[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2011

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED ELEVENTH CONGRESS
                             SECOND SESSION
                                ________
       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                   JOSE E. SERRANO, New York, Chairman
 DEBBIE WASSERMAN SCHULTZ, Florida  JO ANN EMERSON, Missouri
 ROSA L. DeLAURO, Connecticut       JOHN ABNEY CULBERSON, Texas
 CHAKA FATTAH, Pennsylvania         MARK STEVEN KIRK, Illinois
 BARBARA LEE, California            ANDER CRENSHAW, Florida     
 ADAM SCHIFF, California            
 STEVE ISRAEL, New York             
 TIM RYAN, Ohio                     

 NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full 
Committee, and Mr. Lewis, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
           Lee Price, Bob Bonner, Angela Ohm, and Ariana Sarar
                           Subcommittee Staff

                                ________

                                 PART 8
                                                                   Page
 Small Business Administration....................................    1
 Securities and Exchange Commission...............................   61
 District of Columbia.............................................  101
 Public Witness Testimony.........................................  183

                                   S

                                ________

         Printed for the use of the Committee on Appropriations
 Part 8--FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 
                                  2011
                                                                      ?

   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2011

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED ELEVENTH CONGRESS
                             SECOND SESSION

                                ________

       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                   JOSE E. SERRANO, New York, Chairman
 DEBBIE WASSERMAN SCHULTZ, Florida  JO ANN EMERSON, Missouri
 ROSA L. DeLAURO, Connecticut       JOHN ABNEY CULBERSON, Texas
 CHAKA FATTAH, Pennsylvania         MARK STEVEN KIRK, Illinois
 BARBARA LEE, California            ANDER CRENSHAW, Florida    
 ADAM SCHIFF, California            
 STEVE ISRAEL, New York             
 TIM RYAN, Ohio                     

 NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full 
Committee, and Mr. Lewis, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
           Lee Price, Bob Bonner, Angela Ohm, and Ariana Sarar
                           Subcommittee Staff

                                ________

                                 PART 8
                                                                   Page
 Small Business Administration....................................    1
 Securities and Exchange Commission...............................   61
 District of Columbia.............................................  101
 Public Witness Testimony.........................................  183

                                   S

                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
 62-790                     WASHINGTON : 2010

                                  COMMITTEE ON APPROPRIATIONS

                   DAVID R. OBEY, Wisconsin, Chairman
  
 NORMAN D. DICKS, Washington        JERRY LEWIS, California
 ALAN B. MOLLOHAN, West Virginia    C. W. BILL YOUNG, Florida
 MARCY KAPTUR, Ohio                 HAROLD ROGERS, Kentucky
 PETER J. VISCLOSKY, Indiana        FRANK R. WOLF, Virginia
 NITA M. LOWEY, New York            JACK KINGSTON, Georgia
 JOSE E. SERRANO, New York          RODNEY P. FRELINGHUYSEN, New  
 ROSA L. DeLAURO, Connecticut       Jersey
 JAMES P. MORAN, Virginia           TODD TIAHRT, Kansas
 JOHN W. OLVER, Massachusetts       ZACH WAMP, Tennessee
 ED PASTOR, Arizona                 TOM LATHAM, Iowa
 DAVID E. PRICE, North Carolina     ROBERT B. ADERHOLT, Alabama
 CHET EDWARDS, Texas                JO ANN EMERSON, Missouri
 PATRICK J. KENNEDY, Rhode Island   KAY GRANGER, Texas
 MAURICE D. HINCHEY, New York       MICHAEL K. SIMPSON, Idaho
 LUCILLE ROYBAL-ALLARD, California  JOHN ABNEY CULBERSON, Texas
 SAM FARR, California               MARK STEVEN KIRK, Illinois
 JESSE L. JACKSON, Jr., Illinois    ANDER CRENSHAW, Florida
 CAROLYN C. KILPATRICK, Michigan    DENNIS R. REHBERG, Montana
 ALLEN BOYD, Florida                JOHN R. CARTER, Texas
 CHAKA FATTAH, Pennsylvania         RODNEY ALEXANDER, Louisiana
 STEVEN R. ROTHMAN, New Jersey      KEN CALVERT, California
 SANFORD D. BISHOP, Jr., Georgia    JO BONNER, Alabama
 MARION BERRY, Arkansas             STEVEN C. LaTOURETTE, Ohio
 BARBARA LEE, California            TOM COLE, Oklahoma            
 ADAM SCHIFF, California            
 MICHAEL HONDA, California          
 BETTY McCOLLUM, Minnesota          
 STEVE ISRAEL, New York             
 TIM RYAN, Ohio                     
 C.A. ``DUTCH'' RUPPERSBERGER,      
Maryland                            
 BEN CHANDLER, Kentucky             
 DEBBIE WASSERMAN SCHULTZ, Florida  
 CIRO RODRIGUEZ, Texas              
 LINCOLN DAVIS, Tennessee           
 JOHN T. SALAZAR, Colorado          
 PATRICK J. MURPHY, Pennsylvania    
                                    

                 Beverly Pheto, Clerk and Staff Director

                                  (ii)


   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2011

                              ----------                              --
--------

                                          Thursday, March 25, 2010.

