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




 
                       FULL COMMITTEE HEARING ON
                         LEGISLATION TO PROVIDE
                             FUNDING LEVELS

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 27, 2007

                               __________

                          Serial Number 110-48

                               __________

         Printed for the use of the Committee on Small Business


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

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
38-206                      WASHINGTON : 2007
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092104 Mail: Stop IDCC, Washington, DC 20402ï¿½090001


                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


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

                  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


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

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

                                  (ii)

  
?

           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     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


CHARLIE GONZALEZ, Texas              LOUIE GOHMERT, Texas, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES


PANEL I
Carranza, Hon. Jovita, United States Small Business 
  Administration.................................................     3


PANEL II
Kelly, Kevin, Association for Enterprise Opportunity.............    15
Kuczarski, Don, Credit Union National Association................    16
Keenan, Jody, Association of Small Business Development Centers..    18
Crawford, Chris, National Association of Development Companies...    20

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    33
Chabot, Hon. Steve...............................................    35
Carranza, Hon. Jovita, United States Small Business 
  Administration.................................................    36
Kelly, Kevin, Association for Enterprise Opportunity.............    39
Kuczarski, Don, Credit Union National Association................    43
Keenan, Jody, Association of Small Business Development Centers..    47
Crawford, Chris, National Association of Development Companies...    50

Statements for the Record:
National Association of Federal Credit Unions....................    53

                                  (v)

  


                       FULL COMMITTEE HEARING ON
                         LEGISLATION TO PROVIDE
                             FUNDING LEVELS

                              ----------                              


                      Thursday, September 27, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 9:30 a.m., in Room 
2360, Rayburn House Office Building, Hon. Nydia M. 
Velazquez[Chairwoman of the Committee] Presiding.
    Present: Representatives Velazquez, Gonzalez, Cuellar, 
Ellsworth, Chabot, Bartlett, Akin, Fortenberry and Heller.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    Chairwoman Velazquez. I now call this hearing to order to 
review legislation providing funding levels for programs within 
the Small Business Act.
    As the American economy continues to evolve and change, so 
must our economic policies. This Committee has already taken 
steps to make certain that programs at the SBA are transformed 
to meet the needs of this Nation's 27 million small business 
owners. To this end, we have reported over a dozen bills that 
will provide technical assistance, access to capital and the 
overall tools for success.
    The focus of today's hearing is to review legislation that 
provides the necessary authority and funding to implement this 
reform. It is one of the last pieces of the puzzle as Congress 
moves forward with implementing the first major reform to the 
SBA in a decade.
    A major challenge for the SBA and its program has been 
meeting the growing demand for services. Nowhere has this been 
more evident than in the Entrepreneurial Development Program.
    SBDCs and Women's Business Centers have played a vital role 
in helping small businesses where they have been faced with 
severe budget crunches. Over the last 5 years, many centers 
have seen the Administration cut their budgets by up to 20 
percent. This is despite the fact that a $1 investment in SBDCs 
generates an estimated $3 in tax revenue. For this program to 
maintain experienced staff, they must have sufficient 
resources. This legislation will provide such funding.
    A primary role of the SBA is to help entrepreneurs that 
have the drive but need assistance. The perfect example is the 
returning veteran who is prepared to start his or her own 
business venture. By funding the Office of Veterans Business 
Ownership, this can be achieved. Veterans often bring a unique 
skill, but they, like other budding entrepreneurs, struggle in 
converting these dreams into a successful business.
    It is also critical that small firms have the necessary 
access to capital. With a growing credit crunch, entrepreneurs 
are faced with few options when it comes to financing. The 7(a) 
and 504 loan programs have filled a critical void when capital 
is scarce. This legislation will ensure that the SBA loan 
programs will never have to shut down due to excess demand.
    And while later today we will move a bill in the House that 
puts venture capital in the hands of small businesses, this 
bill will provide the authority to do so.
    Micro lenders will also be able to continue serving 
entrepreneurs who will not have the opportunity otherwise. 
Considering that the default rate on micro loans continue to be 
at or near zero, it only makes sense to increase the 
authorization for this program.
    Finally, it is important to know that this bill will 
increase funding for the HUBZone program. It may seem odd to do 
so, considering the Inspector General has deemed that the 
program is plagued by fraud. However, this money will provide 
the SBA with the ability to carry out the program the way it 
was intended.
    I want to thank the SBA and stakeholders for coming here to 
discuss these programs and ways to improve them. An 
authorization bill expresses this Committee's intent on how the 
programs should be operated, but before making recommendations 
it is critical to seek the input of those who carry them out. 
For too long the Administration has either underfunded or 
underutilized initiatives that have successfully assisted small 
businesses. This has been an obstacle to their success. The 
legislation we are considering today changes that by enabling 
the SBA and its partners to provide the necessary capital and 
technical assistance. The Committee will use this hearing to 
make any changes so that the SBA can meet their client's needs.
    I look forward to today's discussion and will yield to Mr. 
Chabot for his opening statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr. Chabot. I would like to thank the chairwoman for 
holding this important hearing to address one of the more 
technical yet significant issues that this Committee must 
consider as it wraps up its efforts to examine and reauthorize 
the Small Business Act and the Small Business Investment Act in 
1958. The major SBA financing programs--the 7(a) Guaranteed 
Loan Program, the Certified Development Loan Program and the 
Small Business Investment Company Program--operate without any 
appropriation at all. Even so, it is the responsibility of 
Congress to ensure that limits are imposed on the ability of 
the Small Business Administration to guarantee repayment of 
obligations authorized by banks and CDCs and SBICs. In doing 
so, Congress must balance the need to protect the full faith 
and credit of the United States with a need to ensure that the 
SBA has sufficient authority to meet the financing needs of a 
small business community.
    In addition, there are two other major financing programs, 
the Microloan Program and the Surety Bond Program, that utilize 
minimal levels of appropriations. Even with a need for an 
appropriation, these programs still operate through reliance on 
the full faith and credit of the United States. As a result, 
Congress must exercise its responsibility to ensure that the 
full faith and credit is used in a sensible manner.
    Today, we also will hear about the needs of the Small 
Business Development Center Program. Even though the funding 
level for that program is determined in the appropriation 
process, the formula for the allocation of funds among the 
various grantees in the SBDC program is based in part on the 
levels authorized in the Small Business Act.
    There are also a number of additional separate 
authorization levels that are scattered throughout the Small 
Business Act. In almost all cases the programs operate without 
regard to authorization levels, as long as there are funds 
appropriated for them. In addition, Section 20 of the Small 
Business Act contains a permanent authorization for all 
programs as long as funds are appropriated for the programs.
    In my opinion, there is no absolute legal need to dictate 
authorization levels for programs that have permanent operating 
authority or whose operating funds derive from a salary and 
expenses account in the SBA appropriation. Even though there is 
no absolute legal need to undertake consideration of the myriad 
of these authorizations, I think the Committee can use this 
process for separate authorizations to provide an additional 
opinion to the appropriators on the importance and funding 
levels for various programs. The Committee already had one shot 
at that in the budget views and estimates letter. But this 
provides a second opportunity to express to the appropriators 
which programs should receive more funding than the requests 
submitted by the SBA.
    Given the potential that this authorizing process may have 
for the Committee's oversight of the SBA and the information it 
can supply to the Committee on Appropriations, I believe that 
the process serves a valuable public policy goal, even though 
it does not constitute a strict legal necessity.
    Again, I would like to thank Chairwoman Velazquez for 
holding this hearing and look forward to the ideas offered by 
our distinguished panelists; and I yield back the balance of my 
time.
    Chairwoman Velazquez. Thank you.
    Chairwoman Velazquez. Our first witness is Ms. Jovita 
Carranza. Ms. Carranza is the Deputy Administer of the U.S. 
Business Administration. She helps to manage the agency's more 
than 80 field offices across the country, as well as a 
portfolio of direct and guaranteed business loans, venture 
capital investments and disaster loans worth almost $80 
billion. Welcome.

      STATEMENT OF THE HONORABLE JOVITA CARRANZA, DEPUTY 
   ADMINISTRATOR, UNITED STATES SMALL BUSINESS ADMINISTRATION

    Ms. Carranza. Good morning. Thank you, Chairwoman Velazquez 
and Ranking Member Chabot. Thank you for inviting me to testify 
on the proposed authorization levels for the Small Business 
Administration programs. I will separate my comments into the 
three major program areas at SBA: credit programs, noncredit 
assistance programs and general authorizations.
    The Administration has some concerns with the proposed 
authorization levels. The draft bill's authorization for the 
504 program is consistent with the 2008 budget request. 
However, the 7(a) authorization of $20 billion is significantly 
higher than the 2008 budget request of $17.5 billion. We do not 
recommend a higher authorization at this time. In addition, the 
Administration does not support authorization of the 
participating securities program. SBA will carry out its 
commitment to the program but cannot justify any further 
authorization. Also, we do not believe a further authorization 
for DELTA loans is necessary. SBA has seen no demand for these 
loans in recent years.
    We also have concerns about the authorization levels of 
noncredit technical assistance programs. SBA's budget 
submissions for these programs reflect our desire to make these 
programs more efficient so that SBA can increase the assistance 
we provide to small businesses. The draft legislation 
authorizes these programs at levels much higher than the 2008 
budget and recent enacted amounts. In addition, while the 
Administration supports micro lending, we believe the $20 
million authorization for PRIME is duplicative of the technical 
assistance already provided for prospective micro borrowers.
    The Small Business Act contains several independent 
authorizations, as well as a general authorization of 
appropriation for SBA's operating budget. An example is the 
HUBZone program, the current HUBZone authorization of $10 
million, which will double to $20 million in the draft bill. In 
the most recent appropriation, the program received a $2 
million line item. However, SBA allocates resources of close to 
$9 million to the program. The disparity between the line item, 
the authorization and the allocation highlights the 
inconsistencies in our current budget process. The 
Administration recognizes that the Congress wishes, through 
line items and specific authorizations, to clarify its 
priorities and exercise its oversight function.
    Unfortunately, the restrictive nature of line items can 
inhibit the flow of resources to program priorities rather than 
ensure them. As a result, the Administration's budget request 
has therefore often asked for the elimination of line item 
appropriations. I would like to point out that the 8(a) program 
has no specific authorization levels, just a permanent 
authorization. Yet SBA allocates resources of over $30 million 
to support the 8(a) program.
    Finally, let me mention the programs that will cease 
without reauthorization; and those are the Coverdell Drug-Free 
Workplace Program, gift acceptance and cosponsorship authority 
for SBA outreach activities and the Advisory Committee on 
Veterans Affairs.
    In addition, several other programs will no longer have 
authorization for appropriations: the HUBZone program, the 
Women's Business Center Program, Small Business Development 
Center, the National Women's Business Council.
    Only the Drug-Free Workplace Program is not reauthorized. 
The Administration would like to express its support for the 
Drug-Free Workplace Program. It provides substance abuse 
training and assistance for small business. All of these 
programs need congressional action to ensure their continued 
operation.
    Chairwoman Velazquez, that concludes my testimony. I 
appreciate the opportunity to share the Administration's views, 
and I look forward to any questions that you may have.
    Chairwoman Velazquez. Thank you.
    [The prepared statement of Ms. Carranza may be found in the 
Appendix on page 36.]

