[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
FULL COMMITTEE HEARING ON
OVERSIGHT OF THE SBA AND ITS PROGRAMS
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JULY 29, 2009
__________
[GRAPHIC(S)] NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 111-040
Available via the GPO Website: http://www.access.gpo.gov/congress/house
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
DENNIS MOORE, Kansas
HEATH SHULER, North Carolina
KATHY DAHLKEMPER, Pennsylvania
KURT SCHRADER, Oregon
ANN KIRKPATRICK, Arizona
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine
MELISSA BEAN, Illinois
DAN LIPINSKI, Illinois
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
BRAD ELLSWORTH, Indiana
JOE SESTAK, Pennsylvania
BOBBY BRIGHT, Alabama
PARKER GRIFFITH, Alabama
DEBORAH HALVORSON, Illinois
SAM GRAVES, Missouri, Ranking Member
ROSCOE G. BARTLETT, Maryland
W. TODD AKIN, Missouri
STEVE KING, Iowa
LYNN A. WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
MARY FALLIN, Oklahoma
VERN BUCHANAN, Florida
BLAINE LUETKEMEYER, Missouri
AARON SCHOCK, Illinois
GLENN THOMPSON, Pennsylvania
MIKE COFFMAN, Colorado
Michael Day, Majority Staff Director
Adam Minehardt, Deputy Staff Director
Tim Slattery, Chief Counsel
Karen Haas, Minority Staff Director
.........................................................
(ii)
STANDING SUBCOMMITTEES
______
Subcommittee on Contracting and Technology
GLENN NYE, Virginia, Chairman
YVETTE CLARKE, New York AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon W. TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
PARKER GRIFFITH, Alabama
______
Subcommittee on Finance and Tax
KURT SCHRADER, Oregon, Chairman
DENNIS MOORE, Kansas VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona STEVE KING, Iowa
MELISSA BEAN, Illinois W. TODD AKIN, Missouri
JOE SESTAK, Pennsylvania BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine
______
Subcommittee on Investigations and Oversight
JASON ALTMIRE, Pennsylvania, Chairman
HEATH SHULER, North Carolina MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana LOUIE GOHMERT, Texas
PARKER GRIFFITH, Alabama
(iii)
Subcommittee on Regulations and Healthcare
KATHY DAHLKEMPER, Pennsylvania, Chairwoman
DAN LIPINSKI, Illinois LYNN WESTMORELAND, Georgia,
PARKER GRIFFITH, Alabama Ranking
MELISSA BEAN, Illinois STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania GLENN THOMPSON, Pennsylvania
BOBBY BRIGHT, Alabama MIKE COFFMAN, Colorado
______
Subcommittee on Rural Development, Entrepreneurship and Trade
HEATH SHULER, North Carolina, Chairman
MICHAEL MICHAUD, Maine BLAINE LUETKEMEYER, Missouri,
BOBBY BRIGHT, Alabama Ranking
KATHY DAHLKEMPER, Pennsylvania STEVE KING, Iowa
ANN KIRKPATRICK, Arizona AARON SCHOCK, Illinois
YVETTE CLARKE, New York GLENN THOMPSON, Pennsylvania
(iv)
C O N T E N T S
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OPENING STATEMENTS
Page
Velazquez, Hon. Nydia M.......................................... 1
Graves, Hon. Sam................................................. 2
WITNESSES
Mills, Hon. Karen, Administrator, U.S. Small Business
Administration................................................. 3
Shear, Mr. William, Director, Financial Markets and Community
Investment, U.S. Government Accountability Office.............. 5
APPENDIX
Prepared Statements:
Velazquez, Hon. Nydia M.......................................... 23
Graves, Hon. Sam................................................. 25
Mills, Hon. Karen, Administrator, U.S. Small Business
Administration................................................. 27
Shear, Mr. William, Director, Financial Markets and Community
Investment, U.S. Government Accountability Office.............. 34
Statements for the Record:
GAO Report to the Chairwoman: Additional Steps Should be Taken to
Address Reforms to the Disaster Loan Program and Improve the
Application Process for Future Disasters....................... 46
Small Business Administration Response to Questions for the
Record: August 2009............................................ 88
(v)
FULL COMMITTEE HEARING ON
RECENT GAO REPORTS ON SMALL
BUSINESS ADMINISTRATION PROGRAMS
----------
Wednesday, July 29, 2009
U.S. House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., in Room
2360 Rayburn House Office Building, Hon. Nydia Velazquez
[chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Moore, Dahlkemper,
Bean, Clarke, Ellsworth, Graves, Buchanan and Luetkemeyer.
Chairwoman Velazquez. This hearing is now called to order.
This past January, the House adopted Rule 11, which
requires quarterly hearings on waste, fraud, abuse and
mismanagement of programs under the Committee's jurisdiction.
In the last six months, we have held 13 oversight hearings on a
broad range of issues. Today we will continue that track record
of upholding transparency. Our discussion will include an
examination of several SBA programs and an evaluation of steps
that the agency has taken thus far.
In recent months, Americans have been reminded of the
important role that small films play in our economy. The
Recovery Act alone contains several provisions designed to help
small businesses, and the majority of those measures fall under
the SBA umbrella. That is why it is important that we take time
to assess the agency's progress.
Even as our economy starts to rebound, small firms are
facing significant challenges in accessing capital. The
Recovery Act took steps to address those obstacles. For one, it
increased the SBA loan guarantees, giving banks greater
incentive to lend. Any policy that puts cash back into the
hands of entrepreneurs is critical. And yet SBA has not
implemented these provisions as quickly as we would have hoped.
Lending measures are vital, and we need to be sure SBA has
the direction it needs to put them in place.
As those of us who have been on the Committee for some time
know, SBA has a history of struggles with lending. Perhaps the
most salient example would be the Disaster Loan Program, which
faced significant challenges following Hurricane Katrina. At
the time, we asked GAO to take a look at the initiative and to
evaluate SBA's response to the hurricane.
The resulting report led to the passage of the Disaster
Response and Loan Improvements Act. Later in this hearing, we
are going to hear from GAO about what SBA has accomplished
since the act was passed. We will also discuss areas in which
work is yet to be done. That way we can be sure that the agency
is fully primed and fully prepared the next time around.
In addition to obstacles in lending, SBA has often grappled
with contracting issues, perhaps most notably the embattled
HUBZone program. It is important that we have an idea of where
that initiative stands. Fraud within the program was the
primary focus of our oversight hearing in May, and it is this
Committee's hope that the abuse has since then been rooted out.
Oversight is a critical part of the legislative process.
For federal agencies, it provides an honest analysis of current
programs and an opportunity to change direction. After all,
that is the primary purpose of GAO. As the investigative arm of
the United States Congress, it does not seek to simply point
out wrongs. Its ultimate goal is to provide objective
recommendations for efficiency and improvement.
