[Senate Hearing 110-642]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-642
 
  HEARING ON THE PRESIDENT'S FISCAL YEAR 2009 BUDGET REQUEST FOR THE 
                                 SMALL 
                        BUSINESS ADMINISTRATION

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP



                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           February 27, 2008

                               __________

      Printed for the use of the Committee on Small Business and 
                            Entrepreneurship


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

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

43-235 PDF                       WASHINGTON : 2008 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
Washington, DC 20402-0001 





















            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                 JOHN F. KERRY, Massachusetts, Chairman
CARL LEVIN, Michigan                 OLYMPIA J. SNOWE, Maine
TOM HARKIN, Iowa                     CHRISTOPHER S. BOND, Missouri
JOSEPH I. LIEBERMAN, Connecticut     NORMAN COLEMAN, Minnesota
MARY LANDRIEU, Louisiana             DAVID VITTER, Louisiana
MARIA CANTWELL, Washington           ELIZABETH DOLE, North Carolina
EVAN BAYH, Indiana                   JOHN THUNE, South Dakota
MARK PRYOR, Arkansas                 BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         MICHAEL B. ENZI, Wyoming
JON TESTER, Montana                  JOHNNY ISAKSON, Georgia

                 Naomi Baum, Democratic Staff Director
                Wallace Hsueh, Republican Staff Director























                            C O N T E N T S

                              ----------                              
                                                                   Page

                           Opening Statements

Kerry, The Honorable John F., Chairman, Committee on Small 
  Business and Entrepreneurship, and a United States Senator from 
  Massachusetts..................................................     1
Snowe, The Honorable Olympia J., Ranking Member, a United States 
  Senator from Maine.............................................     4
Dole, The Honorable Elizabeth, a United States Senator from North 
  Carolina.......................................................     7

                           Witness Testimony

Preston, The Honorable Steven C., Administrator, U.S. Small 
  Business Administration, Washington, DC........................     8

          Alphabetical Listing and Appendix Material Submitted

Dole, The Honorable Elizabeth
    Opening statement............................................     7
Kerry, The Honorable John F.
    Opening statement............................................     1
    Questions for the record for Administrator Preston and 
      subsequent
      responses..................................................    50
Preston, The Honorable Steven C.
    Testimony....................................................     8
    Prepared statement...........................................    11
    Responses to questions from:
        Senator Kerry............................................    50
        Senator Snowe............................................    57
    Letters from NAGGL dated:
        12/17/07.................................................    68
        2/25/08..................................................    71
Snowe, The Honorable Olympia J.
    Opening statement............................................     4
    Chart, ``SBA Budget Not Keeping Up With Rising Costs''.......    27
    Questions for the record for Administrator Preston and 
      subsequent
      responses..................................................    57


  HEARING ON THE PRESIDENT'S FISCAL YEAR 2009 BUDGET REQUEST FOR THE 
                     SMALL BUSINESS ADMINISTRATION

                              ----------                              


                      WEDNESDAY, FEBRUARY 27, 2008

                      United States Senate,
                    Committee on Small Business and
                                          Entrepreneurship,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:04 a.m., in 
room 428-A, Russell Senate Office Building, the Honorable John 
F. Kerry (chairman of the committee) presiding.
    Present: Senators Kerry, Cardin, Snowe, Dole, and Thune.

  OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY, CHAIRMAN, 
              SENATE COMMITTEE ON SMALL BUSINESS 
       AND ENTREPRENEURSHIP, AND A UNITED STATES SENATOR 
                       FROM MASSACHUSETTS

    Chairman Kerry. The hearing will come to order.
    Good morning, Mr. Administrator. Thanks for being here with 
us.
    Senator Snowe, I understand, is on her way so I thought we 
would just get going.
    I appreciate your coming up here to testify on the 
President's budget for fiscal year 2009. Obviously this is the 
last budget to be presented by the Bush Administration. And 
just from a personal point of view, I regret that it really 
seems to be at odds with the realities of what is happening in 
the marketplace and the purpose of the SBA, in my judgment, and 
I know, Administrator Preston, you have to come here and defend 
it. You do not make all these choices. I understand that. It is 
not an enviable position to be in.
    The OMB probably gives you a set of figures and you are 
stuck with them, and I understand the dynamics. But the problem 
is that, you know, every day you pick up newspapers. Here is 
today's New York Times: ``Small to mid-sized banks beginning to 
struggle in credit crisis.''
    The economy, Greenspan has said that it is growing at about 
zero percent. It may take longer than normal to grow out of 
this. Some 60 percent of economists are talking about a major 
slowdown, 40 percent a recession.
    This is a time for the SBA to be helping folks. And I know 
what your testimony says and the argument will be made, or at 
least the spin will, that the President's request is about a 15 
percent increase.
    But when you exclude the disaster assistance money and 
really do an apples to apples comparison of budgets, this 
budget really continues the President's policy of cutting 
funding for critical small business programs.
    If you take the disaster money out and we all understand 
disaster is disaster is disaster. The SBA is supposed to be 
there for that purpose and it does, but it is also supposed to 
be there to assist small businesses to grow, to create new 
jobs, to help provide credit where it is not there normally, 
not just obviously in a disaster.
    If you exclude the disaster money and congressional 
earmarks, the budget represents a 28 percent cut in funding 
since President Bush took office. If you take inflation into 
account, the budget represents a cut of 41 percent since 2001.
    One of the most unreasonable proposals that I expect 
Congress to reject again, as we have, is President Bush's 
recycled recommendation to make the microloan program self-
financing by raising the interest rate that intermediaries pay 
and to eliminate completely the Microloan Technical Assistance 
Program that supports it.
    Now, you know, what this does is shift the counseling to 
the Small Business Development Centers and the Women's Business 
Centers, programs that are already being starved for resources.
    I mean, we have heard from these folks. And if we are 
listening to them, they have come up here again and again and 
said that they can barely keep up with what they are trying to 
keep up with now. So instead, we are going to dump more on 
them.
    Since 2005, the Administration has sought more than $400 
million for international microcredit programs. The question 
looms large for all of us. You know, if we can spend hundreds 
of millions of dollars to help small businesses in Iraq--I just 
came back from Afghanistan and Pakistan where, incidentally, we 
need to be doing economic development because it is in our 
national security interests. But if we can do that in other 
countries, surely we can support microloan programs here at 
home.
    And it is really contradictory to hear the Secretary of 
Defense and/or, you know, the National Security folks, come in 
here and tell us how wonderful these programs are, how 
effectively they work, what a terrific impact they are having 
on creating jobs and business and creating stability in these 
other countries, and yet there is a resistance here.
    During the month of January, our economy actually lost 
17,000 jobs. In times of economic growth, we need to be adding 
150,000 to 200,000 jobs a month just to keep pace with 
population growth.
    At the end of January, the number of claims for initial 
unemployment benefits rose to 375,000 compared with 317,000 at 
the same time last year. That is a huge increase. Yet the 
Administration now wants to pull back its support for the 
programs which actually help the creators of new jobs.
    The President's budget cuts Small Business Development 
Centers 10 percent. It cuts Women's Business Centers 9 percent, 
and level funds SCORE. And again the timing, when you compare 
it to these headlines, is confounding. At a time of economic 
uncertainty when many small firms across the country need 
support and guidance, the Administration is reducing funding 
for these important counseling programs which, in effect, says 
we do not really believe that the SBA is there for the purpose 
that it is there for or it is not that important or it somehow 
does not make that much difference. You put your budget money 
where you think your priorities are.
    In addition to the key program cuts, the Administration's 
2009 Budget continues to underfund a number of vital programs, 
including the New Markets Venture Capital Program and the 7(j) 
Technical Assistance Program that are designed to help small 
firms locate in a high unemployment area and provide technical 
assistance to disadvantaged firms.
    There is no new funding for Procurement Center 
Representatives. The training budgets for the HUBZone and the 
Native American Outreach programs continue to be underfunded. 
And there seems to be some question of accountability still 
based on the fact that the contract for the 7(j) Program was 
given to a former Administration appointee who has absolutely 
no business counseling experience whatsoever.
    The President's request for the SBA's Office of Veterans' 
Business Development is also inadequate in light of the 
anticipated troop draw down in Iraq. With the number of 
returning service members expected to rise significantly in 
2009, this office requires full funding support to accomplish 
its mission of helping America's veterans complete their 
transition back into civil life.
    More funding is also important to carry out the provisions 
of the Military Reservist and Veterans' Small Business 
Reauthorization and Opportunity Act of 2008, which was signed 
into law February 14.
    It is hard, Mr. Administrator, to understand why the 
Administration requests no funding or insufficient funding for 
many programs that currently exist but then turns around and 
proposes to create new projects such as the Emerging 200 and 
the Rural Lender Advantage Initiatives which are ideas that 
have merit but, frankly, overlap or duplicate or remake 
existing or former programs.
    And finally, the budget does nothing to address the 
concerns being raised about the impact of the looming credit 
crunch on the Nation's small businesses, which is what this 
headline here is all about.
    A number of banks may now fail. I will read from the heart 
of this story:
    ``Losses amounting so rapidly at some of these banks that a 
small number of them, perhaps 50 out of 7,500 nationwide, could 
fail over the next 12 to 18 months.''
    ``But the breadth and depth of the current troubles have 
caught bank executives by surprise. Federal regulators are 
particularly concerned about the exposure of smaller banks to 
the commercial real estate market which has begun to soften in 
some parts of the country.''
    And it goes on to talk about the problems of credit and how 
this tightens up downstream for the very companies that we want 
to be here for. It seems to me this is a moment for the SBA to 
be present, not to retreat.
    So far this fiscal year the number of loans made through 
the SBA's largest lending program, the 7(a) loan guarantee 
program, has dropped dramatically, reflecting some of this 
credit problem but other things also. And instead of making 
these funds more available to people facing a credit crunch, 
the President's budget makes matters worse by raising the 
lender fee to the maximum amount allowed.
    Boy, there is a deterrent to people's ability, in a credit 
crunch time, to be able to make ends meet.
    So, you know, Mr. Administrator, it is a struggle here to 
understand, through the years, this process. I think you have 
made bona fide efforts, as I have said here before, and we have 
enjoyed working with you on it. It is hard for you to come here 
and defend this, I know.
    But your prepared testimony tries to assert a 15 percent 
increase from 2008 funding levels. I understand the 
congressional levels. I understand the timing differential 
between your request and when the Omnibus went through and I 
understand what Congress did in the Omnibus.
    But in the end, the President's request is actually a 3.4 
percent reduction from the 2008 enacted level and a 28 percent 
reduction from the 2001 level when you really compare the 
apples to apples, which is what is important here.
    So we are going to try to change it. I hope you will work 
with us to try to change it. We, unfortunately, too often find 
that even when we do change it and we do things in favor of the 
SBA, we wind up with holds on the floor or back door resistance 
to them, and my hope is, obviously, that we can avoid that.
    Senator Snowe.