    Chairwoman Velazquez. Ms. Carranza, during last week's 
hearing I asked that the SBA perform on-site inspections of 
companies approved to the HUBZone program. This will ensure 
that businesses meet the requirements, and it will crack down 
on the fraud that the SBA's Inspector General has identified.
    Your response to my question was that on-site reviews will 
require additional resources. Would you agree that an 
authorization of $20 million for the HUBZone program will 
provide the SBA with the resources to do on-site inspections?
    Ms. Carranza. Congresswoman Velazquez, what I do recognize, 
as I stated in the testimony, that the line item does not allow 
us the flexibility to transfer the existing funds from program 
to program so that we can optimize not only the resources but 
from people to funds to be able to allocate the appropriate 
funds where we need it for program integrity program oversight 
and reform.
    Chairwoman Velazquez. How would you conduct on-site 
inspections in response to the General Inspector's finding?
    Ms. Carranza. It would be not only through resource 
allocation but understanding the broad definition of HUBZone as 
well.
    Chairwoman Velazquez. So would you answer my question? Will 
$20 million be enough resources for you to conduct on-site 
inspections?
    Ms. Carranza. I will not be in a position to address that 
because of the unknown, the number of resources that would be 
needed to perform those on-site.
    Chairwoman Velazquez. So would you then submit, prior to 
the markup of this legislation, a number telling us what will 
be the resources necessary to conduct on-site inspections?
    Ms. Carranza. I will be glad to work with your staff on 
that particular request.
    Chairwoman Velazquez. In your testimony, the SBA requested 
to increasing the authorization levels for the 7(a) loan 
program. Given that the loan program operates at a zero subsidy 
rate, it is insignificant whether authorization levels are at 
$17.5 or $20 billion. So my question to you is, why does the 
Administration continue to halt reservations and allow the loan 
market to determine the loan amounts even if it will keep a 
zero subsidy framework in place? Would you agree that the 
increased unauthorization will do nothing but increase the 
costs for the Federal Government?
    Ms. Carranza. Congresswoman Velazquez, I was writing when 
you mentioned the loan program. Can you please repeat the loan 
program?
    Chairwoman Velazquez. The 7(a) loan program, you know that 
is at a zero subsidy rate level.
    Ms. Carranza. Yes, and with that the budget reflects the 
desire to provide a reasonable estimate to loan growth. At this 
point, we are managing the particular program with two factors 
at hand: contingent liability and the underwriting. We are, as 
you know, much like the Committee, stewards of the taxpayers' 
dollars.
    Chairwoman Velazquez. If you allow me, given the fact that 
it is at a zero subsidy rate, it means it doesn't cost any 
money to the Federal Government. So my question is, it is 
totally irrelevant, $17.5 million or $20 million, if you are 
making the argument that it costs more money to the taxpayers.
    Ms. Carranza. For us to accept a $20 million without an 
experience or a trend of growth that would reflect the need for 
that, Congresswoman Velazquez, would be premature. We base the 
$17.5 based on what the current trends are in volume growth, 
and so we have an infrastructure that supports the particular 
budgetary request, or I should say the authorization request.
    Chairwoman Velazquez. Not based on testimony that was given 
to this Committee. And the fact of the matter is that what we 
see is an increase in volume in terms of applications submitted 
to get 7(a) loans, and so with this we will prevent another 
shutdown.
    Ms. Carranza. We have not experienced any particular 
shutdown. And if I may ask, Chairwoman Velazquez, can you 
clarify on the shutdown? Are you talking about shutdown on the 
program?
    Chairwoman Velazquez. Well, you were not here. You were not 
at the SBA when this happened twice. It was under Hector 
Barreto. When he came here and he said he didn't need any more 
increase in the funding level, that it was enough, enough was 
that it wasn't enough. And then they had to shut down the 
program twice.
    Let me ask you another question. In testimony before this 
Committee, the agency has promoted long-term counseling in the 
entrepreneurial development programs as a primary objective. 
Yet, due to budget cuts requested by the Administration, SBDCs 
have seen client hours decline for the first time in the 
history of the program. How can the agency submit proposals 
that continue to cut resources when this action has been found 
to be inconsistent with stated objectives?
    Ms. Carranza. The technical assistance--and I can't answer 
for the decline in their particular technical assistance hours, 
but I do know that we have an expansive network to include 
SBDCs, Women's Business Centers, SCORE, the district offices 
that are offering technical assistance. So where I cannot speak 
to the reduction of technical assistance hours, I can speak to 
the network of available technical assistance.
    Chairwoman Velazquez. One thing is clear, the network 
cannot work without the money. The fact of the matter is that 
testimony given to this Committee showed that the hours of 
counseling has declined for the first time in 5 years. Would 
you agree that there is a correlation between the cut in 
funding and fewer client hours?
    Ms. Carranza. I would have to perform a particular analysis 
to be accurate in that assessment. At this point, SBDCs and 
Women's Business Centers are increasingly, increasingly under 
pressure and are a vital part of the Administration's 
initiative; and we are seeking an increase in particular 
funding for our network because we recognize not only their 
essential and vital importance in the growth of small 
businesses--
    Chairwoman Velazquez. Would you clarify that--
    Ms. Carranza. Yes.
    Chairwoman Velazquez. --when you talk about the increase of 
funding?
    Ms. Carranza. Yes. At this point, fiscal year 2008, we have 
$140 million that the Committee is requesting. Our request is 
$87.1; and we believe that the funding request ensures 
continued oversight of the SBDC grant process, as well as 
policy issues and an adherence to procedures.
    Chairwoman Velazquez. How would you qualify that as an 
increase compared to last year's budget request or compared to 
2001?
    Ms. Carranza. I misspoke on the increase in funding. It is 
for 2009, Congresswoman Velazquez.
    Chairwoman Velazquez. Now I recognize Mr. Chabot.
    Mr. Chabot. Thank you, Madam Chair.
    Ms. Carranza, on the SBDCs, do they continue to seek 
funding from nonFederal sources as well as from the funding and 
could you discuss that a bit?
    Ms. Carranza. Yes, Congressman Chabot.
    Our objective on the network, the resource partners is not 
only to help them develop but also for them to develop 
sustainability and to pursue--I will give you an example in the 
Women's Business Centers--after 5 years, to pursue matching 
funding so that they are not strictly dependant on our 
particular grant system and we can allocate resources and 
expand the network to give opportunities to other centers.
    Mr. Chabot. Thank you.
    Why do you think that there is such a disparity in the 
budget levels that are requested, say, by the Administration or 
by some on this Committee, what they believe is necessary, and 
what the Appropriations Committee may think is necessary and 
then what some in the private sector think is necessary? Why do 
you think there is so much--is there a disconnect or is it just 
a difference in opinion? What would you attribute that to?
    Ms. Carranza. At this juncture, the new leadership in the 
agency, Congressman Chabot, we are addressing not only the 
efficiency of programs but the reform of the programs and the 
value proposition of the programs and oversight. While we 
believe, based on the changes that we are putting in, the 
retooling of the various programs and whatnot and the 
experience that we have had in the particular--whether it is 
loan programs, technical assistance, access to capital, we look 
at the current experience, the goals that we have set out, the 
progress we made in each area and the infrastructure, the 
current infrastructure in its current state that we have to 
support those programs.
    So although the funding may--we recognize the need for 
additional funding. Should it be at the level that the 
Committee is proposing is one that is under evaluation. We 
believe we performed the full assessment of the need for each 
program addressing resources needs, oversight, again, a process 
of engineering. I can't emphasize enough that this new 
leadership in the agency is looking at both efficiency reform 
and oversight.
    Mr. Chabot. Thank you.
    And, finally, in your written statement, you mention that 
the participating securities program has proven to be very 
costly, quite costly to the American taxpayer. Could you 
elaborate on that a little bit?
    Ms. Carranza. Yes. There is a concern with regards to the 
majority ownership--excuse me, I'm sorry.
    Mr. Chabot. Sure. Take whatever time you need to discuss 
it; and if you would feel more comfortable getting back to us 
in writing on that, that would be agreeable to me.
    Ms. Carranza. I do have knowledge on that. I'm sorry, 
Congressman. I will answer your question.
    There is a couple of points that we need to consider in 
that particular program. If we have--and our objective in that 
particular program is to enable these companies to compete in 
the government contracting, for them to grow at a level of 
ability.
    What we are talking about is the overcapacity of the 
particular firms and those particular firms overextending their 
leverage. And so, in addition to what we have identified as 
problematic, I would like to, again, take your recommendation 
to work with your staff to clarify the other dynamics that are 
playing out.
    Mr. Chabot. That will be fine. And we can elaborate a 
little more on the question, and if we can get it back in 
writing in the future that will be certainly acceptable.
    I yield back the balance of my time.
    Chairwoman Velazquez. Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Madam Chair.
    I want to start off with my apologizes to the Chair, the 
ranking member and to other members of the Committee. I need to 
be getting over to a markup. I think I am already late, and my 
apologies to the witness.
    But, Administrator Carranza, I guess I just kind of want a 
bird's eye view so that maybe the people that are interested in 
this process kind of understand the relationship between 
Congress and the White House. I truly believe when SBA 
individuals come up here regarding budgetary matters you are 
not given any latitude or flexibility. My understanding since I 
have gotten to Congress is the White House has a budget, and 
all departments and agencies are going to fit in that budget. 
Whether you agree with the final number or not, it doesn't 
matter. You are given marching orders, and I respect that. So 
Congress cannot take at face value what the White House has 
determined are the priorities on which tax monies will be 
invested. That is why we have the difference.
    And I know that the ranking member indicated, well, why do 
we have this difference of opinion? Well, we go to our 
districts, we listen to our businessmen and women, we identify 
programs that we believe are important, that are underfunded, 
not utilized, underutilized, and that is the difference.
    I understand. I mean, we have had Secretary Leavitt up here 
in the past couple of weeks saying, don't give me more money 
for HHS. We are happy with what we have got. Don't give us more 
on any of these particular programs. Because those were the 
marching orders from the White House. That is the way it really 
works. That is my understanding.
    I guess if I had a question it would be, if you disagreed 
with the White House on the overall funding limits that have 
been requested at the SBA--because I know that you are given a 
number, that is just the way the real world works--would you be 
able to come before us and express a difference of opinion than 
the bottom line that the White House has established for the 
SBA?
    Ms. Carranza. Yes, I believe there has been a track record 
with the administrator that has proposed an increase in the 
budget from previous years and has challenged some of the 
perspectives. And we have been able to achieve a level of 
budget allocation for either necessary resources, automation, 
et cetera; and we are in a position to do that as well this 
year.
    Mr. Gonzalez. That would increase the overall target monies 
that have been basically allocated by the White House for the 
SBA. I understand you can say we think this program needs more 
money, but we will take it from this other program that you 
guys in Congress are willing to bump up. I am talking about the 
overall ceiling, the amount that the White House has said, this 
is SBA's budget, this is what--you are not going to go over it. 
You can play around with the numbers, reallocate them on 
programs, but you are not going to go beyond.
    And then in your determination you try to do that, but you 
can't. So now you come before Congress, you come before this 
Committee and you say, we are going to go over and above the 
overall amount that has been allocated or identified or 
targeted by the White House in their budget to Congress.
    Could you and would you do that?
    Ms. Carranza. As an advocate of small businesses as well as 
a fiduciary responsibility to the taxpayers, we will make the 
necessary recommendations to continue the viability of SBA and 
take the position of addressing the particular needs of SBA. We 
would take that position.
    Mr. Gonzalez. All right. And it is a good answer, but I am 
not sure.
    I just want to know--and I am so sorry that you are the one 
I have to pose this question to. But let us just say you have a 
dollar budget. The White House says you cannot spend more than 
$1. Within that $1 you can shift around priorities. Then 
Congress comes and says, well, we think it should be $1.20. 
Because we go back home, we are the representatives of the 
people, and we should have something to say about our business 
businesses, right.
    And then you say, do you know what, Congress is not so 
wrong. I am going to ask for another dime, $1.10. So you would 
come and testify that you are basically going to bust your 
budget, the White House budget by asking for another 10 
percent, another dime. Would you do that?
    Ms. Carranza. I believe that the Administration is very 
committed--once again, I have to reiterate--to the growth of 
the small business community as well as a responsibility to the 
taxpayer. As it relates to my responsibility as COO deputy, I 
would look for opportunities where I could work within the 
budget allocated so that no one program is compromised and we 
would meet the needs of our small business community.
    Mr. Gonzalez. And I know that my time is up.
    I appreciate the position you are in. People get appointed 
within administrations for reasons, and I think they are 
basically told the parameters of their operation. But the 
answer to my question is we are not going to get a White House 
official that is going to come from a department or an agency 
that is going to contradict the bottom line of the White House. 
And the answer to all this is a matter of priorities. If the 
White House believes SBA is a priority, then there will be some 
funding. We disagree that the White House believes it is truly 
a priority.
    And, with that, I would yield back.
    Chairwoman Velazquez. Thank you, Mr. Gonzalez.
    I just wish to remind you that a former colleague of ours 
was the Secretary of the Army and came before Congress and 
testified in the Senate that the budget wasn't sufficient. So 
what happened to him? He was fired.
    Next, Mr. Bartlett.
    Mr. Bartlett. Thank you very much.
    Welcome to the Committee.
    Following up on Mr. Gonzalez's line of questioning, I serve 
on the Armed Services Committee. What we do there to determine 
what might be done with additional money is simply to ask the 
services to give us an unfunded priorities list. If you had 
more money, what would you use it for? They, like you, are 
constrained to a budget which is given to them, but there are 
always needs beyond the budget, and they help us determine what 
really the allocation ought to be with this unfunded priorities 
list.
    If we asked you for an unfunded priorities list, if you had 
more money, what would you do with it, could you give us that 
list?
    Ms. Carranza. Yes, I could give you that list, which would 
incorporate, again, program viability, the assessments of a 
program, expand our outreach programs and initiatives, develop 
further the skills of our employees. Because there is a lot of 
training that still needs to take place. So it is about 
resource development, program viability and expanding the 
outreach programs.
    Mr. Bartlett. Madam Chair, I would suggest that we might 
get around this problem we have with the people from the 
agencies being constrained to defend a budget given to them by 
the Administration by asking them for their unfunded priorities 
list; and that will tell us what they think is the most 
important thing that they would spend money for if they had 
additional money. This doesn't violate their commitment to toe 
the party line, but it does give us the information we need in 
deciding how much additional monies they ought to get.
    Might I ask you, what do you think is the major factor 
inhibiting the growth of small businesses in our country? If 
there was one thing that you could change that would facilitate 
the growth of small businesses in our country, what would it 
be?
    Ms. Carranza. That same question was asked several times, 
Congressman, when I either interviewed or whatever in public 
venues. That is strictly my current assignment as a public 
servant. And the question was about education, accessibility to 
information, resource development. The inhibiting is not so 
much outlets, because we have over 1,400 outlets. We have 
thousands of SCORE members. So it is not about personnel out in 
the field. It is more about outreach programs, viable ones, 
connectivity to the communities and educating, strategic 
education and accessibility to information, access to funds.
    I believe the Administration has done exceptionally well in 
the sense that we now have Lender Advisory Councils, we have 
Trade Association Councils. So our collaboration has expanded. 
We have a unified front in helping out the small business 
community, and I believe it is doing more of what we have in 
place now.
    Mr. Bartlett. Madam Chair, those small businesses that have 
capabilities that are of interest to our military, where most 
of our subcontracting is done, face an intimidating 
bureaucracy. And I think for those small businesses, many of 
whom have really great ideas that would benefit our military, 
if we could just do something to make this red tape bureaucracy 
less intimidating.
    Our office tries very hard to do that. We hold procurement 
seminars. We have the government agencies come out and meet 
with our small business people. The last time we did this we 
had over 500 small businesses who were there. But many of them 
have ideas that we really need in our government. But they are 
just intimidated by the huge bureaucracy, and what they need is 
hand-holding. I think the Small Business Administration is in a 
particularly favorable position to help them do that.
    By the way, in a former life I was a small business person 
working for the government. I also worked for the government in 
writing requests for proposals, and then I was in the small 
business world responding to those requests for proposals. So I 
have been on both sides of that street, and I understand the 
problems that are there.
    Thank you very much for your testimony, and I yield back.
    Chairwoman Velazquez. Thank you.
    Mr. Fortenberry.
    Mr. Fortenberry. Thank you, Madam Chair, for holding this 
hearing.
    This is a little bit beyond the scope of what the purpose 
of the hearing today is, but it is related to Congressman 
Bartlett's question as well. I think we have to continually ask 
ourselves that question, because you have one of the most 
important jobs in government. I know you recognize that. 
Obviously, you spend yourself because--on this form of public 
service you believe in it.
    This is where most people are working to try to get a 
little bit ahead in life in small business, and the more that 
we can augment opportunities in the private sector for risk-
taking and entrepreneurial risk-taking, small business 
ventures, the more we are going to provide one critical 
function of government and that is creating a society that 
provides more hope and more opportunity for people to take care 
of themselves and their families.
    I have given this speech before. Ms. Velazquez has heard 
it. But I think this is important. It is absolutely essential 
work. So the question as to what barriers are out there is an 
essential one.
    We tend to define--we tend to have several premises, 
though, at work to answer that question at all times. Is it 
access to capital? Well, we are doing a lot in that regard. Is 
it access to information? You just gave an overview, a good 
overview of your collaboration with the private sector, the 
volunteer forces out there, who can assist in helping that 
discernment process and education process for somebody who is 
willing to take this kind of risk.
    Is it a question of connectivity? That is a good one. That 
is stepping beyond the traditional premises by which we 
generally approach the question as to why somebody would want 
to take the risk and how do we encourage that. But are there 
other considerations? Are there other tax policies at work here 
that potentially inhibit? Do we have tax codes favoring larger 
types of structures that compel people to work for an entity 
versus to try to be that entity themselves?
    Do healthcare policies inhibit entrepreneurial risk-taking? 
In other words, if I am tethered--if I have got a vision, I 
have got the risk capital, and I have got the will to undertake 
a new venture, but I am tethered to what I am doing because I 
need the healthcare policy, is that a significant economic 
drain in terms of potential productivity on our society because 
either we are not allowing portability of a catastrophic policy 
or we are not emphasizing health savings accounts enough that 
would again empower?
    These are the broadening, I think, of the framework by 
which we ask ourselves how do we improve what we are doing, 
which I think is good and substantial, but continue to do self-
evaluation in terms of public policy as to how we augment these 
efforts.
    So there is a lot there to unpack, I know, and that is a 
nice speech. But I think it is a--or hope it is a nice speech. 
I think it is a challenge to all of us to think creatively 
about that central core question: What are the inhibiting 
barriers to entry in terms of small business entrepreneurial 
risk-taking? Do they fall outside sometimes the traditional 
parameters which we put out around the question, which is 
basically access to market information and capital?
    Ms. Carranza. Let me answer that question three-fold, 
Congressman, as you delineated.
    Healthcare, and I will say healthcare through education, 
when we meet with the trade associations as well as small 
business community, because we do perform numerous listening 
tours where we meet with small businesses, and the barriers are 
cost, cost of their infrastructure healthcare, cost to having 
to manage, when you mention barriers, are very cumbersome, 
complicated administrative requirements to apply.
    So you have healthcare, you have ease of use to our 
particular programs, both for the private sector as well as the 
public, private and public. And then you have taxes. So when we 
speak with tax structure, should they be taxed, as you 
mentioned, at the same level as large entities, large firms? So 
the resounding message that the small business community will 
ask us to support and have a voice is in those three areas.
    Can you make it easier dealing with government? Let us talk 
about taxes. You have a couple of associations here that will 
talk to that. And healthcare, if there is anything you can do 
to advocate cost-effective or affordable healthcare.
    So it is very consistent and we need to unify in order to 
be much more responsive to the small business community, 
especially the micro loan level.
    Mr. Fortenberry. Sure. Madam Chair, if you could indulge me 
a moment more for a little more dialogue. Do I have the time?
    Chairwoman Velazquez. Yes.
    Mr. Fortenberry. Thank you.
    Here is another one, and it is a smaller component of 
overall tax policy. But when you look at again lowering the 
barriers to entry and empowering risk-taking, for instance, you 
have got a number of persons interested in developing home-
based business ideas, yet you have tax policies that aren't 
necessarily favorable toward that or are more stringent or 
potentially penalized versus other--it is just an opportunity. 
I think we potentially have to look at one area of the code.
    I appreciate what you are saying, that we in this dialogue 
have identified a couple of key pieces that fall outside of 
those barriers--of those traditional barriers such as 
healthcare and regulation.
    I will just give you a small story. A number of years ago, 
my family was in a partnership to look at buying a small 
business and then potentially expanding it. The threat of 
having to fill out the paperwork and the divulgence of 
information that was so expansive compelled us to just go 
elsewhere. And we were able to do that. Maybe many people 
aren't.
    So I think that is a good point you make as well. How do we 
decrease the complexities of compliance?
    And so, anyway, I appreciate your willingness to engage in 
this dialogue about creative thinking to overcome to what we 
don't traditionally consider barriers. Thank you.
    Chairwoman Velazquez. Ms. Carranza, I want to ask the final 
question. Every time that we have conducted hearings, we bring 
the experts to testify. Time and time again, they tell us that 
training and technical assistance improves the chances of a 
business to succeed; and the data is there that shows that a 
person who received technical assistance and training has a 
better chance to succeed in their businesses. Yet many socially 
and economically disadvantaged individuals lack access to 
general business training, networks and capital. Since these 
resources continue to be lacking in the private sector, why has 
the agency requested to fund the PRIME and micro loan programs 
well below the congressionally authorized levels?
    Ms. Carranza. PRIME, as well as resource partners that 
offer the technical assistance, I need to share with you, 
Congresswoman Velazquez, that today's training material, it 
continues to be enhanced. And I will give you an example to 
expound on the point of not only variability to technical 
assistance but also the type of information that is being 
shared.
    We have not only on-site hand-holding--as one of the 
congressmen mentioned--type training, but we also have another 
program that is funded, which is called the 7(j) training, 
which is contracted training in order to help develop small 
companies to prepare them for government contracting.
    With regards to the hand-holding-type training, on-site 
training, resource-partner training, each one of those various 
programs are funded in their own capacity. But, in addition to 
that, sophisticated type of training that we are offering, 
virtual training and bilingual training.
    Chairwoman Velazquez. You just said it, sophisticated. And 
what is the type of constituents that we are talking here 
about? Who are the ones that really needs the type of technical 
assistance that can not be received from a 7(j) or any of the 
other programs? These are economically and socially 
disadvantaged. They need special, unique, tailored technical 
assistance for this population in order for them to be prepared 
and ready.
    Ms. Carranza. The position that I would take is, 
Congresswoman Velazquez, is PRIME going to meet the needs or is 
there another assessment of training mechanisms that are in 
place that need to be? To your concern, and I agree 100 
percent, sophistication means a matter of just having a more 
robust training material, not a higher level of technical 
content, but it is more about meeting or designing training 
material that would meet the needs of the, as you indicated, 
the underserved market client. But we believe that there is 
about 12 programs that are offering technical assistance. We 
need to be better prepared to assess what is out there being 
provided, not about spending more, but actually rationalizing 
and assessing the value proposition of what is already in place 
as it relates to the budgeting of various training programs.
    Chairwoman Velazquez. Time and time again, you know, you 
show the disconnect between the agency and the real needs of a 
special population that cannot be served through any of the 
other programs that you have in place--
    Ms. Carranza. Congresswoman Velazquez--
    Chairwoman Velazquez. --in the whole world. And we brought 
experts here who did so much work on micro loans. India, China, 
South America, they have micro loans and technical assistance; 
and it is working. They are working in those areas. Why can't 
we? If the entire world is doing it and it is good for them and 
it is proven to work, why can it not work here?
    Ms. Carranza. Congresswoman Velazquez, I bring a 
sensitivity to this role. I have had a mother who only had 
second grade education, so I fully understand the need for 
special attention and special focus for an underserved market. 
So please accept the fact that we are analyzing and recognizing 
the need that a particular populous needs as far as technical 
assistance.
    Chairwoman Velazquez. So you are going to agree with us 
that there has to be a need to increase the authorization 
levels for micro loans and PRIME.
    Mr. Akin, do you have any questions?
    Mr. Akin. No thank you.
    Chairwoman Velazquez. The gentlelady is excused. Thank you 
very much.
    Let us move to the second panel: Mr. Kelly, Crawford, 
Keenan and Kuczarski.
    Chairwoman Velazquez. Our first witness is Mr. Kevin Kelly. 
Mr. Kelly is the Managing Director for Policy and Advocacy at 
the Association for Enterprise Opportunity. The Association for 
Enterprise Opportunity is the national organization that 
represents local micro enterprise development organizations 
throughout the United States.
    Mr. Kelly, thank you. You have 5 minutes to make your 
presentation.

