[Senate Hearing 112-882]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-882

 
      THE SBA IN YOUR COMMUNITY: A REVIEW OF SBA FIELD OPERATIONS

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

                               ROUNDTABLE

                               BEFORE THE

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 30, 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        GERALD W. MORAN, Kansas
KAY R. HAGAN, North Carolina
    Donald 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
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire..........     2
Ayotte, Hon. Kelly, a U.S. Senator from New Hampshire............    23

                           Witness Testimony

Cadena, Edward J., from the Los Vegas, Nevada, District Office...     3
Douthett, Lynn, District Director for North Carolina.............     3
Dickson, Dave, District Director for Eastern Pennsylvania for the 
  SBA............................................................     3
Goldberg, Gil, District Director in Cleveland....................     3
Johansson, Greta, District Director of New Hampshire.............     4
Lopez, Greg, District Director for Colorado......................     4
Nelson, Linda R., District Director in Arkansas..................     4
Umberger, Stephen D., District Director in the Baltimore District 
  Office.........................................................     4
Raghavan, Pravina, District Director for New York Office.........     5

          Alphabetical Listing and Appendix Material Submitted

Ayotte, Hon. Kelly
    Opening statement............................................    23
Cadena, Edward J.
    Testimony....................................................     3
    Biographical sketch..........................................    42
Dickson, Dave
    Testimony....................................................     3
Douthett, Lynn
    Testimony....................................................     3
    Biographical sketch..........................................    43
Goldberg, Gil
    Testimony....................................................     3
Johansson, Greta
    Testimony....................................................     4
    Biographical sketch..........................................    44
Landrieu, Hon. Mary L.
    Opening statement............................................     1
Lopez, Greg
    Testimony....................................................     4
Nelson, Linda R.
    Testimony....................................................     4
    Biographical sketch..........................................    45
Raghavan, Pravina
    Testimony....................................................     5
    Biographical sketch..........................................    47
Shaheen, Hon. Jeanne
    Opening statement............................................     2
Umberger, Stephen D.
    Testimony....................................................     4
    Biographical sketch..........................................    46


      THE SBA IN YOUR COMMUNITY: A REVIEW OF SBA FIELD OPERATIONS

                              ----------                              


                        THURSDAY, JUNE 30, 2011

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:44 p.m., in 
Room 428-A, Russell Senate Office Building, Hon. Mary L. 
Landrieu (chair of the committee) presiding.
    Present: Senators Landrieu, Shaheen, and Ayotte.

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

    Chair Landrieu. Well, thank you all for joining me today, 
and the members of our Committee.
    This is an informal, but important, roundtable, one of 
about two dozen that I have conducted as Chair since becoming 
Chair of the Small Business Committee. We are expecting several 
members of our Committee to stop in and be with us this 
afternoon, but we find these roundtables to be very, very 
valuable in bringing to our Committee ideas and policy areas 
that we should focus on as a committee. And I have long wanted 
to have a meeting of some of our directors, and that is what 
today is about.
    I am going to do just a very brief opening statement and 
then ask each of you to introduce yourselves. And again, as 
members come in, we will recognize them as they do.
    I want to thank all of the district directors for joining 
us today. I believe we have 10 of our district directors out of 
68 districts in the country. And I think there are over 100 
locations, so we are excited to have a good number represented 
here.
    I would also like to recognize, although he is not here, 
Eugene Cornelius who helped to organize this event. 
Unfortunately, I think he has been assigned jury duty today. 
And as one of my staff says, while he is a good talker, he was 
not good enough to talk himself out of jury duty. So he is not 
with us today.
    We understand that you are district directors. We are so 
thrilled that--we just started, Senator Shaheen--to be joined 
by Senator Shaheen from New Hampshire. We appreciate her 
extraordinary leadership.
    And we have asked you all to come together today as 
district directors who are literally on the front lines of our 
SBA operations. While policy is made here in Washington, you 
are the ones actually assisting many of our entrepreneurs, or 
trying to assist entrepreneurs, in extremely difficult and 
challenging economic times. So we want to hear from you what is 
working, what is not working, what we should potentially be 
focused on here that we are not, and we are hoping to get some 
good information from you today.
    I am particularly interested to meet with you. And I think 
Senator Shaheen already knows this, but in preparation for this 
roundtable I was shocked to know that the SBA has gone from 
1,800 employees under the Bush Administration to less than 900 
today. This agency has taken a greater reduction in funding and 
personnel than any agency or department of the Federal 
Government.
    My goal as Chair of the Committee, and I think my Ranking 
Member shares this view, but she will have to speak for herself 
and her team, but I know that the Democrats feel very strongly 
that this is an important agency of the Federal Government, 
that we take a small amount of money and leverage it 
substantially to create jobs and opportunity at a time when our 
country could not need them anymore. So while we do have budget 
constraints I just want our group here to understand that this 
agency has already taken substantial reductions, that we are 
building up from a deep trench that we are currently in, and I 
am going to be interested in hearing from you all as directors 
how your offices have responded to such a reduction in 
personnel and are you able to maintain your same level of 
service and, if so, how are you doing that.
    I also want to put into the record the Louisiana District 
Office in New Orleans had 21 employees in 2001. Now there are 
only 11.
    With those things in mind, I want to make sure today that 
we learn about the structure of district offices and how they 
are operating, discuss how the district offices coordinate with 
State, Federal and local agencies, discuss how the economic 
downturn is impacting your community, talk about the Small 
Business Job Act to see if you are feeling any impacts from 
that major piece of legislation that we passed just recently, 
discuss how your SBA on the ground is identifying and 
preventing fraud, and hear from your small businesses on 
success stories that you are hearing from entrepreneurs as they 
receive access to credit, et cetera.
    Let me just end with the rules of this roundtable. They are 
very few and simple. I am going to ask of you to identify 
yourself. When you want to be called on to speak in response to 
questions, just put your name card--up like this, and I will be 
happy to recognize you. We really want this to be a free-
flowing exchange of information. And that is basically it.
    So let me say that I am joined by Bryan van Hook, my Policy 
Director on my side, Diane Dietz of Senator Snowe's staff. I am 
going to stay for at least 45 minutes.
    And I would like to ask Senator Shaheen if she wanted to 
make just any brief opening statements, and then we will call 
on each of you to introduce yourself.