          FY 2011 BUDGET FOR THE SMALL BUSINESS ADMINISTRATION

                                WITNESS

KAREN G. MILLS, ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION
    Mr. Serrano. Good morning. The subcommittee will come to 
order.
    I welcome you to this hearing of the Financial Services and 
General Government Subcommittee. Today, the subcommittee will 
hear testimony from the administrator of the Small Business 
Administration, the Honorable Karen Mills.
    Administrator Mills was sworn in on April 6, 2009, as the 
agency's 23rd administrator. Scheduling issues prevented us 
from having a hearing last year, so we are doubly glad to 
welcome you today.
    Small businesses play a crucial role in the national 
economy, especially so with job creation being the most 
important economic goal we have as a Nation. Firms employing 
fewer than 500 employees comprise about 99.7 percent of all 
businesses in the Nation, and they employ roughly half of all 
private-sector employees.
    The SBA promotes small business development and 
entrepreneurship through lending guaranties, training and 
counseling programs, government contracting programs, and 
advocacy. The agency also helps businesses and homeowners 
affected by disasters through its Disaster Loan Program.
    The agency's budget request for fiscal year 2011 is $994 
million, a $170 million, or approximately 20 percent, increase 
over 2010. This includes an $85.4 million increase in the 7(a) 
lending subsidy, which we will, no doubt, be discussing in 
great detail during this hearing, and a $126 million increase 
in administration for the disaster loans account, which I 
understand that you have requested because money provided to 
the account from the previous supplemental has run out.
    This subcommittee certainly wants to ensure that you have 
adequate resources to respond to disasters, both in routine 
years as well as those years when we are extremely unfortunate 
and have large disasters, be they natural or manmade.
    However, the budget request is not so generous to certain 
small business assistance programs administered by the SBA. 
There are cuts that concern me. For example, Microloan 
Technical Assistance will be cut by $12 million from the 
current level. As the name implies, that is a program that 
assists the smallest entrepreneurs.
    Additionally, funding for the Program For Investment in 
Micro-Entrepreneurs, or PRIME, will be reduced by $4.5 million. 
This program provides grants and help with training and 
technical assistance for disadvantaged entrepreneurs, 
particularly those in very low-income areas. I am very troubled 
when programs that help low-income populations are targeted for 
cuts.
    The SBA has an important mission, and this subcommittee 
wants to help you accomplish this mission. I look forward to 
working with you this year as our appropriations bill moves 
forward.
    Mrs. Emerson is not here yet, but pinch-hitting in the most 
professional and profound way, Mr. Crenshaw.
    Mr. Crenshaw. Thank you. Thank you for those kinds words, 
Mr. Chairman.
    Let me add my words of welcome, Ms. Mills. I know you have 
been involved in the business community, so we thank you for 
your service and for being part of this.
    I think you probably know firsthand that small businesses 
really do generate an awful lot of new jobs, and at a time when 
we are just kind of emerging from this recession, then small 
business ought to lead the way in creating those new jobs. The 
bad side of that is, when there is a recession, I think small 
businesses kind of get a disproportionate hit in terms of loss 
of jobs. So I just want to welcome you here.
    I have got some questions regarding a little bit of concern 
in some of the things that the administration is doing which, I 
hope, are not going to kind of stifle the new job growth that I 
know you want to see happen. So I am just looking forward to 
hearing your testimony and the ideas you have about how we can 
keep the economy moving as it kind of begins to turn around.
    So thank you for being here.
    Mr. Serrano. Thank you, Mr. Crenshaw.
    As you know, we will ask you to keep your testimony to 5 
minutes or so. Your full statement will go into the record so 
that we can have our rounds of asking you questions.
    Please proceed.
    Ms. Mills. Well, thank you very much, Chairman Serrano.
    And thank you, Congressman Crenshaw, for being here today.
    I really appreciate this opportunity to talk to you about 
our fiscal 2011 budget at the Small Business Administration. 
This is a budget of $994 million, and it reflects our 
commitment to growing businesses, creating jobs and to fiscal 
responsibility.
    Access to capital remains a top priority for us. Already, 
we have had success with our raised guaranties and our reduced 
fees. We have been able to bring over 1,200 lenders back to SBA 
lending who had not made loans since the beginning of the 
recovery in the last year, and $23 billion has been put into 
the hands of small business owners.
    The good news is that these Recovery Act provisions work. 
The bad news is that we are running out of funds, yet again, on 
March 28, and I really want to thank all of you who are working 
so hard to pass first a temporary and then a long-term 
extension.
    The 2011 budget that we have before us supports more than 
$28 billion in lending through our 7(a) and 504 small business 
investment companies and our very important microloan programs. 
It also incorporates an increase in the loan sizes in 7(a) and 
504 to $5 million. I should also mention that we have set a 
goal of increasing the number of access points, meaning the 
number of active lenders, by 15% by the end of fiscal year 
2011, to make sure even more people can get these loans.
    A second priority is our government contracting for small 
businesses. We are committed to working with all of the 
agencies to meet our goal of 23 percent of all government 
contracting going to small businesses with particular goals for 
service-disabled veterans, disadvantaged businesses and HUBzone 
firms. We have requested $2 million to help reach these goals 
while removing ineligible firms and rooting out fraud, waste 
and abuse. We also look forward to implementing the Women's 
Contracting Rule, which was put out for comment on March 8.
    The third priority in this budget is counseling. We have 
over 14,000 SBA-affiliated counselors that are critical to 
meeting small business needs. This budget includes $134 million 
for over 900 Small Business Development Centers, 110 women's 
business centers--the 110th opened here in Washington, D.C., 
this week--and 350 chapters of SCORE, our mentoring program. 
These partners serve all 50 States plus Puerto Rico and other 
U.S. territories.
    We also request $3 million for Emerging Leaders, an 
intensive classroom program which builds an entrepreneurship 
education. It is a pilot this year, and we want to expand it. 
It is for distressed areas. It is focused on creating jobs, 
increasing revenues for these companies and helping them find 
financing and get contracts. In 2010, we were actually reaching 
out to Native American-owned firms in an additional 12 cities.
    The budget supports the Disaster Loan Program that is in a 
constant state of readiness. This budget is designed to help us 
keep our loan turnaround times short in disaster loans and 
support us at a consistent level of $1.1 billion in loans for 
homeowners and businesses.
    This 2011 budget also advances another critical priority, 
and that is supporting the high-growth small businesses that 
drive American innovation and that help our competitiveness. We 
request $2 million to better develop metrics, oversight and to 
manage the Small Business Innovation Research Program, SBIR. 
From 2000 to 2006, about 25 percent of R`D Magazine's top 25 
annual innovations came from firms that received SBIR awards, 
and other studies have shown that a first-time award of an SBIR 
can signal that this is a promising firm to investors.
    The budget also includes $11 million for Regional 
Innovation Clusters. Clusters help small businesses in an area 
and in an industry to join forces and gain access to university 
research, workforce training, international markets, and more. 
The SBA has already served as the lead agency for the robotics 
cluster in Michigan's hard-hit auto supplier area. We are also 
a collaborating agency nationwide for an energy efficiency 
cluster.
    In addition to our external goals, we are going to continue 
with an internal focus to build the SBA into a more high-
performing organization by investing in people, technology and 
oversight.
    For people, we are increasing our efforts in management 
training, mentoring, and succession planning. In technology, we 
are modernizing our core loan management system, which 
currently runs on Cobol. We are going to upgrade our Web 
presence. In oversight, we request $2 million for more lender 
oversight and on-site reviews, and $1 million for stronger 
program assessments.
    In closing, we know that small businesses have created, as 
you said, 65 percent of the net new jobs over the past 15 
years. This budget will help us give small businesses the tools 
they need to create more jobs and to lead us out of this 
recession and to provide a stronger economic base for America.
    I would be happy to answer any questions. Thank you very 
much.
    Mr. Serrano. Thank you so much for your testimony.
    Before we discuss the 2011 funding needs, I would like to 
get a status report on how implementation of the additional 
funding you have received to extend the American Recovery and 
Reinvestment Act provisions for the 7(a) and 504 loan programs 
is proceeding. Most recently, the SBA received $60 million to 
extend the fee reductions to March 28. The Senate has passed a 
bill that provides $560 million that is to last through this 
December.
    So, first, please explain what the Recovery Act provisions 
do and if you will have exhausted the additional $60 million by 
the end of this month. Also, how much money do you need to 
continue this program through the end of the year? Lastly, what 
will be the effect if you do not receive funding to continue 
these fee reductions?
    Ms. Mills. In the Recovery Act--I want to thank Congress 
for giving us a program that turned out to be very powerful and 
effective--You allowed us to increase our guaranties on our 
7(a) program to 90 percent and to reduce or to eliminate most 
of our fees on our 504 and 7(a) programs, and the results were 
almost immediate.
    When credit froze in October 2008, most small businesses 
went to their banks, and they couldn't even get an answer. When 
we put forward this Recovery Act provision, really a year ago 
this month, we immediately took that decline and turned it up 
into what I call the ``hockey stick'' that did occur.
    We have been able to put $21 billion out in the last year 
for a cost of about $500 million. The good news is that it 
worked. The bad news is that we ran out of money once in 
November, and you gave us more. Thank you. We ran out again, 
and you gave us some more. Thank you. The last tranche was $60 
million, which is set to expire at the end of March, actually 
on March 28. In fact, we, in our current projections, as of 
this morning, will use almost all of that money. Our processing 
centers are working through the weekend because demand is very, 
very high for this loan volume, and we are currently on track 
to probably use most of it. So we thank you very much for 
putting forward another month, I believe, of $40 million. That 
is a bit short of what we might use in a month, that number, 
but we will use it until it runs out. Then we very much hope to 
be able to extend this program through the end of the year. The 
figures on that, I believe, are about $550 million, but I can 
get you the exact amount.
    Mr. Serrano. Right. What would be the effect, do you think, 
if you weren't to get the funding? I mean, how many loans would 
you think would then be outstanding or rejected?
    Ms. Mills. We know because--and I have sort of a graph of 
our monthly volume.
    Every time we run out of money and, you know, we stop, the 
volume goes down. Now, we don't know for sure what will happen 
because we will revert to our traditional program levels, and 
so we will have an offering; but what we have found is that, in 
the year that we have been able to offer the 90 percent 
guaranty, our volume has gone up 90 percent from the period 
before. We know, in this time where small businesses are 
suffering because they can't get access to credit, that we have 
doubled our volume. So we know the demand is there, and we are 
gravely concerned that, without further measures, the gap will 
widen in terms of access to credit for small businesses.
    Mr. Serrano. Is there a way of letting Congress know the 
difference between those loan requests that were coming in as a 
result of the economic crisis versus the ones coming in as a 
result of all the disasters we have had recently, all the snow 
and the floods and so on? Is there a way to determine that?
    Ms. Mills. We have two separate loan programs. We account 
for them separately. We actually had quite a big year in 
disasters, even though there were no big Katrina, Rita, Wilma 
kinds of disasters--thank goodness--but we were at $1.1 billion 
in this past year for disasters, which is up from $800 million 
the year before, and that is because a lot of these smaller 
ones that you described actually caused us to play an important 
role.
    These two things are tracked separately, and we can get you 
separate figures for them.
    Mr. Serrano. It is interesting you say ``smaller ones.'' I 
am not holding you to that, but talk to some of the folks in 
northern Virginia. They didn't think it was a smaller one. It 
was a big one.
    Ms. Mills. That is exactly right. That is exactly right.
    Mr. Serrano. Let me ask you a question now.
    What are you seeing in terms of lending to small 
businesses? Has the Recovery Act and the extension of its 
funding been effective in unfreezing the credit market for 
small businesses as much as you would have hoped?
    What do you think has been more helpful, the fee reductions 
or the guaranty increases?
    Ms. Mills. Well, thank you for that question, because it is 
one that we ask ourselves quite a bit.
    There is currently no specific data tracking on credit to 
small business. This is something that we very much are having 
a discussion about because we would like to have a metric where 
we can really understand what is happening in the market. But 
we have done some analysis, and we believe that there is a 
credit gap. It is hard to size it, but $100 billion gap might 
be possible. We know that we have probably doubled our share of 
the gap.
    Our job is to provide credit when the market won't. It is 
the credit elsewhere. If the market is going to give us small 
business credit, then why should the taxpayer pay for 
subsidizing that credit? But when a good business for various 
reasons can't get access to credit, which happened quite a bit 
in this last year, then we step into play, and we know because 
we have doubled our volumes and because other metrics say that 
other banks have not done that same set of increases that we 
are taking and fulfilling a much bigger share of that gap.
    Mr. Serrano. By the way, before I turn to Mr. Crenshaw, my 
question before about the two types of loan programs was based 
on the fact that I know that some Members favor one over the 
other. It is important at times to tell them what the balance 
is, of one from the other.
    Ms. Mills. Right. We believe that both are very, very 
important. They are very different, and we actually manage them 
in two separate budgets.
    Mr. Serrano. Okay.
    Mr. Crenshaw.
    Mr. Crenshaw. Thank you, Mr. Chairman.
    Just to follow up on that line of thought, that 85 to 90 
percent in the reduction of the fees, my sense is that, you 
know, if you increase the guaranty, it would be more 
stimulative than just lowering the fees; but since you really 
don't have a lot of information so far, can you kind of give us 
your speculation as to what will happen when they go back to 85 
percent and the fees come back? Is that going to curtail 
applications?
    On the one hand, you have done a great job of freeing up 
the capital markets into larger loans, more loans, but all that 
has been part of this kind of stimulus package. What do you 
think is going to happen? Is it going to impact the banks' 
willingness to lend going back to 85?
    Talk about that a little bit.
    Ms. Mills. When we travel--and I go out and travel quite a 
bit--we hold often lender roundtables and I have met with 
lenders all over the country. I always ask them this question: 
Which is more important, the fees or the 90 percent guaranty? 
We get both answers, and so I think the anecdotal evidence is 
that both are important for different reasons.
    We know that there is a gap in lending right now. We have 
tried to figure out why the banks aren't lending, and they are 
not lending for two reasons: Either they don't have the 
capital, or they have the capital, but they just don't want to 
take the risk. The 90 percent guaranty has been very effective 
in dealing with that second question.
    We say to them, this is a good small business. You would 
have lent to them before. We will take the risk. In fact, our 
data show that the credit scores that we have done under the 90 
percent guaranty are actually higher than the ones that we did 
in the past years.
    So we are making good loans, you know, not bad loans with 
that, and still the banks were uncomfortable making them until 
we stepped up and helped them manage the risk. So we know that 
90 percent is quite important for them.
    For the borrower--the borrower who today is just wondering 
``Should I expand?''--it is a tough time. Should I take out 
that loan? Should I hire the next person? They have told us 
that they take the fee reduction in cash. They make the loan, 
but the amount that would have been the fee reduction, they 
take back as working capital, and that allows them the 
liquidity to go forward. We know that some of them like to get 
a bargain. Small business owners know when there is something 
good out there, and so I think it has encouraged some of them 
to get back on track.
    Mr. Crenshaw. Well, when you restore the fees, do you think 
that is going to impede small business? Is demand going to go 
down? By the same token, having the guaranty go back down, is 
that going to make banks less willing to lend?
    Ms. Mills. Yes, we believe that will be the case on both 
fronts.
    Mr. Crenshaw. So the demand, from your standpoint, might 
see it go down?
    Ms. Mills. Yes, that is our concern.
    Mr. Crenshaw. I have got you.
    You mentioned you have got kind of a conflicting--on the 
one hand, you have got the regulators, and they are critical to 
the banks, you know. Then, on the other hand, the 
administration is critical of the banks for not making loans. 
What are you all trying to do to encourage the banks to 
increase lending? Because you get a mixed message out of the 
administration, it seems to me, so maybe you are the middleman 
who can kind of send the message out to really encourage the 
banks.
    Are you working on that?
    Ms. Mills. Well, the President and the SBA have been very 
clear about what we expect from the banks. We expect the banks 
to be back, lending to viable small businesses, and we will be 
there in every way we can to support them, but they need to 
step up and help these small businesses, which can't thrive 
without access to credit, and they help us get back on track in 
the economy.
    The banks are also hearing from the regulators, 
particularly at their local level, a different story, and they 
are getting caught in this squeeze. They say to us, ``You want 
us to lend, but we are afraid because we are getting another 
message.''
    So we have, within the proper bounds of what is appropriate 
between the administration and the regulators, encouraged the 
regulators to realize that the message that some of the 
regulators have sent about particular guidance, which loosens 
those credit issues for banks. We need to help them make sure 
that that gets down to the regulators in the field, and we are 
speaking at every possible opportunity to get these messages 
out.
    Mr. Crenshaw. The last question is, you know, we have 
talked about larger loans, more loans, and that is all good to 
create jobs, I think, and more employment opportunities, but 
some of the critics of your agency have kind of said, Well, you 
have got $90 billion in total loans--and that is like a 70 
percent increase from 2001--and because of all of this 
increased lending, the SBA system of lending has not really 
kept up with all the industry studies.
    For instance, I read a report that your loans, at least in 
2008, talked about their corresponding to a Moody's rating of a 
double B. This report said that it was below that of a typical 
private loan/government subsidized loan.
    And then, I want to read you what the Government 
Accountability Office said in 2009: The SBA does not follow 
sound validation practices or use its own data to independently 
assess the risk rating. The effectiveness of its lender risk-
rating system may deteriorate as economic conditions and 
industry trends change over time.
    I mean, are you aware of that? Do you all keep a close eye 
on all of these standards? Is that true? Are you working on 
that? Is that a problem, or is that just a perception?
    Ms. Mills. Yes. There are two points.
    First of all, our job is to take a certain amount of risk 
in the ``credit elsewhere'' box. We are supposed to take a risk 
for someone who is a good business but that a bank cannot lend 
to without our guaranty. That said, lender oversight is a 
critical focus for us.
    In fact, in this budget, we have requested an additional $2 
million for our oversight. We need to be working with best 
practices. We need to be able to make sure that we have a very 
robust and active set of activities around lender oversight, 
but we are focused on this as one of the areas for which we 
need a budget and that we are going to spend time focused on, 
because we do have an extensive portfolio. We delegate 
authority to a number of banks, and we have to make sure that 
we can know how those banks are lending and that we have the 
adequate, appropriate oversight of them.
    Mr. Crenshaw. Thank you.
    Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    Mr. Fattah.
    Mr. Fattah. Thank you. It is good to see you again.
    I got a chance to hear your address to the Hispanic Chamber 
of Commerce on Tuesday. You were talking then--and I am going 
to come back to it--about the health care bill, and how it will 
impact small businesses.
    I want to just first thank you for taking on this task. You 
have had an extensive career in working in innovation and in 
working in a variety of different fields related to business 
development. I am not sure we have had an administrator of SBA 
with such an extensive background in the country. I am sure our 
small business community will benefit, and I think that the 
Hispanic Chamber address was very anecdotal in that respect 
because I think that the focus on the real challenges facing 
small businesses and Hispanic businesses are the largest 
growing segment the agency, but over your leadership, in terms 
of African American businesses, women-owned businesses and 
Hispanic businesses, has been really working very hard. There 
is room for improvement in some of the regulatory and statutory 
guidelines.
    In terms of the new health care law, how is SBA going to be 
interacting with the small business community to make sure they 
take full advantage of the benefits?
    Secondly, the President's goal, in terms of export, 
doubling the amount of exports, one of the things that we have 
worked on in Philadelphia with SBA and the Export-Import Bank 
is to make sure that our business community is aware of those 
export opportunities.
    So I would be interested in your comments on both of those 
things.
    Ms. Mills. Thank you. It is nice to see you, Congressman.
    First, to your point about minority-owned businesses, 
women-owned businesses and veteran-owned businesses, the SBA 
has had a particular and special role with underserved markets 
and underserved communities. One of the things that we are 
known for is that we are three to five times more likely, 
according to the Urban Institute, to make a loan to a minority-
owned business or to a woman-owned business than is a 
conventional lender. So we consider that part of the core to 
our mission and have in some businesses, particularly in 
government contracting, special goals--in our 8(a) and other 
programs--which we work very hard to bring into communities so 
that we are actively counseling, giving loans, and giving 
access to government contracts.
    To your question on health care, health care has been the 
number one concern of small business in the NFIB survey since 
1986. Since 1986, access to affordable health care has been the 
number one concern for small business. So we know that, in 
businesses between three and nine people, half of them don't 
provide health care. It is not because they don't want to. Now 
they are going to have the opportunity to be able to get access 
to health care in an affordable market with the exchanges.
    One of the interesting things is that small businesses, I 
think, have not understood the benefits that are coming to 
them, particularly in the near term, so we are developing plans 
to make sure that small businesses know about the tax credits 
that are going to be available in 2010. For the 4 million of 
the 6 million small businesses that have employees, two-thirds 
of them are eligible for tax credits, and we actually know in 
every region and in every congressional district where they are 
and how many there are, and we plan to do as much as we can on 
a broad basis to make sure, as part of our responsibility, that 
they get every dime of tax credit so they can reinvest it in 
their businesses and can go on and grow.
    You had a question on exports.
    Mr. Fattah. Because, in Philadelphia, we have done some 
work on this, and we have a great candy maker who makes peanut 
chews, and now they are selling them in 45 different countries. 
We have got a saltwater fishing reel company that is selling 
fishing reels around the world. We have an auto parts maker, 
Cardone Industries, which is doing very well. They are probably 
10 percent of our manufacturing workforce in the city, but they 
have only one other competitor in the world. So there is a lot 
of room for export growth.
    All of the exports businesses have said this is a doable 
achievement for the administration, and it has not been the 
focus of previous administrations. I just want to know how SBA 
is going to make sure that the small business community 
participates in this opportunity to grow exports.
    Ms. Mills. As you know, I am part of the President's 
National Export Initiative, where we have pledged to double 
exports over 5 years, a great part of this coming from small 
business. Only 250,000 of the 6 million small businesses 
export--only 250,000. So we have worked with the Department of 
Commerce, the U.S. Trade Representative, the Export-Import 
Bank, and the Department of State.
    We have formed a working group with a plan for small 
businesses--to identify them, to prepare them to export, to 
connect them to opportunities that the Department of Commerce 
has in other countries, and then to support them with loans. We 
have our own loan programs, and we actually counseled last year 
17,000 small businesses specifically in how to export. So we 
have online courses. We have in-person courses.
    We see this as an important impetus to the economy because, 
if small businesses produce here goods and services and if they 
sell there, that is jobs.
    Mr. Fattah. Thank you very much.
    Ms. Mills. Thank you.
    Mr. Serrano. The Chair would like to remind the gentleman 
from Philadelphia that, under my understanding of the House 
Rules, any item produced in one State can be handed out to 
other Members, and this committee loves peanut chews.
    Mr. Fattah. Say no more, Mr. Chairman.
    Mr. Serrano. Just for the record.
    Ms. Wasserman Schultz. Mr. Chairman, I would just amend 
your admonition to include Philly cheese steaks.
    Mr. Serrano. I got those when the Yankees beat the Phillies 
in the World Series.
    Mr. Fattah. I thank the gentlelady from Florida also.
    Mr. Serrano. Bagels anyone?
    Mrs. Emerson.
    Mrs. Emerson. Thank you, Administrator Mills.
    I apologize for being late. I am so sorry, but thank you so 
much for being here today.
    Let me get down to something serious here instead of Philly 
cheese steaks. I am hungry now.
    Ms. Mills. We believe all of these small businesses that 
produce food are very important and that more demand would be 
very good for small business.
    Mrs. Emerson. As I told you months ago in my office, I just 
want somebody in Cape Girardeau, Missouri, to open a cupcake 
store. If not them, me, then, at some point in time, because I 
do love cupcakes.
    In response to the small business credit crisis, the 
administration has proposed a new program that will provide 
capital to small banks using surplus TARP funds to offset the 
program's costs. I am generally not in favor of using TARP 
funds for anything other than deficit reduction, but it is 
unclear to me--and maybe you can convince me otherwise--it is 
unclear to me that providing another round of capital to banks 
will stimulate lending when the TARP programs didn't stimulate 
it as much as we wanted it to.
    So I am not going to ask you to make a comment about the 
administration's plan, because every time we try to get people 
to do that, they get fired, so we don't want you to be fired.
    Can you tell us if you think providing capital to small 
banks will increase small business lending? Wouldn't increasing 
the amount of SBA loan guaranties and perhaps increasing the 
amount that SBA can lend also be helpful, if not more so?
    Ms. Mills. We believe that there is still a lending gap for 
small business, and we have proposed a sort of five point plan 
that would be part of a jobs package to help more of that 
capital get out to small businesses. One piece of that plan 
deals with the problem, and I said there are two basic reasons 
why banks are not lending.
    One is they don't have the capital. The second is they 
don't want to take the risk. For those banks which don't have 
enough capital, it would be very helpful to have additional 
capital available, and the program that has been proposed has 
an incentive where the cost of that capital goes down to a very 
attractive rate if you increase your small business lending. 
So, if you increase your small business lending up to 10 
percent, you can get a 1 percent cost for that capital. We do 
believe that there will be small banks that go in and get that 
capital and lend it out to get the lowest rate.
    We also believe that it is very important to take care of 
the other issue, which is helping banks deal with their 
concerns about risk. That is where the 90 percent guaranty 
comes in. That is where the increased loan limits come in. That 
is where the increased limits for SBA express to deal with the 
problems of all the folks, who have had their lines of credit 
cut, and we also have a program to help owner-occupied 
businesses deal with this commercial real estate crisis that 
has caused banks to say, even if you are in good standing and 
you are the dentist who owns the dentist's office, they don't 
want to renew your mortgage. And we have a proposal in the jobs 
package that we believe, at zero subsidy, can address this in a 
very large way.
    Mrs. Emerson. I hope that is true with regard to commercial 
because I keep thinking that might be the shoe that drops here 
pretty--or at least intensifies pretty soon.
    Let me switch over to another subject.
    One of the offices within SBA is the Office of Advocacy, 
whose mission is to represent the small businesses within the 
Federal Government's legislative and rulemaking processes. I 
know that that office tries its best to help reduce the burdens 
that some of our policies impose on small firms and also to 
maximize benefits small businesses receive from the government.
    According to their Web site--and I will quote--Advocacy 
research shows that firms with fewer than 20 employees annually 
spend 45 percent more per employee than larger firms do to 
comply with Federal regulations, end quote.
    So, with that being said and knowing that the 
administration is proposing a fairly hefty amount of new 
regulatory policies that will come as a result of health care, 
greenhouse gasses, financial reforms of financial institutions, 
are you concerned about how those policies could impact small 
businesses if enacted?
    Ms. Mills. One of the roles at the SBA, both at the Office 
of Advocacy and all through the SBA, is to watch out for 
unintended consequences to small businesses, particularly of 
government regulation. It is part of our mandate, and it is 
true that, very often, small businesses have a much higher cost 
because they are small, and they don't have the capacity. They 
have to add capacity in order to comply. We have very much a 
seat at the table to raise those issues in this administration, 
and we have been actively doing so. This is part of our 
responsibility to small business. It is actually one of their 
key concerns, and it is a very constructive process at this 
time.
    Mrs. Emerson. So how does it work?
    For example, the Office of Advocacy identifies, you know, 
this set of new rulemakings that are underway or what have you; 
do they then have direct access, or is it you, really, who then 
has to get with each of the agencies writing the rules to 
pretty well explain how this could have a negative impact? Do 
you feel that your voice is heard?
    Ms. Mills. It works in many ways.
    The Office of Advocacy operates as an independent entity 
inside the SBA on these matters. So the Office of Advocacy has 
a very robust and well-trained staff that operates both at the 
Federal and at the regional and State levels on issues, broad 
issues and particular issues, that might have an adverse 
consequence to small businesses. It raises those issues, 
researches those issues and helps get changes, regulatory 
changes, that help small businesses.
    We also in the SBA, as a whole, have other activities. We 
have an ombudsman activity where our sole mission is on a case-
by-case basis to help small businesses navigate between Federal 
agencies where there may be a regulation issue, and we do that 
as a matter of course. In addition, I and my entire team are 
aware in every activity that we do and in every discussion that 
we bring the small business voice to that table, and we are 
always thinking with our sort of small business owner hat on: 
Would there be an unintended consequence? Then that information 
and that perspective gets put into the discussion from the 
earliest stages.
    Mrs. Emerson. You feel it works well?
    Ms. Mills. Yes, I feel it works well.
    Mrs. Emerson. Thank you.
    Mr. Serrano. Thank you.
    Ms. Wasserman Schultz.
    Ms. Wasserman Schultz. Thank you, Mr. Chairman.
    First of all, Mr. Chairman, I have some questions that are 
fairly detailed which are related to small businesses and to 
the Department of Defense and to the Department of Energy in 
how they allocate their contracts to small businesses. I am not 
sure if it is--I don't think you would have the answer today if 
I asked you, so I will submit them for the record. But I would 
like to sit down with you because I have some fairly detailed 
questions dealing with frustrations that small businesses in 
South Florida have had and about the disadvantage that they are 
in when it comes to competing for Department of Defense and 
Department of Energy contracts. It is a pretty frustrating 
experience that has been described to me, and I would love to 
spend some time with your staff on that.
    Ms. Mills. Yes, we will be very happy to do that.
    Ms. Wasserman Schultz. That would be great.
    Mr. Serrano. It will be submitted.
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    Ms. Wasserman Schultz. Thank you very much.
    The other issue I wanted to focus on related to some--
excuse me. I was not on the right page, Mr. Chairman, so I want 
to turn back to the page that I should be on so that I can know 
where I am supposed to be. Thank you. Okay.
    I want to ask you about how you educate small business 
owners who are making presentations to potential lenders. You 
know, we want to support people who are making a transition 
from unemployment to self employment, create entrepreneurial 
opportunities for unemployed Americans who want to, instead of 
going back to some large employer environment maybe, you know, 
take that opportunity to transition to a new business.
    So how does the SBA do that in a proactive way?
    Ms. Mills. The SBA has 14,000 active counselors who are 
doing exactly what you just described. We have 900 Small 
Business Development Centers. They say there is probably one 45 
minutes to an hour from most small businesses. They don't just 
have one conversation--they have long-term conversations--and 
we know from our data that small businesses that are in a long-
term counseling relationship have better sales, better profits, 
more longevity. So we encourage that, and then I always say to 
the small businesses, ``and it is free.''
    Ms. Wasserman Schultz. Free is good.
    Ms. Mills. We also have 110 women's business centers, and 
they operate as well in the community. We have over 100 
microloan intermediaries, providing technical assistance. Very 
often, in the microloan intermediaries, in our women's centers 
and also throughout, really, the whole counseling network, we 
are, in this time, very often helping somebody with a business 
plan that might have been in their drawer for a while. They 
were thinking about starting that business. Maybe they had 
started it on the side, but it had never really grown, and they 
had taken out that business plan, dusted it off, brought it in 
to one of our counselors, and we are actively helping them 
create that future and walk down and see what financing might 
be available. So this is part of the core of what we do.
    Ms. Wasserman Schultz. Great.
    I want to commend you for releasing a rule that would 
expand Federal contracting opportunities for women-owned small 
businesses. I know the goal of the administration is that 5 
percent of Federal contracting dollars would be directed to 
women-owned small businesses, but I know we are not there yet 
in terms of achieving that goal.
    So can you talk about how the new rule would help us get 
there?
    Ms. Mills. Yes. This is a rule that was actually introduced 
in the year 2000, and we are very proud that, on March 8, we 
were able to put it out for public comment.
    Ms. Wasserman Schultz. Actually, let me clarify my 
question. You are right. So I know that that is a goal. I know 
it is one that the administration before this one really didn't 
spend a lot of time trying to achieve.
    So, if you can, share with us what this administration is 
doing to try to get us there. That is a better way to ask the 
question.
    Ms. Mills. Yes.
    We are very committed to this goal. In fact, we are 
committed to all of our government contracting goals, but we 
put a very high priority on getting this goal moving and out 
for public comment, and we anticipate that we will work on it, 
bring it into reality, and it will allow women in about 80 
industries to compete in government contracts under those 
regulations, and we believe that that will help.
    In the Recovery Act, we are just under the 5 percent now, 
and we are going to do everything we can--we are actually 
exceeding our other goals in the Recovery Act by a lot, so we 
would like to exceed all of our goals by a lot.
    Ms. Wasserman Schultz. Do you have a time frame for 
reaching the 5 percent?
    Ms. Mills. Yes.
    Well, first, we want to get the rule out, and the time 
frame for that is--you know, there is a period of public 
comment, and then there is a period of----
    Ms. Wasserman Schultz. So you are revising the rule from 
2000?
    Ms. Mills. Yes. The rule from 2000 never was actually put 
into place.
    Ms. Wasserman Schultz. Okay.
    Ms. Mills. So this is going to be the first time the rule 
actually makes it into reality, so we have been operating 
without a rule but still with a goal.
    Ms. Wasserman Schultz. Gotcha. Okay.
    Just lastly, Mr. Chairman and Administrator Mills, I have 
to tell you that it would be hard for me to describe just how 
fantastic your SBA staff is in South Florida. They are the 
hardest-working, most well-prepared, the most responsive agency 
that I deal with in South Florida. My staff wanted me to make 
sure that you knew just how much we rely upon them and how much 
they are there for my constituents.
    Last fall, I had a small business symposium that SBA was an 
integral part of. One thousand people came to that small 
business symposium. There were 1,000. It was phenomenal. I got 
tremendous feedback, not just on that, but on roundtables. Any 
time that we ask for assistance in getting information out to 
my constituents, the South Florida staff is there, and you 
should know that they are doing a great job.
    Ms. Mills. Thank you very much. We have a terrific team. We 
have a really terrific team at the SBA.
    Ms. Wasserman Schultz. I yield back.
    Mr. Serrano. Thank you. You said you had a hard time 
describing, but you did a great job. Any time you want to 
describe me that way, it will be fine.
    Ms. Wasserman Schultz. What I meant was, by comparison, I 
would have a hard time saying just how good their job is.
    Mr. Serrano. Let me follow up on your question on the whole 
issue of minority-owned and women-owned businesses.
    How satisfied are you that we are reaching the goals we 
want to reach? I mean some of us get asked a lot, if not 
pressured, about, what are we doing in government agencies to 
make sure that this government tries to include everyone? You 
know, the word ``diversity'' is always thrown around, but then, 
at the end of the day, we find a lot of people in a lot of 
agencies who don't pay attention to the need to balance things 
often to make up for some improper behavior in the past.
    How satisfied are you that, in all of those areas, we are 
moving in the right direction and that we can meet our goals?
    Ms. Mills. We see serving minority-owned businesses, women-
