enjoyment of the 8(a) status 
as anyone else would. And so we think it may be reasonable to 
extend it by 15 or 18 months. And I hope we will have the 
cooperation of the Committee to get that done.
    Madam Chairlady, I will yield back.
    Chairwoman Velazquez. Thank you, Mr. Jefferson.
    And now I have the pleasure to welcome Mr. James Baker to 
the Committee. And he represents one of the most impacted area 
on the Gulf Coast. Richard. I'm sorry.
    Mr. Baker. I respond to a lot of things, Madam Chair.
    Chairwoman Velazquez. Do not get insulted by that.
    Mr. Baker. No, no. Not at all.
    Chairwoman Velazquez. You know, I am called Nardia, Nydia 
and it is just I know that it is an expression of love.
    Mr. Baker. Thank you. When Howard Baker became Reagan's 
Chief of Staff I got letters congratulating me.
    Chairwoman Velazquez. And I want to thank you for the input 
and feedback. In fact, you worked closely with the Committee in 
crafting the legislation that we are considering today.
    Mr. Baker, I believe that there are two challenges that are 
going to be before us. And that is the grant provision and the 
Road Home Grant provision. And I would like for you to address 
those in your statement, if you can do that.

 STATEMENT OF HON. RICHARD BAKER (LA), CONGRESSMAN, U.S. HOUSE 
                       OF REPRESENTATIVES

    Mr. Baker. Thank you, Madam Chair, Ranking Member Chabot, 
Members.
    I am pleased to be here. And I know you have a 
distinguished panel of witnesses to follow, so I will be as 
brief as possible. But I have deeply held convictions for a 
conservative Republicans who has deep and abiding faith in 
markets. But we are facing a recovery problem in Louisiana that 
the free markets cannot simply address today. And let me 
explain how.
    First, the Road Home Program, which is constructed at the 
State level and funded by the generously of the Members of 
Congress provided in rough terms about $10 billion for 
assistance to individual homeowners, not to exceed $150,000 per 
residence. As of February 1 of $10 billion, $31 million has 
been paid out to individual recipients at an average per 
household figure of $68,000. Something is not working. At that 
rate it will take 42.6 years to expend $10 billion. We don't 
have 42.6 years. So we are needing some extraordinary diversion 
from the current set of rules that appear to be constraining.
    The subject matter of the bill before the Committee today 
in one regard is with regard to SBA benefits. For example, an 
individual engaged in the restaurant business prior to Katrina 
entered into a $200,000 SBA loan. Landfall of Katrina, Road 
Home calculation, the person is entitled to assume, let us 
assume for the purpose of this illustration, $100,000. All 
$100,000 of that loan must go toward resolution of the SBA 
obligation, although it had nothing to do with Katrina, has 
nothing to do with the viability of the ongoing business 
enterprise. And whether than concern ourselves with double 
dipping, in this case there is no dip. There is nothing.
    The money goes from the Road Home Program, which is Federal 
dollars, back to repayment of a Federal lending obligation. The 
homeowner, the business person is right where they started: 
Zero with demolished properties on their real estate.
    And herein is the difficulty of the recovery. We were all 
to imagine ourselves as individual homeowners all living in 
this community in this room together. If I had all the 
resources in the world and I were to come back today to this 
community in which every structure, every fire station, every 
school, every hospital, every home, social order as we know it 
is now gone, do I want to spend by $200,000, $300,000, 
$400,000, $500,000 on this tract of land to rebuild my house 
not knowing whether my children will have a school, whether 
there will be a fireman on the corner or whether there will be 
a grocery store at which I can shop. You will not do it.
    And so much of the indecision in the recovery process today 
is that we lack a systemic ability to create a market 
opportunity.
    In Financial Services yesterday we took a very big step to 
provide an initiative for that type of recovery. And what do I 
foresee?
    One of the elements would be for an aggregating entity, in 
this case it is the New Orleans Recovery Authority, of which 
Mr. Jefferson is familiar, will be permitted to take control of 
various assets and aggregate them into a contiguous block. We 
will clean that property off, environmentally secure it and 
then sell it back into the market. So that the role of 
Government in this instance is to provide a mechanism where 
free market forces may work, where today they simply cannot.
    As part of that effort to provide an environment of 
restoration we also need to do one of the things that the 
Chairlady has mentioned that is contained in this legislation. 
And that is to set aside the SBA repayment requirement out of 
assistance provided to homeowners for rebuilding of their 
residences. And for that, I cannot express deeply enough my 
appreciation for that approach.
    Why is that so essential? That will then give individuals 
the tools once the recovery has begun, once we have property 
ready to put back into the market to have the assets to rebuy 
property either where they used to live or in another location.
    It also is important from a small business perspective to 
realize that even if the small businessman was not adversely 
affected; I had a radiator shop guy, been in business for many, 
many years, quite successful. His problem is he does not have 
any customer. So we cannot build the radiator shop, we cannot 
just build the house. We have to have a systemic recovery plan 
where disparate and various governmental resources are brought 
to bear simultaneously, which I have to report to you today, 
Members, is simply not happening. And that is why you will 
continue to see the recovery lag until you take the 
extraordinary steps that is being proposed in this legislation.
    And I wish to make clear I do not believe the remedies 
being posed in this legislation should be ordinary and 
customary business practice. They should be very significantly 
constrained to instances which are multi-State, cover thousands 
of square miles in which all basic services are lost. So that 
we set in motion only an extreme remedy for an extreme adverse 
event.
    In many communities that suffer a partial loss of 
residences or public service delivery assets, they still have 
operating utilities, they still have grocery stores, they still 
have people on with their lives and you can build out from that 
back into the area of distress. In this case, St. Bernard 
Parish, a community of 67,000 people, six months after the 
storm made landfall there were 231 operating utility meters.
    Now, when you lose 66,000 plus individuals and all the 
residences, how do you start the free market?
    And that then leads me to the discussion of what I know 
will be controversial to some of my colleagues, the grants 
proposals.
    First, it would be limited and constrained by the 
administrator's judgment as to whether it is appropriate.
    Secondly, I suggested and the Chairlady adopted, a proviso 
that it be made only available to those businesses that were in 
existence and successfully operating continually for a period 
of two years preceding the storm.
    Thirdly, that the amount and whether the terms of that 
should be left solely to the administrator to decide, and the 
taxpayer best interest, how those resources can be utilized.
    Go to the French Quarter. There are restaurants which have 
been operating literally for well over a 100 years. They are in 
terrible circumstance. They do not have customers. Now how do 
we expect the tourism industry to come back if we continue to 
lose our marquee restaurants and facilities that are the magnet 
to bring people to the French Quarter?
    Believe me: People of Orleans want you out of their 
backyard. We want our lives back. We want our grocery stores to 
work. We want our kids to go to school. And we want to get on 
with growing our own prosperity. But in the short period of 
time where we are trying to build housing to get the customers 
of the restaurant back in the city, there may be a necessity 
for bridge loans for viable previously existing successful 
business enterprises to continue with some special assistance 
during this period of recovery.
    It is extraordinary. I would never have thought myself in 
this position, six months ago, a year ago, two years ago. But I 
have come to the conclusion that these extraordinary measures 
which you should restrict in the most significant way possible 
are absolutely essential for the recovery of this community and 
this part of our economy.
    Why is it important? The oil and gas activity, the seafood 
market, the port system which between Baton Rouge and New 
Orleans is the largest in the country. There is economic 
necessity for people to live in this part of the world and do 
what we do.
    Therefore, we must find a way for recovery to proceed in 
the most taxpayer responsible manner possible. And that comes 
from a marriage of governmental essentials married to economic 
free market recovery, which I believe we can move this program 
forward. But we certainly need this Committee's assistance and 
guidance. And we will be happy to work with you in any way 
possible going forward.
    And for this time, I am most appreciative.
    Chairwoman Velazquez. Thank you, Ms. Baker.
    And I would like to add regarding the grant program. That 
is not opened ended and it just solely for this instance, the 
Gulf Coast disaster.
    Mr. Chabot, would you like? Any Member who would like to--
    Mr. Baker. I will take answers, too.
    Chairwoman Velazquez. Well, thank you very much, sir.
    Mr. Baker. Thank you very much.
    And now I will welcome the next panel to please take your 
seats.

   PANEL I: HERBERT L. MITCHELL, ASSOCIATE ADMINISTRATOR FOR 
DISASTER RELIEF, SMALL BUSINESS ADMINISTRATION; JAMES LEE WITT, 
     CHAIRMAN AND CHIEF EXECUTIVE OFFICER, JAMES LEE WITT 
  ASSOCIATES, A PART OF GLOBAL OPTIONS GROUP, INC.; HARRY C. 
ALFORD, PRESIDENT AND CEO, NATIONAL BLACK CHAMBER OF COMMERCE; 
     MARGOT DORFMAN, CEO, U.S. WOMEN'S CHAMBER OF COMMERCE

    Chairwoman Velazquez. Our first witness is Mr. Herb 
Mitchell. He's the Associate Administrator for the U.S. Small 
Business Administration Office of Disaster Assistance. He is 
responsible for administering, planning, developing all aspects 
of the SBA Disaster Loan Programs.
    Mr. Mitchell?

 STATEMENT OF Mr. HERBERT L. MITCHELL, ASSOCIATE ADMINISTRATOR 
                      FOR DISASTER RELIEF

    Mr. Mitchell. Good morning, Chairwoman Velazquez, Ranking 
Member Chabot and the distinguished Members of the Committee.
    Thank you for inviting me to discuss the legislative 
proposals effecting the SBA Disaster Loan Program. My name is 
Herb Mitchell, I'm the Associate Administrator for Disaster 
Assistance at SBA.
    Under Administrator Preston's leadership we are well on our 
way to fixing the many problems experienced by disaster victims 
following Hurricane Katrina. The agency is seeing benefits of 
these new procedures in most recent disasters where over 98 
percent of all the applications are currently being processed 
within 14 to 16 days.
    We continue to focus on enhancing our training, improving 
our IT infrastructure, improving our systems and improving our 
planning process.
    We are currently providing the States, both Louisiana and 
Mississippi, with information to support their community 
development block grant funded programs. We are completing the 
process of reengineering the loan underwriting process, the 
loan closing and disbursement process. We are finalizing the 
search plans of how we would respond in the future to 
catastrophic events. We are exploring ways to work with the 
private sector to provide more effective support.
    We hope through the legislative avenues of this Committee 
we can reach out to other disaster victims that the SBA 
currently is unable to assist with working capital. By granting 
SBA the authority to provide economic injury disaster loans to 
nonprofit entities, the agency would be able to help groups and 
such organizations whose main focus is to help others.
    The Administration has no significant objections to Title I 
of the draft bill. However, the Administration does believe the 
creation of the Associate Administrator for Disaster Planing is 
unnecessary and also limiting the reserve core staff to no more 
than 30 percent in any one region may adversely impact our 
recruiting efforts and unnecessarily increase the cost of the 
program.
    The Administration does have reservations with the second 
title of the bill as it relates to the lending aspects of the 
program. Section 203 would create a bridge for financing 
program where borrowers would likely pay higher fees and 
interest rates on the short term financing, and the Federal 
Government would then have to pay administrative costs for two 
programs to deliver the same assistance for short term loans, 
later refinanced through the regular disaster program.
    Section 204. Providing for noninterest deferment period of 
up to four years would require a massive subsidy in order to 
cover the interest subsidy costs during this period.
    Section 205. The Administration already has the flexibility 
to adjusting repayment terms and can offer deferments up to two 
years or more. Mandating that SBA set payments below what is 
affordable and use specific deferment period will unnecessarily 
increase the cost of the program.
    The Administration has similar concerns regarding Section 
206 and the disbursement process. Making disbursements without 
regard to the amount of funds actually needed at the time may 
increase the risk of misuse of those funds.
    Section 207. The Administration would appreciate further 
information regarding this provision. As we understand it, the 
intent is to allow business loans under $100,000 to be made 
without allowing SBA to use the borrower's personal homes as 
collateral. This prohibition would limit collateral and, of 
course, increase losses and effect the subsidiary costs of the 
program.
    Section 208. SBA believes there is a role for the private 
sector in assisting SBA in processing disaster loans in times 
of a major or catastrophic disasters and will continue to work 
with the banking community to find a beneficial solution. We 
are concerned that mandating the use of private sector in 
specific situations would limit our flexibility. The 
Administration would prefer language allowing the Administrator 
to use these service at his discretion.
    The Administration is opposed to Section 210. This is 
duplicative of existing programs within the Federal Government. 
In fact, the State of Louisiana is currently providing grants 
to small business through the HUD CDBG funding program. SBA 
would be establishing a new program to duplicate assistance 
already being provided.
    The Administration objects to Section 211. If a disaster 
victim receives an insurance payment or grant to assist in 
rebuilding a damaged property for which a disaster loan was 
provided, the Agency has an obligation to the taxpayers to 
ensure that Federal assistance does not exceed the amount of 
the losses. Under this provision a disaster victim could 
receive as much as twice the amount of Federal assistance for 
the same loss.
    In regard to the increase in the maximum loan amount in 
Section 212, the Agency feels that it is not necessary. Our 
data shows that only 600 applicants exceeded the $1.5 million 
threshold in their damage assessments. The Administration is 
also worried that increasing the subsidized loan amount will 
lessen the incentive for those businesses to acquire sufficient 
insurance.
    In Section 213 the Administration understands the need to 
allow businesses to recover from disasters and our lending is 
based on that premise. However, SBA also believes that once a 
business has recovered it should repay the loan as soon as 
possible and minimize the cost to the taxpayers.
    While we certainly have some concerns with the legislation 
in its current form, we hope we can work closely together with 
you and Members of the Committee and your staff to make sure 
that in the future the problems that SBA faced in response to 
Hurricane Katrina certainly will not happen again.
    We look forward to your questions, and thank you for the 
opportunity to appear today.
    [The prepared statement of Mr. Mitchell may be found on 
page 47 of the Appendix.]
    Chairwoman Velazquez. Thank you, Mr. Mitchell.
    And our next witness is Mr. James Lee Witt. Mr. Witt is 
currently Chairman and Chief Executive Officer of James Lee 
Witt Associates, a public safety and crises management 
consulting firm that provides disaster recovery and mitigation 
management services to state and local governments, educational 
institutions, the international community and corporations.
    Mr. Witt has over 25 years of disaster management 
experience, including 9 years of service as Director of the 
Federal Emergency Management Agency.
    Mr. Witt, welcome. And I am personally very grateful that 
you are spending some time with us this morning.