 OPENING STATEMENT OF HON. JEANNE SHAHEEN, A U.S. SENATOR FROM 
                         NEW HAMPSHIRE

    Senator Shaheen. Thanks very much, Chair Landrieu, and 
thank you for holding the roundtable today.
    SBA and the work that you do is very important in New 
Hampshire, and I am so pleased that Greta Johansson is here. It 
is nice to be able to welcome her. She is relatively new to the 
New Hampshire office, and so we are delighted that she is 
there.
    We were talking about the change in the number of employees 
within the agency. I think during the 90s the SBA office in New 
Hampshire, which virtually kept business afloat in New 
Hampshire because five of our seven largest banks failed, so 
you could not get access to credit as a small business unless 
you went through the SBA. I think at that time we had about 21 
employees in the field office in New Hampshire. I know when I 
took office in the Senate we were down to about 7. I do not 
know where we are today, but that is a reflection of what the 
challenges that everyone is facing.
    And it is particularly important because for us in New 
Hampshire--I know the same is true in Louisiana--we have a 
small business economy, and the work that you do, providing 
resources to those businesses, is absolutely critical.
    So I want to thank you all very much for being here, for 
having this discussion with us today, and again, thank Chair 
Landrieu for her leadership.
    Chair Landrieu. Thank you, Senator.
    Well, let's start with you, Mr. Cadena, to just introduce 
yourself briefly and maybe just a 30-second background.
    Mr. Cadena. My name is Edward Cadena. I am from the Los 
Vegas, Nevada District Office. We cover the whole State. I am 
originally from New Mexico. I have got 32 years with the 
Federal Government, 18 years with the Federal Deposit Insurance 
Corporation and 14 years with SBA.
    Chair Landrieu. Thank you so much.
    Lynn.
    Ms. Douthett. I am Lynn----
    Chair Landrieu. You have to press your button and speak 
fairly close to the mic for it to be picked up.
    Ms. Douthett. I am Lynn Douthett, the District Director for 
North Carolina. We cover the whole State as well. I have been 
with the Federal Government for 13 years, with SBA 
specifically. My previous background was banking for 15 years 
and own my own small business for 6.
    Chair Landrieu. Okay.
    Mr. Dickson. My name is Dave Dickson. I am the District 
Director for Eastern Pennsylvania for the SBA. I have been in 
the SBA for about five and a half years. Prior to that, I was a 
plant manager for Stanley Tools Corporation, a plant manager 
for Cirrus Design Corporation, building airplanes, an assistant 
general manager for a defense company and an Army officer for 
11 years, 4 months and 27 days.
    Chair Landrieu. Thank you for your service in all of those 
areas, particularly the Army.
    Mr. Dickson. It has been an honor.
    Chair Landrieu. Thank you.
    Mr. Goldberg.
    Mr. Goldberg. My name is Gil Goldberg. I am the District 
Director in Cleveland, and the Cleveland District covers the 
northern 28 counties of Ohio from the Pennsylvania line to the 
Indiana line. It is probably heavily industrial, old industry. 
And I have been with the Federal Government for 19 years, most 
of which have been at the SBA.
    Chair Landrieu. Thank you.
    Ms. Johansson. Hi. Good afternoon. I am Greta Johansson. I 
am currently the District Director of New Hampshire, which is 
the SBA office for the State of New Hampshire. Prior to that, I 
just passed my 29-year mark with the SBA, and those 29 years 
were split roughly half and half between the Connecticut 
District Office and the disaster side of SBA's operations.
    And the Connecticut Office also went from--I watched it go 
from a high of 34 employees down to its current low of 9 
employees.
    Mr. Lopez. My name is Greg Lopez. I am the District 
Director for Colorado. We cover the entire State of Colorado.
    I am a former elected official and former mayor in 
Colorado. I was former President of the Denver Hispanic Chamber 
of Commerce, also former Executive Director for the Minority 
Supplier Development Council, and I am a disabled veteran, 
served four years in the United States Air Force.
    Chair Landrieu. Thank you so much for your service.
    Ms. Nelson. I am Linda Nelson, the District Director in 
Arkansas. I have been with the agency since 1967 except for 13 
years, having 4 kids. I came back in 1984 as a file clerk to 
start paying for those kids, and I am still doing that.
    And I have kind of done things backwards, got my education 
late, thanks to SBA which gave me a basis for that and a place 
