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


 
                       FULL COMMITTEE HEARING ON 
                           THE SMALL BUSINESS 
                      ADMINISTRATION'S BUDGET FOR 
                            FISCAL YEAR 2009 

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 7, 2008

                               __________

                          Serial Number 110-69

                               __________

         Printed for the use of the Committee on Small Business


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

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                   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
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii

                  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               , 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...............................................     3

                               WITNESSES


PANEL I:
Preston, Honorable Steven C., Administrator, U.S. Small Business 
  Administration.................................................     4

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    32
Chabot, Hon. Steve...............................................    34
Altmire, Hon. Jason..............................................    35
Preston, Steven C................................................    36

                                  (v)

  


                  FULL COMMITTEE HEARING ON THE SMALL
                    BUSINESS ADMINISTRATION'S BUDGET
                          FOR FISCAL YEAR 2009

                              ----------                              


                       Thursday, February 7, 2008

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2360 Rayburn House Office Building, Hon. Nydia Velazquez 
[chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Clarke, Ellsworth, 
Johnson, Sestak, Hirono and Chabot.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    Chairwoman Velazquez. Good morning, this hearing will come 
to order. Today the Committee will review the fiscal year 2009 
budget to the Small Business Administration.
    The request comes before us as the prospect of the 
recession looms over the U.S. economy, following from the 
subprime mortgage crisis that continues to impact every 
community. And foreclosures are way up.
    Consumers are spending less on goods and services as credit 
tightens. Just last week, the Department of Labor announced the 
economy had lost 17,000 jobs in January alone. And this week 
the service sector, the leading driver of new employment 
opportunities, began showing alarming signs of weakness, 
slipping to its lowest level since 9-11.
    These economic realities demand a budget that invests in 
small businesses, which have always been at the core of the 
nation's economic growth. Unfortunately, the President's 
request does the opposite. It cuts SBA funding by 15 percent 
and further erodes programs aimed at serving small firms. The 
timing could not be worse.
    One of the most immediate steps we need to stem economic 
loss is an infusion of capital. That fact is especially clear 
given a recent survey that shows 80 percent of banks are 
tightening lending standards. But under the President's 
proposal, loans will be more costly and interest rates higher.
    This is a startling move, considering that during a weak 
economy is precisely when banks and lenders are most likely to 
turn to federal loan guarantees. The budget also recommends 
increasing fees for the 7(a) loan program to the maximum level, 
saddling small businesses with additional expenses when they 
can least afford it.
    One of the unique dynamics of an economic downturn is a 
general rise in entrepreneurial activity. That was the case in 
the early 1990s, when newly formed small businesses helped 
bring about a wave of American prosperity.
    No single initiative has had a greater role in fostering 
this sort of innovation and commercial activity than the 
microloan program. Here, too, by terminating funding and 
sharply increasing interest rates, the President's budget comes 
up short. Whereas, entrepreneurs of the past, including women 
and minorities in low-income areas, could look to SBA 
microloans for capital, this budget turns them away. The result 
is that, instead of a surge in small business activity to 
strengthen the economy, job creation will continue to lag. In 
the area of entrepreneurial development, the administration has 
taken a similarly wrongheaded approach.
    While small businesses can weather a tough economy, doing 
so requires planning and targeted support. In fact, 
entrepreneurs receiving this type of assistance are twice as 
likely to succeed. This is why the small business development 
centers and the women's business centers were created.
    In an economic downturn, having their services readily 
available is more important than ever. Yet, the President cuts 
funding for these programs and provides another example of an 
inadequate budget, resulting in poor policy decisions.
    Finally, while many parts of the economy are scaling back 
their purchasing, the federal marketplace continues to grow. 
Last year more than $400 billion were spent on contracts for 
goods and services. That is an increase of six percent over FY 
2006 levels. Despite that, the administration has yet to meet a 
single one of its small business goals, costing entrepreneurs 
billions in lost contracting opportunities.
    We have already seen that this President refuses to 
implement initiatives, such as the women's procurement program, 
but his budget also fails to provide funding to correct other 
problems. For instance, his FY 2009 request does not allow for 
an adequate number of procurement representatives to protest 
against fraud and to help small businesses access the federal 
marketplace. All of this runs counter to responsible use of 
taxpayer funds and to what our nation's entrepreneurs deserve.
    During his recent state of the SBA address, Mr. Preston 
repeated the President's mantra of doing more with less. This 
Committee and small businesses across America are tired of the 
administration promises and of its unmet expectation.
    The only thing this budget brings is more cuts to necessary 
programs. And the only thing it achieves is less with less. 
Small firms are as resilient as they are innovative. And they 
are working hard to restore our economy to its full strength. 
They should not have to do it alone.
    After all, investing in entrepreneurs is ultimately about 
fostering our nation's economic strength. Regrettably, those 
notions appear lost on this administration and in this budget.
    I want to thank administrator Preston for his testimony 
today. And I recognize ranking member Chabot for his opening 
statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr. Chabot. Thank you very much and good morning. I would 
like to thank the Chairwoman for holding this hearing on the 
Small Business Administration's budget submittal for fiscal 
year 2009. I also want to welcome back Administrator Preston 
for his last, I believe, appearance to present the SBA budget.
    As members of this Committee recognize, there is a sense of 
financial anxiety in the country, despite the fact that the 
fundamentals of the American economy remain strong. One key 
element in the underlying strength of the American economy is 
the continued growth of small businesses. Today the Committee 
is considering whether the SBA will have the necessary 
resources to provide assistance to small businesses in these 
uncertain times.
    Before addressing the specifics of today's hearing, it is 
important to note that the small business agenda is 
significantly broader than the SBA budget itself. The stimulus 
package, for example, passed in a bipartisan manner by the 
House included provisions to increase expensing and deduct 
equipment depreciation for small businesses.
    While these incentives are valuable, Congress also must 
adopt long-term policies to help small businesses, such as 
making the tax cuts that expire in 2011 permanent. In addition, 
we need to make health insurance and retirement more affordable 
for small business owners. These policies have the most impact 
on economic health of America's entrepreneurs.
    As the economy continues to undergo structural changes, it 
will be important to ensure that individuals with appropriate 
skills have the necessary access to capital and technical 
assistance to start their own businesses. Here, the budget of 
the SBA can play a vital role in maintaining the forward 
momentum of the American economy.
    The SBA enables small businesses to obtain capital when 
normal commercial financing is not available. This situation 
may be exacerbated by the current turmoil in the private credit 
markets. I will be interested in hearing the Administrator's 
opinion on how the credit situation is affecting the SBA loan 
portfolio and whether the fiscal year 2009 budget provides 
sufficient financing authority to handle unforeseen changes in 
private credit markets.
    The SBA also must be prepared to offer technical assistance 
to entrepreneurs. Individuals who are reorienting their careers 
may not have the knowledge necessary to start and maintain 
their businesses. Other small businesses may be interested in 
expanding due to the availability of skilled workers. I would 
expect sufficient resources will be available to help these 
entrepreneurs.
    It also is important to note that federal purchase of goods 
and services can play a vital role in maintaining the health of 
small businesses in many areas of the country. The 
Administrator must be prepared to be a strong advocate of small 
business utilization within the Executive Branch.
    In addition, the SBA needs to have sufficient personnel to 
help small businesses through the complexity of the federal 
government contracting process. I will be very interested to 
hear from the Administrator about the resources that will be 
allocated to the Office of Government Contracting at the 
agency.
    Before yielding back, I must note that simply increasing 
the funds available to an agency is not the only way to improve 
its performance. Sometimes original thinking and reallocating 
existing resources will solve problems while staying within 
budgetary constraints. Administrator Preston should be thanked 
for his service, taking on the problems at the SBA, tackling 
them, improving the operations of the agency, and ultimately 
helping America's entrepreneurs.
    And we welcome you here again, Mr. Preston. And I yield 
back the balance of my time.
    Chairwoman Velazquez. Thank you Mr. Chabot.
    Now it is my pleasure to welcome Mr. Preston, the 
Administrator of the United States Small Business 
Administration. He has served in this capacity since July of 
2006 and has testified several times before this Committee. 
This is the second time Mr. Preston will be testifying 
regarding the agency's budget request.
    Welcome.
    Mr. Preston. Great. Thank you.