 OPENING STATEMENT OF THE HONORABLE OLYMPIA J. SNOWE, RANKING 
           MEMBER, A UNITED STATES SENATOR FROM MAINE

    Senator Snowe. Thank you, Mr. Chairman. I appreciate your 
comments as well as your leadership and long standing advocacy 
for small businesses in this country, particularly at this 
difficult and challenging time in our Nation and the economy as 
it stands today. We have to do much more for small businesses 
and we certainly can do that through the Small Business 
Administration. I appreciate the historical bipartisan approach 
that has been adopted by this Committee and I know that will be 
the case in some of the issues coming before this Committee 
during this consequential economic time in our country.
    I want to welcome you, Administrator Preston, and thank you 
for your contributions over the last 18 months during your 
tenure. You have certainly moved the agency forward in many 
aspects including disaster preparation, customer service, 
streamlining procedures as well as employee morale.
    I share the Chairman's concern about the Administration's 
budget that has been proposed for the Small Business 
Administration. Again, it is another pattern, unfortunately, of 
short-changing the very agency that we need to be bolstering 
during this lagging economy.
    In its final year, the Administration certainly could make 
an imprint on the impact and its commitment to small 
businesses, but this is the 8th consecutive year in which we 
have seen a decline in the budget for the Small Business 
Administration. In fact, it is a net decrease from fiscal year 
2001 of 27 percent. That is the largest decrease of any Federal 
agency in its core programs since fiscal year 2001.
    When you consider that the SBA budget represents 2/100th of 
a percent of the total Federal budget, yet at the same time 
small businesses create three-fourths of all the net new jobs 
in America, can there be any question that adequately funding 
small business programs is an investment in America's economic 
future?
    We are holding this crucial hearing at a key moment, as I 
have said and the Chairman has said, when our economy is losing 
jobs rather than creating. We saw that in January 17,000 jobs 
were shed in that month alone, the first time in four years 
that employment has shrunk.
    When 80 percent of Americans believe the economy is in bad 
shape, the highest percentage since 1993, when there are 
approximately $460 billion worth of adjustable rate mortgages 
that will be reset scheduled for this spring, while new homes 
sales suffered the largest drop since the U.S. Department of 
Commerce has been keeping records in 1963 and when the price of 
a barrel of oil recently spiked to more than $100, as we saw 
for the first time this week, there is no question that we need 
to be doing much more.
    In my home State of Maine, things are just as bleak. 
Announced layoffs for February and March are already up 75 
percent over the layoffs that occurred in December and January. 
The number of people exhausting their unemployment benefits 
increased 7.6 percent in 2007 as compared to 2006.
    Given the sluggish state of our economy, it is all the more 
imperative that we equip small businesses, our true job 
generators, with the tools not just to mitigate and stem this 
crisis but to be a catalyst for helping to address and 
ultimately solve it.
    Given that SBA is the only agency within the Federal 
government with the responsibility to foster small businesses, 
I am truly disappointed by the overall funding which fails to 
maximize the opportunities that the SBA could provide to our 
Nation's entrepreneurs to right this economy.
    The SBA's fiscal year 2009 proposed budget contains $657 
million in new budget authority. While the Administration touts 
this number as a budget increase, it includes $174 million in 
disaster funding. Disaster funding varies tremendously from 
year to year with none needed in 2008 because of sufficient 
funds that were left over from the previous years.
    Furthermore, let us be clear that disaster funding is 
limited, as it should be, to disaster response and not for the 
SBA's core programs. When subtracting disaster funding, this 
budget would only provide $483 million for the SBA's core 
programs, a 3.5 percent decrease from the fiscal year 2008 
funding for the SBA's core programs.
    This request erodes financial support for small businesses 
when they need it most, and in addition, in fiscal year 2008 
the Congress added $69 million in earmarks to the Small 
Business Administration. That did not go to the core programs, 
but that was another $69 million that was part of the overall 
budget.
    Furthermore, I am deeply disappointed with the same old 
recycled funding proposals. Long before you arrived, we were 
dealing with the same recycled funding proposals for Small 
Business Development Centers, SCORE, Veterans' Business 
Outreach Centers and government contracting, to name just a 
few.
    These initiatives provide invaluable technical assistance 
to more than one million entrepreneurs every year. If there is 
ever a time to increase funding for these programs, as the 
Chairman and I have requested in a letter to the Office of 
Management and Budget last month, this moment would be now.
    I must point out that Women's Business Centers will be 
funded at $1.2 million less than in fiscal year 2008, 
preventing the opening of any new centers in fiscal year 2009 
and requiring all the existing centers to receive significant 
cuts to their grant allocations. Small Business Development 
Centers would see a $10 million decrease from 2008 funding 
despite the program's documented success.
    Also consider the issue of funding for Veterans' Business 
Outreach Centers which has only risen by $128,000 since fiscal 
year 2000, which is a zero percent increase when factoring for 
inflation. With nearly 1.7 million U.S. personnel deployed 
since 2001 in support of Operation Enduring Freedom and Iraqi 
Freedom, how can funding for these centers simply be static?
    Given that these entrepreneurial programs have exceeded 
expectations, it defies logic that they would be shortchanged, 
especially at a time when our Nation will rely heavily upon 
small businesses to bolster our economy.
    Regrettably, the Administration again is proposing to 
eliminate the subsidy for microloans and to transfer the 
microloan technical assistance duties to the entrepreneurial 
development programs. This program is a proven way to assist 
underserved entrepreneurs to start and grow their businesses in 
a way that regular 7(a) lending cannot.
    The Administration's fiscal year 2009 budget proposal 
undermines the program's purpose and defies stated 
congressional intent. Every year in Maine I see how effective 
microlending has been in spurring economic development. Now the 
proposal will increase interest rates and remove critical 
technical assistance which would raise barriers to use this 
critical program.
    Congress sent a clear message last year that the budget 
request had been wholly inadequate by enacting a $40 million 
funding increase over the President's request for the SBA.
    It is clear that we are again going to have to go back to 
the drawing board on this budget. I know it is not the budget 
that you would have preferred or wanted, but we are faced in 
the same situation we have been over the last seven to eight 
years. It just really does defy my comprehension in terms of 
why. SBA is the one agency that could single-handedly create 
jobs in a most cost-effective manner, and we are not bolstering 
its programs at a time when our economy is desperately in need 
of that kind of reinforcement.
    This would be a win-win and so easily done for these 
programs that have demonstrated their effectiveness and their 
success. I am disappointed. I am sure that you share that 
disappointment in many ways, but we are where we are and we are 
going to have to go back to the drawing board on many of these 
issues.
    Thank you, Mr. Chairman.
    Chairman Kerry. Thank you, Senator Snowe.
    You know, I was struck that Senator Snowe and I did not 
converse before this, and did not share a strategy or approach 
to our opening statements at all, but we each could have given 
the other's statement, which is an interesting comment, Mr. 
Administrator, and I know these opinions are shared by other 
members of this Committee.
    I must say to you, my conclusion after all the years I have 
been on this Committee, and now as Chair, is obviously that 
this is just ideologically driven. It is a sad statement, but 
basically the Administration does not believe in the SBA.
    It has been starving it on a steady rate since it has been 
here partly because, as we learned during the Reagan years, 
when you cannot exactly get rid of it altogether, you 
marginalize it. And I think it is really sad that an agency 
that does as much good and has the potential to do as much 
good, gets put in those shoes. And I think it is unfortunate 
for you. You do not have to comment on that if you do not want 
to, but it is my take on where we are that this is driven by 
folks who just do not believe the Federal government ought to 
be involved in helping businesses except in emergencies for 
disaster assistance. It ignores the reality of the Intels and 
Callaway Golfs and FedExes and a bunch of other companies that 
got where they are today because of SBA's programs. And there 
could be so many more created. But instead we are moving in the 
opposite direction, particularly at the time of greatest need.
    So we look forward to your testimony. I did mean to quote 
Chairman Greenspan, who is still referred to as such, because 
that was his speech that he gave the other day about the zero 
growth, and I would like to invite your testimony.
    I apologize, Senator Dole, I am very sorry.
    Senator Dole. No problem. That is perfectly all right.
    Chairman Kerry. You are wearing that black. You are 
blending into the chair.
    Senator Dole. I am blending in too much.
    [Laughter.]

  OPENING STATEMENT OF THE HONORABLE ELIZABETH DOLE, A UNITED 
               STATES SENATOR FROM NORTH CAROLINA

    Senator Dole. Thank you, Mr. Chairman, Ranking Member 
Snowe. I am delighted you are holding this hearing this morning 
and, Administrator Preston, thank you for being here to 
testify.
    Some of what I am going to say is going to be repetitive 
but it will just underscore that we are all certainly of the 
same mind here.
    Small businesses have been the key components to the engine 
that ran the booming economy for so many years and they will be 
integral certainly in reviving the slower economy that we are 
experiencing today.
    As banks continue to tighten their belts and credit remains 
scarce in open market lending, the 7(a) guaranteed loan program 
remains an essential outlet for qualified small businesses to 
obtain capital.
    I hope that the Administration's suggestion of a 29 percent 
increase in guaranteed loan levels can become a reality.
    North Carolina, in North Carolina we often find ourselves 
in the paths of a hurricane. We have had lot of hurricane 
problems and, while we have not experienced a direct storm in 
recent years, a couple of years, we are in the midst of another 
type of disaster, a natural disaster which is an ongoing 
drought that is one of the worst in the Nation.
    In fact, I had a group of farmers in just recently and we 
were talking about H-2I and H-2B and H-1B, and one of them 
said, an H2O, and I said, well, you are going to have to look 
somewhere else for that one. I cannot help you on that. I will 
be glad to try to help on the others. But it has been a severe 
drought problem in North Carolina.
     Following many catastrophes, SBA disaster loans have 
helped North Carolinians and their businesses recover and I 
truly applaud your work to improve the disaster recovery plan. 
I look forward to working with my colleagues to ensure that 
adequate funding is available to implement this initiative.
    In addition, the availability of electronic applications 
and a more streamlined loan approval process will improve 
folk's ability to receive the funds they desperately need after 
a disaster.
    With regard to women-owned businesses, I have long been an 
advocate for these firms and I am proud of the significant 
impact that they have had on the overall economy. In fact, it 
has truly been phenomenal.
    I was unable to attend the hearing that you had a few weeks 
ago, Mr. Chairman, but let me say that I am very concerned 
about the SBA's proposed rule for the Women's Procurement 
Program.
    I have joined Senator Snowe in introducing legislation that 
would provide a fix for this misguided rule.
    Furthermore, I am troubled by the Administration's proposed 
3.5 percent cut to core SBA programs which includes funding 
Women's Business Centers. These centers along with others that 
are a part of the Entrepreneurial Development Program provide 
critical services and should receive adequate funding.
    Again, Mr. Chairman, I want to thank you for holding this 
hearing and just say to Administrator Preston that I was with 
one of his predecessors, Erskine Bowles, last night and he 
sends his warmest to you.
    Thank you.
    Chairman Kerry. Thank you very much, Senator Dole.
    Mr. Administrator.

 STATEMENT OF THE HONORABLE STEVEN C. PRESTON, ADMINISTRATOR, 
      U.S. SMALL BUSINESS ADMINISTRATION, WASHINGTON, D.C.

