[Senate Hearing 111-1164]
[From the U.S. Government Publishing Office]





                                                       S. Hrg. 111-1164

      THE FISCAL YEAR 2011 BUDGET REQUEST FOR THE SMALL BUSINESS 
                             ADMINISTRATION

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

                                HEARING

                               BEFORE THE

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 21, 2010

                               __________

    Printed for the Committee on Small Business and Entrepreneurship






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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                     ONE HUNDRED ELEVENTH CONGRESS

                              ----------                              
                   MARY L. LANDRIEU, Louisiana, Chair
                OLYMPIA J. SNOWE, Maine, Ranking Member
JOHN F. KERRY, Massachusetts         CHRISTOPHER S. BOND, Missouri
CARL LEVIN, Michigan                 DAVID VITTER, Louisiana
TOM HARKIN, Iowa                     JOHN THUNE, South Dakota
JOSEPH I. LIEBERMAN, Connecticut     MICHAEL B. ENZI, Wyoming
MARIA CANTWELL, Washington           JOHNNY ISAKSON, Georgia
EVAN BAYH, Indiana                   ROGER WICKER, Mississippi
MARK L. PRYOR, Arkansas              JAMES E. RISCH, Idaho
BENJAMIN L. CARDIN, Maryland
JEANNE SHAHEEN, New Hampshire
KAY HAGAN, North Carolina
           Donald R. Cravins, Jr., Democratic Staff Director
              Wallace K. Hsueh, Republican Staff Director















                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana.     1
Snowe, Hon. Olympia J., Ranking Member, and a U.S. Senator from 
  Maine..........................................................     8

                                Witness

Gordon Mills, Hon. Karen, Administrator, Small Business 
  Administration.................................................    15

          Alphabetical Listing and Appendix Material Submitted

Gordon Mills, Hon. Karen
    Testimony....................................................    15
    Prepared statement...........................................    17
    Responses to oral questions from Chair Landrieu..............    36
Landrieu, Hon. Mary L.
    Testimony....................................................     1
    Prepared statement...........................................     4
    Chart titled ``Budget Requests vs. Enacted Funding for the 
      SBA''......................................................    32
    Post-hearing questions posed to Hon. Karen Gordon Mills and 
      subsequent responses.......................................    37
Levin, Hon. Carl
    Prepared statement...........................................    11
Snowe, Hon. Olympia J.
    Testimony....................................................     8
Vitter, Hon. David
    Post-hearing questions posed to Hon. Karen Gordon Mills and 
      subsequent responses.......................................    51

 
      THE FISCAL YEAR 2011 BUDGET REQUEST FOR THE SMALL BUSINESS 
                             ADMINISTRATION

                              ----------                              


                       WEDNESDAY, APRIL 21, 2010

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:47 p.m., in 
Room 428A, Russell Senate Office Building, Hon. Mary L. 
Landrieu (chair of the committee) presiding.
    Present: Senators Landrieu, Snowe and Thune.

 OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chair Landrieu. Good afternoon, and let me call the Small 
Business Committee hearing to order. We are gathered here this 
afternoon to hear the budget presentation from the Small 
Business Administration, and we are honored to have 
Administrator Karen Mills with us to present her budget to the 
Committee.
    Before we begin, I would like to call everyone's attention 
to, although I am sure you have already noticed, our new digs. 
We are excited and really honored to have had the Rules 
Committee to have the Small Business Committee on their agenda 
for renovation, and this is an ongoing effort on the part of 
the Rules Committee in the Russell Building. We were the 
beneficiary of that effort, and we hope that the room is 
lighter and brighter.
    We have also installed some new technology, Ranking Member 
Snowe, that will allow us to conduct meetings remotely, with 
our constituents throughout the country. So the room is going 
to become a real resource for small businesses all over America 
and all of the stakeholders that appear here in the Capital, 
testifying and advocating on their behalf.
    We are very pleased with this new space. The staff has a 
little extra space, as well as the members and our guests. So I 
hope the small businesses in our country will appreciate this 
space that is really for them.
    I would like to begin with a short opening statement and 
then turn it over to our Ranking Member, and then we will hear 
directly from Administrator Mills.
    More than half of America's workforce goes to work each day 
for a small business. These businesses pump almost a trillion 
dollars into our economy. They create, these employees, 13 
times more patents than larger firms. Traditionally, two-thirds 
of our nation's new jobs are created right there on these small 
business job sites.
    Many of these hardworking business owners rely on the SBA's 
counseling and finance programs to open their doors, to keep 
those doors open, to meet their payrolls and to compete in an 
increasingly competitive global marketplace.
    With this in mind, it is counterintuitive that an agency 
that does this important work would be subject to budget cuts, 
but that is what happened in the previous Administration. I am 
pleased to say that in a bipartisan effort we have tried to 
change the direction and thank President Obama for his 
commitment, and we thank Administrator Mills for her 
leadership.
    We are looking forward to making up for lost ground by 
investing in these very strong programs that help the small 
businesses across America in so many ways. The SBA and its 
resources to small business have suffered in the past, but we 
hope that this budget and future budgets will begin to make 
that turn around.
    President Obama has made small business a top priority, not 
just with his words but his actions. For the second year in a 
row, the President has submitted a budget increase, funding to 
rebuild the SBA and meet the demands on its small business 
programs, from loans and counseling to contracting assistance. 
He understands, like we do, that by adequately funding these 
programs we can mitigate the ongoing impact of the credit 
crisis and help save and create hundreds of thousands of jobs.
    The President has requested $994 million. This is a 27 
percent increase over last year and a 64 percent increase over 
the Bush budget of 2009.
    I have also sent a letter asking the Budget Committee to 
consider, along with the Ranking Member and others, an increase 
even over that for some specific targeted programs that we want 
to support and believe merit that extra investment.
    First, the $164 million to support $17 billion 7(a) loans 
which is a big increase over the $80 million requested and 
appropriated last year. I fully support this request, because 
it is necessary to prevent an increase in base fees. Keeping 
the base fees low is important to maximize Recovery Act 
provisions that waive fees for borrowers and raise the loan 
guarantee on the SBA's largest program.
    Second, the increase in SBA lenders, which has been a 
priority for me since taking over as Chair of this Committee. 
Consequently, I am fully behind the President's goal to 
increase the number of active SBA lending partners for the 7(a) 
loan program to 3,000 by September 30th, 2011.
    And third, the $203 million to administer SBA's Disaster 
Loan Program. There is plenty of carryover funding for the 
loans, and this funding will ensure that we have sufficient 
staff to process loans more quickly and get money in the hands 
of families and businesses that need it.
    We just had a recent disaster in Rhode Island. My staff is 
actually on the ground, from Louisiana in Rhode Island, 
assisting the Senators there as they deal with the thousands of 
individuals, homeowners and business owners who have been 
affected by the great flooding that has happened just recently 
in Rhode Island.
    And fourth, we have made improvements to the Disaster Loan 
Program. I will not go into those details, but I am looking 
forward to hearing about what investments that we have made, 
and the outcome of the investments that we have made in 
improving that program.
    The bottom line is this is a good budget. It is a strong 
budget. But after meeting with small business owners and SBA 
lenders and counselors, I am recommending an additional $100 
million for SBA in its Views and Estimates Letter that I 
submitted to the Budget Committee. Hopefully, all or much of 
that will be agreed to.
    I will now submit the rest of my statement to the record 
because we did get started a little late, and I want to make 
sure that we give Administrator Mills her full time. I will 
turn it over to the Ranking Member for her opening statement, 
then we will hear from the Administrator. Thank you.
    [The prepared statement of Chair Landrieu follows:]