In examining the current state of SBA, it is clear that
there is still significant work to be done, and the stakes
could not be higher. Our economy, while recovering, has a ways
to go. Now more than ever, we are counting on small firms to
drive growth and create jobs. In making sure they are able to
do that, we need an SBA that can step up to the plate and
fulfill its role as a champion of small business.
With renewed focus and a fresh direction, I feel confident
that SBA can play that role. I look forward to seeing progress
unfold in the coming weeks and months ahead.
I would like to thank both Administrator Mills.
Congratulations on your appointment. Welcome to this Committee.
This is your first appearance, and Mr. Shear for being here for
this discussion. I know we all look forward to hearing what
they have to say, and with that, I yield to Ranking Member
Graves for his opening remark.
Mr. Graves. Thank you, Madam Chair.
And I also want to thank Administrator Mills for being here
and Mr. Shear for being here. We appreciate you coming in. We
look forward to hearing what you have to say about all the many
different programs at SBA.
The Small Business Administration is tasked with a great
responsibility providing all of the necessary tools for
entrepreneurs to start and grow small businesses. In order to
complete this task, the SBA employs a number of programs,
including the HUBZone Program, the 8(a) Program, the Disaster
Loan Program, and the 7(a) Program, just to name a few of them.
It is the responsibility of the Committee on Small Business
to insure that the SBA operates efficiently and effectively,
and when it becomes apparent that the SBA is failing to reach
its goals or serve its purpose, it is also the duty of this
Committee to evaluate the program and assess the Small Business
Administration and get it back on track so that it can continue
to serve America's entrepreneurs.
In the wake of Hurricanes Katrina and Rita, it became
apparent that the Small Business Administration was not
equipped to carry out the responsibilities of its disaster loan
program, and as a result, new requirements were put in place to
strengthen the program and make sure it was, in fact, as
efficient and helpful to victims as possible in the event of an
emergency.
Similarly, the HUBZone Program at the Small Business
Administration, which is designed to bring businesses to areas
that have been traditionally under served, has struggled to
correctly identify and enforce those who are eligible to
participate in the program. And, again, recommendations have
been made to begin to remedy that problem.
This hearing provides an opportunity to examine these
problems and others in which the Small Business Administration
may be struggling and to ascertain the success they have had in
implementing these new requirements. The small businesses of
America play a crucial role in maintaining a healthy economy.
Consequently, the manner in which the Small Business
Administration conducts itself has a direct result on the
health of the American economy.
This is a very important hearing taking place at a very
important time, and the testimony that we hear today will have
a direct impact on the health of America's small businesses.
And, again, I want to thank the witnesses, both of you, for
being here and, Madam Chair, thank you for holding the hearing.
Chairwoman Velazquez. Thank you, Mr. Graves.
And it is my pleasure to welcome the Honorable Karen Mills.
Ms. Mills was sworn in April 6th, 2009, as the 23rd
Administrator of the United States Small Business
Administration.
Prior to being confirmed as SBA Administrator, most
recently Ms. Mills served as the president of A&P Group in
Brunswick, Maine. The SBA helps small business owners and
entrepreneurs secure financing, technical assistance, training,
and fairer contracts.
Welcome, Ms. Mills.
STATEMENT OF THE HONORABLE KAREN MILLS
Ms. Mills. Thank you very much.
Chairwoman Velazquez, Ranking Member Graves, members of the
Committee, it is a great honor to testify before you as my
first time as the SBA Administrator. Given the Obama
administration's mandate to us to eliminate and prevent waste,
fraud, and abuse in government programs, I am pleased to
testify as my first of these regularly scheduled hearings on
this topic. I consider this to be one of my most important
responsibilities.
As you know, as all of you know and as you mentioned, small
businesses account for 60 to 80 percent of the new jobs that
are created. Over half of Americans who work own or work for a
small business, and small businesses are going to continue to
be the foundation of innovation and competitiveness and the
creation of our 21st Century jobs.
But we know that these are difficult times for small
businesses, making the SBA's mission more important than ever.
We maintain a lending portfolio at the SBA that supports nearly
$90 billion, mostly in loan guarantees. We are charged with
making sure that 23 percent of federal government contracts are
given to small businesses.
We have a strong network of over 14,000 affiliated
counselors that help small business owners grow their
businesses, and we currently have on call more than 2,000
employees who stand ready to help in case of a disaster. We are
committed to integrity, accountability and effectiveness in all
of these programs. These principals are at the core of what we
do as an agency, and at the core of who we are.
The Recovery Act, which was passed with all of your help
and creation, is a great example of this commitment. Since the
act passed, the SBA has supported nearly seven billion in
lending approvals to small business. Weekly volumes are up 45
percent over the weeks before the Recovery Act, and most
importantly, more than 750 lenders who had not made a loan
since October when the lending markets froze are back in the
program making SBA loans, and some of them had not made a loan
since 2007.
We have a chart here in the green of where we are in the
Recovery Act programs. The light green is sort of when it was
in the planning phase and when it is in the dark green, it is
in the market, and I will be happy to take questions on that as
well.
But one of the first actions I took on becoming
Administrator was in implementing these Recovery Act programs,
to make sure there was a senior level risk management team in
place to oversee the roll-out, and we work closely with the
Inspector General in terms of risk mitigation and with small
teams in each individual program to build them.
I just want to mention the ARC Loan Program, America's
Recovery Act, as an example of how this risk management worked.
This is a new program for a specific purpose in a unique time.
It is a bridge over troubled water for viable but struggling
small businesses. This is not in our traditional risk profile,
but we were charged with creating a program that was 100
percent guaranteed by the SBA with zero interest cost for the
borrower. So we knew we would have a considerably higher
default rate.
We also knew we would have to do extensive lender
education, and I am happy to say that we trained about 1,300
institutions in the week following the roll-out. As a result,
we have 47 states where ARC loans have been made and 26 million
in the hands of small business owners.
That level of discipline that we are putting forth in the
Recovery Act is now the model that we are transferring to the
core programs at the SBA. We are optimizing operations in areas
such as disaster assistance, where we have added to the on-call
employees. We have added surge space in case of a catastrophic
disaster, and we are doing marketing and outreach in order to
prepare areas to know what it is they need to do in a disaster,
and we have instituted electronic loan processing, which now
accounts for about a third of the applications we received.
But overall there is a number of issues that still need to
be addressed. Many of these problems have built over a number
of years. They will not be solved in days or weeks, but they
will, indeed, be solved.
I look forward to working with the distinguished members of
the Committee to make that happen, and I look forward to your
questions.
Thank you.
[The prepared statement of Ms. Mills is included in the
appendix.]
Chairwoman Velazquez. Thank you, Ms. Mills.
Our next witness is Mr. Bill Shear, and he is the Director
of the General Accountability Office, Financial Markets and
Community Investment. The Financial Markets team works to
improve the effectiveness of regulatory oversight in financial
and housing markets. It also oversees the management of
community development programs.