   STATEMENT OF JAMES LEE WITT, CHAIRMAN AND CHIEF EXECUTIVE 
   OFFICER, JAMES LEE WITT ASSOCIATES,PART OF GLOBAL OPTIONS 
                          GROUP, INC.

    Mr. Witt. Thank you, Madam Chair and Members of the 
Committee.
    Thank you for giving me the opportunity to share with you 
some success stories as well as some thoughts and ideas that 
may be helpful to this Committee as you move forward.
    When I was Director of FEMA we depended on SBA. SBA was 
joined with us at the hip. All 350 disasters that we responded 
to, SBA was at our side responding to that community with us.
    SBA and FEMA even had cards that shared information for SBA 
on one side on their disaster programs and FEMA disaster 
programs on the other side. We worked very closely together 
because it was important that the people that we were trying to 
serve saw that the Federal Government was responding and 
meeting their need and helping them, not only in the short term 
but the long term recovery efforts.
    And I really appreciate all the hard working folks at SBA 
who sacrificed their personal time with their families during 
disasters that I was there to make sure that we did provide the 
kind of customer services that the American people expected.
    Small businesses recovery is critical for community 
recovery, particularly in short and long term. Small businesses 
in this country provide the most jobs in local communities.
    The SBA programs are a very important tool of Federal 
Government's tool chest disaster recovery work.
    And I see the current situation for SBA has been very 
similar to what we faced when I was the FEMA Director. It is 
kind of like a deja vu all over again. I believe that many of 
the solutions for repairing SBA currently are very much like 
the ones that were needed at FEMA during the time that we 
started in 1993: Expediting assistance to victims; cutting red 
tape; better budgeting and planning; training and empowering. 
Empowering employees to make decision to be able to do their 
jobs.
    Congress and the oversight committees play a very critical 
role in the reinvention of FEMA. So I am glad to contribute to 
your work today.
    Leaders like Congressman Louis Stokes, Congressman Jerry 
Lewis, Senator Barbara Mikulski, Senator Kit Bond; all that had 
played a very, very critical in helping us to reinvent and 
refocus FEMA by providing not only support and policy and 
revolutions and changes, but also funding. Make sure that we 
had the funding to do what we needed to do and had the tools to 
do our job within the Agency and working with states and local 
governments. And it was a bipartisan effort.
    Partnership between the Administration and Congress allowed 
us to look at legislative changes and clarifications, which we 
did.
    Prepositioning resources before disaster every happened, 
which was unheard of.
    Creating a Federal coordinating officers cadre, expanding 
the disaster reserve cadre, providing the funding to expand it 
to all FEMA ten regions and funding the training and 
maintaining that training and certification of these employees.
    We did not want to go through a response like FEMA had gone 
through with Hugo and Andrew. We wanted to make sure we had the 
people and resources in place to be able to respond to meet 
that need, no matter what the size of that need was.
    We did cross training of nondisaster program employees. We 
used technology to improve inspections and to improve our 
response to individual needs, particularly individual family 
grant programs and temporary housing programs.
    I mention my experiences at FEMA not to relive those days, 
but to offer some hope and encouragement, and possibly a 
blueprint to maybe to help you as Members of the Small Business 
Committee and SBA to begin working on it together.
    I believe the legislation that the Committee has drafted is 
what is needed to sorely improve the SBA Disaster Program. I 
agree that SBA must have comprehensive disaster response plans 
in place that incorporate an all risk, all hazard approach. SBA 
is training and exercising these plan with all of its partners 
at the Federal, State and local level ahead of time. And it is 
critical for the agency's readiness. And I know that SBA also 
has a reservist corps. But it is important to keep these folks 
involved and trained so they remain part of the disaster cadre.
    SBA and FEMA had ten regions. And if you look at those ten 
regions and if you look at the highest risk reasons, and if you 
maximize the amount of disaster reservists that you could have 
in the highest regions, but also have them in all ten regions 
to support that area when you have an event like Katrina or the 
four hurricanes in Florida, to be able to deploy them to 
support that event, it is very important. But it is important 
to keep these people trained. You cannot respond to an event 
without trained people. And you cannot train people on the 
ground in the middle of a response and be effective.
    Cross train employ some other agencies, which we did, was a 
huge help for us. We would go out to Federal agencies and said 
do you have employees that we can cross train to help us in a 
disaster operation center or help us in the field. And they 
were more than willing to allow their employees, particularly 
employees that were on a career path to get that experience, 
that knowledge and that capability.
    Also if SBA is not doing it already, they should do a cost 
analysis of what were the five most costly years in an SBA 
disaster declaration. With the exception of Katrina and Rita, 
your most costly. But what was the five year average cost per 
year of an SBA disaster cost. And they probably already have 
that. But what we did and what worked so well with Congress and 
with OMB was we were able to use that five year cost analysis 
to set up a contingency fund that was under OMB that was 
budgeted, that you did not have to go back for supplementals 
every time you had a disaster declaration. And then all we 
would do then is go to OMB and say we have a Presidential 
disaster declaration that's going to cost $400 million.
    Our per year average for FEMA over five years was $2.5 
billion. That might be helpful. I do not know. It is just a 
suggestion. It worked extremely well for us.
    When I was at FEMA we worked so closely with SBA. And one 
of the most important things that we did with SBA is when we 
set up the 1-800 teleregistration system at Hyattsville, 
Maryland and Puerto Rico and Denton, Texas and Mount Weather. 
Even American Airlines as the backup system to us on 
teleregistration taking applications for people calling in.
    SBA was in that teleregistration center. We got a call from 
a small business that came to one of our teleregistrations 
people, they would just automatically switch it to SBA in that 
teleregistration center.
    Let me just say this: During the time of the eight years 
that I was there I saw not only FEMA that was able to get 
individual checks to people that were eligible within seven 
days. I saw SBA that were able to take loan applications, 
process it and have it closed out within 30 days.
    They did a great job. But I want to say this in closing. 
You have to empower the SBA Administrator and the career people 
at SBA to be able to do their jobs and do it well and fulfill 
their role and responsibilities. And my hope is that with your 
help and with your legislation you can help create that 
atmosphere where that they can move forward, and they can cut 
the red tape and they can make sure that small business in this 
country and homeowners recover much fuller and must faster.
    We did a survey with SBA back, I cannot remember the year 
that we did this, particularly after some of the major 
disasters. And we found in even small, medium or large 
disaster, that small businesses that were effected by a 
disaster, up to 30 percent of those never recovered or never 
reopened. When that happens you lose the heart of a community. 
And I think SBA is in a position to help maintain not only the 
viability of a community, but also help in the long term 
recovery efforts far greater than any other Federal agency.
    So thank you, Madam Chair.
    [The prepared statement of Mr. Witt may be found on page 52 
of the Appendix.]
    Chairwoman Velazquez. Thank you, sir.
    Our next witness is Mr. Harry C. Alford. Mr. Alford is the 
President and Cofounder of the National Black Chamber of 
Commerce. The National Black Chamber of Commerce is a 
nonprofit, nonpartisan business association that represents 
over 95,000 black owned businesses and advocates on behalf of 
more than 1 million black owned business.
    Welcome.

STATEMENT OF HARRY C. ALFORD, PRESIDENT AND CEO, NATIONAL BLACK 
                      CHAMBER OF COMMERCE

    Mr. Alford. Thank you Madam Chairwoman, distinguished 
Members of this very important Committee.
    I appreciate the opportunity to discuss a few things that I 
can get off my chest.
    I notice the timers working now on me. The previous two did 
not have a timer.
    But, yes, Mr. Witt, those were the days. I remember my 
first meeting with Mr. Mitchell in 1994. The National Black 
Chamber of Commerce had maybe 18 chapters. And the SBA have 
over a staff of over 5,000 well trained individuals. They had a 
budget of $860 million. They were the resource for small 
business.
    Since 1994 small business has boomed. The African-American 
segment of the small business community has grown from 1997 to 
2002, according to the Census Bureau, a growth of 42 percent. 
There are over 1 million black owned businesses today doing 
very much and doing well.
    The State of Louisiana had the 11th highest population of 
black owned businesses in the nation.
    Since 1994 the SBA has been increasing and shrinking and 
shrinking each budget cycle less, less, less. It was set up to 
the point that a disaster was going to come, and Katrina 
presented that opportunity.
    We are faced with an ever competitive global market and yet 
we have dwindled the SBA to a point of anemia. Our readiness 
has been depleted and the SBA became a disaster waiting to 
happen. Eventually the challenge submerged at the start of 
Katrina. Yes, it was the greatest natural disaster in our 
recorded history, but the worse came with the response that 
could not even attempt to be adequate or meet the demand.
    I welcome the proposed legislation as improvement and as 
progress, and perhaps a turnaround to the attempts of many to 
do away with the SBA, to the point of it being almost lifeless.
    In terms of planning, the SBA should be required to 
develop, implement and maintain a comprehensive written 
disaster response plan based on the intensity of Katrina. 
Office space staffing system complete with coordination 
scenarios with applicable Federal agencies should be 
established as soon as possible. This plan should be tested 
through drills and exercises that would simulate a major 
disaster. These plans should be realistic with proper resources 
and not designed as blue skies.
    There should be a position established to administer the 
project, and an associate administrator for disaster planning 
should be created to coordinate with the SBA associated 
administrator for the Office of Disaster Assistance, FEMA and 
other Federal, State, local disaster planning offices as 
necessary.
    This officer will report directly to the Administrator and 
will be responsible for planning for and leading the agency's 
annual training exercises. It should go without saying that 
this person's background will be consistent with the duties 
assigned. In other words, let us not have a simple political 
appointment without rhyme or reason, Michael Brown, who will 
have a meltdown during the first crises.
    In regards to lending we must have a comprehensive program 
that will significantly increase legislative limits on business 
loans. The process for personal and business lending should be 
streamlined to expedite funding and a system that is punitive 
to the borrower in terms of repayment period and subsidies. We 
can enhance the lending authority for our preferred lenders so 
that they can originate, process and disperse home disaster 
loans for a small fee.
    Short term loans similar to the bridge financing provided 
by the Mississippi State Legislature should be provided so that 
businesses can get started immediately with the rebuilding 
while they wait on the traditional disaster loan process.
    Grants for certain conditions can also be considered in 
order to jump start local rebuilding of businesses that provide 
jobs to the effected areas.
    The SBA should have adequate funding for outreach and 
marketing. Businesses within our communities rarely know what 
the SBA is and its programs. I dare say that the majority of 
the over 1 million black owned businesses in this nation do not 
know the address of the nearest SBA district office or the 
district manager and the applicable staff. Whether they are a 
mile away or 100 miles away, there's no adequate interaction. 
SBA where are you?
    Thank you, Madam.
    [The prepared statement of Mr. Alford may be found on page 
60 of the Appendix.]
    Chairwoman Velazquez. Thank you.
    And our next witness is Ms. Margot Dorfman. She is the 
founder and CEO of the U.S. Women's Chamber of Commerce, an 
association that advocates for economic policy and community 
interest on behalf of women owned businesses.
    Welcome.

