[Senate Hearing 112-833]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-833

     PRESIDENT'S FY2012 BUDGET REQUEST FOR THE U.S. SMALL BUSINESS 
               ADMINISTRATION AND THE OFFICE OF ADVOCACY

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

                                HEARING

                               BEFORE THE

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 31, 2011

                               __________

    Printed for the Committee on Small Business and Entrepreneurship






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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                      ONE HUNDRED TWELFTH CONGRESS

                              ----------                              
                   MARY L. LANDRIEU, Louisiana, Chair
                OLYMPIA J. SNOWE, Maine, Ranking Member
CARL LEVIN, Michigan                 DAVID VITTER, Louisiana
TOM HARKIN, Iowa                     JAMES E. RISCH, Idaho
JOHN F. KERRY, Massachusetts         MARCO RUBIO, Florida
JOSEPH I. LIEBERMAN, Connecticut     RAND PAUL, Kentucky
MARIA CANTWELL, Washington           KELLY AYOTTE, New Hampshire
MARK L. PRYOR, Arkansas              MICHAEL B. ENZI, Wyoming
BENJAMIN L. CARDIN, Maryland         SCOTT P. BROWN, Massachusetts
JEANNE SHAHEEN, New Hampshire        JERRY MORAN, Kansas
KAY R. HAGAN, North Carolina
  Donald R. Cravins, Jr., Democratic Staff Director and Chief Counsel
              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
Brown, Hon. Scott P., a U.S. Senator from Massachusetts..........    18
Snowe, Hon. Olympia J., Ranking Member, and a U.S. Senator from 
  Maine..........................................................    18

                               Witnesses
                                Panel I

Gordon Mills, Hon. Karen, Administrator, U.S. Small Business 
  Administration.................................................    23

                                Panel II

Sargeant, Hon. Winslow, Chief Counsel for Advocacy, U.S. Small 
  Business Administration........................................    40

          Alphabetical Listing and Appendix Material Submitted

Brown, Hon. Scott P.
    Testimony....................................................    18
Evans, Connie
    Letter dated March 14, 2011, to Chair Landrieu...............    96
Gordon Mills, Hon. Karen
    Testimony....................................................    23
    Prepared statement...........................................    25
    Responses to post-hearing questions from Senator Carl Levin..    79
Kasoff, Barbara
    Letter dated March 30, 2011, to Chair Landrieu...............    99
Sargeant, Hon. Winslow
    Testimony....................................................    40
    Prepared statement...........................................    42
Landrieu, Hon. Mary L.
    Testimony....................................................     1
    Chart titled ``Rebuilding the SBA: Administration Requests 
      vs. Enacted Appropriations''...............................     3
    Chart titled ``Grow Businesses and Create Jobs--Capital 
      Weekly 7(a) and 504 Loan Volume: As of December 17, 2010''.     5
    Chart titled ``Jobs Created by Small Businesses Since May 
      2010''.....................................................     6
    Prepared statement...........................................     9
    Chart titled ``SBA Resource Partner Map''....................    30
    Post-hearing questions posed to Hon. Winslow Sargeant and 
      subsequent responses.......................................    80
Levin, Hon. Carl
    Prepared statement...........................................    78
Snowe, Hon. Olympia J.
    Testimony....................................................    18
    Chart titled ``FY12 SBA Misplaced Funding Priorities''.......    21
    Chart titled ``Rising Operating Costs at the SBA FY'08-
      FY'12''....................................................    33
    Post-hearing questions posed to Hon. Winslow Sargeant and 
      subsequent responses.......................................    89

 
     PRESIDENT'S FY2012 BUDGET REQUEST FOR THE U.S. SMALL BUSINESS 
               ADMINISTRATION AND THE OFFICE OF ADVOCACY

                              ----------                              


                        THURSDAY, MARCH 31, 2011

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:10 a.m., in 
Room SR-428A, Russell Senate Office Building, Hon. Mary L. 
Landrieu, Chair of the Committee, presiding.
    Present: Senator Landrieu, Snowe, Brown, and Moran.

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

    Chair Landrieu. Good morning, everyone. Let me call our 
Small Business meeting to order. This is our meeting to discuss 
the 2012 budget request for the Small Business Administration, 
and I thank all of you for joining me and for Senator Snowe, 
particularly for her help, in this effort. I would like to 
thank Administrator Karen Mills and Dr. Winslow Sergeant, Chief 
Counsel of the SBA, Office of Advocacy, for coming before our 
Committee today.
    Each day, more than half of America's work force goes to 
work for a small business. These entrepreneurs pump almost one 
trillion dollars into our economy, creating 13 times more 
patents per employee than larger firms, and have traditionally 
created more than two-thirds of our nation's new jobs. Many of 
these risk-taking small business owners rely on SBA capital, 
counseling, and contracting programs to succeed, meet their 
payrolls, and compete in an increasingly competitive global 
economy.
    In this fiscal year 2012 request for the SBA, the President 
has once again signaled his commitment to our nation's nearly 
28 million small businesses, submitting a strong and fiscally 
responsible budget of $985 million. While a decrease from the 
2011 request, conscious of our efforts to streamline where we 
can, this budget is one of the strongest submitted since the 
Clinton Administration, making investments in SBA programs that 
will enable the agency to successfully fulfill its core 
mission.
    Most importantly, it will enable the SBA to continue the 
impressive work it has done in assisting our entrepreneurs and 
small business owners as they struggle to recover and rebuild 
in the wake of the worst economic recession since the Great 
Depression.
    Since taking office in 2009, the Administration and this 
Committee signaled a strong commitment to the small business 
community, reversing the downward trend in funding for the SBA, 
and submitting a budget request for fiscal year 2010 that was 
higher than any previous, in the five years previously.
    The Administration's fiscal year 2011 request for the SBA 
furthered this progress, making necessary investments in the 
agency's core capital, counseling, and contracting programs. I 
would like to show the chart here. Of course, in the Stimulus 
Act, there was a one-time boost of funding which has been very 
effective. I hope the Administrator will talk a bit about that 
this morning, but you can see the investments made in the last 
two years.
    [The information folllows:]


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    In addition to efforts to strengthen the core programs, the 
Administration and Congress took bold steps to improve small 
business access to capital by addressing the financial crisis 
that hastened the start of the recession. Thanks to the passage 
of the Recovery Act in 2009, the SBA was able to waive loan 
fees on both borrowers and lenders, and temporarily raised the 
maximum guarantee of the 7(a) and 504 programs to 90 percent. 
These provisions proved remarkably successful, jump-starting 
lending in all parts of the country.
    In fact, since their implementation in 2009, 7(a) and 504 
lending increased from $13 billion in 2009 to $16.8 billion in 
2010, helping to create thousands of jobs. You can see the 
charts here.
    [The information folllows:]