  STATEMENT OF KEVIN KELLY, MANAGING DIRECTOR FOR POLICY AND 
        ADVOCACY, ASSOCIATION FOR ENTERPRISE OPPORTUNITY

    Mr. Kelly. Thank you, Chairwoman Velazquez.
    I am happy to be here today to talk about three different 
programs at the Small Business Administration that affect micro 
enterprise development organizations and micro entrepreneurs 
around the country. These three are the Women's Business 
Program, PRIME and the SBA Microloan Program.
    Specifically, what we are recommending for authorization 
levels for the Microloan Program is two components, the lending 
component and a technical assistance component. The lending 
component we are recommending for fiscal year 2008 an 
authorization of $110 million and for fiscal year 2009 $120. 
For the technical assistance component, we are recommending at 
fiscal year 2008 an authorization of $80 million and for 2009 
of $90 million. The PRIME program for both 2008 and 2009 are 
recommending the same amounts, an authorization level of $20 
million. For the Women's Business Centers program in fiscal 
year 2008, we are recommending an authorization of $17 million 
and in 2009 $17.5 million.
    These three programs are the bread and butter, so to speak, 
of the micro enterprise development field here in the United 
States. There are some other Federal programs that can be used 
for micro enterprise development. However, they are not 
specifically set up for that purpose alone; and micro 
enterprise groups compete with a lot of other different kinds 
of activities. It is sometimes hard to get information about 
how much of those dollars really go to micro enterprise groups 
and SBDC and some of the other programs. So these three are 
really of most critical concern to our constituency.
    Just to give you some numbers, the Microloan Program, which 
is the single largest dedicated source of Federal dollars for 
micro enterprise in the U.S., since 1992 has made over 26,000 
micro loans totaling over $318 million. This has primarily gone 
to women, minority and low-income entrepreneurs around the 
country. It is a very cost effective program. There is close to 
zero percent default rate on the lending portion of it, and the 
training and technical assistance has been very important in 
keeping up that very low default rate.
    Another point to make is, on the lending portion, the 
authorization that we are asking for is not in actual dollars, 
it is a lending authority. Because money is being paid back 
from previous loans, there is money coming back into this; and 
so it is a slightly different number. It is a much lower 
appropriations level, as opposed to the level that I am asking 
for the lending authority itself.
    What we are trying to do with our recommendation is get 
this program back up to what it once was before. In the last 6 
years, it has been cut year by year; and now we are at a much 
lower rate. We want to get it back up to where it was before, 
which is similar to what we are asking for the other programs.
    With PRIME, it is a program that is set up really 
specifically for two things. It provides dollars for micro 
enterprises that do not need loan capital. They only need 
technical assistance and training. They are not yet ready for 
loan money or perhaps have a business that doesn't need a lot 
of loan capital and they don't need that right now.
    It is also focused more on low-income people. There is a 
requirement that 50 percent of all the grant award goes to help 
low-income entrepreneurs. These make it unique.
    This is a program that was requested actually by groups in 
the field, because a lot of them do not do lending. That is one 
thing that is a little bit different here.
    I know that a lot of people on the Committee are familiar 
with the Grameen Bank model, which is a lending model. In the 
U.S., about half the groups are doing that and about another 
half are not doing loans. They are only doing technical 
assistance and training. So a program like a Microloan Program 
doesn't meet their needs. They are not able to actually accept 
it, because they are not doing any lending. So the situation 
here in our country is a little bit different. Plus, for this 
program, what I mentioned about the focus on low-income people 
is different than other programs at SBA.
    Again, we want to get this back up to what it once was. 
When it was first passed, it was a $15 million national 
program. It has been cut down to currently $2 million, and we 
want to get it back up to what it was before.
    The Women's Business Centers program is the third one that 
we are supporting. Close to 200,000 women were counseled and 
trained last year alone for this program, and it meets the 
unique needs of women entrepreneurs, and it is one that we 
would support. Again, we are asking for $17 million for 2008 
and $17.5 million for 2009, and those are slight increases from 
what they have received. Altogether, these three programs, by 
giving higher authorization levels, we will be able to create 
more jobs and support more micro enterprise development efforts 
around the country. Our country would benefit through more tax 
dollars and more people employed.
    I salute your efforts for looking at the authorization 
levels and trying to increase them and to make recommendations 
to the appropriators. I appreciate the opportunity to testify 
today. Thank you.
    Chairwoman Velazquez. Thank you, Mr. Kelly.
    [The prepared statement of Mr. Kelly may be found in the 
Appendix on page 39.]

    Chairwoman Velazquez. Our second witness is Mr. Don 
Kuczarski. He is the Senior Vice President of Business Banking 
for Greylock Federal Credit Union in Pittsfield, Massachusetts. 
He is testifying on behalf of the Credit Union National 
Association. CUNA represents over 90 percent of all State and 
Federal credit unions in the United States.
    Welcome.