owned businesses, veteran-owned businesses--a whole group of 
underserved businesses--as core to our mission, and we see it 
also as essential to the underpinning of the American economy. 
So we have particular goals in government contracting. We are 
determined to meet those goals, and we have, in the Recovery 
Act, actually exceeded the goal.
    We have almost doubled the goal on minority-owned 
businesses, and we did that intentionally. We had about 300 
matchmaking events, in particular in minority-owned business 
areas, so that we could introduce them to the Recovery Act 
contracting opportunities, and that worked.
    So we are going to take that practice and continue it so 
that we can keep that momentum, but it is not just in 
government contracting that we think this is important. We 
think it is important in terms of access to capital where, very 
often, these are communities where there isn't as much access, 
where the market isn't working as well, and then it is more our 
job to step in and to provide credit support to good 
businesses. We particularly see that in microloans, where we 
have a very strong penetration in underserved communities and a 
very good effect and in our counseling operations.
    Mr. Serrano. Let me throw in something now that you 
mentioned.
    You were very careful or, once again, very smart to mention 
Puerto Rico and the Territories in your presentation, which, 
you know, does very well with this subcommittee, especially 
with the chairman, but one of the problems we find in all 
Federal agencies under any administration is that the good news 
is that they are career people who are there and who do a great 
job; the bad news is some of the career people have been 
operating, in the case of the Territories, under this belief 
that they are far apart, that they are not only physically far 
away, although Puerto Rico and the Virgin Islands are very 
close, but that they are not in the plan to be treated fairly 
or, certainly, equally.
    Once you say to me, We are going to make sure that we 
include Puerto Rico and the Territories, how do you go about 
making that happen when so much has to be delegated in agencies 
to folks who traditionally don't know how to do that? I will 
give you an example so that it is not an accusation.
    One of the reasons we have a hard time in the health care 
bill and in any other bill including the Territories is, when 
we go to staff, central staff, and I have gone to them and have 
said, I want this done, they say, We don't know how to do that 
because it has not been done before. I say, Well, invent it; I 
am sure you can invent it. Make sure tomorrow--and here is the 
way I approach this--and I know I am going all over the place. 
I tell people, Make believe that we wake up tomorrow morning, 
and instead of having 50 States and the District of Columbia, 
we have 55 States and the District of Columbia. You could not 
say, I can't do it. You would have to do it equally across the 
board under a formula, so why not do it now? When the Speaker 
says, Do it; when Harry Reid says, Do it, then staff says, We 
don't know how to do that. So we are still, even in the health 
care bill, which does wonders for the Territories, it is still 
far from where it should be.
    Ms. Mills. Well, we operate in the mode that Puerto Rico 
and the Territories are part of the fabric of what we do every 
day, and I actually was able to sit down with the Governor of 
Puerto Rico. We have a very important small business community 
in Puerto Rico. It is mostly small business. We have a very 
active SBA presence there. So our programs go throughout that 
area. They are on all of our measurements, and they participate 
in every activity that we do. We just did a women's business 
center here in the District. In American Samoa, when they had 
the tsunami, we had 40 people there within less than 10 days, 
helping.
    So we are prepared to go anywhere it takes in our entire 
United States and Territories, to deliver help to small 
businesses, because they are all part of the community that we 
serve.
    Mr. Serrano. Yes.
    Let me just make a statement. In many cases, folks like you 
have to lead on this because, unfortunately, so many Members of 
Congress are totally oblivious to what the relationship is to 
the Territories. I can't pass up the opportunity to always 
remind people that, on a couple of occasions, I have been asked 
by sitting Members of Congress to get them currency from Puerto 
Rico for their collection. All I did was take a dollar out of 
my pocket and give it to them, to their embarrassment. We had a 
colleague, when the stimulus checks went out and, through our 
efforts, included the Territories, who said, I don't know why 
we are sending checks to foreign citizens. So at least they 
were called ``citizens.'' ``Foreign'' is up for discussion 
later.
    So, in many cases, the agencies have to lead because what 
may come out of Congress is not exactly what it should be since 
there is still a lack of information as to what the 
relationship is. I hope you do that.
    Mrs. Emerson.
    Mrs. Emerson. Thank you, Mr. Chairman.
    I want to ask you a few questions about innovation 
clusters.
    You all received $10 million in 2010 to develop Regional 
Innovation Clusters, and the fiscal year 2011 request includes 
$11 million for this initiative. I understand the idea behind a 
cluster is to establish partnerships between entrepreneurial 
education programs, industry and training programs to all work 
collaboratively on a common roadmap to improve a region's 
economy. Of course, I want to apply for one of these myself for 
my region, but anyway, let me ask: How will you decide what 
regions will receive the assistance? Will rural areas be 
included as well as urban areas? Do you really think that the 
communities need the Federal Government to give them money in 
order to collaborate?
    Ms. Mills. The core of clusters are the small businesses, 
and the reason clusters work is that small businesses are too 
small sometimes to get the economies that scale provide. So, 
when you cluster them together, you have an easier time in 
bringing access to the kinds of innovation, research and 
development and workforce training and bank lending that they 
need to have to grow. So I will give you a ``for instance'' 
about a rural cluster, and this is the reason I actually got 
involved in clusters and government service.
    In Maine, where I live, the naval air station went on the 
base closure list, and I was asked to help find some small 
businesses to go on that piece of property, and we made a 
cluster of Maine's boat builders, because there is new 
technology at the University of Maine in composites, and we 
were making boats out of the fastest and lightest materials of 
the world.
    Well, there are very few small businesses less likely to 
cluster than the independent Maine boat builders, but it showed 
me, when they came together, what a powerful thing it was to 
promote this kind of collaboration and how much more bang for 
the buck we got out of all the other activities that both the 
Federal and the State governments were doing to promote 
economic development. So this has now become a hot bed of 
activity in regions across the country, and the question that 
you asked is: What is the Federal Government's role in this? 
Can't States just take care of it?
    Well, it turns out--and I am on record because I wrote 
about this for Brookings--that the Federal Government spends 
about $77 billion in aid that goes down to the local level 
where these clusters are occurring, but it is not very well 
linked, leveraged, and aligned. So we find that we, the SBA, 
being on the ground in these communities, can play an important 
role.
    A quick other example: In Michigan, one of the 2010 budget 
items will go to a robotics cluster, the first of which we 
already started in Michigan with automotive suppliers. These 
automotive suppliers produce sensors so that when your car goes 
close to something it beeps. Well, it turns out that the 
Department of Defense is very interested in robotics developed 
by these automotive suppliers because they might help them 
detect things like roadside bombs and other unmanned activities 
that they are interested in doing. So we have formed a set of 
small businesses in Michigan into a robotics cluster, connected 
to the university there, which has a robotic specialty, and 
that will help a very distressed region in need of 
transformation.
    So these clusters work in rural Maine. They work in centers 
like Silicon Valley and high-tech places, and they work in 
distressed areas for the automotive suppliers of Michigan.
    Mrs. Emerson. That was a good article in the Washington 
Post this morning about you in talking about this. Because I 
was fascinated in having read it, I wanted to ask you about it.
    Now, I know that the Economic Development Administration 
also has in its budget $75 million for Regional Innovation 
Clusters. How do you all work together?
    Ms. Mills. We are working very closely with EDA, John 
Fernandez there, and also with the collaborative effort that is 
coming out of the White House that has seven agencies included 
in it for cluster development. We are one of the participating 
agencies in the new E-RIC, Energy Regional Innovation Cluster. 
Energy has put up $125 million to have a new innovation hub, 
and this is for energy-efficient homes. We are going to provide 
funding for small businesses to get a piece of that activity, 
and we are going to run it through our local small business 
document centers. So we can do clusters that we initiate, and 
we can do clusters where we collaborate and participate.
    Mrs. Emerson. So, if I am a community or a group of 
communities in a rural area, would I want to go to my small 
business, SBIC or--I mean where would I even start if I had an 
idea? How would I start, and then what happens?
    Ms. Mills. We plan to create, with part of the 2010 money 
and continue in 2011, a series of competitive activities, 
contracts, where we will have regions compete. So there will be 
a request for proposals, and we will publicize that in 
communities. We are likely to do some in conjunction with other 
agencies and some independently. We hope to do them with 
criteria that will allow both rural and inner city clusters to 
be validated, because we know there is cluster opportunity in 
all kinds of regions. So this is at the beginning stages of 
activity, and we are very, very excited about the prospect of 
moving it forward.
    Mrs. Emerson. It sounds very exciting and a very, very 
interesting and positive way to change the economic climate in 
certain areas in the country.
    So thank you.
    Mr. Serrano. Thank you.
    Mr. Boyd.
    Mr. Boyd. Thank you, Mr. Chairman.
    Ms. Mills, welcome. I really only have one question.
    I know that the SBA has been in the process of trying to 
reengineer the HUBzone program.
    Can you discuss the status of that initiative for 
reengineering and also how this process has affected the 
HUBzones?
    Ms. Mills. Well, thank you.
    We ask for in this budget, actually, more money for 
oversight and compliance in order to root out issues of 
noncompliance and fraud, waste and abuse in programs including 
the HUBzone.
    As I have said in other testimony, we need to make sure 
that our programs, including HUBzone, have oversight in three 
areas; upfront, eligibility. In the middle, we want to review 
with on-site visits. You might know, in HUBzone, in the 6 
months before I got there, we had made seven on-site visits, 
and in the next 6 months, we did 800. So we are clamping down 
in that area. The third is to pursue and have consequences for 
those who break the rules and who are in the program 
inappropriately, and we are going to go after them, because we 
have people who need to be in that program.
    In the reengineering of that program, we are getting a 
handle on these three things, and it has taken an enormous lift 
in this past year. We have tightened down in the front end, and 
that has created a backlog. We are well into working through 
that backlog but not completely through it. Therefore, if 
anyone has experienced delays in HUBzone certification, that is 
due to this sort of tightening down process that we did to make 
sure that we don't have ineligible firms in the program. So we 
are in the process of working through the backlog, and we 
expect to be through it in a matter of months--a few months, 
not longer.
    Mr. Boyd. So you have increased, you said, oversight, 
exponentially and just making sure that the program is doing 
what the current rules say it is supposed to do. So there is 
nothing really that we need to do or anything we can help you 
with? Those HUBzones are an important tool that we have used 
for a number of years in the rural areas, and obviously, they 
are probably more important now than ever.
    Ms. Mills. This budget request does include a small amount 
of additional funding to help us with these ongoing efforts 
because they take personnel and attention.
    Mr. Boyd. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    I would now like to recognize Mr. Culberson under the 5-
minute rule.
    Mr. Culberson. Thank you, Mr. Chairman. Excuse me for 
running late. I have got so much going on at the same time.
    Thank you for your service.
    I wanted to ask, if I could: $2.3 billion has been 
appropriated to the Small Business Administration since October 
1. How many jobs have been created with those funds? How do you 
measure that number?
    Ms. Mills. Well, our budget is usually under $1 billion.
    Mr. Culberson. I am counting the stimulus money you 
received and the appropriation from last year. It looks like 
there was $125 million in DOD. It is a lot of money. You have 
gotten a tremendous shot in the arm.
    Ms. Mills. Yes. I really want to thank you for that.
    So let me explain the main amount of activity that we have 
spent on over the past year.
    As I said earlier, you allowed us in the Recovery Act to 
increase our loan guaranties to 90 percent and to reduce or 
eliminate most of the fees. In October 2008, lending just 
froze, and we had small businesses in this credit crunch that 
couldn't get the capital they needed. When you passed that, 
which was a year ago now this March we put it into place, 
immediately we were able to get lending flowing again, so we 
were able to put $22 billion into the hands of small businesses 
for a cost to taxpayers of $500 million. So that is about $500 
million of that activity that you described.
    I don't know if I have exactly the numbers. We do track it 
on our dashboard--the loans saved and approved. I don't have 
the full year, but I can get that for you because, when a 
business owner comes in and gets a loan, they have to tell us 
how many jobs they are going to save or retain. Now, to be 
honest with you, we don't go back and audit that, but we know 
it is pretty consistent over time, so we track it, and we make 
sure that we report that. That does not, by the way, go into 
the Recovery Act totals, because it doesn't meet the particular 
criteria, but it is in a footnote, so we are happy to be at 
least recognized, and it is quite substantial. I would be happy 
to get you those exact numbers.
    Mr. Culberson. I see also on this year's budget you have 
asked for increased funds to overhaul the loan monitoring 
system, and it, apparently, has been a longstanding problem at 
the agency.
    Can you talk to us--and forgive me if someone has asked you 
about the loan monitoring system problem already. What 
assurance can you give us that additional funding is actually 
going to work? What are you doing administratively to assure 
that this can operate more efficiently?
    Ms. Mills. It is a very important question because we have 
$90 billion of loans and loan guaranties, and it is really sort 
of a core engine. We deal with 5,000 of the 8,000 banks, so we 
are focused on our loan oversight activities. We have a number 
of pieces of it. We have a loan system that gives us certain 
rankings, and we have an on-site visit activity where we 
actually go out and audit lenders.
    We are currently doing a complete overview, and one of the 
things that we have requested funding for, as you mentioned, is 
a focus on lender oversight, lender oversight and rooting out 
fraud, waste and abuse in government contracting programs. 
Those are our two sort of critical oversight fiscal 
responsibility themes this year.
    We are looking at all of our systems. There are a lot of 
best practices throughout the industry now on credit oversight, 
and we have reached out to experts in order to make sure that 
our choices and our activities and our systems rise to those 
levels, and we are going to be focusing on that for this year 
but also, really, on an ongoing basis. This is just an area 
where we have to do continuous improvement.
    Mr. Culberson. From your experience and in doing as much as 
you do and knowing the importance of ensuring that small 
businesses have access to credit and can borrow money, what 
impact have you seen so far of the tremendous amount of 
borrowing that the Federal Government has done?
    Particularly this new administration and this new Congress 
have created more debt in less time than any Congress in 
history and have spent more money in less time than any 
Congress in history. Last year, the Federal Government borrowed 
and rolled over about $7 trillion worth of debt and the mother 
of all open-ended entitlements, which was created on Sunday, 
and that will even accelerate, I think, the bankruptcy of the 
United States, or it will be Greece in no time. What effect is 
all that borrowing going to have, do you think, on the access 
of small businesses to credit?
    Ms. Mills. Right now, the access of small businesses to 
credit really revolves around two issues.
    It revolves around banks which are concerned about their 
capital levels and banks that are concerned about risk. So it 
is really very focused, particularly in community banks, on a 
much more local level. Banks are still sorting themselves out 
from the credit crisis, and our job in this new jobs plan is to 
make sure that those two issues get addressed.
    Mr. Culberson. What effect, though, is all that borrowing 
of the Federal Government having on the availability of money 
to small businesses?
    I even noticed the other day Bloomberg reported that, for 
the first time, the U.S. Treasury's people would rather buy 
bonds issued by Warren Buffett than by the U.S. Treasury. 
Moody's said that we will have a very good chance of losing our 
AAA bond rating. That was before they created the mother of all 
entitlements on Sunday.
    What effect will the borrowing of the Federal Government 
have on the access of small businesses to credit?
    Ms. Mills. At this time, the two issues that I have 
described which are the main causes of concern for banks to be 
able to lend to small businesses, are not related to that. They 
are much more focused on this access to capital issue and on 
the risk taking. So they are really more of a local focus.
    Mr. Culberson. I know the regulators are encouraging banks 
to get out of real estate or to reduce the amount of real 
estate in their portfolios. I know that a lot of the 
restrictions and access to credit, of course, is direct--that 
the most immediate problem all of the banks have is the 
pressure that the regulators are putting on them to get real 
estate out of their portfolios.
    Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    Ms. Lee.
    Ms. Lee. Thank you, Mr. Chairman.
    Good morning.
    Ms. Mills. Good morning.
    Ms. Lee. Let me first thank all of the employees and the 
people at the SBA for your hard work, especially during these 
very extraordinary, challenging times. But these challenges 
really do present many opportunities for SBA, and I think you 
are doing, you know, a phenomenal job.
    Mr. Chairman, let me just say, before I came to Congress, I 
was a small business owner, an 8(a) contractor. It was a 
nightmare. I employed between 400 and 500 people. I was in 
business for 11 years, but as a woman and as an African 
American, it was horrible to be able to survive that long based 
on the hoops I had to jump through and the discrimination that 
I was faced with and the lack of assistance by most of the 
Federal agencies. I mean, this was really very difficult, but 
we made it, and we did it.
    Now, being on this committee, Mr. Chairman, I want to focus 
on that 8(a) program, and I want it to be a little bit more 
supportive of minority-owned firms than what it was during the 
time when I was in business.
    A couple of things I would like to ask you.
    First of all, I never can find how you break down 8(a) 
contracts and contractors based on the background of those 
individuals in terms of the dollar amounts that would go to 
African American companies, to Latino companies, to Native 
American companies or to Asian Pacific American companies. So 
we need to disaggregate that data. I think we talked a little 
bit about that before. We absolutely have to see that because 
some small businesses, you know, from what I remember, had 
better access than other small businesses to the Federal 
contracting arena, so I would like to get that information.
    Secondly, I want to find out about the ARRA funding and the 
contracts that were let to minority-owned companies, because 
there is some information data that we have that show that 
about 1.1 percent went to African American companies and 1.4 
percent to Latino companies. We met with the President, and we 
received a subsequent report clarifying that it was about 16 
percent overall to minority-owned companies, but we still need 
that information, you know, put forth and disaggregated in 
terms of who got that money and where, because we can't find it 
in our communities.
    I share this because--and I ask these questions, because 
minority-owned companies in areas of high unemployment create 
jobs, and during this economic recession, they have to have the 
support of the ARRA funding, the Federal contracting arena, 
access to capital, the TARP funding. You know, the banks that 
lend to many of our companies just won't lend anymore because--
I mean, I have no clue. We bailed them out, and they still 
don't lend. So it is madness out there, and I would like to get 
some understanding of what is happening with the 8(a) program.
    Finally, you know, this bundling of contracts that really 
has prevented minority-owned companies from accessing the 
Federal contracts, how are you debundling some of these now or 
are you? Do you have the staff capacity to do that? Because 
that is a real problem for small- and minority-owned companies 
to go after these contracts which, if not bundled, would have 
access to smaller contracting opportunities to help them create 
jobs and build stronger and more viable businesses.
    Thank you again.
    Ms. Mills. Thank you.
    I want to just say one thing about how much I appreciate 
the comments about the 11-year history that you had in your 
company and about how difficult it was to build and maintain, 
and this is a pretty robust company that you are talking about.
    Our mission at the SBA, is to make sure small businesses, 
and owners like you, have the help that they need, have the 
tools they need, have us at their backs in helping them get 
access to credit, to get access to counseling and to get access 
to government contracts, which in many cases can be that boost 
they need to get to that next level of volume. That is why we 
have the 8(a) program. It is actually a business development 
program, and it is not just the access to the contracts but 
access to mentoring, access to help and access to our other 
resources, which can be bank introductions, because, as you 
grow, you need more capital.
    Ms. Lee. Which I had none of.
    Ms. Mills. That is right.
    It is extremely difficult to grow a business, so we need to 
help, particularly in communities that don't have as much 
access. That is our job. We are very focused on meeting the 
contracting goals across all of our constituency--veterans, 
women-owned businesses, minority-owned businesses, and socially 
and economically disadvantaged businesses.
    In the Recovery Act, we do track them. We have the numbers 
on the sub-constituencies of African American-owned businesses, 
Hispanic-owned businesses, and Asian-American owned businesses. 
I only have the total here. We have a goal of 5 percent. We are 
at 11.6. So we are doing quite well in the Recovery Act.
    As I mentioned earlier, we actually had a targeted series 
of activities which worked quite well. With the Vice President 
and Commerce and other agencies, we actually did matchmaking 
events--300 of them--particularly focused on minority-owned 
businesses because you needed to help them find out what the 
Federal contracts were that were going to come up in the 
Recovery Act and make sure that they were put together. This is 
a win-win. It is good for the Federal Government. It is good 
for the taxpayer. It is good for the agencies to get the 
brightest and the best and the most innovative small businesses 
and CEOs connected with them so they can get the best bang for 
their buck.
    Ms. Lee. May we get a copy of that report, please?
    Ms. Mills. Absolutely.
    Ms. Lee. Mr. Chairman, I don't know. At some point, I would 
like to focus on the 8(a) program as a subject of this hearing, 
maybe, and see what we can do at the approps level to help make 
sure you are able to accomplish the goals that the 8(a) program 
has set forth, because I know the 8(a) program has been, in the 
past, severely underfunded in terms of staff capacity and in 
terms of, you know, what you need to make that program a 
success. I am not sure if it is reflected in your budget 
request or not, but I would hope that, during the next year, we 
can look at that and see if we can kind of make sure that 
happens.
    Mr. Serrano. Thank you.
    Ms. Lee. Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    Your legislative proposals increase disaster loan terms 
from 3 to 7 years; increase the maximum 7(a) loan size from $2 
million to $5 million; increase the maximum 504 loan size from 
$2 million to $5 million for regular projects and from $4 
million to $5.5 million for manufacturing projects; and 
increases the size of microloans from $35,000 to $50,000. The 
subsidy rates presented in your budget justification assume 
enactment of these proposals.
    So the question from appropriators is: How are you doing 
with the authorizers? Are they supportive? How likely do you 
think they are to successfully act on these proposals before 
the end of the fiscal year?
    Also, should these changes not be enacted, how much 
additional money will Congress be required to appropriate? A 
scary word. Why is this the case when you are making fewer of 
the smaller loans that do not perform as well?
    Lastly, why would you put forth a budget with what are most 
likely false assumptions in place? After all, if the 7(a) 
provision doesn't become law, this creates a need for an 
additional $41 million to be appropriated. That is a mouthful.
    Ms. Mills. Thank you.
    This question deals with our request to increase loan size. 
The President has asked that we raise the loan sizes from $2 
million to $5 million.
    The rationale for this is there is a market gap. We have 
been doing a pretty good job in filling it so far, but there is 
more to be done. We believe that one of the tenets is to use 
the programs that we already have and that we can execute 
quickly and efficiently with taxpayer dollars to reach more 
small businesses. There is a gap in businesses that need $3 
million, $4 million and $5 million loans.
    The Franchise Association has asked us--and they have asked 
Congress to help them--because they used to get most of their 
funding from places like CIT, which has undergone its own 
troubles, and from other players who are no longer providing 
capital in those larger loan sizes.
    So we need to step up to do that. That will not be at the 
expense of small businesses. We are not going to crowd out the 
smaller loans by the bigger ones. We have capacity under our 
caps to increase our numbers for larger loans and to not crowd 
out the smaller loans. It is true that larger loans perform 
better. So the way the math works, when you do raise your loan 
size, you are assuming in the modeling a better mix of activity 
because the larger loans reduce the subsidy that you need.
    That amounts to approximately the following differences: 
You mentioned $41 million. If the loan sizes are not increased 
and they remain at $2 million, this budget subsidy would be 
short $41 million. If they are raised to $3 million, however, 
they are only going to be short--I think it is--$6 million or 
$7 million. If they are raised to $4 million, that amount goes 
down as well. So the biggest leap is between two and three.
    We are working very hard with the appropriators to find a 
way to address their concerns. I think the appropriators are 
very concerned about the crowding-out issue, and we are looking 
at ways to, we can limit the amount of the jumbo loans we can 
do. We are willing to talk about any fixes that would make sure 
that we don't crowd out the smaller loans. We are going to be 
there for those folks, but we do believe we need to serve the 
$3 million, $4 million and $5 million market as well because 
there is a market gap there at the moment.
    Mr. Serrano. All that to say you are hopeful the 
authorizers will come through?
    Ms. Mills. We are looking forward to working with Congress 
and in making these recommendations come to pass. We have done 
a lot of homework to understand the need for these, and we 
believe they are the right mix of activities to go forward 
with.
    Mr. Serrano. And the discussions are taking place in both 
Houses?
    Ms. Mills. Yes, they are.
    Mr. Serrano. Let me ask you a question about the PRIME and 
microloans.
    The President's budget proposes to reduce funding for the 
Program for Investment in Micro-Entrepreneurs, or the PRIME 
program, which helps low-income folks with training and 
technical assistance, such as management effectiveness, 
financial literacy, marketing, customer service, and 
bookkeeping. It proposes reducing microloan technical 
assistance.
    The question is: Why reduce money for these programs now 
when only last year they began receiving a healthy funding 
level? I mean, just when you were doing good.
    Ms. Mills. Despite the way the budget looks, we actually 
are funding these at a ``level'' level, and here is the missing 
piece: In the Recovery Act, we got an additional $24 million in 
microloan assistance that does not appear in the 2010 budget or 
in the 2011 budget. We are going to be awarding that in this 
next several months. Microloan technical assistance is 
delivered on a quarterly basis, so it will actually be 
delivered over much of 2011. This budget was constructed to 
keep the funding for microloan technical assistance actually at 
a higher level amount, and the additional $10 million sort of 
picks up in the back half of 2011. We agree it is a terrific 
program.
    Mr. Serrano. Well, it is, and we were very supportive of 
it. So I hope, as we move forward, you keep in mind that there 
is support on this subcommittee for those programs.
    Mrs. Emerson.
    Mrs. Emerson. Thank you, Mr. Chairman.
    Back when the President made his State of the Union 
Address, he made a big pitch to double the exports from the 
United States all across the world.
    Number one, tell us a little bit about how your Office of 
International Trade and network of export assistance centers 
work to help achieve that goal.
    Number two, what more can you do, if there is more that you 
can do, to help small businesses compete globally and market 
their goods overseas?
    Ms. Mills. We are part of the President's National Export 
Initiative, which commits us to double our exports over the 
next 5 years. Only 250,000 small businesses actually export 
now, and so there is a lot of room for growth. Growth is 
occurring at a quite strong rate, and small businesses account 
for about 30 percent of exports. We are working very closely 
with a cross-agency effort, including the Department of 
Commerce, including the Trade and Development Agency, including 
the Export-Import Bank, and actually including the Department 
of State as well and the U.S. Trade Representative. We are 
extremely active, as an export cabinet, in driving to these 
goals, and we have kind of a four-step program.
    The first step is to identify more small businesses that 
are ready. Companies that have the potential to export. We, the 
SBA, play a very big role in that because we know where the 
small businesses are, so our Small Business Development 
Centers, our export offices and our banks will be very 
important in that activity.
    The second thing is to help prepare them to export. We have 
a series of training activities that we do, both online and in 
person. Last year, we trained about 17,000 small businesses in 
how to export. We also collaborate with the Department of 
Commerce on this.
    The third is to provide them with export opportunities. 
Here, we are going to work with Commerce and the State 
Department. These departments are making commitments to share 
with our small businesses all of their resources. These 
government staffs plan trade missions and will include our 
small businesses. Our ambassadors are going to be going to 
their local areas when they are home, and are going to be 
talking about their countries and making connections for our 
small businesses. Everybody has understood that small 
businesses need to be a big part of the growth.
    The last piece is to provide these small businesses with 
tools. That means our financing program, which we run through 
our 7(a), but we have special subcategories for export support 
and the Export-Import Bank as well.
    Mrs. Emerson. So, if I am a small business, do I come to 
you, or are the regional SBA representatives always on the 
lookout? Is it kind of, you know, we meet up at a Chamber 
meeting one day where I am the SBA guy, and I hear this great 
story about this company in Cape Girardeau, Missouri, and then, 
you know, he makes that or she makes that pitch that, you know, 
``If you are doing this, we can help you do that''? I mean, I 
am curious as to how it works.
    Ms. Mills. Well, it is all of the above.
    We are actively soliciting in our districts and local 
offices and are training our Small Business Development Centers 
in the tools. We have collaborated on sort of a road show with 
Export-Import Bank, and we have gone to nine cities, and have 
done export live training, and we are going to do more of that. 
We are partnering with the Department of Commerce which has a 1 
(800) number on trade, so that is going to become the answer 
call center. There is a Web site as well where we have 
crosslinks to make sure there is kind of one focused place 
where small businesses can navigate all of the aid that they 
need. They do need help understanding how to fill out the 
forms, understanding what the export restrictions are and what 
you can and can't do, and providing them with introductions and 
opportunities to take their exports overseas.
    These are not all high-tech. My favorite one is a hydraulic 
press manufacturer in New Hampshire, and he is a third-
generation owner. He has done such a great job innovating that 
he is exporting to six European countries.
    Mrs. Emerson. Thank you.
    Do I have any more time?
    Mr. Serrano. Go ahead.
    Mrs. Emerson. I just wanted to ask you a little bit about 
the Disaster Loan Program because, pre you, the SBA was 
severely, severely criticized for its slow disaster loan 
approval, you know, right after Katrina and Ike, for example. I 
know that you all have been, in the meantime, working very, 
very hard to streamline your disaster loan processes. It seems, 
since I have flooding or tornadoes or ice storms myself, we 
face similar circumstances in my congressional district.
    So, number one, do you feel comfortable where SBA is now or 
at least feel that you all are better prepared for any kind of 
major disaster on the scale of Katrina? If you do, what are you 
all doing or how have you developed the process to ensure that 
eligible victims actually get their loans quickly while at the 
same time making sure that there is not any fraud involved?
    Ms. Mills. We are prepared in a way that we never were in 
the past. Let me give you some of the data.
    Before Katrina, we had about 880 trained staff. We now have 
2,400. Before Katrina, we had about 366 workstations that 
people could go to. We now have 2,100 ready. Before Katrina, we 
had about 400 people who could be on our information system at 
the same time. We can now have 12,000. We also have 
reengineered our process. For Katrina, our process was about 85 
days. Now our goal is 14 days for homes and 18 for business, 
but we are running at 7 days for homes and 10 days for 
business.
    So I really have to commend our disaster staff. They did an 
extraordinary job at completely redoing that operation and the 
systems, and we are now ready to address a catastrophic 
disaster we hope will never occur.
    I will also say one other thing. We are now ready to 
mobilize our entire SBA network. That means district offices in 
the affected area. That means Small Business Development 
Centers and SCORE representatives have all been trained in 
preparedness so we can bring all of our resources, not just our 
disaster folks, to bear in the case of extreme disaster.
    Mrs. Emerson. What happens if the communications are down? 
I live on an earthquake fault, and we are getting ready to do a 
real exercise to not only deal with an earthquake but also with 
the Mississippi River's flooding extremely. I mean, it will 
flood in that circumstance, but we are not ready at the State 
level at all. I have some communities which are kind of ready, 
but, obviously, we would probably bust your budget, quite 
frankly, if we had an earthquake the magnitude of that which we 
had back in 1811 and 1812.
    Be all that as it may, what about that whole communications 
network? Do you all have that put into place given the fact 
that most people will not have it?
    Ms. Mills. Preparedness is a place that we have been very 
focused and on two levels.
    The first is our own preparedness where we are coordinating 
across the agency and with FEMA for how we will communicate, 
and we do do exercises and plan for communications issues.
    The second thing is that we do public service announcements 
on preparedness to small business. What we tell small business 
is, ``you need to have a plan.'' They need to actually write 
down a disaster plan, and we give them the template on our Web 
site. They need to have copies of their records somewhere else 
in case they get lost, and there are a series of things you 
need to do. They need to know what is going to happen because 
their employees need to be communicated with, and they have to 
have a plan, if there is a flood or is a problem, for what is 
to be done.
    So we are spending a lot of time and attention on that. I 
will say now, in terms of funding, we have reserves. We spend 
about $1.1 billion, and I believe we have reserves to cover 
about $8 billion. So we could take on a pretty big task right 
now.
    Mrs. Emerson. Thank you.
    Mr. Serrano. Mr. Culberson.
    Mr. Culberson. No further questions. Thank you, sir.
    Mr. Serrano. We all need to be somewhere at noon, including 
yourself. So I want to do something in wrapping up a little 
different than we usually do.
    Since we didn't have a hearing last year, let's go back and 
make believe we are there, and I am going to give you my last 5 
minutes, basically, to tell us where you want to take the SBA 
and where you are.
    Ms. Mills. Well, as you will see in the front of your 
budget book, we have spent a lot of time thinking about what 
our goals and priorities are for this 2011 budget, and it 
reflects on the base that we are building this year. We call 
them the three Cs, the D and the I.
    We want to be able to provide access to capital. We want to 
be able to meet our contracting goals. We want to be able to 
help small businesses with counseling, which is extremely 
valuable to them. We want to stay in a constant state of 
preparedness for our disaster operation. The last one, the 
``I,'' is we want to help our high-growth/high-impact small 
businesses be able to innovate and to create opportunity for 
this country to be able to compete in the future.
    Those are our five external goals.
    Our internal goals are to continue to improve the SBA to 
become a high-performing organization. There we want to invest 
in people. You have heard about some of the training, but we 
have training activities now for about 500 of our people going 
on this year, 500 of our 2,000 people. We hope to get up to 
more like 800. Training is investing in your people, which is a 
critical tenet for us.
    Investing in information technology across all activities, 
including our main loan system where we have got about $7 
million in here for our LMAS main loan system which as I said, 
runs on Cobalt. We have kept that in good shape moving forward.
    The last thing is investing in oversight and fiscal 
responsibility. There are two pieces to that: lender oversight 
and rooting out issues of fraud, waste and abuse in all of our 
activities, including our contracting programs.
    Lastly, we believe that it is our job to act as the voice 
of small business across the administration. That includes 
worrying about unintended consequences of regulations and 
burdens on small businesses, but it also includes underserved 
communities, and we have a special point in there that this is 
core to our mission. We believe, with the assets and the tools 
that we have put forward here, we can make a real impact. So we 
need in 2010 and in 2011 to help this economy by growing small 
businesses, by creating jobs, by providing the foundation stone 
that brings us into recovery and that allows America to compete 
in the global market going forward.
    Mr. Serrano. Well, we thank you for that statement.
    We stand ready to assist you in accomplishing your goals, 
because they are goals that are good for this country and that 
are, therefore, good for our future. We thank you for appearing 
before us today and for your testimony. Like I said, as time 
goes on during this process, we will be supportive.
    All members can submit for the record all questions that we 
have not asked.
    Ms. Mills. Thank you very much for the support.
    Mr. Serrano. Thank you.
    The meeting is adjourned.