  STATEMENT OF MR. STEVEN PRESTON, ADMINISTRATOR, U.S. SMALL 
                    BUSINESS ADMINISTRATION

    Mr. Preston. Chairwoman Velazquez, Ranking Member Chabot, 
other members of the Committee, thank you for inviting me to 
discuss the fiscal year 2009 budget request.
    Two thousand seven was a year of very significant growth 
and accomplishment at the SBA. This budget reflects our vision 
for the agency's future to take forward many of the reforms, 
many of the advances that were the result of our work in '07 
and going into '08.
    In 2009, the SBA will focus on a reform agenda driven by 
very clear outcomes, effective customer service, highly trained 
employees, and accountability. In 2007, the number of loans 
that the agency approved increased to a record level. SBA's 
disaster assistance program reengineered its loan-processing 
operation. We dramatically shortened our response times and 
dramatically improved service and support for American disaster 
victims.
    SBA worked with federal agencies to improve the accuracy of 
contracting data and to begin to hold them more accountable for 
achieving their results. A total of $78 billion in prime 
contract dollars went to small business.
    Over a million small businesses utilize SBA's resource 
partners: SBDCs, women business centers, and SCORE. I am 
particularly pleased that after a number of years, as the 
lowest rated agency in morale in the federal government, we saw 
a very significant improvement in employee morale in a number 
of areas, specifically those areas where employees felt their 
ability to be trained to do their jobs effectively; to be 
supported in that; and, most significantly, their confidence in 
the senior leadership team.
    In fiscal year 2009, our budget represents a 15.5 percent 
increase over the 2008 enacted level. It includes a six percent 
increase in our operating budget. This budget will support a 
continuation of the broad-based operational reforms that we are 
making at the agency that is making us more effective and more 
responsive to our customers, many of which involve extensive 
process reengineering and technology improvements, under-served 
market initiatives to support small business formation and 
growth in areas of our country with higher levels of poverty 
and unemployment in order to make sure that we're doing 
everything we can to energize those local economies, create 
jobs, and bring sustained investment.
    Disaster loan funding is based on a normalized year. And 
our ability to ensure readiness initiatives continue to make 
sure that we're prepared to handle any kind of disaster; and, 
finally, non-credit programs consistent with our prior request, 
although they do reflect a decline in certain areas based on 
the '08 enacted levels.
    As many of you know, we believe that by dramatically 
improving levels of service to our partners, like the banks, to 
our customers, by sharpening our product mix, by depending our 
penetration in under-served markets, and by tightening our 
oversight, SBA will expand its impact on small businesses in 
our country.
    I also think it's very important for this Committee to 
consider the most critical issues to small business' growth and 
prosperity on a macro level. This is especially important now 
as our economy undergoes a significant housing market 
correction combined with high energy prices and market 
volatility, which has caused a slowing of the economic growth 
we see in our country.
    While we believe our underlying economy continues to be 
resilient, we believe it will continue to grow. The economic 
growth package the Congress is considering must be enacted 
quickly. It must be robust, temporary, and broad-based.
    And I want to commend all of you and your colleagues in the 
House for your prompt consideration of the growth package. And 
I hope that the Senate will complete its consideration soon so 
that the rebate payments for individuals and the investment 
incentives for businesses will help create jobs and stimulate 
growth in our economy.
    In addition to an economic growth plan, I join the 
President in pushing for long-term economic policies that are 
in our country's best interest, particularly pro-growth tax 
system. We need to encourage investment by keeping taxes low. 
The President's tax cuts have provided very important capital 
to small business to support economic expansion, job creation, 
and innovation.
    Small businesses face a tax increase of 17 percent, or 
$4,000, per year on average if the President's tax relief is 
not made permanent. So I urge you not to ignore this important 
small business issue as you consider the 2009 fiscal year.
    In the future, small businesses in America who represent 
almost 30 percent of our exports also need and deserve the 
opportunity to sell their products abroad. And your support for 
free trade policies will open those markets to U.S. goods and 
services.
    Depending agreements will level the playing field for U.S. 
exporters by breaking down tariffs and addressing many other 
important issues, such as intellectual property protections, 
excessive licensing and inspection requirements, burdensome 
paperwork, and inconsistent Customs procedures.
    International trade means real dollars and real 
opportunities for small business. With Colombia, in particular, 
85 percent of U.S. companies exporting to that company were 
small and medium-sized with fewer than 500 employees. A lot of 
U.S. small businesses account for 30 percent of all of our 
exports oversees. They account for 35 percent of our exports to 
Colombia.
    The potential for growth under the free trade agreements is 
very important for small business. According to the U.S. 
International Trade Commission, U.S. exports to Colombia could 
be over a billion dollars higher once the U.S.-Colombia TPA is 
fully implemented. So by leveling the playing field and 
providing duty-free access for American products, we will help 
small businesses to expand and compete globally.
    I appreciate the cooperation and bipartisan spirit that has 
brought the administration and Congress together to support our 
economy. I look forward to continued bipartisanship as we work 
together to help America's small businesses succeed and grow.
    Thank you for inviting me today. I look forward to 
answering your questions.
    [The prepared statement of Mr. Preston may be found in the 
Appendix on page 36.]