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    The Recovery Act, and even more recently the Small Business 
Jobs Act, which this Committee spearheaded, has had an 
overwhelmingly positive effect on the small business community. 
Bank lending and retail sales have risen steadily for the last 
eight months. The GDP, an important indicator of our nation's 
economic health, has grown for six consecutive quarters.
    There is much more that needs to be done, but there are 
signals that things are moving in the right direction, and I 
believe the work of this Committee and some of the efforts that 
we have made have been a part of that recovery. According to 
the latest job creation data published by the Automatic Data 
Processing, Inc., small businesses have been responsible for 93 
percent of all jobs created in the last ten months--that is 
pretty startling--and to help drive the national unemployment 
rate below 9 percent. Still too high, but moving at least in 
the right direction.
    Let me quickly highlight a few things in this budget and 
then turn it over to Ranking Member Snowe and acknowledge the 
Senator from Massachusetts, Senator Brown, who left a meeting 
to be with us this morning. I appreciate him making that 
effort.
    First, the $210 million to support $16 billion in 7(a) 
loans and $7.5 billion in 504 lending is a good investment. The 
$167 million in this budget to administer the SBA's Disaster 
Loan Program is also important, as we found out in Louisiana 
only a few years ago when Hurricane Katrina hit and the agency 
was not prepared to respond and people's pain and suffering was 
increased, not decreased, by the lack of support from this 
agency. We have successfully, I think, turned around that 
program and are proud of the investments we are making in the 
Disaster Loan Program.
    Third, following the enactment of the Small Business Jobs 
bill last year, for the first time, the Office of Advocacy now 
has independent budget authority. This is a very special agency 
supported by both Republicans and Democrats.
    Its job is to prevent unnecessary regulations from 
burdening small business in America, to reduce the current 
regulatory burden and administrative burdens faced by our 
nation's small business, and to be a real advocate for them, 
not an advocate for President Obama or President Bush or 
President Clinton, not an advocate for the Administrator, but 
an advocate for the small businesses themselves.
    I want to say how pleased I am to pursue independent budget 
authority for them. This is a solid budget, a strong foundation 
for the agency, but I have recommended a few additional dollars 
for investment. One is the expansion of the SCORE program, 
which is really not a government program. It really is a 
government partnership with the private sector.
    SCORE is a not-for-profit, private sector, private sector 
driven program that taps into the great brains and expertise 
and ability of private sector business leaders to help other 
budding and promising entrepreneurs. I think with a small 
investment, we can expand that reach, not expanding government 
programs, but expanding the non-profit and getting a return. By 
some estimates, for every dollar we invest in SCORE, the 
Federal taxpayer gets an investment of $107 in return. I think 
that is a very good investment.
    We also hope that our Women's Business Centers and 
Veteran's Business Centers will continue to receive the funding 
necessary for them to do the good work that we need to do. So I 
will end with just saying this Committee will continue to work 
to trim or eliminate inefficient duplicative programs and to 
root out fraud where it may exist. We are going to soon have a 
whole hearing on fraud, inefficiency and duplication.
    We have already eliminated two programs. We have identified 
at least two that were not working and have eliminated them. We 
will continue to do that, but we want to support those programs 
that are working. I do believe as Chair this is an important 
agency of the Federal Government, and I do believe in 
strengthening partnerships with banks, with credit unions, with 
any non-profit that wants to step up, or for-profit agency for 
that matter, for-profit business to step up to counsel and 
train the future entrepreneurs of America.
    It is a great strength of our nation's small business and 
we want to do everything in this budget to strengthen and to 
grow this economy and put the recession in our rear-view 
mirror. Let me turn now to Senator Snowe. I really apologize 
for my hoarseness. I have been fighting a cold for a week now 
and it is hopefully on the mend. Senator Snowe.
    [The prepared statement of Chair Landrieu follows:]


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    Senator Snowe. Thank you, Chair Landrieu, and I am going to 
yield to Senator Brown because he has to return to the Senate 
Armed Services Committee.

 OPENING STATEMENT OF HON. SCOTT P. BROWN, A U.S. SENATOR FROM 
                         MASSACHUSETTS

    Senator Brown. Thank you, Ranking Member Snowe. I 
appreciate it and hope the Chair feels better.
    Chair Landrieu. Thank you.
    Senator Brown. You are a trooper. I want to thank our 
witnesses, Administrator Mills and Chief Counsel Sergeant for 
participating. I am going to go back and forth, as I seem to do 
every single day. But I just wanted to say two things, one of 
which is, I am concerned about making every agency lean and 
mean, and I know the President has a budget, obviously you have 
submitted a budget.
    I am hopeful that you will look at every aspect of the 
Administration's budget and eliminate any duplication, 
streamline, consolidate, and really weed out every last dollar, 
because as we are cutting $100 billion in the military and we 
are cutting here and cutting there, I am hopeful that you will 
address those issues as well.
    I know we are meeting anyway, so I did not want to take the 
rest of the panels' time, so we can speak privately about a lot 
of my concerns. But I do have some questions for the record and 
I may hold them or submit them, but I will be speaking one-on-
one anyway. So thank you for allowing me to go out of order.
    Chair Landrieu. Thank you, Senator.

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

    Senator Snowe. Thank you, Senator Brown. Thank you, Chair 
Landrieu as well, for calling this hearing today--I know it has 
been difficult with time constraints because of being on the 
floor for the last two weeks on the SBIR and the STTR program--
to discuss the fiscal year 2012 budget, and I echo the Chair's 
remark in welcoming the SBA Administrator, Karen Mills, to our 
first panel.
    For the past two years, Administrator Mills has been at the 
helm of the SBA through what can be only described as an 
extremely turbulent economy. During her tenure, the agency has 
been bolstered by her dedication, her steadfast leadership to 
the small business community, and certainly on that score, when 
it comes to job creation, her understanding of the challenges 
in creating jobs, and how it needs to get done and what are the 
policies that drive it.
    I am also pleased to have the SBA Chief Counsel for 
Advocacy, Dr. Winslow Sergeant, here with us today to testify 
on our second panel. For the first time in SBA's history, the 
Office of Advocacy has a budget independent from the agency's 
total fiscal request, and I hope this new autonomous budget 
sends a clear signal that regardless of the Administration, 
Advocacy will remain independent and fully equipped to handle 
the myriad of challenges that lie ahead.
    So I want to thank both of you for being here this morning, 
for suggesting what kinds of approaches we can take to 
streamline the SBA's budget as we weather this fiscal crisis, 
and also your views on the state of the small business economy.
    When we met to discuss the SBA's budget last year, access 
to capital was a pressing concern for entrepreneurs in America 
which was in the midst of a jobless recovery. Small business 
owners felt an overwhelming sense of uncertainty. The 
unemployment rate was a staggering 9.9 percent. At that time, 
Chair Landrieu and I were well-aware that the Federal 
Government does not put people to work. Entrepreneurs put 
people to work.
    So we worked to achieve programs through a determined pace 
of hearings and mark-ups that encouraged an environment more 
conducive for our nation's true job generators. And while I am 
proud of many of the bipartisan small business provisions that 
I advanced with the Chair and the members of this Committee on 
a bipartisan basis, which sometimes is unique in the political 
process, I am still concerned about the lack of job creation in 
America, particularly among our small businesses.
    So all that we have done, certainly, has bolstered us to 
where we are today, but we realize we have far to go. So as we 
examine the SBA's budget for 2012, we cannot fail to pay 
deference to the larger economic landscape this budget fits 
into. January marked the 21st consecutive month of 9 percent or 
greater unemployment; February came close at 8.9 percent. We 
will see what the numbers are tomorrow as well, if they hold 
fast, or if it could be reduced at all. It is likely to reflect 
fewer new jobs that were created in February, bringing us to 
two years of close to 9 percent unemployment.
    The bottom line is, we have lost 7.3 million jobs in this 
recession and have experienced a net gain of 70,000 jobs 
between June 2009 and December 2010, which is less than 4,500 
new jobs per month for 18 months, according to the 
Congressional Budget Office. Our debt is $14.3 trillion. A vote 
on raising the debt ceiling looms in our near future.
    Our national debt will be 100 percent of the GDP by the end 
of 2011. The Government currently spends $3.8 trillion; yet we 
only collect $2.2 trillion. So clearly, the bottom line is our 
nation's revenues and spending are vastly misaligned. It is 
under these circumstances that we must strike the difficult 
balance of preserving the SBA's job creation potential while 
simultaneously working to rein in costs, cut duplication and 
bureaucracy, and postpone the inadvertent growth programs, some 
of which lack detailed performance metrics.
    After subtracting the Administration's request for loan 
subsidies, in addition to earmarks and disaster funding, the 
SBA's 2012 budget request is still 18 percent above the level 
provided in fiscal year 2008. This fails to account for the 
tremendous surge of funding, including the $1.2 billion for fee 
reductions on the SBA's loan portfolio, an additional $240 
million for its operation and core programs provided under the 
stimulus, supplemental appropriations, and the Small Business 
Jobs Act.
    This funding has bolstered the agency's capabilities and 
will continue to have an impact long after it expires at the 
end of this year; for one, it resulted in the recruitment of 
over 1,300 new lenders to participate in the SBA's loan 
programs. I want to congratulate the Administrator on that 
score because I think that is truly important for access and 
outreach to the small business community in having access to 
capital--as well as making necessary investments in technology 
that will continue to improve the SBA's efficiency and 
effectiveness for years to come.
    I have a chart here to display the concerns that I have and 
to underscore the SBA's 2012 budget compared to the fiscal year 
2008. The fact is, of the $94 million, or 18 percent increase 
in the core SBA funding, 80 percent can be attributed to higher 
administrative and operating costs in the agency, as opposed to 
benefitting the SBA's flagship non-credit programs such as 
micro-loans, small business development centers, women's 
business centers, veteran's programs, and SCORE.
    [The information follows:]