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OPENING STATEMENT OF HON. OLYMPIA J. SNOWE, RANKING MEMBER, AND 
                   A U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Chair Landrieu. I appreciate very 
much your continuing and ongoing advocacy on behalf of small 
businesses, and in particular at this pivotal moment in our 
nation's history. So I truly appreciate it, and also for 
leading the renovations of this room.
    And I applaud all the workers and the Architect of the 
Capitol for doing an amazing restoration, in keeping with the 
design and the historic nature of this building. So I want to 
commend everybody for the outstanding work that obviously was 
involved in making this happen.
    I also want to welcome Administrator Karen Mills and 
applaud her for her outstanding leadership at the Small 
Business Administration, on behalf of the small businesses, and 
for being such a vital voice during these very crucial times.
    I am anxious to hear about the state of the agency, the 
President's 2011 budget request, as well as the Small Business 
Administration and its efforts in assisting small businesses to 
create jobs and emerge stronger than ever.
    The economy is again gaining some traction, but as Mark 
Zandi, the Chief Economist at Moody's Analytics, told the 
members of the Senate Finance Committee last week, we are in 
the midst of a jobless recovery because small businesses, who 
have created two-thirds of all the net new jobs in the past 
fifteen years, are not hiring. Specifically, Dr. Zandi stated 
that the key reason why small businesses are not hiring is that 
businesses are starved for credit. He went on to highlight that 
the SBA is the best, most direct, and most effective way of 
getting credit to these businesses quickly.
    I met with you, Administrator Mills, on February 11th, to 
be exact. You laid out the Administration's support for a 
number of key initiatives and critical enhancements to the 
SBA's lending programs, which I and the Chair have strongly 
supported, and in fact reported out of this Committee, with 
near unanimous support, for many of these initiatives.
    The central piece of our bill is an increase in SBA loan 
limits, which Dr. Zandi said during his testimony last week, is 
a crucial part of the solution to this credit crisis. Now it is 
almost May, and the Senate has yet to pass these vital 
provisions to address the small business lending crisis. Well, 
inaction is not an option. As Dr. Zandi indicated and made 
abundantly clear, and as the NFIB's latest survey, which 
identifies that small business confidence is near historic 
lows, supports, we must pass this legislation, so that small 
businesses can hire and help reverse this disturbing jobless 
trend.
    In fact, I wish I had put it on a chart, but the NFIB had a 
Small Business Optimism Index in that later survey, and it 
really is, I think, indicative of the problem that has occurred 
among small businesses across this country. So, if we are 
depending on small businesses to lead us out of this recession 
and into a strong recovery, we have a long ways to go in 
engendering the kind of resources that are going to encourage 
the lending and taking the steps necessary to create additional 
jobs and make investments in the future.
    But that, I think, is an indication of the problem that we 
are facing nationwide, and that is why we have a jobless 
recovery, and a jobless recovery is obviously not a true 
recovery.
    In addition to lending, the Chair and I have supported a 
number of bipartisan initiatives to bolster small businesses 
and create jobs, including export assistance, providing 
certainty in business expensing for five years rather than just 
the one year that was recently extended for, allowing 
businesses to write off up to $250,000, and a complete 
exclusion of capital gains attributable to small business 
stocks held for five years.
    And turning to the President's budget request, we certainly 
should begin by highlighting that the agency plays an 
invaluable role in helping small businesses, obviously, from 
financing to business counseling, and from exporting advice to 
assistance with Federal contracting. When examining the budget, 
we must determine how best to bolster the agency in a time when 
we are facing tremendous budget challenges and alarmingly high 
deficits.
    I have applauded the President's call for a freeze in non-
defense discretionary spending. I appreciate that within those 
parameters the President has recognized the critical role of 
small businesses in our recovery and proposed a sizable 
increase for the SBA, amounting to a 15 percent increase over 
the amount provided in the 2010 budget.
    At the same time I am troubled that this 15 percent is 
misplaced in some ways given the Administration's plans to 
provide flat funding for the SBA's core noncredit programs, 
such as the Women's Business Centers, the Veterans Business 
Centers, the Small Business Development Centers, SCORE and the 
HUBZone Program. In the very same budget that denies these 
critical programs any additional funding, the President's 
request includes a 16 percent increase for office operating 
costs which include administrative and overhead expenses for 
all the SBA's program offices. When excluding disaster funding, 
the 7(a) credit subsidy, and earmarks, this $17 million 
increase in operating costs represents 89 percent of the 
overall budget increase.
    Further, I have concerns that the executive direction 
budget has increased 29 percent over fiscal year 2010, and in 
fact, is 229 percent higher than the fiscal year 2008 funding 
level.
    At a time when small businesses continue to reduce costs 
and tighten their belts just to survive, it is more crucial 
than ever that the SBA contain overhead and operating costs, 
and invest any additional taxpayers' dollars in the programs 
that have proven time and again to create jobs and help 
entrepreneurs to succeed.
    So I hope that we can have a discussion on some of these 
budgetary priorities and what we can do both within the agency, 
because I think you are doing an outstanding job, but hopefully 
we are using every dollar to maximize to the extent possible, 
to bolster our small businesses and the resources necessary for 
them to survive and hopefully to thrive. Also, we must use the 
SBA to create those jobs that are so desperately needed in our 
nation's economy, in addition to what we have already done in 
this Committee. I think we are preaching to the choir amongst 
us, in terms of what needs to be done to help small businesses 
as we revive this economy.
    But, clearly, the message has to be heard in a way that we 
see the action taken on the floor in the whole Congress, so 
that it can be signed into law immediately.
    Thank you, Madam Chair.
    Chair Landrieu. Thank you.
    As I turn the microphone over to you, Administrator Mills, 
I would like to submit for the record the opening statement of 
Senator Carl Levin, without objection.
    [The prepared statement of Senator Levin follows:]