 STATEMENT OF DON KUCZARSKI, SENIOR VICE PRESIDENT OF BUSINESS 
      BANKING, GREYLOCK FEDERAL CREDIT UNION, PITTSFIELD, 
     MASSACHUSETTS, ON BEHALF OF THE CREDIT UNION NATIONAL 
                          ASSOCIATION

    Mr. Kuczarski. Thank you. Good morning, Chairwoman 
Velazquez, Ranking Member Chabot and other members of the Small 
Business Committee. I am Donald Kuczarski, Senior Vice 
President of Business Banking at Greylock Federal Credit Union 
in Pittsfield, Massachusetts. I appreciate this opportunity to 
appear before the Committee on behalf of the Credit Union 
National Association and to express our support for maximum 
funding levels of the Small Business Administration 7(a) Loan 
Guaranty Program. CUNA is the Nation's largest credit union 
advocacy organization, representing over 90 percent of our 
Nation's approximately 800 State and Federal credit unions, 
their State credit union leagues and their 89 million members.
    Greylock is the leading mortgage and auto lender in 
Berkshire Country. It has also become a leading lender for 
small businesses, thanks in large part to the SBA's 7(a) 
lending program.
    Chairwoman Velazquez, I am honored to be here to speak to 
you about the positive impact that SBA lending offers to our 
local economy, to our credit union and, most importantly, to 
our members. Your leadership and efforts to encourage credit 
unions to participate in SBA programs is greatly appreciated, 
and we thank you for introducing the Credit Union Small 
Business Lending Act. We truly value our partnership with the 
SBA that has helped so many small business owners and 
contributed to an economic turnaround in western Massachusetts.
    While we offer all the services typically found in a 
commercial banking operation, we focus on small businesses with 
business loan requests between $10,000 and $200,000. Many of 
these loans, due to their higher risk profile, would not have 
been made without the assistance of the SBA. They were 
ineligible for conventional financing due to minimal management 
experience, sufficient collateral or the business had a limited 
track record.
    As a community based credit union, Greylock has always 
taken pride in giving auto loans and mortgages to members who 
were unable obtain conventional financing. With the help of the 
SBA, Greylock has been able to extend that philosophy by 
injecting over $11 million into the local economy.
    Thanks to the SBA program we can offer financing at 
reasonable rates to small companies that do not fit the 
standard underwriting criteria.
    Let me give you an example: A local family sought to 
purchase and expand a bakery business. The collateral 
associated with this loan would have been inadequate for 
Greylock to help them. But through the SBA program we created 
the financing they needed, and the small business is now 
growing rapidly into a regional wholesaler. The business 
deserved to be financed; and, thanks to the SBA, Greylock 
Federal Credit Union was able to help them get started.
    Small businesses are the lifeblood of the economy in our 
hometown region, and Greylock is the leading source for small 
business financing thanks to SBA. We would appreciate your help 
in making sure that flow of financing continues. As you know, 
credit unions have a cap on the amount of commercial lending 
they can engage in. We are currently limited to 12-1/4 percent 
of assets; and, from our experience, the cap is artificial and 
far too restrictive. Less than 8 years into our commercial 
lending and after only 5 years with SBA lending, we will soon 
hit the cap and have to limit future loans to businesses in 
Berkshire County.
    Strictly speaking, SBA loans do not count toward the cap. 
Currently, only the guaranteed portion of a loan is excluded. 
However, these loans often evolve into conventional loans, so 
the cap hamstrings us, thus taking away the flexibility that 
has been the key to our success. Chairwoman Velazquez, your 
legislation, the Credit Union Small Business Lending Act, will 
expand the member business lending cap by exempting the entire 
loan amount from the cap, providing credit unions with 
additional capacity to make nonSBA business loans.
    Mr. Kuczarski. There is also a provision in the Credit 
Union Regulatory Improvements Act, H.R. 1537, that would 
increase the MBL cap from 12 and a quarter percent to 20 
percent of assets. Not only would this provide relief to credit 
unions already offering member business lending, but also make 
it feasible for other credit unions to incur the expenses in 
establishing business lending programs and allow many more 
local businesses to have the benefits of increased lending 
options.
    CUNA is hopeful that credit union participation with SBA's 
7(a) program will continue to grow. However, credit unions will 
have a difficult time when faced with the current road blocks 
of increased fees and inadequate funding of SBA's programs. By 
definition, these loans are going to small and start-up 
businesses, and increased fees can really hurt them when they 
are managing very tight margins and cash flows.
    For example, we recently provided financing to a payroll 
company for the acquisition of a competitor. Our member had to 
pay an $8,200 fee to SBA for a $34,000 loan.
    Again, thank you for the opportunity for us to share our 
thoughts on sustaining and improving the 7(a) program. It means 
a lot to our credit union and to the small businesses we serve 
in Berkshire County. I'd be happy to answer any questions.
    [The prepared statement of Mr. Kuczarski may be found in 
the Appendix on page 43.]

    Chairwoman Velazquez. Thank you, Mr. Kuczarski.
    Our next witness is Jody Keenan. Ms. Keenan is the State 
director for the Virginia Small Business Development Centers. 
She was recently elected, congratulations, as chair of the 
Board of Directors for the Association of Small Business 
Development Centers whose members make up the 63 State, 
regional and territorial SBDC programs that serve all 50 
States, the District of Columbia, Puerto Rico, the Virgin 
Islands, Guam and American Samoa, welcome.

   STATEMENT OF JODY KEENAN, STATE DIRECTOR, VIRGINIA SMALL 
  BUSINESS DEVELOPMENT CENTERS, ASSOCIATION OF SMALL BUSINESS 
                      DEVELOPMENT CENTERS

    Ms. Keenan. Thank you very much. Good morning, Chairwoman 
Velazquez, Ranking Member Chabot and members of the committee. 
I appreciate your invitation to present ASBDC's views 
concerning authorized funding levels for our Nation's Small 
Business Development Center Network. And I want to thank you on 
behalf of ASBDC and the dedicated men and women who are part of 
the SBDC network for your unwavering support. You have been 
true champions of small businesses and the small business 
development centers that serve them.
    Chair Velazquez, I want to personally thank you for your 
leadership and your work to help secure desperately needed 
funding for the SBDC program. Thanks to your efforts and the 
support of the Budget and Appropriations Committees, the House 
Financial Services appropriations bill contains a much needed 
increase in funding for the SBDC network. Thank you.
    SBDC is a vital resource for America's small businesses. As 
you know, the fastest area of entrepreneurial growth is among 
women and minorities, an area where SBDC have a great deal of 
experience, expertise and success. More than 40 percent of our 
clients are women; 31 percent are minorities; and 10 percent of 
our counseling clients are veterans.
    In 2006, the SBDC network helped in-depth clients, those 
who received five or more hours of SBDC consulting during the 
year, to create 67,000 new full time jobs, save an additional 
76,000 jobs, and generate 201 million in new Federal revenue as 
a result of economic growth.
    SBDCs help Americans start and grow their own businesses, 
create jobs, grow our economy and strengthen the fabric of 
society. And we do all of that while generating more tax 
revenue than it costs taxpayers to fund the SBDC program.
    I believe a government program with this kind of result 
deserves the investment of Federal resources. However, the SBDC 
network today receives less Federal funding than it did in 
2001, even without accounting for inflation. With inflation, 
the average state will receive approximately 19 percent less 
Federal funding in 2008 than in 2001 unless our Federal funding 
is increased.
    SBDCs are closing and cutting back on services across the 
Nation. We were able to provide business consulting to 28 
percent fewer small business owners in 2006 than we were able 
to serve just 2 years earlier. And we provided 24 percent fewer 
business consulting hours in 2006 than just 3 years prior.
    For all of these reasons, the ASBDC respectfully asks the 
committee to increase the SBDC reauthorization to $140 million 
in fiscal year 2008 and $145 million in fiscal year 2009. These 
levels of authorized funding will allow the SBDC network to 
recover from declining real Federal funding, to meet the 
growing demand for SBDC services and to increase business and 
job correction. In addition, these increased authorization 
levels will once again indicate to the Budget and 
Appropriations Committees the strong support of the Small 
Business Committee for the network of America's SBDC.
    Madam Chair and Ranking Member Chabot, we also ask for your 
continued support to ensure core funding for the SBDC network 
is restored. The ASBDC shares the committee's strong interest 
in increased efforts to address special needs in the business 
community. While our association has been concerned that new 
GRANT programs could adversely impact funding that is 
distributed to State networks based on population, we sincerely 
appreciate the reassurance of committee staff that core funding 
will be restored before new grant programs are funded. And we 
ask that the conference reports on the bills creating new grant 
programs include language to that effect.
    Finally, Madam Chair and Ranking Member Chabot, the SBDC 
network deeply appreciates the operational changes the 
committee included in the SBA Entrepreneurial Development 
Programs Act of 2007. These changes, such as strengthening 
privacy protection for SBDC clients, will greatly enhance the 
network's ability to serve the small business community and 
aspiring small business owners.
    Chair Velazquez, Ranking Member Chabot and members of the 
committee, thank you again for all you have you done to ensure 
that small businesses, aspiring entrepreneurs and the SBDCs 
that serve them have the resources they need. I appreciate your 
willingness to consider our views.
    [The prepared statement of Ms. Keenan may be found in the 
Appendix on page 47.]

    Chairwoman Velazquez. Thank you, Ms. Keenan.
    Our next witness is Mr. Chris Crawford, is the president 
and CEO of the National Association of Development Companies. 
NADCO provides legislative and regulatory support for the 504 
program on behalf of member certified development companies and 
other program affiliates.
    Welcome, sir.