Mr. Shear, welcome.
STATEMENT OF WILLIAM SHEAR
Mr. Shear. Thank you.
Madam Chairwoman, Representative Graves and members of the
Committee, it is a pleasure to be here today to discuss our
work at the Small Business Administration. My statement is
based on our report, Small Business Administration: Additional
steps should be taken to address reforms to the Disaster Loan
Program and improve the application process for future
disasters. This report is being released at today's hearing.
In that this is a general oversight hearing, I also look
forward to contributing to the discussion at the hearing on
other SBA programs.
After the 2005 Gulf Coast hurricanes, many deficiencies
were exposed in the agency's disaster loan program and
demonstrated the need for reform. For example, as we state in
our February 2007 report, SBA did not engage in or complete
comprehensive disaster plans before the Gulf Coast hurricanes.
Since then SBA has taken several steps to reform its
disaster loan program, which includes creating a online loan
application and increasing the capacity of its disaster credit
management system.
In June 2008, Congress enacted the Small Business Disaster
Response and Loan Improvement Act to expand steps taken by SBA
and require new measures to ensure that SBA is prepared for
future catastrophic disasters. In my statement today, I will
summarize the extent to which SBA addressed the requirements of
the Act and how SBA's response following the major disasters of
2008 aligned with key components of its June 2007 disaster
recovery plan.
First, with respect to addressing the requirements of the
act, as of June 2009, SBA met 13 of 26 requirements of the act,
partially addressed eight, and did not take action on five
which are not applicable at this time. SBA officials told GAO
the agency has not yet completely addressed some provisions
that require new regulations because to do so, the agency must
make extensive changes to current programs or implement new
programs.
For two requirements that will involve private lenders, SBA
plans to implement pilots before finalizing regulations. SBA
has not yet addressed the act's requirements for region
specific marketing and outreach, nor has it insured that
disaster loan program information is readily available to
regional entities, such as small business development centers.
By doing so, SBA could leverage the efforts and capacity of
local resources and emergency management groups, and it could
better ensure that it and they will be better prepared for
future disasters.
Also, as of June 2009, SBA has not met deadlines to issue
an annual report to Congress or an updated disaster response
plan. Failure to do so can lead to a lack of transparency on
the agency's progress in reforming the program, and it can
limit its ability to adequately prepare for and respond to
disasters.
Furthermore, SBA did not have an implementation plan for
addressing the remaining requirements.
Second, with respect to SBA's response to major disasters
in 2008, SBA's initial response after the 2008 midwest floods
and Hurricane Ike aligned with certain components of the
initial disaster recovery plan, such as using technology and
outreach efforts to insure timely assistance. The individuals
GAO interviewed and results from SBA's 2008 disaster loan
program customer satisfaction survey provided some positive
feedback about SBA's performance following these recent
disasters.
However, interviewees and survey results indicated areas
for improvement. In particular, both indicated that application
paperwork was burdensome, and that the application process
needed improvement.
SBA officials told GAO that they have been taking steps to
improve the application process, but did not provide
documentation of such efforts. As a result, it did not appear
to us that SBA has a formal process for identifying problems in
the application process and making needed improvements.
In our report, we make five recommendations that we think
will facilitate SBA's progress in meeting the requirements of
the act and improve the disaster loan program.
Madam Chairwoman, it is a privilege to testify before this
Committee. I would be pleased to answer any questions on this
work and other recent work we have conducted at SBA.
[The prepared statement of Mr. Shear is included in the
appendix.]
Chairwoman Velazquez. Thank you, Mr. Shear.
Ms. Mills, Administrator Mills, GAO has recommended that
SBA conduct unannounced site visits on HUBZone terms, and as
you are aware, GAO conducted an investigation, and it was not a
great message from the government to taxpayers and to agencies
regarding the responsibility of making sure that taxpayer
safeguards are in place, to make sure that people are playing
by the rule.
Are you doing unannounced site visits? And how many has
your agency conducted since GAO made this recommendation in
March?
Ms. Mills. Yes, Madam Chair, we are making unannounced site
visits. In the time until the last hearing in March and when
this report was released, there had been only seven visits in
six months. Since that time, we have done over 600 in the last
four months.
We are using the data from the site visits to build a risk
based mechanism in order to see what documentation indicate
noncompliance. So we will continue to make unannounced site
visits and we will continue to work on this mechanism.
In addition, I believe you are referring to the March 2009
GAO report which was very helpful. I just wanted to report back
on what has been done. There were 19 firms cited. Two had
already been de-certified when we got the report and one
actually was okay. Of the remaining 16--
Chairwoman Velazquez. Administrator.
Ms. Mills. Yes.
Chairwoman Velazquez. I want to deal with that specific
issue later.
Ms. Mills. Yes.
Chairwoman Velazquez. So allow me to follow my train of
thought here.
Mr. Shear, in your report you note that SBA failed to meet
several deadlines, some by several months. What were SBA's
explanations for missing deadlines, and how has this affected
the agency's preparedness for large scale disasters?
Mr. Shear. The reasons for not meeting deadlines fall into
a few different categories. The first one that I will mention
is one category that has to do with the coordination with FEMA-
-where you have regulations that have to be coordinated between
the agencies--and we were told that coordination was a fairly
extensive, cumbersome process, and that was the reason for
delay.
Another category, this is a place where I think one area
where we just disagree with SBA, we think that the act is clear
in calling for regional marketing plans and to have plans that
are specific to the types of disasters that can occur in
specific parts of the country, and that is one requirement
where it seems there is some disagreement over whether what is
already there at the national level meets the requirements of
that act. So that is one where we just have a fundamental
disagreement, it seems.
Some of the others, such as having programs that involve
private lenders, for those programs SBA wants to conduct pilots
before rolling out an actual program to have some experience
with the program. That is one where even though SBA has not met
the requirements in terms of deadlines, we are fairly
sympathetic to because from our general work dealing with
federal loan insurance and guaranty programs, sometimes when
you go into a new type of venture, pilots could be very
effective.
Those are some of the examples as far as why there have
been delays. One of the reasons we made a recommendation that
SBA should come up with time frames for the implementation of
completing the requirements of the act is we think that action
will help facilitate a certain discipline in terms of getting
to where it should be.
Chairwoman Velazquez. Ms. Mills, one of the most surprising
findings of the report is the fact that nearly four years since
Hurricane Katrina the agency is still struggling to develop a
risk based disaster response plan, and as we enter the peak of
hurricane season next month, will the SBA continue to rely on a
disaster plan that is over two years old and that contains
obsolete information.
Ms. Mills. Now, I presume that you are talking about our
annual disaster plans. We submit monthly plans to Congress and
assessments of where we are, but we will complete this annual
plan. We agree that it is dramatically important and overdue,
but we will complete it.
Chairwoman Velazquez. Do you have a time line?