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    Chair Landrieu. All right, Secretary.

 STATEMENT OF THE HONORABLE KAREN GORDON MILLS, ADMINISTRATOR, 
                  SMALL BUSINESS ADMINISTRATOR

    Ms. Mills. Chair Landrieu and Ranking Member Snowe, it is 
really a pleasure to be here. Thank you for the opportunity to 
be here in this beautiful room and to present the President's 
fiscal year 2011 budget for the Small Business Administration.
    This budget of $994 million reflects a commitment to 
growing businesses and creating jobs and to fiscal 
responsibility. Access to capital remains a top priority. 
Already, our raised guarantee and reduced fees, combined with 
an improved lending environment, have brought back nearly 1,200 
lenders to the SBA. These lenders have helped put $25 billion 
in the hands of small business owners.
    And I want to thank you for extending the Recovery Act loan 
enhancements through the end of May. This will support about 
$2.8 billion in new small business lending under our 7(a) and 
504 programs.
    And, as you know, the Administration has proposed to extend 
the Recovery Act provisions through the end of the fiscal year. 
I hope that we can achieve that.
    This 2011 budget supports more than $28 billion in lending 
through the 7(a), 504, Small Business Investment Company and 
Microloan programs. It also incorporates increasing the loan 
sizes in 7(a) and 504 to $5 million. We have also set a goal of 
increasing by 15 percent our active lending partners by the end 
of fiscal 2011, to be sure that more people can get access to 
these loans.
    The second priority after access to capital is small 
business contracting. We are committed to working across the 
agencies to meet the government's goal of awarding at least 23 
percent of prime contracts to small businesses. Our work will 
also help Federal agencies meet the procurement goals set for 
veterans, women, disadvantaged businesses and business in 
HUBZones. We have requested $2 million to help meet these goals 
while removing ineligible firms and rooting out waste, fraud 
and abuse. We also look forward to implementing the women's 
contracting rule.
    Our third priority is counseling. As the Ranking Member 
mentioned, we have a terrific bone structure, a great network 
of 14,000 SBA-affiliated counselors, and they are critical to 
meeting small business needs. This budget includes $134 million 
to support our 900 Small Business Development Centers, 110 
Women's Business Centers and 350 chapters of SCORE, our 
mentoring program.
    We also requested $3 million for Emerging Leaders, an 
intensive classroom-based entrepreneurship education program. 
This builds on a pilot that has helped entrepreneurs in 
distressed areas create jobs, increase revenues, find financing 
and get contracts. In 2010, the pilot is reaching out to Native 
American-owned firms in 12 additional cities.
    This budget supports a Disaster Loan Program that is in a 
constant state of readiness. It will help us keep short 
turnaround times on loans while supporting a loan volume of 
$1.1 billion for homeowners and businesses.
    The 2011 budget also advances another critical priority--to 
support high-growth small businesses that drive American 
innovation and global competitiveness. It requests $2 million 
to better manage and oversee the Small Business Innovation 
Research, SBIR, Program, as well as implement performance 
metrics for the program. It is a great program. From 2002 to 
2006, 25 percent of R&D Magazine's Top 100 Annual Innovation 
came from firms that received an SBIR award.
    The budget requests $11 million for Regional Innovation 
Clusters. Clusters help small businesses in a certain area in 
industry join forces and gain more access to university 
research, workforce training, international markets and more. 
The SBA has already served as a lead agency for a robotics 
cluster in Michigan's hard-hit auto suppliers. We are also a 
collaborating agency in a nationwide competition for an energy 
efficient cluster. Our extensive bone structure of counselors 
and partners will play a critical role on the ground in 
supporting Federal clustering efforts.
    In addition to the external goals, we will continue our 
internal focus by building 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. The budget 
reflects a slight increase to 2,209 regular full-time 
employees.
    In technology, we are modernizing our loan management 
system and upgrading our web presence to better serve our 
customers.
    And in oversight, we requested $2 million for more lender 
oversight and onsite reviews and $1 million for stronger 
program assessments.
    In closing, we know that small businesses have created 
approximately 65 percent of net new private sector jobs over 
the last 15 years. This budget will help us give even more 
small firms the tools that they need to create jobs, to lead us 
into recovery and to lay a strong foundation for the economy of 
America.
    Thank you. I am pleased to take your questions.
    [The prepared statement of Ms. Mills follows:]