to move up. The only other place that I have served was in 
Herndon, briefly. Thank you. But it was a good lesson.
    Chair Landrieu. Thank you so much, and very, very 
impressive resume.
    Mr. Nelson. Good afternoon. My name is Bob Nelson. I am the 
State Director for Massachusetts. It covers the entire State of 
Massachusetts.
    I have been the State Director for about three and a half 
years. July 1st, I will have my 20 years in with the Federal 
Government. I have been with the SBA for 14 years. Prior to 
that, I was with the FDIC, and then prior to the FDIC I was a 
commercial bank, a small business lender.
    Chair Landrieu. Great.
    Mr. Umberger. I am Steve Umberger, District Director in the 
Baltimore District Office. Do not ask me how it got to be named 
Baltimore and not Maryland, but we serve the State of Maryland 
outside of Prince Georges and Montgomery Counties.
    I grew up in a family owned small business. My father was a 
food distributor outside of Philadelphia, all those 
cheesesteaks and hoagie places, that I grew up from a very 
early age. So I understood the customer service and things like 
that, and some of the issues, the fundamental issues that the 
small businesses should have, if they do not. So we make sure 
that they get that information.
    But I spent 17 years in Cleveland with SBA. I thought I 
would be with the agency for 3, I would get a little government 
experience, and this is my 30th year. So I worked for Gil 
Goldberg for a little bit, came to D.C. and took a transfer to 
the Office of Field Operations which actually oversees the 
district and region offices. And then subsequent to that, I was 
able to take advantage of an opportunity to become the District 
Director in Maryland.
    Chair Landrieu. Excellent. Wonderful story.
    Ms. Raghavan. Good afternoon. It is an honor to be here 
with you. My name Pravina Raghavan. I am the District Director 
for New York Office. I actually have the southern part of the 
State, the lower 14 counties which includes New York City, Long 
Island and then the Mid-Hudson Valley. I will be two years with 
the Federal Government, starting in September. I recently 
joined.
    I am a former President/Vice President for MTV and BET 
networks, and I am also a former investment banker in 
technology, and I own my own strategic advisory firm for nine 
years.
    Chair Landrieu. Excellent. Well, it is very impressive to 
see the range of experiences and backgrounds that you all 
bring, and it is just a terrific opportunity for our Committee 
to hear directly from you because one of our goals, of course, 
is to have the best and most effective, creative, innovative 
offices doing all sorts of things inside and outside the box--
of course, all within the law--to help our small businesses.
    So I want to start with this question for those of you, and 
all of you have been with the government for so long. What do 
you actually see right now as your greatest challenge to the 
communities that you are trying to serve? And it could be one, 
two, three or more challenges to the small business community.
    I do not want to venture to say what it might be. But what 
are the challenges that you are seeing in your job today that 
might be a little bit different, or somewhat different, than 
you saw it 5 years ago or 10 years ago? Who wants to kind of 
start out?
    Go ahead, Lynn.
    Ms. Douthett. For the State of North Carolina, I can speak 
to the issue that we have shed so many manufacturing jobs from 
tobacco, furniture and textiles. And we just recently held a 
small business roundtable, on Monday actually, and four of the 
manufacturing firms that were participating were very clear in 
two areas. One was highly skilled labor and also those in 
vocational and technical trades.
    So what we are seeing is that----
    Chair Landrieu. They are seeing a lack of skilled labor?
    Ms. Douthett. Yes.
    Chair Landrieu. And a lack of graduates coming out of----
    Ms. Douthett. Highly technical skilled labor, so on one 
side the vocational trades. A lot of folks have gone on to 
college, so they do not necessarily have the vocational trades.
    And then the other side is that many of them need the 
engineering and science backgrounds because we are big in 
biotech and pharma, as well as innovative and research through 
RTP and Gateway over in the Winston-Salem area.
    So what we are really seeing is a gap that is occurring. So 
that was the first thing that we heard was the qualified 
workers.
    And then the second thing we heard was the access to 
capital, specifically in that the credit box has tightened and 
folks are having difficulty being able to reach the higher bar 