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    Further, only 4.5 percent of the increase in funding since 
2008 has been dedicated to these vital programs, when also 
subtracting the Administration's new unauthorized initiatives. 
Going forward, the SBA can and must reduce its operating costs 
and find savings in the administrative expenses while 
eliminating or reducing funding to programs that are 
inefficient, repetitive, and ineffective.
    That is why I am inclined to agree with a number of the 
cuts in the SBA's fiscal year 2012 budget request, including 
the elimination of the Prime Technical Assistance Program, the 
Drug-Free Workplace Program, and a number of the special 
purpose counseling grants for the small business development 
centers. I have also identified the 7(j) technical assistance 
programs. Cumulatively, they would save $18.1 million. It is 
possible to cut even further. But that is a start.
    It is critical that we identify other areas to cut and we 
have to do so wisely. I think we understand that, given the 
atmosphere of the economy and also the struggle of small 
businesses, the Office of Advocacy is the regulatory watchdog 
for small business guarding against over-regulation. So not 
only do I support full funding for this office, I strongly 
recommend reinforced appropriations for additional staffing. I 
do so because of the potential this independent voice for small 
businesses possesses to cut down the torrent of regulations 
stifling job creation.
    Between the months of September 2009 and September 2010 
alone, the Office of Advocacy achieved $14.9 billion--that is a 
billion with a B--in the first year of cost savings and $5.5 
billion in annually reoccurring savings for small businesses 
and foregone regulatory costs. Operating with a $9.3 million 
budget, that means for every dollar the American taxpayer 
spends to run this office, small businesses reap nearly $1,600 
in regulatory cost savings. I further believe that with 
additional resources, Advocacy could achieve even greater 
results.
    Finally, I would like to call your attention to a letter 
that the SBA Inspector General, Peggy Gustafson, sent to Chair 
Landrieu and me dated March 15th, 2011. This letter was in 
response to our request that the Inspector General provide 
input regarding the reduction or elimination of wasteful, 
duplicative, or ineffective operations at the SBA without 
undermining the agency's ability to serve the needs of small 
business owners.
    The Inspector General made a number of strategic 
recommendations that I encourage everyone here to consider, and 
I look forward to working with the Chair to vet these 
thoughtful proposals for savings in the coming months.
    So again, I reiterate that we have some very difficult 
choices that have to be made at SBA, here in the United States 
Senate, and throughout the Federal Government, as we work to 
extricate ourselves from this fiscal quagmire. At the same 
time, we know we have to build the small business community, 
but we are going to have to have a very lean and efficient 
operation for the programs that we underwrite given the current 
fiscal constraints. Thank you, Chair Landrieu.
    Chair Landrieu. Thank you, Senator Snowe. Senator Moran, 
thank you for joining us. Do you want to give a short opening 
and then we will get right to our testimony?
    Senator Moran. That is not necessary, Madam Chairman. I am 
pleased to join you and the ranking member, and I am here with 
great anticipation to hear what the Administrator has to say. 
So thank you very much.
    Chair Landrieu. Thank you so much. We will turn it over to 
you, Ms. Mills.

STATEMENT OF HON. KAREN GORDON MILLS, ADMINISTRATOR, U.S. SMALL 
                    BUSINESS ADMINISTRATION

    Ms. Mills. Thank you very much, Chair Landrieu, Ranking 
Member Snowe, members of the Committee, Senators. I am very 
pleased to be testifying here before you. Small businesses are 
the backbone of our economy. They create nearly two out of 
every three new jobs, and more than half of working Americans 
own or work for a small business.
    The SBA is a small agency, but we have a big mission. We 
put the maximum amount of possible resources directly into the 
hands of small businesses, focusing on the three C's of 
capital, contracts, and counseling. Last year we helped over 
50,000 small businesses get the capital to grow and hire, we 
helped put about $100 billion in Federal contracts in the hands 
of small business, and we counseled more than a million small 
businesses across your districts and throughout the country.
    We put these resources in their hands while providing 
taxpayers a big bang for their buck. For example, after credit 
froze in 2008, the Recovery Act and the Small Business Jobs Act 
supported more than $42 billion in SBA loans at a subsidy cost 
of $1.2 billion. Many small businesses suffered greatly from 
the recession. Our job is to support them as they grow and 
create jobs, and this job, as the Senator said, the Ranking 
Member said, this job is not done.
    The President's proposed 2012 budget for the SBA of $985 
million will support up to $27 billion in loan guarantees, as 
well as many other tools and resources to help our country's 
small businesses. At the same time, this budget reflects a 
commitment to tighten our belts, streamline our processes, and 
eliminate duplication.
    These include ideas from Congress. For example, we looked 
hard at our technical assistance programs. As a result, we 
propose eliminating the PRIME Program. With the work of our 
Microlenders and new efforts to recruit community-based 
lenders, we can continue to provide technical assistance in a 
more cost efficient way.
    In addition, due to process re-engineering, our disaster 
loan operations are now much more efficient. We can preserve 
our level of preparedness with a steady state core staff of 
850, instead of 1,000, along with our 2,000 reservists. The 
largest increase in this budget reflects the fact that we have 
reached the statutory limit for fees that we can assess.
    This budget reflects the need for additional subsidy 
because losses, including those from loans approved on 
collateral such as real estate that was inflated, have pushed 
up subsidy costs. We will also request a legislative fix to 
return to near zero subsidy. The budget also builds on our 
strong efforts over the past two years to remove fraud, waste, 
and abuse in Federal contracting, and it supports the new 
Women's Contracting Program. I know that both of these issues 
are a high priority for this Committee.
    Finally, I want to be clear about our Executive Direction 
request. This budget does not reflect an increase in 
bureaucratic overhead or salaries. Instead, it reflects three 
things. First, it reflects a transfer of procurement operations 
from the Management and Administration Office to our chief 
financial officer, which falls under executive direction. One 
line went up and the other line went down.
    Second, it reflects Phase 1 spending for the new loan 
computer system. I should note that this project has been 
redesigned to actually be $20 million lower in 2012 than 
initially projected. Third, it reflects the transfer of our 
redesigned Web site development and maintenance from our chief 
information officer to the Office of Communications, which 
falls under executive direction. This has been a priority of 
this Committee and the new site has been very well received by 
small businesses.
    Overall, our priorities are twofold. We have placed a focus 
on SBA programs that put money and support directly into the 
hands of small business owners, and we will continue to invest 
in oversight to preserve the integrity of these programs and to 
protect the interest of taxpayers. I look forward to working 
with all of you to ensure that small businesses can continue to 
grow, create jobs, and lead us to a full recovery. Thank you 
very much and I am pleased to take your questions.
    [The statement of Ms. Mills follows:]