    Administrator Preston. Thank you, Chairman Kerry, Ranking 
Member Snowe, Senator Dole, for the opportunity here to present 
the President's 2009 budget.
    If you look back at the year we are just coming off of, I 
think, has been a year of very significant accomplishment for 
us. And what I would like to say about the 2009 budget, as we 
look forward, is I think it is going to help us continue to 
make a lot of progress with respect to our ability to drive 
clear outcomes for small businesses, to provide effective 
service to small businesses and disaster victims, and to 
continue to prepare our work force to be accountable to the 
small business community.
    In 2007, we saw the number of loans go up. We saw our 
Disaster Assistance Program dramatically re-engineered to 
shorten response times, to improve the operation, improve 
service for the people that need those services. We worked with 
Federal agencies to improve the accuracy of contracting data 
and bring greater transparency to that process. A total of $78 
billion in prime contracts went to small businesses and over a 
million small businesses used SBA Entrepreneurial Development 
Programs provided through our resource partners.
    I appreciate you mentioning it, Senator Snowe. I am 
particularly pleased that the employee morale at the agency has 
rebounded dramatically and we continue to be very focused on 
that issue, especially as a service organization.
    You highlighted that, technically the budget shows that it 
is a 15.5 percent increase. There are a lot of moving parts to 
that.
    What I would say is, when you look at the core operating 
budget at the agency, the ability for us to run those programs, 
to serve the needs of the people through the agency, our core 
budget is up 6 percent.
    That reflects a continuation of a lot of the operational 
reforms that we are making at the agency to help us be more 
effective and more responsive to customers. Many reforms of 
which involve extensive process re-engineering and technology 
improvements, the under-served marketing initiatives to support 
small business formation and growth in areas of our country 
with higher levels of poverty and unemployment which I think is 
so important to energize local economies and create jobs, 
bringing sustained investment.
    And also that is sort of a core piece. As you noted, 
disaster funding is a different kind of funding request and 
reflects carry-over funding and special needs.
    The other third piece, I think, is really where we are 
seeing the impact is the non-credit programs. We have asked for 
funding for the primary non-credit programs which are 
consistent with historical requests.
    Obviously the enacted funding levels for 2008 were 
increased at the end of the year and so as a result we would 
see some decline for the SBDC and Women's Business Centers as a 
result.
    As many of you know, we strongly believe that by improving 
service to our partners and our customers, by sharpening our 
product mix, deepening our penetration in key markets where we 
think we need to be present and by developing more 
sophisticated oversight, we believe we will continue to expand 
our impact on the small businesses of America. And I would like 
to get into, in the Q and A, a little more detail on how we 
think we can do that.
    I also want to say how much I do appreciate all of your 
support for our programs, and for the reforms that we have been 
trying to drive at the agency. It has been very encouraging to 
me.
    I would also like to say how thankful we are that you 
continue to focus on the broader economic issues that support 
small businesses. Specifically the stimulus package that was 
passed earlier this year we think is going to be a real booster 
shot.
    We think it is very important for small businesses and we 
know that your leadership will mean rebate payments for 
individuals, married couples as well as investment incentives 
for small businesses as they look to create jobs and stimulate 
the economy.
    In addition to the stimulus package, I join the President 
in pushing for strong longer term economic policies that we 
think will be very important for small businesses in the 
future, Specifically making tax cuts permanent and right now 
specifically taking a hard look at a lot of these free trade 
agreements that are before us and truly understanding what they 
mean for small business.
    Right now, small businesses represent almost 30 percent of 
our exports. We believe it is very important that we continue 
to provide a platform and enabling agreements to allow them to 
reach those foreign markets and expand more broadly.
    The pending agreements before us will level the playing 
field for U.S. exporters not only by equalizing the tariffs, 
but also addressing other issues which I think have a 
particularly strong impact on small businesses who want to 
export.
    Intellectual property protections. Obviously small 
businesses are terrific innovators and it is very important 
that they are protected there. Other issues like addressing 
excessive licensing and inspection requirements, burdensome 
paperwork and inconsistent customs procedures tend to weigh 
more heavily on small businesses that do not have staffs to 
take care of these things.
    I think Colombia is a great example. 85 percent of the 
exporting companies to Colombia from the U.S. are small 
businesses, and whereas small business represents about 29 
percent of our overall exports, they are 35 percent to Colombia 
and we think the FTA will continue to expand opportunities 
there.
    So once again, I appreciate the cooperation and the 
bipartisan spirit that has brought us together on a lot of 
critical issues. I very much appreciate your support for our 
program, and I look forward to working together on a lot of 
these issues.
    As a final note, let me comment on two bills that I know 
are important to the Committee, the Energy Independence and 
Security Act of 2007 and the Military Reservists and Veterans' 
Small Businesses Reauthorization Opportunity Act of 2008.
    Obviously those bills came in a little bit late for us to 
acknowledge them in the budget, but we are moving forward on 
implementing all the provisions in those two Acts that do not 
require a specific appropriation.
    We would look forward to working with your staffs to keep 
them updated on how we are progressing. We appreciate your 
support on those.
    Once again, thank you for inviting me today and I look 
forward to answering any questions you have.
    [The prepared statement of Administrator Preston follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Kerry. Thank you, Mr. Administrator.
    Let me begin by asking you about lending. For the sixth 
year the President has proposed zero funding for the 7(a) loan 
program and is raising the lender fee by about five basis 
points.
    Lenders have been really trying to communicate to you very 
directly. They have written to us on the Committee. Let me just 
share with you what National Association of Government 
Guaranteed Lender letter says. You may recall it.
    ``Dear Administrator Preston. NAGGL is concerned about the 
deterioration in the financial markets and its impact on the 
economy and small business. We believe that a nationwide credit 
crunch is underway as lenders tighten lending criteria and 
reduce credit availability.
    ``This situation has been precipitated by the subprime 
lending crisis, an infection that is spreading to SBA's 7(a) 
loan program, and I would like to ask your assistance in 
assuring the continued availability of the 7(a) program so 
critical to the U.S. economy overall.
    ``As you know, year to date, 7(a) loan volume is down 11 
percent in numbers and 2 percent in volume. In these uncertain 
economic times, the SBA and its active lending partners are in 
a position to help alleviate the credit crunch and provide 
economic stimulus and assistance to small business.
    ``Based on SBA and FDIC data, SBA's 7(a) loan portfolio is 
performing as well as bank conventional small business loan 
portfolios. But senior management decisions at lending 
institutions to cut operating costs and curtail credit 
available in response to the subprime situation have impacted 
the 7(a) program.''
    So, Mr. Administrator, this letter was written to ask for 
relief from the newly imposed lender oversight fees but it also 
applies to the cost of the 7(a) program overall. So why raise 
the lender fees on the very partners that we need and work with 
so effectively to provide capital and keep credit out there?
    Administrator Preston. Well, the fee increase proposed in 
the year 2009 budget is just over five basis points. So, I 
mean, truly on a typical loan, it is pennies a day, and when we 
look at that, .05 percent that compares with 2.25 percent in 
Fed easing benefits.
    Chairman Kerry. So you do not think their plea of impact is 
legit?
    Administrator Preston. I think on the margin any time you 
reduce costs there is going to be some benefit. I think our fee 
increases going into 2009 are a very insignificant impact.
    Chairman Kerry. But they do not believe that. You are at 
odds there with----
    Administrator Preston. The primary issue I think he is 
addressing in that letter is a lender oversight fee so that we 
have the ability to go in and provide the kind of oversight we 
discussed not long ago in our lender oversight hearing.
    Now, what I said at that time, Senator, was I think for 
most banks--the vast majority of the banks in our programs are 
not getting charged for this. We are really focusing on banks 
that have 10 million or more in SBA guarantees. And the 
majority of the funding from those banks, it is a relatively 
insignificant cost.
    I do acknowledge, and we are working on this issue right 
now, there is a tier of banks that are big enough to fall into 
our heavier oversight category but small enough to still be 
relatively small where I think it is a cost issue. Right now I 
think it is about 12 basis points a year on their portfolio. So 
I have a team looking at how to address that tier of capital.
    The much bigger issue which is a very different kind of 
situation, let me tell you. I have spoken to hundreds of banks 
and I speak with all the big banks and my people do too.
    The bigger issue has to do with fundamental credit policies 
in the banks right now. Right now, if you look at the dollar 
volume in our programs, and actually the numbers are updated. 
Our numbers are down more than are actually indicated in that 
letter as of last week.
    The dollar volume is down just over 7 percent. Five banks 
make up 100 percent of the decline we are seeing in the 
program. Two of them have made very significant credit 
pullbacks, a couple of the banks are going through mergers and 
pulling back from our programs, and then there is a fifth.
    So what we are seeing is, in some of these bigger 
institutions, very significant changes in how they view credit 
right now and they are going through a period of time where 
they are trying to decide what their approach to small business 
lending is.
    We are in the middle of a very active nationwide campaign 
to meet with senior members of the larger banks centrally. All 
of our district offices have literally hundreds of touch points 
that they are in the process of making with different banks 
locally to say, make sure you understand how our programs can 
help you cover loans that you would not do conventionally any 
more. Let us make sure that, if you are using one product, you 
look at all three or four products that we offer. And at the 
same time we are in the middle of an active outreach campaign 
to bring more banks into the program.
    But I think to look at this as an issue of SBA fees is to 
understate the broader issue which is a much bigger credit 
philosophy that is being determined among many of our Nation's 
largest banks.
    The other thing I would say is they are not all in the same 
place. Some of our banks are pushing forward and expanding 
credit, but a handful of them are really driving the biggest 
issue for us and we are tying very hard to roll up our sleeves, 
sit with them and work through with them how best to address 
these issues.
    Chairman Kerry. You do not think that there is a cumulative 
impact in the sense that you have a fee problem here, you have 
a credit problem here, a whole issue of the economy and then it 
sort of----
    Administrator Preston. I think there is a cumulative impact 
in some ways. The biggest impact I think is that we had an 
appetite for credit in our economy which I think was probably 
most heavily exemplified in the subprime situation but was 
reflective of a risk profile in other markets that led to 
lenders reaching too far and too hard. Now they are beginning 
to see their delinquencies rise and many of them are pulling 
back dramatically. That is not fee driven.
    At the same time, however, we are increasing our fees on 
some lenders to improve oversight. But what I would say is, if 
there is any time we want good oversight in the market place, 
it is right now because of what we are seeing in delinquencies.
    Chairman Kerry. We had that argument last year about the 
whole who should pay for oversight issue. Obviously you 
resolved it in favor of the government.
    Administrator Preston. Well, we pay for most of our 
oversight. But there is a portion, the onsite, specific onsite 
work that we do, where we send people to the banks to do work, 
they pay for some of that.
    Chairman Kerry. What is the difference on this fee? How 
much money would the SBA need to keep from raising the 7(a) 
lender's fee on a lending level of about $17.5 billion?
    Administrator Preston. I would have to get back to you. 
Excuse me.
    We are collecting about a total of $8 million in fees.
    Chairman Kerry. $8 million?