    Chairwoman Velazquez. Thank you, Mr. Preston.
    Mr. Preston, the economy--and you briefly discussed it in 
your testimony--is facing some real challenges. GDP growth is 
flat. Payrolls are declining. The housing correction that you 
mentioned--I will say the housing mortgage foreclosure mess 
that we are witnessing--continues to slide. And banks are 
pulling back on their lending.
    In response to this, the SBA's budget proposes cuts in the 
SBDCs, women's business center and, thus, does nothing to 
increase capital for entrepreneurs. How are the SBA budget 
decisions reflective of the economic realities facing our 
nation?
    Mr. Preston. Well, I think when you look at the broader 
economic realities, I think you very appropriately discussed 
access to capital and it is very important I think to 
understand that it's not only an issue of banks tightening 
credit, which we are seeing, although I have not seen your 
statistic of 80 percent, I've seen something in the 30-35 
percent range. We do significant outreach to the banks to talk 
to them directly about their policies.
    So I think as you look forward, I think a couple of things 
are important to know.
    Chairwoman Velazquez. Mr. Preston, let me just say that 80 
percent number, it's a result of the Fed's survey, not my 
numbers.
    Mr. Preston. Okay.
    Chairwoman Velazquez. It's the Fed's number.
    Mr. Preston. I would be happy to share my thoughts with you 
afterwards.
    Chairwoman Velazquez. Okay.
    Mr. Preston. What I would tell you is we are undergoing, 
first of all, very significant outreach efforts to expand the 
usage of our products in the banks. I'm not confident that the 
banking community has adopted our products as extensively as 
they can.
    We have rolled out a nationwide calling effort. I'm 
personally involved at the highest levels of many banks. We're 
holding bank roundtables to begin to broaden that penetration. 
The other thing we're beginning to do is to go out with an 
active recruitment effort to bring in banks that do not use our 
products today. You in the past have appropriately noted that 
many banks left our network following the elimination of low 
doc, many community banks did.
    We launched a pilot last month for a product called Rural 
Lender Advantage, which is an effort to begin bringing back in 
the community banks in our country so we can reach that market 
effectively.
    I think the stimulus package that you all have passed in 
cooperation with the White House is going to be an important 
driver of investment back into the businesses.
    One of the things I want to mention is it's not only banks 
pulling back on credit. It is banks also seeing a significant 
decline in requests for credit. In other words, small 
businesses are showing less of a propensity to invest by having 
those investment incentives in place, which is what has 
happened in previous stimulus packages. We believe those 
companies will begin coming forward requesting credit.
    Chairwoman Velazquez. I hear you, Mr. Preston, but my 
question is, at a time when we need to provide additional 
resources to help people who may lay off and lose their jobs, 
start up their businesses, why is it that you are cutting the 
budget for the women's business center and the small business 
development centers?
    Mr. Preston. That's right. First of all, we have kept our 
requests in that area consistent. Obviously the appropriation 
passed last year increased those budgets after we submitted our 
budget. But it's the same request we made in '07. It's the same 
request we made in '08.
    The other thing I think that is important to note is both 
of those networks have extensive fund-raising efforts outside 
of the federal government. What we provide for them is a 
significant level of base funding, which they go out and match 
through other state governments, other private sources.
    Chairwoman Velazquez. Well, I need for you to help me with 
the math here. SBDC program is cut by 10 percent, from 97 
million to 87 million. It also reduces the women's business 
program by nearly 10 percent, from 13 million to 11.8. The 
prime program, which was funded in FY 2008 at 3 million has 
been zeroed out.
    So a cut is a cut. So we are cutting all of these--
    Mr. Preston. That's right. We're reducing the budget in 
those programs once again. Those people have significant fund-
raising efforts outside of the federal government. We provide a 
significant base level of funding for them. And many of them 
have expanded.
    Chairwoman Velazquez. Okay. So we agree that in this 
budget, all of these programs have been cut?
    Mr. Preston. In fact, I mentioned that in my opening 
statement. So I do agree with you there.
    Chairwoman Velazquez. In response to the economic downturn, 
we have seen the Federal Reserve lower rates by one and a 
quarter points in an eight-day period this January. This was 
the Fed's most aggressive effort in years to head off a 
recession.
    The point of these cuts is to spur economic activity. We 
all know that. That was the response of the Feds to the 
recession that we are witnessing.
    The SBA's response to the exact same net of economic 
circumstances is to increase interest rates for low-income 
borrowers. So why are your actions running counter to what the 
Federal Reserve is doing?
    Mr. Preston. Well, I would ask for clarification because we 
guarantee loans that banks make. We don't set the interest rate 
on those guarantee bonds.
    Chairwoman Velazquez. Well, the microloan program--
    Mr. Preston. Well, the microloan program, what we are 
trying to do there is bring that to a zero subsidy level, which 
would allow us to expand the program and actually get more 
capital out there.
    Now, there is no doubt that part of doing that is 
increasing the interest rate, but, as it stands today, it's a 
relatively limited program with a relatively limited reach.
    Chairwoman Velazquez. Administrator Preston, the mission of 
the Small Business Administration is to provide economic tools 
for businesses to really expand in growth. My question to you 
is, how can you explain the actions taken by the Small Business 
Administration regarding the aggressive action taken by the 
Feds in reducing interest rates? You go and you increase the 
cost for the microloan borrowers.
    Mr. Preston. Well, I think the answer to that is we fund a 
portion of a little over 2,000 loans a year through the 
microloan program. Last year we made over 100,000 loans through 
our other programs. Those programs are effected by the Fed. 
Those interest rates are all floating. We have seen those rates 
come down 225 basis points. Our overall portfolio is saving 
over a billion dollars a year from those Fed cuts.
    So I think what you have appropriately noted is broader 
interest rate changes in the economy have a much broader impact 
on our programs than fees or small adjustments that we can 
make.
    You are focusing on a very small program with a very 
limited reach.
    Chairwoman Velazquez. That is very important in low-income 
communities.
    Mr. Preston. It is important in low-income communities.
    Chairwoman Velazquez. It is a program that is used by 67 
percent of women, low-income women, in this country.
    Mr. Preston. I totally appreciate that those microlenders 
out there are doing a good job. They're working hard. But it is 
a very expensive program for the federal government. For every 
dollar that they lend, we pay 88 cents in subsidy and technical 
assistance.
    Chairwoman Velazquez. It's very expensive, a $2 million 
program. And a default rate of what? Two percent? Four percent?
    Mr. Preston. It's a $17 million program, or 2,200 loans. 
The default rate on the loans in that program is over ten 
percent.
    Chairwoman Velazquez. It sounds to me like there is a 
disconnect between the response and the action taken by the 
Federal Reserve and the action taken by Small Business 
Administration.
    Mr. Preston. Let me make one comment. Our loans to 
microlenders have an extremely low default rate. That is very, 
very small. You know, what I am referring to is their loans to 
the borrowers.
    Chairwoman Velazquez. Mr. Preston, you spent a lot of time 
in your written testimony lauding free trade; in particular, 
the Colombia agreement. In your FY 2009 budget, cuts U.S. 
Export Assistance Center for $2.4 million. Since 2002, funding 
for this center has been cut by 20 percent. And SBA staff has 
dropped by almost 30 percent. They're not trade specialists 
budgeted for the major port cities of New York City?
    Mr. Preston. I think that's a transfer from one account to 
another, but I'll have to double check that. I apologize.
    We're actually expanding our efforts in export. Next month 
we will be doing a very large trade symposium in Miami. We're 
going around the country to begin bringing in small businesses 
in coordination with our other federal partners to make sure 
that they are using these targets.
    Chairwoman Velazquez. Then your staff should be taking 
notes because the major two port cities, New Orleans and New 
York City, we have not trade specialists there.
    Mr. Preston. Yes, we do. We have a trade specialist in New 
Orleans.
    Chairwoman Velazquez. What about New York?
    Mr. Preston. I don't know about New York.
    Chairwoman Velazquez. So you will check on that and get 
back to us?
    Mr. Preston. Yes, I will check on that as well.
    Chairwoman Velazquez. In your testimony, you touted an 
internal poll that you characterized as showing that employees 
are 15 percent happier. I am glad to hear that.
    Mr. Preston. I don't think I mentioned a number.
    Chairwoman Velazquez. With regard to the poll, it is 
possible that this increase was due to overall satisfaction in 
the federal government going up because your poll doesn't 
compare SBA with any other agencies, like the OPM survey does.
    Mr. Preston. Our poll is the OPM survey. The federal 
government has not published the results for the other 
agencies. We expect to get comparisons in April from them. So 
that data is not available to us right now.
    What we have done is compared our polls to the federal 
government polls from last year.
    Chairwoman Velazquez. Okay. So let me ask you, why, then, 
these questions were not included. Whether the organization is 
a good place to work; whether the organization's leaders 
maintain high standards of integrity and honesty; whether 
arbitrary action, personal favoritism, and coercion for 
political purposes is tolerated, why didn't you include those 
questions in your question?
    Mr. Preston. Our survey is the same--
    Chairwoman Velazquez. Those questions are included on the 
OPM survey.
    Mr. Preston. Well, what happens, ma'am, is every two years, 
OPM does an expansive survey with about 80 questions. In the 
interim years, they do a survey with 40 questions. We just use 
the survey that they put out.
    The two senior leadership scores, to give you the two 
things that actually were scored, respectfully, senior 
leadership in our agency went up almost 22 percent. Motivation 
from senior leadership went up almost 18 percent. Those scores 
are enormously high changes in one year and I believe reflects 
the improvements that we have made at the agency, much of 
which--respect doesn't go up if people think you're not ethical 
or honest. Those are the two things that came up. We did not 
manipulate that survey or change it in any way.
    Chairwoman Velazquez. It just surprises me that OPM 
includes this type of question to measure how people feel on 
morale and you didn't include it in your survey.
    Mr. Preston. It's their survey.
    Chairwoman Velazquez. Let's move on to the next question.
    Mr. Preston. It's their survey. It's not our survey. So I'm 
not sure why there's confusion there.
    Chairwoman Velazquez. Okay. Mr. Preston, Congress enacted 
an energy bill last year requiring enhanced assistance for 
small businesses, energy efficiency, and innovation. So I would 
like to know whether the agency has implemented these required 
provisions. In particular, has the agency developed an Energy 
Star program for small businesses?
    Mr. Preston. Yes. You're talking about the '07 Act enacted 
toward the end of last year? Right.
    Chairwoman Velazquez. Yes.
    Mr. Preston. Yes, we have made a lot of progress on that. A 
couple of things I think we were already doing. The express 
lunch for renewable energy is already available to us. Larger 