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    Chair Landrieu. Thank you very much, Administrator. Let me 
begin by asking you for an update, if you will, on the Small 
Business Jobs Act of 2010 signed into law by the President this 
last September. Many claim that this is a landmark law, a very 
significant piece of legislation, some say the most significant 
piece in the last ten years. Due to the timing of the enactment 
of the law, the additional funding allocated to the SBA is not 
reflected in the 2012 budget request.
    I know you have been working closely with the 
Administration to implement the various provisions of this Jobs 
Act, particularly the new lending program. Can you give us a 
brief update on the implementation of this law, and are you 
seeing any specific benefits from some portions of it?
    Ms. Mills. Well, I want to thank this Committee very much. 
The Small Business Jobs Act is the single most important piece 
of small business legislation over the last ten years, and it 
provided highly valuable tools for small business. We have 
aggressively been implementing this program.
    For example, all of the funding that helped us increase the 
90 percent guarantee and reduce the fees was put out into the 
hands of small business in the first quarter of this fiscal 
year. That was $11 billion in one quarter. It was the highest 
quarter for SBA lending in history. And so, we know that that 
money--I was just at a business, actually, yesterday in 
Warwick, Rhode Island, which got one of those loans and bought 
new equipment. So we know that that money is helping the 
economy and helping those small businesses already create jobs.
    There were other important pieces of that. As we speak, the 
implementation of the procurement rule changes that were put in 
that statute have been written up, put into rule-making, and 
are in the process of public comment. We have people in the 
field today and this week and in the next month taking public 
comment on the new rule-making, which is designed to close 
loopholes; reduce fraud, waste, and abuse; make sure that small 
businesses get the benefits of the Government contracts, not 
big businesses masquerading as small businesses or partnering 
with them and taking too much of the contract. So that is all 
well into implementation.
    Another piece of it that we are very pleased about that was 
created in this Committee are the STEP grants, the export 
grants which support small business exports. Those are grants 
to state agencies to make sure they are reaching out to help 
our small businesses work to export more product.
    Right now, small businesses are only 30 percent of total 
exports. If we are going to reach the President's export 
objective, which is to double exports over the next five years, 
small businesses have to lead the way, and we do have those 
opportunities. So those grants are competitive and the request 
for the competition has gone out and states are preparing their 
proposals.
    Finally, $50 million for the Small Business Development 
Centers is being allocated, and once again, we have asked each 
of those Small Business Development Centers, rather than to 
just take the money, to describe exactly what incremental 
benefit, particularly in terms of job creation and small 
business activity, they are going to deliver with that money, 
and those requests have come in and that money has 
substantially started to roll out.
    Chair Landrieu. Now, another portion of this Act that was 
more controversial--I was supportive of it, but there were some 
that were not, but we managed to move through this new lending 
provision. But that is really under Treasury, not under SBA, 
and I am going to call the Treasury officials to come and 
testify because it is a new effort and hopefully it will work. 
We are not 100 percent sure, but I felt like we should try to 
do everything we possibly could to get capital to small 
business and Main Street, and this is a new initiative.
    Do you have any information, though, that you would like to 
share about it--I know you are working with Treasury on that 
program--just to add something to the record about how it is 
being implemented? Are you generally pleased with what you are 
seeing or do we have to expedite that program?
    Ms. Mills. We are working with Treasury on the Small 
Business Lending Fund, and also on the state programs which 
were funded in this Act which were also extremely valuable. In 
both cases, we have evidence that banks are coming back to 
lending because there is an incentive, a carrot, in the Small 
Business Lending Fund for them to take in more capital and then 
push it out. So we know that there is bank interest. It is in 
its early stages and we are encouraging banks, through our 
network, to know about this program and to apply for those 
activities as it fits their profile.
    The second piece, the state funds, have also begun to roll 
out, and those are programs that we work very much in 
conjunction with state-by-state, because very often SBA 
guarantees are given in conjunction to a company that has also 
received benefit from some of these state lending programs.
    Chair Landrieu. One more question and then I will turn it 
over to Senator Snowe. Could you just repeat for the record how 
many new--two questions--how many new banks have come into the 
SBA, Administrator Mills, since you took over in our regular 
504 and 7(a) programs? We have substantially increased the 
number of banks, have we not?
    Ms. Mills. Yes, we have. We have increased the number of 
banks, particularly community banks and credit unions, that 
have come into the SBA lending programs through, particularly, 
our Recovery Act 90 percent guarantees and fee reductions, and 
an effective outreach through our district offices to train new 
lenders, streamline our own processes, and have quick turn-
around. The number in that first period of time in the Recovery 
Act was over 1,200 new lenders.
    Chair Landrieu. That is very impressive. And let me ask you 
this one last question and then I will turn it over to Senator 
Snowe. I know that I sound like a broken record on this SCORE 
Initiative, but this program was started some years ago--and I 
am getting my staff to get me the details now--but to me, it 
makes so much sense, instead of the Federal Government creating 
another layer of Federal bureaucracy or government bureaucracy, 
to simply leverage a relatively small amount of money into a 
national non-profit that is effective.
    We had a hearing on SCORE chapters around the country. Now, 
some are better than others, but it is fairly impressive how 
widespread--if we can put up the chart? These are not only the 
SCORE chapters, but I want you to put up this chart. Senator, 
this is what encourages me and our members.
    I had the staff put up this resource partner map because 
what I want to show is, this is not just the offices of the 
SBA. I mean, that would be pretty impressive if that was how 
much we were able to do with a small amount of money. But this 
is for resource partners. This is our women's business centers 
that take the money that we give them and leverage it up 
substantially.
    [The information follows:]


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    These have the SCORE chapters, which are 350 chapters, 
where any small business can walk into a SCORE office for free 
and get counseling and support. We had a woman sitting right 
here at our last round table that said literally, she would not 
be in business today if it had not been for the counseling and 
advice, free, that she got from the SCORE chapter, and she was 
a very powerful witness.
    So I want the Committee to really consider the advantage of 
increasing a small amount of money to SCORE, and if there is 
another organization out there that I am not aware of, I am 
open to that as well, but to work in partnership, have the SBA 
work in partnership with these 350 SCORE chapters. We do not 
have the chart of the SCORE chapters only, do we, where they 
are?
    You know, to work with SCORE because I think free is good. 
I mean, I think free is great. I think when people go in to get 
help, they go because they do not have a whole lot of money to 
start with and they can get good support from this non-profit 
organization. I think it would be worth our investment to help 
strengthen that organization and be a partner with them.
    So let me turn it over to Senator Snowe. I have a few more 
questions. Well, let me ask you, what is your feeling about 
SCORE and have you visited some of their chapters?
    Ms. Mills. I have traveled all around the country, and I 
think I have been to 31 states as of yesterday, and each time 
we go we have a round table with SCORE, and I have also met 
with all of their 350 chapter heads. It is absolutely clear 
that the counseling that is provided adds value to our small 
businesses. We know that our counseling network, because we 
track it, creates businesses with better outcomes, more 
longevity, more profit.
    We track our extended client visits and our Small Business 
Development Centers, and it is not enough just to give money 
and loans to small businesses. You have to give them help and 
advice, work with them on business plans. We rely on SCORE for 
an enormous amount of our reach.
    Most of our activity is in some kind of partnership: 
public/private partnership, partnerships with community 
colleges and other universities, and our SBDCs, and that is how 
we can leverage our small budget and activity to have a 
counselor within 45 minutes of most small businesses across 
this country.
    This is of enormous value and, like you, when I sit with 
somebody and they say, This person--and they will put their arm 
around this person--this person saved my business, I would not 
be here today if I did not have this relationship. We are 
making a difference with those entrepreneurs.
    Chair Landrieu. Thank you. Let me just submit for the 
record that there has been--I have this chart--a 24 percent 
increase in the number of banks participating in the SBA 
programs in the last two years. So I want to submit that to the 
record. Senator Snowe.
    Senator Snowe. Thank you, Madam Chair. Administrator Mills. 
I would like to get to the heart of these administrative costs. 
I know you made reference to the Executive Direction account, 
but what I was referring to is that and every other account 
where there has been a notable increase over time.
    Obviously, I am comparing between 2008, which was not your 
budget, or 2009, but we are talking about 2010 and 2011, and 
obviously the proposed request for 2012. The differences that 
exist, percentage-wise, in virtually every account, concerns 
me. When you compare it to the CORE Non-Credit Programs where 
it is basically a split between 80/20 in terms of where the 
increases are going, it is basically for overhead and 
administrative costs.
    So I guess the question is, where is there the possibility 
for reductions? What is the justification for the increases in 
nearly every single category as far as operating costs are 
concerned? You should take out the Executive Directions you had 
mentioned as a transfer to the CFO. Even if that were taken out 
in nearly every other category, as this chart illustrates, 
there are significant increases. So if we are looking to 
streamline programs, obviously we are going to be looking at 
administrative costs as well.
    [The information follows:]