   STATEMENT OF MARGOT DORFMAN, CEO, U.S. WOMEN'S CHAMBER OF 
                            COMMERCE

    Ms. Dorfman. Chairwoman Velazquez and Ranking Member 
Chabot, Members of the House of Small Business. My name is 
Margot Dorfman. I'm CEO of the U.S. Women's Chamber of 
Commerce.
    And I am pleased to be here today to share the U.S. Women's 
Chambers of Commerce strong support to the RECOVER Act of 2007, 
an important piece of legislation that will give small business 
owners the security of knowing that the Small Business 
Administration will have an effective plan in place to meet 
their needs in times of crises.
    The 2005 Gulf Coast hurricanes had a dramatic impact on the 
small business members for the U.S. Women's Chamber of 
Commerce. But as much as they were alarmed by the damage the 
storm caused to their communities, they have also been shocked 
by how badly managed the disaster response has been.
    Time is of the essence in these emergency situations. For 
many of our members timeliness proved as important as receiving 
the assistance itself. It was clear that the SBA was completely 
unprepared to deliver disaster assistance on the scale that was 
demanded. And certainly not on a time frame that would have 
expedited recovery. Instead of executing a plan that was 
already in place, the Administration reacted to events on an ad 
hoc basis, ramping up employees in locations as the demand 
grew. Unfortunately, that meant that by the time additional 
resources were added small business owners were already 
experiencing the terrible customer service that came to 
characterize the SBA's handling of the response to the 2005 
Gulf Coast hurricanes.
    The U.S. Women's Chamber of Commerce enthusiastically 
supports the RECOVER Act of 2007 because it requires the SBA to 
look ahead to future disaster and plan for a variety of 
possibilities. Readiness is the key to delivering timely, 
effective disaster services.
    This year communities around the country have called on the 
SBA to respond to a variety of nonhurricane disasters from ice 
storms in Iowa to tornados in Florida. It is vital that the 
strategies be in place to respond effectively to the needs of 
small businesses regardless of the location, size or the type 
of disaster.
    In addition to creating comprehensive disaster readiness 
plan, the RECOVER Act also requires the SBA to maintain those 
strategies over a long period of time. At the U.S. Women's 
Chamber of Commerce we believe that this is a critical function 
of this legislation. Although many people are still struggling 
to recover from recent disasters today, it is important that 
the SBA's disaster readiness not be allowed to atrophy in the 
future when conditions for victims of the 2005 Gulf Coast 
hurricanes have improved.
    Ten years from now we hope to see the SBA with a robust, 
agile disaster loan program that has comprehensive and 
practiced plans for a variety of disasters.
    This legislation also makes important updates to the SBA's 
disaster lending process, systems that the 2005 Gulf Coast 
hurricanes demonstrated were badly in need of modernization. By 
providing solutions to problems that the SBA had in processing 
and approving and dispersing loans in a timely manner, the 
RECOVER Act will increase legislation recognizes that assisting 
small business owners after a major catastrophe is not a one 
size fits all proposition. It will give the SBA more tools to 
provide small businesses with relief depending on their 
individual circumstances, including bridge loans and grants.
    This legislation will allow the SBA to get private lenders 
involved to provide timely and effective service to business 
owners in these disaster situation. Entrepreneurs will have 
access to the same affordable SBA loan with low interest rates 
and long repayment terms, just at a different location serviced 
by a bank in their community.
    In closing, I want to thank the Members of the Small 
Business Committee for actively addressing the problems so many 
business owners experience after the hurricanes in 2005. It is 
critical that we learn from those experiences the kinds of 
stories we are still hearing from our U.S. Women's Chamber of 
Commerce members 18 months later and make the needed changes 
that will ensure that if such a terrible disaster happens 
again, the SBA will be in a better position to help 
entrepreneurs get back on their feet.
    I thank you again for your time today. And I welcome any 
questions that you may have.
    [The prepared statement of Ms. Dorfman may be found on page 
64 of the Appendix.]
    Chairwoman Velazquez. Thank you, Ms. Dorfman.
    Mr. Witt, the Administrator of the Small Business 
Administration has said that oversight and legislation was not 
needed to address the problems in the disaster program and that 
operational fixes in the Agency's internal policies and 
procedures offer a better solution. Would you agree with that 
perspective?
    Mr. Witt. Well, it would be hard for me to determine 
whether or not I would agree or disagree with them. Of course, 
I have not looked at SBA at a long time. But after looking at 
the legislation that you have put forward, I think the SBA 
working with this Committee on that legislation would be an 
advantage to them to improve the services and the capability of 
SBA for the future.
    So, you know, just based on what you are going forward with 
I think should help SBA substantially in their processes and 
what they do everyday.
    Chairwoman Velazquez. Mr. Mitchell, last month I asked 
Administrator Preston for the specific time as to when the 
agency will have implemented a comprehensive written disaster 
plan with data from disaster simulations. We are now one month 
closer to the next hurricane system. What can you tell us?
    Mr. Mitchell. Well, the Agency had made substantial 
progress in getting a plan in place. The Deputy Administration 
has been designated the point person on this, and she has all 
of the Agency's resources available.
    I can tell you just this week there have been at least 
eight or nine people working pretty close to four to six hours 
a day in terms of--
    Chairwoman Velazquez. When are you going to have a plan, 
sir? Our concern here is--
    Mr. Mitchell. I understand. And the Administrator has 
charged the Deputy with getting that done.
    Chairwoman Velazquez. He is going to charge the Deputy?
    Mr. Mitchell. She has already been tasked with getting that 
plan done and presenting him with a draft to start the internal 
review process.
    Chairwoman Velazquez. The Administrator was before this 
Committee close to a month ago. And I think that we all saw 
what happened with the inefficient, ineffective response coming 
out of the Small Business Administration. Here we are a month 
before the next hurricane season and you are telling me that 
just the Administrator charged the Deputy to come up with it?
    Mr. Mitchell. A lot of work has already been done in terms 
of developing the service plans, developing scalability models, 
looking at the forecasting data, pulling all of the information 
together in terms of how we are going to coordinate with the 
districts.
    Chairwoman Velazquez. Are you telling me 18 months later 
after Hurricane Katrina touched down, the SBA does not have a 
plan?
    Mr. Witt, in its most recent report the General Accounting 
Office recommended that the SBA consider using disaster 
simulations and catastrophic models in its disaster planning 
process. In his testimony before the Committee, the SBA 
Administrator said that these tools are cost prohibitive. In 
your experience what is the value of these values relative to 
the cost?
    Mr. Witt. Well, I think probably, you know, we used to does 
this all the time, and I know they still have this as FEMA as a 
modeling tool.
    We did a simulation on Miami with a category 4 hurricane 
hit in the city of Miami using the model. And the estimated 
losses there at that time, back in the '90s, it was like $85 
billion just for the city of Miami.
    So you can take any of the Federal agencies that has the 
modeling capability, whether it is SBA or FEMA or Corps of 
Engineers or DoD. You can utilize those existing modeling 
simulations and capabilities to do what you need to do and 
looking at all your high risk states or local communities and 
come up with a simulated cost of what you particularly have in 
case they were hit.
    Chairwoman Velazquez. Are there more cost effective ways to 
integrate these tools into the disaster planning process?
    Mr. Witt. Absolutely. In Lafayette, Louisiana, the 
University of Lafayette, and at many universities in the United 
States are doing modeling, just as we speak, and has the 
capability to link into any Federal agency.
    Lafayette University has the third largest super computer 
in the world. You can give them a simulation or a different 
scenario, they will plug it in that super computer and they can 
spit you out a model instantly. And any Federal agencies or any 
local governments can access this. And it's very cost 
effective.
    Chairwoman Velazquez. One other thing that we gathered from 
the hearings that we conducted regarding the disaster relief 
lack of planning and inefficient response is that the disaster 
planning is decentralized and fragmented. The Agency delegates 
planning to local agency officials. And their reason is that 
these individuals are in the best position to estimate the 
Agency's needs.
    The Agency maintains a variety of documents detailing the 
SBA's policies and procedures for responding to a disaster. In 
your experience is this approach adequate to fulfill the need 
for comprehensive disaster planning?
    Mr. Witt. I am just basing this on my experience in what we 
have seen and done.
    It is very important whether you are a local government, a 
State government or a Federal agency in the Department of 
Federal Government that you have a plan that is in sync with 
not only at the national level, but also in all the district 
and local levels. And that plan is not only exercised and 
tested. Because if you just have to do the planning and the 
exercising in the region or the district level, then if you 
have an event and have to respond, there is no way that the 
national and the local and the region is going to be in sync. 
So you really need a national plan for a Federal agency that is 
linked to the national response plan.
    Chairwoman Velazquez. Thank you, Mr. Witt.
    Mr. Alford, you heard the testimony from the 
Administration's position regarding the disaster, the RECOVER 
Act. And they say that the grant program under this legislation 
is duplicative of other programs in the Federal Government like 
the CDBG program. Based on what you have heard from your 
members why is not this program duplicative of any other grant 
program that exists today.
    Mr. Alford. Well, first the Community Development Block 
Grant money is not reaching our businesses in terms of 
Louisiana and New Orleans, it is good for home ownership and it 
is good to pay off some federal debt. You know, it is HUD 
covering the back side of the SBA loan program. It is doing 
nothing for individual businesses.
    Secondly, the whole administration of this Road Home 
Program, John Gotti could not have written a better picture 
where you have got D.C. grants, D.C. contracts going to people 
who have to clue of how to manage this program. And they are 
raking the money off of the top. They were trying to give out 
home loans without appraisals. And people were being lowballed 
because they were not adequately appraised. So after all the 
complaints they come up with a group of appraisers from 
California to come to Louisiana. I think Congressman Jefferson 
will tell you, there are plenty of good appraisers in 
Louisiana. But that message is sent that this is about grab bag 
money, it is not about business development or disaster relief.
    And for the SBA to say that is good enough when they should 
be the experts at providing grants to businesses and have a 
database of businesses and know the ones that have a good 
chance of recovery with a little grant money, why are they 
walking away from that? Why are they shying away from that? Why 
are they not embracing that idea?
    Chairwoman Velazquez. Thank you.
    Now I will recognize Mr. Chabot.
    Mr. Chabot. Thank you, Madam Chairwoman.
    Mr. Mitchell, if I could start with you. I just wanted to 
state for the record that we share the concern of the Majority 
on preparing a disaster plan, getting it done. You know, we 
certainly do not want something hastily thrown together just to 
get it done. It ought to be done right. But it certainly should 
be a priority of the SBA. And I would assume that it is a 
priority?
    Mr. Mitchell. Well, we wholeheartedly agree and this 
Administrator is committed to getting it done.
    Mr. Chabot. Okay.
    Mr. Mitchell. Certainly committed to getting it done.
    And on the area in terms of catastrophic risk modeling, we 
are looking at the data. We have already met with the folks 
from FEMA. We have access to their information. And our plan is 
to take that data and those models and test our plan against 
that data.
    Mr. Chabot. Thank you.
    Let me follow up. Has the SBA estimated the cost of 
performing an annual disaster simulation exercise?
    Mr. Mitchell. Well, we have looked at various models in 
terms of, you know, do we do a full scale exercise, do we do 
tabletops, do we exercise certain portions of the plan. For 
example, the field operations. And, obviously, there could be a 
myriad of things that you could do. It could range, our 
estimates, anywhere from as low as $50,000 to a million 
dollars.
    The plan is to have a series of exercises over a period of 
time.
    Mr. Chabot. All right. Thank you.
    Mr. Witt, let me turn to you if I can.
    What role should business interruption insurance play in a 
business disaster preparation?
    Mr. Witt. A very important role. You know, if a business 
has business interruption insurance, it is much easier for them 
to recovery much faster.
    I also want to speak just a moment about the grant program 
that we were speaking of real quick.
    Mr. Chabot. Okay.
    Mr. Witt. The grant program for a small business that has 
been approved for a small business loan, particularly acting as 
a bridge to be able to get that recovery effort moving, 