    Administrator Preston. For all of our lender oversight 
activities.
    Chairman Kerry. What about the 504----
    Administrator Preston. One of your staff members is shaking 
her head so we will connect with you afterwards to make sure 
that we connect the dot on whatever those numbers are.
    I am sorry.
    Chairman Kerry. No, I was just going to say, on the 504 
program, why are you going to operate that program at a 
negative subsidy?
    Administrator Preston. Well, the 504 fees, as you know, are 
coming down this year and that is primarily based on the fact--
the annual fee goes from like 2.1 basis points down to zero. So 
that is actually improving in fees in 2009 and they are not 
currently being charged for lender oversight.
    Chairman Kerry. I do not want to take too much time here 
because we have got a number of Senators. But on the 
microloans, help us understand how the SBDCs that have been cut 
10 percent and the WBCs which have been cut 9 percent and then 
SCORE which is level funded, how do they take on the extra 
micro borrower clients--there were more than 2000 of them last 
year?
    Administrator Preston. That is correct. I think there are 
two-and-a-half thousand loans we did last year but that is two-
and-a-half thousand going into a network between SCORE, SBDCs 
and Women's Business Centers of over a million a year. So it is 
a tiny fraction of what they do overall. Two and a half 
thousand going into over a million.
    So we do not view that as being, by any means, a 
significant increase in what they are doing. We do acknowledge, 
however, as you all have acknowledged in your opening comments, 
that we are proposing flat funding to our prior proposal which 
is a decline off the appropriated level.
    Historically our stance on SBDCs and Women's Business 
Centers and SCORE has been we provide a significant base level 
of funding which then they go match through state and local 
sources or other nonprofit sources. Many of those organizations 
have been successful in expanding their funding by taking our 
base grant and going and matching or exceeding that match. And, 
you know, our hope would be that they continue to do that.
    Chairman Kerry. When you say your hope is that they 
continue to do that, I mean, is there not just a per se 
additional burden with less resource in a situation where they 
are already----
    Administrator Preston. I think there is a burden on that.
    Chairman Kerry. What is the rationale? Help us to 
understand. Why do you say we are going to cut you but do more?
    Administrator Preston. Well, first of all, our budget was 
submitted when we had an expectation of it being flat rather 
than a cut, obviously, because 2008 was enacted subsequent to 
our submitting our budget. And our philosophy behind the flat 
funding is----
    Chairman Kerry. But it is a cut, am I not right, 10 percent 
for the SBDC and 9 percent for the----
    Administrator Preston. Right. Yes. It is cut.
    Chairman Kerry. What is the rationale?
    Administrator Preston. The rationale is, we will provide 
you with a very significant level of base funding, but as you 
expand your network, become more relevant to your community, we 
would like you to continue to expand your funding base outside 
of what the Federal government provides you and we will 
continue to give you that base level of funding, but you need 
to look for other sources to expand.
    Chairman Kerry. Senator Snowe.
    Senator Snowe. Thank you, Mr. Chairman.
    Mr. Administrator, the fiscal and philosophical 
underpinnings of this budget truly is troubling because we see 
this long-term pattern of underfunding of the Small Business 
Administration.
    It troubles me for the future of these programs and for the 
agency because it is basically the eighth consecutive year that 
does not account for inflation in funding for the very agency 
that does create jobs. I asked my staff to list exactly what 
the agency accomplishes. I am sure you are well aware of it. 
Obviously there are others who are not, and that is troubling 
at a time in which we desperately need to have job creation, 
the activity where small business is on the front line.
    Going through those jobs created and retained by not all 
the SBA programs, but some of the core programs, we note that 
for small business federal prime contracts in fiscal year 2006, 
we have the latest year for which numbers are available: 
578,760 jobs were created or retained; in fiscal year 2007 for 
the 7(a) loan programs, 605,600; 504 loans, 242,400; 
microloans, 62,000; and Small Business Development Centers, 
144,000.
    Those are substantive numbers for job creation and 
retaining our jobs rather than losing them. We are moving in 
the wrong direction. I do not quite understand what is the 
problem.
    My staff also put a chart together. I thought it was 
interesting to make the point. We understand that every agency 
cannot have inflation built into its budget every year. We 
understand that, and especially now with the debt that has been 
compounded by long-term cost, but comparing milk and eggs just 
look at the inflation factor. That just gives you an 
illustration of how dramatic the inflation has been since 2001.
    The SBA budget is minus 27 percent. The cost of eggs is up 
39 percent, from about $2.87 to $3.87. The cost of milk is up 
118 percent.
    [See chart attached:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    We are talking about dramatic numbers here and yet the 
Small Business Administration has seen a decline of 27 percent. 
It is having to do more with less, and certainly, each of these 
programs have worked to be mightily efficient and they have 
been. But there comes a point in time that it becomes 
counterproductive and it does erode the basis for the program.
    When we have a budget that is ostensibly presented by the 
Administration that suggests that it is an increase when, in 
fact, it is not, I want to get a better understanding exactly 
what is the problem. Is there not a recognition, for example, 
within the Office of Management and Budget that these are job 
creators? We get more bang for the buck in the small business 
programs. There is no other agency that creates these jobs like 
the Small Business Administration. It is demonstrated time and 
again.
    Administrator Preston. Yes. Let me break that down a little 
bit and give you my view on what that means.
    I think this agency has had a tremendous opportunity to 
figure out how to deliver what we do better, more efficiently, 
and it is not just about efficiency. It is about effectiveness.
    I was thinking about this the other day, you know, moving 
from writing checks in a checkbook every day to going to online 
banking. Online banking is not only a lot more efficient, but 
any time I need information about my account historically, 
graphs or charts, whatever, I can push a couple of buttons and 
it is all there.
    So there is an ability in an analogous way, there has been 
and there will continue to be an ability for us to improve the 
service we provide small business, do better outreach, take a 
lot of the administrative burden and streamline it and automate 
it so that we do better outreach. And that is why I am focused 
heavily, in part, on the core budget of the agency to be able 
to run and that is the piece that is increasing 6 percent. You 
know, with your support, it increased last year and the year 
before. And that is very, very important for us to be able to 
deliver what we do.
    Then there is another group of programs which I know a lot 
of you care a lot about which, you know, our view is for what 
they deliver they are very expensive. That is not to say they 
do not reach important people or they do not do good work but 
specifically microloans and, Senator, you mentioned New Markets 
Venture Cap. There is a lot of additional funding that goes 
into those programs for every dollar that they invest.
    And what we are trying to do with those is think about much 
more efficient ways to deliver capital much more broadly than 
those programs can reach. The microloan program right now only 
does about two-and-a-half thousand loans a year, but it cost us 
$18 million. New Market Venture Cap is a very small program but 
it is very expensive.
    So those are programs, even though they reach important 
people, we are trying to pull back and say, how do we reach 
those communities a lot more efficiently through our network?
    The third piece is the philosophical issue we just 
discussed which is what is the best way to provide support to 
our resource partners? Should we expect them to be able to 
expand the support they get outside the Federal government?
    So, Senator, I am less concerned about our ability to 
operate the agency well because I think you all have provided 
us with funding to continue to improve what we do. And let me 
also mention. Over 2 years I think from 2007 to this 2009 
budget we are adding over 100 people which we will put to good 
work, based on the expansion of the agency.
    That is kind of how I look at it. I think we can run the 
place very well and improve our service. I think there are some 
key issues with the programs we have to determine 
philosophically where we should be on them.
    Senator Snowe. Would you not admit, though, that these 
programs are going to suffer accordingly? The net effect would 
be that we will create less jobs and preserve less jobs at a 
time in which we need and require them.
    Administrator Preston. I think that our resource partners 
do a great job. They touch over a million entrepreneurs a year 
and I hope they can expand their funding base. I know it is not 
coming from us.
    I also have to acknowledge, you know, when it comes to 
discretionary funding this year, the overall non-defense-
related discretionary spending, that the budget is flat overall 
and so we are operating in a tight cost environment with 
respect to non-defense discretionary spending.
    Senator Snowe. But even in years when we had surpluses, we 
received budgets, prior to your tenure, from the Administration 
that proposed reductions. That is the problem. It is a 
compounding effect that ultimately is going to have negative 
consequences, because it is going to create less jobs and 
retain less jobs in a challenging economic environment that we 
find ourselves in and it is going to be the small businesses 
and the small lenders, as Chairman Kerry indicated with the 
stories that were in today's papers. That is the problem we are 
facing.
    As credit tightens, it is going to be much more difficult. 
Once you reduce the amount of money available, when you 
increase the costs of providing it to small businesses in terms 
of loan assistance, when you eliminate technical assistance as 
you do in the microloan program, obviously it is going to have 
a negative impact.
    Administrator Preston. Yes. What I would say is for the 
7(a) and the 504 program, I really do not see constraints on 
our ability to expand based on what is happening in the agency.
    I think economy-wide with a lot of the credit decisions we 
are in a whole different situation, but I do not think from a 
budgetary perspective, that is putting constraints on us.
    And we would be happy to spend time with your staff to talk 
about specifically how these oversight fees impact different 
tiers of lenders and what they mean to us.
    I appreciate your comment on the microloan program.
    Senator Snowe. For every job that we create by a microloan 
it costs $3,608. It really does provide a tremendous return. I 
know that has been true in my state. You have not recommended 
eliminating the program this time but now we are in a position 
where you are going to eliminate the subsidy and you are going 
to remove the technical assistance.
    Obviously we are going to have to work on these issues on a 
bipartisan basis as we have in the past. Regrettably, that is 
what we had to do last year in order to restore it. But it is 
beyond that, and it bothers me because it is clear that it is 
shortsighted not to provide the kind of support for these 
programs when men and women in small businesses throughout our 
country could use these programs to the maximum and help to 
alleviate some of the economic downturn that we are now 
experiencing.
    Thank you, Mr. Chairman.
    Chairman Kerry. Thank you very much, Senator Snowe.
    Senator Cardin.
    Senator Cardin. Thank you, Mr. Chairman.
    Let me follow up on Senator Kerry and Senator Snowe's point 
and I agree with the points that have been made here. Over the 
last 7 years, we have seen a significant reduction in effective 
resources that the SBA has had to deal with helping small 
business.
    In my State and this Nation, small businesses is the 
economic engine. That is when the new jobs are being created, 
but it also offers opportunity particularly for minority 
communities and for women-owned businesses to grow in our 
economy.
    My concern is, as I have listened to your testimony, Mr. 
Preston, I can tell you that on the ground the services are 
needed at a higher level than are currently being supplied by 
SBA.
    On the loan and venture capital programs, I have met with 
many small business owners in my State and they are in need of 
greater help on the capital programs, on the venture capital 
programs and the loan programs. And it is just very obvious to 
me, as we are going through this economic downturn, the 
businesses that are going to be most effective are those that 
do not have the large capacity to withstand change in the 
economy, our small businesses.
    And I just do not quite understand your testimony as it 
relates to the availability of resources to help small 
businesses as far as capital is concerned. I think we should be 
increasing the availability, making it less expensive, not 