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    Ms. Mills. I would not like this Committee to be left with 
the impression, as I think I have mentioned to you before, that 
the SBA has added bureaucratic overhead. The costs that you 
described there we have looked at very closely according to two 
principles. The first is, does it get money down into the hands 
of small businesses?
    And I just want to point out that it is not just our Non-
Credit Program that drives operating activity with small 
businesses. They happen to be broken out as line items. But it 
is not the only place in the agency where things are happening 
that drive activity into the hands of small business. So the 
first criteria is, is it getting value to a small business?
    And the second criteria is, is it helping in our oversight 
activities? Is it reducing fraud, waste, and abuse? Is it 
protecting taxpayer interests? So those are our two principles 
by which we have gone through our budget and viewed these 
expenses.
    I do note that you are looking at the 2008 budget. I just 
wanted to make a comment about the comparison between 2008 and 
2012. When the 2008 budget was created, this agency was in a 
very different economic environment. The robust levels of 
lending in 2007 and early 2008 made credit very accessible in 
the general marketplace to small businesses.
    But as you know, in October 2008, the credit markets froze 
and our activities in the agency became extremely relevant to 
fill this market gap. Therefore, we were able to take the 
Recovery Act dollars and drive a tremendous amount of value, 
$42 billion, into the hands of small business. And as I said, 
it was at a cost, but it was a subsidy cost of $1.2 billion.
    That does not take into account the efforts made by our 
team, who went out and recruited the additional 1,200 lenders, 
and also our team partnered with our partners who were 
counseling a much higher number of small businesses who, of 
course, in that period of time were experiencing difficulty.
    All of those loans that we put on the books, all of that 
bump-back in loans remain on the books. So when we do a loan 
activity, that cost to us for monitoring and oversight does not 
go away. So we actually have, in this period of time that you 
describe, taken on not only the implementation, but now the 
continued monitoring of a substantial set of activities which 
were included in supplemental budgets.
    And that activity has been very effective and we are very 
pleased with it. It has put money in the hands of small 
businesses directly. It has been very successful, but it 
requires us to continue to make great efforts to monitor those 
loans because they stay on our books.
    Senator Snowe. Well, can you tell me how many new employees 
have been added as a result of this? I guess that is the 
question. I can understand how running government contracting--
and the agency proposes for next year to add 24 new employees 
to help with fraud within the contracting program. So that is 
an example.
    Do you have a list that we could have to see where these 
increases are occurring in terms of the number of employees 
supervising fraud, abuse, oversight of these programs? 
Obviously the SBA, over time, has gotten significant increases, 
if you think about the disaster loans, the stimulus program.
    So there have been an awful lot of programs that have been 
bumped up significantly over the last few years. So those were 
one time events. Certainly that is the case with stimulus. So 
where is it that you would identify in these categories that 
would suggest that you would require additional employees? I 
mean, did you hire new people?
    Ms. Mills. So once again, I think the point is the stimulus 
activity and when we do disasters, for us they are actually not 
one-time events. They are an ongoing stream of costs. We put 
something on our books in the stimulus, we have to continue to 
monitor it. We add a new program in the stimulus or in 
contracting, we continue to oversee it. They have very, very 
long lives, each of these new loans, for example.
    We have a request in for 24 new people. Those are the only 
new people we are requesting in the 2012 budget request, for 
fraud, waste, and abuse oversight. That is because we have 
taken the fraud, waste, and abuse issue head-on. In 2008, this 
was not an area that was robustly attended to, and we have, I 
think, joined with this Committee in seeing that we cannot have 
a program that delivers $100 billion into the hands of small 
business, creates that much value, that does not have 
integrity.
    And we had a lot of work to do. Luckily, we got some help 
from this Committee, from the Small Business Jobs Act, and 
followed a template that I think you saw in the GAO report, and 
created a structure, a three-pronged structure to go after 
fraud, waste, and abuse. We look at up-front criteria.
    We have focused on ongoing monitoring, and we have begun a 
robust effort to punish the bad actors, to bring up our 
enforcement efforts. Those are the areas where you will see our 
request for incremental people. We have already put substantial 
resources in the past few years as we realigned our priorities 
to focus on this.
    Senator Snowe. Well, would it be travel? What would justify 
the costs? Is it overtime, travel? What is it if it is not 
additional employees, other than, as I mentioned, the 
government contracting arena. So where is it----
    Ms. Mills. In each of these places----
    Senator Snowe [continuing]. That these increases are 
occurring?
    Ms. Mills [continuing]. There is--and these do not include 
employees, I believe, in the operating costs that you have up 
there. But as you look at those, there are structural things, 
for instance, in information technology systems, in tracking 
systems that we have invested in, and particularly in 
government contracting so that we have done analytics now to 
understand, to be able to track our businesses. We know.
    We have broken down silos so that if there is a fraud in 
the Hub Zone Program, that information can be transferred over 
to the 8(a) program because that person may be in both 
programs. So we have invested both in structural, and now we 
have a request for some incremental personnel on the fraud, 
waste, and abuse side.
    Senator Snowe. Okay, thank you.
    Chair Landrieu. Thank you. Senator Moran.
    Senator Moran. Thank you, Madam Chairman. Administrator 
Mills, thank you very much for reaching out to me in the 
conversation that we had by phone last week. I am grateful for 
that conversation. One of the things I wanted to explore with 
you, it was indicated that the number of partnering financial 
institutions, banks and credit unions, has increased.
    One of the things that I see, and certainly one of the 
things that I continually hear by small business and 
entrepreneurs who are interested in expanding their business or 
starting a business is the lack of access to credit. As we look 
at where we are in job creation, the recession that we are in, 
in my view, there are a number of reasons that we are slow to 
recover, but one of the them is the inability for small 
business to access capital.
    I am interested in knowing whether you have a sense of why 
the businesses are--I am sorry--why the banks are entering into 
the partnership with the SBA at these new levels. In my view, 
we have a regulatory scheme that is being increased on 
community banks across the country that make it much more 
difficult for them to lend money, even to credit-worthy 
borrowers. One of the responses, my guess is, by bankers is to 
then figure out how do we partner with the SBA in order to be 
able to make these loans.
    So in your--one, my question is--several questions--is my 
sense correct, that a reason that there is a greater 
partnership is because banks are having to come to you in order 
to better satisfy the regulators?
    Do you have a sense that our community banks, financial 
institutions, are--the regulatory environment, the scheme, is 
increasing and there is a consequence to the ability to borrow 
money by those who are credit-worthy and want to expand their 
business?
    And three, does the SBA have an advocacy role within the 
Federal Government to try to rein in this ever-expanding 
regulatory scheme that again, in my view, is reducing the 
chances that a worthy borrower can find money at their hometown 
bank?
    Ms. Mills. Well, thank you very much. I did enjoy our 
conversation as well, and I know that you are quite 
knowledgeable about the small business and banking environment, 
particularly in Kansas, and in a broader perspective. So I 
appreciate your bringing this up.
    We have seen, in this credit crunch, more banks turn to the 
SBA because they had credit-worthy borrowers, but they did not 
have the capital on their books, perhaps because they had 
extended in real estate, and in the crunch their capital stock 
had gone down. If they went to the SBA and used one of our 
guarantees for a credit-worthy borrower, they might be able to 
help a client that they want to help, that they know very well, 
but that at that moment did not match the bank's credit 
criteria.
    When the guarantee was at 90 percent, they only had to put 
up capital for the unguaranteed portion. So once again, that 
allowed them to do ten loans where before they might have only 
been able to do one. We were very happy with that partnership 
because our job was to get money out into this credit-starved 
market and help those small businesses who went back to their 
bank and said, We have been banking together a long time, why 