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                                         Wednesday, March 17, 2010.

        FY2011 BUDGET FOR THE SECURITIES AND EXCHANGE COMMISSION

                                WITNESS

MARY SCHAPIRO, CHAIRMAN, UNITED STATES SECURITIES AND EXCHANGE 
    COMMISSION
    Mr. Serrano. The subcommittee will come to order.
    Welcome to this hearing of the Financial Services and 
General Government Subcommittee. Today, the subcommittee will 
hear testimony from the chairman of the Securities and Exchange 
Commission, the Honorable Mary Schapiro.
    We welcome you. We are trying to turn up the heat--I mean 
actually the heat, not ``the heat,'' but the heat.
    At our SEC hearing a year ago today, Chairman Schapiro was 
new to the job, and was being bombarded with the emerging story 
about the gigantic Madoff Ponzi scheme and the SEC's repeated 
failure to detect it. Fortunately, we have not had any 
comparable investment scandals emerge since then, but we have 
seen the scandal of 10 percent unemployment that is rooted in 
the meltdown of the securities market. I hope that this year's 
hearing can focus on two issues:
    First, how is the SEC reforming its internal operations, 
especially in light of the substantial increase in funds that 
have been provided?
    Second, how does the SEC propose to reform the securities 
markets to better serve the American people? The meltdown in 
our securities markets in 2008 and 2009 was the driving force 
in the financial crisis that has brought the worst economic 
downturn in almost 80 years. Although the unemployment rate has 
stopped rising, we still find almost 1 in 10 people in our 
labor force without work, and 1 in 6 are either unemployed or 
underemployed. Clearly, there is more work to be done.
    The Securities and Exchange Commission must be nimble to 
adjust to rapid changes in the securities markets. To 
effectively enforce the current rules, the SEC must run even 
faster to keep up with the sophistication of the clever 
criminals like Madoff, Stanford and Hegelian Hedge Fund. In the 
last 2 years, this committee has boosted SEC funding by more 
than 20 percent, in part, to strengthen the size, skills and 
technology of its enforcement and analytical staff. This 
hearing will examine how effectively the Commission is using 
those funds and how it proposes to use additional funds next 
year.
    In addition to better enforcing its own rules, the SEC has 
an obligation to address the economic problems caused by the 
securities markets. Too often, discussion of SEC's 
responsibilities focuses narrowly on investor protection. From 
the beginning, however, the SEC has also had more profound 
responsibilities. Remember that the SEC was created in the wake 
of the Great Depression that had also been triggered by a 
meltdown in securities markets. The Securities Exchange Act of 
1934 set out the purposes of the SEC in very broad terms ``to 
protect interstate commerce, the national credit, the Federal 
taxing power to protect and make more effective the national 
banking system and Federal Reserve system and to ensure the 
maintenance of fair and honest markets in such transactions.''
    If events in the securities markets over the last year and 
a half have taught us anything, it should be that what happens 
in securities markets can have major consequences for commerce, 
credit, tax revenues, the banking system, as well as investors. 
We count on the SEC and the agencies most closely tied to the 
securities markets to take a broad view of its responsibilities 
concerning the health of the economy and not merely investor 
protection. Those infamous toxic assets that caused our 
financial system to seize up in 2008 were securities, after 
all.
    How did so many assets become so toxic? Could proper 
regulation have avoided this crisis?
    The Commission must thoroughly examine what went wrong in 
the securities markets to allow the meltdown in 2008 and 2009 
to occur. It must change its rules and advise Congress of 
changes in the law needed to prevent anything like this from 
happening again. In other words, we are looking to you for 
answers, and this country is looking to you and to the 
Commission for protection.
    Speaking of protection, I yield to the person who protects 
me every time we have a hearing, the ranking member, Mrs. 
Emerson.
    Mrs. Emerson. Thank you, Mr. Chairman.
    Chairman Schapiro, thanks so much for coming back to the 
committee today. I will tell you it is a very challenging time, 
and you are doing a good job leading the SEC, and we are 
grateful for your efforts and for the efforts of your entire 
staff at the SEC.
    You know, while the markets are performing better than they 
were at this time last year, I think all of us must admit that 
we have a long way to go before we can fully restore consumer 
confidence or investor confidence, because I think of investors 
not just as Wall Street executives but as, really, the men and 
women whom I represent in my congressional district who are 
saving money to send their children to school, who are saving 
money to buy new homes, and who are trying to save for 
retirement. The task of trying to improve transparency in our 
securities markets is a great one, and it is a challenging one, 
as well as uncovering fraud and deception while not 
overregulating our markets and hindering economic recovery.
    So millions of Americans are looking to you to improve the 
integrity of the markets, and I will look forward to working 
with you and with my pal Joe Serrano to ensure that you have 
all of the tools and resources you need to ensure that our 
investors are protected and that the markets are properly 
functioning.
    However, I have to point out that, since the failure of 
companies such as Enron or Global Crossing or Arthur Andersen, 
Congress has provided the SEC with additional regulatory tools 
with the enactment of the Sarbanes-Oxley legislation, and it 
has more than doubled the annual appropriation for the SEC. 
Last year alone, the SEC received an almost 15 percent funding 
increase. I want to continue to be helpful to you and to 
provide your agency with the tools and resources that you 
believe are needed, but I also want some assurances that your 
resources are being effectively utilized.
    So, once again, welcome back. I look forward to your 
testimony.
    Thanks, Mr. Chairman.
    Mr. Serrano. Thank you.
    Chairman Schapiro, you know the drill. You have 5 minutes. 
Your whole testimony will be put in the record. We will have 
plenty of time to speak to you.
    I must note--and this is not a reflection on the hearing--
the attendance here today. It is just that there are many 
hearings taking place at the same time, and I would suspect 
there are a few hearings taking place in the leadership office, 
at the White House and in other parts of this country right now 
having to do with a little bill we have floating around, and I 
know you understand that.
    Ms. Schapiro. I understand.
    Mr. Serrano. Please proceed.
    Ms. Schapiro. Thank you very much.
    Chairman Serrano, Ranking Member Emerson and members of the 
subcommittee, thank you for the opportunity to describe how the 
President's fiscal year 2011 budget request of $1.258 billion 
would allow the SEC to better pursue our mission of protecting 
investors, regulating markets and facilitating capital 
formation.
    When I testified before the subcommittee a year ago, we 
were just emerging from an economic crisis that threatened our 
financial system and the entire American economy. The markets 
were still trying to regain a firm footing, and confidence in 
the institutions of government generally, and the SEC 
specifically, was badly shaken. Thanks to the strong support 
this subcommittee has provided to the Commission over the past 
year, we have been able to take significant steps to make the 
SEC more vigilant, sharp and responsive.
    We have brought in new leaders across the agency. We have 
streamlined our procedures and have reformed our operations. We 
began modernizing our technology and training our people. We 
set out to regulate more effectively. We fully engaged in the 
debate on regulatory reform, and we initiated one of the most 
significant investor-focused rulemaking agendas in decades.
    In the last year as well, we have created a new division of 
Risk, Strategy, and Financial Innovation to get ahead of the 
next financial challenge we may need to confront. Our 
Enforcement Division undertook a top-to-bottom review that 
resulted in a restructuring effort that is breaking down silos 
and has eliminated a layer of management to free up 
professionals for frontline duty. In addition, through the 
creation of specialized units, the restructuring is enabling us 
to have a deeper focus in critical areas, such as market abuse, 
structured and new products, and foreign corrupt practices. A 
similar review is being conducted by the new management of our 
Office of Compliance Inspections and Examinations as a prelude 
to necessary restructuring there.
    These efforts are already paying dividends. For example, in 
my first 12 months, our enforcement output has increased 
significantly. We brought more than twice as many temporary 
restraining orders and asset freezes in 2009 as in 2008. We 
issued well over twice as many formal orders of investigation. 
We won $540 million more in disgorgement orders. Penalty orders 
more than doubled, and we filed nearly 10 percent more actions 
overall, including nearly twice as many involving Ponzi 
schemes.
    We have made real progress, but restoring investor 
confidence and rebuilding the trustworthiness of financial 
institutions and markets will require a sustained regulatory 
commitment.
    The challenge we face grows larger every day. The dollar 
value of the average daily trading volume in stocks, exchange-
traded options and security futures has reached $245 billion. 
Since 2003, the number of registered investment advisers has 
increased by 50 percent, and their assets under management have 
grown by almost $19 trillion. Yet we still rely on fewer than 
4,000 dedicated individuals to monitor more than 35,000 
regulated entities.
    With the ability to hire more staff, we will deepen our 
pool of institutional expertise--hiring experts in financial 
services and related areas and bringing on economists, 
academics and market professionals with significant experience 
with today's markets and products. It also will allow us to 
conduct more investigations and trials, to reduce the gap 
between the number of examiners and the firms we oversee and to 
increase our capacity to monitor and respond to emerging trends 
and practices; and the proposed $12 million increase in 
information technology investments will allow us to not just do 
more work but better work.
    We have completed the first phase of creating a single, 
searchable database for tips and complaints, and we are working 
to add risk analytics to help us quickly and efficiently 
identify high-value tips and to search for trends and patterns 
across the data. We are enhancing collection, internal analysis 
and subsequent distribution of disclosure documents filed with 
the SEC. This will allow us to aggregate data across firms and, 
over time, to monitor macro trends, to search for hidden risks 
and to track systemic changes.
    We also plan to complete improvements to the case and exam 
management tools available to our enforcement and examination 
programs. While we will never reach or match the e-discovery 
technology available to the big law firms we face, the ability 
to search and use the vast amounts of data we access and 
collect will make our team more competitive in court.
    While putting state-of-the-art technology in the hands of 
SEC staff, we are giving them the training they need as well to 
keep up with and to constantly monitor the evolving financial 
environment. In the year ahead, we will also continue to pursue 
an energetic rulemaking agenda, looking after the interests of 
investors and responding to changes in the American financial 
marketplace.
    While the SEC is a relatively small agency, as you have 
noted, we are charged with protecting millions of investors 
every day, including the nearly one-half of all American 
households that own securities. I am pleased with the progress 
we have made to date, but we recognize that much work remains 
to be done to continue to restore investor confidence in our 
markets. The funding level in the President's budget request is 
critical for us if we are to succeed in these efforts and are 
to continue to improve our performance in an increasingly 
complex financial world.
    Thank you both very much for the support you have shown me, 
and I would be happy to answer your questions.
    Mr. Serrano. Thank you so much for your testimony.
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    Mr. Serrano. Now, you went a long way in answering the 
first two questions that I have.
    Could you be more specific in terms of how new resources 
will be used? You know, the $200 million increase in the SEC 
appropriation over the last 2 years has already funded a 12 
percent increase in staff. You estimate that the President's 
budget request for another $140 million would bring about a 21 
percent staff increase over the 3 years.
    So how is the restructuring going to specifically take 
place? If you could, go more in-depth than what you said in 
your opening statement?
    Ms. Schapiro. I would be happy to.
    First of all, the technology of the agency is really 
inadequate to the task that we are faced with on a daily basis. 
So we will use significant resources to bring our technology 
into this century, at a minimum, through efforts, for example, 
to take all of those hundreds of thousands of tips and 
complaints we receive every year and put them into a central 
database, have a capacity to triage those complaints, and work 
on the ones that have real value for us in shutting down 
potential Ponzi schemes or other frauds.
    We will also address the difficulties that our enforcement 
and examination staff face with the ability to manage their 
volumes of caseloads and exams in order to ensure that we are 
devoting our resources appropriately to the highest risk areas.
    As I mentioned in my remarks, there is the ability to 
conduct e-discovery. We have about 90 FTEs or so that are 
responsible right now, mostly contractors, for helping us deal 
with the three terabytes of data that our enforcement program 
receives on a monthly basis in the conducting of its 
investigations and cases. If we had a better electronic system, 
we could reduce those FTEs, and we would be far more efficient 
in being able to search that data and bring our cases.
    As important are the people resources that we need. As I 
mentioned, we have fewer than 4,000 employees and 35,000 
regulated entities. We need to bolster our programs in a number 
of areas:
    Within enforcement, a significant amount of our resources 
would go to adding trial attorneys and support for the 
investigations program. We believe that that will enable us to 
bring many more cases on an annual basis.
    In the examination program, we are severely outmatched by 
the industry. For example, we have about 400 examiners who are 
responsible for 11,000 investment advisers and 8,000 mutual 
funds, and mutual funds are the places where most Americans 
have their securities investments. We need to get better ratios 
there so we have better coverage of those industries, and we 
would use a significant portion of our human resources for that 
purpose.
    In addition, we have created a new division of Risk, 
Strategy, and Financial Innovation. We are trying to bring very 
different skillsets into the agency throughout the organization 
but also to reside a group of them in one place to support all 
of the other functions of the agency with different sorts of 
skillsets--financial analysts, people who understand trading 
strategies, people who understand new product development, 
people who understand the inner workings of credit rating 
agencies, for example. By having a sufficient number of slots 
to dedicate to this area, we think we can bolster broadly 
across the agency our risk assessment capabilities, which is, 
frankly, what should drive all of our programs. We will never 
have enough people to do everything, so we have to have the 
capability to understand where the risks are and where we will 
apply our resources.
    I am sorry. It is a very long answer.
    Mr. Serrano. No. No. I understand. It is a complicated 
issue.
    You know, as I hear you speak, I am thinking now, when we 
think of the market, we think of my city of New York, but there 
are actually people investing and brokers all over the country, 
both in the mortgage market and in other markets.
    Do you concentrate on the larger areas? Does the SEC look 
at everything? I mean, while you are looking at Wall Street 
again to make sure what happened doesn't happen again, could 
there be somebody in Dallas or in Illinois doing something 
improper and how do you keep on top of that? I always pick on 
Waukegan, Illinois. That is because it is Jack Benny's hometown 
and, you know, I am old enough to remember Jack Benny, so I 
apologize to the people of Waukegan. I always do that.
    Ms. Schapiro. And I remember Jack Benny as well.
    Absolutely, the problems--and the problems we have 
confronted over the last 2 years in particular have been 
focused on large Wall Street firms, and they have created--and 
they have the potential to create great risks to our system by 
the very nature of their size--the number of business lines 
that they are in, the esoteric products that they deal in and 
their interconnectedness with insured depository institutions 
and others.
    So we have had a lot of focus, I think, all of us in 
Congress and in the regulatory agencies and the bank agencies 
on Wall Street. But we also have to worry very much about what 
is happening on Main Street because there are 11,000 investment 
advisers regulated at the Federal level, and another 14,000 
regulated at the State level. There are 5,500 brokerage firms 
spread all across the country interacting on a daily basis with 
retail investors and with municipalities and State governments 
as well.
    We try to get the right balance, and I wouldn't suggest we 
always do, between our focus on the large systemically 
important institutions and the local brokers, dealers and 
investment advisers and mutual funds.
    One way we do that is through the presence of our regional 
offices. We don't have one in Waukegan, but we do have one in 
Chicago and around the country, and those regional offices are 
very close to the local financial community, and so they are 
able to have a great deal of focus on what is happening in 
their local communities, and that is an important part of the 
balance for us.
    So a number of the new resources that we have been able to 
gain over the last year, and as I say, for which we are very 
grateful--will go out to our regional offices where they can be 
deployed in Main Street investor protection.
    Mr. Serrano. Let me ask you one more question before I turn 
it over to Mrs. Emerson.
    Economists have put partial blame in many places--mortgage 
brokers, credit rating agencies, securities firms, packaging, 
overrated asset backed securities, hedge funds, investment 
advisers, et cetera. Tricky question: Whom do you hold most 
responsible? Does the SEC have a role in either holding 
individual actors responsible or preventing such behavior in 
the future?
    Ms. Schapiro. Well, there are lots of people who share 
responsibility for what we have been through, and so I would 
agree with the list that you really just read us, whether it is 
credit rating agencies, Wall Street firms, regulators, to an 
extent as well.
    With respect to how we hold people responsible or will we 
hold people responsible, the answer is absolutely. Within the 
financial services community, and looking at the conduct that 
arises out of the financial crisis, we have many investigations 
going on, and we have brought many cases already against 
mortgage originators for failure to disclose declining 
portfolio values or decreasing delinquencies for poor 
accounting practices against money market fund that engaged in 
conduct that caused it to break the buck and cause essentially 
the potential for a run on money market funds during 2008.
    We have brought cases against insider traders taking 
advantage of information they knew arising out of the credit 
default swap market, for example. So we have held many 
institutions and individuals responsible in the past year, and 
we will continue to very vigorously investigate all of the 
conduct that we think violated the securities laws and gave 
rise to many of the related problems that we have seen, whether 
it was with respect to accounting and disclosure, the conduct 
of rating agencies, the conduct of individuals selling toxic 
assets without adequate disclosure to the full extent of our 
capabilities.
    Mr. Serrano. Elected officials are always very careful 
never to blame the public or to put any blame on the public, 
except if they are immigrants, then you can beat them up, you 
know. But that is my comment, you know, not that you should but 
some people do, much to my dismay. But during that whole bubble 
that we had where everything was going so great, was it a lack 
of information on the public's part or did the public bear a 
little responsibility in saying some of these deals are too 
good to be true? I mean, buy a house now. We will make the 
first mortgage payment for you. You know, no interest. Your 
first mortgage payment will be next year and we will throw in 
season tickets to the hockey team or whatever. You know, is it 
that I am too cynical or too suspicious? Because I would have 
said what is going on here?
    Ms. Schapiro. I do think there are certainly instances 
where members of the public were not sufficiently skeptical of 
the products that were being offered to them and sold to them. 
I think there were also many instances where very complex 
products were sold to people who simply did not understand and 
relied on the advice and the guidance they were getting from 
somebody who was offering to sell them a mortgage. So again, I 
think there is plenty of responsibility to go around.
    Mr. Serrano. Okay. Thank you.
    Mrs. Emerson.
    Mrs. Emerson. You know, I will say, just in comment to what 
you were saying, Mr. Chairman, you know, after my dad passed 
away and my mom decided that perhaps she didn't want to live 
all by herself in our house, so she sold the house and then put 
the money that she made from it into--with an investor, and 
because my mother was not very well educated as far as 
investments went, they lost all of it. She lost all of that 
money, and it was really--you know, just absolutely 
heartbreaking and, you know, she--in some ways, I think blamed 
herself, but at the end of the day, she got--she was sold a 
bill of goods and, you know, the whole firm in which she had 
put her money went down and the head of it went to prison and 
that sort of thing, but it is really very, very sad.
    I wanted to ask you a few questions, if I could, about 
Lehman Brothers in regard to the report that was released last 
week, accusing the Lehman Brothers execs of manipulating their 
balance sheet, malpractice by the auditor, Ernst & Young, and 
inaction by regulators, obviously in the wake of the Enron 
bankruptcy and enactment of accounting industry reforms in 
Sarbanes-Oxley it is disappointing to see that companies and 
accounting firms are still willing to misrepresent their 
financial positions. So I have three questions, and I will just 
go ahead an ask them in order and then let you respond.
    To the extent it is appropriate to comment, can you tell us 
what you are doing to investigate Lehman and Ernst & Young? 
Two, what is the state of the accounting industry? Are you 
concerned that there is, perhaps, some more widespread use of 
malpractice? And three, the SEC supervises the public company 
accounting oversight board that was created by Sarbanes-Oxley, 
and I just want your thoughts on how well you believe it is 
performing. Thank you.
    Ms. Schapiro. Thank you.
    I have to obviously be careful in the context of talking 
about what it is we are doing. Although, it would be safe to 
assume that we are looking very carefully at the conduct of a 
number of firms during this period of time, and I think the 
examiners' report, which is really a superb recitation of 
events, so far as I can certainly tell, really focuses on a 
couple of the issues that you have really raised very squarely. 
The use of these REPO 105 to temporarily reduce the leverage 
and potentially resulting in misleading financial results, the 
potential overvaluation of certain reality assets. And finally, 
the conduct of individuals within the firm and the conduct of 
auditors, and we think that the examiner's report is going to 
be enormously helpful to us in our efforts.
    And I do think it also raises important questions about 
Sarbanes-Oxley and the--many of the protections that were put 
in place post-Enron. The reforms that one would hope would have 
prevented this kind of conduct. So I think there are serious 
questions about whether the reforms under Sarbanes-Oxley 
relating to accounting and disclosure were fully complied with 
here. Again, that is an issue raised in the report and 
something worthy of our looking at.
    I do think that the state of the accounting industry--it is 
hard for me to judge broadly. I will say that I think SOX has 
had very positive impact on the industry. Financial reporting 
is clearly more transparent and more reliable than it was and 
recent studies have showed that the number of restatements and 
such have declined.
    I do think that there is greater corporate accountability 
about financial results as a result of Sarbanes-Oxley and the 
requirement for CEO and CFO certification and a number of other 
protections. And I think that the PCAOB's program has improved 
audit quality through their oversight.
    As a result of Sarbanes-Oxley, in addition because of the 
new tools the SEC was given, we have brought about 66 cases 
against accounting firms since Sarbanes-Oxley, and close to 200 
individuals. So we have a very robust enforcement program 
around the accounting profession.
    Mrs. Emerson. I appreciate your answer.
    Let me ask you about Bank of America now if I could because 
you all have been criticized for the handling of the Bank of 
America case where the SEC charged that the company failed to 
properly disclose employee bonuses and financial losses at 
Merrill Lynch before shareholders approved the merger of the 
two companies. In fact, the judge threw out the first proposed 
settlement of the case--well, the SEC's second attempt to 
settle the case was successful. Judge Rakoff stated that the 
settlement is ``inadequate and misguided'' because the 
penalties are ``very modest.''
    In addition, Attorney General Andrew Cuomo still going 
forward with a case against Bank of America in New York State 
courts. So what can you tell us about your approach to 
enforcement, and do you believe that the Bank of America 
settlement is too modest? How can you satisfy our needs to know 
that the interests of the investors are for most as opposed to 
the interest of Wall Street?
    Ms. Schapiro. Sure. Well as I mentioned in my opening 
comments our enforcement program has really done an 
extraordinary job, I believe, in the last year, and I talked 
about, you know--we have doubled the amount of disgorgement. We 
have 50 percent higher penalties. We have opened many more 
investigations. We have concluded more actions, and so I think 
that record, while it doesn't tell the whole story by any 
means, suggests that aggressive, robust enforcement is back at 
the SEC in a very meaningful way.
    We have a new enforcement director who is a former 
prosecutor from the southern district of New York. We have new 
leadership in some of our major offices where enforcement cases 
are generated--New York, Atlanta and Miami, and I think there 
is a very great commitment across the agency to fair but robust 
enforcement of the securities laws.
    With respect to Bank of America specifically, I guess I 
would have a couple of comments. The original settlement was 
very clearly rejected by Judge Rakoff. As a result of that, we 
went back. We negotiated a waiver of attorney-client privilege 
with Bank of America so we could explore directly with their 
outside counsel what role they may have played with respect to 
the failure to disclose the original allegations, which were 
related to the bonuses that were being paid to Merrill Lynch 
employees, but we also were able to amend our complaint in a 
second set of allegations, that is, losses mounted at Merrill 
Lynch during the pendency of the proxy vote; those losses 
should also have been disclosed to shareholders.
    So we made it a tougher and bigger case. The penalty went 
from, I think, $33 million to $150 million, which is actually 
being returned to shareholders as opposed to going to the 
United States Treasury, which I think was an important concern 
that Judge Rakoff had in the initial settlement, that we were 
penalizing the shareholders a second time.
    And it provides for some very significant undertakings in 
the corporate governance world that I think will make this a 
better run company so that there will be better care taken the 
next time, and there will undoubtedly be a next time when they 
have to distribute a proxy statement for their annual meeting 
or for a major transaction, and I think that is important as 
well.
    Finally, the second settlement, which the judge did 
approve, admittedly with some mixed feelings, I believe, has a 
full factual recitation of all of the facts that underlie the 
conduct we believe violated the Federal securities laws. I 
think that is very important for the public to have access to.
    So the last point I would want to make is that Attorney 
General Cuomo did arrive at a different conclusion with respect 
to the culpability of individuals. He has a different law to 
administer, the Martin Act, and we have the Federal securities 
laws. But we took testimony from dozens of people. We took--we 
built a very strong evidentiary record, and we have to go at 
the end of the day where that evidence leads us, and we did not 
believe that we could prove in court a case against the 
individuals and even though we settled, our standard must 
always be can we prove our case in court.
    Mrs. Emerson. I appreciate that. Thanks very much. I do get 
so worried with these big firms that, perhaps, could be 
characterized as too big to fail and wish we did not have firms 
that were too big to fail, but that is----
    Ms. Schapiro. I agree completely.
    Mrs. Emerson. That is another discussion. So thank you, Mr. 
Chairman.
    Mr. Serrano. Thank you. Too big to fail sometimes is a 
matter of opinion, right?
    Ms. Schapiro. Yes, very much so.
    Mr. Serrano. Only the U.S. Congress is too big to fail.
    Before I turn to my dear friend, dear friend, Mr. 
Culberson, let me just follow up on your initial question on 
Lehman Brothers.
    We read in The New York Times that the SEC had a person 
stationed at Lehman, monitoring what was going on--or certainly 
monitoring some of the actions--and it was reported that that 
person didn't think anything was going wrong, was terribly 
wrong. I think the quote was that nothing signaled to him or to 
her that something was terribly wrong.
    Did SEC examiners have knowledge of the REPO 105 
transactions and do you agree that nothing terribly wrong with 
using REPO 105 transactions to reduce debt by $15 million to 
make the ends of quota books look better. In other words, what 
was going on and what role do you think the SEC should have 
played, did play and should play in the future?
    Ms. Schapiro. The examiners report I think makes clear that 
the SEC was not aware, that staff was not aware of the REPO 105 
transactions, but if I could take a step back, I have testified 
at great length in front of the Financial Crisis Inquiry 
Commission about the issues that the SEC had with the program 
under which it regulated Lehman Brothers, called the 
Consolidated Supervised Entities Program, which was really 
developed to bring holding companies of large investment banks 
that didn't have a bank, and therefore weren't subject to Fed 
regulation, under the umbrella of some kind of a regulatory 
structure.
    It suffered, quite honestly, from a number of very 
significant flaws. First of all, it was a voluntary program; if 
a firm like Lehman Brothers came into the CSE program, they did 
not have to stay. They could have elected a European regulator 
as their consolidated supervised regulator in lieu of the SEC. 
It was inadequately staffed and resourced almost from the very 
beginning. There were not enough people with the appropriate 
skillsets to really be responsible for five of the largest 
financial institutions frankly in the world.
    It was a bit insular and stovepiped. I think that is one of 
the things we see referenced within the examiners report. And 
there was an aspect to it that the Consolidated Supervised 
Entities Program required a sort of regulation, a prudential 
form of regulation. It was really quite different than the 
regulation the SEC normally engages in. We are a very 
disclosure and enforcement-focused agency. This program really 
required more of the banking regulator sort of approach to 
regulation where we figure out the problems and we resolve them 
and we move on. We do not have a lot of transparency around 
that in a lot of enforcement, and I think we were ill-suited 
because of our disclosure and enforcement mentality to really 
convert to being a prudential regulator in this sort of a 
setting.
    So I think the report confirms some of these shortcomings, 
which again, we have spoken about at length and we are trying 
to address those through new leadership across the agency, 
bringing in new skillsets. The use of cross agency task forces 
and other mechanisms to try to break down the stovepipes that 
exist.
    Mr. Serrano. How do you intend to do that? I mean when you 
say that you are looking at it and you are trying to make the 
changes, what changes can we expect? Because you see what I am 
trying to help you prevent, if there is such a thing as us 
helping you prevent, is that we want to create greater 
confidence in your agency from the public, and then we read 
something like this and we say, oops, we took a step back. That 
is what I am trying to get at. So can you be more specific as 
to how you will attack this?
    Ms. Schapiro. Absolutely. And I should mention that this 
program was shut down by my predecessor about a year and a half 
ago, so it doesn't exist, and these major institutions are now, 
either don't exist or they are subject to regulation by the 
Fed; the SEC still focuses on the broker-dealer and works 
closely with the Fed.
    But it is not just what we want to do. There are a number 
of things we have already done. We have replaced the leadership 
across the agency. We are bringing in--we have brought in a 
number of very sophisticated financial analysts and people with 
different perspectives and much more current Wall Street 
expertise to help us understand the risks that are growing in 
the financial system even if they are not narrowly in our world 
of broker-dealer regulation.
    The additional slots that this committee has made possible 
are going to enable us to have a more hands-on approach with 
respect to the entities that we regulate.
    The culture of the agency is changing. It doesn't happen 
overnight, but that is why, from my perspective, bringing in 
new leadership was so critically important. We have brought in 
people who are absolutely committed to one SEC, not a division 
of this or a division of that or an office of this, but one SEC 
that shares information that collaborates and cooperates so 
that at the end of the day, the SEC gets its job done, and 
investors can ultimately have confidence that this agency is on 
the job again.
    Mr. Serrano. Thank you.
    Mr. Culberson.
    Mr. Culberson. Thank you, Mr. Chairman.
    The chairman raises a really important question that I know 
all of us are concerned about--the $50 billion that Lehman 
Brothers hid in debt and that they succeeded in doing so at a 
critically important time.
    Which Federal agency, Chairman Schapiro, would have been 
responsible? You say your agency. You were not aware of their 
hiding the $50 billion. Who is responsible then for spotting 
that?
    Ms. Schapiro. The SEC was the consolidated regulator of 
Lehman Brothers during that period of time.
    Mr. Culberson. I'm sorry. This was, I thought, the $50 
billion they hid before they were----
    Ms. Schapiro. No. It was during the period of time that the 
SEC was the consolidated supervisor of Lehman Brothers.
    Mr. Culberson. Okay.
    Ms. Schapiro. It ramped up. I think, in 2007, it 
particularly ramped up. The CSE program had been created a 
number of years before really to provide these large investment 
banks with a consolidated supervisor so that they could 
continue to operate in Europe where a director was requiring 
them to have consolidated supervision.
    The SEC, to that point, had only ever regulated broker-
dealers, and it is quite a different perspective to regulate 
the broker-dealers than it is the affiliates and subsidiaries 
and the holding company, which may include many other 
businesses and face many different risks than the broker-dealer 
itself.
    Mr. Culberson. In your statutory authority, as you 
described, it is a voluntary program for which you rely a lot 
on disclosure, and you have to rely on the entity to disclose 
information before you are in a position to enforce it.
    Is that under the limitations of the statutory authority of 
the SEC?
    Ms. Schapiro. Well, the program no longer exists. Chairman 
Cox closed it down over a year ago, maybe 6 months or so before 
he left the SEC.