And my next question is will that disaster plan,
comprehensive plan, have the components mandated by the law?
Ms. Mills. Yes, it will, and many of these components are
in place, and I think we need to just get you the plan.
Chairwoman Velazquez. When do you think it will be
expected, since I mentioned that the hurricane season is
coming?
Ms. Mills. I will get back to you with an exact date, but
we promise that we will look to do it as soon as possible.
I do want to say we want to thank Mr. Shear because these
actually have been a very helpful template for us to go through
and execute these things. So I think we are poised to bring you
this report.
Chairwoman Velazquez. But you understand the urgency--
Ms. Mills. Yes, I do.
Chairwoman Velazquez. --of having this plan in place before
the hurricane season is over us.
Ms. Mills. Yes, we do, and we actually have the capacity in
place. So I think it is a matter of the report, which we owe
you and will get to you.
Chairwoman Velazquez. Administrator Mills, this Committee
has asked SBA on a number of occasions if it has the resources
and controls necessary to prevent contracting fraud. In the
past, the agency has said that they have the resources
necessary to prevent fraud in the HUBZone Program only to have
the GAO to find otherwise.
So let me ask you today: do you have sufficient resources
and internal controls to prevent fraud in the 8(a) program?
Ms. Mills. Thank you, Madam Chair.
The 8(a) program is for small businesses. It is not for big
businesses masquerading as small businesses. This has been a
concern about this program.
We have done a number of things to begin to make sure that
we eliminate fraud and abuse and address the issues that have
been raised. The first is that we have had a strong up-front
certification program, and a formal certification that is done
in two geographic areas specializing in this, Philadelphia and
San Francisco.
In addition, we have done some things since our last visit
to you to specifically invest in this activity. The first is
leveraging technology. We have added to our business
development management information system in order to be able
to better track these companies through their nine-year cycle.
We are mandated to invest in them for business development, and
we have two tools.
Chairwoman Velazquez. Administrator, administrator, excuse
me one second, but I have a lot of other questions, I just want
to make sure that today you are telling our Committee that you
understand that you have the resources and the controls in
place and necessary to prevent fraud in the 8(a) program.
Ms. Mills. We are making investments now in those things.
We have put in the 2010 budget some additional resources that
would be very helpful, and we are working on a package of
regulatory changes which will soon be brought public before
you.
Chairwoman Velazquez. The same with the service disabled
veteran program.
Ms. Mills. Yes, the service disabled veteran program is
extremely important, as you know. That is slightly different
because we need to work in conjunction with the Veterans
Administration. We have a very important report coming, I
think, from the GAO to help us work with them.
I have a meeting with the Veterans Administration to work
on the issue of their database, which is the database that is
the governing database on who is a service disabled veteran.
That is critical for this program to only be able to deliver to
service disabled veterans.
Chairwoman Velazquez. Mr. Shear, given everything that you
have reviewed in putting together this report, are you
comfortable that the SBA is prepared to meet the challenges of
another natural disaster on the scale of Hurricane Katrina?
Mr. Shear. I wish I could give another answer, but do I and
do we feel comfortable about the question you posed, the answer
is no. These are some of the reasons why.
There are certain parts of the requirements in the act that
have not been met, and among them let me just go back to the
disaster recovery plan from 2007. At the time it was provided
to us, the Administrator proposed it to us as conceptual
approach. Part of our view in our recommendations to the
Administrator and also with respect to the act itself, we think
strategic planning should be a very living document.
So, for example, there have been disaster simulations that
have occurred. Yet we do know that simulation is the best thing
to do to prepare for disasters the size of Katrina.
Chairwoman Velazquez. Mr. Shear, let's clarify that. That
was under the previous Administrator.
Mr. Shear. Yes, from the previous Administrator, yes. Thank
you.
In terms of the disaster simulations, we know the disaster
simulations the agency used in 2008 and they are of
catastrophic disasters. Yet what we do not know, and this
committee does not know is what were the results of those
simulations in terms of the capacity of the agency to deal with
a disaster the size of another Hurricane Katrina nor what
lessons have been learned from running those simulations.
So in the absence of some evidence that the agency is in a
position of responding, even on a simulation type basis, causes
us to answer that question in the way we do.
Chairwoman Velazquez. Ms. Mills, I hope that you understand
that we are here fulfilling our role and our duty of overseeing
and making sure that things that need to be in place are in
place. Hurricane Katrina was a disaster of major proportions
where people lost their lives, lost their businesses.
So four years later after that, we need to hear that the
GAO feels that you have something in place where we can feel
comfortable.
Ms. Mills. Thank you, Madam Chair.
And I very much am listening to this issue that you raised
about the plan. I would like to just mention that we have
tactically added. Before Hurricane Katrina we had 880 trained
staff. We now have 2,400 staff and reservists, and our
reservists are ready to go across the country anyplace that
there is a disaster.
We also used to have 366 work stations and one of the
things we took from this review that you did which was very
helpful is we now have 2,100; from 366 to 2,100 work stations
in our disaster areas of Fort Worth and Surge Seats in
Sacramento.
And we upgraded our management information system so that
we can do 12,000 concurrent users. So in terms of investing in
fixed infrastructure, trained people, we are in a very, very
different place.
We also reengineered our loan processing system. In the
middle of Katrina, it took us 85 days to process a loan. We now
in any disaster do 14 days for homes and 18 days for
businesses, and we are piloting some additional programs.
Chairwoman Velazquez. Mr. Shear, do you have any comments?
Mr. Shear. We acknowledge in our report that a lot of
progress has been made. The types of problems in this program,
many of them have been addressed, including the expansion in
DCMS, greater availability of reserves, and the types of things
the Administrator is talking about. So we acknowledge these
improvements, and the program has improved.
The response to the 2008 disasters, which were much smaller
than anything on the scale of Katrina, was at least somewhat
positive, but we are pointing out do we feel comfortable yet,
and there are still other pieces that are related to the other
provisions in the act, and in particular the lessons learned
from having gone through simulations and other types of
exercises that we think are very important to demonstrate the
type of preparedness I think we're all looking for.
Chairwoman Velazquez. Thank you. Thank you.
Mr. Graves.
Mr. Graves. Thank you, Madam Chair.
Ms. Mills, the Office of Chief Counsel for Advocacy is
required by statute to monitor agency compliance for the
Regulatory Flexibility Act, and given the amount of increased
legislation that may come from health care reform and from the
reduction in greenhouse gases, you know, that responsibility is
just going to get even greater.
My question to you is: do you expect that the Chief Counsel
is not going to continue to monitor agency compliance with the
Regulatory Flexibility Act to the same extent that it did under
President Clinton's Administration, president Bush's
administration?
Ms. Mills. Absolutely, yes. This issue of excess regulation
causing cost to small business is a critical mandate not only
for the Office of Advocacy, but for all of the SBA, including
the Ombudsman's Office, and this is one of the number one
concerns for small businesses. So it will be a priority.