can you not help me?
    To your second question, in that time period and continuing 
today, we work very closely with the regulators to make sure 
that the regulatory guidance is clear on some of these small 
business loans down in the field. We were also getting the 
feedback from banks which said they were concerned that there 
was not clarity about whether they could make certain loans.
    I was very happy to work with the Fed and with the FDIC and 
Ms. Sheila Bair in a number of circumstances where we worked 
together, we spoke together, and we helped send clarity and 
directives down that helped open those doors of the bank to 
some of this small business lending by providing more clarity 
on the guidance of what was acceptable and what the regulatory 
criteria was for different loans. And then that would help them 
both work with the SBA and also make loans on their own.
    Senator Moran. My time expires in 13 seconds and this is my 
first Committee hearing that I have been to as a member of the 
Small Business Committee so I am not certain how strict the 
Chairperson is.
    Chair Landrieu. Not very strict.
    Senator Moran. Madam Chairman, I chaired a committee in the 
House of Representatives and one of my colleagues was always 
yielding back his time after he had gone on more than 10 or 15 
minutes beyond the time allotted him. It struck me as odd.
    [Laughter.]
    Chair Landrieu. We are very friendly in this Committee.
    Senator Moran. Thank you so much. I just would reiterate 
and kind of strengthen the case I am trying to make with you. 
The SBA has a great network of contacts with small business and 
with lenders, and I believe there is a real problem for 
community lenders in being able to make loans that they firmly 
believe are credit worthy. And that comes from the regulatory 
environment that they are finding themselves in from the FDIC, 
as you mentioned, the OCC, the Fed, and we need the SBA, in my 
view, to be an advocate for common sense regulations that allow 
our banks to continue to make loans, with or without the SBA 
guarantee.
    I also would say that in that same environment that you 
operate in, which you are dealing with small business, the 
regulatory environment that we find ourselves in just generally 
needs an advocate within the Administration, and to us in 
Congress as well, to come tell us the regulatory environment in 
which small business is trying to succeed is so onerous that 
their ability to do so is greatly limited.
    And so, while you advocate for small business, I would ask 
you to advocate for small business within the Administration, 
here in Congress, by giving us the examples with the 
circumstances that you see and hear and view about, here are 
the things that are impeding the opportunity for a small 
business person or an entrepreneur to either begin a business 
or to expand that business.
    In my view, a lot of the fault lies here in Washington, 
D.C. You ought to be the advocate for expressing those things 
you see out in the field. I thank the Chairman.
    Chair Landrieu. And Senator, let me follow up because that 
will transition beautifully into my next and last question to 
the Administrator and then ask each of you if you want an 
additional question. Then we are going to move to our second 
panel.
    But I want to support what the Senator is saying. We are 
hearing horror stories, actually, from the field, from 
community banks that are having a great deal of difficulty 
navigating through these uncertain waters of regulation from a 
variety of different Federal agencies, most of it coming from 
Treasury and sort of out of the banking oversight sector.
    The Small Business Administration is here for a purpose, 
and it is to advocate on behalf of small business, and not just 
for our own programs, but generally advocating for them. In 
fact, we feel so strongly about this, Senator, that an advocacy 
position was created and we are going to hear from that 
advocate in just a moment.
    On that subject, let me ask you, one of the concerns that I 
have in reviewing the specifics of the budget, Senator Snowe 
mentioned a few, but it is the Office of Advocacy itself has 
asked for $9 million, which is a reasonable amount of money, 
for their small staff, their ten regional directors. But in 
addition, there is an additional $10 million for administrative 
costs on top of that.
    And so, it is a total of--they have only asked for $9.1 
million, but I understand the total line item is $19 million. 
Could you please explain that, Administrator, because it does 
not really make any sense to me? And how can an administrative 
cost of $10 million on top of the $9 million that is really 
required to run their office?
    Ms. Mills. Well, thanks for the question, Senator, and it 
is a question actually that we asked as well. You are referring 
to Table 9, which has a $19 million cost for the Advocacy, 
versus Table 1, which has a $9 million cost. What is the extra 
$10 million? The answer is that Table 9 is a table which 
reflects cost allocations, and that means that it is an 
apportionment. There is not an additional $10 million to cover 
their overhead. It is an apportionment of jointly used costs 
like real estate.
    The methodology for doing that has rules. There are cost 
accounting rules. I happen to be--have an interest in cost 
accounting, but this is a complicated subject. The cost 
accounting rules change depending on various things. When the 
Office of Advocacy was broken out to be a separate line item in 
our budget through the Small Business Jobs Act, the rules that 
apply to the cost accounting changed.
    So things that were not allocated when it was not a 
separate line item are now required to be allocated. That said, 
$10 million seems like a lot of allocation, so I have asked my 
team to go back and look at the methodology. It was the first 
time it was used and we are happy to come back to you and----
    Chair Landrieu. Well, I would appreciate a more detailed 
explanation because it is a little concerning to me. Both 
Senator Snowe and I have an interest in making sure this office 
is well-staffed, well-led, well-directed, because we think 
there is a great need out there right now in this regulatory 
climate, both of us believe, and this is just a little 
disconcerting that we have jumped from 9 to 19. So if you could 
provide that in writing in very specific terms to us, or to me 
and I will share it with the members of the Committee, I would 
appreciate it.
    Ms. Mills. I do want to make sure it is clear that the 
extra $10 million is not additional money.
    Chair Landrieu. Well, it looks that way on paper. So let me 
turn it over to Senator Snowe for a final question and then 
Senator Moran.
    Senator Snowe. One question that I had was about recovery 
costs and debt collection. Under current law, many agencies are 
assigned by the Treasury Department the ability to go out and 
collect debt on defaults and so on, failure to repay loans. The 
SBA, obviously, does that through the Treasury Department but 
at an additional cost.
    Have you ever considered doing this recovery within the 
agency? Because right now, the SBA gives more than $28 million 
back to Treasury, whereas it could be utilized within SBA for 
additional savings, and to offset additional costs. Is that 
something that the SBA has considered or you have considered 
during your tenure?
    Ms. Mills. Well, I have some notes on this because I know 
that you asked the question, but I will say that it is not 
something that has come up before. We have a relationship with 
Treasury and we are happy to look into it further.
    Senator Snowe. Well, that would be great because it is 
another way. They recovered an estimated $100 million for SBA 
for the 7(a) and the 504 and Disaster Loan Programs in 2010. So 
$28 million of that went to Treasury, in addition to, I guess, 
the $17 for administrative costs per transaction. So that is 
something that could be done in SBA. I know some of the other 
departments do it in-house rather than assigning that 
responsibility to Treasury. So that may be something that we 
should look at. Thank you.
    Chair Landrieu. Senator.
    Senator Moran. Thank you.
    Chair Landrieu. Thank you, Administrator. We appreciate 
your time before the Committee.
    Ms. Mills. Thank you.
    Chair Landrieu. At this time, if Mr. Winslow Sergeant will 
come forward?
    Good morning. Thank you, Dr. Sergeant, for joining us this 
morning and we look forward to your testimony. I also want to 
make sure the Committee members know that just by coincidence, 
we happen to have all of the regional administrators for 
Advocacy in town for a training seminar, I understand, today. 
When I found out they were here, I asked them specifically if 
they would sit in on this meeting. I am going to meet with them 
for a few minutes afterwards because this is a very important 
office. I understand, Dr. Sergeant, you have the directors of 
each of your regions here with you.
    Dr. Sergeant. Yes.
    Chair Landrieu. Would you all please stand? So we have all 
the regions represented?
    Dr. Sergeant. They are all represented, yes, Senator.
    Chair Landrieu. Ten?
    Dr. Sergeant. All ten.
    Chair Landrieu. All ten, okay. And these are the regions on 
the map. Thank you. You can be seated. These are the regions of 
the Small Business, and as you open your testimony on your 
budget and your office, it is good to have your leadership team 
here and, of course, we will have questions for you after your 
five-minute testimony. But please begin.