504 loan limits is going right now. We're drafting the 
regulation on that.
    Chairwoman Velazquez. Energy saving debentures?
    Mr. Preston. Energy saving debenture, we're drafting the 
regs on that as well, and we have already modeled the cost of 
that program. Investment in energy saving small business we are 
drafting the regs on. And there are two provisions in that bill 
which have not been funded, one of which is the pilot program 
to reduce 7(a) fees.
    Chairwoman Velazquez. You mean the renewable fuel capital 
investment pilot program?
    Mr. Preston. That is one of them. There is a grant 
component to that that hasn't been funded. And then also 7(a) 
fees for a particular kind of energy investment were supposed 
to be partially waived. And that was not funded. So those are 
the two challenges we have.
    Chairwoman Velazquez. The 7(a), those need to be funded, 
sir. Are you going to need regulation for that?
    Mr. Preston. My understanding is that the interpretation we 
have gotten from our legal people is because it's a separate 
risk category, it would need an appropriation. But we would be 
happy to talk to your staff to see if you have a different 
interpretation of it.
    So I think we are making progress in all of the areas that 
require program structuring, drafting regulations, that type of 
thing. We have a couple of issues on funding.
    Chairwoman Velazquez. I will come back to you, Mr. Preston, 
with more questions. Now I recognize Mr. Chabot.
    Mr. Chabot. Thank you very much, Madam Chair.
    I would just note for the record, first of all, that there 
are consequences when one's party is in the minority. And we 
generally have our conferences and you have your caucuses. 
They're the same basic entity. We have ours on Wednesdays or 
Thursdays, generally at 9:00, but apparently I was told that we 
were unable to locate one room on the entire Capitol complex at 
9:00 o'clock. So it had to be at 10:00.
    So that is one of the reasons that we don't see any 
Republicans here. So I apologize we don't have more bodies up 
here, but they're at conference. But small business is 
important to me. So I am here.
    Chairwoman Velazquez. Yes.
    Mr. Chabot. But, in any event, there has been some 
criticism already this morning about the number of export 
assistance centers. Could you tell us how many businesses 
actually use the export assistance centers versus the number of 
small businesses around the country that actually export?
    Mr. Preston. I don't have that statistic for you, but we do 
have, I believe it is, 16 export assistance centers. Then the 
Department of Commerce has well over a hundred of them, which 
also support small businesses.
    I don't have that statistic. I do think it is a very 
important service we offer, particularly in a time when we see 
an increase in, continuing increase in, export by small 
businesses.
    Mr. Chabot. Thank you.
    What benefits would small businesses receive from a free 
trade agreement with Colombia?
    Mr. Preston. Very significant. First of all, as I mentioned 
before, over a third of our exports to Colombia are small 
business. Right now about 92 percent of the imports coming into 
our country from Colombia come in duty-free. Most of our 
exports to Colombia have duties, many of them very high, 
generally in the 5 to 15 percent range. Some go up to 35 
percent. So the playing field is not level right now. Goods 
going that way get charged more money.
    We also think over time that we will be able to see higher 
intellectual property protections. That is very important for 
our small innovators. You know, if they ship their high 
intellectual property products overseas without the right kind 
of protections, it is a significant risk to them.
    The other thing I think that is important is when you think 
of all of the administrative requirements of shipping goods 
overseas, all of the things that any business has to deal with 
in a border, it is a significant cost of doing business 
overseas just handling all of that stuff. And to the extent 
that those become clearer, more efficient, and that the 
activities that the border connects but the goods flow more 
easily, those are very big factors for small business.
    We have seen in other situations when we have entered free 
trade agreements that the percentage of exports from small 
business actually goes up because a lot more of them find those 
markets are open for business in a way that's affordable to 
them.
    Mr. Chabot. Thank you.
    Could you explain how your Emerging 200 Program would help 
inner city urban areas?
    Mr. Preston. Yes. One of the things we wanted to do was 
figure out a way to be more targeted in certain urban areas of 
the country in a way that would really energize not only all 
small businesses but particularly small businesses that have a 
high growth profile. And we heard this by doing roundtables in 
various cities around the country.
    A lot of these people have a challenge if they have maybe 
five people, a great product getting through that growth curve. 
So what we are trying to do is start out in ten cities, 
although we will go to more if it makes sense or shrink it if 
we don't think we have the support, go to those cities, find a 
group of inner city entrepreneurs with a strong growth profile, 
effectively put them in the same kind of class so that they 
would have their own network with each other in sort of a 
group.
    Then what we would bring in is a very heavy dose of 
training, technical assistance, classroom training, working 
with them to solve real life issues, and also support their 
connection with providers of capital.
    What we are hoping to do if we are in a city like 
Cincinnati and you've got 20 small businesses in the city of 
the core that are good growth businesses and they're working 
together and we're working with them and helping them get 
capital and training and assistance, those are the people that 
are going to create the jobs, that are going to create economic 
activity, and that hopefully will bring investment into those 
cities. And as we continue with this program to bring in more 
businesses each year, we're hoping that it is going to have a 
significant impact in those urban centers.
    Mr. Chabot. Thank you.
    You had mentioned in your opening statement and I mentioned 
in mine as well the importance of making the tax cuts that were 
passed in 2001 and 2003 permanent and how important that is to 
Americans in general but to small businesses in particular. 
Would you explain why that is, what impact that really has, and 
what having them essentially go out of existence in 2010-2011, 
what adverse impact that could potentially bring?
    Mr. Preston. Yes. As I mentioned, on average, I think the 
calculation is $4,000 per small business. And I think to some 
people that might not sound like a lot of money. But, as I try 
to remind people, small businesses aren't rich people. Small 
businesses are living off of those businesses for the most 
part.
    So what we're seeing is a number of things happen. And I 
think it falls into a couple of different categories, but 
primarily we think that incentives on investment may be 
impacted or will be impacted, which could deter investment 
activity. Clearly the marginal tax rates are going to go up 
significantly.
    And I think it is very important to understand that many 
small businesses are not incorporated. They're Subchapter S 
corporations, they're partnerships, or it just runs through 
their personal income statement.
    So those marginal tax rates have a direct impact on the 
small businesses of our country and have a direct impact on 
their ability, then, to take that money and pay for health 
care, pay for investment, pay for new employees.
    You know, I think we have got terrific programs at the SBA. 
I think they make a great impact on our country. But when you 
look at these broad macroeconomic impacts, they I will say have 
an even greater impact on the ability of small businesses to 
start to grow, to flourish, and to pay for the growth in their 
companies.
    Mr. Chabot. Thank you.
    Would you discuss the low scores that the SBA received on 
their customer service surveys in the past, what changes that 
you have made since you have become the administrator, and the 
results in those changes, and what the recent surveys have 
shown as a result of those changes?
    Mr. Preston. You're talking about the employee satisfaction 
surveys?
    Mr. Chabot. Yes.
    Mr. Preston. What we found, you know, we didn't really need 
a survey. I've gone around the country and spoken with 
literally thousands of employees. They all have my e-mail 
address. And, believe me, they use it. And I read every one of 
those e-mails.
    What I consistently found was the agency needed a few 
things. The agency needed to understand the vision of where it 
was going and how all that we were doing supported that 
mission. They needed to see that we were committed to making 
its programs work. A lot of our programs have not worked 
effectively. They needed to see that we were committed to them, 
to their development, their training, and to their career path. 
And in all of those areas, we have put in place programs to 
help take the agency forward.
    Great example. I know a lot of people on this panel care 
deeply about the 8(a) program. We had horrible backlogs in our 
8(a) certifications. We did not have a process to make sure we 
were doing annual 8(a) reviews in compliance.
    We spent a lot of time cleaning those things up to tell 
people ``You've got to do this on time. You have to be 
responsive to these people. And you have to be a compliant 
organization.'' We began tracking it.
    We made it visible to people. And that's what happened in 
the disaster business when we cleaned that up. That is what is 
happening right now in our guaranteed purchasing centers. And 
employees are very excited to see that we are beginning to get 
after these big issues.
    The other thing we have done is we have done extensive 
training. I mentioned before the scores around job skills, 
questions like, do you have the skills to do your jobs? Do you 
see an opportunity to improve your skills? Do you think we 
provide the opportunity for skill development?
    Those scores went up generally 11 to 15 percent in one 
year. And we haven't even gotten a good part of the agency 
through the training programs yet. And in the areas that did 
the training and are getting this kind of training, it's going 
up even more.
    Every employee is getting a personal development plan so 
that they know we can help them do career pathing. And the 
other thing we are doing a lot more is we are communicating 
with them. And people understand their roles, understand how 
their job is connected to the mission of the agency. They hear 
a lot more from me.
    So, you know, sir, it's on any number of fronts, but it has 
been a very significant step forward. And I will tell you I am 
very confident that when the survey gets done next year, it 
will be even more.
    Let me make one more quick point. In '06, the disaster 
business was not surveyed. Obviously I think we could all agree 
that was probably one of the agency's biggest challenges post-
Katrina.
    We surveyed them separately from this group because we 
wanted to see what they looked like. Their scores are 
dramatically higher now than the rest of the agency. And that 
is where the most dramatic reengineering and training occurred.
    I think it really has given us confidence that we are on 
the right track.
    Mr. Chabot. Thank you very much. I yield back.
    Chairwoman Velazquez. Ms. Hirono?
    Ms. Hirono. Thank you, Madam Chair.
    Just a couple of questions. Your 7(a) loan program is the 
largest. And I note that over the last number of years, in the 
past five years, the size of these loans has gone down every 
year since 2001. Is this trend a cause of concern to you?
    I mean, one of the things that occurs to me is that if the 
loans are getting smaller, then perhaps we are decreasing the 
chances of the business succeeding over time. So is this trend 
a cause of concern to you?
    Mr. Preston. Yes.
    Ms. Hirono. And if so, what do you propose to do about it?
    Mr. Preston. Let me give you some insights into the reason 
for that trend. And it's also a reason for a trend right now, 
which is our loan volume is down this year. And it is 
specifically in those loans.
    A number of years ago the agency introduced a product 