Mr. Graves. Mr. Shear, in comparison to other federal
agencies, how quickly do you think the SBA adopts GAO
recommendations just compared just to the other agencies you
obviously have to deal with?
Mr. Shear. That is a difficult question. I am trying to
think of how to come up with a tactful answer, but I would say
over the years it has been an agency that has been relatively
slow to implement recommendations. I think that the
recommendations in the Disaster Loan Program from our work back
then--where we still say there is a way to go--but with respect
to expanding the disaster credit management system and those
recommendations, that was a priority, and I think that those
were implemented over the course of a number of years.
But you know, there are still remaining recommendations and
there are many that seem to --what I will call just linger for
very long periods of time.
Mr. Graves. Would you like to comment on that?
Ms. Mills. Yes. Well, we are going to have to change that,
Mr. Shear, and we are going to have to get into the top end of
the good performers on that list.
We are very committed to working in partnership with the
GAO and with the IG also because if we are going to create a
culture where there is a real responsiveness on these reports,
we find them very helpful. They are a very strong road map, and
we know we can improve these programs on an ongoing basis. So
we want to be able to change that answer and be at the top end
of the responders.
Chairwoman Velazquez. Ms. Clarke.
Ms. Clarke. Thank you, Madam Chair and Ranking Member
Graves, for holding this hearing, and thanks to you,
Administrator Mills and Mr. Shear, for your attendance today
and your testimony today.
I look forward to working closely with all of you to insure
that waste, fraud, mismanagement and abuse are reduced and
ultimately eliminated. While this is being done, we want to be
able to maximize on the effectiveness of SBA's fantastic
programs which serve America's economic engines, her small
businesses.
Administrator Mills, my first question is for you. I have
long been a supporter of the SBA's efforts to create
opportunities for women and minority, veteran owned businesses,
and today I would like to focus on women and minority owned
businesses and their ability to access credit.
Typically women and minority owned businesses tend to
employ a more diverse workforce, and this is especially an
issue today as minority employment is at high levels relative
to the rest of the country.
In this vein, I would like to insure that existing
programs, such as the Women's Business Centers and other
technical assistance programs have the capacity and capability
to assist minority and women owned businesses in identifying
finance opportunities. I think it is vital that they have the
tools they need to serve this important segment of the business
population. I think we must maximize the existing resources to
insure that the WBCs have what they need to help foster our
economic recovery.
Has there been some progress in the area of grant
disbursements by WBCs? And will you commit to working with me
to discover methods to increase access to credit for women and
minority owned small businesses right away?
Ms. Mills. Yes, I would be delighted to commit to you to do
that. The SBA has part of its core mission, and we are three to
five times more likely than a conventional lender, to lend to
women and minority owned businesses. So this is really what we
do. It is at the essence of what we do.
I am pleased to report to you that in the Recovery Act
funding 20 percent of the loans have gone to minority owned
businesses and 19 to women owned businesses. We have over 100
women owned business centers in our network. We currently have
a new and very talented and energetic person running these who
has conducted regional meetings and has visited all of them and
is coming back with a lot of ways to improve and help this
important constituency, and we are going to execute on that,
and I would look forward to working with you on it.
Ms. Clarke. Thank you, and I want to also draw your
attention to the HUBZone Program. We are all aware that the
HUBZone Program encourages small businesses to locate in and
hire from the nation's most distressed communities. Given that
the focus of this hearing is exploring ways to address
mismanagement, I would be remiss if I did not ask about the
progress in the areas of certification of HUBZone firms.
At a hearing before this Committee in March, GAO testified
that the SBA fell short in removing certain fraudulent
companies from HUBZone participation, and this oversight
resulted in another 7.2 million in HUBZone contracts being
awarded to those same firms.
I want to be clear that there is no place in this economic
climate for fraudulent firms to take opportunities that belong
to more deserving entities.
So would you please comment on the progress in oversight of
the HUBZone certification/decertification process in order to
address this imperfection?
This is a good program, and it should not suffer due to the
shortcomings such as the ones that I have described.
Ms. Mills. Thank you.
Yes, we at this moment have initiated a business process
reengineering. So that is a full start to finish reengineering
with an outside firm that is in place on the certification
process in HUBZone because of the issues that you have
described.
So we have tightened it up. We require more documentation
already, but we are also going to do a business process
reengineering of it. So that is on the certification side.
In addition, on the continued eligibility, as I responded
to the Chairwoman, that is where we did the extra 600 visits,
and we are conducting the risk based analysis to try to find
out how to indicate where there are issues of fraud or
mismanagement.
In addition, we went after the 19 that were cited in the
GAO report. Five voluntarily withdrew. Six were decertified,
and six we have proposed for decertification. Two are already
decertified, and one actually is okay.
Ms. Clarke. Thank you very much, Madam Chair. I yield back.
Chairwoman Velazquez. Mr. Buchanan.
Mr. Buchanan. Thank you, Madam Chair, for this hearing and
congratulations on your new opportunity. It is a big job.
Let me mention small businesses are getting literally
killed. When I look at what we have done with TARP, and this is
not a Republican- Democrat thing. I am just looking at the
country now. All of the big banks, AIG, everybody got a lot of
money. Small business was supposed to get something. There was
supposed to be more credit available.
There is no credit. I did a town hall meeting with
businesses about two months ago; had 130 businesses, some in
southwest Florida just south of Tampa. We had the SBA there.
They did a very good job, by the way, in terms of answering
questions, but I asked in the room how many people can get
credit or have access to credit, you know, that do not work
with banks? Or how many people has it changed their credit.
Everybody in the room raised their hand. I want you to know
I have been in business 30 years. I have been on bank boards
for 20 years. We in Florida anyway--every region is different
in the country--there is no credit. They might say there is
credit, but the reality of it is if you put up a $1 million CD
they will lend you $1 million.
Small businesses today, in Florida we had in our federation
137,000 small businesses. They create, I think everybody
agrees, 70, 75 percent of the jobs. We talk a good game, and I
think the President is committed to small business. I have
talked to him personally about that, but we just are not doing
anything to get the money out there.
They have no money. They have access to no capital. So I
just want to say that in general. Banks will tell you that, but
they are all under pressure. Their own capital base themselves,
they are trying to all survive. Small banks, little banks, I am
talking to them. They are not lending any money.
So what do you say to these small businesses in my
community and communities across the country that need credit?
Because if they have no credit, we are going to lose a third of
them or a big number of them.
Ms. Mills. Well, Congressman, I also have been traveling
and hearing these issues, and I know the Chairwoman has
mentioned to me as well some of these places that she has gone.
We are all hearing that small businesses are suffering, and one
of the things I have to thank you for is that the Recovery Act
did actually get the formula right because we have been able to
leverage with the funding that you gave us so far $7 billion
into the hands of small businesses through the Recovery Act
funds, and that is going to continue.