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    Chair Landrieu. Thank you very much. Let me begin by just 
asking you, Administrator Mills, of all of the programs that 
you are overseeing, in terms of lending programs through the 
SBA, what is the most effective lending program that you see in 
terms of absolutely empowering small businesses to get the 
capital they need to either save jobs, and more importantly 
really to add jobs? What program is it?
    What areas of the country have you been noticing have 
potentially been leading the way in job creation, or what areas 
or clusters, that we might consider either giving you more 
support for or extending time of that particular program, or 
supporting it in some other way, either through the budget or 
through other legislation?
    Ms. Mills. Since the start of the Recovery Act, we have 
been able to put $25 billion into the hands of small businesses 
at the cost of about $550 million, which is a pretty good bang 
for the buck for the taxpayer. This comprises 2 core programs, 
7(a) and 504, and they serve quite different activities. As you 
know, 7(a) is a more broad scale business; 504 is more for a 
real estate and equipment loans. So they tend to work together 
and in concert.
    We also have been very effective with our Microloan 
Program, and that serves an entirely different community, 
tending to be more concentrated in underserved markets and 
groups. This has been especially important because microloans 
have actually gone up over 2007, 2008, 2009. The loan volumes 
are increasing.
    And we are finding that it is very important to have all of 
these tools in the tool kit because some geographies and some 
communities are recovering at different rates than others, and 
some of them are going to still need some additional help.
    Chair Landrieu. As you know, we have had several hearings 
on these programs, and what I am hearing consistently is while 
the programs are effective the business owners need those 
limits to be raised, and we have a bill pending to do over the 
long term. In fact, we had a hearing just last week in here, 
that the cap on the express loans, many of the business owners, 
minority business owners that testified thought a $35,000 limit 
is much too low, given the pressure out there today.
    Do you have a comment about what you are hearing? Is that 
your experience because we are hearing that consistently from a 
variety of different sources?
    Ms. Mills. We are in complete agreement. We are hearing the 
same thing. The increase in the loan limits is absolutely 
critical. It will help us fill some of the gaps that still 
exist in access to capital.
    And these increases in loan limits come in a number of the 
programs. We are asking for an increase to $5 million in the 
504 and 7(a) program. We know that there is a number of gaps in 
the market where other lenders and credit providers who used to 
provide those kinds of loans to franchisees, for instance, and 
to factory owners who own their warehouse, they are no longer 
in the market. In addition, the increase in microloans will be 
very important.
    The most powerful program continuation that we are 
requesting, though, is the 90 percent guarantee and the fee 
reduction for the base 7(a) and 504 programs, which has really 
moved the market and brought 1,200 lending partners back to SBA 
lending, allowing us to go back. We are now at above our 2007, 
2008 lending volume.
    Chair Landrieu. The President has put improving the SBIR 
program as one of his high priority performance goals. Why did 
the Administration not request funding for the program that 
increases awareness and participation in the SBIR program, and 
could you comment about that and give your views if you do not 
mind?
    Ms. Mills. Well, the SBIR program is a very powerful 
program. It is about $2.5 billion, and it has reach across all 
the agencies. Our commitment is to manage that program more 
effectively and to work with all the agencies, on all the 
outreach that you just described, in order to make sure that 
that program is operating and known to all the small 
businesses.
    In addition, this budget does request $2 million for 
oversight of that program, particularly in the metrics area 
where we are going to improve our data collection system, and I 
think we will be able to communicate well and evaluate well 
what is working in that SBIR program, with that new 
information.
    Chair Landrieu. All right. There is some information that 
the Administration may propose legislatively to allow the 7(a) 
loan program to be self-financing, in other words, to allow the 
agency at some point to implement fees to have the program 
self-supporting. You know there was a tremendous amount of 
pushback from Congress when President Bush and the 
Administration raised these fees administratively, and there 
could be some pushback on this proposal. Are you going to make 
this proposal, and if so, why do you think it is so necessary?
    Ms. Mills. We are at this time looking for subsidy in this 
budget for 2011 because we are capped on our 7(a) fees. So we 
do not actually have the ability to raise those 7(a) fees.
    We need to look at the 2012 budget, and we have not made 
any specific requests, but we recognize the budget constraints. 
And the question is can we have flexibility because what we do 
not want to do is reduce our program level. We think that the 
program level needs to be kept robust because these programs 
are very much in demand.
    Chair Landrieu. All right. And one last question, then I 
will turn it over to Senator Snowe, and then we potentially 
will have time for a second round.
    This is really about the veterans. I hear a great deal of 
this as veterans are returning from Iraq and Afghanistan, many 
on their second and third deployments. They are coming back to 
a very uncertain time here stateside in terms of jobs and 
opportunity. Could you talk about what your program does, or 
what our program does, to enhance opportunities for veterans to 
either start their businesses or opportunities for training for 
them as they return from the battlefields of Afghanistan or 
Iraq or other places in the world where they are stationed?
    Ms. Mills. Veterans are a prime focus area for the SBA, and 
we serve veterans in all of what we call our 3Cs. Our 3Cs are 
capital, contracting and counseling. So we have special 
programs for veterans in our capital, Patriot Express. We have 
special programs for veterans in our contracting, for service-
disabled veterans and for veterans in some of the agencies. We 
have special set-asides. And in counseling, we have not only 
our special Veterans Center but this year we have an 
extraordinary program with Syracuse University where we are 
building out specific entrepreneurship training for veterans 
and service-disabled veterans, women veterans and families of 
veterans, which are a focus area for us.
    We are also, not visible in the budget but actually quite 
powerfully, in very close collaboration with the Veterans 
Administration on a whole number of coordinated projects 
including they are training all of our staff in everything that 
is available to veterans at the VA. So when somebody walks into 
one of our operations, we can offer them not only what we know 
but what the VA has, Veterans Administration, and the VA knows 
about all our programs, so that veterans can navigate their way 
to all the benefits that they can use to prosper.
    Ms. Mills. Senator Snowe.
    Senator Snowe. Thank you.
    Administrator Mills, on the budget priorities, as I 
mentioned in my opening statement, I notice that there is a 