called SBA Express. It was a much more simplified way for banks 
to make loans, which is a great idea. Many banks adopted this 
program in a way to automate their loan-making or to simplify 
it, doing a lot more credit scoring, doing a lot more outreach. 
And it became a bit of--I don't mean this term to sound 
negatively. I don't mean it negatively. But it is much more of 
a churn program; whereas, the other programs I think require a 
lot more consultation with the borrower.
    Because those programs were easy to use, quick to get out 
the door, easy to reach small businesses, that program went up 
like crazy. It is generally a small loan program. Most of the 
lenders use it for in some cases under 50,000, in some cases 
under 35 depending on the institution.
    What we are seeing right now is because of what is 
happening in the credit marketplace a lot of the kinds of loans 
that are credit-scored, banks are pulling back on. That's one 
of the things they're doing. They're increasing their credit 
score requirements. That is beginning to reduce those small 
loans.
    So what you are probably going to see this year is our loan 
size creep up. So in some ways I am more concerned about the 
loan size creeping up because it is more indicative of a pull-
back in a particular tier of credit.
    So what we are trying to do right now or what we are doing 
is going to banks all across the country to look at the 
products that they are using in our portfolio and saying, if 
you have used these simplified products in the past, let's work 
with you to redesign how you're using them to make sure that 
you are reaching small businesses that you may not be reaching 
today. It's a little bit of a longer explanation, but you have 
to look a couple of levels deeper to understand what is going 
on.
    Ms. Hirono. Okay. So you are tracking what is going on, I 
take it?
    Mr. Preston. We track it all in detail. Absolutely.
    Ms. Hirono. These loans are very popular, I take it? The 
SBA Express loans are easier? Although they may be smaller, 
they're meeting a very specific need of the small business 
community?
    Mr. Preston. They do. In a lot of cases, they set up almost 
like a credit line, an available credit line with the bank, 
that's simple for them to use if they need it. It tends to be 
more small working capital-type needs.
    Ms. Hirono. One more question. I think you noted that there 
are about 800,000 loans last year through all of your SBA 
programs. And I realize that you do a survey of employee 
satisfaction. I'm wondering whether you do a survey of these 
people who have these 800,000 loans to see what their 
satisfaction level is with SBA and whether they have any 
constructive suggestions for how we can improve SBA and its 
programs.
    Mr. Preston. Yes. There's a challenge there. The banks 
actually make the loans.
    Ms. Hirono. Okay. Yes.
    Mr. Preston. Then we guarantee the loans, so we actually 
don't have that direct relationship with the customer. We have 
the relationship with the banks. We do have some limitations on 
our ability to survey those borrowers directly.
    What we have done very extensively throughout the country--
and I do it personally; my people in the field do it 
consistently--is have lender roundtables to understand what the 
bank challenges are, where their concerns are because if we can 
fix the banks' concerns with our programs, they will adopt our 
programs and then lend the capital to the borrower.
    So we need to make sure that interface with the bank is 
going well. And many of the initiatives we have in place are 
directly addressing some of the concerns and very significant 
challenges in some cases that banks have had in using SBA 
programs.
    Ms. Hirono. Don't you think that since SBA's purpose is to 
help small businesses, that some kind of a more direct access 
to the small business community, where you can get the feedback 
directly from the community that you are seeking to help,--
    Mr. Preston. Yes.
    Ms. Hirono. --that that would also be good? And do you have 
any such programs?
    Mr. Preston. I think that probably would be helpful. We 
have a lot of hurdles to get through to do that, but the other 
thing I would tell you is that a lot of the banks that have SBA 
loans don't even realize they are SBA loans. They're bank ABC. 
And then attached to that is a guarantee from the SBA. So they 
don't necessarily always even understand that we are in the 
middle of the credit picture.
    Ms. Hirono. The reason I asked this series of questions is 
because when I talk with small businesses, you're right that, 
one, they really don't know the availability and the 
extensiveness of SBA programs or if they do know, then often 
it's critical of SBA's role in helping them.
    Mr. Preston. I do think,--and I think it's premature to get 
into a lot of detail, but we are looking at ways that lenders 
could come directly, borrowers could come directly to us in 
ways that we could almost be an advocate for them in the 
lending picture. We are looking at a number of structures to do 
that. I would hope that later in the year I would be able to 
talk in more detail.
    The sentiment that you are bringing forward, I think it's 
not only understanding their problems with SBA. It's also 
understanding their problems in getting credit more broadly and 
understanding if we can help them find the right bank. And 
there are all sorts of challenges in our having that 
intermediary role, which we are trying to understand.
    Often when these people come into a bank, they will go into 
one bank that they know well when there is a whole competitive 
group out there that they should be addressing. And we are 
trying to understand if there are ways that we can help them 
more in that picture as well.
    Ms. Hirono. Well, I look forward to your further testimony 
on those kinds of programs--
    Mr. Preston. Thank you.
    Ms. Hirono. --because I really support SBA's advocacy role 
on behalf of small businesses.
    Mr. Preston. Thank you.
    Ms. Hirono. Thank you, Madam Chair. I yield back my time.
    Chairwoman Velazquez. Mr. Ellsworth?
    Mr. Ellsworth. Thank you, Madam Chair. Thank you, Mr. 
Preston, for coming today.
    Mr. Preston. Thank you.
    Mr. Ellsworth. I think it was a year ago today that you 
were here before us. I am a little concerned. I know the 
Ranking Member Chabot said this might be your last budget 
proposal. Wouldn't, in fact, if the circumstances were in 
November that you might actually be here again if--
    Mr. Preston. I know that the Chairwoman will be lobbying 
for that heavily.
    [Laughter.]
    Mr. Ellsworth. Well, I believe if I remember correctly, my 
staff jogged my memory. My question last year was that if you 
had the magic wand and could plus up or add money to three 
different areas, what would you do? And you told me that you 
believed in investing operational effectiveness.
    In your short tenure, which I know seems like a lifetime 
probably, what are the three things now, your accomplishments 
you are most proud of, the biggest improvements you have made 
since last year on this day?
    Mr. Preston. Yes. I think, you know, a lot of people 
diminish the idea of operational improvements because it sounds 
like kind of the guts of the operation. But what is important 
to understand it to the extent that we are an expective service 
organization that is good to do business with.
    The banks will adopt our products. Small businesses will 
adopt our products, and it will actually be an important 
vehicle for expanding what we do.
    So excellence in service means reaching more small 
businesses. It's the same reason why you know, an Amazon.com 
ten years ago was nothing and now they dominate an industry.
    The other thing which I think has taken more time, which I 
actually think we're beginning to see some interesting models 
and I think throughout the year we'll have some other things, 
too, which I'm very hopeful that my successor, whoever that may 
be, will continue, are more innovative ways to get capital into 
under-served markets more cheaply.
    Obviously we're here talking about cuts that we're 
proposing, financial cuts in a microloan program. We're 
proposing pullbacks in some areas that actually do reach people 
that have need for that money. And I think these service 
providers are very passionate and fill an important role. But 
they are limited programs, and they are costly.
    What we're trying to do is understand and roll out programs 
that we think will leverage the private sector more, things 
where the government doesn't have to pay as much money but 
maybe leverages other people or leverages other programs in the 
federal government more effectively.
    Even though, like I said, I think my successor is going to 
have to take the ball forward on some of these things, I would 
love to leave this Committee with a longer-term, bigger impact 
of our program in areas of our country that need it the most. 
And I know many people on this Committee are very passionate 
about that.
    So I think those are the two areas that I would speak to.
    Mr. Ellsworth. Have you had any instances--and I know we 
talk about more with less and--
    Mr. Preston. I've never used that phrase. I want to remind 
you of that.
    Mr. Ellsworth. Okay. I stand corrected.
    Have you found yourself in the last year in your tenure 
where in your analysis you found a program--and I'm talking 
about people--where you said, ``We just don't need that'' and 
actually wiped it out, got rid of it, and actually sent people 
packing, employees? Have we still got the same--
    Mr. Preston. No. You know what we've done? We can take that 
analogy and adjust it a little bit. What we've done is--
    Mr. Ellsworth. What was wrong with my analogy?
    Mr. Preston. Your analogy. I'll use the sentiment of your 
analogy and give you what we have done--
    Mr. Ellsworth. Okay.
    Mr. Preston. --because I don't think I have a great example 
of that. What we have done is we have said, just sort of making 
up numbers, ``We have 20 people doing this. We're falling 
behind. Backlogs are building. Should we throw more bodies at 
this somehow?''
    And then we've dug into it and said, ``You know what? We're 
not doing this in a smart way. We're not doing it efficiently. 
We're not using technology well. We're not monitoring the 
process so that we can stay on top of how effective it is.''
    And so what we have done in a lot of places is said those 
20 people can not only be more productive. They can actually be 
better service providers. And we can do things more logically. 
And we can bring in technology to make it more efficient. And 
we can simplify our activity to the outside. We're to take away 
paper and go electronic in a lot of cases.
    So what we have seen is a lot of opportunity to be both 
more efficient and more effective in what we do with the same 
people we have by redesigning processes, by leveraging 
technologies, and by working more effectively with our partners 
externally.
    That has been very exciting. And I think we will continue 
to make good progress in that area this year.
    Mr. Ellsworth. On the tax cuts, we hear a lot about that. I 
know at that same table, we have had people in here who have 
represented some of the very smallest, guys working on the 
internet telling t-shirts, the stock was out in their garage or 
actually in the spare bedroom. Those tax cuts made permanent 
will assist even the very smallest of those, the garage 
businesses and the--
    Mr. Preston. Absolutely. Absolutely.
    Mr. Ellsworth. What about the trade agreements? We talked 
about that some. And I voted for Peru. So I guess I'm allowed 
to bring this up.
     What I hear a lot of is that the enforcement is really 
important. These trade agreements aren't bad, but they're not 
adequately enforced. In your opinion, are the trade agreements 
that we've agreed to have been adequate enforced to put 
American jobs and American businesses in the best light, give 
us maybe not the advantage? You're saying equal playing field, 
level playing field.
    Mr. Preston. Yes.
    Mr. Ellsworth. Are we adequately enforcing these trade 
agreements to put America on the level plaything ground?
    Mr. Preston. Well, I think they have to be enforced. And I 
think the enforcement comes in some of the softer issues that I 
mentioned in terms of actually IP protections and things like 
that.
    The one thing I would mention in Colombia, though, is, in 