   STATEMENT OF CHRIS CRAWFORD, PRESIDENT AND CEO, NATIONAL 
              ASSOCIATION OF DEVELOPMENT COMPANIES

    Mr. Crawford. Thank you, Madam Chair. And thank you for the 
opportunity to provide input to your consideration for fiscal 
year 2008 and 2009's authorization ceilings. I would also like 
to thank the committee and the House of Representatives for its 
passage of H.R. 1332 earlier this year. This is a bill that 
contains many, many enhancements for the 504 program that will 
greatly assist America's small businesses when it becomes law.
    First, the fiscal year 2008 authorization, the 
administration has requested only $7.5 billion for the 504 
program for fiscal year 2008. NADCO recommends that the 
committee seek a minimum of $8.5 billion for the program 
ceiling for 2008, and I understand that you are supportive of 
this amount.
    The 504 has been at zero subsidy since 1997 and has grown 
at an average annual rate of 27 percent since that year while 
costing taxpayers absolutely nothing. Our growth rate just for 
the past 5 years has exceeded 16 percent. While this growth 
rate would indicate a demand for fiscal year 2008 of just under 
$8 billion, we are very concerned about the impact of a slowing 
economy in the coming several years. As our economy slows, 
traditional small business lenders will almost certainly 
tighten credit. Recent history demonstrates that banks 
generally demand higher down payments, shorter loan terms and 
increased interest rates of small business borrowers during 
economic turndowns or recessions.
    Further, banks frequently turn to credit enhancement 
programs such as the 504 program to decrease their risk of loss 
for small business loans. If such a downturn does occur, and 
many economists are certainly forecasting that, demand for the 
504 program will certainly increase. And our history of the 
past 22 years during downturns and recessions demonstrates that 
we will see greater, more rapid growth.
    NADCO believes that authorizing a ceiling of anything less 
than $8.5 billion will greatly increase the risk of forcing SBA 
to move to a credit and restriction plan, which would cut off 
small businesses from much needed capital to create jobs.
    On to fiscal year 2009, the administration has requested 
only $8 billion for fiscal year 2009 for 504. As the economy 
slows in 2008, NADCO is concerned this will continue into 2009. 
Thus it will be imperative that 504 not be restricted in its 
provision of long-term, reasonably priced credit to small 
businesses during the span of this committee's reauthorization 
of the program. We urge the committee to provide a minimum of 
$9 billion in authority, and I understand that you all support 
this level also.
    Again, NADCO is pleased that the House has passed H.R. 
1332. This is a bill we consider critical to enhancing the 504 
program for small businesses. We hope that the committee will 
work with the Senate Small Business Committee to craft a final 
bill containing the many benefits of your and that body's 
legislation during the final months of this congressional 
session. We also hope to the committee will seek the 
authorization levels I have expressed in this testimony.
    Thank you very much.
    [The prepared statement of Mr. Crawford may be found in the 
Appendix on page 50.]