that the lending community is expecting. And the other area of 
that would be that real estate, many of our lenders in North 
Carolina were very big into real estate, and the value has gone 
down significantly. So that combination has made it difficult 
for some of our companies to get access to capital.
    Chair Landrieu. Excellent.
    Mr. Dickson.
    Mr. Dickson. I will reiterate what Lynn was talking about. 
We hear basically the same things in Eastern Pennsylvania, with 
one addition--a lot of our businesses do not have the demand 
that they had several years.
    With the economy as is, people's 401Ks, the health care--I 
mean it goes on and on and on--they are not spending the 
discretionary income. As they are not spending the 
discretionary income, it is affecting our small businesses in 
Eastern Pennsylvania because they do not have the demand on 
their product or service, so they are projecting lesser gross 
revenues. As they project less gross revenues, and they have 
less collateral because of the real estate market, for 
instance, they are less credit-worthy.
    I always tell businesses in Eastern Pennsylvania if they 
have been in business for five years and they are doing 
business today the same way they were five years ago, they 
probably will not be in business in five years because they 
have got to reduce costs; they have got to get higher quality, 
better products, higher services, all the mom and apple pie 
things that we always preach and we teach about. A lot of 
businesses are not there.
    That is a really good thing about our Resource Partner 
Network, the SBDCs, SCORE and Women's Business Centers. They 
help those businesses that do not have the overhead structure 
to be able to have those professional engineers or those 
professional quality people or the materials managers, et 
cetera, on their staff because they just do not have enough 
business to support that. These businesses can go to these 
resource partners as well as the SBA district offices and get 
assistance where they would not get assistance any place else.
    For instance, when I was a plant manager for Stanley Tools 
Corporation, going along with what Lynn was saying, we could 
not find the heavy welders. We could not find machinists, CNC 
machinists, and things like that. So I actually started my own 
welding school, to teach people that had a little bit of 
welding school how to actually do heavy welding, so that I 
could supply my own workforce because we could not find them.
    Chair Landrieu. This is so troubling to me, and I do not 
know, Senator Shaheen, if you find it the same here as our 
country, struggling to create jobs. And sort of what would seem 
to me to be rather simple investments to be made in technical 
schools or in special training that could create the workers 
that could fill the jobs that go without seems to me to be just 
a real puzzlement as to how we cannot seem to manage.
    You have to turn your card back around. I cannot read it.
    [Laughter.]
    All right. There you go. Go ahead, Ms. Raghavan.
    Ms. Raghavan. I was going to agree with both of what they 
have said.
    The other two things that we have seen, which have been 
particularly in New York, is high credit card debt. So we have 
a lot of businesses that actually went through, got through the 
recession and now are looking at 22 to 25 percent interest 
credit card debt, and we are trying to help them retool their 
cash flows and financials, so that they can stay in business.
    And the other thing that we have a lot of is the 
immigration population. We have a lot of new United States 
citizens. We have a lot of immigrants who actually have high 
technical skills, but the language barrier and just 
understanding what we do is difficult for them. And so, we 
spend a lot of time actually in their native languages, such as 
Mandarin, Korean, Japanese and also Spanish, to actually teach 
them about our services because what we realize is our Small 
Business Development Centers, SCORE and Women's Business 
Centers handle a lot of what they do, but not having that 
language causes a disability for them to get to our services.
    Chair Landrieu. That is a very, very interesting point. I 
had not thought about that.
    Ms. Nelson.
    Ms. Nelson. We have the same problem with the skilled 
workforce. But our 2-year colleges, we have 22, and there is an 
association of them. And they had developed some curriculum 
around different skills--catering, aerospace repair and so 
forth.
    The one in West Memphis was recognized nationally for what 
they have done. A company puts in a robotics piece of 