addition to some of these soft things, there's just a clear 
financial issue, which sounds like this. Our goods going over 
there have heavy tariffs on them. Their goods coming over here 
do not. It is today just pure financially an unequal playing 
field. And if those tariffs come down, most of them are coming 
down immediately. Some of them will have a phase-in period.
    That, in and of itself, which I think entails less 
enforcement issues, will have a big impact on our people.
    Mr. Ellsworth. I don't have any further questions, Madam 
Chair.
    Thank you, Mr. Preston.
    Mr. Preston. Thank you.
    Chairwoman Velazquez. Mr. Johnson?
    Mr. Johnson. Thank you, Madam Chairwoman.
    Mr. Preston, I appreciate the professionalism that you have 
displayed as you have presented this information to us this 
morning.
    Mr. Preston. Thank you.
    Mr. Johnson. Can you give me an update on the overhaul of 
the size standards methodology that the SBA has been working on 
for the past few years?
    Mr. Preston. Well, the size standard initiative that we 
have kicked off at the SBA recently has just been kicked off in 
the last few months. What has happened over the past several 
years is occasionally--or I shouldn't say occasionally but 
periodically the agency will consider a size category that 
needs to be updated, for whatever reason, and then address it.
    What we are trying to do right now is go through in a much 
more systematic way all the size standards in the agency. And 
we are trying to kind of do it in bite-sized chunks. We're not 
trying to take everything out at one time but every quarter 
look at a handful of industries to ensure that we have 
something that reflects the current economy.
    And so what I would hope is that the first set of size 
standards that we are going to recommend be updated would be 
out there in the next two to three months. But we are working 
right now on an interagency basis to make sure that we're 
vetting those appropriately and getting the right work done 
there. It requires a lot of economic analysis, and regulatory 
processes, as you can appreciate, take some time.
    What then you should expect to see is every three to four 
months another group of recommended updates and size standards 
coming in so that we're taking them in phases and ensuring that 
we can get through most of the size standards within the next 
18 months or so.
    Mr. Johnson. Given the fact that federal contract 
procurement for small businesses relies heavily on these size 
standards, is it fair to conclude that we have been kind of 
spinning our wheels, then, for the last few years?
    Mr. Preston. We haven't been spinning our wheels on this 
project.
    Mr. Johnson. Not for the last few months but over the last 
few years.
    Mr. Preston. Yes. Well, what I think may happen,--and I 
can't tell you because I just don't know. And I think, in fact, 
many of you have been dealing with these issues for many, many 
years.
    What I am concerned about is that there are pent-up issues 
that we haven't addressed on the size standards. And so what I 
hope to do throughout this process is then bring those size 
standards up to the appropriate level in today's economy.
    I really don't think the agency--
    Mr. Johnson. It has been languishing over the--
    Mr. Preston. Yes. I don't think there's been a systematic 
effort to look at the whole group.
    Mr. Johnson. And you consider that to be very important to 
the small business community?
    Mr. Preston. I think it is very important to the small 
business community. I get concerned that, you know, when a 
small business is a dollar over that ceiling, they're no longer 
a small business. They no longer qualify as a small business 
contractor when, in fact, in the context of that industry, they 
may really be a small business.
    Mr. Johnson. Yes. But, I mean, the fact that we want to 
identify or we want to have some size standards and ways of 
identifying small businesses, it is important for the small 
businesses so that they don't crowded out by the--
    Mr. Preston. I think you're right, yes.
    Mr. Johnson. --by the larger businesses. And you've said 
that you feel that that is a priority for your agency to 
tighten up these size standards. Why is there no separate 
expense itemized for this project in the budget?
    Mr. Preston. Because I don't think it needs a separate 
expense line item. What we will be doing is leveraging people 
that we have on our team right now. I would expect we would be 
leveraging other people in the federal government who are 
experts in procurement and in size standard types of issues.
    Mr. Johnson. How much funding do you think it will take for 
the agency to complete this effort so that the new size 
standards can be established across the board?
    Mr. Preston. I don't have a number for you. You know, what 
it requires is an economist working with a team to analyze the 
industries and analyze what represents small. But we would be 
happy to get back to you and do an analysis to estimate that.
    I will also say that it is important to note because I 
think this is going to take a period of time, and I don't think 
it will be done in my time at the SBA. I hope that we have a 
methodology in place that we have a lot of things completed and 
in the pipeline, but I think it will be going into next year as 
well.
    Mr. Johnson. Well, I noticed that your budget request 
includes support for an increased number of staff positions, 24 
specifically. Are any of those 24 positions dedicated to this 
issue?
    Mr. Preston. I don't believe any of those are specifically 
dedicated to this issue.
    Mr. Johnson. What would those 24 additional staff be 
assigned to do?
    Mr. Preston. Most of the staff increases are in two areas: 
Number one, in our field organization. Throughout this past 
year and also going into this year, we have expanded our 
staffing in our district offices and in our PCRs, procurement 
center representatives. And we're trying to get up to targeted 
levels to make sure that we can handle the volume in the field.
    So that's a big piece of it. The second piece of it, we 
expect to add some staff in our processing centers, which work 
on high-volume activities, like approving loans, purchasing 
loans when banks ask us to honor guarantee, servicing loans, 
that kind of thing, because our volume has gone up 
significantly over the last number of years. Even though we 
continue to increase our volume through efficiencies, I think 
we also do need to add more people, not to the same degree as 
the growth.
    Mr. Johnson. Thank you, Mr. Preston.
    Mr. Preston. Thank you.
    Chairwoman Velazquez. Ms. Clarke?
    Ms. Clarke. Thank you, Madam Chair, Ranking Member Chabot.
    Mr. Preston, I just kind of find it ironic that in this 
period of economic distress and the fight for stimulus, that 
the FY 2009 SBA budget requests no funding from many programs 
that are so essential to minority and women entrepreneurs. I 
think the impact of this kind of decision-making will compound 
financial hardship and distress and provide many obstacles to 
small businesses in their attempt to access affordable capital, 
which is important to their growth and, by extension, the 
potential for job creation.
    In addition to that, this administration continues to 
propose cuts to funding for many programs, including the 
HUBZone, as well as rolling funding into overall agency 
operating budget.
    Isn't it true that this reduces the transparency and 
creates uncertainty as to how much funding the programs will 
actually receive? And then how can we be assured that you're 
intended focus to ensure the HUBZone program will be accessible 
to entrepreneurs in the most under-served markets?
    Mr. Preston. Well, your point on the HUBZone program is 
well-taken. Right now there is a line item in the budget for 
HUBZone. What I would tell you is that the line item in the 
HUBZone budget is only a fraction of what we do in HUBZone. 
Most of that, most of that budget, is already in our core 
budget. And we continue to I think be committed to that 
program. And personally I think it's one of our most important 
contracting programs because it gets contrasted businesses who 
are in areas of our country that need it the most.
    So I can assure you I am completely committed to the 
HUBZone business. And this really takes a smaller percentage of 
the funding that, for some reason, for years has been a line 
item on a schedule and brings it back with the funding of the 
rest of the HUBZone office.
    On your earlier comment, you know, I have to acknowledge we 
have proposed a budget where funds for certain programs that 
reach needy areas are being reduced. And what we are trying to 
do is understand or actually come up with a solution so that 
hopefully we could get more capital to those areas in a less 
costly manner.
    And one of the challenges we have in I think the program 
you are referring to is we provide a significant amount of 
grant money and we provide subsidized loans, which is very 
costly relative to the amount of capital we put out there.
    If you look at our other programs, like our community 
express loan, which also goes very heavily into minorities and 
women under-served markets and provides capital technical 
assistance, that now provides almost three times as many loans 
as microloans, very deeply penetrating those markets.
    Ms. Clarke. I can appreciate that, Administrator Preston. 
My whole concern is that you recognize that there is a need. 
You're working on a solution in the midst of an economic 
crisis. And you are here to advocate for a stimulus. Yet, your 
action with regard to these areas that are really impacted is 
that we're working on it.
    Mr. Preston. Well, no.
    Ms. Clarke. And I'm just wondering how much we make these 
things a priority within the administration, within the SBA 
when we know that this is a major part of our nation's economic 
strain right now.
    Mr. Preston. Right, right.
    Ms. Clarke. So I am just finding it a bit hard to 
understand why it is taking so long or what the challenge is. 
You are talking about leveraging of dollars and the cost for 
administering these programs versus I guess the return on the 
program.
    You know, I am sure there are a lot of talented people at 
the SBA. And I'm sure they have seen best practices as 
established through the SBDCs and other agencies that you 
interact with. Why wouldn't there be sort of an effort made, a 
concerted effort, to develop the program that you believe would 
most effectively impact on these communities and just get it 
going?
    Mr. Preston. I think there is a lot going. Our community 
express products--
    Ms. Clarke. I've heard about the community express program. 
What I--
    Mr. Preston. It's our fastest growing product.
    Ms. Clarke. All well and good. I'm speaking specifically to 
these communities and the programs that have been cut in the 
budget. These programs have been very effective. While they may 
not have been cost-effective in your estimation, they have been 
effective in reaching many of the businesses in urban 
communities that are struggling right now.
    And so you decide that you're going to cut it. Is it your 
testimony today that you are replacing it with this express 
loan program that you're talking about or is there another 
product that you are in the process of developing?
    Mr. Preston. It's my testimony today that our community 
express product right now is already a multiple of the program 
you're referring to and it's our fastest growing product.
    Ms. Clarke. And that's what you're replacing it with?
    Mr. Preston. And we are rolling out--in fact, we are 
testing it in eight states right now a new program for 
community lenders to bring them back into the program that 
significantly simplifies their ability to get capital to small 
businesses.
    And we are launching this spring a program to reach into 
ten inner cities of the country and dramatically expand our 
focus on high-growth inner city entrepreneurs.
    And we have partnered with the venture capital community. 
And I want to remind you that we made over $700 million in 
investments last year through SBICs in businesses and 
competitive opportunity gap areas.
    Aside from that, we just announced a partnership with a 
venture capital community to connect inner city small 
businesses with venture capitalists.
    So there is stuff on the drawing board, but there are a lot 