    It is a voluntary program in this sense: If they wanted the 
SEC to be their consolidated supervisor, they then had to 
consent to regulation by the SEC and to provide us the 
information that we believed was necessary, not just for the 
broker-dealer but for the holding company affiliates and 
subsidiaries as well. It was voluntary in the sense that they 
could leave the program, but once they were in the program, 
they were obligated to provide the SEC with the appropriate 
information.
    Mr. Culberson. So, really, if not the SEC, wouldn't the 
Federal Reserve then have the responsibility for ensuring 
that--I mean to flesh out this $50 billion of debt that was 
hidden? Wouldn't that be the responsibility of the Federal 
Reserve?
    Ms. Schapiro. Well, it was the SEC's responsibility. We 
were the consolidated supervisor of Lehman Brothers. Towards 
the end, both the Fed and the SEC had staff much more actively 
engaged. According to the examiner's report, they were much 
more actively engaged in the oversight on a daily basis of 
Lehman Brothers.
    Mr. Culberson. But the Federal Reserve also had 
responsibility, didn't they?
    Ms. Schapiro. Well, they didn't have direct regulatory 
responsible, but there was clearly cooperation. They were 
clearly involved as well with Lehman Brothers.
    Mr. Culberson. But the Federal Reserve is responsible for 
ensuring the integrity of the banking system in the United 
States, so the Federal Reserve had responsibility for ensuring 
the integrity of Lehman Brothers as well, right?
    Ms. Schapiro. Well, I guess we probably more appropriately 
would ask them this question; but because Lehman Brothers was 
not a bank holding company, but rather a securities firm 
subject to consolidated supervision at the SEC, I believe, 
according to the examiner's report, the Fed viewed the SEC as 
the primary regulator; but clearly--and I know you have seen 
the examiner's report--there is discussion of the role the Fed 
played in overseeing Lehman Brothers.
    Mr. Culberson. Right. You have got primary responsibility, 
but the Fed also has responsibility, right?
    Ms. Schapiro. Well, yes, I think that is correct.
    Mr. Culberson. One of the problems that has been brought to 
my attention by people I respect in Houston, which I was 
unaware of, is that, apparently, it is possible for a regulator 
who works at the SEC--when they leave the SEC, they can turn 
around and go work for one of the firms that they regulated.
    Ms. Schapiro. That is true.
    Mr. Culberson. Like next week. They could leave today, and 
next week, I could be drawing a paycheck from one of the firms 
I was regulating.
    Ms. Schapiro. We do have employees, obviously, who leave 
our employ, as they are entitled to do, and they can go work 
for law firms that represent regulated entities, and they can 
go work for regulated entities. In that case, we try to guard 
very carefully against the conflicts that may be created by 
their being present in a regulated entity; but it is true what 
you say, and I have looked at what other regulators do in this 
regard. We have this difficult balance here because we want to 
bring in the best and the brightest to the SEC, and we want to 
bring in people from Wall Street who understand products, who 
understand practices, who can help us find the problems, and at 
the same time, if we tell people you cannot go work for 5 years 
in this industry, we are going to have a very hard time 
bringing in the talent we need to bring in.
    Mr. Culberson. But you can see the conflict, and I wanted 
to be sure to bring it to Mrs. Emerson's and the chairman's 
attention that it is astonishing at the SEC--that I could work 
at the SEC as a regulator and then, next week, go work for one 
of these big firms and be pulling down a huge salary. I mean, 
the conflict is just blatant. I think, in every other Federal 
agency that I am aware of--and we do the same thing here--there 
is a period of time in which, I think at any Federal agency, 
you can't, for example, I know, if you leave the Pentagon, 
immediately go work for Boeing or go work for Lockheed. The 
conflict is just incredible. It is incredible.
    I mean that, to me, is one of the fundamental problems 
here. You have got the authority, I think, internally--don't 
you?--to issue a regulation that would prohibit your employees 
from going to work, within a period of time, for the entities 
that you regulate? You have got that authority under the 
statute, don't you, to do it yourself?
    Ms. Schapiro. I don't know the answer to that, but we can 
certainly look into that, and I would be happy to come back and 
talk with you about it. I do know that people do leave other 
regulatory agencies and go into the industries for which they 
have had regulatory responsibility. The SEC is not alone in 
that.
    Mrs. Emerson. I think the FDA does it, too.
    Mr. Culberson. It is a bad idea. I mean, it is just a 
terrible idea.
    I think the statute is broad enough, Mr. Chairman and Mrs. 
Emerson, to give you authority, and if it is not, it is 
something we should talk to our friends about on the 
authorizing committee, and if they get too wrapped around the 
axle, we may think about getting a waiver. That is something 
that ought to be in law, Mr. Chairman. This is just a blatant 
violation of just common sense. It is a terrible problem.
    I understand you are trying to attract top people, but that 
is just not acceptable, particularly in light of what has 
happened to the country and the failures we have seen.
    In the brief time I know I have got--and I know I get a 
second round--I wanted to ask about Stanford Financial. They 
were in Houston. This guy Allen Stanford fooled a lot of 
people, and his company employed--in fact, Stanford was an SEC 
and FINRA regulated broker-dealer.
    The certificates of deposit that Stanford sold people were 
sold to investors by SEC-regulated, FINRA-licensed and SIPC-
member financial advisers. You know, they were all licensed 
regulators. There was even an SIPC logo on all of the 
correspondence that Stanford sent out. They had to do that--of 
course, they had to have the authority to do so.
    My question would be, Mr. Chairman--and I appreciate the 
time--is that the victims of Stanford were defrauded in this 
same kind of Ponzi scheme as the Madoff investors were 
defrauded. Yet the SEC has extended SIPC coverage to the Madoff 
investors, and it is the same situation. You have got people 
who lost everything, who were destroyed by this fraud. I wanted 
to ask you to please reconsider extending SIPC coverage to the 
Stanford investors who were defrauded in the same way as the 
Madoff investors.
    Ms. Schapiro. I appreciate that.
    This is really a tremendous tragedy. I know--and I know you 
know as well--that SIPC has determined that the SIPA Act 
doesn't apply, with respect to the customers who held the CDs 
of Stanford Bank, because they were not held at the broker-
dealer. They were issued by a bank, and they were considered to 
be a banking product.
    My staff has met on multiple occasions with the Stanford 
victims group. In fact, I will be meeting with them in the very 
near future, and I assure you we will continue to look at any 
information they bring to us or that comes to light in the 
consideration of our litigation that would suggest a different 
result.
    Mr. Culberson. If I could just very quickly follow up, Mr. 
Chairman--and thank you for the time--the SEC designated 
Stanford's business entities as a single commercial enterprise. 
They were all one commercial enterprise, so they weren't simply 
a bank. These weren't banking certificates. Your agency had 
designated them as a single commercial enterprise. So, 
therefore, it is logical that they would then be extended 
coverage under the SIPC program.
    Ms. Schapiro. Well, we can certainly continue to have 
conversations with SIPC about this. I understand the concern 
that you are raising.
    Mr. Culberson. Would you revisit it, please? Would you 
please go back and look at it again? These folks have lost 
everything.
    Ms. Schapiro. Absolutely. I would be happy to.
    Mr. Culberson. I know I will have another round.
    Thank you, Mr. Chairman.
    Mr. Serrano. I am going to just make a brief statement, and 
I believe that this statement is true, which is that, while in 
the past administration and in the past in general, there might 
have been some Members of Congress who thought we shouldn't 
overregulate and that therefore it was okay for the SEC to look 
the other way, I think that we are at a point now where I can 
honestly say there are certainly members of this subcommittee 
and members of the full committee who would want the kind of 
things that happened in the last couple of years not to happen 
again.
    It is in no party's interests. The Democrats and the 
Republicans don't score points if our economy takes another 
hit, as it did before, partially based on Ponzi schemes and 
other things that have hurt so many people.
    So, when we are asking you questions, especially on this 
Lehman issue, if they seem tough and although you haven't 
complained, it is because there is a bipartisan desire for this 
never to happen again.
    When we hear, right at the point when we are beginning to 
say we are turning a new leaf, that there was somebody from the 
SEC sitting there, basically saying this didn't seem to be a 
problem--granted that it was some time ago in 2008--still we 
are here. You are telling us things have changed. We are saying 
we want them to change.
    I repeat that it is in no one's interest here. I mean Mr. 
Culberson and I disagree on many issues, but we agree that the 
economy has to be sound and that we have to recover from this. 
We all do.
    So, if we press you, it is because this can't happen again. 
I mean, this may be--this Lehman situation, in the opinions of 
some folks, may be more of a tragedy than the Madoff situation 
because the Madoff situation cost some investors, sadly, money. 
This one may have cost jobs and a lot of other things that that 
will have ramifications throughout the economy. So understand 
that our continuous pushing and prodding on this issue is 
because this cannot be tolerated again.
    Ms. Schapiro. Mr. Chairman, I agree with you completely, 
and that is the role of Congress--to push and prod us on 
exactly issues like this.
    I will say that, as to the comments, I think, you were 
referring to, that person no longer is at the SEC, and as I 
said, that program was shut down about 18 months ago because it 
was so terribly flawed, frankly, in design and execution.
    But I also want to say we are working very hard at the SEC 
across the board--the leadership, the staff, at all levels--to 
rebuild the agency's credibility so that investors can have 
confidence that there is an agency out there solely focused on 
protecting their interests, which are, as you said in the 
beginning, both their retail interests and also their broader 
interests in the safety and soundness of the financial system. 
Across, you know, all of the things we do, that is really what 
is driving us and why we have people working so hard. My 
experience in the last year and in my first year as chairman is 
that there is a tremendous commitment in trying to get it 
right.
    Mr. Serrano. Let me move you on to another section.
    As we speak now--and I am not being cynical here, but as we 
speak now there might be somebody on Wall Street trying to 
figure out the next scheme, or someone somewhere in this 
country, trying to figure out the next painful scheme. Some 
have questioned whether the Wall Street firms and their lawyers 
may have information technology resources that allow them to 
outgun the SEC.
    Does each of the major divisions at the SEC have the right 
type of and quantity of information technology resources 
necessary for them to do their jobs? Does the SEC have a 
strategic, long-term information technology plan for investing 
in the type of IT resources it needs, including hardware, 
software and personnel?
    Ms. Schapiro. The short answer to your question is, no, our 
divisions don't have the technology resources that they need, 
and I guess I would say a couple of things about that.
    First of all, the resources this committee gave us last 
year have made a big difference. So, on one of our big areas 
where we needed to jump very quickly to build a mechanism to 
take all of these tips and complaints--hundreds of thousands--
bring them in, triage them, all of those things that I spoke 
about, we were able to get that project well underway, and we 
have completed the first phase of it because of that.
    Now that we have some resources to spend on technology, I 
am very committed to making sure we do that wisely, and I have 
seen technology projects in other places grow wildly out of 
hand, exceed budgets by enormous amounts and not deliver the 
results that are important and were the purpose of the projects 
in the first place.
    So we are bringing in a consultant to help us do, on a 
pretty rapid basis, a top-to-bottom review of our technology 
capabilities, our ability to manage projects. About 70 percent 
of our technology resources are outsourced, so we are managing 
a lot of contracts. We don't have many internal people. We have 
got to get a better mix of those things.
    I would say, if you look at 2008, for example, which is the 
last year I have numbers, we spent $108 million on technology 
at the SEC. JPMorgan spent $4.1 billion on technology and 
communications. Morgan Stanley spent $1.2 billion, and Goldman 
Sachs spent over $750 million.
    So we are outgunned by any measure. We will never 
approximate those numbers. We understand that, but we need to 
get to a better level than we are right now, whether it is exam 
management, enforcement case load management, capability to 
utilize e-discovery tools that will make us better and faster 
in our investigations and in court.
    It is our financial management systems that have lots of 
manual work-arounds but need to be integrated and consolidated, 
so we are doing a better job with our own financial management.
    It is really across the board that we need to devote 
technology resources. I want to make sure we do it well and do 
it right, so we are going to take these 60 or 90 days to really 
do a top-to-bottom review and make sure we are capable of 
delivering these major projects that we have on the decks.
    Mr. Serrano. Well, thank you.
    The committee would appreciate, when you get to the point 
of understanding what your needs are and what you have 
accomplished in reshaping that whole area, that you inform us. 
I am not asking you to report in a formal way, but just let us 
know what changes are taking place.
    Ms. Schapiro. Absolutely.
    Mr. Serrano. I don't want you to be outgunned.
    Ms. Schapiro. Thank you.
    Mr. Serrano. Mrs. Emerson.
    Mrs. Emerson. Thank you, Mr. Chairman.
    I have got two things--two separate issues I want to ask 
you. Well, actually, they are not two separate, but they go 
down two different paths.
    The first one has to do with the remarks that CFTC Chair 
Gensler recently made somewhere in Europe, I believe, to the 
EU, to toughen over-the-counter rules. I think he cited AIG's 
derivatives operation in London as an example of the results of 
ineffective regulation. Number one, do you share his view that 
weak EU derivatives regulations are a risk to our financial 
system? That is the first question.
    Then, secondly, in my district, derivatives, in the form of 
commodity futures, are followed closely by our family farms, 
which really depend on them to reduce risk. So, if we move more 
over-the-counter derivatives onto exchanges or through 
clearinghouses, making it more transparent and regulated, will 
we be able to balance the interests or the derivatives needs of 
the large banks versus my small family farmers?
    Ms. Schapiro. Right. Well, a couple of comments.
    First of all, I want to be very clear. It is absolutely 
imperative that we bring credit default swaps and other over-
the-counter derivatives under comprehensive regulation. So, 
while the EU issues are very real, the United States of America 
issues are also very real with respect to the regulation of 
over-the-counter derivatives. As a result, as you all know, of 
the Commodity Futures Modernization Act of 2000, these products 
were all exempted from any regulation except antifraud 
authority.
    So there is a lot in both the House and the Senate bills 
that is very good, and it advances the ball in regulating in 
this area. There is some work to do to make sure we are not 
creating new loopholes or allowing exemptions over time to 
become loopholes, but I think there is a lot of goodwill to 
work through those particular issues.
    You know, the commodity futures--and I spent the first half 
of my career in the derivatives area of the CFTC specifically. 
The commodity futures markets that are relied upon by farmers 
are well-regulated markets. They are exchange traded. There is 
a central clearinghouse. There is marking-to-market daily. 
There is margin posted. There are all the protections that one 
gets from a fully regulated marketplace, so I don't believe 
that moving unregulated products onto exchanges will in any way 
diminish the capability of exchanges or the accessibility of 
family farmers to the products that they need to manage.
    Mrs. Emerson. I appreciate that.
    It is interesting. There was an article, I guess, from the 
March 10 Washington Post that, you know, was just in the 
specific area of credit default swaps. It was talking about the 
fact that, I guess, they are saying that Europe moved ahead of 
the United States in advocating new measures to totally ban 
certain types of financial speculation, primarily because there 
is the suspicion that that is what, in fact, led Greece into 
the very, very tough economic situation they are in now.
    Would you agree with that?
    Ms. Schapiro. Well, I think there has been discussion, 
particularly as a result of the issues with Greece, as to 
whether what they call ``naked credit''--it feels funny to say 
that in a congressional committee--credit default swaps, should 
be banned or where there is not a clearly identical, insurable 
or hedgeable interest, it should be banned; but I think that is 
just discussion at this point, and there are lots of issues 
surrounding that that need to be worked through. The problem is 
we have no transparency into this marketplace now, so whether 
banning is the right thing to do or not I am not sure is at all 
clear.
    Mrs. Emerson. We would first have to know what we are 
talking about.
    Ms. Schapiro. Right. Exactly. The information just doesn't 
exist.
    Mrs. Emerson. I appreciate that. Thank you so much.
    Mr. Serrano. Before I turn to Mr. Culberson, there are 
three votes coming, and we are going to make an effort to try 
to wrap it up because I suspect that, while there are three 
votes, they might be longer than usual because there is 
discussion on the floor about another issue as we all know.
    Mr. Culberson. One or two other issues, yes.
    Mr. Serrano. Mr. Culberson.
    Mr. Culberson. Thank you very much, Mr. Chairman.
    I wonder if I could follow up.
    Would you look into your ability within your own rules and 
the statutory authority to enact regulations that would 
prohibit SEC employees from going out to work for the entities 
that you regulate?
    Ms. Schapiro. Yes, I will do that.
    Mr. Culberson. Thank you very much.
    Let me also ask if anyone has been fired at the SEC. Has 
anyone been held accountable or has anyone been fired as a 
result of their negligence in the Madoff case?
    Ms. Schapiro. Well, I can tell you, with respect to the 
enforcement employees involved, 15 out of 20 have left the 
agency already. The inspector general's report, which revealed 
all of the detail about the Madoff investigations and failures, 
recommended that the Commission consider disciplinary action 
with respect to those who are still employed by the agency. We 
have a process under the Federal rules that would apply to any 
Federal employee in this context, and we are following that 
process.
    Mr. Culberson. The ones who left. They just left free as 
birds, and probably went to go work, drawing big paychecks from 
some of the folks you regulate? I hope not.
    Ms. Schapiro. I am not sure that I know the answer with 
respect to each and every one of the people.
    Mr. Culberson. Has anybody been disciplined yet?
    It is like 9/11, you know. No one ever got fired. It still 
drives me insane.
    Ms. Schapiro. When the inspector general's report came out, 
to the extent that people were still at the SEC, I ensured that 
they were subject to additional supervision during the period 
of the pendency of considering whether any disciplinary action 
is appropriate. We have to follow the process that is laid out 
in Federal law.
    Mr. Culberson. Has anyone been fired as a result of their 
negligence over Lehman Brothers?
    Ms. Schapiro. Not to my knowledge. Although, a number of 
people, including the one, I think, who is being quoted here, 
have left.
    Mr. Culberson. Right. Do you know how maddening that is? I 
mean that is just not acceptable.
    Now, in the private sector--I was a civil defense attorney. 
I defended businesses and individuals. You know, the trial 
lawyers have never darkened my door. I don't think I have ever 
taken a dime from the trial lawyers; but lawyers have a role 
just like, you know, yellow jackets and, you know, spiders have 
a role. That is why we have padded dashboards and safety glass. 
I understand that.
    I mean, I think what we really need to do, Mr. Chairman, 
and all of us on the committee, is to find some way to hold 
government employees accountable in some form or fashion for 
gross negligence. I haven't read the gentleman's book about 
Madoff, but I saw the guy on the Today Show--my wife taped it--
where he brought it to your predecessor on a silver platter, 
and nothing happened.
    I am going to save time for my friend Mr. Kirk, who is so 
capable and knowledgeable, but I wanted to bring to your 
attention very quickly, Mr. Chairman and members, about a 
problem brought to my attention. Apparently, these firms can 
set up computer servers on the floor of The New York Stock 
Exchange. The big firms can set up co-located servers on top of 
the light pipe and get right next to the fiber optic 
transmission cables coming into the floor of The New York Stock 
Exchange, and they are able in nanoseconds to execute trades. 
If they spot that one of the big pension funds is selling or 
buying GE stock, for example, they are able, within 
nanoseconds, to execute a trade because they have co-located 
servers on the floor of the stock exchange. That is the new 
scheme, Mr. Chairman.
    Is that correct? I mean, that is a blatant loophole.
    Ms. Schapiro. Given the popularity of high frequency 
trading now, which has become common parlance because of such 
interest to so many people, co-location is a big issue because 
it does get you that nanosecond of advantage in timing. We have 
put out for comment a request for information on the whole 
phenomenon of high frequency trading and what would be a 
regulatory response that would be appropriate for that, and 
dealing with co-location is a critical element.
    Mr. Culberson. Thank you very much.
    I yield my time and whatever time he wishes, which is 
apparently mine, to Mr. Kirk.
    Mr. Serrano. Mr. Kirk will be recognized for his own time. 
He is a full member of the committee.
    Thank you, Mr. Culberson, for your concern of Mr. Kirk.
    Mr. Kirk. I want to raise two longer range issues with you.
    One is we now have an emerging problem with what the IMF 
would call the GIPS countries--Greece, Italy, Portugal, Spain. 
The problem is publicly traded financial institutions in the 
United States have been providing off-books loans, especially 
to the government of Greece, that have dramatically increased 
the systemic risk in the system, and to publicly traded SEC-
regulated financial stocks in the United States.
    Could I get a commitment out of you to look into this 
because of the increased exposure and systemic risk that this 
poses to publicly traded financial institutions in the United 
States?
    Ms. Schapiro. Absolutely.
    Mr. Kirk. I would like to follow up on that.
    Secondly, my understanding is that the Spanish situation is 
five times worse than the Greek situation, and we have been 
surprised by what some U.S. financial institutions have lent to 
Greece that was not publicly disclosed, and this is creating a 
new systemic risk.
    Thirdly, I am also worried about what was a fairly 
important decision by Moody's to issue a warning with regard to 
a U.K. debt--well, American even later--but I think there is a 
general rule that when your debt service is exceeding 10 
percent of your income, you cannot have AAA status. The 
question is:
    If gilts, which is what British debt is called, are 
downgraded, what does that do to the financial position of 
publicly traded companies in the United States?
    Ms. Schapiro. I am not sure I am really qualified to answer 
that question. I believe it could have a very substantial 
impact, obviously.
    Mr. Kirk. Right.
    Ms. Schapiro. One of the issues, I think, really comes down 
to what are the disclosure requirements for sovereign debt, 
because even when a sovereign registers their securities to 
sell to U.S. investors in the United States and when they 
register under the 1933 Act and when they fill out a 
registration form--and it is quite a different registration 
form than we are used to seeing for a public company as it 
might not even have GAAP financials attached to it--and while 
10(b)(5) fraud prohibitions apply, what we don't get is 
continuous reporting under the existing law for sovereign debt.
    So, for example, there is no duty to notify the marketplace 
if the risk of failure to repay the debt is increasing. Those 
are issues that are provided for, and that protection is 
provided in statute, but it is something that we should 
potentially look at.
    Mr. Kirk. It is, because my understanding is, last January, 
the British Government failed in a debt auction, which is a 
fairly substantial thing.
    I met with the IMF director of European Operations, who say 
that he has no good transparency at all.
    Ms. Schapiro. Nor do we.
    Mr. Kirk. Right.
    Ms. Schapiro. Before you arrived, we talked a little bit 
about the Commodity Futures Modernization Act, which really 
shielded instruments, particularly like credit default swaps 
from any transparency and from any real oversight in the U.S. 
markets. We have a very limited view, too, essentially only 
what is publicly available through the trade information 
warehouse at the DTCC. Absent issuing a subpoena, we don't even 
have routine access to the other information that is not 
publicly available.
    Mr. Kirk. So my hope is, as chairman, A, you might be able 
to issue a letter, asking large publicly traded U.S. financial 
institutions to describe their exposure to sovereign debt by 
Greece, Italy, Portugal, and Spain; B, any contingency for a 
downgrade of the gilt, which does now appear distinctly 
possible; C, sort of Armageddon.
    The United States is now distinctly heading in the 
direction of exceeding the 10 percent limit on--that 10 percent 
of our tax revenue would now go to service debt, which would 
make us ineligible for AAA bond ratings. I think there should 
be the exercise of looking at the off-book transactions first 
just so that we understand our exposure.
    Secondly, force these publicly traded companies to describe 
their exposure to the Greece, Italy, Spain, Portugal problem 
and to do a run-up on what happens to the gilt, which would 
cause treasuries in these publicly traded companies to begin 
to--because they got a letter from you--dramatically reassess 
their risk, which would help reduce the systemic danger that we 
could find ourselves in.
    Ms. Schapiro. We could certainly look at that. Their 
current obligations under the law are to disclose material risk 
to their business and operations. We have already covered this, 
but we would be happy to take a sampling and see what kind of 
disclosure we are, in fact, getting.
    Mr. Kirk. I think, right now, we are in violation of that--
and this is a lawyer's point. The off-books lending to the 
Greek Government has exposed a systemic risk that is now 
spreading a contagion throughout the southern European 
economies, and the danger to Spain is particularly acute.
    Thank you, Mr. Chairman.
    Mr. Serrano. Thank you.
    At a recent hearing with the head of Goldman Sachs, before 
the Financial Crisis Inquiry Commission, Chairman Angelides 
pointed out that Goldman Sachs was packaging and selling some 
mortgage-backed securities even as its proprietary trading arm 
was making investment bets that those securities would fall in 
value. Angelides said that this sounded like a salesman who was 
buying insurance on the life of the car buyer when he sold a 
car with faulty brakes. We have since learned that they did the 
same thing with Greece.
    So do you think that an investment bank or dealer selling 
securities should have an obligation to tell potential buyers 
when it is making investments with the expectation that the 
securities being sold will fall in value?
    Ms. Schapiro. I do think we need to--yes, I think we need 
to relook at these disclosure issues very carefully in light of 
recent events.
    Mr. Serrano. Is anything underway to do that? Have we 
started yet?
    Ms. Schapiro. We have created a special unit within our 
corporation finance department to give heightened scrutiny to 
the financial statements, for example, of the largest financial 
institutions on a continuous basis rather than, as required 
under Sarbanes-Oxley, a more sporadic review. So I think that 
we definitely have an ongoing focus here.
    Mr. Serrano. All right. I just have two more questions.
    The performance of both management and boards of directors 
would improve with a more open process for elections to the 
boardroom. For that reason, I want to commend you on your 
commitment to enacting changes to the proxy rules that would 
require companies to include in their proxy materials 
information on candidates supported by significant long-term 
investors.
    Can you tell me your plans for completing the final proxy 
rule?
    Ms. Schapiro. Yes, I would be happy to.
    We proposed the proxy access, or rules, last year. We 
received lots and lots of comments, and the staff is working 
through those comments because there are a number of issues 
that go to the level of holdings, for example, that an investor 
must have or must accumulate with other investors in order to 
be eligible to put a nominee directly on the company's proxy. 
How long should they have had to hold those securities is 
another question. So, as we work through the details of it, I 
am hopeful that still within the first half of this year, the 
Commission will vote on proxy access.
    Mr. Serrano. Within the first half?
    Ms. Schapiro. Yes.
    Mr. Serrano. Okay. Your performance data show planned 
inspection rates for investment advisers going from 14 percent 
in 2008 to 9 percent in 2011 and the rate for investment 
companies going from 23 percent to 17 percent.
    Why would inspection rates go down so much despite the 
large increase in resources that we have provided? Has the 
quality or depth of the inspections changed?
    Ms. Schapiro. We are not really comparing apples to apples, 
and perhaps we should have been more clear about that.
    The reason we actually were able to inspect 14 percent of 
investment advisers last year is they tended to be narrowly 
scoped investigations into a particular issue, what the British 
would call a thematic review, where the examiners didn't go in 
and look at all of the activities of that adviser, but they 
might have gone in just to check compliance in one particular 
area, and so we had a higher number in the prior year.
    This 9 percent assumes a more robust review of all aspects 
of the adviser's business, including something we have started 
post-Madoff, which is careful verification of assets to ensure 
that customer assets are appropriately custodied with an 
independent custodian.
    Mr. Serrano. Thank you.
    Mrs. Emerson.
    Mrs. Emerson. Thank you.
    Just one question. I just want to ask one final question, 
and then I will submit the rest of mine for the record, Mr. 
Chairman, and I want to thank Chairman Schapiro for being here 
again.
    Since 2006, you all have had statutory authority to 
regulate credit rating agencies. I guess, last September, you 
all approved new proposals to strengthen the oversight of them. 
Number one, are you satisfied that the ratings agencies have 
improved the way they do business? If not in some cases, then 
have you actually taken action against some of the rating 
agencies for inappropriate conflicts of interest and the like?
    I don't know. This is an issue that worries me a lot, and 
it keeps creeping back into every discussion we have about some 
new company that is exhibiting problems. Certainly, it was 
definitely a part of and was mentioned frequently, even though 
I have not really gotten through much of the book, in the new 
``The Big Short,'' by Michael Lewis.
    So I would appreciate your comments.
    Ms. Schapiro. Yes. Clearly, flawed ratings were an enormous 
contributor to the financial crisis and an overreliance by 
investors on ratings. They didn't necessarily understand 
exactly what ratings do and don't do.
    As you point out, we have engaged in multiple rulemakings, 
many before I arrived at the Commission and then one last year, 
to try to give investors a better context about ratings--better 
disclosure and prohibitions against the conflicts of interest 
that exist in the rating agencies, information about the 
performance of ratings over time--does everything always AAA, 
but the security doesn't perform well?--and walls between 
raters and the people who negotiate the fees.
    I think all of these things are very positive, and I think 
they will have a very important impact on the quality of credit 
ratings, but we still have basically a model for credit rating 
agencies that is flawed in that the interests of those doing 
the ratings is not aligned with the interests of the investors 
who are relying on the ratings. Rather, the raters' interests 
are aligned with the companies who are paying them.
    Since you and I have talked about this, there are a couple 
different models that, I think, are interesting for us to 
explore, and we are very open to approving as a recognized 
rating agency some different ways of looking at it; but even 
the investor pays model has its own conflicts of interest 
because, if I have rated a security and you have now gone out 
as an investor and paid me for that and bought a lot of that 
security, my reluctance to downgrade that security creates an 
issue for me and a conflict of interest.
    So I think what we need is a model that really aligns the 
interests of the credit rating agency with the interests of 
those who are going to rely on that rating, whether that is 
some kind of a consortium of institutional investors that 
creates a new model for a rating agency and they are 
controlling the ratings as well as their use of them, whether 
it is a true public utility model that has been voiced--I think 
that would be interesting, but it creates a lot of other kinds 
of issues--or whether it is a model where the ratings are 
actually paid for through some other mechanism.
    An exchange-collected fee that pools a fund from which the 
ratings are then paid for by that, not by the issuer of the 
securities, is another interesting model to look at. We are 
very encouraging to people to try something different.
    Mrs. Emerson. Well, I hope we can come up with something 
because I just have an inherent problem, and I find there to be 
ethical issues involved any time somebody is rating somebody 
who has been paying them. The same would be true for even for 
example, the Food and Drug Administration, where the 
pharmaceutical companies pay fees in order to get their 
products approved. I mean, to me, it just doesn't pass the 
smell test.
    Thank you.
    Mr. Serrano. Thank you.
    As we say, we have three votes, which possibly will take 
quite a while, so we are going to end the hearing now. We want 
to thank you for your testimony.
    I just want to close--and I think that Mrs. Emerson will 
agree with this statement--by telling you that this committee 
and this Congress and this country expect a lot from the SEC 
and expect a lot, therefore, from you and your staff, and we 
stand ready to support you in your efforts to make this work.
    You see, the American people, in my opinion, understand 
unemployment because they feel it, and they see it in their 
communities. They understand, therefore, the lack of jobs. They 
understand losing their homes, having them foreclosed. They may 
not totally understand how that ties into what you do. They may 
not fully understand that, unfortunately, some of the bad guys 
have to be kept afloat so that some of the folks at the bottom 
can stay alive. This is a very difficult message to bring to 
people, and so we will continue to support you as you try to 
make this thing work better and make sure that rip-off artists 
disappear or are lessened in numbers so that we can get things 
going again. There is such a direct tie into what you are 
charged with doing and with what the American people are 
suffering every day.
    While you do admit that it is a small agency--and it is 
seen that way, and most Americans don't even know that it 
exists--it has a direct impact on the future of our economy and 
on the future of our country. So, again, we stand ready to help 
you, but we ask a lot of you, and we hope to get that kind of 
leadership.
    Ms. Schapiro. Thank you. I can assure you we feel that 
burden every single day. Thank you.
    Mr. Serrano. Thank you so much.
                                         Wednesday, April 21, 2010.