particularly in catastrophic events like Katrina is really, 
really critical.
    You know, Governor Blanco set up a bridge loan to the 
parishes because they had zero revenue. And these communities 
right now, these small businesses, they cannot go back and get 
started back without some bridge of some help. But many times, 
and Herb will tell you this, he went with me many times to many 
events. But the business interruption losses, a lot of small 
businesses across the country do not have this. They cannot 
afford it. And so they are in a situation of providing jobs for 
5 people or 10 people and keeping their businesses open, and 
they have to cut costs everywhere they can. You know, it may be 
health insurance, it may be others. But a lot of them cannot 
afford that and stay in business.
    Mr. Chabot. Thank you.
    Mr. Alford and Ms. Dorfman, in the time that I have 
remaining I would like to ask you all a couple of questions.
    Both of your organizations had members effected by 
Hurricane Rita and Rita and Wilma. How many of those members, 
if you know, are still not fully operational relative to the 
businesses?
    Mr. Alford. I would guess 70 percent.
    Mr. Chabot. Seventy percent are still not operational?
    Mr. Alford. Not operational. And the ones who are 
operational were just very exceptional individuals. Strong 
individuals with some good strong savvy and could go to the 
President of Shaw or Bechtel and come out with some business. 
But those relying on the SBA to get them contracts in this 
rebuilding, they have not received anything.
    Mr. Chabot. Ms. Dorfman?
    Ms. Dorfman. I would say the majority of ours have, as 
well, they are still in challenging situations. Many of our 
members actually moved out of the area so they could start 
business again. Many of our members have not received loans to 
date. So there is still an ongoing problem in the region.
    Mr. Chabot. Okay. Thank you.
    Yes, Mr. Alford?
    Mr. Alford. If I could say, the President of the New 
Orleans Regional Black Chamber of Commerce has a cement 
company. And he was the first black contractor to be utilized 
in the Katrina disaster by way of the Corps of Engineers 
stealing $300,000 worth of his sand that he had warehoused at 
the New Orleans Air Port. And that was two years ago, just 
about, a year and a half. He has not been paid for that 
$300,000 yet.
    Mr. Chabot. And finally, how hard is it for your members to 
plan recovery in areas that were effected by Hurricane Katrina 
when they do not know whether the area will have sufficient 
residents to support their businesses? And that was mentioned 
by Mr. Baker, Congressman Baker in his testimony. But I would 
like to hear from you all, if we could.
    Ms. Dorfman. Well, it is very difficult. Some of the 
challenges that our members had when the hurricanes first hit 
was I have one member who when I spoke with her, she had lost 
her home, she had lost her business and she lost her mother. So 
we are talking devastation that is unthinkable. And now she has 
to think about how do I find an SBA loan? How do I actually go 
about it?
    When they finally got her the paperwork she was overwhelmed 
and she could not even continue forward. And I think that is 
what we are looking at. It is more then, gee, there is an issue 
and we have to get a loan. There is a great deal of trauma and 
grief that is going on. And those businesses who are having 
trouble just keeping their heads up, let alone where is my 
paperwork because my computer system is down, so I don't have 
the documentation to file to get a loan. That is where the 
grants are going to be so important to come in to help in that 
interim while they are trying to pull that information together 
so that they can actually apply for a loan and, hopefully, get 
one.
    Mr. Chabot. Thank you very much.
    Ms. Alford?
    Mr. Alford. Yes. You really have to admire the resilience 
and the creativity of a lot of the people, particularly in New 
Orleans.
    There is a barber who put up a tent at a gas station, on 
the grounds of a gas station and got a generator and reopened 
his barber shop in that tent. Last month he moved into a 
building.
    There is a lady who waits tables at the W Hotel who was 
realtor prior to Katrina. She and her sister moved in together 
and they rented out the lower level of their house, which was 
gutted. They rented out the lower level to a contractor who 
will bring spare parts and pieces and drywall and start 
reassembling their house.
    But it is that kind of resilience that are making them 
stand on their feet and get back together. It is a shame they 
are their own though. It reminds me of my grandfather during 
the depression. Have we not come beyond that?
    Mr. Chabot. And that is why I want to commend the 
Chairwoman for holding this hearing. Because with the 
resilience of the people and what they have done to try to 
bring their lives back together, it is unfortunate that the 
Government was not up to the task, and we need to learn those 
lessons and do much better the next time.
    Thank you.
    Yield back. Thank you, Mr. Chabot.
    Mr. Jefferson.
    Mr. Jefferson. Thank you, Madam Chair.
    It is hard to know where to begin with the questions.
    Let me ask you about the small business loans and how they 
have affected your members.
    Well, let me just make a statement. The CDBG money that is 
available to small business is very, very small. Out of the 
money that the $10.5 billion has been allocated, as I am sure 
the Committee members know, only $168 million has been 
available to small businesses and small business grant. Of that 
amount, there's a limitation. No small business may receive 
more than $20,000.
    So if you receive a $20,000 grant and then you are lucky 
enough to get an SBA loan, you pay that $20,000 to the SBA when 
no one would claim ever that it is enough to get your business 
going.
    So how is it a duplication? The only way it could ever be a 
duplication is if you got enough to fully recover your 
business, and this is on top of that. That is not happening.
    So the argument that this a double dip for people in 
Louisiana is quite misplaced and I really wish the 
Administration would think about that and try to help us find 
solutions and maybe tone that idea down.
    The same would apply to homeowners. And I just got to ask 
you about this. So Mr. Mitchell, you would agree with me that 
in a case where the Road Home Program -- not Road Home, the 
CDBG is only $20,000, there is hardly any chance for a 
duplication. Would you not agree with that?
    Mr. Mitchell. Well, there is a great deal of flexibility 
when you are working with small business. And what we are 
really talking about here is working capital and what the 
purpose of that grant fund is.
    Obviously if it is going to repair, replace the same thing 
that we have made the loan for in terms of the physical loan, 
obviously we have to take a look at that. But I would suspect 
that most of these cases it is going to operating capital. And 
in most cases we are able to determine that there is additional 
injury or additional recovery period. And I would dare say in 
the majority of these cases there would be no duplication.
    Mr. Jefferson. I would think not. I would think hardly any 
of it there would be duplication. And just to put people 
through all these hoops to go and explain it that it is not 
duplication, it just delays process. We need to find some more 
mays of dealing with it.
    Mr. Mitchell. Right. Understand. We have a team of folks 
that are working this. Our average turn around time right now 
on all of the grant program is three hours. Once we get the 
information the state--
    Mr. Jefferson. What is it now?
    Mr. Mitchell. Three hours.
    Mr. Jefferson. Three hours.
    Mr. Mitchell. We are able to basically do that process, get 
it done in three hours and get them the information back the 
next day.
    Mr. Jefferson. Well, I would like to see the report on 
that, you know, that sort of experience. Because it is not what 
we hear.
    And let us talk about the Road Home Program money.
    Mr. Mitchell. Yes.
    Mr. Jefferson. It is equally problematic. And I think you 
should understand how it happens. Here is a reading from the 
``Times Picayune'' from which I do not read all that much, but 
nonetheless here is what I think is worth reporting to you.
    ``If you receive an SBA loan for personal property,'' this 
is quoted from a resident there. ``The way the SBA loan reads 
is if someone comes along and gives you some other money for 
this, you got to pay the SBA back'' this Ms. Alan Langhorn 
says. This is a resident whose home flooded with about five 
feet of water. They say oh, that is duplicate funds, so they 
demand their money back.
    With the Road Home Program what happens, he asked. If a 
person gets $150,000 from Road Home Program but SBA already 
gave that person $90,000, suddenly you only got $60,000 the 
person says.
    Clearly this is an extraordinary circumstances. So the 
normal standard SBA contract everyone is signing right now 
should be disregarded.
    Tell me how you would deal with that. Here is a person, the 
only again this would ever be a duplication, that the person 
got enough to fully bring the house back. And here is the 
reason why they do not. Most people have a mortgage on the 
house and they are trying to pay the mortgage payment. They go 
to the SBA and they say I want a loan. The SBA, they may go out 
assess the damage and say you need a loan for, let us say, 
$200,000. But you are already paying a note, so therefore you 
cannot afford the whole amount. So this is all that is 
available to you.
    So you make a decision and you do what you can, and you get 
a $100,000 when you know it takes $200,000. Road Home Program 
comes along and they never give you 150. Forget that. The 
average grant amount is 68. But that is also skewed. Because 
the folks that are getting them now are the people who have the 
better houses and who are able to make their case better than 
the folks who have the less good houses. So you are going to 
see that $68,000 figure go down and down over time.
    But bottom line is no one is getting from the SBA, hardly 
anyone, is getting what they need to build back because they 
cannot prove they can pay the loan back. And consequently, they 
are just getting what they can and then hoping that Road Home 
Program will fill in the gap. But then Road Home Program comes 
along and it is just taken away, and they hardly ahead and they 
cannot get back home.
    So do you not agree that there is need for some way to get 
after this differently than just saying it is double dip?
    Mr. Mitchell. Well, I think you have to start with the 
premise that the laws that are in place prevent us from 
providing assistance for the same loss using Federal dollars.
    So if the loss to the property, let us say, is $100,000 and 
we make a loan for 100,000 and that home is rebuilt with that 
100,000, next they get a grant for a 100,000. The grant goes 
and it is for the purpose of repairing and replace that home, 
it goes to pay down the loan. The net result is, yes, that 
individual still had a mortgage but they had a mortgage 
predisaster. But they end up in a situation where they have 
their home repaired with no doubt.
    Now, in doing the calculations if in fact the amount that 
we have determined is not sufficient, we simply increase the 
eligible amount which then allows them access more to the grant 
funds.
    Mr. Jefferson. I am afraid that is not how it is happening.
    Mr. Mitchell. I can tell you that we have processed over 
about 3600, and only about 20 percent of these actually end up 
being duplications. But we are required to look at it, at least 
look at it.
    Mr. Jefferson. But what is happening to folks back home is 
they are having to pay these loans off and they are getting 
small grants and they are not getting enough to get back into 
their homes.
    So now you say in both cases that the people can come and 
present the evidences, then they can get relief. It is an 
awfully hard process. You say three hours. God, I wish it were 
three hours. I hope it is. But we do not find that to be the 
case.
    Here is what we need from you.
    Mr. Mitchell. Yes.
    Mr. Jefferson. Some ideas about how to make this work. If 
you do not like Section 211, give us something other than just 
an objection it is duplication. That does not help. Because 
people really are suffering through this.
    Mr. Mitchell. Understand.
    Mr. Jefferson. And it does not really help to have a case-
by-case review.
    Now the big problem is people are not qualified both on the 
business side and the homeowner side for what they need to 
build back their homes. That is the fundamental problem. They 
do not qualify because they have another, in the case of a 
homeowner, another mortgage. In the case of a small business, 
he cannot prove he is going to have customers or he cannot make 
projections on the business as he normally could. So they are 
both in terrible positions. And it just absolutely does not 
work to treat it as a normal circumstances.
    Mr. Mitchell. The only thing I would really suggest, I mean 
part of the challenge here is figuring out if you are going to 
structure a program how they do not duplicate and you still 
meet the peoples' need. I mean, if you start from that basis--
    Mr. Jefferson. I am asking you to help us do that.
    One last thing, Mr. Alford, I want to ask you this 
question. I have talked--and I do not know whether this is the 
place to do it, Madam Chairlady, in this bill. Maybe in a stand 
alone we would find some way. But we have 8(a) contractors back 
home who normally enjoy nine year life on the program. They had 
their enjoyment of that privilege interrupted, as well as 
anybody in small business down there. So they got 7+ years, as 
you say, with the year on top of it instead of nine. Do you not 
think it is fair that we find someway to extend the life of the 
8(a) contractor? Not to extend it past 9 years, of course, but 
extend it up to 9 years to the extent that they--let us say we 
had another 18 months just to the enjoyment of the program if 
they were in the New Orleans area or the St. Bernard or any 
other place that was effected. So that they may have the same 