And 750 banks that had stopped lending, they were frozen;
they were not on our books from October to the start of the
Recovery Act, but are now back lending. So these are very often
community banks and other banks, and they are back. Some of
them had not been in SBA lending since 2007.
So we are very glad about that. We are going to be working
very hard to leverage those programs into these places where
the lending is frozen.
In addition, as you know, the President is committed to
small business, and there are a number of additional programs,
many discussions going on about how to address this. It is a
critical issue to resolve for the nation's economy.
Mr. Buchanan. I am telling you in Florida, and I am sure
Nevada and areas that have been really hit hard, all of these
banks, even though they are getting capital, they are not
lending. You know, I will be glad to talk to you about this
later, but the truth of the matter is they are not lending. So
these businesses, a lot of them are going to end up going out
of business.
I do not understand--
Chairwoman Velazquez. Would the gentleman yield?
Mr. Buchanan. Yes.
Chairwoman Velazquez. One of the issues that we discussed
is now that, yes, the banks are not lending because the
secondary market is locked, and so it is important that SBA
implement the Section 503 and 509. That will help unlock the
secondary markets so that those banks will have the liquidity
to start lending again.
Do you have like a time line of when those programs will be
up and running?
Ms. Mills. Madam Chair, you are entirely correct, that if
the secondary market is not functioning, then banks do not lend
because they have no place to sell their loan and get the
liquidity.
We have the two programs up there on the time line. The two
ones you mentioned are still in the light green, and that is
why the Chairwoman is continuing to mention them to me.
I will say that the secondary market has recovered. It is
back to pre- October volumes, and we can give you that data and
information. We track it. It happens on a monthly clearing
basis. So we are back at about 340 million. We have been back
there, and there is 15 billion of TARP money that stands ready
to purchase in the secondary market if that gets stuck again.
But we have committed to execute those programs, and we
will execute them.
Chairwoman Velazquez. When?
Ms. Mills. Three weeks, two weeks. August.
Chairwoman Velazquez. Three weeks.
Ms. Mills. Right where they are on that chart.
Chairwoman Velazquez. Thank you for yielding.
Mr. Buchanan. Thank you, Madam Chair. It is a great point.
Let me just say my thought is if we can give as a country
in this environment 200 billion, whatever the number, plus all
of these contingencies to AIG, General Motors 50 billion, why
don't we take 100 billion, take something significant because
that is what it is going to take to help these small
businesses?
I am just telling you, and I would love to have you come
down to our area. I will take you anywhere in Florida. I can
tell you a lot of these businesses are rolling out of business,
and they have created a lot of the jobs. I mean, most in our
area, our one Chamber, we had 2,600 businesses. Most of them
are 20 and 30 employees or less. A lot of them are folding up.
They are getting their lines of credit pulled. You know, they
like to work with SBA. Sometimes it takes too long, but we have
got to find a way where they empower you, and maybe it sunsets
over time, but we need real money, real results, and right now
we have lost three million jobs. This is not one administrative
or another or my mind. The reality is we have lost three
million jobs. These are a lot of working families.
We have got to get more money out there in good loans that
make sense right now, and I will just close with that.
Chairwoman Velazquez. Time has expired. Mr. Ellsworth.
Mr. Ellsworth. Thank you, Madam Chair. Thank you, Secretary
Mills. Good to see you again.
I would like to make an observation first, and then I will
have a question.
First, we talked at the luncheon a few months ago, and one
of the things I have been on this Committee three years, and I
have noticed that every time we have a new person come in, we
would ask them these questions, and they would say, ``We are
looking into that. We are working on that. We are going to do a
study on that.'' And three, four, five months later we come
back and sometimes there was a new person who said, ``I just
got on the job, and we are looking into that. We are going to
study that. I was not there then.''
So I wish you a long tenure, and I also say in four or five
months I hope you say you can show us the progress that we have
made in there.
My question would be now that you are new at the job, what
are a couple of things that you walked in the door, you start
peeling stuff apart, and have really shocked you and you have
said, ``We have got to do this right away,'' either in the
fraud mitigation? I think you mentioned that in your testimony,
some of the waste and fraud mitigation efforts you have made.
And I would like to ask Mr. Shear the same thing when she
is done. If you had her job, what would you say this is
something we have to start right now and get done that you
would implement on day one from your observation of being in
the agency?
So, Ms. Mills, if you will go first and then Mr. Shear.
Ms. Mills. Absolutely. I am looking back to just make sure
I read the same words to you in my opening statement because I
am on record with the following, which is that many of the
problems that have been built up over years and that they are
not going to be solved in a matter of days or weeks, but they
will, indeed, be solved.
We have a top management, risk based approach to addressing
these issues. They are all on our radar. We track every single
GAO report and IG recommendation. We work our way through them.
We either agree with them and execute them or we have further
discussion as to, you know, how we should move forward with
them. Because we cannot run an agency that is so critical to
the economy going forward with our $90 billion loan portfolio,
with being responsible for 23 percent of government contracts
going to small business, with being responsible for disasters
which could be catastrophic.
We cannot execute unless we execute at the highest levels
of effectiveness and transparency. So that is the commitment.
We are working on that.
I would have to say that what I have found actually on the
flip side is that we have great people. We have a great team,
and we have great bone structure. And the secret that I have
found is that our bone structure is our people and also our
partners.
We have over 4,000 lending partners. We have over 14,000
counselors in our SBDCs and our SCOREs and our Women Business
Centers. We have a network throughout this whole country where
we touch businesses. We are within, one person told me, an hour
to 40 minutes of most businesses with a counselor.
So we have an important and critical role to play. We are
breaking down silos, and that also helps with this waste, fraud
and abuse because it cannot live in this open, transparent
environment, and we are working together to bring the power of
that entire network to small businesses in order to bring the
economy out of the recession and give it strength and make it
competitive going forward.
Mr. Ellsworth. Mr. Shear, if you were in charge, what is
the number one thing you would tackle? It may be on the same
line.
Mr. Shear. I will make one flippant remark, which is we are
not supposed to make management decisions. So let me just make
some observations if you could live with observations.
As an accountability organization, when we see the what
I'll call a complete lack of internal control in fraud
prevention in a program like the HUBZone Program, some people
might say, ``Well, the HUBZone Program is not that important,''
but whenever we look at anything in government dealing with
HUBZone or contracting programs, internal control and fraud
prevention is something that, as an audit agency, something
that we think is very important to address and address
aggressively for these programs to work.
With respect to the Capital Access Programs, this I will
make a statement just because it is such a big part of what SBA
does, and it is such an even more important part now, now that
we have the credit crisis that faces us.
Over the years, among the things we have recommended is
that in running its programs where SBA is delegating authority
to lenders and SBA is so compliance oriented, and compliance is
good, but SBA does not get into questions as far as how are
those lenders using the authority SBA is granting to them. Are
they meeting the intent of the program?