          FY 2011 BUDGET REQUEST FOR THE DISTRICT OF COLUMBIA

                               WITNESSES

ADRIAN M. FENTY, MAYOR, DISTRICT OF COLUMBIA
VINCENT C. GRAY, CHAIRMAN, THE COUNCIL OF THE DISTRICT OF COLUMBIA
NATWAR M. GANDHI, PH.D., CHIEF FINANCIAL OFFICER, GOVERNMENT OF THE 
    DISTRICT OF COLUMBIA
    Mr. Serrano. Good morning. The subcommittee will come to 
order. I guess the first important question is, What is with 
the Nats? I mean, is it time to break them up or something?
    Mr. Gray. It is all part of the plan, Mr. Chairman.
    Mr. Serrano. I told you to get Pudge Rodriguez.
    Good morning to all of you. Today the subcommittee will 
hear testimony on the fiscal year 2011 budget request for the 
District of Columbia. I would like to welcome back Mayor Adrian 
Fenty, Council Chairman Vincent Gray, and the District Chief 
Financial Officer Dr. Natwar Gandhi. I am honored to have the 
opportunity to work with all of you in the D.C. Government, and 
I truly appreciate all of your commitment to ensuring that 
Washington, D.C. is the world-class city that it is already, I 
believe, but also worthy of its status as our Nation's Capital.
    As I have said before, I have a special affection for the 
people of the District of Columbia. As someone who was born in 
the American colony--some would call it a territory--of Puerto 
Rico, I identify with the District's situation. The citizens of 
D.C. have been subject to the whims of Congress for too long. 
Too often they have watched helplessly as Congress imposed 
measures on them that would be imposed on no other city in the 
Nation. Frequently the vehicle for these measures was the bill 
that this subcommittee authors.
    Since I became chairman, however, one of my highest 
priorities has been to reduce the prohibitions and restrictions 
imposed by our bill on the operations of the District of 
Columbia and give D.C. more autonomy in managing its fiscal 
affairs, particularly in deciding how local funds are spent. In 
fact, I have told the press that I may be the only chairman in 
the history of the Congress who wants to give up power rather 
than take more. If I have nothing to do with D.C. in the 
future, I would have accomplished my goal.
    We have removed numerous restrictions and untied D.C.'s 
hands on a variety of issues. I believe that we have reached a 
fairly stable bipartisan consensus that the people of D.C. 
should not have Congress interfering in their local affairs. Of 
course, we wrote that part right before the gun bill/voting 
issue came into view, so we still have a long way to go.
    A good portion of the credit for this new consensus on 
D.C.'s status is due to the recent leadership of the city 
government. From an outsider's perspective, it is clear that 
the city is being well managed and is headed in a positive 
direction. For that, we applaud the three of you as 
representatives of that leadership. Together, we have made 
significant progress in the past several years on ensuring 
District matters are left to the District, and I look forward 
to working with as you continue to increase the city's 
legislative and budget autonomy.
    This chair is falling apart, Mr. Mayor. I just got much 
shorter.
    Mayor Fenty. You look good.
    Mr. Serrano. Thanks a lot. Are you running in that race 
next Wednesday? It is not smart to beat the chairman of the 
committee.
    Turning to the District's budget request, I am aware that 
the fiscal year 2011 request is currently under review by the 
city council and will not be transmitted to Congress until 
June. The request as presented to the council totals $10.4 
billion, including $5.3 billion in local source general funds, 
a $306 million increase over fiscal year 2010. For fiscal year 
2011, the President's budget recommends Federal payments to the 
District totaling $168 million, a net decrease of $17 million. 
The request includes $7 million for two new initiatives, 
including $5 million to support an HIV/AIDS initiative and $2 
million designated for redevelopment in connection with St. 
Elizabeths' east campus. I look forward to hearing more about 
these initiatives in your testimony.
    The request also includes $63 million to improve the 
District's public and charter schools and $9 million for the 
school voucher program to support the children currently in the 
program. Let me be clear on the issue of school vouchers. I 
continue to support the President's approach to this issue 
which pays for the children currently in the program until 
their graduation. This seems a reasonable approach to me, and I 
will continue to support it.
    In closing, I would like to thank the Mayor, Chairman Gray, 
and the council, as well as Dr. Gandhi and the Office of the 
Chief Financial Officer for their leadership in producing a 
fiscally responsible budget for 2011. We thank you for your 
diligent and continuous attention to the fiscal health of the 
District. I look forward to working with each of you as we move 
forward through this fiscal 2011 budget process. We are, on 
this committee--and we reiterate this--totally committed to 
helping you in any way that we can. And I repeat once again, 
more and more--and I know that I speak for Mrs. Emerson and she 
will speak for herself--to give you more and more of that 
autonomy that you should have had a long time ago.
    Some of the issues that we removed, some of the riders that 
we removed may come back to haunt us at election time, you 
know, when we do these budgets. But I think for the most part 
that, while there are still stumbling blocks, most Members of 
Congress are beginning to understand more and more the need of 
the District to govern itself.
    Now, with that, I would like to recognize my sister and our 
ranking member, Mrs. Jo Ann Emerson.
    Mrs. Emerson. Thank you very much, Mr. Chairman. Welcome to 
all three of you. And thanks for the good job you have been 
doing in a very challenging time with the economy as it is, 
with declining tax revenues. It is not easy, and in spite of 
that, y'all have been able to put together a fiscally 
responsible budget, and we acknowledge that. I know that you 
will have a lot of serious budget issues with which to deal as 
the process moves forward. But I think you have done a good job 
in really making tough funding decisions in the past and I 
think that you are going to continue to do that. It is very, 
very important and it sets a good example. It should set a good 
example for us in the Congress as well.
    With the Federal Government's fiscal year 2010 deficit 
estimated to be about $1.6 trillion, really, it is encouraging 
to see that you all can make those tough decisions.
    Mayor Fenty and Chairman Gray, I also want to congratulate 
you in your efforts to reform education in the city. I am 
supportive of your efforts to consolidate schools, improve 
gifted and talented, music, art, and special education 
programs.
    I am also supportive of your efforts to improve the 
compensation, training and performance of the city's teachers. 
I would love for my daughter to make more money.
    Thank you very much. She will be mad at me that I mentioned 
it. But nonetheless, I encourage each of you all to continue 
your school reform efforts. The city's children deserve it, and 
certainly the entire region will benefit from it.
    I am pleased that the President's budget request proposes 
the continuation of the Federal Government's three-sector 
commitment to education in the District by funding for public 
schools, public charter schools, and Opportunity Scholarships. 
However, and as you might expect, I am very disappointed that 
the proposed budget continues to prohibit additional low-income 
students from receiving an Opportunity Scholarship. We all know 
that despite all of the reform efforts being implemented, that 
many children attending D.C. Public Schools aren't getting a 
quality education. I know this in part, as I mentioned, because 
my daughter is a first-grade teacher in the D.C. Public 
Schools, and she tells me every day about the challenges she 
faces. And it is tough. It is tough out there. And I will 
acknowledge that your office has been very, very helpful, 
Mayor, in dealing with some of the ancillary issues.
    Regarding the Opportunity Scholarship Program, Patrick 
Wolf, the principal investigator for the Department of 
Education's study of the program, stated that--and I will 
quote--The D.C. voucher program has proven to be the most 
effective education policy evaluated by the Federal 
Government's official education research arm so far, end quote.
    He went on to say--and I quote again--In my opinion, the 
bottom line is that the OSP lottery paid off for those students 
who won it. On average, participating low-income students are 
performing better in reading because the Federal Government 
decided to launch an experimental school choice program in the 
Nation's Capital, end quote.
    So if the public schools aren't performing up to national 
standards, and parents want their children to have other 
options, I believe that we should expand participation in the 
Opportunity Scholarship Program and not limit participation to 
only those who are enrolled in the program today.
    Once again, welcome to you all. I do recognize how 
challenging it is to run a city in tough economic times, and I 
am grateful for your efforts. I look forward to hearing your 
testimony. Thanks, Chairman.
    Mr. Serrano. Thank you. Thank you so much. You know the 
drill. We ask you to stay within 5 minutes. Your full text will 
be included in the record. And if you keep it to 5 minutes, 
that gives us time to grill you to the point of exhaustion.
    Mrs. Emerson. We are going to be the final debate people 
here. We are running a debate.
    Mr. Serrano. We are?
    Mrs. Emerson. Yeah. Why do you think the TV camera came?
    Mr. Serrano. Well, we agree on just about everything.
    I will now recognize Mayor Fenty, followed by Chairman 
Gray, and then Dr. Gandhi. I ask you to keep it to 5 minutes, 
please. And for the record, your statements will be included in 
the record. Please proceed.
    Mayor Fenty. Thank you very much. Chairman Serrano, Ranking 
Member Emerson, distinguished committee members, it is my 
pleasure to be here today to discuss the District's fiscal year 
2011 budget and financial plan and the Federal payments 
proposed for the District in the President's fiscal year 2012 
budget.
    First, a brief overview of the fiscal condition of the city 
and specifics of the President's budget request. Despite the 
recent economic challenges that you all noted, the budget and 
financial plan submitted to the Council of the District of 
Columbia are the fourth consecutive balanced budget that I 
submitted and the 15th consecutive balanced budget since the 
days of the Control Board.
    The budget has required tough decisions, but it represents 
the fiscally responsible approach to governing the residents of 
the District of Columbia that we have become used to in recent 
years. It also solves a $523 million budget gap for the next 
fiscal year by streamlining agency operations, controlling 
spending, and sustaining growth, eliminating vacant and 
redundant positions, while staying focused on the core mission 
of transforming public schools, keeping our neighborhoods safe 
and our families healthy.
    This year, as in years past, my administration has worked 
very closely with the Office of the Chief Financial Officer and 
the Council of the District of Columbia to develop a budget and 
spending plan that accounts for the anticipated continued 
decline in total tax revenue. Again, out of $11 billion, we 
include $5.27 billion in local funds and $2.7 billion in 
Federal funds.
    Now, last year, the District benefited tremendously from 
the American Recovery and Reinvestment Act and the one-time 
infusion of more than $700 million, allowing us to, for 
example, put 50 new police officers on the streets, provide 
assistance to 188 small businesses and other important 
programs. Without the infusion of Federal stimulus dollars this 
year, however, the District will still maintain its commitment 
to core services.
    We would also add that this year's budget and financial 
plan maintains the District's strong financial position and 
sustains the progress we have made in recent years to make our 
tax structure more competitive with neighboring jurisdictions.
    When I was elected in 2006, we swiftly moved to become just 
the fourth jurisdiction to go into mayoral control of the 
school system. Michelle Rhee, the schools' chancellor, has 
aggressively reformed our public schools. There has been 
tremendous progress. You read about the test scores that are 
going up in record amounts. Enrollments are also up, so is 
graduation, and District residents are excited about the 
improvements they are seeing in the schools for the first time 
in many years.
    The President's budget includes $43 million to directly 
support our efforts to create the highest performing urban 
school district in the country. This year's budget will allow 
us to continue our investment in such things as early childhood 
education and expand our portfolio of STEM schools, for 
example.
    The President's budget also provides $20 million to support 
charter schools and $35 million to continue the Tuition 
Assistance Grant Program for District residents pursuing higher 
education. Also, as you have noted, the funding of Opportunity 
Scholarships for students who currently receive them. And we 
are working with the Department of Education to craft an 
approach that will sustain the program for years to come.
    There are other key Federal funding priorities. We are very 
glad to see money for the combined sewer system to protect the 
Chesapeake Bay, Potomac, and Anacostia Rivers from pollution, 
the funding of the Criminal Justice Coordinating Council, and 
funding for operations for the D.C. National Guard.
    Last year the President proposed and Congress funded a 
Federal payment to support the District's efforts to develop 
solutions to end chronic homelessness. With the support of this 
subcommittee, by the end of this year, fiscal year 2011, we 
will have housed nearly 1,000 individuals and more than 230 
families in permanent supportive housing.
    One of the two new Federal payments included in the 
President's budget will allow the District to continue its work 
to combat the spread of HIV and AIDS. Our HIV and AIDS 
Administration recently released an update which shows for the 
first time a decrease in new AIDS cases in the District of 
Columbia. We know that we still are in the midst of an 
epidemic, and the new dollars will help us to combat them.
    The second new initiative included in the President's 
budget reflects the extraordinary possibilities that exist when 
the District and Federal partners work together. Everyone knows 
that the money to redevelop the St. Elizabeths campus in 
southeast Washington, the $2 million will support the first 
phase of planning necessary to create a vibrant mixed-use, and 
sustainable community.
    In conclusion, Mr. Chairman, the U.S. Census Bureau 
reported earlier this year that the District's population grew 
by an estimated 10,000 residents, the largest 1-year gain since 
World War II. The attraction of new residents and the retention 
of those who have called Washington home for decades is one of 
the great indicators that Washington, D.C. is moving in the 
right direction. And, of course, we view this committee as a 
critical partner in that effort. I look forward to continuing 
to work with you toward our mutual goal of making Washington, 
D.C. even more of a world-class capital city. This concludes my 
prepared remarks, and I am glad to answer any questions.
    Mr. Serrano. Thank you.
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    Mr. Serrano. Chairman Gray.
    Mr. Gray. Thank you very much, Mr. Chairman and Mrs. 
Emerson. I am delighted to be here today to testify before the 
committee about the District's appropriations and other 
operational items.
    This year the Council along with the Mayor, as has already 
been pointed out, has had the difficult task of determining how 
it is going to continue to provide the services our citizens 
deserve in an environment of reduced revenue projections. The 
District is proposing a slightly increased local budget of $5.3 
billion for fiscal year 2011 as compared to the revised 2010 
budget of $5.2 billion, a 1.2 percent increase. The proposed 
overall budget for 2011, as has been pointed out, is about 
$10.4 billion.
    The Council continues to support efforts to improve and 
restructure our traditional public school system. This is 
reflected in a proposed increase in the per-pupil funding of 
$175 per student. This budget also continues to recognize the 
importance of early childhood education by expanding the number 
of prekindergarten classrooms by 15, which will serve an 
additional 260 students, and we are well on our way to becoming 
the first jurisdiction in America that can say that we have 
universal prekindergarten services serving all of our 3- and 4-
year-olds.
    The proposed budget also invests in the education of our 
youth by including funding for six new branch libraries and 
improvements to 14 parks and recreation centers. The Council 
supports continuation of the Federal payment for school 
improvement which has been an important source of funds that 
have enhanced curriculum, educational systems, and training.
    In support of the District's continuing efforts to improve 
its education system, the President has proposed $72.4 million 
for the three-sector funding for fiscal year 2011.
    The Tuition Assistance Grant Program has been very 
successful since its inception 9 years ago. Students in the 
program have attended over 300 schools in 47 different States. 
I thank the President for again including funding of $35.1 
million for the program in the fiscal year 2011 budget.
    Last year Congress approved the President's budget proposal 
for funding our homeless community in permanent housing. The 
program provides a holistic approach to homelessness by 
offering intensive case management along with permanent 
housing. To continue this very successful program, the District 
is requesting a Federal appropriation of $10 million to include 
a site for homeless veterans. The city is working with the 
Veterans Administration on this initiative.
    The District of Columbia, as I think many know--if not 
everyone knows--is experiencing an HIV epidemic. The city 
government is working on responding to the epidemic by 
increasing its outreach and services to those affected by the 
disease. Federal funding will assist the District in having a 
robust program that provides valuable support services to an 
additional 75,000 District residents. I ask the committee's 
support for the $5 million appropriation.
    As you know, GSA plans a facility on the west campus on St. 
Elizabeths to consolidate the Department of Homeland Security's 
offices in one location. In addition, the District plans to 
redevelop the east campus. This development will include 
residential, small business, government offices, retail, and 
other commercial development.
    To maximize these collaborative opportunities, the District 
is asking for $2 million to assist the Office of Planning in 
its redevelopment efforts for the east campus.
    The District Government has the unique and important 
responsibility of protecting the property and personnel of the 
Federal Government. Therefore, the city's police, fire, 
emergency management, and other services must expend time and 
manpower to provide the required protection. I ask this 
committee to fully fund the $15 million in planning and 
security costs associated with the Federal presence.
    I request support for two bills currently pending in the 
House that were introduced by Congresswoman Norton, H.R. 1045, 
the District of Columbia Budget Autonomy Act of 2009, and H.R. 
830, 960, District of Columbia Legislative Autonomy Act of 
2009. The ability to implement our local budget without the 
current congressional review can prevent delays in service 
delivery. The District Government should have the ability to 
develop and implement our budget based on locally earned 
revenues. The legislative autonomy bill would remove the 
requirement for a 30- and 60-day review for civil and criminal 
legislative acts of the District Government.
    Currently the review period causes several months of delay 
in implementing laws and requires the Council of the District 
of Columbia to operate using a cumbersome and complicated 
process of emergency temporary and permanent legislation so 
that there will be no gaps in our laws.
    In closing, I ask that you pass this year's budget request 
in time for the start of the new fiscal year and that no riders 
be placed on the bill. I want to thank you, Chairman Serrano 
and Congresswoman Emerson, for this opportunity to share my 
thoughts on the District's budget and other issues important to 
the city. I look forward to working with you on the city's 
appropriation legislation. And, of course, I am available for 
any questions you may have. Thank you very much.
    Mr. Serrano. Thank you.
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    Mr. Serrano. Dr. Gandhi.
    Mr. Gandhi. Thank you, sir. Good morning, Chairman Serrano, 
Ranking Member Emerson, and Mr. Crenshaw. I am Natwar Gandhi, 
Chief Financial Officer of the District, and I am pleased to 
testify today that after a careful review, I have certified the 
proposed Budget Request Act of 2011 through 2014 budget and 
financial year plan, and they are balanced. However, the 
revenue outlook for 2011 and the years immediately following is 
grim. Due to the sunset on stimulus funds and a projected 
decline in revenues before they slowly recover, the District 
like many other jurisdictions must make difficult choices and 
take aggressive action to lower the costs. In order to remain 
balanced for the duration of the 4-year plan, in the absence of 
a new stream of revenue, nearly all policy-driven costs must 
remain flat from year to year and a strict expenditure control 
regime should be in place.
    The budget has been prepared at a time when the most 
serious U.S. recession since the 1930s appears to have entered 
a sustained, although somewhat muted, period of recovery. 
Still, at the national level, there is a considerable amount of 
uncertainty as unemployment remains high and income gains are 
still weak. Despite some negative effects, the District avoided 
some of the worst problems of the national recession because of 
the presence of the Federal Government.
    The chart in front of you shows a history of the District's 
general fund balance and budgetary surplus. As you can see, we 
have come a long way since the mid-nineties when the fund 
balance hit a low of negative $518 million. By the time the 
control period ended in 2001, the fund balance had grown to 
over $500 million. By 2005, it peaked at $1.6 billion. However, 
by 2009, we have only $920 million. Still a respectable number, 
but a drop of some $664 million from the peak.
    I am concerned that this erosion of the fund balance will 
raise concerns on Wall Street and could lead to higher 
borrowing costs. Therefore, I have urged the Mayor and the 
Council to take steps to augment, or, at minimum, replenish the 
general fund balance that has been depleted during the current 
year.
    But there is a larger problem. The District, as the urban 
center of the large metropolitan area, houses a 
disproportionately large share of very poor and needy people. 
The District's overall poverty rate of 19 percent and child 
poverty rate of 33 percent are among the highest in the Nation 
and more than three times the comparable rates across the 
neighboring counties. Unlike the other urban jurisdictions, the 
District cannot pool resources across the wealthiest suburban 
areas from the same State to serve its urban poor. If the 
District were to offer a basket of public services similar to 
what is offered across the Nation for each of its residents, it 
would have had to spend 130 percent more than what others would 
spend on the same average. In this environment of high 
expenditure needs, revenue challenge is equally great.
    Now, here is where the Congress plays an important role. 
Can you permit me to briefly note two areas that merit 
continuous attention which both go to the unfunded mandates of 
the District's own taxing power: one, the prohibition on taxing 
the income earned by the nonresidents, including those who 
commute into the city on a daily basis. That 66 percent of the 
income is earned by nonresidents, that makes a simple point. 
The District has an especially high concentration of nontaxable 
real property, much of it after tax rolls due to the presence 
of the Federal establishment. The value of property here by the 
Federal Government is about 32 percent of nonresidential 
property values. Because of these unfunded congressional 
mandates, residents must shoulder a disproportionate share of 
the cost of the public services, while the benefits generated 
by the city are shared by a much larger community.
    Our sustained trend in balanced budgets attests to the fact 
that we have not allowed these mandates to become an excuse for 
fiscal irresponsibility. The great credit goes for that to our 
Mayor, Mr. Fenty, and Chairman Gray and the rest of the 
Council. The leadership provided by them has allowed us to work 
together to produce a balanced budget. I will work diligently 
with the Mayor and the Council during the upcoming budget 
deliberations to ensure that we continue to have a sound fiscal 
position.
    This concludes my remarks. I will be pleased to answer any 
questions you may have, sir. Thank you.
    [The information follows:]