privileges anyone else in the 8(a) program?
    Mr. Alford. Absolutely. And in fact during this recovery, 
8(a) activity, real 8(a) activity, small minority businesses in 
the 8(a) has been cut off. Alaska Native corporations, large 
white owned, white managed male owned with a little paper 
transaction subsidiary to a tribe in Alaska, they have garnered 
over 80 percent of the contracts let by the Federal Government 
in the disaster recovery.
    I cannot get from the SBA the latest procurement report 
that would list the 8(a)s doing business, because they know I 
am going to go analyze and make phone calls and travel down 
there that see that these 8(a) firms are not even active in the 
contracting mix.
    So, yes, it should be stretched for those who are out of 
business. And for those who are actually in business now who 
have been frozen out of the Federal procurement process.
    Mr. Jefferson. Madam Chairman, do you think that some way 
this Committee can ask this information that Mr. Alford and 
others cannot get. Just to see how much 8(a) has been utilized 
now in this recovery effort?
    Mr. Alford. Madam, I personally asked Administrator Preston 
about six months ago, and he informed me that he was get it 
right to me. That was six months ago.
    Chairwoman Velazquez. Mr. Jefferson, we are going to be 
looking at the contracting practices.. And we will be holding a 
hearing. We are planning to hold a hearing in the Gulf Coast.
    I now will recognize Ms. Clarke.
    Ms. Clarke. Thank you very much, Madam Chair.
    And thank you all for your testimony here this morning.
    It is really troubling, Mr. Mitchell, to see that this 
issue of planning seems to be stuck in a rut. Everyday life 
goes on and we do not know what disaster will bring. Can you 
say today what time frame we are talking about, not only for 
the plan--
    Mr. Mitchell. Sure.
    Ms. Clarke. --but its implementation?
    Mr. Mitchell. Sure. Well, clearly the intent is to have the 
plan in place before the next hurricane season. But I can also 
tell you that parts of the plan area already--
    Ms. Clarke. But with all due respect, hurricane season 
begins next month.
    Mr. Mitchell. June 1st.
    Ms. Clarke. June 1st. So you are saying June 1st we should 
expect a plan?
    Mr. Mitchell. The plan will be in a place. But I can also 
tell you that parts of the plan are already in place and we are 
using. We are using the forecasting models. We are using the 
scalability models everyday. You know, in terms of the plans 
dealing with how we upgrade the systems in space, we have 
already implemented those things.
    You know, it is a matter of pulling all of this information 
together to come up with a final product. But components of the 
plan are in place and being used everyday.
    Ms. Clarke. And do you believe that its implementation is 
efficient at this stage? Where would you rate implementation?
    Mr. Mitchell. Absolutely.
    Ms. Clarke. That is the critical piece. We can plan from 
here to eternity, it is how we implement it.
    Mr. Mitchell. And that is a good point. I mean, and part of 
the challenge here will be once the plan is in place to use the 
plan is in place to use the scalability models and the 
exercises to test it.
    And, obviously, we have not had the type of events. But I 
can tell you in all of the disasters since Katrina, 
implementing some of the changes that we have made, we are at 
98 percent of applications being processed in 14 to 16 days.
    Ms. Clarke. And so this Committee can expect to have a plan 
in place by June 1st?
    Mr. Mitchell. The commitment of the Administrator is that 
the Agency will have a plan in place prior to the hurricane 
season.
    Ms. Clarke. And we should be able to receive that plan?
    Mr. Mitchell. It is an Agency wide plan. And, you know, the 
Administrator is committed to getting that plan done.
    Ms. Clarke. Thank you very much, Mr. Mitchell.
    I yield back the rest of my time, Madam Chair.
    Chairwoman Velazquez. Ms. Bean, you do not have any 
questions at this point.
    Now I will recognize Mr. Melancon.
    Mr. Melancon. Thank you, Chairwoman Velazquez. And I want 
to thank you and the Ranking Member for you all to waive the 
rules to allow me to sit with you today on the dais.
    Mr. Mitchell and Mr. Jefferson went into a few of the 
things. I, too, would like to see that 3+ hour process. My last 
numbers that I understand that has been approved, is what, 38 
percent of the loans that have been applied for in Louisiana or 
in the Gulf Coast. I'm not sure whether it is the Louisiana 
Gulf Coast have been approved.
    What I found about the military during the immediate 
aftermath of the storms is they are a can do organization. What 
I find of SBA, it is a cannot do organization.
    As you are aware, we had an applicant that was a going 
business. The problem that they had every time they came in and 
we tried to appeal, there is a different reason for 
declination. The final we came in with was there was a program 
available by SBA that they qualified for, which they needed the 
more money and this program specifically allowed for more 
money. But for whatever reason, the department chose not to 
implement or use this program because it would have set a 
precedent. What is the precedent? The precedent was set when 
the storms came in.
    So why do you not use the tools that have been given to you 
to help the people that have suffered this catastrophic events?
    Mr. Mitchell. Well, obviously, I cannot discuss the 
specifics of the case. And obviously we have talked about this 
particular case. This was a case of whether or not the business 
qualified as a major source of employment. And I guess the 
issue centered around whether or not they qualified based on 
their projected activity as opposed to where they were 
predisaster. And that was basically issue.
    Mr. Melancon. Yes. Well, you know, we went through that for 
the better part of a year and every time we went in there was a 
different reason why they could not qualify.
    Mr. Mitchell. But I do want to clarify the 3+ hour turn 
around. I was talking specifically about the grant process and 
not about the processing the loans. In terms of when we get the 
information from the States of Louisiana, Mississippi in terms 
of whether or not there is a duplication of benefits, that 
process is taking about 3+ to get done.
    Mr. Melancon. Well, and let me ask you this because I have 
been told by several people that the SBA offices in the New 
Orleans metropolitan area that have been open have summarily 
been closed about every six weeks, the phones disconnected and 
no forwarding phone numbers or addresses given. Can you explain 
that to me?
    Mr. Mitchell. That is the first I have heard. I have to 
look into that whether or not that is the district office or 
the disaster recovery office, or--
    Mr. Melancon. I would expect disaster recovery because it 
is in the city area.
    Mr. Mitchell. Both of those are in the same building. But I 
can check into that.
    Mr. Melancon. I wish you would.
    Mr. Mitchell. Yes.
    Mr. Melancon. Mr. Jefferson touched on some of the things 
about the SBA paydown. And I agree with him. I think it is 
absolutely ludicrous. We are trying to help people recover. A 
loan is a loan and they have got to pay it back. A grant is a 
grant and that is going to help them get back on their feet. 
And to tell then they have got to give money back because it is 
Federal money, all we are doing is sending money from this end 
of the Government and then sending it back from the other end 
of the Government. And you are not doing them any good. 
Government is just getting its money circulated around.
    But with the bridge financing, you mentioned that the 
Administration has concerns over the Section 203 of this bill 
would create a bridge financing program in SBA. And I am aware 
that there was one major problem experienced by our business 
post Katrina. They waited six to eight months for SBA disaster 
loans, even longer for disbursements. And had to wait ten 
months for large scale state bridge loan financing.
    I understand that the position of the Administration is 
that state funded bridge loans are state programs financed by 
Community Development Block Grants funds are the solution. Not 
having SBA provide immediate short term financing to keep 
business afloat after a catastrophic disaster.
    Why would the SBA oppose being given additional tools that 
could be used following another catastrophic disaster?
    Mr. Mitchell. Well, I think the issue here is whether or 
not we would have to basically fund both sides of it, the 
administrative costs on both the guarantee side and also doing 
it direct. I mean there is no question that there is a need for 
direct immediate assistance. The question is, you know, how do 
we come up with a solution that basically does not increase the 
cost of the program?
    Mr. Melancon. So SBA is not about helping Americans get 
back on their feet after a disaster. They are about worrying 
about the program costs. And, of course, I look at what has 
happened right now with Dumas, Arkansas. They are not getting 
much better treatment.
    The Administration believes that the States and not the SBA 
should be the conduit for the bridge loans, is that what you 
are telling me?
    Mr. Mitchell. Well, I think in looking at this proposal the 
question is how can we basically come up with a solution that 
minimized the cost of the program and provide the assistance to 
the small businesses that they need. This is one of the reasons 
why the Administrator is so focused on the operational side 
that we can eliminate some of the problems and delays and 
provide that assistance through the program and through the 
process that we have in place.
    Mr. Melancon. Mr. Jefferson touched on, and I will go back 
and ask, why would the SBA oppose providing more tools to 
itself to help the people after disasters?
    Mr. Mitchell. I do not think SBA's opposed to having 
additional tools. I think the focus is how do we come up and 
identify solutions. I mean we agree that there is a problem 
that needs to be solved. The question is how do we work through 
and come up with a solution that balances both sides of it, 
from a costing standpoint and what the small business actually 
needs.
    Mr. Melancon. Well, we have been 18 months. We have not 
come up with a solution, have we?
    What I hope to accomplish and with the help of the Members 
of Congress that have been willing to give us the help is to 
prevent anybody in any part of this country from having the 
experience that the people in the Gulf Coast have had with SBA, 
with FEMA, with all the agencies. And I would plead with you to 
go back to your agency and implore that they make this 
operation work for the people and quit giving them the run 
around. Americans don't deserve that.
    Thank you.
    I would yield back my time.
    Chairwoman Velazquez. Thank you.
    I have two more questions, if I may.
    Mr. Witt, in your testimony you described the SBA disaster 
loans as being tools in the Federal Government's tool chest 
assisting disaster victims. Carrying this analogy further, do 
you believe that the SBA should have a variety of financial 
assistant tools to meet the diverse needs of disaster victims 
in the wake of a disaster?
    Mr. Witt. Absolutely. You know, the FEMA programs under the 
Stafford Act are not programs designed to help people for long 
term. They are designed for short term, 18 months or a little 
longer to help people to get a roof over their head and their 
family, temporary housing, individual family grants up to 
10,000 or so if they can make their home habitable.
    SBA's loans for homeowners and small businesses are an 
essential process of short long term recovery. I think the 
grant program is interesting, particularly if it is going to 
help a small business to recover much faster and make a taxable 
income back into that community much faster.
    Also, let me just share if I may. I was in New Orleans at 
9:00 at night meeting with three of the African-American bank 
presidents at 9:00 at night. These bank presidents were sharing 
with me, said you know here we are no deposits coming in. Here 
we are with mortgages on several churches. And how are we going 
to foreclose on this church when FDIC tells us we are going to 
have to foreclose on that church?
    You know, and Congressman Baker's new legislation and 
looking at that and talking with her a little bit. But I think 
it is a novel idea with local banking and local lending 
institutions being a big part of a disaster, SBA disaster loan 
program. I really do. Because they know the local business. 
They know the local homeowner. They do business there. And you 
know what? It would help put deposits back in that local bank.
    Chairwoman Velazquez. Do you believe that the bridge loan 
can play a role in the SBA disaster loan programs?
    Mr. Witt. I think it is needed in catastrophic events. I do 
not think it is needed in every event.
    Chairwoman Velazquez. Thank you. Thank you.
    Mr. Alford, you testified in support of the creation of 
Association Administrator for Disaster Assistance. And the SBA 
said that is unnecessary. Based on your experience--
    Mr. Alford. I think we need to give some proper attention 
to major disasters. And you need someone who focuses full time 
on this event. It confuses me that they feel they have no need 
after Katrina and Rita and Wilma. I think it is almost insane. 
It is fighting reality.
    Chairwoman Velazquez. Thank you.
    Now we are going to take a break, a recess, and come back. 
For the second panel we will be back in the next half hour.
    And I want to take this opportunity again to thank all of 
you for taking time to come here, express your views and your 
assessment as to where we are a month away from the next 
hurricane season. Thank you very much.
    (Whereupon, at 11:33 the Committee recessed to reconvene 
this same day at 12:09 p.m.)
    Chairwoman Velazquez. I call the Committee back to order.
    And we will continue with this second panel. I want to 
welcome all the witnesses, and I thank them for taking time to 
be here with us this morning.
    We are going to discuss access to capital legislation, how 
to modernize and improve some of the small business loan 
programs under SBA.