So as we go forward, for example, now in looking at the
Recovery Act, we say can SBA step back and become more
evaluative in the way it manages its capital access programs so
SBA can help figure out how to implement different provisions
that are to meet an intent in the credit markets where you are
relying on private lenders to carry out certain authorities. So
that would be the second area.
The third area I would point out and as an audit agency, we
do not make recommendations to either increase or decrease any
agency's budget. I mean, we are just not in that business. It
is a congressional prerogative.
But with SBA over the last few years, at a minimum we
always are asking a budget-related question in your
entrepreneurial development programs like Women's Business
Centers, in running various programs, including the contracting
programs, including 8(a), do you have the resources needed in
place?
So what we tend to look for is some type of strategic
planning. What do you need to get the job done?
So those are the three areas I would point out.
Chairwoman Velazquez. Mr. Shear, and to have all of those
things in place, the agency will need resources because when
Mr. Graves addressed the question to you about how does this
agency compare to other agencies, we have to answer the way you
answer it, but also take into account that this is the agency
where for the last six, seven years the budget was cut by
almost 40 percent. That is another element that we need to
factor in.
Mr. Luetkemeyer.
Mr. Luetkemeyer. Thank you, Madam Chair.
Ms. Mills, the Committee has heard that you and your staff
have been approving contracts requested by the Office of
Inspector General, and we are concerned that this could
interfere with an ongoing investigation in violation of the
Inspector General statute. Are you approving contracts
requested by the Inspector General's Office?
And, if you are, how are you ensuring that there is no
interference with the ongoing investigation of the Inspector
General's Office?
Ms. Mills. So the question is are we approving contracts,
and maybe you could clarify what sort of contracts.
Mr. Luetkemeyer. Dealing with the Inspector General. Can
you explain the relationship first, I guess, and maybe we can
go from there?
Ms. Mills. Yes. The Inspector General is an independent
actor in the agency. They are funded independently. They are
very active and work separately from us but we hope collegially
and in partnership. We provide information as requested.
Mr. Luetkemeyer. Do you work together in any sort of
contractual obligations?
Ms. Mills. Not to my understanding, but I am happy to get
back to you with an answer on that for the record.
Mr. Luetkemeyer. Okay. That is fine.
A while ago you mentioned something about you were looking
at a number of programs based on a risk-based approach. Can you
explain to me what your description of and how you would
determine a risk-based approach?
Ms. Mills. Yes. There are two times, I think I mentioned
that. One, overall we have a senior risk team that looks at a
number of things because although we have small risk teams that
go program by program, we are now looking more on a
comprehensive basis on a senior level about how much risk are
we taking on in various aspects of what we do.
And consciously, for instance, in the ARC program there may
be a mandate or we may decide that a program should be a higher
risk program. We should do that consciously.
Mr. Luetkemeyer. I assume when you are talking about risk,
you are talking about how you discern, how you evaluate a loan
application and whether you are willing to look at, say,
somebody who is less financially able or less financially
stable. Is that where you are going with this?
Ms. Mills. So, for instance, the ARC Loan Program that is
part of the Recovery Act is a much riskier program than the SBA
usually does in its profile, and we expect very high default
rates from that program, but it is a very important program for
this particular time. It is for viable businesses who are
experiencing some difficulty, but it is a bridge over troubled
water for them.
So we are making a conscious assessment that that is a
program where we are executing as part of the Recovery Act, but
it is also a program that is not within our normal risk
profile. So that is one of the risk assessments.
Mr. Luetkemeyer. At what point do you pull back on a
program if you feel it is becoming too risky?
Ms. Mills. Well, we set the parameters in the beginning.
Mr. Luetkemeyer. What are your parameters?
Ms. Mills. About what the default rates will be. We work a
model--
Mr. Luetkemeyer. What are your default rate specifications?
Ms. Mills. The default rate specification was in a model
that we built with OMB, and it is quite high. it is over 60
percent for the ARC loans, and that is well beyond what we have
in any of our other programs. So our expectation is, you know,
that is what we will get.
Mr. Luetkemeyer. Okay. Just one final comment here. Mr.
Shear also made the same comment, and we got a question here I
was wanting to ask also. A couple of weeks ago we had a group
in here that talked about the amount of paperwork that is
involved in the 7(a) program, and Mr. Shear made the same
comment a minute ago, that it was so cumbersome that many of
the people were refusing to participate because of that.
Have you looked into that at all or do you have any plans
or is it on your radar at all to try and do something about the
paperwork?
My family is in the banking business. I used to do this. It
is horrible, absolutely horrible, and to go through this
process, and a minute ago you made a comment that you on your
Disaster Relief Program here went from 14 days to 18 days. I
just wish that it was 14 days on an SBA bank loan.
Ms. Mills. Well, actually it is less on an SBA bank loan. I
believe it is under seven business days, five to seven days--
Mr. Luetkemeyer. Not in my area, but that is fine. Go
ahead.
Ms. Mills. --for an SBA bank loan, but that is because
since we have done process reengineering. That is a continuous
task. I am a big advocate of process reengineering, and we need
to make these programs effective and efficient for the borrower
while maintaining the oversight and getting the information and
calculating the information we need so that we have good loans.
But we have significantly reduced the turnaround time and
made the process much more friendly for the bank and the
borrower.
Mr. Luetkemeyer. That did not sound like a commitment to
me. Are you going to make us a commitment that you are going to
look at the 7(a) program and fine-tune that?
Ms. Mills. Yes, I am.
Mr. Luetkemeyer. Thank you very much.
I yield back. Thank you, Madam Chairman.
Chairwoman Velazquez. Mr. Moore.
Mr. Moore. Thank you, Madam Chair.
On July 1st, I hosted a forum in my district for small
business owners to discuss access to capital. I have heard from
many of my constituents, and I can tell you that there is a
great deal of demand for these ARC loans, but last week the
Finance and Tax Subcommittee held a hearing on access to
capital, and witnesses testified there are very few banks
actually making ARC loans.
I know in the Kansas City area, and I am on the Kansas
side, but in the whole Kansas City metropolitan area fewer than
a dozen of these loans have been made and issued throughout the
entire metropolitan area.
One witness last week made the important point, I think,
that there is really no incentive for banks to make ARC loans.
There is no secondary market in paper work and reg requirements
are just as stringent as they are for 7(a) or 504 loans which
offer businesses far more than just $35,000.
What, if anything, can SBA do to make these loans more
attractive to lenders and get the process moving?
Ms. Mills. Thank you.
ARC loans, now we have over 300 lenders. We are lending in
47 states. We are on track to have a limited number of ARC
loans available. There will be approximately 10,000 before the
funding runs out, and it is likely that demand will greatly
exceed supply.
We trained 1,300 lenders in the first week on the call, and
lenders have no risk. It is 100 percent guaranteed by the bank,
and they do make a profit because although the borrower pays no
interest, the SBA funds the interest.