    Chairwoman Velazquez. Thank you. Thank you all for your 
testimony here this morning.
    I just would like to address one of the issues, Ms. Keenan, 
that you raised, and that is, are you concerned about core 
funding? And I want you to know that I, too, share your 
concern, and that is why--and one of the reasons why we 
included language in the bill that passed the House which 
states that any SBDC grant program funding should not come from 
this core funding.
    Can you talk to us about what an additional 20 percent in 
funding will mean for the average center and the businesses 
they serve?
    Ms. Keenan. Well, it will certainly be a communication to 
our local funding partners that our Federal partner is at the 
table with us. It will also allow us to shore up our resources 
and reach more businesses to help them create more jobs and 
create more wealth in the local community.
    Chairwoman Velazquez. Mr. Kuczarski, one of the goals of 
today's hearing and the legislation under consideration is to 
increase access to capital for small businesses. Unfortunately, 
many of the requirements set by the SBA for making 7(a) loans 
are too burdensome for many small credit unions.
    Is it possible that in using alternative size standards, 
more credit unions will participate in the 7(a) loan program 
and we could increase the overall--and if you do that, that 
will help increase the volume of loans throughout that program?
    Mr. Kuczarski. Thank you. I agree that whatever we can do 
to increase the size limits and make more businesses eligible 
on behalf of the SBA program would be beneficial to our local 
economy and to the country to grow our businesses and the 
entrepreneurial spirit of our country.
    May I comment on the SBDC? I agree that the SBDC is an 
excellent program.
    Chairwoman Velazquez. Uh-huh.
    Mr. Kuczarski. And our association and our partnership with 
the SBDC is fabulous. It has a great benefit to our SBA members 
who go to the SBDC to get information and training to make sure 
that they are successful businesses. So, I agree, I do support 
the increase.
    Chairwoman Velazquez. You spoke about the preferred lender 
program in your testimony, and it has been difficult for many 
credit unions to become preferred lenders in the 7(a) program 
due to the stringent requirements by the SBA.
    What do you think could be done within the administration 
to make it easier for credit unions, like yourself, to obtain 
this type of lending accreditation?
    Mr. Kuczarski. We were approved to be a preferred lender to 
the SBA. After being in SBA lending for a few years, we looked 
at our experience and the quality of our lending prior to 
giving us that designation. What could have sped the process up 
would have been the--looking at the experience of the lenders 
that we had within the credit union, because our lenders had 
previous SBA lending experience.
    With the PLP program, we are capable of turning around 
loans much quicker, and it makes it much more flexible in 
granting SBA loans to our businesses.
    Chairwoman Velazquez. Thank you.
    Mr. Crawford, you mentioned when you talked to us about the 
increasing lending activity among your members when there is a 
downturn in the credit cycle, and obviously with the subprime 
market and other economic factors, there is concern that this 
situation could occur.
    Can you talk about how your program can ensure available 
capital during this period and why an appropriate authorization 
level is necessary to ensure the program can perform this role?
    Mr. Crawford. Yes, thank you very much. Well, I am 
certainly hopeful, I followed--as a homeowner, I followed the 
subprime lending debacle, and am certainly hopefully that we 
are not going to see it bleed over in our portfolio. Right now, 
our portfolio, all indications from the agency are it is 
performing extremely well. Our experience, as I talk to 
members, because I have asked this question of them, are we 
going to have a problem with portfolio performance? Our 
experience seems to be, and this is true from my own personal 
experience, a former small business owner, that small business 
owners will generally bend over backwards to make their loan 
payments on their businesses, because if they lose their 
businesses and their business location, they lose their 
livelihood. Whereas if they lose their house, they move to 
another house. It is tough, but they don't lose their income. 
So our experience has been that the subprime lending may well 
not bleed over into our portfolio performance.
    I believe that banks, as they tighten the screws, as I 
talked about, I think they will turn more and more to 504 as a 
credit enhancement vehicle, and we already see that happening. 
Our loan volume this year is up 11 percent. And I expect that 
rate of increase to increase as it has been doing over the past 
4 months.
    Chairwoman Velazquez. Thank you.
    Mr. Kelly, you were here and you saw my exchange with Ms. 
Carranza regarding PRIME on the microloan and the technical 
assistance aspect of both programs. We know and you know 
because surveys of microenterprises reveal that many 
entrepreneurs or potential entrepreneurs seek training before 
even applying for a loan.
    Do you think that one of the biggest obstacles that small 
businesses face in this Nation is lack of access to capital? 
And when a bank knows that a person who is applying for a loan 
has received a type of technical assistance, do you think that 
would be an incentive for those banks to make those loans?
    Mr. Kelly. Yes, I do believe that. The main issue I think 
for the folks that our members help is training technical 
assistance. They need to have that when they get a loan, and 
for those that are not ready for a loan, that is their primary 
need.
    I would like to point out also that in the microloan 
program on point, there is a program that was within there for 
nonlending groups to get money through their program. They then 
use that to do training and technical assistance, the groups 
then went to banks, CDFIs and other financial institutions at 
the local level and obtained the loan. So the reason that those 
financial institutions gave them the loans was precisely 
because they did have that training of technical assistance and 
that program got stopped because the microloan program got cut 
back and the dollars weren't available anymore.
    Chairwoman Velazquez. So you also heard that the technical 
assistance is provided through other programs, why do you think 
this particular microloan and PRIME technical assistance 
components are so important and unique?
    Mr. Kelly. We are dealing with different people is 
basically is the short answer. The other programs I think are 
fine for who they help, but for the mostly low income, often 
rural folks who don't have a lot of other options, these 
programs really fill a need for them that the other programs 
just don't. They don't get the same level of technical 
assistance throughout the whole process--before the loan, when 
the loan is made and after the loan is made--like you get in 
the microloan program, the real basic help that the PRIME 
program takes. And some of them are really dealing with what I 
call financial literacy issues that the other programs really 
are not addressing.
    Chairwoman Velazquez. Thank you, Mr. Kelly.
    Mr. Chabot.
    Mr. Chabot. Thank you, Madam Chair.
    Mr. Kelly, I will begin with you if I can. I wanted to talk 
with you briefly about the microloans, also something I have 
had an interest in for a long time. I remember seeing and you 
mentioned the Grumman bank. And there was a program I remember 
seeing 20 years ago on 60 Minutes, that was the first time I 
was aware that they even existed or that there was such a 
thing. And they had the guy that started the Grumman bank, Dr. 
Mohammed Yunus, who I had the great pleasure to have lunch with 
a few months back. He is a Nobel Peace Prize winner. And if you 
know anything about Bangladesh, they have a very challenging 
political landscape right now.
    There is a caretaker government, and he was thinking about 
throwing his hat into the ring through an alternative party, 
and he tried it for a couple of months, thought better of it 
and got the heck out of it. And I guess a lot of people think 
that politics--it takes somebody, I guess with a unique ability 
to withstand all kinds of criticism from all kinds of angles 
and a lot of other things, but certainly in that area that I 
just mentioned, the area of helping people who really need 
help. He was one of the premiere people on earth.
    And wrote--and of course, microloans, here we don't have 
the abject poverty in general here in the United States. 
Although, obviously, we do have poverty in this country, but in 
Bangladesh, it was a woman, for example, who couldn't afford--
had no capital, couldn't afford to get the sewing machine, for 
example, and there would be a group that would keep kind of an 
eye on each other, make sure everybody paid it back. And the 
default rate was very, very low there.
    And fortunately, here, the microloan program also the 
default rate has been very, very low. The loans are obviously 
larger than one would see in Bangladesh in general, and we have 
been reviewing those and talking about increasing them.
    But could you discuss just briefly why--how--why the 
microloans have been successful in that area? One might think, 
because they are relatively low loans with people who may not 
have a long track record and may be new in business, that 
perhaps there would be a higher default rate because people 
wouldn't necessarily have the skills or the business acumen or 
whatever it is and just might fall into debt and just not be 
able to handle the loan, but that is not what we think.
    Could you discuss that, why it has been so successful and 
maybe we can replicate it in other areas?
    Mr. Kelly. Yes, I think the answer to it relates to what I 
was saying just a second ago, and it has to do with the 
training and technical assistance. And the extent or nature of 
that, groups like our members that are microenterprise 
development groups around the country are providing to 
entrepreneurs, again all through the whole process, so before 
you even get the loan, they work with them. We have found that 
some of the people really are not prepared, and then when the 
loan is made, you keep in touch with them constantly, so if any 
problem crops up, the nonprofit group who is working with them 
hears about it and can deal with it then, not when it is too 
late, after the loan is made, to continue working with them as 
well.
    That I think is really the reason that it has been a 
success. And obviously a commercial bank could not do that kind 
of thing; it is too costly for them. So that is why this type 
of approach works so well with this particular niche in the 
population.
    Mr. Chabot. Thank you.
    Mr. Kuczarski, if I could go to you next. First of all, I 
have always been very impressed with the role that credit 
unions have played and filled in the overall economy and then 
putting people oftentimes with limited means to do much better 
and to support their families and to create more jobs and all 
the rest. So my hat's off to the credit unions for what they 
have been able to accomplish.
    You had stated that many of the loans that you have 
processed would not have been made without the assistance of 
the SBA.
    Could you tell us some of the specific difficulties that 
these borrowers face, that they would not have been able to do 
it but for the SBA?
    Mr. Kuczarski. Of course. In my testimony, I mentioned a 
few of those factors, and one is, many times, is lack of 
collateral. A member may be buying a business that may not have 
tangible assets that they can pledge as collateral or they may 
not have a home, and where you are actually financing the 
goodwill of the business. And the SBA allows us to enter a 
transaction with this member without a proper underwriting 
criteria with cash flows and allow us to do that loan, where 
typically a conventional financing package would not be 
feasible.
    Another issue that we look at is also management 
experience. We may have a member looking to buy a business that 
may be new into the industry. It is a successful business, but 
they want to purchase the business, and they may have either a 
lack of a down payment or they may have a lack of experience in 
that particular industry, and that is where the SBDC comes in 
to play for training. Training is critical for the success of 
these businesses and the SBA also helps with a lowered down 
payment; in situations, typically 10 percent for a down payment 
versus your typical 20 percent down in conventional financing.
    Mr. Chabot. Thank you very much.
    Ms. Keenan, could you talk briefly about what specific 
services that you would look to expand if the authorization is 
raised, as well as the actual appropriation of course as well? 
I know you already discussed it somewhat, but could you expound 
upon that a little bit?
    Ms. Keenan. We would certainly be able to meet the growing 
demand for our services. In the area of business planning, 
access to capital, government procurement, international trade, 
compliance, services to manufacturers and sustainability issues 
and expanding companies, emerging company technologies.
    Mr. Chabot. Thank you.
    And finally, Mr. Crawford, given the present credit crunch, 
what is the outlook for small business growth and expansion in 
the near future if you could comment on that, if you want to 
wade into those waters.
    Mr. Crawford. I am probably biased on this, having owned 
two small businesses and having created a number of jobs, 
including during a recession. I think that the entrepreneurial 
spirit of this country and of business owners is phenomenal.
    A lot of people have been laid off. I came out of banking, 
both my banks are toast. They are gone. They have laid off 
folks, thousands of folks. Those folks are making a good living 
now. Many of them, the people that I know, have created their 
own businesses, and they created them in tough times, and they 
made a go of it. The grease that feeds that wagon train is 
capital; it is money. And that was certainly true in my case, 
and it is true in most cases that I have seen. That's why we 
cannot restrict access to capital. We have to make it more 
convenient. We have to bring the SBA into the 21st Century--we 
have to bring them into the 20th Century.
    Their use of technology needs to be advanced. Their 
staffing levels, you all have touched on that this morning. I 
believe our own program's growth is going to become restricted 
by simply staffing levels, the ability to approve and authorize 
504 loans. I have talked about that to the administrator on a 
couple of occasions, and I think those are going to be critical 
issues for us in the coming year, especially if we go into a 
recession where we and 7(a) are needed most.
    Mr. Chabot. Thank you very much.
    I yield back.
    Chairwoman Velazquez. Mr. Bartlett.
    Mr. Bartlett. Thank you very much.
    Mr. Kuczarski, I am a big fan of credit unions, they serve 
a real niche need. You all make loans that the major banks 
wouldn't even think of making. They would lose money making the 
loans. So I am very jealous that we don't put at risk our 
credit unions because they are very important for our small 
businesses. And I notice in your prepared testimony that you 
note that the field of membership for your credit union is 
anybody who works and lives in Berkshire County.
    Mr. Kuczarski. Yes.
    Mr. Bartlett. Credit unions enjoy certain regulatory 
releases that banks aren't subjected to. You have certain tax 
advantages. And my concern is that if you--if your field of 
membership is the world, then how are you different from a 
bank? And the banks are watching that.
    And I would encourage you to not put at risk the very 
valuable service that you provide to our citizens by making 
yourself look so much like a bank that you are 
indistinguishable from a bank. And their plea that you are one 
of them and should be subject to the same regulations and taxes 
as them because you are unfairly competing, it is hard to 
refute. Just a word of caution that you are a unique 
organization and please don't make your field of membership the 
world, because then, how are you different from a bank? And 
their plea is that you in fact are not different and therefore, 
you should be subjected to the same regulations and taxes as 
they. I think if you were not here, a large number of people 
would be denied services that are very important to them.
    I would just like to ask a question about HUBZones. I don't 
know if my personal experience with HUBZones is the usual 
experience, and that is what I would like to get an answer to. 
All these small business programs help people, and they are 
very important. But my experience with HUBZones is that they go 
beyond helping people; they help whole areas.
    I have a whole county which is a HUBZone. And the jobs that 