PANEL II: MR. MICHAEL HAGER, ASSOCIATE DEPUTY ADMINISTRATOR FOR 
 CAPITAL ACCESS, SMALL BUSINESS ADMINISTRATION; KATHLEEN ROTH, 
 DDS, PRESIDENT, AMERICAN DENTAL ASSOCIATION; JEFFREY RODMAN, 
CEO OF ACTORS' FEDERAL CREDIT UNION, ON BEHALF OF CREDIT UNION 
 NATIONAL ASSOCIATION; DAVID MAIN, PRESIDENT, HAMILTON COUNTY 
DEVELOPMENT COMPANY, INC., ON BEHALF OF NATIONAL ASSOCIATION OF 
                     DEVELOPMENT COMPANIES.

    Chairwoman Velazquez. Our first witness is Mr. Michael 
Hager. Mr. Hager is the Associate Deputy Administrator for 
Capital Access at the United States Small Business 
Administration. The Office of Capital Access manages the 
Administration's business loan programs and performs lender 
oversight functions at the SBA.

STATEMENT OF MR. MICHAEL HAGER, ASSOCIATE DEPUTY ADMINISTRATOR 
       FOR CAPITAL ACCESS, SMALL BUSINESS ADMINISTRATION

    Mr. Hager. Thank you very much. And good afternoon. No 
longer good morning, but good afternoon, Chairwoman Velazquez, 
Ranking Member Chabot. He is not here. And distinguished 
Members of the Committee.
    Thank you for inviting me to discuss the legislative 
proposals that you have indicated that effect business and our 
lending programs at the SBA.
    The SBA has experienced, as you know, significant growth in 
our programs over the last five years, more than doubling the 
number of 7(a) and 502 loans funded. The zero subsidy policy 
that has been adopted for both the 7(a) and the 504 has allowed 
the Agency to meet the financing demands of small businesses 
without the need for loan caps or suspension.
    Subsidy issues are very significant to the SBA. Zero 
subsidy has provided stability in the program, which is of the 
utmost importance to the lenders across the country who 
participate in our programs and deliver much needed financing 
to America's entrepreneurs.
    We understand that the Committee is considering legislative 
changes to the SBA programs, particularly relating to taxpayer 
subsidy, lender participation and application processes and 
targeted products for veterans and businesses in low income 
communities. But I want to comment, however, before I 
specifically talk about these issues, I would like to share a 
few of the proposals from the SBA.
    To lead off with, national preferred lending program, the 
SBA already has a national program for approval and renewal. 
But we would like and appreciate statutory authority this 
activity.
    Lender oversight. The ability to charge the community 
development companies for the cost of reviews. It would provide 
the SBA with the means to conduct these reviews and to carry 
out the SBA's responsibilities in this regard.
    Enforcement authority for small business lending companies. 
The SBA proposes language to reinforce the SBA's authority to 
regulate and examine the SBLCs.
    A few other items. Real estate appraisal harmonization, 
leasing policy harmonization, use of systematic alien 
verification for entitlement programs. And finally secondary 
market guarantee fee.
    I would like to comment on the proposals recently forwarded 
to us by the Committee. To begin with, Section 101 fee 
reductions, the Administration remains opposed to the 
reintroduction of taxpayer subsidy for the 7(a). Reintroducing 
subsidy will have the effect of destabilizing the program and 
risking loan caps and temporary shutdown of the program due to 
appropriation process delays and shortfalls as we experienced a 
few years ago.
    Further, we believe it would not be consistent with the 
Federal Credit Reform Act and its requirements of agencies 
obligate the cost of loan guarantees based on current 
assumptions.
    Section 102 rule lender outreach, we share your commitment 
to ensuring participation of lenders in rural areas. And we 
continue to see the number of these loans increase in the 
market, substantially I might add. However, such a program 
would need a structure to avoid duplication of existing urban 
programs that have been developed by the USDA.
    Section 103 making Community Express permanent. We support 
making the program permanent, however, we do oppose the 
provision requiring that loans under $25,000 have no 
collateral. We think in the long term this hurt the 
entrepreneur. Such a blanket policy may actually result in 
certain borrowers being left out of the program.
    Section 104 medical professionals. We believe that the 
borrower and lender subsidy included in the Committee's 
legislation would have a significant upward of impact on the 
subsidy rate.
    Section 105 veterans participation. The Administration 
shares the Committee's desire to make the benefits in the 7(a) 
program more available to veterans. However, we must point out 
the proposal will have, again, a significant upward impact on 
the subsidy due to the elimination of fees as proposed.
    Section 106 the alternative size standard recognized the 
Committee's desire to adopt a simpler method for determining 
whether a business qualifies as a small business under the 
Business Act. However, we have concerns about the potential for 
misapplication to borrowers who are large businesses. The 
Administration looks forward to working with you to develop a 
better alternative size policy for our business financing 
programs.
    With regard to the 504 program, the Administration largely 
supports the provisions that focus 504 as a local economic 
development program. However, there are few provisions that we 
would like to express our concerns.
    Refinancing--
    Chairwoman Velazquez. Mr. Hager--
    Mr. Hager. Yes, Madam.
    Chairwoman Velazquez. You are a regular in this Committee. 
You know what the red light means.
    Mr. Hager. I failed to look.
    Chairwoman Velazquez. But how much time? If you could 
summarize.
    Mr. Hager. One minute.
    Chairwoman Velazquez. Thank you.
    Mr. Hager. Finally, maximizing eligibility. The 
Administration must express its opposition to this provision. 
It would permit loans up to $6 million. We feel that the 
program that we have in the SBIC debenture program would be a 
better fit for that.
    And finally, Madam Chairwoman, we share the Committee's 
desire to support small business development and continue the 
vital contributions that small businesses have made to the 
economy in the U.S. And on behalf of the SBA Administrator, 
Steve Preston, we look forward to working with the Committee to 
ensure that entrepreneurs have access to capital necessary to 
start, grow and strengthen their businesses.
    And I will look forward to your question.
    [The prepared statement of Mr. Hager may be found on page 
66 of the Appendix.]
    Chairwoman Velazquez. Thank you.
    Mr. Hager. I'm sorry I went over.
    Chairwoman Velazquez. Thank you, Mr. Hager.
    Our next witness is Ms. Kathleen Roth. Dr. Roth is the 
President of the American Dental Association, the world's 
largest and oldest professional association of dentists. The 
ADA represents over 153,000 members, many of whom are members 
of the small business community.
    Thank you.

  STATEMENT OF KATHLEEN ROTH, DDS, PRESIDENT, AMERICAN DENTAL 
                          ASSOCIATION

    Dr. Roth. Thank you, Madam Chairwoman and Members of the 
Committee.
    I am the President of the American Dental Association, but 
I am also a practicing dentist. I have a family practice, a 
private practice dentist in West Bend, Wisconsin, which is just 
north of Milwaukee, Wisconsin.
    I am pleased to offer the ADA support for your legislation 
that would establish the medical professionals in the 
designated shortage areas in Section 7(a) of the Small Business 
Act.
    The ADA represents 72 percent of our dental profession. Our 
association and all of our members believe that Americans all 
deserve access to quality oral health services. Unfortunately, 
than one in every five children that live in underserved 
populations sees a dentist even once a year.
    In Wisconsin we have been expanding our dental students' 
clinical experiences to include opportunities to provide care 
not only at Marquette University School of Dentistry, but also 
in the rural communities of Wisconsin. Sometimes five or six 
hours north of Milwaukee the students will go off site and they 
will spend a period of about two weeks living in a hotel while 
providing comprehensive dental services to community health 
centers, sometimes privately owned large dental clinics.
    We feel very strongly that given the exposure to 
communities in severe need located in settings that most 
dentists graduating don't commonly think about as establishing 
their practices in, will open the possibilities for these new 
graduates to consider establishing their practices in 
underserved areas.
     We have had some success with the new graduates going to 
these undeserved areas. And we could be much more successful 
with some increased financial incentives for establishing their 
practices in these locations.
    There are a number of barriers to increasing access to oral 
care. But one of the key barriers is the simple fact that the 
distribution or the location of dentists in some states and 
some local communities makes it very difficult for patients to 
seek care.
    Your legislation could play a very important role in 
overcoming that barrier. The overwhelming majority of dentists 
are small business people who would directly take advantage of 
the improvements in this Small Business Act. Any enhancements 
to the loan program could have a positive effect on oral health 
care access by influencing the locations of those choosing to 
locate their practices there.
    In fact, over 90 of all practicing dentists are private 
practice sector. And the vast majority of our private practice 
dentists operate independently owned, small solo practices or 
two dental practice offices. We employ on average 4.8 employees 
by each dentist.
    The SBA medical professional and designated shortage 
program is targeted at just the right people when we are 
looking to answer yet one more solution for access to care.
    In closing, Madam Chair, I would like to make suggestion 
for change in the legislation, something that we believe would 
strengthen this proposal. We believe that the bill could have a 
greater impact if the fees on the loan for the medical 
professionals under Section 104 were eliminated, just as they 
have been eliminated for the veterans in Section 105.
    We understand that the suggestion would add a little cost 
to the program, but we believe it is very warranted when are 
looking to answer some of the access problems and address the 
financial barriers to dentists who might really be looking to 
establish their practices in these underserved areas.
    So, I want to thank you very much. Thank you Members of the 
Committee for listening to me and allowing me to testify on 
behalf of the American Dental Association. And I look forward 
to your questions.
    [The prepared statement of Dr. Roth may be found on page 71 
of the Appendix.]
    Chairwoman Velazquez. Thank you, Dr. Roth.
    And our next witness is Mr. Jeff Rodman. Mr. Rodman is the 
CEO of Actors' Federal Credit Union, a cooperatively run bank 
and institution in New York, New York. Mr. Rodman represents 
the Credit Union National Association, the primary national 
trade association serving America's credit unions.
    Thank you and welcome.