Mr. Moore. I yield back, Madam Chair.
Chairwoman Velazquez. Ms. Bean.
Ms. Bean. Thank you, Madam Chair.
And thank you both for testifying today and sharing your
expertise.
Administrator Mills, I want to commend your leadership at
the SBA. We have seen a real rebound in the secondary market.
We are seeing increased lending participation from new lenders,
lending activity in terms of loans and amounts being lent. So
important to the small business community as we try to ease the
credit crunch from limiting their access to capital.
But you also talked about process reengineering. I know
from our past conversations you are one very committed to
continuous improvement. There are some lenders where there
needs to be trust rebuilt between the SBA and those lenders
because of something in the history that may be undermined
that.
What comments would you share that you are doing to help
rebuild those relationships where there are lenders who are not
participating but who could be participating, whether it be the
ARC loans, 7(a), or other SBA lending programs?
And before you answer, I also do want to acknowledge I
worked with some of your folks in Chicago. Senator Durbin and I
held a forum about not just the roll-out of the ARC lending
program, but some of the other things going on to stimulate the
secondary market, and it was very well received, and your folks
did a really good job.
Ms. Mills. Well, thank you very much.
It is very important that we rebuild and that we build,
continue to build our relationships with our lenders. Let me
just tell you quickly two things. One is transparency. We are
making sure that lenders know how they are rated in our lender
oversight system, and that was something of concern to them.
And we also are continuing our programs, our preferred
lender programs and our delegated authority programs. Once we
have experience with a lender, we are able to do various
things, let them use their own paperwork, let them make their
own decisions, and then we monitor them, and we find that our
best lenders end up in those programs, and it is something that
then we have a very good, transparent and trustful relationship
between us.
Thank you.
Ms. Bean. Thank you so much.
I yield back.
Chairwoman Velazquez. Mr. Graves.
Mr. Graves. I do have another question, Madam Chair.
Administrator Mills, we are concerned not only about the
amount of time it takes to implement recommendations, for
instance, from the GAO, but we are also concerned about how
much time it takes to implement things required by law. You
know, we talked a lot about the ARC Program, and we know for a
fact that it was supposed to be implemented within 15 days of
enactment, which would have been March 2nd. It took until June
15th. We do not know if that was because of a specific
provision in the law or if it was because of other diversions.
But my question to you is I would like a commitment from
you that the agency is going to implement programs that are
required by law before implementing some of the pilot programs
that you are working on like the Floor Plan Financing
Initiative and some of the other things. We would like to hear
you say that you will do those things that are required or that
Congress has passed before doing some of the other diversions.
Ms. Mills. Well, I very much am committed to those things
that are required by law, and these Recovery Act things are our
top priority list.
I do want to tell you that we did the ARC loan. The reason
for the time in the ARC loan is what I mentioned in my opening
statement, that this was a risk profile that was very, very
much higher than the standard risk profile that the agency
takes on, and that is what took the time to create the risk
mitigation that would allow us to go out and make these loans
appropriately.
But the second thing is the dealer floor plan. The Chairman
had mentioned to me the same issue, and you mentioned to me
that issue, and we did sequence them because that was the right
thing to do behind ARC.
Chairwoman Velazquez. Ms. Mills, we are concerned about the
fact that there are certain provisions that the Congress passed
requiring SBA to issue regulations and to get those programs up
and running. In answering your question to Mr. Graves, you
mentioned that those were high risk and so you needed to act
cautiously.
My question to you: floor financing is not risk?
Ms. Mills. The floor financing risk profile is the same
risk profile as the standard 7(a) risk profile. So that is how
it was constructed.
Chairwoman Velazquez. Okay. I want to go with you over some
of the provisions that we passed, and this happened when you
were not the administrator. I just want to make sure that you
tell us your intention and commitment to get those provisions
up and running.
For example, in the Energy Independence and Security Act,
this includes the Energy Efficiency Technology Loan Program and
the Renewable Fuel Capital Investment Company. Those provisions
have not been implemented.
In the Military Service and Veterans Small Business
Reauthorization and Opportunity Act of 2008, this includes
Section 105, increasing the number of veteran outreach centers,
has not been implemented.
Section 106, study regarding gaps in availability of
outreach centers, and Section 208, the Veterans Loan Program,
have not been implemented, and these initiatives are in excess
of two years.
So can you tell this Committee when the agency will have
each of these provisions up and running?
Ms. Mills. Well, absolutely we are committed to executing
those things that you give us to execute. I would like to take
the opportunity to come back to you on each of those specific
ones and make a timetable so that you can know when to expect
it, and if there are any issues why we are not able to do it,
we would say so at that time. But at this point I think we need
to commit to you to come back to you with what an
implementation time and plan for each of those is because they
need to be done.
Chairwoman Velazquez. Yes, and if there is anything that
the Committee needs to do, then that should be part of the
legislative package that the administration should be sending
to us.
The map of HUBZone eligibility is what the agency and firms
use to determine if they can participate. When was the last
time that your agency updated its HUBZone map?
Ms. Mills. The last time the map was updated was last fall.
It will be updated again this fall.
Chairwoman Velazquez. Ms. Mills, the SBA's latest budget
requests nine million for operating the HUBZone Program, and I
am going back to the HUBZone Program because it has taken a lot
of time to implement some of the recommendations that the
Government Accountability Office included in its report.
For operating the HUBZone Program, this worked out to about
700 to 900 per participant in the program. While that seems
significant, GAO examined 52 firms in the program and found
over half, 29, were ineligible.
So what are taxpayers getting for their $9 million and what
are you going to do about it?
Ms. Mills. Well, as you know, 10.8 billion went to HUBZone
firms, and that is about 11,000 firms, and the specifications
are that you have to be a U.S. citizen. You have to be a small
business. You have to have your principal office in the
HUBZone, and you have to employ 35 percent of your workers
inside this HUBZone.
We are, as you know, in the process of executing some
oversight improvements in order to make sure that those
criteria are met up front in the certification and that those
firms remain eligible. And that is where we are doing the site
visits, and that is where we plan to improve our processes.
And we need to get that program to a place where we have a
better outcome from Mr. Shear.
Chairwoman Velazquez. Administrator Mills, I will request
from you that you submit to the Committee the following
specific time frames for when the SBA will have implemented the
following items: an updated written disaster plan that
integrates regional marketing information, that distinguishes
the agency response to a hurricane in Florida, and in
California; the bridge loan programs mandated by the act; the
annual report to Congress on disaster assistance. And I would
like to have those time frames and responses in our offices in
two weeks.
Ms. Mills. Yes, we can do that.
Chairwoman Velazquez. With that the witnesses are
dismissed, and I take this opportunity to really thank you for
joining us today.
Ms. Mills. Thank you, Madam Chair.
Mr. Shear. Thank you very much.
[Whereupon, at 3:12 p.m., the Committee meeting was
concluded.]
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