 TESTIMONY OF HON. WINSLOW SERGEANT, PH.D., CHIEF COUNSEL FOR 
          ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION

    Dr. Sergeant. Chair Landrieu, Ranking Member Snowe, Senator 
Moran, good morning. Members of the Committee, good morning and 
thank you for the opportunity to appear before you today to 
discuss the Office of Advocacy's budget request for fiscal year 
2012. In the interest of time, I will summarize my prepared 
testimony and ask that my full statement be included in the 
record.
    Because Advocacy was established to provide independent 
counsel to policy makers, my testimony has not been circulated 
for comment through the Office of Management and Budget or 
other Federal agencies. Therefore, my views do not necessarily 
reflect the position of the Administration or of the SBA.
    Before I turn to the budget, I would like to briefly bring 
you up to date on our activity. I am pleased to report that we 
have been extremely busy working on behalf of small businesses. 
Since my appointment as Chief Counsel for Advocacy last August, 
I have signed 32 public comment letters to 19 different 
agencies on a wide variety of regulatory issues, and we have 
held more than 20 small business roundtables.
    We are currently participating in seven SBREFA panels on 
EPA rules. Additional panels are expected in the near future on 
regulations from OSHA and a new Consumer Financial Protection 
Bureau, CFPB. Earlier this month, my office provided you with 
our annual report on the implementation of the Regulatory 
Flexibility Act, Executive Order 13272.
    All of us here know how important it is for agencies to 
take their RFA responsibilities seriously, and I am proud to 
report that in fiscal year 2010, Advocacy's involvement in 
rulemaking on behalf of small business resulted in regulatory 
cost savings of nearly $15 billion. But today, we are here to 
focus on the budget.
    Through this Committee's leadership, the Small Business 
Jobs Act of 2010 included a provision of enormous importance to 
Advocacy, its independence and its budget. This provision 
established in the Treasury a new separate account for our 
office and the requirement that the SBA continue to provide 
operational support. This new provision gives Advocacy, for the 
first time, statutory line item funding similar to that of the 
SBA Inspector General.
    The President's recent budget request for fiscal year 2012 
reflects the establishment of this new account. The request for 
Advocacy in fiscal year 2012 is $9.12 million. This amount is 
sufficient for us to function effectively in fiscal year 2012. 
It includes $7.4 million to return us to staffing levels seen 
in fiscal years 2008 and 2009.
    Since coming before this Committee last November, we have 
now brought on board all ten of our regional advocates, giving 
a much stronger voice to businesses in every region of the 
country. Advocacy's professional staff is our most valued 
asset, allowing us to effectively work for small business.
    The fiscal year 2012 budget request will also support an 
economic research program of $1.3 million. This level of 
funding allows us to produce, on average, 25 new reports or 
data products each year. The remaining $420,000 in Advocacy's 
budget request for fiscal year 2012 will cover all expenses for 
travel, training, office supplies, printing of publications, 
and other expenses that are directly attributed to Advocacy.
    In addition to a separate account for Advocacy, the Jobs 
Act also included a provision that SBA provide my office with 
operational support such as office space, rent and utilities, 
and telecommunications. Accordingly, we have a new agreement 
with SBA in which the agency will provide all of these items 
discussed in the new law without charge to our new 
appropriation.
    This support package includes a variety of services such as 
human resources, payroll services, and IT support. This 
agreement has been formalized in a Memorandum of Understanding 
signed by SBA Deputy Administrator Marie Johns and myself.
    In conclusion, I am pleased that the President's fiscal 
year 2012 budget request will allow Advocacy to fulfill its 
important mission of helping small business. Let me again thank 
the Committee and its staff for the tremendous support you have 
given Advocacy for so many years. It helps us immeasurably in 
our work to know that we have the support. I look forward to 
continuing to work with you on important issues to small 
business. I would be happy to answer any questions you might 
have.
    [The prepared statement of Dr. Sergeant follows:]