major increase in the executive direction budget which is a 
substantial increase compared to previous budgets. It would 
generally be about 2 percent. This year's request represents a 
29 percent increase from the previous year, from $16 million to 
$33 million.
    I understand some of the allocations, like for the Office 
of Advocacy, Ombudsman and Veterans Business Development, are 
probably in line with what has been provided typically in 
previous budgets, although I have never understood why these do 
not have line items in the budget itself so that it is there. 
It is obvious on the Office of Advocacy that we would be 
providing funding, or Ombudsman, Veterans Business Development, 
but there is $9 million designated as Other that has not been 
allocated in any regard. That seems to be a significant amount 
of money that has not been targeted or earmarked and obviously 
a considerable discretion at a time where other accounts, as I 
mentioned with the Women's Business Centers, the veterans 
program, SCORE, Small Business Development Centers, HUBZones, 
technical assistance programs and so on, all received no 
funding increases for this fiscal year.
    Ms. Mills. The entire amount of the increase in executive 
direction is actually in what we call our LMAS, our loan 
management system, and we would be happy to provide you with 
the detail.
    We strongly agree that this is not the time to increase 
management overhead for managing the same operation, and we 
have taken the same direction of tightening our belt. There are 
very few people increases here. So we have our standard amounts 
of increases for the existing personnel.
    But the loan management system, which has been in an 
implementation phase for some years, goes into a much more 
accelerated execution phase in this budget year, and we are 
overseeing it. We just did a recent review on it. It is a 
mission-critical system. It replaces our mainframe that today 
runs on COBALT and replaces it with a brand new enterprise-wide 
system, and that account for those increases. We will get you 
the breakout.
    Senator Snowe. So that would account for most of the $9 
million that we were discussing?
    Ms. Mills. Yes.
    Senator Snowe. Because that is really more than double than 
the previous year, and given the fact that we need so much 
invested in these other programs. At a time when we are trying 
to provide counseling and support to small business owners, to 
survive this climate and hopefully be able to create jobs, we 
want to make sure that we are providing every dollar to these 
valuable programs.
    So I would appreciate that breakdown because what we had 
was in terms of compensation, benefits, overhead, rent, 
operating costs, chief information officer and so on. I think 
there are some significant increases. So maybe this is 
inaccurate, and I would like to see if we could have the 
breakdown.
    Ms. Mills. Right. We do not significantly increase our 
management overhead. And that, we will give to you the breakout 
of the computer information system investment, which lives in 
our data sheets in the chief financial officer's line item.
    Senator Snowe. Okay. On the implementation of the Women's 
Procurement Program--you referred to it in your testimony--I 
congratulate you for bringing this crucial initiative closer to 
the finish line than it has been for a decade. Hard to believe 
that it has been that long that it has been pending. So I 
congratulate you for bringing it closer to implementation.
    But there has been no funding for this program. So how, in 
fact, would this be implemented in the final analysis, and when 
can we make this program available to women-owned businesses?
    Ms. Mills. As you stated, we are very pleased, and I really 
want to commend my team, in particular, the general counsel who 
worked tirelessly from the starting date that we came on board, 
to bring this rule forward. It was actually passed in the year, 
I believe the year 2000. It is very important, and this is a 
fast growing and still underserved segment that we want to 
support.
    The rule went out for comment last month, and it will 
likely, given the timing of the process, be a 2012 
implementation, 2012 budget implementation. We are doing all 
the planning and preparation for moving forward, and in fact we 
rate ourselves on women business goals in any case. But we will 
use the facilities that we have now to move forward, to plan, 
to think through the oversight that we are going to need to 
execute this critical program.
    Senator Snowe. With respect to the overall situation with 
the economy and small businesses' role in creating jobs, what 
can we expect for an initiative here in Congress, in 
conjunction with the President, on the issue of small business?
    I know the President has made this his top priority, as you 
have and as we have, but somehow there seems to be a 
discrepancy in priorities with respect to considering any major 
initiative for small businesses in the legislative agenda this 
year. I mean it is almost going to be six months that will have 
lapsed before we even potentially could consider any initiative 
here on the floor of the Senate. At least that is what it 
appears to look like at this point. Hopefully, that could 
change. We will urge it to change, but really we cannot alter 
the employment environment without making sure that we are 
giving all the resources to small businesses.
    Ms. Mills. We completely agree with you on the priority 
that needs to come on small businesses if we are going to 
create the growth in employment that we need to get the country 
back on track. The President has put forth a Small Business 
Jobs Plan. The first, most important component is to extend the 
successful Recovery Act loan programs, so that we have access 
to capital.
    There are a number of other pieces to the Small Business 
Jobs Plan in terms of access to capital that, in fact, you and 
this Committee have put forth--increasing the loan sizes, 
increasing the loan size on the SBA express product, so that we 
can provide lines of credit. Many businesses have had their 
lines of credit cut or reduced, and we have a product that we 
think will address those issues.
    And in fact we have gone down every gap in the credit 
market and put forth a proposal in the President's Small 
Business Jobs Plan to fill that gap. Commercial real estate--we 
have proposed using our 504 program to do refinancing of 
existing owner-occupied real estate. That is the dentist that 
own the dentist office and the manufacturer that owns the 
warehouse. We propose that we use our 504 program, which right 
now can only be used for expansions, to refinance their 
mortgages, their commercial mortgages that are going to come 
due in the next 2010, 2011, 2012 period.
    So we agree that this is an important priority. We think 
that there really has been tremendous collaborative thought, I 
think, between this Committee and the President's jobs plan, 
and we very much hope that these legislative initiatives will 
be passed as soon as possible.
    Senator Snowe. Thank you.
    Chair Landrieu. I just have a couple of additional 
questions if you do not mind. The Women's Business Center's 
program has been extremely successful, as you know. You are 
familiar with the ones, I am sure. As is Senator Snowe in 
Maine, I am particularly involved with the ones in Louisiana 
and have been for years, even before I was a member of the 
Senate, and have witnessed the good work that they have done in 
the areas that they serve.
    Despite all the improvements that we have made and the 
increased funding that we have requested for these centers--and 