making it more expensive in reducing the capacity to respond to 
those issues.
    Administrator Preston. Sir, I think the one program where 
we are talking about pulling back funding significantly is the 
microloan program which makes two and a half thousand loans a 
year, two-and-a-half thousand very small loans a year. Once 
again, I think those people do good work. I think those are 
important businesses. But when you look at that more broadly, 
what we are to the economy or what we provide, there is nothing 
about our budget that would pull back funding. It is a zero 
subsidy program and until 2007----
    Senator Cardin. Well, my understanding, even on the 7(a) 
program, the economics of it is difficult for small businesses. 
We should be looking at ways of liberalizing that, it seems to 
me.
    Administrator Preston. Are you addressing the fees on the 
program?
    Senator Cardin. Fees, yes.
    Administrator Preston. OK. It is a zero subsidy program 
right now and let me just kind of throw a benchmark out there.
    I think various people have proposed subsidizing the 
program, subsidizing the up-front fees. If we subsidize these 
programs, $150 million, I was doing the math yesterday, it 
would be 40 to 50 cents a day on our average loan for a 
borrower. The amount of money that, you know, if we look at a 
fairly sizable subsidy, the impact on those loans I just do not 
think moves the needle to the same degree that a lot of other 
people think they do.
    Senator Cardin. The facts are that the amount of loans 
being made available to minority businesses are not reflective 
of their number in our community. They are not getting, in my 
view, their fair share and I think cost is one issue.
    Administrator Preston. Sir, our portfolio has five times 
the representation of women and the minority loans than the 
non-SBA economy. So we have very extensive minority outreach. 
We have very expansive penetration in the minority community, 
and frankly, the one category right now, one of the few 
categories that is growing in our portfolio right now is 
African-American loans in terms of their percentage of the 
portfolio.
    Senator Cardin. I would like to see those numbers.
    Administrator Preston. We will go through all the numbers. 
I talked to one of your staff members a couple of weeks ago to 
say, I know this is a concern of yours based on the last 
hearing. We would love to go through all those numbers with you 
and through a recent study that was done.
    Senator Cardin. I really appreciate that.
    Administrator Preston. Because I think this is where we 
have a very good story.
    Senator Cardin. Let me bring up my second point before my 
time expires and that is on government procurement, which I 
think is the second area where SBA can really help.
    And the numbers that we have seen have been disturbing. We 
know that on the women procurement issues we were anticipating 
many years ago that we were going to improve there and then we 
come back with only four categories of Federal procurement that 
are going to be subject to these new rules out of 140 I think 
there was. That raises major concern for us as to whether we 
really have a good faith effort to help women-owned small 
businesses in government procurement.
    And then second, an issue that has been a major concern for 
us for many years and that is bundling, which has a major 
impact on small businesses being able to obtain government 
procurement contracts.
    Last year we did increase by a few the number of people and 
the PCRs that are helping, that their services are vitally 
needed. When those numbers were released, we could have used 
two or three in our State alone. I was hopeful that the budget 
would continue that by recommending additional support because 
that is critical to getting small companies into government 
procurement and monitoring the bundling problems within the 
agencies but it looks like your resources to deal with that 
will not be keeping up with the need.
    Administrator Preston. Can I address those two points?
    I feel very strongly that we need to separate, to some 
degree, the rulemaking process on the women's procurement rule 
which is the establishment of a set-aside program with the 
Federal government's performance on women-owned small business 
contracting. And although the Federal government does not hit 
its mandated 5 percent, I think we are somewhat over 3. Women's 
businesses grew a billion-and-a-half last year. They were the 
highest growth of any of the targeted small business groups. 
They hit a record level and they grew faster than any of the 
other areas that actually have set-sides. We have very 
extensive outreach in the women's community and we are 
expanding that this year.
    We are in the middle of a Federal rulemaking process. I 
understand some people do not agree with the direction we are 
going, but that is not the only thing that is driving 
opportunities for women in the Federal government. It is only 
one component and we are doing a lot of work and we are seeing 
a lot of success in advancing the ball.
    We would be happy to spend time with you and go through 
those numbers.
    The issue with the procurement center representatives. We 
are now, by April----
    Chairman Kerry. Why would you not create the rule in a way 
that sort of incorporates that good effort?
    Administrator Preston. Because the way the rule is designed 
is very specifically based on, and you all lived with the 
history of this rule well before I came to SBA, but I think the 
issues, if you will recall, the National Academy of Science set 
up a methodology for determining how to do this rule.
    Chairman Kerry. We went through this sort of variation on 
your options, and you are doing that good job and you are 
reaching out the way you say you are to Senator Cardin which is 
very positive, I mean it is great to hear. Why not have the 
rule embrace that so that you are sort of in a sense codifying 
this pro-activity?
    Administrator Preston. Because the rule is design to 
clearly capture those categories where women-owned small 
businesses are under-represented based on a methodology that 
was laid out by NAS.
    Chairman Kerry. So, in effect, you are reaching out and 
expanding women-owned businesses that are not under-
represented. Wouldn't it make more sense to target industries 
that are under-represented?
    Administrator Preston. Actually it makes them more 
represented in categories where RAND would say they are 
currently fully represented. But I do not think----
    Chairman Kerry. That is what I am saying. It makes them 
more represented where they are already represented.
    Administrator Preston. Exactly.
    Chairman Kerry. But the people you want to reach are the 
under-represented?
    Administrator Preston. Well, first of all, we want to reach 
all people and we want to reach all people in our targeted 
categories.
    I think the comment, and I do not want to put words in his 
mouth, but I think the issue we face on this, Senator Levin 
brought it up last time, which is, you guys have gone on a path 
where you really try to comply with the letter of the law. 
Those are my words, not his. And that is true. We looked very 
specifically at what NAS recommended. We took their 
recommendations and we implemented it based on that. Senator 
Levin's comment was, why would you not look at the policy 
objective and try to achieve that.
    I want to remind everybody that the reason we got into this 
long timeline is because the original study that the SBA did in 
2002 was basically thrown out for being methodologically 
indefensible. And a lot of those elements of indefensibility 
were the things that we tried to address in getting to that 
final rule.
    So we put in place a proposed rule with significant 
discussions with other people in the Federal government or what 
we thought was a defensible rule that complied with the 
recommendations of the NAS.
    Chairman Kerry. I yield back to Senator Cardin.
    Senator Cardin. I want to get to bundling. I do not want my 
silence to say that I agree with that. I think it somewhat 
defies logic that it is limited to four categories, but I will 
let you go on to the bundling issue. I do not think we are 
going to resolve it here.
    Administrator Preston. Yes, the bundling issue is as 
follows, and by April we will be through a hiring process 
whereby we will have more procurement center representatives 
than we have had since 2000 and we have got another four in 
process to get hired. So we will be at the highest level than 
we will have been for many years.
    But what I want to say is those are people that we put at 
the buying activities with other Federal agencies to review 
contracts. On the other hand, we have hired about 50 people on 
our field network and we also filled many open positions and 
hired many more to bring more people into the district offices, 
like your Baltimore office, that actually work with the small 
business. So those PCRs work with the Army Corps of Engineers 
or DOD or whoever.
    We have expanded the number of people that are available to 
do small business training and outreach. We have significantly 
retrained them. And we are beginning to roll out tools and 
technologies that take away their administrative burden to free 
up more time so they can sit and counsel small businesses.
    So we are addressing the procurement opportunity in a lot 
more ways than just the 66 PCRs out there. This involves 
hundreds of people through our field network.
    I really want everybody to understand that because I think 
this is going to be an important part of our outreach to bring 
in more small businesses and women-owned small businesses and 
these other people into the contracting picture.
    Senator Cardin. And I want to agree with you. I think they 
are very valuable services, both parts of it, working with the 
agency and working with the small businesses so you get less 
bundling and we get better information to the small businesses 
of opportunity. I think both are critically important.
    I would just question whether the numbers are right. I 
think you could use--just from the services that are available 
in Maryland, I can tell you we could use more help in our State 
and I do not think it is isolated to Maryland.
    Thank you.
    Administrator Preston. Thank you.
    Chairman Kerry. Thank you, Senator Cardin. I would agree 
with that.
    Senator Dole.
    Senator Dole. Thank you, Mr. Chairman. And, Administrator 
Preston, let me say again to you, I applaud your efforts----
    Administrator Preston. Thank you very much.
    Senator Dole [continuing]. Toward trying to ensure that the 
SBA and its programs remain as effective as possible while 
perennially you are getting fewer funds with which to work.
    And I just find it hard to understand, and this has been 
mentioned often this morning, why the President has either 
recommended flat funding or reduced funding year after year 
after year for the SBA since he has been in office.
    Minus disaster relief funding, with the budget what the 
President has proposed for fiscal year 2009 amounts to another 
budget cut and one would think that at this particular point 
the SBA should have a funding increase, especially during the 
current economic downturn.
    But I was particularly disappointed in the proposed cut 
with regard to the Women's Business Center Program and I am 
interested in what your plan is to adequately fund the existing 
centers and ensuring that money is available for graduated 
centers that would be eligible again for grants. And, in 
addition, do you plan on expanding the program to areas that 
are not currently served?
    Administrator Preston. The program was effectively expanded 
when the recent legislation allowed graduating centers to come 
back into the program. So I think with that, we are up to 111 
centers from, I think it was 98 or 99 before that. And we would 
anticipate continuing to fund those right now. Based on the 
current budget request, we do not see a lot of room to expand 
that in the current budget request.
    Senator Dole. Would you say that just a little louder?
    Administrator Preston. We do not have the ability to expand 
that because, I believe, the legislation specifically states 
that existing centers get priority over new centers. Previously 
the way we were working this was a certain group of centers 
would graduate ultimately over a period of 5 or 10 years. 
Depending on their funding period, they would work to develop 
their own funding base. They would graduate and we would bring 
in new programs. Recent legislation has redefined that to say 
existing centers get priority for funding. So we would expect 
to continue to stay around 111 centers right now at the current 
level of funding.
    Now, one of the things we had done is we have brought a 
number of the leaders of the Women's Businesses Centers into 
Washington and begun to talk to them about whether there is a 
way that we could begin working with them to share best 
practices, to do non-Federal fund raising, and how can we 
support them in their efforts to do so. So we have begun to 
collaborate with them on those issues. But for right now, for 
our funding, we are not looking for an expanded level.
    Senator Dole. Now, not only will they not be able to 
expand, but the current centers will receive less. So why did 
you not request more dollars?
    Administrator Preston. I think we did admittedly get into 
some timeline issues with the timing of various pieces of 
legislation, the passage of the 2008 appropriation and our 
submission of the 2009 request. So a lot of those things kind 
of happened at the same time. We were not operating in full 
clarity when we did submit our budget for 2009 on what was 
going to happen on a lot of these other elements.