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    Chair Landrieu. Thank you, Dr. Sergeant. I do. Can you give 
us two examples, and be as specific as you can, of actions that 
you or your office have taken to either eliminate or 
significantly modify regulations that were going to be proposed 
by any Federal agency--you can pick any Federal agency--and 
just kind of walk us through for a minute or a minute and a 
half how your office advocated and stepped up and either got 
the regulation eliminated or modified? Anything in the last two 
years.
    Dr. Sergeant. Senator Landrieu, we have been active in 
being a strong voice for small business. As you know, we do not 
represent the Administration. We represent small businesses and 
that is an honor that we have, to make sure that the voice of 
small business is heard at all levels of government.
    There are two examples that come to mind. One most recently 
involved a proposed ruling by OSHA. This involved the noise 
rule. A provision was in place to address noise in small 
manufacturers, and what employees would do to mitigate noise, 
they would wear earplugs or earmuffs and that worked fine.
    What OSHA proposed to mitigate noise was to require small 
manufacturers to buy all new equipment. Now, we have a solution 
that was in place, but it was proposed to have small 
manufacturers buy all new equipment with less noise, with a 
reduced noise factor. This is a problem for small business. 
Their focus is to sell products, to grow the employees, to grow 
their market share, not to spend billions of dollars to buy new 
equipment.
    So what we did, we reached out to OSHA. We heard from small 
businesses that this was burdensome. And so, we had a 
roundtable and I invited representatives from OSHA to come to a 
roundtable with small businesses. I assured OSHA that we run 
the meeting and so they need not be afraid for life and limb, 
but we run the meeting.
    At the meeting, they heard that this was a problem. This 
solution was solved already. So what came out of the meeting is 
that OSHA pulled the rule, they withdrew the rule.
    Chair Landrieu. That is exactly what your office should be 
doing. Can you give us another example? Because it is 
encouraging to hear that something we are doing is working to 
reduce some of these unnecessary rules and regulations. Is 
there any other example that you could give?
    Dr. Sergeant. Another example, also, not to pick on OSHA, 
but it was the MSD Rule, what is called the Multiple Skeletal 
Disorder Rule. There is a form that is filled out by small 
businesses which will track some of the injuries that take 
place in the work environment. So there was another column that 
was proposed that small businesses would have to fill out.
    The problem with this is that this form, it was not clear 
whether or not this injury that was--was it an injury or an 
illness? And we were not sure whether it was on the weekend, 
maybe there is some recreational sports folks who may have hurt 
themselves and they come into the workplace. So it was not very 
clear.
    And so, this would have created a lot of uncertainty. It 
would have also put small businesses in the position to make 
the determination, medical determination of whether something 
was an illness or an injury.
    And so, we reached out once again to OSHA and to share with 
them that this was a problem. So out of that meeting, they have 
agreed to postpone the rule and to do further outreach jointly 
with Advocacy and with OSHA. I met with the head of OSHA and we 
are going forward to make sure that they include small 
businesses.
    Chair Landrieu. That is an excellent example, and I thank 
you. Do you provide an annual report to this Committee or to 
Congress about all the actions that your Advocacy group takes, 
just like the two that you just described, and basically what 
the outcome is? Is there such a report submitted to Congress?
    Dr. Sergeant. Yes, yes, Senator. Under the RFA, we submit 
an annual report to Congress on all the actions that we have 
taken, and in that report, we cite also the cost savings as 
well, and that is where the $15 billion number came from.
    Chair Landrieu. That is my second question. Because 
according to that report, the most recent report, the report 
claims $15 billion, which is very substantial, in cost savings. 
I just want to understand a little bit better about the 
methodology used to basically reach that conclusion. Do you all 
do those calculations in-house or do you have a third party, 
independent third party?
    Dr. Sergeant. Well, these cost saving numbers actually come 
from the agencies themselves.
    Chair Landrieu. The what themselves?
    Dr. Sergeant. These cost saving numbers come from the 
agencies themselves. So we do not--we do not create these 
numbers out of thin air. These are numbers that the agencies 
cite that because of our involvement within the rulemaking 
process, we were able to save small businesses these numbers as 
well. So these numbers actually come from the agencies.
    Chair Landrieu. All right. My last question is, I 
understand there is an office in the White House that is 
particularly focused on rules and regulations elimination, et 
cetera, et cetera. How do you work or do you work in 
conjunction with that White House office on regulation--OIRA--
the OIRA office? Could you describe that relationship and how 
you work together or not?
    Dr. Sergeant. Senator Landrieu, we work very closely with 
OIRA. I work very closely with Cass Sunstein, who is the 
administrator for OIRA, and it works such that under SBREFA, we 
have three covered agencies now with CFPB. So there is a 
covered agency there----
    Chair Landrieu. And what are those three? Remind us.
    Dr. Sergeant. Well, those three covered agencies are OSHA, 
EPA, and now CFPB. So under SBREFA, there is a covered agency, 
and then there is OIRA, and then there is me, Chief Counsel for 
Advocacy, and we work to make sure that that process is 
followed as well.
    I also work with Cass Sunstein on the Regulatory Working 
Group under Executive Order 13563 that was recently signed by 
President Obama. I am now part of this Regulatory Working 
Group, and this was an Executive Order that mandated that 
agencies take a look at rules that are currently on their books 
and to seek alternatives so that those rules are not burdensome 
for small business.
    But there is a close relationship with OIRA. Cass Sunstein 
was our speaker at our most recent RFA 30. He spoke at our 
luncheon.
    Chair Landrieu. This is going to be a high priority for 
this Committee and I know Senator Snowe shares my passion for 
this issue of eliminating all regulations that are unnecessary, 
burdensome, and harmful to small business, while, of course, we 
want to protect the environment, protect worker safety, 
acknowledge that there are important objectives to be reached, 
but to eliminate everything that we can to reduce that 
regulatory burden. We hear so many complaints as we travel, not 
only in Louisiana as I travel through my own state, but as I 
travel around the country. Senator Snowe.
    Senator Snowe. Thank you. I could not agree with the Chair 
more on this core issue that goes to the heart of the 
difficulties so many small businesses are confronting in 
America. I think it has contributed to their hardships, the 
uncertainties of the regulations, the cost of the regulations, 
the effects of them.
    It truly has, I think, a deleterious effect on their 
ability to create jobs and make investments for the future. It 
truly places a stranglehold on their capacity to make future 
investments with the uncertainty of the widespread costs, the 
types of regulations that are going to be handed down.
    So your role becomes ever more important as we struggle to 
create jobs in this economy. I mean, it is a very difficult 
environment to create jobs and we know it is going to take 
multiple years to get back to a sense of normalcy with respect 
to the unemployment rate. So your position is pivotal because 
you are the bulwark against the regulatory hardships that are 
imposed on so many small businesses across the country.
    So one thing that I hear repeatedly from my own 
constituency when I conduct Main Street tours is the cost of 
regulations. I am pleased that you cited to the Chair the 
example about the noise level abatement, because I was the one 
who was urging a reconsideration by OSHA. So I really 
appreciate that. It was truly troublesome because it would have 
required businesses to purchase noise mitigation equipment of 
some kind. It would have been a very expensive proposition for 
small businesses. So in any event, I thank you for the role 
that you played.
    But that is a good example of what can go away in the 
regulatory process. So I appreciate what you are doing in that 
regard. We want to make sure we can bolster your resources and 
your efforts. I mean, that is what we are all about, to 
reinforce that, because what we do here, what we all do is 
claim to generate job creation. It is going to be a catalyst 
for that.
    If we can put up these barriers so that regulations do not 
become a hardship to small businesses, we could see a vast turn 
around in this economy. I think it is between taxes and 
regulations, frankly, the uncertainly of costs and obviously--
in conjunction with that, you get the health care laws.
    So they are going to be in some way. Many of them are. So 
they are all calculating the cost. So you put this all 
together, it is a confluence of events that really does 
constrain job creation as we are seeing.
    In any event, I want to get to the heart of a couple of 
questions and how you go about what you are doing. First of 
all, I think it is great that you are now in an independent 
capacity. I think that is so important. When you were here last 
November, you discussed Section 610 of the Regulatory 
Flexibility Act for periodic reviews of the rules.
    One of the things that is in the bill that I introduced 
with Senator Coburn on the review process is just to require 
agencies, if they do not review every ten years, that these 
rules are sunset, because if they are not important enough to 
review, then perhaps they are not important enough to be on the 
books.
    I am just wondering, to what degree--do you have an 
accounting or documentation of the agencies that conduct these 
periodic reviews so we can have an analysis of what agencies 
are doing in this respect? Do you have any idea? Do we have any 
documentation of departments and agencies and when they review 
the rules that they have on the books?
    Dr. Sergeant. Senator Snowe, thank you for your support of 
the office and we are pleased that we have an independent 
budget because now we can speak with a stronger voice, and 
also, small businesses know that we are truly their voice at 
the Federal level.
    With regard to 610, we fully support periodic review. Under 
my legislative priorities that I have submitted to the 112th 
Congress, one of them is to take a look at 610, because under 
610, agencies are charged every ten years to look at rules that 
are on their books.
    The challenge with that is that there is not a roadmap or 
there is not a flow to say, This is what you should do. It is 
more that it is left up to the discretion of the agency. But 
under my legislative priorities, one should actually go back 
and do an IRFA where you involve small businesses.
    Small businesses could identify rules that they feel are 
burdensome or that are no longer needed, and then the agency 
should respond and do the analysis under 610. But as far as 
knowing which agencies are actually doing the 610, I do not 
have a list at my disposal.
    Senator Snowe. Well, I think it would be quite enlightening 
because I have a feeling that a lot of agencies do not. You 
make a vital point on where the burden belongs. It is not 
currently on the agencies, where it is properly placed. The 
burden is on the small business community, frankly. And it is a 
disproportionate burden.
    Frankly, we have got to reverse this because it creates a 
perverse incentive within the agencies, which is to say that 
they do not have to be responsive, and they are totally 
insulated from transparency and accountability on this 
question. I am glad you are talking about this very question 
and changing that, because the burden has to be reversed.
    Now, in talking about my provision on sunsetting, it puts 
the burden on the agency where it belongs. Agencies ought to be 
able to justify their regulations. We know they can do 
reinterpretations without going through the rulemaking process.
    There are so many hardships imposed on small business, who 
do not have that kind of wherewithal to do this every day, to 
monitor agencies and what they are doing with regulations, 
while they are handed fines. That is what we are dealing with 
here.
    And one person, you, would have the sole responsibility for 
ensuring agency compliance. Well, exactly. It is just like in a 
court of law. The judge has the responsibility for issuing 
convictions. That is the way it works. And we need to vest that 
authority in you to make sure you have the resources necessary 
to make these agencies accountable.
    So the law can force these agencies to be accountable. We 
have to transfer the responsibility where it should be properly 
placed, and that is within the agency, forcing them to take a 
proactive role in this regard. I would like to work with you on 
this issue to make sure you have the resources necessary to do 
your job.
    Second, I think we should have an accounting of agencies, 
of who is doing what, because I have a feeling they are not 
doing much of anything. They totally ignore their review 
requirement. Periodic means what? What is the definition of 
periodic, frankly?
    One other question. You had a goal, I mentioned in my 
opening statement, about the approximately $15 billion that you 
saved small businesses with respect to regulations in 2010. But 
your goal for the next two fiscal years is at $5.5 billion. So 
that is $9.5 billion less than what you originally achieved in 
2010. Is there a reason for lowering the bar?
    Dr. Sergeant. Senator Snowe, that number is a goal and not 
a ceiling in terms of cost savings. But in fiscal year 2010, 
there was one rule, what is called the GHG rule. It was a 
Greenhouse Gas Rule that contributed $9.1 billion in cost 
savings alone. But these goals were set out under a five-year 
strategic plan, and I am reviewing that plan and the cost 
saving goals will be taken into account as well.
    Senator Snowe. Have you identified specifically what 
resources you need to be a regulatory bulldog?
    Dr. Sergeant. Well, there are a number of areas where we 
may need support if our mission changes, if Congress decides to 
add more responsibilities to our office. With the new CFPB 
coming online in July, we are going to need more attorneys, 
more staff to really help out with the panels. We also will 
need a regulatory economist as well to really make sure that we 
have proper coverage.
    Right now, many within my office, especially the attorneys, 
they staff multiple agencies as well, and it is sometimes hard 
to keep track of what is going on. And so, if there is a 
change, we will have to look at some of those areas where we 
would need more staff, more support.
    Senator Snowe. How many regulatory attorneys do you have? 
Do you know?
    Dr. Sergeant. Currently we have 13 to cover the entire 
Federal Government.
    Senator Snowe. Thank you.
    Chair Landrieu. On that, I would like the staff to prepare 
for both Senator Snowe and myself how many lawyers do we have 
in each agency of the Federal Government promulgating rules, 
and how many lawyers we have on this staff reviewing those 
rules. I want that documentation presented to this Committee 
like in the next couple----
    [Laughter.]
    Chair Landrieu [continuing]. In the next couple of weeks 
because it will give us a clear picture of the battle here that 
we are engaged in. And again, not throwing any of our agencies 
under the bus and everybody, you have to believe they are 
trying to do the right thing.
    But having said that, having this voice be strong for small 
business in America and working with these agencies to help 
modify or eliminate some of the wonderful ideas that they are 
thinking about, when you can present evidence that what they 
are doing would be so detrimental and actually not 
accomplishing their stated goals and objectives, whether it is 
environmental or health or safety, et cetera.
    I think this is something that both Senator Snowe and I 
feel strongly about, and we are going to pursue it. I am going 
to submit the rest of my questions in writing to you. If there 
is not anything else that has to come before the Committee, we 
will adjourn the meeting. Thank you very much.
    [Whereupon, at 11:35 a.m., the Committee was adjourned.]

                      APPENDIX MATERIAL SUBMITTED


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