I have a request in over and above President Obama's budget 
into the Budget Committee--we are understanding that because 
state budgets are being constricted due to the turndown in the 
economy, that many of these centers, Administrator, are not 
able to come up with the state match which is required to keep 
them open. It would be really ironic, at a time when our 
businesses need the most help from our Women's Business 
Centers, our Minority Business Centers, our university-based 
centers, that these would find their doors shuttered in our 
states and our communities.
    So I have introduced S. 3165, the Small Business Community 
Partner Relief Act. I have several of my colleagues supporting 
this with me. What are your views about this, and is it 
something that you would support or recommend the temporary 
waiving of a state match requirement?
    Ms. Mills. We believe that these Women's Business Centers 
are one of the most important parts of our bone structure, and 
in fact I am happy to announce that last month we actually 
opened one here in Washington, D.C., that the mayor has helped 
us bring in a really important area in need of economic 
development and impetus.
    We have heard the same thing about the matching, the lack 
of matching funds, and it is of great concern, and we would be 
happy to have further conversation about what can be done about 
it. We agree that it would be a great shame for these resources 
not to be able to be used. They have our money available to 
them, and we want very much to have that money operationalized.
    Chair Landrieu. And then following up, the Small Business 
Investment Companies Program, that has been operating for a 
while. We passed some significant reforms that have helped 
breathe new life into this program. Our Committee has been told 
that more than 50 funds are currently seeking a license, that 
many more are preparing their license applications. Given this 
stepped-up interest and potential growth, is the SBA going to 
provide any more staff to support this program, and if so, 
when, and if you could elaborate on what staff you have now 
assigned to reviewing these license applications?
    Ms. Mills. Yes. We agree, and we believe that the SBIC 
program is one of the most important foundational programs for 
helping high growth companies that we need to stimulate, to 
grow and create jobs.
    We have set an objective to substantially increase the 
number of through-put in the SBIC program and reduce the time. 
And I will not give you this promise, but when we talk about it 
around the agency, we say twice the through-put, half the 
time--so twice the funds approved, half the time. So that is 
our mental picture.
    We allocated already extra staff, and we have a tremendous 
new leader, Sean Greene, who is running that program and has 
reengineered the process. In fact, he created a program called 
Fast Track which is if you are an existing fund, you already 
have had a successful fund and you make a next application, 
that we promise to get your application through in two months. 
And we just successfully did that.
    To give you a sense of the leadership there, the two months 
include the snowstorm. There was some discussion that perhaps 
there should be a 10-day extension of the 2 months because of 
the snow issues, and the team got together and said no, we made 
a promise, and we are going to make it. And they did.
    So I really have to commend them. They really stepped up 
because they want to set the example that there is a new focus 
on this program.
    Chair Landrieu. I commend you for that. But could you, if 
not at this moment, be more specific about the number of staff, 
at least submit that to the Committee for our record?
    Ms. Mills. I would be happy to get you the numbers.
    Chair Landrieu. Okay. We would really appreciate that.
    Let me, on this microloan, I wanted to just make sure we 
had on the record, the President's budget recommends reducing 
funding for the program, from its appropriate level of $25 
million to $13.8 million, a cut of $12 million. Yet, the budget 
details the SBA plan to bring on 30 new intermediaries into the 
program in 2010. Can you explain how the SBA plans to increase 
the number of intermediate micro lenders while at the same time 
reducing funding for the program by approximately 50 percent in 
the coming year?
    I am particularly interested in understanding how the SBA 
plans to sustain its support for the current field of 160 
intermediary micro lenders while bringing new ones on board. We 
are a little confused about this recommendation that you have 
made.
    Ms. Mills. To clarify and to explain the missing piece, the 
2009, 2010, 2011 numbers do not include the Recovery Act. So, 
in the Recovery Act, we had $50 million of incremental fund 
microloan capability and $24 million in technical assistance. 
We have used that money to increase the number of 
intermediaries. We now have 178 intermediaries. We have added 
20.
    When you look at the number steady-state, including the 
Recovery Act numbers, there is actual a level effect because 
the additional $24 million in technical assistance is going out 
in a phase that will continue into fiscal 2011. So, in fact, it 
levels off the funding for technical assistance, and that is 
why you perceive that the amount is dropping, but in fact there 
is a carryover from the Recovery Act that does not appear in 
the budget book.
    Chair Landrieu. Thank you for that clarification.
    Senator Thune.
    Senator Thune. Thank you, Madam Chair, for holding the 
hearing today on the President's budget, and I want to thank 
Administrator Mills for being here and for making herself 
available for questions.
    This is a difficult economic climate for small businesses, 
and a lot of small businesses are having to make hard decisions 
with regard to their budgets, as are a lot of families around 
this country.
    It is important that we do the same thing here in 
Washington, D.C. We had some unprecedented levels of spending 
that have occurred here, and I think in an environment like we 
are in right now, an economic environment, we have an even 
greater responsibility than in the past to examine these 
budgets and to scrutinize them, and to make sure that we are 
ensuring Federal assistance is targeted and produces limited 
waste.
    And that responsibility is particularly important for us on 
this Committee when we review the SBA's budget, as their 
mission is to assist our economic engine in our economy, and 
that is our small businesses. I, having looked at the budget, 
was pleased with several provisions and especially the 
increased loan sizes for the 7(a) and 504 programs.
    I have concerns, some of which I think may have already 
been covered with regard to some of the spending in the budget 
and how it is directed. But in any event, I think as this 
process moves forward it is going to be important that we do 
our best to get this right and make sure that the economic 
engine, our job creators in our economy, our small businesses 
are in the best position possible to help our economy recover 
and to create jobs.
    Let me just ask a couple things in that vein. I think you 
had mentioned, Madam Administrator, that the third priority for 
this budget is counseling. If that is true, can you explain why 
all of SBA's core and noncredit programs, including many of 
those counseling programs would be flat-funded in this 
proposal?
    Ms. Mills. Essentially, in this proposal, we have 
understood that there is fiscal discipline necessary, and we 
are looking for ways to do more with the same. In all of our 