    Senator Dole. One more question. I am very encouraged by 
the SBA's new disaster recovery plan.
    Administrator Preston. Thank you.
    Senator Dole. How can we ensure that there are enough funds 
and other assistance available to carry it out in the event of 
a catastrophe?
    Administrator Preston. Yes. One of the things I have really 
appreciated about the work on this Committee is the support of 
the disaster program. I know there are a number of elements 
that address our disaster program in the current farm bill.
    And if you look at what is in a number of those provisions, 
I think many of them would provide us with a foundation to be 
able to sustain what we have built, there are a lot of things 
that we do today that are not in statute anywhere and this 
codifies those things, regular report-outs to Congress on how 
we are doing and a number of other things. So we are hopeful 
that we will be able to work with you on those elements of the 
farm bill. We think that will provide a real good underpinning 
to our programs going forward. So I think that is probably one 
of the best ways we can do that.
    Senator Dole. Thank you.
    Administrator Preston. Thank you for your interest in this.
    Senator Dole. Thank you, Mr. Chairman.
    Chairman Kerry. Thank you very much, Senator Dole.
    Mr. Administrator, we will do another round here in a 
little bit and see if we can get through this.
    In February we enacted a veterans' small business bill. 
Obviously you are up to speed on the 7(a) pilot program for the 
Veterans' Energy Efficient Technologies?
    Administrator Preston. Yes.
    Chairman Kerry. And I know in the hearing with the House, 
you were asked why those pilot projects have not been 
implemented and you remarked that it was lack of funding.
    Administrator Preston. That may have been somebody else's 
testimony. I do not recall having said that in the House.
    I am sorry. Wait, Senator. There is a 7(a) subsidy piece 
that is right now not appropriated. I apologize.
    Chairman Kerry. Well, on February 8 you were asked about 
the pilot loan programs to increase loans to veterans' 
businesses and those trying to invest in energy efficient 
technologies. And we believe that we drafted that language in a 
way that the SBA did not need funding to implement the program.
    So can you share with us why you think you need funding to 
implement those programs?
    Administrator Preston. Right. I think the veterans' program 
and energy efficiency bill both provided, I believe, a 50 
percent subsidy on 7(a) loans. And those, based on our 
analysis, are deemed to be separate risk categories which would 
require a separate appropriation and would not come in under 
our current zero subsidy program.
    Chairman Kerry. Do you have a judgment as to how much you 
need to be able to implement those pilots?
    Administrator Preston. I do not off the top of my head, but 
we could certainly provide that to you based on anticipated 
volume.
    Chairman Kerry. Do you have a program volume that you can 
use to estimate for the Committee, based on the amount of loans 
made to veterans in the past?
    Administrator Preston. I do not have that for you today, 
but we could work with you to get that.
    Chairman Kerry. Could you get that to us?
    Administrator Preston. Yes.
    Chairman Kerry. In other words, the bottom line is we would 
like to know how much money--if, in fact, it is an issue of not 
having money, we want to know how much it is because that is a 
priority program for the Committee and, you know, it is kind of 
an unfortunate charade if veterans are being told that Congress 
passed a bill to help them to get into business and then they 
try to do it and we say, well, there is no money.
    Administrator Preston. Right.
    Chairman Kerry. We did not intend for that. We thought the 
current fees were supposed to be able to pay for that.
    Administrator Preston. Well, my colleague just gave me the 
number that we have in the veterans' piece. Assuming a $1 
billion program, the cost would be about $42 million, and I 
think last year we had about just over $900 million in 
veterans' loans so that should be a good indicator.
    Chairman Kerry. Do you know what the demand was for that 
specific category?
    Administrator Preston. I think you are talking about two 
separate bills. So one of them, I think, provided subsidy for 
all----
    Chairman Kerry. Right. One was for energy efficient 
technologies and one was for the veterans.
    Administrator Preston. Right. There would not have been a 
category of energy efficient technology loans because, even 
though they can do them under the 7(a) program, we would not 
have anything that would code them as such. That would be a 
totally new concept.
    On the veterans' side, we do have numbers that show annual 
volumes in veterans' loans. There were between $900 million to 
a billion last year. Assuming a billion dollar program, the 
cost would be $42 million.
    Chairman Kerry. And where do you stand now with respect to 
funding that?
    Administrator Preston. Both pieces we would need a separate 
appropriation. So what we would need to do, I think the 
veterans' numbers are a lot easier to size. What we would need 
to do on the energy efficiency side is to somehow gauge either 
through internal conversations or external, how big that 
program might be and give you a sense of what the funding would 
be.
    Chairman Kerry. Is the veterans' component contained within 
your budget request now?
    Administrator Preston. No, it is not.
    Chairman Kerry. Is there a reason why not? Would that not 
be a major priority for this Administration?
    Administrator Preston. Well, the veterans' bill was just 
passed and so it is not something we have been able to reflect 
in our budget and I know we have been having conversations with 
your staff.
    Chairman Kerry. How do we get at it now? Will they ask for 
it in the supplemental?
    Administrator Preston. What we would need to do is work 
with you in the appropriation process to get these funds 
appropriated.
    Chairman Kerry. Will the Administration support funding for 
that program?
    Administrator Preston. I do not know at this point. I need 
to work with my colleagues in the Administration and bring back 
an answer to you.
    Chairman Kerry. So you do not know at this point whether or 
not you are willing to fund the veterans' program that was 
signed into law by the President? He would sign it into law and 
not fund it?
    Administrator Preston. I do not have an answer for you on 
specifically subsidizing a veterans' 7(a) program.
    Chairman Kerry. Will you get that for us?
    Administrator Preston. Yes.
    Chairman Kerry. How long will it take you to get that?
    Administrator Preston. I do not know, but we will be in 
touch with your staff right after the hearing.
    Chairman Kerry. Thank you.
    Now, with respect to the Small Business Loan 
Reauthorization Bill, Senate 1256. This is a bill that had 
previously been passed when Senator Snowe was Chair and it is 
an identical bill that the Administration supported at that 
point in time.
    You have stated publicly that instead of fee reductions or 
suspension of lender oversight fees, what the SBA really needs 
to do is encourage lending to reduce red tape and streamline 
its processes. That is exactly what Senate 1256 does. However, 
SBA issued a statement of Administration policy against the 
bill. I am having a really hard time understanding that. You 
support it when it is proposed by Senator Snowe. The Committee 
passes it out now and we have a statement of opposition.
    Can you clarify for us?
    Administrator Preston. I will have to go through the 
specific provisions in that bill and work with you on that. I 
do not recall specifically what elements of the bill the 
statement of Administration policy took issue with, so I 
apologize for that. But we will certainly provide you any 
clarity that we have.
    Chairman Kerry. I would appreciate your trying to get that. 
We need to get this bill through the Senate. It has passed the 
Committee. It is in the Senate, sort of sitting there 
languishing. We just cannot seem to get even a precise 
articulation of why it cannot move forward and I would like to 
see us try to do that.
    Senator Snowe?
    Can we get your commitment, Mr. Administrator, to work with 
us to get that through?
    Administrator Preston. What I will do, Senator, is I will 
confer with my colleagues in the Administration to get you a 
clear understanding of what specific provisions in the bill 
were an issue and make sure that we are communicating well in 
specific ways.
    Chairman Kerry. Can we get that in writing?
    Administrator Preston. Yes.
    Chairman Kerry. Thank you.
    Senator Snowe.
    Senator Snowe. Thank you, Mr. Chairman.
    I wanted to discuss HUBZones, which is a critically 
important program because it helps to create jobs in areas that 
are impoverished, have significant under-employment, and a loss 
of manufacturing jobs. That has certainly been true in my State 
as it has been in some of the other parts of the country.
    Why is it that we are still seeing under-funding for the 
HUBZone program, when the goals have not been met? Since the 10 
years of its inception, it still has not realized the goal of 3 
percent.
    With the billions of dollars that are contracted by the 
Federal government why can we not direct these moneys to areas 
that desperately need it?
    Administrator Preston. First of all, I appreciate your 
support of the program. I think it is a very important program 
for us specifically in markets where we need to see job 
creation and growth in income levels, and we did see a very 
significant increase last year although obviously we are not 
hitting the numbers.
    If I recall off the top of my head, Senator, it was about 
$1 billion increase in the amount. I think what we need to do 
is continue to work more specifically with the procuring 
agencies to look hard at the HUBZone firms as an opportunity.
    One of the things we did this past year is we rolled out a 
tool that helps contracting officers find HUBZone firms in the 
geography they are looking for, in the industry they are 
looking for, and also other firms. But they can stick in 
HUBZone if that is what they want to do.
    And so I think we need to continue to get very focused on 
bringing that opportunity to Federal contracting officers.
    Interestingly--this is sort of a side line--much of what we 
are seeing come through the HUBZone contracting is not even 
done with HUBZone set-asides. In other words, most of these are 
either being competed or coming through 8(a) set-asides.
    So my concern is, which I think is also an opportunity for 
us, is that people are not looking at this in as focused a way 
as they might be looking at our other programs. I think the 
onus is on us to get out there and work with the Federal 
agencies who are doing the purchasing, to look at the HUBZone 
companies as a viable source of support.
    Senator Snowe. It seems like it makes so much fiscal sense, 
given the fact that the Federal government spends hundreds of 
billions of dollars in Federal contracts and Federal 
procurement, and you can direct it to established HUBZone firms 
in HUBZone areas that require infusion in funds to help rebuild 
these rural economies because many of them are in rural 
economies.
    It would be a natural connection between the Federal 
government, with what they are already going to spend, to help 
direct those funds to areas that logically need it and can use 
it to build their infrastructure.
    I just do not simply understand it. I also notice that it 
is not a line item in the budget. Where is it? Under general 
operating expenses for HUBZone? Why is that?
    Administrator Preston. Historically it has been a line item 
because the line item significantly understates the amount of 
money we spend. I know one of the things that I think all of 
the agencies have been trying to do is take----
    Senator Snowe. Are you requesting more than $8 million?
    Administrator Preston. No. The line item is smaller than 
a--the line item historically has been smaller than the amount 
that we have spent on it. So I think what we did is zeroed out 
the line item and moved that into the overall operating budget 
because the operating budget had a portion of HUBZone. The line 
item had a portion of HUBZone and we are bringing them together 
in the operating budget.
    Senator Snowe. It is a matter of priorities.
    Administrator Preston. We are not reducing the budget in 
HUBZone and we continue to----
    Senator Snowe. It is a matter of priorities. I would like 
to see $10 million as a minimum for HUBZones given the purpose 
and the goal of the program which is what we need at this point 
in time.
    It is all a matter of priorities and there are certain 
programs that have priority. There are programs within your 
agency that are of the highest priority and should be regarded 
in that respect.
    Administrator Preston. Yes.
    Senator Snowe. Here is a good example as at this time we 
are seeing an extraordinary deterioration in rural economies, 
let alone the overall economy, because of the loss of 
manufacturing jobs. This is a time to help, to assist in 
rebuilding.
    Administrator Preston. Yes. One of the other things we have 
done, and I should have mentioned this a little earlier, is in 
the process of some of the work we are doing that I mentioned 
in response to Senator Cardin's question where we have 
retrained the network and we are bolstering our support in the 
field for small businesses. One of the things we have directed 
PCRs to do is, if a small business set-aside comes up or if 
there is an opportunity for a small business set-aside, they 
are not only looking to make sure it goes to a small business 