  STATEMENT OF JEFFREY RODMAN, CEO OF ACTORS' FEDERAL CREDIT 
     UNION, ON BEHALF OF CREDIT UNION NATIONAL ASSOCIATION

    Mr. Rodman. Thank you.
    Good afternoon, Chairwoman Velazquez and Small Business 
Committee.
    Thank you for inviting me to appear to express the support 
of the Credit Union National Association for the small business 
access to capital, Act 1332.
    CUNA would like to thank Representative Bean, the 
Chairwoman and the Ranking Member for sponsoring this important 
legislation.
    As stated, I am the President of Actors' Federal Credit 
Union in New York City. We are located in the heart of New 
York's theater district. Actors' has over $86 million in assets 
and serves over 16,000 members in the entertainment community.
    Founded in 1962 by members of Actors Equity Association, 
Actors' serves some 75 different groups involved in theater, 
dance, music, television, motion pictures as well as behind the 
scene workers in makeup and hair, studio mechanics, camera, 
lighting and theatrical wardrobe.
    Actors' serves its members with a broad array of financial 
services, including a small business lending program that 
responds to the unique needs and circumstances of our diverse 
membership.
    For example, Actors' has made over $2 million in small 
business loans for financing musical instrument. Madam 
Chairwoman, although Actor's is an active small business 
lender, we do not currently participate in SBA's 7(a) program. 
We have received many inquiries about 7(a) loans from members 
seeking larger unsecured loans to purchase equipment for a 
production company or costumes for theater groups. 
Unfortunately, we have found the process for qualifying as an 
SBA lender and the requirements for underwriting and servicing 
individual loans to cumbersome and time consuming to recoup the 
expensive for the small size or number loans we might make.
     Recent increases in both lender and borrower fees only add 
to our concerns. The 7(a) program could be too expensive for 
both our credit union and many of our potential borrowers.
    Let me begin my formal testimony by commending the 
Chairwoman for her past leadership in offering amendments to 
appropriation bills to restore subsidy funding for the 7(a) 
program. CUNA was pleased to be part of a coalition of 20 
business groups advocating for these important amendments.
    I would also like to personally thank the Chairwoman for 
her tireless efforts to push for all credit unions to 
participate in SBA programs at a time when there were only five 
credit unions participating. Today there are over 250 thanks to 
your efforts.
    While CUNA has actively supported increasing 7(a), its 
member credit unions have not been major participants in the 
program. Currently even with over 250 credit unions, there are 
still less than 2 percent that offer SBA loans to their 
members. And several factors have discouraged larger number of 
credit union from participating as 7(a) lenders.
    The Credit Union Membership Access Act of 1998 capped the 
amount of business loans any credit union can make at 12.25 
percent of total credit union assets. The cap has discouraged 
many credit unions from initiating business lending programs, 
including ours, and limited the program of qualified credit 
union lenders able to participate in the 7(a) program.
    Another factor which I have already mentioned is the 
burdensome paperwork of the 7(a) program, which added to the 
cost of hiring experienced lending staff or consultants make it 
almost prohibitive for smaller credit unions to even consider 
starting a 7(a) program.
    The move to a zero subsidy for the 7(a) program in 2005 has 
created further disincentives by forcing borrowers to pay 
substantially higher fees. As Chairwoman Velazquez noted last 
year, this has meant additional fees for smaller to mid sized 
loans ranging from $1500 to $3000.
    How can Congress address these problems and make the 7(a) 
more affordable and accessible for both small business 
borrowers and small lenders? I have four points to make.
    First, CUNA strongly supports initiatives that will permit 
SBA to reduce borrower and lender fees for the 7(a) to the 
greatest extent possible. We urge this Committee and also the 
Appropriations Committee to approve the possible fiscal year 
2008 funding levels for the 7(a) program.
    Second, CUNA urges support for provision in HR 1432 to 
restore and expand the 7(a) low documentation program, 
otherwise known as Low-Doc. Low-Doc made the 7(a) process more 
cost efficient for lenders to make smaller loans, and also to 
make smaller numbers of loans.
    Third, we support permanent authorization and expansion of 
the Community Express Loan Program which targets 7(a) loans to 
lower income communities and to minorities, veterans and other 
under represented groups.
    Given the historic mission of credit unions to meet the 
credit needs of all individual groups not adequately served by 
other financial institutions, the Community Express Program is 
a logical vehicle for increasing credit union participation in 
7(a).
    Fourth, CUNA urges the Committee to consider other 
innovative programs to streamline 7(a) loan document of 
processing for credit unions and other small lenders. A 
possible approach might be creating a new prequalification 
program specifically targeted to small lenders rather than 
specific borrowers that would permit local technical assistant 
intermediaries to prequalify potential borrowers, match them 
with qualified local lenders and expedite final loan 
processing.
    In closing, I want to thank the Committee for this 
opportunity to discuss some of the recommendations included in 
my written testimony, and welcome the opportunity to answer 
further additional questions.
    Thank you.
    [The prepared statement of Mr. Rodman may be found on page 
78 of the Appendix.]
    Chairwoman Velazquez. Thank you.
    We are going to recess for like two or three minutes. We 
are just waiting for the Ranking Minority to come. He is like 
two minutes away.
    (Whereupon, at 12:27 p.m. a recess until 12:29 p.m.)
    Chairwoman Velazquez. Calling back to order.
    And I'll recognize, Mr. Chabot, for the introduction of his 
witness.
    Mr. Chabot. Thank you, Madam Chair.
    I would like to introduce someone from my District, David 
K. Main. He is the President and CEO of Horizon Certified 
Development Company, HCDC, which started back in 1983.
    While the SBA 504 program is HCDC's flagship of economic 
development lending activity, HCDC also administers the Ohio 
Regional 166 Loan Program, Community Reinvestment Fund USA 
Program, the Hamilton County Economic Development Office and 
the Hamilton Business Center, a 70,000 square foot business 
incubator.
    Prior to joining HCDC Mr. Main served as a loan officer, 
staff attorney for Citywide Development Corporation in Dayton, 
Ohio, legal advisor for the Department of Community Development 
in Rockford, Illinois and commenced his economic small business 
development career as the first economic coordinator of the 
city of Xenia, Ohio.
    Mr. Main holds a juris doctorate, a doctor of Juris 
prudence and a bachelor of arts degree from a very fine 
institution, the University of Cincinnati.
    And we welcome him here this afternoon.
    Thank you, Madam Chair.

STATEMENT OF DAVID MAIN, PRESIDENT, HAMILTON COUNTY DEVELOPMENT 
COMPANY, INC., ON BEHALF OF NATIONAL ASSOCIATION OF DEVELOPMENT 
                           COMPANIES.