activities, I think the net activities are essentially we want 
to maintain the efforts that we have out there--the 900 Small 
Business Development Centers, the 110 Women's Business Centers, 
the 350 chapters of SCORE.
    The way we are looking to improve our service to small 
businesses is to invest in things like our information on our 
web, to simplify and clarify our programs and our 
communication, so that we can, and to break down silos between 
the Small Business Development Centers, SCORE, the Women's 
Business Centers, so that there is more coordination and 
collaboration. So we are focused on getting more bang for the 
buck out of what we call our bone structure. We have an 
extraordinary bone structure on the ground, and we are going to 
use this funding to continue it and to help in collaboration.
    Senator Thune. And I think, and this, maybe again, I 
suspect has probably been covered already, but the thing that 
is probably most concerning about this is the 89 percent 
increase in funding going to SBA operating costs. You may have 
perhaps responded to those questions already, but could you 
explain to me in detail what the executive direction budget is 
for? That evidently has 30 percent increase in funding over the 
fiscal year 2010 level and double the fiscal year 2009 levels--
what that is and why the big increase there?
    Ms. Mills. Yes, and Senator Snowe has asked us to provide 
the detail on that, and we are happy to.
    Actually, the entirety of the increase is related to what 
we call LMAS, which is our mainframe loan system, and our 
mainframe loan system runs on COBALT. For a number of years, we 
have been in the process of developing the replacement system. 
This is the year for the big expenditure on that system, and it 
has been in the funding plan for quite a period of time.
    That lives, that project lives in our chief financial 
officer's office because we manage it not just as an IT project 
but as a core project for our entire system. So this is not a 
budget that increases the overhead spending in the core SBA 
central activities.
    Senator Thune. Okay. Could you give me a little more 
information too about the 2010 pilot that you mentioned that is 
reaching out to Native American-owned firms in 12 cities, 
including maybe what cities those are taking place in?
    Ms. Mills. Yes, we can give you the number, the cities, but 
we have some very terrific data on what we call Emerging 
Leaders. We have been running a program called E-200 in inner 
cities for a period of time. It is an intensive classroom-based 
experience. It is an entrepreneurship education program.
    And we actually track what happens to businesses that go 
through that program. It turns out that businesses, I think it 
is 53 percent of the businesses increased their sales and the 
overall sales increase was over 50 percent. And we track other 
metrics, like how many people they hire. So it is one of the 
most powerful programs that we have.
    This year, you may know we have very strong Native American 
activities. I actually went out and spoke to RES which is the 
gathering of 2,000 Native American economic development people 
that happened in Las Vegas. We decided that this program might 
be very, very well tailored to cities with high concentration 
of Native Americans and that we would try to drive an 
additional 12 cities this year, with a focus on Native American 
activities. That is in process, and we are looking forward, I 
think, to the first graduation shortly.
    Senator Thune. Okay, good. Thank you.
    My time is up. Thank you, Madam Chair.
    Chair Landrieu. Senator Snowe.
    Senator Snowe. Yes. Administrator Mills, a couple years 
ago, legislation in the Senate was brought by then-President 
Bush regarding a Veterans Interagency Task Force, and I know we 
have been communicating by letter and between staffs as well, 
about now creating this task force. A lot of the certification 
issues have been resolved, I understand.
    Since it has been two years and since we are going to see a 
drawdown in Iraq, obviously, we are going to have more and more 
veterans coming home. This is critically important to make sure 
all of the agencies are working in concert on so many of the 
issues that are important to veterans and assisting them and 
service-disabled veterans. So when can we expect this task 
force to formed, or has it, or is it in the process?
    Ms. Mills. Yes, Senator Snowe, we have not forgotten this. 
This is something that is in active development, and I guess I 
would say you will be hearing about this in very short order.
    Senator Snowe. Okay. I appreciate that.
    Ms. Mills. It is extremely important, very, very much on 
the Secretary's mind in Veterans Affairs, and we have a very 
strong collaboration going forward. This affects many, many 
agencies, and so we are pleased to take a leadership role in 
moving it forward.
    Senator Snowe. You were referring to your clusters 
initiative, which is an outstanding approach I think in 
bolstering regional innovation efforts, and you said that SBA's 
extensive bone structure with counselors and partners will play 
a critical role on the ground, supporting these efforts. Of 
course, you do have that bone structure through the SBDCs and 
Women's Business Centers as well as the SCORE chapters. But do 
you include those and incorporate that in your clusters 
initiative because the clusters initiative is I think you 
requested $11 million? It was $10 million last year.
    Does that divert from the basic core programs and what 
SBDCs could do, for example?
    Ms. Mills. Let me give you an example of how the cluster 
money would provide incremental funding and activity in our 
SBDCs. We believe that the SBDCs are one, not the only way, but 
one way that we interact with clusters that will form.
    In the 2010 budget, one of the clusters that is being 
funded is an interagency activity called an ERIC, an Energy 
Regional Innovation Cluster. The Department of Energy has put 
forth $120 million for a competitive bid. Any region can apply 
for a regional center on building, green building efficiency.
    And we believe that many small businesses have expertise 
and should be included in a cluster around this regional 
innovation hub. So we have the opportunity, along with seven 
other agencies, to make this an interagency cluster request for 
proposal. Every agency in that proposal has put forth money. 
The money that we have put forth will be available for the 
winning region to spend in its SBDC. So the Small Business 
Development Center will be our vehicle for delivering value to 
the cluster for small businesses, bring them into the cluster 
process and have them interact with the other activities.
    Senator Snowe. And so that is underway now? I mean that is 
in the process?
    Ms. Mills. That is the 2010 budget. We have other aspects 
that are happening in the 2010 budget in clusters, and the 2011 
will also rely on what we call our bone structure, which is our 
SBDCs and our Women's Business Centers on the ground, because 
that is where we really deliver programs, and that is where we 
can affect a community of small business that is trying to 
cluster together.
    Senator Snowe. Are you hiring contractors to implement this 
cluster initiative? I mean is that how it is going to work 
effectively?
    Ms. Mills. In the direction that we got, it was required 
that we have to put these to contract, so that they will go 
through a contractor.
    Senator Snowe. So it is not something that the SBDCs and 
Women's Business Centers could do themselves?
    Ms. Mills. Well, yes.
    Senator Snowe. Without involving contractors?