set-aside, but they are looking to see if there are qualified 
firms in our other preference categories like HUBZone. Because 
we all acknowledge that women-owned business, service-disabled 
veteran-owned small businesses and HUBZone are not meeting the 
goal today even though we are making progress. So we have 
directed PCR specifically to look at those categories on new 
contracts to see if they can be driving more of the volume in 
those directions.
    Senator Snowe. I just want to say in addition to what 
Senator Dole said about women's procurement again, the Federal 
government has failed to achieve that goal since 1994.
    Most of the governmentwide contracting goals have not been 
achieved. If you look at women, HUBZone, service-disabled 
veterans, overall small businesses have not yielded the goals 
that are required by law that is deeply disappointing because 
again it gets back to job creation.
    Essentially since the beginning of this century we have 
been dealing with the same problems, frankly, and that is 
regrettable. Look at the database, to the point that Senator 
Cardin raised about bundled contracts, the Small Business 
Administration since 2000, the beginning of this century, was 
required to create a database, and that has not happened. And I 
understand, according to the Inspector General's report of 
2005, the SBA did not intend to create a database because it 
could not get the Defense Department to supply the adequate 
information.
    Is that true? Is it never going to be the goal of the Small 
Business Administration to create this database that is so 
essential to unbundling these contracts and also making sure 
that we can reach these procurement goals in each and every 
category as required of Federal agencies?
    Administrator Preston. Well, I was not familiar with that 
IG report from 2000.
    Senator Snowe. 2005.
    Administrator Preston. I am sorry, from 2005 specifically. 
But one of the things we are doing, Senator, and making it 
public and I actually think it is beginning to work, is goaling 
all the Federal agencies on these subcategories, making their 
performance public and rating them based on their performance.
    And out of 24 agencies last year, 12 of them were red and 
that has done a lot for our ability to work collaboratively 
with the agencies and to put in place initiatives to help them 
meet these goals.
    But the other thing I would say, and I would remind the 
Committee is, in 2005 and 2006 we underwent a significant 
initiative to clean up the data which took almost $5 billion of 
small business contracts or contracts that were coded as small 
business out of the database. Through the new certification, 
recertification rule, we are tightening up the rules on what is 
considered a small business. I think that will take at least 
that much out of the database.
    So we are also, at the same time, making it tougher for 
those agencies to hit their goals by ensuring that small 
business contracts are, in fact, going to small businesses.
    And so even though I think we have made a lot of progress 
historically, we are making it tougher for them to hit those 
numbers.
    Senator Snowe. Thank you.
    Thank you, Mr. Chairman.
    Chairman Kerry. Thank you, Senator Snowe.
    Senator Cardin.
    Senator Cardin. Thank you, Mr. Chairman.
    Mr. Preston, I want to return, if I might, to a couple of 
issues I talked about on my first round of questions on 
African-American opportunities under the loan programs.
    The information I had is that the African-American 
population is about 12.8 percent. The number of loans under the 
7(a) programs, although it has grown, is now about 8 percent of 
the number of loans which does not seem to me to be an effort 
to try to provide particular priority to African-American owned 
small businesses.
    I also have looked at the numbers and it looks like the 
size of the loans have been reduced 53 percent between 2001 and 
2006 from 181,000 on average to 84.5 thousand on average.
    So it seems to me that the numbers do not add up to the 
priority that should be given to making resources available to 
African-American minority-owned businesses.
    Administrator Preston. Right. I think it is important, 
Senator, to look at a number of factors. First of all, year to 
date, the numbers of loans going to African-American small 
businesses are actually 11 percent. And that is where I said we 
are beginning to see dramatic expansion in----
    Senator Cardin. Year to date beginning the fiscal year?
    Administrator Preston. No. Last year, October 1.
    Senator Cardin. October 1.
    Administrator Preston. And I am looking at my statistics as 
of last week.
    Second, if you look at SBA loans, and I will get you the 
exact numbers, I am talking a little bit off the top of my 
head, but our loans are four to five times more likely to go to 
minority-owned small businesses than loans that are outside of 
the SBA sector, conventional private sector loans.
    So we have, our portfolio is dramatically higher in its 
concentration of minority small business loans, women small 
business loans and startups. And if you look at historical 
studies on populations that have reported a competitive 
opportunity gap, it shows that we are very heavily serving 
those populations and that we are also a very significant 
portion of the capital that goes to those populations.
    We would be happy to come and brief you on a recent Urban 
Institute study that shows the significance of our programs 
specifically to those groups.
    The other thing I would mention, and this is a little bit 
to Senator Snowe's earlier comment on HUBZone, is when you look 
at our lending program, over a third of the loans we do go to 
areas in our country where we see higher poverty and higher 
unemployment, and last year I instituted goals for every single 
office in the country, not only in overall loans but two other 
areas, veterans' loans and underserved market loans.
    Senator Cardin. Let me just point out that the numbers that 
I have that over the last several years African-American 
minority-owned businesses had gotten only 2 percent of the 504 
loans.
    Administrator Preston. I will have to get you those numbers 
but I think the important thing to understand is we do a lot of 
outreach with banks. We do a lot of outreach with community 
development companies but we are ultimately a guarantor of 
loans that are made by private lenders. We do not make the 
loans.
    So what we try to do through the staff in our district 
offices get out there, make presentations to groups, work with 
the banks to reach groups that we think are important that 
maybe are not getting the capital otherwise.
    But, believe me, the efforts we have in many of the areas 
that you are targeting are very significant and I think we are 
a very differentiated force in the capital markets for many of 
the groups that you are referencing.
    Senator Cardin. I appreciate your response on that. I just 
would urge that the numbers be reflective, and I am pleased to 
see a significant increase so far this year.
    Let me just make one final comment about the circumstances 
in my State of Maryland. I have been told the 7(a) loans are 
down about 40 percent in number and 25 percent in dollar 
amounts in the last year.
    And if that is accurate and there is, I would just suggest 
to you that there is something happening out there with a 
credit crunch, and small businesses are being particularly 
vulnerable to this.
    I would hope that we would be on the cutting edge, not the 
reactive edge, to try to help soften the problems that are 
being confronted economically in this country, and I think we 
have a serious problem in Maryland and around the Nation with 
small businesses being able to get affordable credit, 
affordable capital in this market.
    Vendors are nervous. Everyone is nervous, and to me that is 
the time that the governmental agency, SBA, needs to be 
aggressive and step up and help so that these businesses are 
able to weather this unpredictable storm particularly as it 
relates to the credit market, and I am worried about what is 
happening in my State of Maryland.
    Administrator Preston. Sir, I am not sure if I addressed 
this, and I am not sure if you were here when I mentioned this, 
but one of the things we are finding is the biggest impact on 
our programs right now are being driven by lenders that are 
pulling back very dramatically. All of our dollar decrease this 
year can be defined by five lenders, some of which are active 
in your State.
    And so throughout the country we are undergoing a very 
extensive outreach effort with all the banks, both national 
banks, regional banks and local banks, to work with them to 
make sure that they understand fully how to utilize our 
programs. We have extensive recruiting efforts to bring more 
banks in and we are actually, and this is a little bit, under 
covers, but we spent a lot of time with banks over the last 
year to understand what inhibits them from using our programs. 
We are very actively focusing on what I think are the biggest 
issues to them in using our programs.
    So we are putting a lot of muscle into our relationships 
with the banks. I am meeting with many of them personally to 
try to bring them into the programs, or expand their use of the 
programs where appropriate.
    That having been said, many of the ones that we are 
talking, many of the most significant decisions are being made 
by banks that are really in the middle of some policy 
uncertainties and they are just, in many cases, not ready to 
move in one direction or another aggressively. We are trying to 
sit with them at the table as they go through that process to 
make sure that we can be as good a partner as we possibly can 
for them.
    Senator Cardin. Thank you, Mr. Chairman.
    Chairman Kerry. Thank you very much, Senator Cardin.
    Senator Thune, welcome, sir.
    Senator Thune. Thank you, Mr. Chairman, Senator Snowe, for 
holding this important hearing on the SBA's 2009 budget 
request.
    Administrator Preston, I want to thank you for taking time 
to be here again to testify. I know that the Committee and I 
appreciate you being here in person to discuss this important 
subject and I also want to commend you for all the work that 
you have done at SBA since you became administrator 18 months 
ago.
    Administrator Preston. Thank you.
    Senator Thune. We have seen a lot of progress and want to 
credit you with that and express our appreciation for your good 
work.
    As we look forward to the next year and beyond, I am 
particularly excited about the Administration's commitment to 
better serve underserved markets. And as SBA moves forward with 
that goal, I would like to encourage the agency to continue to 
try and meet the needs of all underserved small businesses 
including those rural areas of the country, places like South 
Dakota, and on Indian reservations.
    The Rural Lender Advantage Program is a good first start, 
in my view, in helping rural small businesses and I look 
forward to working with the Committee and the SBA to continue 
to target these businesses. And I am also additionally 
encouraged by the work that the agency has done in the past to 
help Native American small businesses and I know that my 
constituents strongly support these efforts, especially the 
tribal 8(a) program.
    So again I want to thank you for being here today, the 
Committee for having the hearing as the budget process 
continues for fiscal year 2009. I look forward to working with 
my colleagues to find ways to strengthen small businesses and 
at the same time strengthen our Nation's economy.
    And if I might, just a couple of questions. I mentioned 
this earlier, but SBA Region 8, of which South Dakota is a 
part, is going to be piloting the Rural Lender Advantage 
Program. I would be interested in a brief overview, if you 
could, of that project and perhaps if you could explain how it 
will help meet the SBA's goal of serving underserved markets.
    Administrator Preston. Yes. One of the things we have heard 
over the years from small community banks is that our programs 
are challenging to understand and use. And if you are a big 
bank, you have a lot of people that can deal with paperwork and 
understand government programs. But if you are a little bank, 
it is tough.
    As you and your two colleagues know, based on the states 
that you are from, community banks serve uniquely. They know 
their communities. They are relationship lenders. I think they 
are an important vehicle for capital.
    So what we wanted to do was figure out how do we win back 
the community banks, especially during a time like this. So 
Rural Lender Advantage is actually a redesign of our 7(a) 
process with those three things.
    Number one, it provides a very simple application for banks 
that have fewer than 20 SBA loans a year. We want to make it 
simple for them.
    Number two, once they submit that loan, we actually approve 
them actively. Many of our loans we delegate that authority. 
Smaller community banks that do not have volume we do not. So 
we commit to a quick turnaround on the loan decision in a few 
days.
    The third thing we do which I think is very important is we 
want to make sure that if the community banks are confused by 
the programs, have questions, we are very responsive. So we 
have a fully staffed help desk that they can call and get 
responses to any questions. So simple application, quick 
turnaround time, high touch.
    The last piece I would mention which is not unique to Rural 
Lender Advantage but we will certainly support is we have done 
a very extensive amount of training for our lender specialists 
in our field offices. Many of these people have gone through 2 
full weeks of training, so that they can sit with those rural 
lenders, really teach them how the programs work, answer all 