of things that are successful and are right now in the launch 
phase that I think are pretty exciting for the SBA for the 
people we serve.
    Ms. Clarke. When do you see your target date of these 
various I guess permutations of what used to be in terms of 
venture capital and all of the other programs that you just 
described? You said that you were talking about spring?
    Mr. Preston. Well, venture capital, like I said, we put 
over $700 million into competitive opportunity gap businesses 
last year. That's real. That happens every year. It's a 
massive--
    Ms. Clarke. And how is information about that getting into 
the communities? Is that through the SBDCs and the MBCs?
    Mr. Preston. It's through the SBICs.
    Ms. Clarke. Okay. And you've cut those, right?
    Mr. Preston. We haven't cut SBICs. A participating 
securities program was cut a number of years ago.
    Ms. Clarke. If you keep their funding flat and there is 
inflation, in effect, that's a cut.
    Mr. Preston. SBICs is a zero subsidy program. So they can 
continue to grow.
    Ms. Clarke. But you fund SBDCs, don't you?
    Mr. Preston. Yes, we can. Yes, we do.
    Ms. Clarke. Right. And the funding for them has been flat. 
Isn't that correct?
    Mr. Preston. The funding for that is not limited. It's a 
zero subsidy program. So the good news about that is we can 
expand it.
    Ms. Clarke. And is that part of your proposal to expand it, 
especially in light of the venture capital program you are 
talking about?
    Mr. Preston. We are free to expand it. And the other 
program I mentioned doesn't put us as the actual provider of 
the capital. It works with our 68 district offices across the 
country to find inner city businesses and connect them with 
venture capitalists who may be SBICs or may not be SBICs.
    Ms. Clarke. Well, let me just say this. I'm glad to hear 
that there is a lot of I guess discussion and a lot of thinking 
around these issues.
    My concern is that we're talking economic stimulus. And in 
many communities right now, if we're talking targeted temporary 
and timely, the time is now. And it just doesn't appear based 
on the budget that has been proposed and what you have 
presented today that those communities are part of what we're 
looking at and those entrepreneurs specifically in terms of 
involvement in the stimulus.
    And I hope that there will be a way that you bring all of 
your forces together to come up with a real solution for the 
type of products that these communities really need at this 
time and these entrepreneurs specifically need at this time. 
You seem to have the talent and ability to do that. And I am 
counting on you to do so.
    Mr. Preston. Well, I appreciate that.
    Ms. Clarke. Thank you very much, Madam Chair.
    Mr. Preston. We would love to come and brief you personally 
on what we are doing. I do want to say that somewhere between 
five and six billion dollars of capital went to businesses in 
high priority, high unemployment areas of the country last year 
through the SBA. It is a very significant part of what we do 
today.
    And I understand your concern about some of the programs we 
address, but most of what we do here is not on the drawing 
board. Most of what we do here is real money going to real 
people in a very significant amount.
    Chairwoman Velazquez. Mr. Preston, I just would like for 
the record to reflect, Mr. Preston, that Ms. Clarke was talking 
about SBDCs, you were talking about SBIC. Yes, SBIC is at a 
zero subsidy. SBDCs got cut under funding.
    Now I recognize Mr. Chabot.
    Mr. Chabot. Thank you, Madam Chair.
    Just a few more questions. Has the SBA considered moving 
its headquarters into a building where there are other federal 
agencies? How would the cost-effectiveness of that be versus, I 
guess, leasing, as you are now, from a private entity that I 
guess is non-secure or not terribly secure?
    Mr. Preston. Well, there are certain guidelines around 
which we locate our offices. And generally they're supposed to 
be in business districts. And generally they're supposed to be 
in federal office buildings.
    In many cases, locating in a federal office building makes 
us tough to find. You know, we may be in some kind of a high 
rise. People go through big magnetometers. They don't know 
where we are. They can't find us.
    So in certain cases, we have moved out of federal space 
into more accessible space, where we think we are either 
located closer to other service providers that do similar 
things to what we do, like state economic authorities, the 
Department of Commerce, EDA people, that type of thing, or in 
more central business districts, so that people actually, you 
know, see where we are and can come in and seek help.
    In many cases, it is more cost-effective for us to move out 
of federal buildings, but for the most part we continue to be 
located in federal buildings.
    Mr. Chabot. Thank you.
    What happens if a particular office in the SBA does not 
meet its performance goals? What sort of action do you take in 
that circumstance?
    Mr. Preston. Well, what we do is we provide incentives for 
offices that meet their goals. For example, this past year, 
there were six core goals that these offices had. And offices 
that met five or six goals got an additional bonus for their 
people.
    So what I would tell you is we probably use more of a 
carrot than a stick. And we continue, actually, to work with 
our entire field network to collaborate with them on what they 
think are the most valuable programs to have in place to help 
them meet those goals.
    The other thing we have done historically, which we are 
revising a little bit right now, is looked at other kinds of 
awards that they can win based on whatever objective we have in 
place.
    Mr. Chabot. Thank you.
    We had discussed the free trade agreement for Colombia 
before. Would you support the SBA being given a seat on the 
Trade Promotion Coordinating Committee?
    Mr. Preston. I am not sure. I would have to understand a 
little bit more. I think we have a great deal of access to 
people at the U.S. Trade Rep, to the Department of Commerce, in 
the White House. We have had a great opportunity to provide 
them with our views on many of the issues we're facing today 
right now.
    I would have to get back to you--
    Mr. Chabot. Okay.
    Mr. Preston. --and take a look at whether or not that 
specific opportunity would move the needle or not. I just don't 
have a good answer for you.
    Mr. Chabot. Okay. Is there any effort to measure the 
quality of SCORE counselors and if you find any inadequate 
counselors to have them removed?
    Mr. Preston. Okay. I've just been informed by my staff that 
I blew the last question because we actually have a seat on the 
TPCC right now.
    Mr. Chabot. Oh, you do now?
    Mr. Preston. So I apologize for that.
    Mr. Chabot. Good.
    Mr. Preston. The SCORE--
    Mr. Chabot. I assume you would like to keep it?
    Mr. Preston. We would like to keep it. Yes, I support it.
    Mr. Chabot. Okay. Good.
    Mr. Preston. SCORE runs its program. And, as best I know, 
those counselors are managed by the local SCORE offices. And so 
other than that, I'm not aware that we have specific oversight 
on any individuals that actually work for SCORE.
    Mr. Chabot. One of the major issues that firms owned by 
either National Guard's folks or Reserve entrepreneurs is the 
continuation of businesses when they're called to active duty. 
Could you briefly tell us what programs the SBA has or has 
instituted to provide business continuation assistance and 
training when the head of the firm is called to active duty?
    Mr. Preston. Well, yes. Obviously through the resource 
partner network and through our own local offices, we can 
provide counseling and training.
    I think the most exciting program we have but also the most 
under-used program we have in this area is the military 
reservist economic entry loan program. Effectively what happens 
is an owner of a small business or somebody who works for a 
small business, if that person is called up for active duty and 
the small business suffers economic injury as a result of their 
being called up, they can actually qualify for an SBA disaster 
loan. And those are, as you know, very low-interest loans. 
They're directly lent by the SBA. And it's a program that we 
have worked to promote through the other agencies, through 
significant outreach initiatives. And the volume in that 
program is still low.
    So we continue to look for avenues to make people aware of 
it. But what ends up happening is they get called up for active 
duty. And then, all of a sudden, they say, ``Well, you know, I 
heard about this loan. I have to get my paperwork together to 
apply for it.'' And it's something that they're either not 
aware of or they don't have time to pull their stuff together.
    So we're looking at ways to improve the outreach but also 
make it easier for them to apply. And, frankly, I think, you 
know, this has been a real area of disappointment for me 
because I think it is a terrific program we offer that is just 
under-utilized.
    Mr. Chabot. Okay. How is the SBA responding to the finding 
of the Inspector General concerning problems in the HUBZone 
program?
    Mr. Preston. We are doing a number of things, but it's 
primarily focused around making sure we're doing our work on 
reviews of the HUBZone program on a regular basis and ensuring 
we have the right kind of information about them to make the 
assessments.
    I would be happy to follow up with questions for the record 
to give you more detail on that.
    Mr. Chabot. I yield back. Thank you very much, Madam Chair.
    Chairwoman Velazquez. Mr. Sestak?
    Mr. Sestak. Thanks, Madam Chair.
    I wanted to ask a question because President Bush seems 
concerned, rightfully so, about why are we in a recession with 
an economic stimulus plan. And I wanted to ask you at this time 
that I honestly believe because you may that more and more 
businesses if this is so are going to need aid, small 
businesses, and not necessarily aid in more loans if the 
business isn't out there or grants but probably more aid in the 
sense of reaching out to you to say, ``How can we properly 
structure ourselves to keep afloat during this troubling time 
that the President has indicated is coming?''
    So in view of having the disaster down in Katrina and maybe 
the SBA was not as well-prepared as it might have been to face 
this in that disaster, potentially for a lot of small 
businesses, this could be a disaster coming up. It might not 
be, but it could be. How are you marshalling your forces to 
prepare for small businesses with regard to that readiness to 
help them with a lot more reaching out potentially in this 
recession and then managing, given that kind of technical 
assistance?
    Mr. Preston. Well, clearly most of the technical assistance 
that we provide is through resource partners. And many of the 
kinds of issues that small businesses face in a recession are 
the very kinds of issues that they deal with on a regular 
basis. I think this is just, you know--
    Mr. Sestak. Probably a lot more quantity now.
    Mr. Preston. More quantity potentially now.
    Mr. Sestak. So what specifically are you doing to prepare 
for this?
    Mr. Preston. Specifically I think the one area I think 
where we are freeing up our own resources internally to do more 
business development work--and, you know, this may be a little 
bit far afield, but we are putting in place a number of things 
in our district offices to do two things, number one, free up 
people's time to do more outreach and counseling; for example, 
in our 8(a) program. Right now, they're buried with compliance 
work.
    Mr. Sestak. Well, we need to be doing that without regard 
to the upcoming recession.
    Mr. Preston. Yes. What I'm telling you is, though, that 
right now we have a number of things in place where we're 
trying to take them away from administrative work to free them 
up for more outreach work. And that is coinciding with this. 
It's not necessarily a specific mobilization as much as an 
opportunity that they should be doing anyway.
    That is primarily going to affect those businesses in our 
8(a) program. And that is probably the primary area. I think 
much of the outreach we're doing right now--
    Mr. Sestak. No. That's fine. The reason I was asking, Mr. 
Preston, is it just seems to me we know we are going to have 
some challenges there. And if we do care about trying to help 