    Ms. Mills. Yes, in some of the cases, I believe that we are 
able to use SBDCs and Women's Business Centers as the 
recipients of cluster funding. So we would be able to do that.
    Senator Snowe. I see. Okay. Thank you.
    Chair Landrieu. I just have two more questions, and I hate 
to keep harping on this Microloan Program, but it has come up 
any number of times. We just provided in the Stimulus Act $30 
million for microloans, $24 million for technical assistance 
grants and $6 million to leverage $50 million of 
intermediaries. These funds were supposed to go out quickly, 
have a fast impact, et cetera. Do you all have an update about 
how much of the $50 million in loan capital has been disbursed 
to date? Do we have a report on that?
    Ms. Mills. Yes. We can provide you with the numbers. It is 
well on track.
    Chair Landrieu. Do you know what it is? Is it a certain 
percentage of the 50, half or more of the $50 million that has 
been disbursed?
    Ms. Mills. Let's see. If I do not have it here, I can give 
it to you, but it is well on track, the next set. What we did 
is we went through all of the 2009 money first and then all the 
2010 and then in the Recovery Act. So we are in our sequence, 
but we are well engaged in getting that money out to 
intermediaries. We have already added the 20 new 
intermediaries, and we are about to put out all of the $24 
million in the technical assistance.
    So we can get you the exact numbers.
    There is a process where it gets obligated. Then there is a 
process where it actually goes out the door. The actual going 
out the door, that is going to go quarter by quarter by 
quarter, and some of that will go into 2011, which was what was 
intended.
    Chair Landrieu. Okay. Well, if you could give us those 
details because if there is something our Committee can do to 
expedite that process or enhance it in any way, we would like 
to try to do that because it is very, very important.
    Ms. Mills. We can do that.
    Chair Landrieu. And again, we are going to pursue raising 
the caps on microloans. I know we have proposed in our 
legislation up to $50,000, but I may be convinced that it needs 
to even be higher.
    As I close, unless, Senator Snowe, you have anything else, 
I just wanted to refer people's attention to this graph that we 
are operating under in terms of level of funding for the SBA 
overall. I am desperately trying, as a leader of this 
Committee, in this effort with my colleague, to get this budget 
for this agency back up to where it was 10 years ago, when we 
were not in the middle of a recession. We were actually 
creating millions of jobs in this country.
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    Now I am not saying the SBA budget and its level has a 
direct impact, but I think that if this agency is well 
resourced, well led, with effective and targeted programming, 
we can be a big help in supporting the millions of small 
businesses out there that are going to be the entities that 
create the jobs that end this recession.
    And I think again, as Senator Snowe said, we are preaching 
to the choir because we in this room are here because we 
believe that. I am going to do even more than I have done to 
try to get the attention of the leaders of both parties to 
focus on getting the time we need, and the proper legislation 
and support that we can to give the small businesses in 
America, whether it is tax relief, targeted and fiscally 
responsible, or whether it is program support--and to give our 
governors and our departments of economic development in all 50 
states and in many of our large, medium and small cities, that 
are struggling to identify the businesses in their 
jurisdictions that have the potential to grow, for us to be the 
very best partner we can.
    There is an urgency about this. I would like to see this 
mood. It is not a mood ball, but it is a mood graph. But I 
would like to see it turn to a more positive outlook, and a lot 
of that can be driven in large measure by the work of this 
Committee. We are not completely responsible, but we want to 
provide help, and I think we have in many ways.
    So that is what I will say to close this hearing. Is there 
anything, Senator Snowe, that you want to add to that?
    Senator Snowe. Well, I just want to reiterate what you have 
already indicated, and I know that you share the concerns, 
Administrator Mills, but it is disturbing that we have not been 
able to facilitate a small business jobs bill at a time when it 
is critical and the circumstances are dire.
    There is no question about it. It is all about jobs, jobs, 
jobs. It is not materializing, and it is severe. It is more 
severe when you compare all the previous recessions. I think 
that is certainly what Mark Zandi, the economist, indicated 
before the Finance Committee.
    If you look at the severity in the long-term unemployed and 
the underemployment that is so extensive, up to 17 percent, and 
the job creation is not happening. There is no certainty. There 
is no confidence. That is really, I think, a telling indicator 
of what is the characteristics of the economic situations on 
Main Streets across this country, in every community.
    So we have to do everything we can, to use the resources to 
turn this around and help to rejuvenate the job creation. It 
can only happen through small businesses.
    There is no sense of urgency which is really surprising, 
frankly, here. That should have been on the top of the agenda. 
We should have gotten it done. We should have accomplished it.
    It is lagging, and it is only going to get worse because we 
know that unemployment is a lagging indicator to any event. You 
see what is happening in the small business sector. Clearly it 
is just not going to turn around very quickly, so we have to 
get these resources into the system, and it is not happening.
    I think we will do everything that we can. We hope that you 
will as well at the executive level, to transmit those 
concerns. A day should not go by that we should not be figuring 
this out.
    And how to pay for it? I think we can figure out the ways. 
I think that there are obvious ways in which we can pay and 
provide for offsets to this legislation.
    I was tasked by the Leader to do that. I said, well, I will 
come up with them. They keep using them for other reasons, but 
I will keep coming up with them.
    Chair Landrieu. I just want to add, I know that the 
President has been, and will continue to be, extremely 
supportive. There were some other priorities. The country has 
to deal with a real deficit in health care for the American 
people, a drag on our budget, inability to balance our budget 
without that attention. We have had to stabilize Wall Street to 
stave off a collapse of our financial system. But I think now, 
Administrator Mills, is the time where we have to put on a 
full-court press, all engines open on this small business job 
creation piece.
    I am very proud of this Committee, having passed out five 
major pieces of legislation in a very bipartisan manner. I 
would like to be working with you, as we talked before this 
meeting, intently next week to see if there are any additional 
things that we could potentially add and get a package to the 
Floor of the Senate as soon as we can, in this work period, to 
give a strong, positive signal to the small businesses out 
there struggling to stay afloat, keep their doors open and hire 
the jobs necessary to end this recession.
    Thank you very much, and meeting adjourned.
    [Whereupon, at 3:51 p.m., the Committee was adjourned.]



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