are being brought to that county are not the average jobs in 
the county. The jobs that are coming there pay three or four 
times the mean salary that is paid in that county.
    They are doing that because, in our government, we have 
HUBZone goals for all of our agencies, and it is the one area 
where our agencies are probably having the most trouble of 
meeting their goals, and so these business people see an 
opportunity to get a bit of an advantage. And these are almost 
all competitive, the acquired contracts. And they see a bit of 
an advantage in operating from a HUBZone. So they voluntarily 
move their business to the HUBZone. And the local community 
colleges cooperate in providing courses so that they will have 
the workers they need, but they bring with them some workers 
and very high salaries.
    By the way, that same county had the first HUBZone contract 
in the whole country. It is Garrett County in Maryland, and the 
first HUBZone contact was to Garrett Containers, and they are a 
very successful business now, building a lot of shipping 
containers for the military.
    Is my experience an unusual experience, or is it a usual 
experience that the HUBZone contracts are helping communities 
by bringing higher paying jobs to the community, not just more 
low-paying jobs, which many of our small businesses do, but 
higher-paying jobs to the community. Do I have an unusual 
district or is that the norm?
    Mr. Kuczarski. I apologize, Congressman Bartlett, I am not 
that familiar with--
    Mr. Bartlett. The rest of you, are you familiar with 
HUBZones?
    Ms. Keenan. A little bit. Just to say that I think that is 
certainly the intent of the HUBZone program. One intent is the 
economic development, stimulation and creation within a 
community. I am in Northern Virginia, and we don't have very 
many in Northern Virginia, but certainly throughout Virginia. 
An analogous example might be an enterprise zone that the State 
runs, which is a very similar example, where companies come in 
and bring a certain percentage of their workforce. But HUBZone 
requires that you hire local employees and residents as 
employees. And so, in that case, I think your example is 
certainly what they are striving for in the program.
    Mr. Bartlett. Well, 35 percent have to live in the HUBZone 
area, but they could have moved in.
    Ms. Keenan. They could have moved in.
    Mr. Bartlett. Which is what some of our people are doing. 
And every one of those high-paying persons that move in, that 
creates several good jobs, support jobs in the community.
    Well, I thank you very much for your testimony and yield 
back the balance of my time Madam Chair.
    Chairwoman Velazquez. Sure.
    Mr. Ellsworth.
    Mr. Ellsworth. Thank you, Madam Chairwoman.
    Mr. Crawford, in your written testimony on page three, I 
believe verbally, too, you talked about that history 
demonstrates the banks in tough time reacted in a couple of 
different ways, this paragraph, the first full paragraph on 
page 3. I was just curious if you had information on how the 
credit unions in those same situations, those same tough times, 
how the credit unions react. Do you have any information on 
that? Do they implement those same things? Shrink the credit 
box? Are they easier to work with, do you have an opinion on, 
that when tough times occur?
    Mr. Crawford. Well, I am sure you want to address that same 
question to the other witness.
    Mr. Ellsworth. Absolutely.
    Mr. Crawford. My personal experience was, when I attempted 
to borrow money during a recession for a small business that I 
owned from the Postal Service's credit union for which my wife 
was a member, I was turned down. That was the only loan I have 
ever been turned down for in my entire working career. It was 
in tough times. I guess they thought we didn't have good enough 
credit, even though I could have written a check for what I was 
actually asking for.
    So I can only suspect that Postal Union executives act as 
most bank executives do, and they take a much more careful look 
at their credit, especially for their commercial credits. My 
experience has been, when things get tough, you don't cut off 
loans to your Fortune 500 companies, because they are going to 
pay the loans back. You don't cut of loans to consumers, 
because there are so many of them, you are going to make your 
money back on the numbers. And so who do you cut loans off to? 
Well, you cut loans off to small businesses. That has been my 
personal experience. That is what I hear. I spent 15 years in 
banks; that is what I saw in banks. I would suspect that credit 
union executives, because they have a fiduciary responsibility 
to their members, they would probably look much more carefully 
at their credits.
    Mr. Ellsworth. Thank you.
    And to follow up, and then I will let Mr. Kuczarski follow 
up on that, but in your opening statement, Mr. Kuczarski, you 
asked some of the things like raising above the 12.25, 12 and a 
quarter cap would make it easier for to you make these loans. 
Do the other three organizations represented have an opinion on 
Mr. Kuczarski's request? Do you support that? Can you 
officially support those requests on behalf of your 
organizations and that can either take a yes or no. If Mr. 
Kuczarski wants to comment on your comment or my first 
question.
    Mr. Kelly.
    Mr. Kelly. I don't really have an opinion on that. I am not 
qualified to comment on that program. I don't know enough about 
it, sorry.
    Mr. Ellsworth. Ms. Keenan.
    Ms. Keenan. I am not prepared to comment on it. I would 
just say that increasing and expanding the outlets for capital 
for our small business clients and constituents is always a 
priority.
    Mr. Ellsworth. And Mr. Crawford?
    Mr. Crawford. Well, I spent 15 years with the American 
Bankers Association which has--
    Mr. Ellsworth. I know your answer then.
    Mr. Crawford. Strong opinions. Interestingly, my uncle ran 
a billion dollar credit union in Texas. He and I used to have 
violent conversations about the issue of competition by credit 
unions, going back to Mr. Bartlett's comments. So I should 
probably shut up.
    Mr. Ellsworth. And in all fairness, Mr. Kuczarski, if you 
would like to close.
    Mr. Kuczarski. I will approach that whole issue regarding 
the differences between credit unions and banks.
    Mr. Ellsworth. You could take 3 days on that or more.
    Mr. Kuczarski. I will comment on the issue of, in the event 
we do enter a recession, what would happen to our ability to 
provide capital to small businesses. So we are a small business 
lender, that is what we do. We do not deal with large 
businesses. Obviously, we would look overall at our portfolio 
to look at the integrity of our balance sheet. If we see that 
there is a deterioration, obviously you need to take certain 
things into consideration. But when a member comes in, you have 
to look at the specific deal. You have to look at the member. 
You have to look at what they are proposing. And you have to 
look at the merits and not necessarily about the overall 
economy. Obviously, that does play a fact into the equation, 
but it's a very variable and subjective decision based upon the 
merits of that particular borrower.
    Mr. Ellsworth. Thank you.
    Madam Chairwoman, I yield back.
    Chairwoman Velazquez. Mr. Fortenberry.
    Mr. Fortenberry. Well, you all heard my earlier question, 
so I am going to ask it again. And I think that I understand 
clearly your message, and I think you have laid out very well 
the primary drivers of empowering risk-taking access to 
capital; understanding of the market in particular; I think one 
of you mentioned experience in a particular industry, 
absolutely foundational.
    A number of years ago, we changed the Tax Code to allow for 
accelerated or higher levels of depreciation, write-offs, 
immediate write-offs for higher levels of capital investment. I 
think that alone was such a powerful tool in the expansion of 
small business that I am not sure we clearly have noted the 
impacts of that. Its related to the fundamental question, let's 
broaden our thinking as to how we empower more people to 
understand and undertake risk taking for the purposes of their 
own welfare and societal benefit of new products being brought 
to market.
    Health care I think is one of those inhibiting factors that 
keeps people from stepping beyond what their current confines 
are in order to enter into a new venture.
    Certain other tax policies, I mentioned the general 
restrictions, or let's say the lack of incentive regarding home 
base businesses, could be another one which you obviously would 
significantly lower costs, particularly as we are entering into 
an age of telecommuting and linkages through other forms of 
advanced technology that would help us rethink the whole 
concept of how you get to the place where you produce that 
marketable product.
    You all are on the ground and you know this. And I just 
would like to again challenge all of us to think in partnership 
about those other aspects, those other barriers that exist out 
there and what potential policy solutions there are to reduce 
those, to lower those that would augment our good ability at 
trying to provide capital, and trying to provide education, 
outreach, and trying to provide mentoring so that the poor 
resource allocation doesn't take place, and that is an 
important part of your work as well.
    Mr. Kelly. Thanks for the question, Congressman 
Fortenberry. In response to one of your points about the health 
care, that is absolutely something we hear. I was at a meeting 
we had in Knoxville a couple years ago where we actually were 
meeting with entrepreneurs, not the nonprofits of the system. 
When we broke, people went into their different States, and 
there were four different States represented. Everyone of them 
independently came back and reported to the group that health 
care was the number one issue. And in the discussion, the women 
that were in the group all said, I am working at another job 
because I need to keep my health care. I really don't want to 
do that. I want to stop that, and focus all my attention on 
this business that I also have, which is on the side right now.
    Mr. Fortenberry. I don't think we clearly understand what a 
significant drain on productivity that is in this country. I 
don't think we clearly understand that, and that is one of the 
reasons, obviously, I am laying this out; not necessarily as a 
challenge to you all, but just to help us think creatively as 
to how we overcome--that is a good anecdotal story. I think it 
is repeated in so many ways across the country in so many 
forms. Sorry to interrupt.
    Mr. Kelly. That is fine.
    It is a complicated issue, and we certainly don't recommend 
any particular kind of bill or--I wish I knew what the answer 
was to the health care situation here, but it really is an 
issue for our folks on the ground.
    Mr. Fortenberry. Here is a very small example, I will give 
you another; this is anecdotal. In my district, in one of my 
small towns, I had a small business owner come to see me, and I 
had introduced a measure last year that would allow a rollover 
of retirement plans into health savings accounts with the idea 
that the measure overcomes a potential barrier to entry into a 
small business because it is lowering the cost of basically 
start up, allowing someone to use an existing fund that sits 
out there. And obviously, health savings accounts also can be 
retirement accounts, so it is consistent with the original 
legislation. It ended up being in our tax bill last year. It 
didn't pass as a separate measure, but it did pass in the 
overall tax measure. I didn't think anybody paid attention to 
it until this small business person came to me and said, Jeff, 
that was huge for me and my employees, huge. It allowed my 
employees and me to maintain our health care policies by giving 
them an opportunity to start the health savings accounts, and 
obviously he had some type of cash-dropping policy that he 
subsidizes for them. So, again, I just lay that out anecdotally 
as a way to creatively think about how we potentially overcome 
something that is very real inhibitor out there.
    The other ones are other creative tax policies that I think 
we ought to really focus on as to how we can stimulate 
potential small business investment. Again, going back to the 
tax policy several years ago allowing for the higher levels of 
immediate write-offs and capital investment, I just think that 
I was a huge boost to the small business sector. But I want to 
hear your ideas. I am not here to preach at you. I am just 
trying to extract from you, because you are the experts and you 
see this.
    Chairwoman Velazquez. Your time.
    Mr. Fortenberry. Am I done?
    Mr. Chabot. There is a red light.
    Mr. Fortenberry. Oh, is that what that means?
    Mr. Chabot. Yes.
    Mr. Fortenberry. Can I have 15 seconds? I'll stop. Thank 
you, Madam Chair.
    Chairwoman Velazquez. Are you going to continue preaching, 
or are you going to ask a question?
    Mr. Fortenberry. I will be quiet.
    Mr. Chabot. I give unanimous consent that the gentleman be 
given an additional minute to wrap up and ask a question that 
could be responded to.
    Chairwoman Velazquez. Without objection.
    Mr. Fortenberry. Thank you very much. When I was a brand 
new Member of Congress, it used to frustrate me about the 
Congress Members who would never get to their question, but 
here I am. So please, you respond.
    Ms. Keenan. I would just say that the small business 
development centers, specific to the area of health coverage, a 
few years ago we worked on a project with the Health Leadership 
Council to put together a compilation, and this was in Virginia 
of health care products and ranges of cost that we then used to 
educate small businesses about what options there may be, so 
that although it can be prohibitive and certainly there is a 
reason--and we have the same examples, people that their spouse 
works while they start their business so can use their health 
insurance.
    We started with this education initially to inform 
employers about what options may be available and that could be 
affordable so that they would be able to have an insured 
workplace. So that is one avenue, but you are absolutely right. 
There needs to be a continued look and review of how to lower 
the barriers for entry so that more businesses and more 
entrepreneurs are encouraged to take that risk.
    Chairwoman Velazquez. Mr. Fortenberry, if you will yield 
for a second. This committee recognizes the important aspect of 
health care in terms of the impact that it has on small 
businesses. That is why we created a grant program, a health 
care initiative under the small business development centers so 
that they could provide assistance in matching small businesses 
with health care providers.
    Mr. Fortenberry. Thank you.
    Chairwoman Velazquez. Time has expired, and I will ask a 
last question to Mr. Crawford.
    Mr. Crawford, in your testimony, you stated that the $7.5 
billion in loan authority that the administration has proposed 
would be insufficient to confront the rising demand for 504 
loans. Can you explain why a higher authorization level is 
necessary, and what will be the consequences if the amount 
exceeded authority?
    Mr. Crawford. Well, first of all, if I extend the current 
growth rate for this year we go beyond $7.5 billion, which 
means almost by definition you are going to see program 
shutdown if we grow just to 11 percent. I don't have any doubt 
that we will grow faster than 11 percent, because I personally 
believe, and I think Mr. Greenspan has agreed with me, that we 
are headed for a slow down. And if that happens, we will grow 
faster. That means they will shut us down sooner or go to 
credit restrictions, as you referred to, that occurred with a 
7(a) program some years ago, that it seems like you or I are 
the only ones in this room that remember that, but that did 
occur--I am sorry, and Barry remembers it. But I don't want to 
see that with a 504 program. We are at zero subsidy. The 
portfolio is performing extremely well. It seems to me, as you 
referred to 7(a), there is absolutely no cost to the taxpayer 
to put us at 8 or 8.5 or 12 and a half for that matter, but I 
would encourage that consideration.
    Chairwoman Velazquez. Thank you. And again, I want to thank 
all of you for coming here today and also for the work--the 
great work that you do in providing entrepreneurial development 
technical assistance, access to capital to small businesses in 
this country.
    And I just want to make sure that you know that this has 
been an important discussion that will help us in crafting the 
final bill that we will have before this committee for 
consideration.
    I ask unanimous consent that members have 5 legislative 
days to enter statements and supporting materials into the 
record. Without objection, so ordered. This hearing is now 
adjourned.
    [Whereupon, at 11:21 a.m., the committee was adjourned.]