their questions, help them with the paperwork.
    We are about 6 weeks into the pilot I think right now, and 
yesterday we had a session in Colorado where we brought in a 
number of banks and a number on the phone. I think we had 
altogether about 70 banks and we got their feedback of the 
program. They are very encouraged by it. They gave us some 
suggestions on how to make it even more simple which we are 
working on and I am very hopeful that we will be able to roll 
it out beyond Region 8 within the next couple of months.
    Senator Thune. I appreciate that. It seems to me like a 
really well tailored program particularly in the area of the 
country that I represent.
    Administrator Preston. Yes. Thank you.
    I appreciate that, yes.
    Senator Thune. Hopefully it will be something that can be 
replicated elsewhere around the country as well.
    Just one other question and that has to do with the fiscal 
year 2009 budget and the fact that there is not a specific line 
item in the budget this year for Native American outreach 
programs, and I guess my question would be why the SBA did 
include a line item for that program and what the agency 
anticipates spending on Native American outreach.
    Administrator Preston. Yes. I think that number for 2009 is 
$1.7 million. I am looking at--$1.6 million, which is different 
from what the historic line item would have been. This is 
similar to my response to Senator Snowe's question on HUBZone.
    What we have are a number of areas which have specific line 
item funding but the amount of money we spend on them in SBA, 
in some cases, significantly exceeds the line item. So 
generally in an effort to simplify these budgets, we are trying 
to pull them into the overall base funding which gives us a lot 
more flexibility but it is really as simple as that.
    Senator Thune. Thank you, Mr. Administrator.
    Mr. Chairman, thank you.
    Chairman Kerry. Thank you very much, Senator Thune.
    Just a few more quickies. Then I think we will wrap up, at 
least from my point of view, and I will pass it to Senator 
Snowe.
    Mr. Administrator, on the procurement center 
representatives, we have been pushing hard on the Committee for 
some time to try to increase those. My understanding is that 
not all of the PCRs that were budgeted for this year have been 
hired. I have heard that as few as 51, maybe as many as 57, are 
on staff.
    But whether it is 51 or 57, it is way below the 200 plus 
that we had in the 1990s to review a much smaller budget. So 
can you help us get a sense of whether you intend to hire them? 
Is this just sort of a, you know, resistance to the concept? 
What are we looking at here?
    Administrator Preston. No. In fact, you know, I am the one 
who put forward expanding the number. As I mentioned, I think--
--
    Chairman Kerry. Why would they not have been hired to date? 
I mean, why are we looking at such an incredibly low number 
compared to----
    Administrator Preston. Yes. We should be at about 62 in 
about 6 weeks based on hiring actions and we are working on the 
paperwork to get to 66 which is our 2008 number.
    Senator, by the end of this year over 20 percent of our 
PCRs will be retirement eligible, which presents us with a real 
challenge.
    Bringing PCRs in is a challenge because we generally need 
them to be heavily trained in Federal procurement. So I do not 
like to give you a bureaucratic sounding answer. Frankly, it 
has been tough for us to stay ahead of the curve in getting 
these people in, based on retirements, based on finding the 
right people and getting their paperwork done to bring them in. 
But like I said, I think in about 6 weeks we will be at 62 
which is where we had hoped to be----
    Chairman Kerry. What is the difficulty in finding the right 
people? I would think in today's job market this would be 
pretty easy.
    Administrator Preston. No. It is the expertise in Federal 
procurement. What you have are these people that are sitting 
generally in another agency looking at all of what they are 
doing and trying to work within that network to understand 
within procurement law and regulation which of those contracts 
can be going to companies that we feel should be represented, 
small businesses or small businesses in our preference 
categories.
    So we cannot sort of take a novice, train them quickly and 
throw them in this situation with a lot of oversight. It is the 
kind of person that generally comes to the table with some deep 
skills already or we can find them somewhere else in our 
network.
    And very frankly, generally when we have had positions, not 
only PCRs but even in headquarters where we need deep 
procurement expertise, those have been places where we have the 
hardest time finding people that are qualified to do the jobs.
    But we are committed to getting the number up. I am very 
hopeful we will be at the 66 level in a few months which is 
what our 2008 target was.
    The last thing I would say is we are undergoing a full 
staffing review at the agency right now to understand where our 
greatest needs are, where our greatest opportunities are. And 
certainly if we determine that we need to reallocate our head 
count in that direction, to expand it further, we are going to 
be looking at it very seriously.
    Chairman Kerry. You have no judgment at this time whether 
or not those staffing levels are adequate?
    Administrator Preston. I do not have a judgment at this 
time.
    Chairman Kerry. The current number or the current goal?
    Administrator Preston. I think overall our staffing levels 
are solid and I think historically they have not always been in 
the right places and I am very thankful for the support that 
you all have given us in expanding the head account. I think 
right now where we are going to have the most immediate need 
are going to be, will be in our high volume processing centers 
that cover our lending programs and we do have some needs 
there. But beyond that, we will be focusing heavily on the 
field network whether it be PCRs or district offices.
    Chairman Kerry. Fair enough. Let me ask you if I may about 
the 7(j) Technical Assistance Program. As you know full well, 
this is the way that the minority businesses get their training 
in the 8(a) program. We have heard a number of complaints about 
this. The lack of assistance coming out of it and/or the way it 
is being run.
    There are two concerns I want to raise with you. One, 
originally the program was funded at about $3.6 million. The 
SBA operating budget includes only $1.53 million for technical 
assistance for 2009 which is a difference of a little bit over 
$2 million. This program has consistently been underfunded. 
According to the last report to Congress, there were 9,667 8(a) 
firms in the program.
    So if you take the request that you have put forward, the 
$1.5 million, that is about $158 per firm. Can you share with 
us what kind of training people are getting for $158 per firm?
    Administrator Preston. That is really only a small piece of 
the support that the 8(a) programs gets on the technical 
assistance side. We have business development specialists, 
hundreds of them in our field network. Many of the 8(a) firms 
get technical assistance from our resource partner network. 
This is really, as I understand it, a grant program to provide 
funding in targeted ways but is not, by any means, the lion's 
share of the technical support that those firms get.
    Chairman Kerry. Well, even if it is on a targeted basis, 
can you tell us how many firms get targeted assistance?
    Administrator Preston. I do not know specifically how many 
firms get support 7(a), 7(j) funds.
    Chairman Kerry. How would we find out? What is the 
accountability for this technical assistance program which is 
pretty critical?
    Administrator Preston. I will have to get back to you to 
understand how many firms get that assistance, but thousands of 
them get it through our district network and through our 
resource development partner network.
    Chairman Kerry. Well, the second part of the question 
obviously and the second part of the inquiry here concerns a 
New York Times article that exposes that a contractor with no 
business consulting experience was given the 7(i) technical 
assistance contract. The IG is now looking at this and it 
raises the question: ``Why would someone who has no 
qualifications to run a technical assistance program be put in 
charge of it?''
    Administrator Preston. Well, let me make a couple of 
comments on that. First of all, I asked the IG to look at it. 
So I just want you to know----
    Chairman Kerry. I know you did. I acknowledge that.
    Administrator Preston. I just want you to understand that.
    Chairman Kerry. Absolutely.
    Administrator Preston. And the second thing is I really 
cannot comment specifically on it because there is an IG 
investigation going on. It is something that I became aware of 
a couple of weeks ago and I would be happy to, you know, 
obviously keep your staff up to speed as we know anything on 
the ongoing investigation. But I do not want to make any 
prejudgments at this point on the quality of that vendor or the 
process under which that vendor received the contract because I 
just do not know and we have specifically pulled back and 
allowed the IG now to come in and take a look at it.
    Chairman Kerry. That is obviously one concern. I have a 
series of questions about the overall oversight. I would like 
to, perhaps, have you follow up in writing if you can. I will 
submit them in writing.
    But I would like to know what the oversight is, what has 
been done to ensure companies are receiving the training they 
are supposed to, have they been surveyed with respect to their 
judgments about the quality of the training they received.
    Some of our 8(a) participants are actually asserting or 
claiming that the training is really nonexistent. And so we 
would like to really take a look at this. And I am inclined 
even to perhaps ask the GAO to help us take a look at it. I 
think we ought to get a handle on what is happening in terms of 
that training program.
    Administrator Preston. Yes. I think that is a fair request. 
One of the things I will tell you is there is a compliance 
requirement that we have to do an annual review of all of our 
8(a) firms every year. And last year we put in place a tracking 
mechanism, an accountability that every district office had to 
have 100 percent compliance. It is part of their scorecard now. 
They get tracked on it. It is part of what they get compensated 
on. And so we are doing whatever we can to make sure that--and 
then the other thing I mentioned a little earlier is we are 
taking a lot of the paperwork burden away from our business 
development specialists so that they can spend more time doing 
business development and outreach with 8(a) firms.
    I am not convinced that it is where it should be and we 
would be happy to work with you all to get a better 
understanding of where it is and where it needs to go.
    Chairman Kerry. Fair enough.
    I have asked you on the veterans' thing. I am going to 
leave the record open and submit some of these additional 
questions in writing. They are not that complicated. I do not 
think we need to eat up our time with them now.
    Administrator Preston. Right.
    Senator Snowe.
    Senator Snowe. I have no further questions although I will 
submit some questions for the record.
    Administrator Preston. OK.
    Senator Snowe. Thank you, Mr. Administrator, for being here 
today, and obviously we have got some work to do in trying to 
repair many of these issues as we have done in the past. 
Hopefully we can have a cooperative working relationship. I 
know we will with you and the Administration with respect to 
coming back and revising the President's proposal. Thank you.
    Administrator Preston. Thank you.
    Chairman Kerry. Mr. Administrator, I want to thank you 
also. I think you have been direct and articulate about 
rationales here for what you have done even though we may 
disagree with some of the choices made, obviously, but we 
appreciate your directness and taking the time to be here with 
us. It is helpful.
    I hope we can work through some of these things. They 
should not be that complicated. There ought to be a way to find 
an agreeable path on a couple of the funding issues and 
certainly some of these mechanisms.
    I think that you will find you will have a unanimous 
Committee and there ought to be broad-based bipartisan support 
for doing some of these things. So we look forward to working 
with you in the next days.
    Maybe we can make some progress with OMB and a few folks 
over there to bend a little on a couple of these things 
particularly, for instance, like the veterans' funding piece 
which is so critical. I think the oversight component on 8(a) 
that we just talked about, procurement reps, a few of these are 
not that complicated.
    When you look at this overall budget measured against, I 
mean, the bang for the buck here is so quantifiable and 
significant to a community, but so small compared to some of 
the other expenditures and requests, that this should not be an 
area of great contention frankly.
    Administrator Preston. Thank you. Thank you both for your 
support and, you know, at any time if we can come up and brief 
you on some of the more detailed issues that came up here 
today--I know we are working with a number of your staff 
members--we would be happy to do that as well.
    Chairman Kerry. Well, we appreciate it, and with that, this 
hearing on the budget will stand adjourned.
    Thank you.
    [Whereupon, at 11:58 a.m., the Committee was adjourned.]




















                      APPENDIX MATERIAL SUBMITTED

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                  