    Mr. Main. Thank you, Congressman.
    I am here today to represent NADCO as a Board member and 
the more than 260 certified development companies across our 
country that provide financing to small businesses under the 
SBA 504 loan guarantee program.
    I would like to thank Chairwoman Velazquez, Ranking 
Minority Member Chabot and the entire Committee for giving me 
the opportunity to provide remarks on this important 
legislation, and for your continued support of the SBA 504 loan 
program and the CDC industry.
    The 504 loan program represents a unique public/private 
partnership which includes private lenders, and in our case 
recently credit unions, the U.S. Small Business Administration 
and more than 260 CDCs which provide much needed financing for 
small businesses for their expansion and growth.
    For over 25 years this national network of CDCs has worked 
with private lenders, the SBA and the small business concerns 
in structuring projects and approving loans on behalf of over 
94,000 small businesses.
    During the first year of the SBA 504 loan program in 1986, 
the CDC industry approved merely 487 loans, totaling over $115 
million, which leveraged a total of $287 million in new 
business investment. However, during the most recent fiscal 
year in September 30 of 2006, just under 10,000 businesses 
received SBA 504 financing, totally over $5.9 billion, which 
leveraged over $14 billion in new small business investment.
    I joined HCDC in 1983 as its first Executive Director and 
President when the predecessor to the 504 program, the 503 
program was acted. Since then HCDC has approved over 828 SBA 
504/504 loans totaling over $214 million, which has leveraged 
over a half billion dollars in small business investments.
    You may recognize some of the companies that HCDC has 
funded with 504 loans, including AE Door and Window in Forest 
Park, Exercise and Leisure in Columbia Township, LaRosa's 
Pizzeria on Boudinot and Hanky Winery over in Westwood.
    The legislation that the Committee has drafted for the 
first time in the history of the 504 program would define in 
statute the specific legislation framework as to how the 504 
should be best structured and how the 504 program can best 
operate. The impact of this bill will be historic, and we look 
forward to offering comments on the following dramatic impacts 
of the legislation.
    First, for the first time the economic development mission 
and the value that CDCs bring to small business, the SBA into 
the community we serve would be defined in statute. This 
legislation recognizes that CDCs do more than merely process 
504 loans. In essence, they marshal resources to help small 
businesses expand and to implement community economic 
development.
    Second, the legislation also recognizes that CDCs should be 
locally based economic development organizations that are 
connected to the communities they serve. It is also critically 
important to the CDC industry that the legislation impose high 
ethical standards that would prohibit one individual or his 
immediate family or her family with affiliates from controlling 
multiple CDCs, and we hope to continue in our work with your 
Committee on this important issue.
    Third, this bill also provides an opportunity to allow the 
504 program to do more for companies located in lower income 
communities, which are disproportionately located in urban core 
areas and rural areas of our country. We hope to continue our 
work with the Committee in devising the best ways to make this 
happen.
    Fourth, although historically the SBA program has 
experienced a very low default rate, the bill recognizes that 
all CDCs should be required to either directly liquidate or 
contract with third parties liquidate defaulted loans in view 
of the decreased liquidation staff within the SBA. We heartily 
support that. However, we vehemently oppose charging CDCs for 
oversight fees with audits similar to what is being proposed 
and is being charged for banks and for regular 7(a) lenders. We 
are nonprofits, we support economic development and our fee 
structure is such that we cannot support the imposition of such 
oversight fees for outside audits and that.
    We also feel that refinancing could be a valuable addition 
to the 504 program where we might have a more effective 
financing structure for small businesses and their expansion.
    Finally, we applaud you in this proposed historic 
legislation that will set the course for the future and clearly 
define the purpose and role of the CDC industry as a not for 
profit financial intermediaries that deliver small business 
programs and services in the best way possible for these 
businesses and for the economic development of their 
communities.
    We look forward to continue to work with the Committee on 
enactment of this bill. Thank you for your support.
    And I would be pleased to answer any questions regarding 
CDC or the 504 loan program.
    [The prepared statement of Mr. Main may be found on page 83 
of the Appendix.]
    Chairwoman Velazquez. Thank you, Mr.Main.
    Mr. Hager, I want to address my first question to you. In 
your testimony you suggest that Section 101 of the Small 
Business Lending Improvements Act violates principle of credit 
reform. Mr. Hager, the Clerk is handing you a copy of the 
Credit Reform Act. Could you please point to the provision that 
says that the SBA can only make performance estimates on an 
annual basis?
    Mr. Hager. We believe, and historically we have always--
    Chairwoman Velazquez. No. I am asking if you could point to 
the statute that you have in front you. You make reference to 
it. But I could save you time. Mr. Hager.
    Mr. Hager. Yes, Madam.
    Chairwoman Velazquez. You will find a provision in 2 USC 
661 that conflicts with this bill. In fact, nothing in the Act 
will preclude the SBA from making the contributions specified 
in this legislation.
    Mr. Jefferson. Yes, Madam. We believe, and I will be glad 
to get back to you with my assertion. We still believe there is 
a conflict here.
    Chairwoman Velazquez. Mr. Hager, I am telling you there is 
not such conflict.
    Mr. Hager. And I will--
    Chairwoman Velazquez. Not only I will save you time, I will 
save you an embarrassment if you start looking line-by-line 
because you are not going to find in any lines of the statute 
that it specifically prohibit.
    Mr. Hager. I--
    Chairwoman Velazquez. Let us go to the next question. But 
if you do in your office, send it to us.
    Mr. Hager. I would like to do that.
    Chairwoman Velazquez. Mr. Hager, in your testimony you 
suggest that the proposal to make the Community Express Program 
permanent may have constitutional ramifications. Would you 
please tell me and tell this Committee which court opinion you 
based your comments on?
    Mr. Hager. The original Community Express Program was set 
up to favor certain communities. We believe that bias would be 
unconstitutional.
    We are making recommendations to pull that particular 
feature out for the future to where it is within the 
Constitution.
    Chairwoman Velazquez. Well, you raised the 
constitutionality ramifications of this--
    Mr. Hager. Yes, Madam.
    Chairwoman Velazquez. Of the Community Express Program. You 
know that there is no court decision has ever considered the 
constitutionality of this program, has it?
    Mr. Hager. None has been rendered at this point.
    Chairwoman Velazquez. Okay.
    Mr. Hager. But my point is the way it was originally 
structured we believe presented constitutional issue.
    Chairwoman Velazquez. As I recall Mr. Hager, the Supreme 
Court has considered and upheld the constitutionality of SBA 
programs that help minorities. The 8(a) program. Does the SBA 
have any constitutionality concerns with the 8(a) program? Do 
you have?
    Mr. Hager. I do not know any concern about the 8(a) 
program.
    Chairwoman Velazquez. Well, you know what? I find it quite 
convenient for the SBA to raise constitutionality concerns 
whenever it suits your policy positions.
    Mr. Hager. Yes, Madam. I have raised this issue on one 
platform. And again, I believe going forward we will have no 
exposure.
    Chairwoman Velazquez. Mr. Hager, in your testimony you 
state that the medical professionals and veterans loan programs 
violate Federal credit policy because the loan guarantee 
percentages exceed 80 percent. Where in Federal law is this 
requirement?
    Mr. Hager. I will specifically point out the reference that 
I made in my testimony, and I will present that to you.
    Chairwoman Velazquez. There is nothing in Federal law. In 
fact, it is or it might be an Administration policy?
    Mr. Hager. I would be happy to clarify that issue.
    Chairwoman Velazquez. Now I recognize Mr. Chabot?
    Mr. Chabot. Thank you, Madam Chair.
    Mr. Main, let me start with you, if I can.
    Do you have any comments on anything that should be 
included in your opinion in the legislation that may not have 
not been? Are there any changes that you would suggest in 
improving the bill? Anything along those lines.
    Mr. Main. In my 25, really 30 years with the 504 program, 
this is probably the best piece of legislation as far as the 
program and improvements in the industry that I have seen. And 
my feelings are there may be some details that need to be 
worked out, that we need to work out with the Committee. But 
this is one of the finest pieces of legislation dealing with 
the 504 program.
    Mr. Chabot. Okay. Thank you. You mentioned some programs 
that and projects that you were involved in in Cincinnati. What 
are you proudest of relative to what you have been able to deal 
with at the various levels that you have been involved in this 
area back in our community?
    Mr. Main. There is probably three things. The first one is 
the SBA 504 program, because that is where we got our start and 
that has been our hub and our focus. It is an economic 
development program, but that enabled us to: (1) Set a culture 
where we are looking to deal with real businesses, real people, 
real money where we have to make loans, we have to approve, we 
have to fund, we have to close and we have to have loans 
repaid. And it has happened. And that set the culture.
    The second thing was probably our Hamilton County Business 
Center, the business incubator, which is the largest incubator 
in the State of Ohio and probably in the midwest with nearly 50 
companies. We had over 200 that have gone through the program. 
Some of our graduates have taken advantage of SBA 504 loans. 
There is a wide array of tech-based business, minority 
businesses. Just a wide number of them.
    And I guess the third area would be the Economic 
Development Office and able to work with our local communities 
in order to bring in new investment and put together a number 
of economic development tools, be it loans from the SBA, loans 
from the State, maybe some other Federal types of support in 
order to make projects happen that otherwise because of the 
purse marketplace would not happen.
    Mr. Chabot. Okay. Thank you very much.
    Mr. Rodman, if I could turn to you next. How much of the 
loan documentation associated with the 7(a) loan is 
necessitated by SBA regulation and how much is required because 
those loans are sold in the secondary market and required by 
purchasers of the loans.
    Mr. Rodman. You probably missed my testimony, but I am not 
a 7(a) lender now. So I can't speak to really critically 
specifically on those issues. But I know CUNA will get back to 
you on that.
    But I will say it was one of the things that has been 
deterrent for us to get into the program because when we talk 
to other credit union lenders who are in the SBA program, they 
have made it clear to us that we would have sufficiently a 
staff that would be able to handle this type of information.
    Under an SBA guarantee my understanding is that if the loan 
goes bad, that is only when you find out if the guarantee works 
or not. In other words, you do not get the prequalification 
prior to it. It is when the loan goes bad, then they look at 
the documentation and say well, you know what you did not dot 
that I and you did not cross that T and we are not paying on 
this one. So you are going to take the whole bill on this.
    Therefore, for us to get into the program, look at us for 
example. We are credit union with 30 employees. If I want to 
add one SBA lender who has the sufficient technical expertise, 
I am going to have to pay something like $60,000/$70,000. Now 
in my culture that is probably going to add about close to 
almost 10 percent of my salary increase. Now I am looking at 
increasing my salaries of my HR budget by 10 percent. And I 
have to do that in order to protect myself on the back end on 
this loan. Because if I do not have somebody that knows exactly 
where the Ts are to cross and where the dots are to dot, it is 
like I am going to be trouble if that loan goes bad on me.
    And then in addition to that, the other thing is working 
against the 12.25 percent asset cap that is mandated by the 
Credit Union Membership Access Act of 1998. I have got about $9 
million in loans right now out in business loan. I have got a 
cap of about $11 million. Now that means I got $2 million in 
there that I can lend to.
    Now I am going to hire somebody for $70,000 that I can only 
put $2 million into. It stops making sense for me.
    See, these are where the problems come in.
    I know that Chairwoman Velazquez is talking about is taking 
that nonguaranteed portion so I can go over my cap and not have 
it applied to my cap. If that were to happen, that would make a 
whole new Belgium just there. That would be a great new 
Belgium. Because then I would say, okay, I can make as much SBA 
lending as I want to. It does not fit into my cap anymore. 
Okay. Now we are starting to talk in a place where I can really 
get the business here.
    Mr. Chabot. Thank you.
    Chair, I am not sure if I have any time or not. I do not 
want to oppose on --
    Chairwoman Velazquez. You have time.
    Mr. Chabot. Okay. Dr. Roth, given the amount of dental 
school debt and the average salary nowadays for a dentist, 
would the program set forth in Section 104 be sufficient 
incentive to entice a dentist to establish a practice in an 
underserved area in your opinion?
    Dr. Roth. Well, certainly alone, no. But it is one more 
tool that would make a dental student who is graduating look at 
an underserved area very seriously.
    You know, they do have a lot of debt. A dental student 
might be getting out $200,000 in debt. And to look at 
establishing a practice in an underserved area where your basic 
patient base will be Medicaid or Government funded programs, 
there is a lot of risk there for a new dentist to create their 
lifestyle and live with their practice there. But I see this 
program as offering one more piece to that opportunity that 
could really make a difference there.
    Dentists and dental students do want to go home and 
practice a lot of times where they grew up. And if we can give 
someone the incentives and the financial viability to make that 
a strong possibility, I think it will make a difference.
    Mr. Chabot. Thank you very much.
    And finally, Mr. Hager, and if you have already comment on 
this I apologize, but could you comment on how much overlap 
there is between the Community Express loans and the micro 
loans?
    Mr. Hager. There is significant overlap. I have got some 
materials that--and if I cannot pull it out instantly, I will 
send it to you. But essentially between the Community Express 
program, SBX Express Program, if you look at Low-Doc 5/6 years 
ago and look at the loan volume, carry it forward to today, 
which dropped to zero, you will see an incredible increase in 
Community Express loans where the volume has increased 
substantially. And the same thing in Community Express.
    So we believe the Low-Doc was completely consumed by 
certainly the combination of Community and Express, and largely 
by the Community Express because of the features of the 
programs match very closely.
    Mr. Chabot. Thank you very much. I yield back, Madam Chair.
    Chairwoman Velazquez. Thank you.
    Dr. Roth, can you comment on why conventional 7(a) loans 
are inadequate to encourage medical professionals to open 
offices in underserved areas? Are lenders simply reluctant to 
make these loans due to increased risk or are your members 
discouraged from taking these loans because of the cost?
    Dr. Roth. In my opinion I do not take they are discouraged 
from taking the loans because of the cost. I think there is not 
a significant difference in a commercial loan that is available 
to a new graduate. They have to have a very clear reason to 
take the small business loan and to practice in an underserved 
area.
    Dentists, quite honestly, are really not a bad risk in the 
financial world. They are a very low risk for paying back those 
loans and creating a solid dental practice. But when you do 
that in an underserved area, the reimbursements for their 
practice base are so low it makes it a very tenuous line to 
walk for a profitable business and a touch and go.
    So I see this as a significant additional piece that would 
really influence someone to that tipping point where, yes, I 
can make my practice work in that inner city of Milwaukee or 
downtown Chicago where the need is clearly there, and we want 
to address the access issue for all patients. But it still has 
to be a solid economic model for a small business to provide 
and continue their life there.
    Chairwoman Velazquez. Thank you, Dr. Roth.
    Mr. Rodman, this legislation will enable the SBA to reduce 
the fee burdens on small businesses and lenders in the 7(a) 
program and will do so without disturbing the stability created 
under the current zero subsidy rate. How will this approach 
benefit credit unions?
    Mr. Rodman. Well, I think it would be highly beneficial. I 
mean, in our relationship with our borrowers, with our members, 
every dollar counts, every fee and dollar counts when it comes 
into lending. I mean when we are talking about lending, we are 
talking about, you know, we are talking about $50,000, $60,000, 
$70,000. If you are talking a $100,000, if you get into the 3 
percent range or something like that, you are all of sudden, 
you are starting to talk about 3 percent of the loan.
    So these costs are actually significant. They are 
significant carrying forward as that member moves into their 
business and starts working with their business. I mean these 
are not small--you know, I mean up here I know they look like 
small dollars. But when you are going out and buying inventory 
or whatever you are doing, these are significant dollars.
    Chairwoman Velazquez. The Small Business Lending 
Improvement Act will establish a rural lender average program 
to increase lender participation in the 7(a) program, 
particularly among small banks and community lenders by 
reducing application burdens for borrowers and lenders and 
streamlining the lending process. Would this program also 
encourage more credit unions to participate in the program.
    Mr. Rodman. Absolutely. Anything that can reduce the 
paperwork trial will help a great deal. Again, going back to a 
credit union our size, which we are relatively typical, you 
know 86 million, we are about in the middle where everybody 
stands. When I look at myself and I look at the jobs that are 
taking place of people on the ground, we work full tilt all day 
long. I come along and I have so many new things that have to 
be together. I have to keep with the debit card program and add 
rewards to my debit card program, et cetera. And then you come 
and you bring an SBA program in and you say, okay, and here is 
the SBA program. And all of a sudden you look at it, and it is 
blindingly big and you go like let me put that one off until 
tomorrow. And that is what happens.
    And then we start looking at--and I have talked to people 
about the lending process for one or two loans and the 
difficulties they have to go through. And I think like I have 
got a loan officer that has to get mortgages out, has to get 
home equities out, have to get credit cards out, has to get car 
loans out, has to get personal loans, has to get secured loans 
and they have to do deal with all those loans. And I say now I 
am going to take their energies and try to cram that much more 
time, I got to a new person, et cetera.
    So, yes, streamlining this would make an incredible 
difference.
    Chairwoman Velazquez. Thank you.
    Mr. Chabot, you have any other questions?
    Mr. Chabot. Madam Chair, if I could just ask one question.
    Chairwoman Velazquez. Sure.
    Mr. Chabot. On behalf of one of our colleagues who was here 
earlier but had to go to another meeting and wanted to ask this 
question.
    Mr. Hager, it would be addressed to you. If I own a 
franchise and cannot get the franchisor to pay my debts, would 
it be fair to say that most people would assume the franchisee 
and franchisor are independent?
    Mr. Hager. I would like to get back with you with a 
statement. And I will consult with our legal department and get 
you an answer to that.
    Mr. Chabot. That is fine.
    Mr. Hager. If that is okay?
    Mr. Chabot. That is fine. Thank you very much.
    Chairwoman Velazquez. Okay. Well, with this concludes this 
hearing.
    I want to thank you again for being here for answering our 
questions.
    And the Chair would like to ask unanimous consent to enter 
into the record opening statements of Members that are not 
present at this moment.
    And with that, we are adjourned.
    [Whereupon, at 12:53 p.m. the Committee adjourned.]

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