    [GRAPHIC] [TIFF OMITTED] T8206.001
    
    [GRAPHIC] [TIFF OMITTED] T8206.002
    
    [GRAPHIC] [TIFF OMITTED] T8206.003
    
    [GRAPHIC] [TIFF OMITTED] T8206.004
    
    [GRAPHIC] [TIFF OMITTED] T8206.005
    
    [GRAPHIC] [TIFF OMITTED] T8206.006
    
    [GRAPHIC] [TIFF OMITTED] T8206.007
    
    [GRAPHIC] [TIFF OMITTED] T8206.008
    
    [GRAPHIC] [TIFF OMITTED] T8206.009
    
    [GRAPHIC] [TIFF OMITTED] T8206.010
    
    [GRAPHIC] [TIFF OMITTED] T8206.011
    
    [GRAPHIC] [TIFF OMITTED] T8206.012
    
    [GRAPHIC] [TIFF OMITTED] T8206.013
    
    [GRAPHIC] [TIFF OMITTED] T8206.014
    
    [GRAPHIC] [TIFF OMITTED] T8206.015
    
    [GRAPHIC] [TIFF OMITTED] T8206.016
    
    [GRAPHIC] [TIFF OMITTED] T8206.017
    
    [GRAPHIC] [TIFF OMITTED] T8206.018
    
    [GRAPHIC] [TIFF OMITTED] T8206.019
    
    [GRAPHIC] [TIFF OMITTED] T8206.020
    
    [GRAPHIC] [TIFF OMITTED] T8206.021
    
    [GRAPHIC] [TIFF OMITTED] T8206.022
    
                                 