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    Mr. Serrano. Thank you to the three of you. You know, I was 
thinking as you were speaking, Doctor, of a question I didn't 
have in my preparation. But do we know how many Federal 
employees--how many Members of the Federal workforce live 
within the District? Because we always have numbers about the 
area, you know, southern Maryland, northern Virginia, D.C. Do 
we have any idea?
    Mr. Gandhi. I do not have the precise number with us. But I 
think the most important thing to keep in mind here is that 
every $100 that is earned in the city, $66 get taxed in 
Virginia and Maryland. We get to tax only $34. It is like going 
to a restaurant and saying, of all the people who are eating 
here, two-thirds will not pay, one-third will pay, and everyone 
will complain about the bad food and bad service. It is as 
simple as that. This is the only city, sir, where income is not 
taxed at the source, and that is the fundamental problem.
    Mr. Serrano. Right. Mayor Fenty, since you became Mayor in 
2007, you have made school reform your administration's 
signature initiative. The President's fiscal year 2011 budget 
includes $63 million in Federal payments to improve the 
District's public and charter schools, $20 million of which is 
to continue the Public School Reform Initiative. This request 
comes on top of the $62 million this subcommittee provided in 
fiscal year 2010 for the same purpose.
    How do you propose to use these Federal payments to produce 
measurable improvements in the District's public school and 
charter schools? Can you tell us about any new initiatives you 
have undertaken in the public school reform program since last 
year? Also in your view, how are these reforms working? How 
have these reforms impacted standardized test scores, 
graduation rates, and enrollment? And what other measures are 
you using to gauge the program's success?
    Mayor Fenty. Well, the Chancellor is using the dollars in 
several ways. A lot of it is going, as you would expect, 
directly to the classroom. Over the past couple of years, by 
redirecting essential administration dollars and redirecting 
Federal dollars to programs, we have been able to do a number 
of different things. One, test scores have gone up at local 
levels by 17 percentage points. That is about double where we 
thought we would have been at just 2\1/2\ years.
    We looked at New York when we first took over the system, 
and they had raised their scores by about 10 percentage points 
in 5 years. So we were able to do about double that in half the 
amount of time.
    Two, we have improved graduation rates. Dropout rates have 
gone down. More kids are taking AP classes, and, as you know, 
the NAPE test, which is pretty much the gold standard for 
testing, for the first time ever the District of Columbia led 
the Nation in our fourth graders' tests for both math and 
reading.
    Mr. Serrano. Which test was this, the last one you 
mentioned?
    Mayor Fenty. The NAPE test. It is a test that every State 
gives to their fourth and eighth graders for reading. In math 
and reading we led the country for both fourth graders and for 
eighth graders we were actually one of only five jurisdictions 
where the test scores increased for both math and reading.
    Mr. Serrano. Chairman Gray, would you like to comment on 
this issue? Sorry. We promise to get more mikes in the future.
    Mr. Gray. Actually, we share mikes at the Council, too, so 
we understand.
    I think we have made progress. Certainly some of the 
observations that were made by the Mayor I concur with. One of 
the things that has plagued us, however, is the continued 
persistent problems with the achievement gap, especially 
between our white students and our African American students, 
and our Hispanic students. The achievement gap over the 3 years 
of our reform efforts has actually remained essentially the 
same in the school system, even though we have seen some gains 
in both populations. So we have got a lot of work to do.
    We just had a very detailed analysis that was presented to 
us at a hearing that we had last week, and then a couple weeks 
before that, that looked at 15 areas in the NAPE test and 
showed that in all but one of those, the achievement gap had 
been resistant to change.
    One of the things that I am really excited about, and the 
Council played a hugely important role in, that I mentioned in 
my testimony, and that is creating universality in pre-K 
programs, serving all 3- and 4-year-olds. Our enrollment in the 
traditional public schools has stabilized for the first time in 
many years, and as we analyze the data, we recognize that on 
the one hand, high school enrollment has continued to decline, 
but the infusion of young children, 3- and 4-year-olds, into 
our school system has really helped to stabilize our 
enrollment. Again, we expected to have 2,000 new seats by 2014. 
That was our goal.
    By this April, a year and a half into this, we already 
achieved 1,500 of those 2,000, and, as I indicated in my 
testimony, another 260 will be added in FY 2011. So we will 
probably be at universality in pre-K programs within 12 months, 
and that is conservative. We will be the first jurisdiction in 
America to be able to do that, and we know it will give our 
young people an opportunity to get a couple of years advanced 
formal education, and, frankly, fundamentally redefining our 
public education.
    Somewhere along the way we defined public education as 
beginning at 5. This will redefine it as beginning at 3 years 
of age, and I am absolutely certain that it will improve 
outcomes for our children and, frankly, give families a reason 
to move here and to stay here.
    Mr. Serrano. You know, to both of you, in fairness to the 
District of Columbia, the achievement gap is an issue that is a 
national issue. Everywhere you go, there is that problem. Very 
few communities, I think, can claim that they have taken care 
of that problem.
    And it brings me back to one of my--I may be one of the few 
people in New York City who is still not totally clear on the 
future or what the future of charter schools should be. Because 
I see charter schools at times as a possibility to take some 
students out of the system and create achievement over here--
which is fine--and then leave another group behind.
    So, one, what is your take on what charter schools 
accomplish when they do achieve? And secondly, how do we make 
sure that since it looks like charter schools are here to stay, 
that their achievement, while good in itself, is not achieved 
by compounding problems for other folks who are, quote-unquote, 
left behind?
    Mayor Fenty. Well, the District's law provides that as we 
add dollars to the traditional public school system, we will 
add dollars, in most cases, to the public charter schools. And 
we support that policy. And we believe--and the Chancellor has 
said this on numerous occasions--that there are very good 
charter schools and there are very good traditional public 
schools. But there are charter schools that are underperforming 
and ones in our traditional public schools that are still 
underperforming. What we need is honesty, candor, and tough 
decision-making around those schools.
    In essence, you know, if a school is not working, then we 
need to either find a way to make it work fast, or, in some 
cases, reconstitute the school as the Federal law provides, and 
start all over and rehire all of the teachers and rehire and 
redo the building and start fresh. And that is not just for the 
charter schools. That is for the public schools.
    The one thing the Chancellor adds, of course, is that 
charter schools are given an additional amount of independence 
and autonomy. For that exchange of independence and autonomy, 
we do have to demand the highest-level results. And we will 
continue to model our traditional public school system after 
that as well. We want all of our schools to be more 
independent, autonomous. That is what this new collective 
bargaining is all about, and we will also demand higher results 
from our schools as well.
    Mr. Gray. We have one of the most robust charter systems, I 
think, in the Nation. We have almost 40 percent of our students 
now in public education or enrolled in charter schools. Ten, 12 
years ago, we had a couple thousand students who were enrolled 
in charters. Today we have 28,000 of our students enrolled in 
charter schools. We have 57 schools located on 99 campuses. The 
uniform per-student funding formula guarantees that the same 
amount of money--at least for the services anyway that goes to 
the traditional public schools, will go to the charter schools. 
We will spend about $435 million next year on charters.
    One of the things I think we benefit from, frankly, is 
having created a competitive environment in which the charters 
provide a set of educational services, and of course the 
traditional public schools, which historically have had a 
monopoly on public education, provide educational services as 
well. So I think having that kind of competitive environment is 
valuable to our children.
    One of the things also that is unique about charters, and 
that is if they have a persistently low level of performance, 
those charters can be lifted, and they have been lifted, and 
those schools are out of business and those children then go to 
other schools that have a track record for being higher 
performing. So I think both play an important role at this 
stage.
    The question that I asked, I asked some of the leaders in 
both the charter movement and traditional public education is, 
How do you not wind up with a proliferation of schools? They 
are not regulated in a sense that we have a cap on the number 
that are created, so we have to be mindful of that.
    The other thing I think we have got to do more 
aggressively, frankly, is as we stop using some of these school 
buildings that have been traditional public schools, that we 
make them available for charters, because it just makes good 
human sense and, frankly, it makes good financial sense as 
well, rather than have them go out and borrow money, build new 
schools, and then create more debt that ultimately the 
taxpayers of the city have to cover.
    Mr. Serrano. Right. I have exceeded my time here, but I 
want to tell you something. For the first time ever since the 
charter school issue started, last week in the South Bronx 
district that I represent, parents were showing a concern to 
our office that too many charter schools were coming into their 
school buildings, because they seemed to have more support from 
the city government at times, it seems, than the traditional 
public school system. So it seems that this cooperation that 
puts together charter schools was coming into every building in 
the neighborhood.
    And now, from a situation 6 months ago where we want 
charter schools to--wait a minute, they are coming into my 
building now, and it is too many at the same time, so we have 
to try to balance it. Mrs. Emerson.
    Mrs. Emerson. Thanks, Mr. Chairman. This question is 
directed to the Mayor and to the chairman. Chancellor Rhee is 
quoted as saying, quote: I would never, as long as I am in this 
role, do anything to limit another parent's ability to make a 
choice for their child ever, end quote. Do you all agree with 
the Chancellor?
    Mayor Fenty. Yes.
    Mr. Gray. Well, I think we have lots of choices. I think we 
have lots of traditional public schools in the city and we 
have--as I indicated, 57 charter schools. So I think they have 
lots of choices. So in that regard, I would agree with the 
Chancellor also.
    Mrs. Emerson. So are you comfortable--okay. Given that you 
all believe that they have lots of choices, are you all 
comfortable limiting the Opportunity Scholarship Program to all 
those students who are only currently enrolled, when you have 
to know that there are a lot of low-income students in schools 
today who will not receive the education that they deserve?
    Mayor Fenty. Well, you started out with the Chancellor's 
quote, which I think was made in the context of the three-
sector approach. And you know the Chancellor--you know, even 
though she received some criticism for this--really did try to 
follow where our predecessors were on this. Our predecessor 
being the Williams administration, the Cafritz-led school 
board, and the former chair of the Council's education 
committee when they established the three-sector model, that 
there would be an equal amount of funding for public--charter 
schools, traditional public schools, and the Opportunity 
Scholarships.
    Ultimately, because it is Federal money, we do have to 
defer to the Federal Government, both legislative and executive 
branch. But the Chancellor's position was that as long as those 
funding levels stayed equal and constant, that she saw the 
continuation of the program as something that was healthy for 
the District of Columbia.
    Mr. Gray. I think the proposal to continue to fund the 
program for the kids who are in it is something that I support. 
I believe we have an obligation to create the best possible 
traditional public school system we can. We clearly have 
invested very large sums of money in charter schools. As I 
indicated, we are north of $400 million. I think we are 
beginning to see improvements in both areas. We have created 
programs now within our public education sector for 3- and 4-
year-olds.
    So my emphasis is on trying to create the best possible 
public education programs that we can, while allowing those 
children who are already receiving Opportunity Scholarships to 
be able to move through the schools that they are in.
    Mrs. Emerson. Okay. I guess the budget request includes--we 
said, what, $9 million for the final payment for the 
Opportunity Scholarships. And the justification for that states 
that it is based on historical rates of attrition and 
graduation; and because of that, that should be sufficient. 
However, should it not be sufficient, and it was necessary in 
order to allow each of the children who are currently enrolled 
in the program, would you all be willing to agree to an 
additional amount of money should that not be enough, at least 
for the current children to graduate?
    Mayor Fenty. If you are talking about from the current 
funding source, yes. Yes.
    Mrs. Emerson. I am.
    Mr. Gray. My question, too. You mean accept additional 
money from the Federal Government to----
    Mrs. Emerson. Yes. In other words, what happens if for some 
reason the $9 million isn't enough? Would you be willing to--
you don't want to kick the kids out.
    Mr. Gray. Absolutely not.
    Mrs. Emerson. So that was it. Thank you.
    Dr. Gandhi, let me ask you a question. Recently, Chancellor 
Rhee announced that the D.C. Public Schools discovered a $34 
million surplus from the previous year. And you wrote to the 
Chancellor, wherever your letter is here, I read it last 
night--anyway, you wrote to the Chancellor that that funding is 
not available. So can you tell us, or do you know--I assume you 
do--does your Office and the D.C. Public Schools know how much 
money is available, number one, and how it is being spent? And 
can you assure all of us on the committee that the city is 
appropriately accounting for both its local and its Federal 
funds?
    Mr. Gandhi. Yeah. The answer to that is yes, we are 
appropriately accounting for it. What the Chancellor has 
realized is that the $34 million was simply an underspending in 
one part of the school budget while, you know, there are other 
areas where there was overspending. So we have sorted it out.
    I had an excellent meeting with the Chancellor last week. 
Our staffs are working together, and currently we are examining 
what impact the contract that she has negotiated would have on 
the budget itself; how much money is in the budget to make sure 
that the traditional salaries that would be paid can be 
accommodated within the budget.
    Mrs. Emerson. Are these for the teachers that were let go 
because----
    Mr. Gandhi. No, no, no, no. This is about the teachers that 
currently are in the program and also--in other words, you 
know, what are the financial implications of the contract on 
the budget on 2010 as well as the 5-year plan that we usually 
have. So we are right on the target, meeting with the 
Chancellor and her staff, and we hope that by next week we will 
have our analysis completed. And we will brief the Mayor and 
the Council, along with the Chancellor, about the financial 
implication of the contract.
    Mrs. Emerson. So if there is--let me just get it straight. 
Can you move around the money in the pots a little bit? In 
other words, if you have got--in the teachers' salary pot and 
then the operations of the school----
    Mr. Gandhi. That is the prerogative. Yes, ma'am. That is 
the prerogative of the Chancellor, Mayor and the Council. They 
can shift money around. So my primary obligation here would be 
to tell the Mayor and the Council and the Chancellor, here are 
the annual implications of the contract. Either we have money 
in the current budget at the schools or not. And then we can 
shift the money from elsewhere if that is what the Mayor and 
the Council would like to do.
    Mrs. Emerson. Okay. I just didn't know if there was some 
statutory reason why you couldn't.
    Mr. Gandhi. No, no, no, no, no.
    Mrs. Emerson. It is just based on what you all can decide. 
Okay, thanks, Mr. Chairman.
    Mr. Serrano. Thank you. Just on that question you asked, as 
you well know, Doctor, when you figure out these things, 
sometimes you think it is $5 and it turns out it might be $7 or 
$4, or $4.50. It is our intent to cover that final payment. If 
some adjustments have to be made, we are open to discuss that. 
But we just want to make sure that that is clear for everyone.
    Under the 5-minute rule, we recognize the distinguished Mr. 
Crenshaw.
    Mr. Crenshaw. Thank you, Mr. Chairman. Just on the 
scholarship program, we are talking about continuing it on for 
the people that are in there. And as I understand it, there 
have been--I think there are 1,700 people in the program now. 
It has probably helped twice that many people. And I guess the 
obvious question is: Whose decision was it to end it altogether 
once these students are out? What was the reason for that, and 
who made that decision?
    Mayor Fenty. From everything I can understand, Congressman, 
it is a decision made at the Federal level. I don't know where 
between the legislative and executive branch the position of 
the local administration has been that we would support the 
program continuing as it was originated, again, before our 
administration.
    Mr. Crenshaw. So I mean if it was the administration that 
decided to end it--and I don't know whether it was Congress or 
the administration. But if somebody said, that is a pretty good 
program, it has helped a lot of low-income students, we think 
at the Federal level it ought to continue on, not just for the 
students that are there now but for any prospective students, 
would that fly in the face of anything that you believe? You 
would support whatever comes down from Washington, so to speak?
    Mayor Fenty. We would. I mean, I think our administration 
sees strength in the three-sector approach; but we also, you 
know, inherited it which, you know, you don't always agree with 
100 percent of everything in these jobs. I mean, that happens 
every day. But there was enough to agree on in both what had 
been established and what was working for kids that the 
Chancellor came out very early and said that she would support 
continuing it as we inherited it.
    Mr. Crenshaw. Because I don't know whether it was Congress 
or whether it was the new administration, but it seems like 
with all the programs that we put in place up here, they don't 
always create jobs or always help in terms of educational 
reform. And so if this is a program that has enabled a lot of 
low-income families to access a private school with a 
scholarship, it seems like that might be money well spent.
    Mr. Chairman, I know you had said in your opening statement 
that you would kind of support the continuation and an ultimate 
phaseout of this. It is something we ought to think about. So I 
appreciate that.
    Let me ask one other question. It is kind of an interesting 
question. I go home a lot of weekends, and I come up here and I 
stop by my local grocery store and I get some cereal and some 
milk and some orange juice to get me through my breakfast for 
the week. And when I came back this year in 2010, I noticed 
when I got my standard order they said, Would you like a 
plastic bag? And I said, well, I always got one before, I would 
love a plastic bag. They said, Well it costs a nickel. And then 
actually I went back a week later, and I had to get two bags. 
So now I try to confine my purchases to one plastic bag.
    But I wanted to ask you about that because--and I went back 
and kind of checked and I understand that this is one of the 
first cities in the Nation to have a tax on disposable plastic 
bags. And it has worked, evidently. I saw the statistics that 
from 22 million bags a month being disposed of to only 3 
million. So that is positive.
    The other interesting point I read is that it raises 
$150,000 and that was going to be used to help clean up the 
Anacostia River. We have got a river in Jacksonville, Florida, 
where I am from, and everybody loves the river and everybody 
wants to help clean it up. So you have got a tax that deals 
with trash and disposal, and then it helps clean up the river. 
But then I was told that this year, they are going to switch 
the money from the Department of the Environment to the 
Department of Public Works. So that money will now be used to 
clean the streets and do the general things that cities do, and 
those are all good things.
    But I guess my question is: What would you say to the 
critics that would say, You have kind of used a bait-and-
switch, that you said we are going to use the money to clean up 
the river; now we are going to clean up just kind of the 
general Public Works programs. What do you say to them?
    Mayor Fenty. Well, you know, this is the same question that 
was asked of me when I testified before the Council by the lead 
sponsor of the bill, Council Member Wells. The essence is, is 
that the cleaning up of streets, which takes not only trash and 
pollution but oil and contaminants that make their way into the 
sewer system and which, because of the fact we haven't invested 
yet in our antiquated sewer system, all of the rainwater and 
sewer system becomes combined, makes its way into the 
Anacostia.
    When I do the press conference every year where I say it is 
street sweeping season again, which happens in March--behind me 
is a prop. I don't know how big this is, but it may be 30, 40, 
50 gallons of oil, which is what we take off of District 
streets every week, I think, by the street sweeping program.
    So the answer to the question is, I acknowledge that to use 
those funds for the street sweeping program is, without any 
question, a broad interpretation of the legislation. But we do 
believe that the legislation was written in a way that we will 
be able to use it for anything that could have a potential 
impact. There are only a couple of things that you could do--
that would be directly on the river. They are pulling trash 
out, drudging it, cutting back invasive species, et cetera. But 
there are lots of other things from litter education to street 
sweeping to things that we can put a list together that will 
impact and help clean up the Anacostia.
    And lastly, I would be negligent if I didn't just point out 
that one of the things we have to do going forward is look at 
fixing that combined sewer problem. It is going to be millions 
and billions of dollars, but that is what ultimately will clean 
up the Anacostia and make it a great river like the one you 
referenced in your home State.
    Mr. Crenshaw. Thank you. Thank you, Mr. Chairman.
    Mr. Serrano. Thank you. Just for the record, because I know 
it is an issue that keeps coming back and it will probably be 
around for a while. Mr. Crenshaw, and because of my respect for 
you personally--and I mean that sincerely--part of the issue 
with the school voucher program hasn't been only the school 
voucher program itself. It may be that the school voucher 
program was one of those instances where Congress, in a bad 
way, telling D.C. what to do, came up with a program that had 
some merit to it. The jury is still out as to how much merit. 
But it was all part of a behavior, historically, of Congress 
taking issues that were politically good for Congress, and 
instead of imposing them back in their own home districts, they 
impose them on the District of Columbia--on abortion, on 
medical marijuana, on needle exchange programs, on domestic 
partner issues, and on and on and on, even telling the District 
you can't use your local funds for these programs.
    This issue has supporters, strong supporters, but it is 
part of that package of telling the District what to do, and 
the belief by some of us that if the District wants to do these 
things, it should be able to do them, and Congress should not 
tell them what to do.
    Mr. Crenshaw. Thank you.
    Mr. Serrano. Thank you. Mr. Culberson, under the 5-minute 
rule.
    Mr. Culberson. Thank you, Mr. Chairman. You have always 
been very gracious about it. And I would agree with you, Mr. 
Chairman. You just said that it is--Congress should allow the 
District to make these decisions, and particularly on the D.C. 
Opportunity Scholarship Program. If you had the ability, Mr. 
Mayor, and the Council had the ability to make the decision 
entirely on your own, would you and the Council vote to 
continue and even expand the D.C. Opportunity Scholarship 
Program?
    Mayor Fenty. Well, what we have tried to do is put a very 
consistent position forward. We understand that it is Federal 
dollars so, you know, we----
    Mr. Culberson. Hypothetically.
    Mayor Fenty. Hypothetically, what we have said is that we 
support the program as we inherited it, which means that there 
was an equal amount of money for the public charter schools and 
traditional public schools and the public school system, 
although the administration had increased the number for 
certain programs in its traditional public school system, and 
that would then allow for the same number of kids----
    Mr. Culberson. But you are in charge. Let's say we passed a 
bill, and there is going to be a new majority in January and 
there is going to be a lot of support for that concept. Let's 
say the legislation--because Congress under the Constitution, 
we designed the legislation that Congress passed that designs 
how D.C. operates. So let's say hypothetically, Congress passed 
a bill that gave you full discretion to create, expand, fund 
the D.C. Opportunity Scholarship Program. It is your program. 
What would you do?
    Mayor Fenty. The short answer, Congressman, is that we 
support it in its existing size, better yet the size we 
inherited it at, with Federal funds for all three sectors.
    Mr. Culberson. What I have seen and heard from news reports 
in the city, the citizens of the city of Washington support the 
program pretty strongly, don't they, people that have kids in 
the public schools? I mean, they vote with their feet. You have 
more applicants than you have slots, don't you?
    Mayor Fenty. Yes. I think really the best answer on this is 
the full answer that the Chancellor has given. Congresswoman 
Emerson gave the part about not limiting people's choices. What 
the Chancellor said is our mission is to make our school system 
the best in the country. But she is a very honest person. She 
said we are not there yet. We have a long way to go.
    Until we are at that point, I think she even referenced a 
5-year period in her statement, we are not going to limit 
anybody's ability to choose. She referenced the Opportunity 
Scholarship Program as part of the three-sector approach, as 
the Congresswoman noted, as important to making sure people had 
a choice where they could be able to give their kids a great 
education.
    But it is within the context of the three sectors, because 
all three are important and, of course, we are in charge of the 
school system and we will make it excellent. But it is not 
there yet.
    Mr. Culberson. You would support, then, to the extent we 
could do so in Congress, passing legislation giving you and the 
Council complete control over the operation and design of the 
school system. Would you support that?
    Mayor Fenty. We haven't examined that, Congressman. We need 
to look at it a little bit further and see exactly what you are 
referring to.
    Mr. Culberson. I am a big believer in letting Texans run 
Texas, D.C. run D.C., New York run New York, and that sort of 
thing.
    Mayor Fenty. I can tell you we support it in the current 
fund with the funding level that we inherited. Anything else we 
would be glad to look at.
    Mr. Culberson. Forgive me, I had a came in a little bit 
late, I had two meetings on top of one another. In talking 
about the schools, because it is the more important thing we 
all do, is making sure that these little kids have a good 
opportunity, a good education, and it is particularly tragic 
when you see these little kids suffering. And Mrs. Emerson's 
daughter, I understand, teaches in the D.C. schools.
    To what extent, what is D.C. doing to try to help keep 
families together? We were in Houston, mortified with the 
number of people that were evacuated from New Orleans. Katrina, 
the hurricane itself was a catastrophe, but we in Houston had 
not realized how many--there just were no fathers. We got all 
these desperate people from New Orleans. There were mothers and 
grandmothers and these little kids from these desperately poor 
families, and there were no fathers. So the family structure is 
key to success in any public school system.
    I know we are blessed in the district that I represent in 
West Houston, whenever there is a PTA meeting, a PTO meeting, 
you can't drive down the streets. The parents are just jammed 
into the schools. They are on top of it. Every parent is 
watching their child and their teacher and the principal, and 
the school like a hawk. And it is the family structure, it 
seems to me, isn't it, that is really key to what makes a 
successful school system?
    I haven't heard you all discuss that. What is D.C. doing to 
try to help preserve families and keep families together and 
make sure they are healthy and whole?
    Mayor Fenty. Well, in an urban city, as you can imagine, it 
pretty much runs the gambit. There is housing for homeless 
families and homeless individuals. There is strengthening the 
kids in the child welfare system, who may be in neglected and 
abused situations, giving strength to the families or putting 
kids in a safer environment.
    Probably one of the biggest things in a city like this is 
actually job opportunities and job placement, because if you 
can employ people, then it solidifies the family, reduces 
crime, et cetera.
    Mr. Culberson. Sure. No question.
    Mayor Fenty. So a lot of the money that has come through 
this committee through the ERA bill and through other programs 
has really helped us employ people in D.C., all the economic 
development. We are embarking on more job training. Almost all 
of the DOES dollars we get come out of the Department of Labor 
and the committee that funds that.
    So keep making those dollars available. I think that is one 
of the biggest ways we can strengthen the family and give them 
support.
    Mr. Culberson. And tax cuts. Don't forget tax cuts. They 
are always important. It always creates jobs.
    Finally, now that there are no restrictions on the 
District's use of dollars to fund abortions, what type of 
abortions and how late in pregnancy will you be authorizing the 
use of District dollars?
    Mayor Fenty. I don't have the Department of Health report 
in front of me. We could get that to you. But I think the 
District----
    Mr. Culberson. Your best estimate?
    Mayor Fenty. Again, I would have to get that to you on 
exactly where we allow abortions. I can't even remember the 
exact terminology. We will get it to you by the end of the day.
    Mr. Culberson. Thank you very much. Thank you, Mr. 
Chairman.
    Mr. Serrano. Thank you so much.
    Let me see if I can make a final comment on the issue that 
won't go away. To my understanding, if the government, the 
administration, the City Council, of the District of Columbia, 
decides that with their own local funds they want to establish 
a voucher program, there is nothing that prevents you from 
doing that. It is just a local decision. Am I correct?
    Mayor Fenty. Absolutely. That is correct.
    Mr. Serrano. All we are saying is that Congress should not 
tell you you must have that program, but that nothing prevents 
you from having that program.
    Mayor Fenty. Correct.
    Mr. Culberson. With local dollars.
    Mr. Serrano. With local dollars. Absolutely. It won't go 
away. I will be 95 years old and it will still be there. There 
will be my picture on ads on the side of buses.
    While the overall request for Federal payment is down $17 
million in the 2011 request, the President's budget includes a 
request for $7 million in Federal payments for two new 
initiatives; $5 million total support of a HIV/AIDS initiative; 
and $2 million designated for redevelopment in connection with 
the Saint Elizabeths east campus.
    Mayor Fenty, could you briefly describe--I know you have 
touched on them before--but could you briefly describe each of 
these initiatives? Could you tell us what the local investment 
in each of these initiatives is? And I am particularly 
interested in your HIV-AIDS initiative. What gains has the 
District made in improving the future situation for young 
people by addressing their sexual health, STD and HIV needs 
now? What innovative strategies have been important for 
reaching young people.
    Chairman Gray, I would also like you to comment on that, 
please.
    Mayor Fenty. Let me just talk about the budget first. The 
funding that would come through your committee, Mr. Chairman, 
would allow for us to serve an additional 75,000 District 
residents. The HIV and AIDS Administration would use that for 
planning and stakeholder engagement, for service expansion, for 
outreach and linkage.
    What we have been doing over the past couple of years is to 
really focus a lot more on testing, knowing your status, doing 
something about it.
    We have produced two unbelievable reports, one on 
heterosexuals in D.C., and then the other is on same-sex 
couples. Both show that there is a high amount of sexual 
activity that just almost is reckless when you look at how 
little people know their status and how they continue to engage 
in sex with multiple partners, despite the fact they don't know 
their status. So we are really trying to let people know their 
status, get tested, and then do something about it.
    Mr. Serrano. Chairman Gray.
    Mr. Gray. I think, Mr. Chairman, one of the advancements--
and we thank the Congress for this--is to have lifted the 
prohibition on the needle exchange program in the District of 
Columbia, to take that rider off of our budget. There are 
probably about 250 cities in the Nation that use a needle 
exchange program, and we were prohibited from doing that except 
to the extent we could generate private dollars to be able to 
do that. We know that those programs work, and we now can 
invest dollars in a needle exchange program from our budget.
    The reality is that as you look at the spread of the virus 
over the last 20 to 25 years, we have moved substantially away 
from it being predominantly men having sex with men. When you 
look at IV drug use, for example, its prevalence as a reason 
for contracting the virus is almost as high as what started 
this condition many, many years ago. So the ability to make 
needles available, frankly, clean needles available to people, 
will be a major advancement in our ability to prevent the 
transmission of this virus in the first place.
    Also the ability, frankly, to be able to invest dollars in 
education, testing and counseling, and educating people around 
the importance of understanding this condition and then getting 
counseled and getting tested themselves. We have done more to 
integrate those services into larger health services as well.
    Let's face it. There has been such a stigma associated with 
this condition over the years that people were afraid to even 
go get tested or to be tested or to associate themselves in any 
way with the condition. Now, as we integrate these services 
more into multi-service systems and health-care systems, I 
think we will see more people taking advantage of them.
    Frankly, one of the things I discovered when I became a 
Council member in Ward 7, which is an east-of-the-river 
community, while the condition itself was growing more rapidly 
in those communities, we found that there were fewer dollars 
being invested in those communities. It was an inverse 
relationship between investment and incidence and prevalence.
    We have begun to level the playing field now so that those 
communities where we have 140,000 people living now have more 
dollars being invested in the education, testing, and 
counseling program. So I think all three of those things are 
going to make an important contribution to our ability to 
combat this dread disease.
    Mr. Serrano. Thank you. Where are we in terms of setting up 
the services as a result of lifting the ban on needle exchange?
    Mayor Fenty. Well, of course, as the Chairman noted, we 
already had some programs that were in existence. Immediately 
after lifting the ban, I think it was in 2008, late 2008, we 
were able to write a check to Prevention Works, and they 
immediately started putting those dollars to work.
    I think the Chairman is exactly right. To date, it has 
already saved countless lives. And we could get you an updated 
report on how much money we have spent since then. But that 
initial check was in the $300,000 to $500,000 range, if I 
remember correctly.
    Mr. Serrano. The reaction from the community has been 
supportive, I imagine?
    Mr. Gray. It has. I have heard no adverse reaction at all 
to this. In the early days when this was proposed, there were 
people who thought we were actually promoting the use of 
illicit drugs. But I think we have long since passed that. I 
think people recognize that the opportunity to save a life far 
transcends in importance the concern about whether somebody is 
a drug user.
    Obviously we want them to stop using drugs and we want more 
treatment programs to be able to do that. But at the same time, 
we have to recognize that those who are using drugs, if we 
constrain their ability to access it--which we would love that 
they stop--but if we constrain their ability to using dirty 
needles, we are simply proliferating a public health problem. 
So this really has opened the door, I think, to avenues that 
heretofore were not available to us.
    Mayor Fenty. My notes show we have removed over 380,000 
dirty needles from the city since the congressional ban was 
lifted.
    Mrs. Emerson. Three hundred eighty thousand dollars?
    Mayor Fenty. Three hundred eighty thousand dollars.
    Mr. Serrano. Well, let's turn now to the fiscal health of 
the city. By the way, again sort of breaking my rule of not 
telling you what to do, but I would like to be kept informed, 
because that was a special interest to this committee, the 
whole needle exchange ban. It became national news. Just keep 
us informed as to how it is working. Not, again, because I am 
telling you what to do, but because I would appreciate it. It 
continues to make the argument at other levels.
    Mayor Fenty. Thank you.
    Mr. Serrano. I would like to turn to a discussion of the 
District's fiscal health. Like many cities and counties around 
the country, the District of Columbia is seeing a steep decline 
in tax revenues due to higher unemployment and declining 
property values. In fact, as you know, Dr. Gandhi, back in my 
city of New York, this Thursday we are going to have a heated 
argument when the President goes there to talk about Wall 
Street. And you are going to have people saying, Well, the flip 
side to all of that, and no one has paid attention to--and I 
don't agree with these folks but they say those large bonuses, 
those people were paying taxes in New York City, and they are 
no longer paying taxes because of large bonuses.
    You now have the pro-large bonus lobby, and I am not 