them keep afloat, we might expect that there might be more 
people about to get into a life raft, you know, so to speak, 
reaching out for aid.
    Then when I look at your programs, I think what 
Congresswoman Clarke said. And I watched that you zeroed out 
the microloan technical assistance program. And now you're 
proposing that it should be, ``Oh, by the way,'' but it's a 
separate issue, no free subsidy anymore. Let's have them help 
pay for this.
    But my question is you then go on in your budget you 
submitted and said, ``Okay. We're zeroing out the technical 
assistance program for microloans. And, by the way, they can 
then rely,'' you say in your footnote, ``in the SBDC and WBC.'' 
But, yet, you in your technical assistance zero-out score have 
a ten percent decrease in SBDC and WBC.
    So how are you taking those microloan people that you say 
right here in your document are going to rely upon those three 
more but you decrease them in resources, just at a time that 
they might be reaching out more as we go into a recession?
    Mr. Preston. Right. Point well-taken. I would make a couple 
of comments on that. First of all, the number of new micro 
borrowers featured in that program is just under 2,000. The 
number of people our network counsels in a particular year is 
over a million. So we don't view that as being a significant 
burden. It is a fraction of one percent of the people that they 
already counsel.
    Mr. Sestak. Could it be more?
    Mr. Preston. I do recognize,--and I mentioned this in my 
opening remarks,--the money we requested in the '09 budget is 
consistent with what we requested in the '07 and '08. Now, in 
'08, an appropriation, an increase in our appropriation, 
occurred subsequent to our submission in the budget. So we did 
have a timing challenge there.
    The other thing I think it's important to understand is we 
are not the only source of funding for these small business 
development centers. They all get matched funding elsewhere. 
They all have other funding sources in a time when--
    Mr. Sestak. I guess I am questioning the priorities. I 
mean, SBDCs, they already aren't having enough hours to match 
the demand. And now you're decreasing them. ``And, oh, by the 
way,'' you're saying, ``you micro people, you move over here, 
too. And a recession is coming down the road.''
    I guess my other question kind of has to do in similarity. 
You know, 22 percent of the populace that is in Medicare causes 
67 percent of the cost. They're all the ones with all the 
chronic conditions. Yet, we treat them just like we do the less 
costly 80-some percent.
    So my question is you kind of dismiss, well, these are kind 
of small. And we're really doing so much here in this community 
thing. Maybe we do need to focus some resources on them because 
those are the kinds of $25,000 loans that really can begin to 
make a difference. But that is more of a judgment.
    I guess my other question had to do with your--unless you 
talked about the emerging 200 initiative.
    Mr. Preston. We did, but--
    Mr. Sestak. Could I?
    Mr. Preston. Yes.
    Mr. Sestak. You're going to be 2.5 million into this. And 
my limited understanding of this 2.5 million is it's going to 
go with a new set of partners kind of. You're going to go to 
cities, correct?
    Mr. Preston. Yes. It's 250,000 of our money. We would 
probably--
    Mr. Sestak. Of 2.5 million total for 10 cities, right?
    Mr. Preston. I think the entire amount is 250,000 right 
now,--
    Mr. Sestak. Okay. I thought it was ten cities.
    Mr. Preston. --which would leverage with other resources 
externally.
    Mr. Sestak. So you're only going to do among 10 cities 
250,000?
    Mr. Preston. That will be the pilot. We would hope--
    Mr. Sestak. Now I understand. Okay. Then I'll back off on 
my question, then. I was curious because with such a new 
partner and you put 2.5 million into it without knowing.
    I guess my only other question I had is when you looked at 
the reauthorization of the SBA, if you take out--you only put 
in $160,000 for disaster loans.
    Mr. Preston. A hundred and sixty million.
    Mr. Sestak. A hundred and sixty million. I was a poli sci 
major.
    Mr. Preston. That's okay.
    Mr. Sestak. A hundred and sixty million. And you subtract 
that from the 657 million. Actually, your budget is less than 
the previous year, correct?
    Mr. Preston. There are two pieces. What I would say is the 
budget is more for us to be able to run the agency because we 
have expanded some people and done some things there. The 
budget is less in our grant programs, which you have all noted 
through the SBDCs and women's business centers. So those are 
the two pieces.
    Mr. Sestak. All right. I guess my question is in that 160 
million, my understanding is you came up with that by doing a 
10-year average?
    Mr. Preston. Yes. There's another significant piece. So 
yes, we take a ten-year average. We take out--
    Mr. Sestak. My only question is just the ten question. We 
have a new type of loan, don't we, the drought loan? Did you 
take that into account since we didn't have any way to look 
backwards?
    Mr. Preston. I would have to get back to you on what the 
calculation included.
    Mr. Sestak. All right. And I think that we are probably out 
of time anyway. Thank you very much. I was just most taken by, 
I guess, you know, your page 23, where all of the non-credit 
programs are just either flat-lined or slashes. And then in 
your footnote, you say, ``Oh, by the way, these other ones that 
we slashed are going to pick up the load for microloans and 
all.'' It just seems like we are disenfranchising them, what 
kind of is important around me, the City of Chester and other 
places, where microloans go a long way.
    Thank you very much.
    Chairwoman Velazquez. Mr. Preston, I do have some other 
questions. You know, this budget proposes to raises in the 7(a) 
program to the maximum statutory limit. After that, it cannot 
be raised any further. That means that if there are 
unanticipated defaults or shifts in the portfolio that occur, 
the costs will go up and you will have nowhere else to go. So 
you might have to shut down the program.
    Mr. Preston. This budget takes us all the way through to 
September of 2009. So I think somewhere in the ensuing year and 
a half, if we thought that was a risk, we would certainly 
address it with you all or in some way.
    Chairwoman Velazquez. But when you came before us or the 
administration in 2000, you asked us to support to take the 
program to a zero subsidy and that that will take care.
    Mr. Preston. Will take care of what?
    Chairwoman Velazquez. Of the risk of a shutdown, of the 
program being shut down again.
    Mr. Preston. Well, I think there are two different things. 
What you are referring to is when the program was subsidized 
and it ran out of money in the middle of the year and we had to 
call up banks and tell them to stop making loans.
    I would hope that as we get into the year and understand 
what is happening in the portfolio, we would have a long enough 
lead time to work with the administration, with Congress to 
address an issue should it arise. I don't think it's a foregone 
conclusion that it will.
    Chairwoman Velazquez. In 2004, the program was shut down. 
So my question to you is, if we are going to raise the fees to 
the maximum allowable level, then if you confront unanticipated 
defaults in the portfolio, where would you go?
    Mr. Preston. Well, ma'am, we would know almost a year ahead 
of time whether or not the forecast would take it to that 
point. There would be plenty of time to address the issue.
    Now, what I would tell you is a lot of what we are seeing 
in our portfolio right now, it's increasingly being weighted in 
some cases toward PLP, which is a much higher performance 
portion of the portfolio. So I certainly wouldn't want to leave 
you with the idea that it's a foregone conclusion that we will 
be in that situation.
    Chairwoman Velazquez. Let me ask you this hypothetical 
question. Since you are unable to raise fees any higher and if 
you confront problems with the problem, you will have two 
options, either requesting an appropriation or shutting down 
the program, which one will you choose?
    Mr. Preston. Ma'am, or raising the fee limit, right? So, as 
I mentioned, that is going to be well beyond my time. This is 
something that is not going to be upon us for a year and a 
half. And we will understand well ahead of time what the 
projections show.
    Chairwoman Velazquez. Okay. So you are telling me there 
will be no problems with the program.
    Mr. Preston. No. I don't think I said that. I think I said 
we will have ample time to work through the issue with you.
    Chairwoman Velazquez. In 2004, it didn't happen.
    Mr. Preston. Well, that was because--
    Chairwoman Velazquez. And the program was shut down.
    Mr. Preston. --the program was subsidized and it ran out of 
money. It's a very different issue.
    Chairwoman Velazquez. I want to ask you about the HUBZone 
program. We held a hearing on the HUBZone program and we talked 
about the potential for fraud with the HUBZone program and 
other programs, such as the disaster program.
    I want to ask you--and I want a ``Yes'' or ``No'' answer--
do you believe that the HUBZone program has sufficient internal 
controls to prevent fraud?
    Mr. Preston. Fraud in what way?
    Chairwoman Velazquez. The Inspector General did a study 
that showed that there were problems with the program, with the 
HUBZone program. Do you recall that--
    Mr. Preston. Yes, I do.
    Chairwoman Velazquez. --report from the General Accounting 
Office?
    Mr. Preston. I think we have sufficient internal resources 
to address this issue.
    Chairwoman Velazquez. Businesses are participating in the 
program that are not eligible to be in the program. So my 
question to you is, do you feel that the program has sufficient 
internal control to prevent fraud?
    Mr. Preston. I think we're addressing all of those--
    Chairwoman Velazquez. Give me a ``Yes'' or ``No,'' and then 
you can clarify the question or your answer.
    Mr. Preston. I believe we are on the pathway of dealing 
with all of those issues. I would have to take a look at 
specifically the updates that address those IG concerns to give 
you a clear answer.
    Chairwoman Velazquez. Months ago we held a hearing on this 
very issue.
    Mr. Preston. I would be happy to take it as a question for 
the record in this hearing, but I'm prepared to talk about the 
budget.
    Chairwoman Velazquez. Let me ask you--okay.
    Mr. Preston. If you would like me to get into this, I would 
be happy to follow up with you.
    Chairwoman Velazquez. Okay. In reviewing your efforts to 
make sure money is used in the most judicious manner, the 
Committee examined the award made under the 7(j) management and 
technical assistance program for FY 2007. One, in particular, 
stood out. More than 90 percent of the funding went to one 
company. This business was started in February of 2006 and was 
approved for the 8(a) program in June of 2006 4 months later.
    Since there is a two-year-in-business requirement for 8(a), 
we looked a little further. It turns out that the owner of this 
company served in a political appointee capacity from 2003 
until the month before the business was begun.
    Given these facts, I ask you, will you make a commitment to 
this Committee to have the SBA's Inspector General review this 
case to determine whether this individual's political 
connections allow longstanding regulations to be waived?
    Mr. Preston. Yes. I will. I'm not at all familiar with the 
situation. I wasn't aware of that. And I would be happy to 
follow up on that from this Committee.
    Chairwoman Velazquez. Yes. But my question to you is if you 
will make a commitment to the Committee that the SBA's 
Inspector General will review this.
    Mr. Preston. Yes. I need to make a judgment based on 
looking at it, but you can always request that from the 
Inspector General as well if you feel it's necessary.
    Chairwoman Velazquez. You can bet that I will.
    Mr. Preston. I am just not familiar with the situation.
    Chairwoman Velazquez. Okay. Well, I will be submitting 
other questions for you to submit back to the Committee. And 
with that, this hearing adjourns.
    Mr. Preston. Thank you.
    [Whereupon, at 11:39 a.m., the foregoing matter was 
concluded.]

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