talking about recipients. You are talking about people saying, 
My God, because you got a $50 million bonus, that is a big tax 
chunk.
    Mrs. Emerson. It would be nice to have a $2,000 bonus.
    Mr. Gandhi. We don't have any bonuses.
    Mr. Serrano. My bonus is that you are my ranking member.
    Mrs. Emerson. That is mine too, that you are my chairman. 
And we aren't arguing about baseball today yet.
    Mr. Serrano. Because the Yankees keep winning, that is why.
    Mrs. Emerson. The Cardinals are still ahead.
    Mayor Fenty. And the Nationals are doing extremely well.
    Mr. Serrano. I remember Carlos Paula from Cuba playing for 
the Senators. You know, the Senators were like the first team 
that in a way had this special deal going with Cuba. It was 
incredible.
    Mr. Gray. Do you remember Camilo Pascual?
    Mr. Serrano. Of course I remember Camilo Pascual. The only 
guy with a last-place team winning 17 games.
    Mr. Gray. Pedro Ramos?
    Mr. Serrano. Pedro Ramos. Yes. Sure.
    Mr. Culberson. Where are all the Cuban ball players now?
    Mrs. Emerson. We just got a a new one on the Kansas City 
Royals.
    Mr. Serrano. Excuse me.
    Mrs. Emerson. We are saving them from having to talk about 
the finances.
    Mr. Serrano. I am sorry. With me it is baseball, but we 
have to get back.
    Dr. Gandhi, what is the current status of the District's 
tax shortfall and what impact has declining tax revenues had on 
the District of Columbia? Based on your current projection, 
when do you anticipate revenues will reverse course and begin 
to increase? Of course, that is a question being asked 
throughout the country.
    Mr. Gandhi. Mr. Chairman, you are exactly right. We have 
suffered, like others, substantial losses in revenue. In 2010, 
we have removed roughly $1 billion from our projected revenues; 
in 2011, $1.2 billion; 2012, about $1.3 billion. We have lost 
anywhere between 16 to 21 percent of what we had projected in 
terms of the revenues. To that, my expectation is it will be 
another 2 years before there will be a substantial recovery 
underway.
    Mr. Serrano. How many? Two years you said?
    Mr. Gandhi. That is right, to go back to some respectable 
level of revenues.
    And, three, while most of the other taxes are recovering 
gradually, our fundamental problem is commercial real property. 
Commercial real property, sir, is about $1 billion-plus. That 
is the engine that drives our revenue machine, and we see 
substantial problems primarily because of the real property 
market which is still very sluggish. We see a lot of vacancies 
rising, and I think it will be quite a while before it gets 
rejuvenated, the kind of revenues we used to get.
    When I joined the city some 10 years ago, the deed 
recordation and transfer taxes used to be around $40 million. 
In the height of 2006-7, it was around $400 million. We had to 
cut that in half now, because the deals are not happening. The 
deals are not happening. So my expectation is it will be 
another 2 years that it will come back to a level that we would 
like to have.
    But I am quite confident the fiscal condition of the city, 
with the Mayor here and Chairman, I have no doubt that we will 
have a balanced budget, that we will have a 5-year balanced 
budget plan. I am immensely impressed with the fiscal prudence 
that the elected leadership have shown. In that respect, we 
have still $900-plus million in a fund balance, $350-plus 
million dollars in rainy day funds, so in that respect we are 
doing far better than practically any other city in the 
country.
    Mr. Serrano. Really. That is good to know.
    Mr. Gandhi. Great kudos go, as I say, to the Mayor sitting 
next to me and the Chairman.
    Mr. Serrano. You realize that right now in the White House, 
people are saying that Dr. Gandhi just said things will turn 
around in 2 years. There are big charts up saying okay, we are 
in good shape; 2012 falls after the 2 years; we just gave them 
great news.
    But it is good news, and the number projections do indicate 
that that is what is going to happen.
    Mr. Gandhi. That 2 years, basically I am talking about 
Washington, D.C.
    Mr. Serrano. I understand. But as Washington goes, right, 
so does the rest of the Nation.
    Mayor Fenty, what policy initiatives are you proposing--by 
the way, Ms. Emerson will be back in a few minutes. She won't 
be upset if I read this: ``I have to say hello to my dairy 
farmers.'' The difference between the Bronx and Ms. Emerson, 
the closest I get to it is a plastic gallon of milk in the 
supermarket.
    Mr. Culberson. Me too.
    Mr. Serrano. So we learn so much about each other, it is 
wonderful. It is the greatest experience ever.
    What are the initiatives to increase revenues, what have 
you had to cut, and is there a particular program area that is 
absorbing the bulk of staffing and program cuts? I know that is 
a tough question, because, you know, if there was ever a reason 
why I never wanted to be mayor of New York, besides the fact I 
probably couldn't have gotten elected, is how do you face 
5,000, 10,000, 30,000 workers, and tell them you are not here 
next January? That is tough stuff for you. It is tough for the 
Council. So if you could just talk about that for a second.
    Mayor Fenty. I appreciate it. I mean, the biggest thing in 
terms of having a real recovery going through the coming years 
will just be the economy, a recovery. What we are doing in this 
4-year cycle--hopefully that is all it ends up being--is 
scaling back waste and excess, streamlining some programs, 
doing some consolidation, so that residents don't see an 
interruption in service delivery.
    We are managing the government as you would expect. There 
hasn't been a particular part of the government where we have 
said, We can completely eliminate that. We have spread it 
pretty well amongst all the agencies. You will find some 
reductions in everything from, say, public works to the police 
department.
    But what we do is we do it very surgically. So in the 
Public Works Department, I think there is a proposal to cut 
some inspectors, which is contrasted with, say, cutting people 
who pick up the trash. These are people that help to monitor 
it, so there will have to be better management from the top, 
and we are cutting out middle management.
    At the police department, we would never cut police 
officers. We need our 4,070 officers for everything they do, 
and they do a fantastic job. But there were some positions 
which were civilian positions that the Chief was able to 
identify which were excess.
    In total, I think it was about 500 positions in the 2011 
budget, which is the one that is at the Council now. Added to 
the last year and a half, I think that takes us over 2,000 
positions that were eliminated from the government. So we are 
approaching 10 percent, somewhere probably between 5 and 10 
percent right now, and I think that is what you would have 
expected us to do. Because the budget grew in healthier times, 
it is only right we reduce it.
    The local spending reduction, compared to last year, this 
year is about 3 percent. So we are spending less proposed 
dollars by 3 percent than we would have when I was sitting 
before you a year ago, local dollars.
    Mr. Serrano. Chairman Gray.
    Mr. Gray. You asked about revenue enhancements too, Mr. 
Chairman. The Council in its work on the fiscal year 2010 
budget looked at some areas that we thought would generate 
additional revenue. It resulted in probably about, I don't 
know, about $40 million additional. And we did that in some 
areas that we thought would least impact the residents, if you 
will.
    First of all, we increased by one quarter of 1 percent the 
sales tax in the District of Columbia, recognizing that there 
are a lot of people who come into the city who don't live here, 
and engage in one or another kind of transaction in the 
District of Columbia. I guess it is the antithesis of not being 
able to tax income at its source, and that is that those who do 
shop in the city would pay slightly more. That will actually 
generate, projected out, $20 million-plus for the city.
    We also raised the cigarette tax, the thinking being that 
even if people cut back on cigarettes, we will probably save in 
health costs as a result. Cigarettes now cost $7.34 a pack, 
which is absolutely astounding, and we know what the health 
consequences are.
    Mr. Serrano. Seven dollars and 34 cents, you say, and 
people still smoke?
    Mr. Gray. People still smoke. I remember people saying if 
cigarettes ever go to $2.50 a pack, I will never smoke another 
cigarette. Those are the same people that are paying $7.34 a 
pack for cigarettes now.
    Mr. Serrano. That is not the highest in the Nation, is it?
    Mr. Gray. I don't know. I really don't know. It has got to 
be right up there, though. We achieved parity in our gasoline 
tax with Maryland. We raised that by 3.5 cents. Overall, it 
will generate about $40 million in additional revenue.
    One of the things I think, too, Mr. Chairman, that we will 
benefit from is the President's reform plan that now, of 
course, has been approved. We have had a very aggressive 
program in the city of covering people who otherwise wouldn't 
be covered.
    We have something called the Health Care Alliance which 
covers 55,000 people in the city. A lot of those people now 
will be covered by the President's health-care reform plan, 
which will allow us then to be able to use those District 
dollars for other purposes, other services in the city, because 
we will get additional help from the Federal Government because 
of the additional coverage that will be provided by the health-
care reform plan.
    Mr. Serrano. Thank you.
    Before I turn to Mr. Culberson, I just thought of a 
question that I haven't asked for a couple of years, but it is 
important to ask it. As you know, and you know me more than a 
lot of people who come before this committee know me, I try to 
be very fair and balanced, as that network claims to be--not 
that network, whichever network that is. I want to be careful.
    Up to recently, and this changed recently, I think it might 
have changed, up to recently the highest percentage growth in 
the Hispanic population in the Nation was in southern Maryland, 
Northern Virginia, D.C. area. It may now be the Carolinas. But 
that was the highest percentage.
    So what initiatives has the city taken to deal with the 
growth in that population? What special programs and anything? 
What is the reaction from the leadership? Is there established 
leadership in the D.C. Latino community the way there is in 
Northern Virginia and in Maryland and so on?
    Mayor Fenty. I think you would be proud, Mr. Chairman, of a 
number of different things. When I was on the Council, actually 
right around the time I first started on the City Council, the 
law was passed called the Language Access Act. It is still in 
effect. It monitors every agency of the government and how we 
do employing and using and responding to people who speak the 
most common different languages than English in D.C. So 
Vietnamese and Spanish and Korean are some of the top ones. So 
every report shows that we are continuing to do better. We 
still have a long way to go.
    On the education front, the Chancellor and some of the 
charter schools have really been good about language immersion 
programs. The Oyster Model, which was just one school at the 
time we took over, has been expanded. That now has a middle 
school. And we are putting a lot of language immersion programs 
into the schools.
    We have been really strong on health care. Groups like 
Mary's Center, that serve our Latino community throughout the 
city, are strong partners with the District of Columbia and 
many other places in between, from the Latino businesses that 
have emerged in the community to other nonprofits.
    I think the strength and the growth of all of those is a 
great indicator that the District realizes that this is 
certainly our largest growing immigrant group, and we are 
welcome to keep that continuing.
    Mr. Serrano. Chairman Gray.
    Mr. Gray. I think the Mayor has made some excellent points 
in that regard. We probably--I think 10 to 12 percent of our 
population now is Hispanic.
    Mr. Serrano. That high?
    Mr. Gray. Yes, it is high, by comparison to what it was a 
few years ago, and it is a growing population. Certainly, if 
you look at the charter schools, for example, we are seeing 
more bilingual programs there as well.
    One of the things that I am especially proud of is that we 
have established now--we probably were the last jurisdiction in 
America to establish a community college. We now have a 
community college in the District of Columbia. It opened in 
August of 2009. And we are focusing on trying to attract, I 
would say, nontraditional students to the community college, to 
keep people at home in the city, and certainly reaching out to 
the Hispanic population now to attract the Hispanic population 
to our community college, so that as people get high school 
diplomas, they then have at least that option to go to.
    There is open enrollment, and for those who get a 2-year 
degree, they then are automatically admitted to the University 
of the District of Columbia. We are focusing in terms of our 
outreach on the Spanish population as well.
    Mr. Serrano. I would like to assist you in any way. Like 
you say, it is a growing population. You also now begin to see, 
and I know this for a fact, a large number of children born of 
Latino parents in D.C. who are native to the community, if you 
will.
    You know, as a total aside, I mentioned to you folks last 
year, I said, you know, one of America's best-kept secrets is 
that Chita Rivera, the superstar of Broadway and the original 
star of West Side Story and countless other shows--she is still 
performing--was born in D.C. and you should honor her. Well, 
the President beat you to it. He gave her the highest honor in 
the country just recently. But she was born in D.C. and is 
proud to tell people that.
    Ms. Emerson.
    Mrs. Emerson. I have a cookie in my mouth.
    Mr. Serrano. You went to see the dairy farmers. You got 
cookies.
    Mrs. Emerson. I am sorry. I actually stole the cookie from 
in there. So you can go back.
    Mr. Serrano. Let them eat cake.
    Mrs. Emerson. Let me just get that finished. Thank you.
    I wanted to ask you all a question about homeless veterans. 
It is estimated there are about 583 homeless veterans in the 
city, and the budget request proposes $10 million to address 
this problem. I understand the funding would be divided between 
two projects and will help provide new housing units for 
individuals whole need site-based housing and support.
    I am really, really gratified that the city and 
administration are working to address the family of our 
homeless veterans. So I just have a few questions that I want 
to be specific--ask you specifically.
    How many veterans will this program assist each year? When 
do you anticipate the facilities will be operational? Is the 
Department of Veterans Affairs participating in this? How much 
do you all have to use your own resources?
    And then I will ask a couple more about that, please.
    Mayor Fenty. I am not sure if we have all of the budget 
costs for the building and the projections on delivering the 
building. We could certainly get that to you.
    Mrs. Emerson. That would be terrific.
    Mayor Fenty. With respect to the question about the 
percentage of veterans, my notes show we are going to have a 
reservation of units, which I would imagine would be a minimum 
number of units, and I will either have to get that to you by 
the end of the hearing or by the close of business today 
through the Chairman. But it is a part of our entire proposal 
of finding permanent supportive housing to get homeless 
veterans off the street in the most humane way possible.
    Mrs. Emerson. With 583, I don't know how far $10 million 
will go. Certainly these are people who everything we can 
possibly do to ensure that they have a safe place in which to 
live is really, really critical I think.
    Do you know yet, or do you all have plans to provide other 
things at these facilities like drug and mental health 
treatment, job training, that sort of thing?
    Mayor Fenty. Yes. The Permanent Supportive Housing Program, 
which we established in late 2008, is just that, Congresswoman. 
It gets you housing, but it also has everything from job 
counseling to mental health counseling, substance abuse 
counseling. The arms of the government are wrapped around you 
until you get back on your feet. We actually believe that this 
is not only more humane and more productive, but also, in the 
long run, less expensive than just putting people on top of 
each other in shelters.
    Mrs. Emerson. Absolutely. Do you know of the number of 
homeless veterans you have been able to help to date, whether 
you see recidivism back to homelessness or whether you really 
have been able to measure the progress of these folks? In other 
words, have they been able to get a job? Do they have the right 
medications to help deal with any other physical or mental 
ailments that might arise?
    Mayor Fenty. I think we would have to get you that number. 
I think my notes show that through all of our services, there 
are about 548 veterans who are homeless in the District of 
Columbia, and that would probably be somewhere around 10 
percent, because I have just over 6,000 persons who are 
literally homeless. So let me get the number on how many of 
those have already been put into the Permanent Supportive 
Housing Program. We will get that to you.
    Mrs. Emerson. Do you know if some of them are non-veterans 
or is it just the veterans community specifically?
    Mayor Fenty. In our Permanent Supportive Housing, 
absolutely some of them are non-veterans, without any question.
    Mrs. Emerson. I appreciate that. It is just such an 
important thing, and it is important for all of us to partner 
in ensuring that we not have that problem in the future.
    Let me ask, too, about the Residents' Tuition Support just 
briefly. Am I stepping on anybody's toes?
    Mr. Serrano. You already asked my veterans question. Other 
than that----
    Mrs. Emerson. Okay. I think that it is wonderful to be able 
to provide students the opportunity to go to college, so I am 
very supportive of this program. And I know that it has 
increased the enrollment in D.C. public schools--well, it has 
increased college enrollment among D.C. public school grads up 
to--I think 60 percent are the latest numbers we have for 2006.
    Tell us a little about the successes of this program and 
whether or not that program has produced a better-educated 
workforce that has led to better-paid jobs. And hopefully, all 
of these are folks who are coming back and working back home. 
We certainly, in rural Missouri, have issues with you can go to 
St. Louis, you can go to Memphis, and you can get a better-
paying job. But in D.C., the jobs are much better-paying than 
they would be where I live.
    Mayor Fenty. Well, you know, I think it has had a number of 
different positive impacts. In fact, the number one is the one 
you cited already, the improvement in the graduation rate; 
that, as you said, some numbers show that is up to 60 percent. 
But it depends on what year you are looking at. The graduation 
rates over 2000 to 2005 certainly grew every year, so that was 
exciting to see.
    We believe it has had a great impact on keeping kids in 
high school, lowering the dropout rate, getting kids around the 
country more as they look to the various different State 
institutions that offer some of these, which I think is 
important to everybody who sits where you all sit.
    Without any question, it has brought people back better 
trained for D.C. D.C. is an attractive place if you are looking 
for a job, because--we have got the highest unemployment rate, 
but we also have the fastest job growth. It is just one of the 
wild disparities that you hear about in the Nation's Capital.
    The answer to why that exists, of course, centers around 
education. If we could place all of the people in D.C. who 
needed a job into the jobs available, our unemployment rate 
would be one of the lowest in the country. It is high because 
people still drop out at such an alarming rate, or get through 
school untrained for the jobs that are here.
    That is a really big mission here in Washington, D.C., and 
we believe that DCTAG helps that. We probably would have some 
people move out of the city more if you didn't have DCTAG. I 
think it is a very attractive selling point for the city and 
continuing the growth of the city. It is particularly 
noteworthy, seeing it has such strong support from former 
Congressman Davis, who represented a suburban jurisdiction. He 
realized the importance of it to the city.
    Mrs. Emerson. I think, too, the plans for the University of 
the District of Columbia are wonderful too, and we should not 
overlook that as an opportunity.
    Mayor Fenty. Absolutely. No question. No question.
    Mrs. Emerson. Thank you.
    Mr. Serrano. Thank you.
    Mr. Culberson.
    Mr. Culberson. Thank you, Mr. Chairman.
    Community colleges are indeed a great investment. It is a 
powerful part of the education system in Texas. We also have a 
program where a high school student can earn dual credit, both 
in the high school class, as well as if they go on to a 
community college or even in our State university. Is that 
something that you have in place in D.C.? If not, I would 
certainly recommend it.
    Mayor Fenty. There are different programs available. There 
are a couple of them. There certainly are the normal AP classes 
which you can take and get college credit. Then I know that 
there are a couple of partnerships with schools like GW and 
others. I know there are some programs with UDC as well.
    I want to stop short of saying I know that you can get 
college credit, because I don't remember if that is the case.
    Mr. Culberson. It is worth paying attention to.
    Mayor Fenty. Without any question.
    Mr. Culberson. Put it on your radar as something you 
probably have authority to do, and it really, really helps make 
a difference.
    Mr. Gray. We actually have begun to extend those 
opportunities through UDC. One of the things that has been done 
is extend UDC beyond its principal campus on Connecticut 
Avenue. We now have satellite locations, especially east-of-
the-river communities, and we are about to open two new sites, 
one in the former Backus School, which was a public middle 
school on South Dakota Avenue. They are going also into high 
schools. There is a presence of UDC in high schools, so there 
now is an emerging effort to try to see that these young people 
get connected with the university and also get credit for 
certain courses they will take through the university while 
they are in their own high school.
    Mr. Culberson. I hope you also will encourage, do what you 
can to develop programs to encourage young people to go to the 
military academies. That is another great opportunity that I 
think D.C. may be missing out on.
    You mentioned also that you have declining revenues in the 
city, obviously commercial property, declining property tax 
revenues. Another thing to put on your radar, I can tell you 
just from personal experience--and certainly we are all dealing 
with human nature--human nature is such that if you are, for 
example, running a business, your revenues are down, they cut 
prices and do an effort to try to bring people in. I know it 
has worked, certainly, in Texas and my experience elsewhere.
    Again, human nature is such that where revenues are 
declining, the response that we have had in local government 
and State government in Texas is to cut taxes and cut spending. 
It creates jobs, encourages people to move in. Texas has been 
blessed. We are sort of in a bubble in Houston and Texas that 
has protected us. We are still down, but not as bad as the rest 
of the country, because of that attitude.
    I would sure recommend it to you. Rather than look to raise 
taxes as a way to increase revenue, if you actually cut taxes 
and cut spending, I think you will bring in more people and 
create more economic growth.
    I also wanted to ask about how the city is addressing 
crime. Correct me if I am wrong, but I understood that you all 
have installed--there are sound detectors in certain parts of 
the city to triangulate gunfire, because witnesses won't come 
forward; is that correct?
    Crime is still a serious problem in parts of the city. Do 
you have sound detectors that triangulate to help identify 
where it came from?
    Mayor Fenty. Yes, Congressman. Shot spotters are what they 
are called, and they do help the police department, as do 
surveillance cameras, as do other technology-related policing 
items.
    But I do want to say that one of the reasons Chief Lanier 
has been able to drop the homicide rate down to 1966 levels and 
to be one of the leaders in the country in homicide closure 
rates is because the detectives, one, they do an amazing job, 
they are very well managed; and two, because we are getting an 
unprecedented amount of support from the community in giving us 
tips.
    Mr. Culberson. I am delighted to hear it. But the whole 
idea of sound detectors is sort of grim, if you think about it, 
the fact you need it.
    Mayor Fenty. Sure.
    Mr. Culberson. It is a sad commentary on the state of 
affairs we are in.
    Mayor Fenty. No question.
    Mr. Culberson. I am delighted you are dealing with it. I 
can tell you again, we all have come up in our personal 
experience. I am born and raised in Houston as a Texan. I knew 
how to shoot a gun by the time I was 12 years old, and it is 
just a natural part of life. And it is an important part of 
life in Texas, and I coauthored in the State legislature our 
Concealed Carry legislation in the nineties.
    To this day, I think that bill passed in like 1995, I am 
not aware of--and somebody may correct me--but I am not aware 
of even a fist-fight between Concealed Carry permit holders.
    I know that when you are pulled over for a traffic ticket 
in Texas, you pull out--this works, Mr. Chairman, I am telling 
you--if you have a Concealed Carry permit in Texas, if you are 
pulled over for a ticket, really you are supposed to pull out--
and I am going to get mine soon, my brother has got his. This 
works every time. You pull out your driver's license. You put 
the Concealed Carry permit with it, because the officer needs 
to know. And when you give that to the officer, nine times out 
of ten, unless you really fail the attitude test with the 
officer or done something bad, the officer will just say, Thank 
you very much, have a safe day, because police officers 
recognize that their best friend is a Concealed Carry permit 
holder.
    So I wanted to ask you about what the District intends to 
do about the right of all Americans to keep and bear--two 
parts, keep and bear arms. And law-abiding citizens have that 
absolute right under the Constitution; the case that just went 
up to the Supreme Court that invalidated the prohibition that 
D.C. had on owning a weapon inside your home.
    To what extent will the District of Columbia protect 
Americans' Second Amendment rights and recognize the reality 
that we in Texas and other States where they have Concealed 
Carry, we have stopped a lot of crime, we have saved the 
taxpayers a lot of money, and really deterred a great deal of 
crime. Because criminals are basically cowards. They are not 
going to go after somebody they think that can protect 
themselves.
    So I really mean it in a very sincere way. I am telling you 
it works. If you trust your constituents, if we would just 
trust Americans' good hearts and good sense to do the right 
thing for the right reason, they will do so because they are 
Americans. What will you do to encourage Americans to do the 
right thing that live in D.C. and protect their Second 
Amendment rights?
    Mayor Fenty. Well, you know, you are obviously up to date 
on the Supreme Court's ruling in the Heller case. Since then, 
our Attorney General, the Council's Committee on Public Safety, 
and everyone in between has worked to put together regulations 
that both meet what the Supreme Court decided, which is, of 
course, that you could have a handgun in the home with certain 
restrictions, and that we have a regulatory system and a 
licensing system that makes sense and is fair. I think we have 
struck the right balance.
    Mr. Culberson. What about shotguns? Can a resident keep a 
shotgun or rifle in their home?
    Mayor Fenty. Sir, there is an older law that applies to 
non-handguns, and I don't have it with me. The prohibition, 
which goes back to the inception, the time of the inception of 
the Council, which was mid-1970s, really spoke to handguns and 
concealed weapons. Then there was something that preexisted 
that, about non-assembled rifles and shotguns. I would have to 
get you the law.
    Mr. Culberson. So there is no prohibition against a D.C. 
resident keeping a shotgun in their home?
    Mayor Fenty. There are absolutely restrictions. I don't as 
we sit here today know all of the restrictions, what you can 
have, what can be assembled, what was grandfathered in.
    Mr. Culberson. That is important.
    Mayor Fenty. That is very important.
    Mr. Culberson. Anyway, what will you do? Have you 
considered, is the Council considering--and the chairman has 
been very generous with his time.
    Mr. Serrano. Especially on this issue.
    Mr. Culberson. It works, let me tell you. The Bronx, you 
could----
    Mrs. Emerson. You should talk to my new staff assistant. 
The first day she got here she got carjacked by three guys and 
a gun right up the street.
    Mr. Culberson. I tell you, had she been a Concealed Carrier 
permit holder in Texas, the guy would either be dead or in 
jail. I mean, you saw that. I am telling you. If you trust 
Americans to do the right thing for the right reasons, they 
will do it.
    Your police officer's best friend who is going to be a 
trained, law-abiding citizen who is carrying a concealed 
weapon, has a merit. They are going to be a police officer's 
best friend and backup. And those carjackings just don't happen 
in Houston. If they do, they only happen once.
    What will you do in terms of letting people in D.C. carry a 
concealed weapon? Is there any debate or discussion about 
letting law-abiding Americans carry a concealed weapon?
    Mayor Fenty. There isn't any further debate or discussion 
that goes beyond what the Supreme Court ruled in Heller.
    Mr. Culberson. Is that----
    Mayor Fenty. Not any formal debate. Obviously, the citizens 
have varied opinions on it, as they do all over the country. 
But there isn't any further debate at the Executive level, and 
I don't think there has been any at the legislative level.
    Mr. Culberson. The Council's position reflects that of D.C. 
Residents, you think. They don't want the right to carry a 
concealed weapon?
    Mayor Fenty. I believe that the residents of D.C. in huge 
majorities want very strict handgun laws.
    Mr. Culberson. They want gun control?
    Mayor Fenty. Yes, sir.
    Mr. Gray. I concur with that also.
    Mr. Culberson. It is very different from Texas.
    Mrs. Emerson. And Missouri.
    Mr. Culberson. And Missouri. Thank you.
    Mr. Serrano. We are going to wind down now. But on that 
point, I think the main issue here is that--and here I am going 
to be balanced. I think people that live in the inner city, 
like I do, have tried to understand, and I think have been 
successful, in understanding the needs and the cultural aspects 
of owning and bearing arms in other parts of the country. But I 
think folks in other parts of the country have had a difficult 
time understanding our reaction to guns on the streets of the 
South Bronx.
    I understand the hunting issue. I personally would not be a 
hunter, but I understand that. I understand the whole issue of 
bearing an arm at target shooting. I understand all that. And 
for protection of your property, I understand all that. But 
that is not the reality of people in the housing projects that 
I grew up in. It is a whole different thing.
    So when you ask these folks, when you ask people in my 16th 
Congressional District in the Bronx, they may seem as to be a 
anti-Constitutional or anti-rights. It is not. It is dealing 
with their daily situation that the biggest threat to them are 
drug dealers with guns; that if you get rid of those guns and 
you get rid of the ability of drug dealers to shoot each other, 
and, in the process, to shoot other people, life will be much 
better for them.
    I am old enough and well-read enough and so on to 
understand that is a right that you have. But you need to know 
that these restrictions are not meant--I mean, I don't want to 
stop somebody from hunting. I just want to stop people from 
shooting each other on the street, and, in the process, 
shooting innocent people.
    Or the fact that because I am law-abiding and don't carry a 
gun, there is a guy who bought one that came up on a Saturday 
night, traveled all along the east coast and got to the Bronx, 
and he is going to use it on me or a loved one of mine to 
carjack me or whatever.
    That is a tough issue. I understand it will be with us 
forever. But I think that in that case, we have done a better 
job of trying to understand your needs than folks in your 
communities have done in your understanding our fear.
    Anyway----
    Mr. Culberson. I know our focus would be----
    Mr. Serrano. Are you packing now?
    Mr. Culberson. No, not now.
    Mrs. Emerson. I was just looking.
    Mr. Serrano. I don't want to carry this too far.
    Mr. Culberson. No, no, no.
    Mrs. Emerson. This is being videotaped. We had better watch 
it.
    Mr. Serrano. He has a permit.
    Mr. Culberson. We in Texas just want you as a law-abiding 
citizen to have the right to defend yourself. That is my point. 
If you are a good citizen and you obey the law, you should be 
able to defend yourselves. And it works.
    Mr. Serrano. It is a major difference of opinion.
    My last question for the day, and I will submit the few 
others I have for the record, the President's proposal is 
$17.45 million--I am sounding like Dr. Gandhi now--$17.45 
million different than last year. If we were able to get you 
that money back, how would you direct it? Or do you want us to 
direct it into certain programs?
    I know that, Chairman Gray, you have, as the Mayor does, a 
special affinity for UDC. So if we could get you that back--and 
it is a big ``if'' we are facing all over, right, a big ``if,'' 
and these committees will get an allocation that won't look 
like last year, but I am not ashamed to say it in public, that 
the District of Columbia is a special part of my bill for me. 
So if we were able to get you back that money, or part of it, 
would you want us to direct it into a certain account?
    Mayor Fenty. I think that it would be--the responsible 
thing to do would be to get you a submission which would show 
you what we would do with $17 million. We could even work with 
the Chairman so that it would be kind of a joint executive-
legislative thing.
    I think without question, the discussion we had around 
housing is critical. It is a very big impact that you can make 
as a committee, because everything else can be better managed 
with less resources. Even education. But housing requires a 
certain amount of dollars to build the housing and to leverage 
private investment. So I would suspect our proposal would have 
housing. Education is always at the top of our priority list.
    As you said, Mr. Chairman, you referenced a couple things. 
But I would be glad to have my staff work with the Council and 
submit something that would say, Okay, this is where we think 
an additional $17 million or so would be best used. I don't 
know if the Chairman wants to add anything.
    Mr. Gray. I think that is a good suggestion, Mr. Mayor, and 
I appreciate your referencing UDC. That is our State 
university. That really, I think, deserves support. There are 
an incredible number of new initiatives taking place under the 
leadership of Dr. Sessoms. The community college is now open 
and operating.
    I think we have an enormously wonderful opportunity to be 
able to reach a lot of students in the District of Columbia who 
might not pursue higher education or might go somewhere else to 
do that. I think the investment of dollars at this date will 
more than return--the ROI will be incredible, both in terms of 
a more educated populace in the District of Columbia, and, 
frankly, a group of residents who are better able to compete 
for the jobs in the District of Columbia.
    You heard, I think it was 66 percent Dr. Gandhi cited 
earlier, of the people who live elsewhere and work in the 
District of Columbia. One of the ways to resolve that problem 
of people living elsewhere and earning dollars in the District 
of Columbia is to increase the number of people who live in the 
District of Columbia who get the jobs in the District of 
Columbia, because clearly they will pay taxes in the city. One 
of the ways to do that, obviously, is to have a more educated 
workforce.
    The community college will contribute mightily to that, not 
only in terms of 2-year degrees, but workforce development. 
Frankly, one of the things we are doing is gearing the 
curriculum there to emerging jobs. Allied Health Services, for 
example. We have a burgeoning health-care system in the 
District of Columbia. Early childhood education. All of those 
are curricula that are on the drawing board or have been 
developed in recent months at the community college, at UDC, 
and targeted specifically to people who live in the city.
    Mr. Serrano. That sounds good to me.
    Well, you have no further questions, right?
    Mrs. Emerson. Right.
    Mr. Serrano. I want to thank all of you. It has been a good 
hearing. We have gone a good 2 hours. We stand committed. 
Rarely do you get a chairman and a ranking member, who, on a 
part of a bill as controversial as the D.C. budget and D.C. 
Provisions can agree 99.9 percent of the time on the issues, 
and agree 100 percent of the time to do the best we can to make 
things better for you and for the residents of D.C., and we 
stay committed to that.
    It doesn't hurt that you have a wonderful baseball park. We 
are baseball fanatics, and true baseball fans. And here is 
where I am going to sound like a politician, right? True 
baseball fans don't just root for one team. They have a special 
team--Cardinals, Yankees--but we like to see other teams 
succeed, except when they are playing the Yankees, and I think 
they will for the first time soon. I want the Nationals to win.
    Mrs. Emerson. They demolished St. Louis in the preseason. 
My goodness gracious.
    Mr. Serrano. Why do you think I am saying all these things 
about the city? It is so exciting with Strasburg coming up. 
There is rejuvenation. I mean, it is just an exciting time. You 
walk down the block and you see that opening. These are 
exciting times.
    I am a blessed man. I live across the street, two blocks 
from Yankee Stadium, and I have a 12-minute walk to Nats 
Stadium. Life is good. So for that alone, we are big fans.
    But we stay committed to helping you in every way we can. 
We can't commit to the 17.4 million, but we will try.
    Mayor Fenty. We will get you something in writing.
    Mr. Serrano. And we are here to do the best we can. We 
thank you, all three. I am sure some people came here today to 
hear some fireworks. I can make one comment about the two of 
you. With you, it is clear to me that D.C. comes first. Thank 
you so much.
    [Clerk's note:--The Committee on Appropriations submitted 
questions for the record to the Office of Mayor for the 
District of Columbia on 6/7/2010. Despite multiple requests by 
the Committee, the Office of the Mayor for the District of 
Columbia failed to provide answers to the QFRs when requested. 
As of publication in December 2010, no responses to the 
questions were provided to the Committee.]

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                           W I T N E S S E S

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Fenty, Adrian M..................................................   101
Gandhi, Natwar M.................................................   101
Gray, Vincent C..................................................   101
Mills, Karen G...................................................     1
Schapiro, Mary...................................................    61

                                  
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