equipment, trains a few students on how to use that. When they 
have a customer, they bring the customer over. The student 
demonstrates it, and often they buy the machine and the student 
a pretty nice paying job.
    But they had asked us--after doing that, they had asked us, 
myself and the Director of our Small Business and Technology 
Development Center, to be advisors to them on introducing an 
entrepreneurship study within these colleges.
    And many of them are doing that, so that if they--well, not 
only for those who might want to start their own business, but 
for those who are working, to understand the running of a 
business would make them a better employee, and working for 
someone then might lead to the creation of additional small 
businesses.
    The other thing that we have had a problem with is getting 
retail establishments, like banks, to carry our product. I tell 
people: We are a tool dealer, and we have a few good tools, and 
like my dad said, you need to know how to use the right tool 
for the right job.
    And so getting lenders, we are a State with a lot of very 
small banks. They are in small markets. They do not have a lot 
of opportunity, and they do not feel that they can stay up with 
our changing regulations, changing because they need to change, 
because everything is changing.
    We came up with a sort of designated driver approach. We 
have a State nonprofit, quasi-State chartered entity that has 
one entity that does 7(a) loans, one that does 504, one that 
has an SBIC license, and then they do some very other creative 
things including rural broadband.
    And since they are not competing with banks--they are 
regulated like banks--they offer these banks, if you have got a 
customer that you would really like to help but you are afraid 
that you do not know enough about SBA to do this securely, then 
bring it to us. We will sell you a participation, and you have 
helped a customer. We are still involved. They are the boots on 
the ground, servicing the loan. So that has brought some loans 
to us that would not have been there.
    One in particular, during the Recovery Act funding, the 
Administrator came to Arkansas for the anniversary. This was a 
sawmill, and she is familiar with all things related to 
flooring and wood and stuff. She put her boots on, was about to 
go slogging through the pits, and the owner said, no, the press 
is here. I do not want a picture of you sinking in our sawmill.
    But he said, you saved my business, and my family has been 
in this business for 100 years. And getting it refinanced, 
using a designated driver lender was what made the difference.
    And the other thing we have done is increase--we are 
recruiting the national top leader in microlending into the 
State because part of the problem is small loans are hard to 
get.
    Chair Landrieu. And we have increased our microloan limits 
from what?
    Ms. Nelson. Thirty-five to fifty.
    Chair Landrieu. Thirty-five to fifty. Is that still in 
effect, or did it go out?
    Ms. Nelson. Yes.
    Chair Landrieu. Okay, it is still in effect.
    Ms. Nelson. That is a permanent one.
    Chair Landrieu. And that is a permanent fix that we hope 
will help.
    Those are very interesting. I want to come back to your 
designated driver concept, and I will throw this out, but I 
want to hear from this same comment, answers to my first 
question.
    But you know one of our goals; we have 8,000, 
approximately, community banks in America. When I took over 
this chairmanship, I think there were less than 500 that were 
engaged in regular small business lending. That number has now 
doubled to over, I think, about 1,300.
    But in my mind, if we do not have at least half of the 
banks in America participating with the SBA, Senator, I am not 
sure that we are really maximizing the effects of our programs.
    But you are right; in some of these communities the banks 
are so small that they do not feel like they can put the back 
office investment necessary because they may only be processing 
a dozen loans a year, I think.
    Ms. Nelson. Oh, not even that.
    Chair Landrieu. Not even that, maybe six loans or four 
loans a year. I think you have got to process several dozen to 
make it worth your time.
    Ms. Nelson. Exactly.
    Chair Landrieu. So we want to really push out, Jeanne, a 
strategy here, to get some kind of designated driver program 
for some of these smaller regions in the country. They are out 
there, but just encouraging the banks to use them, so anyone 
that walks through the front door of any bank does not get a 
no, gets either a yes or we cannot help but we know of some 
group that can, that we can share some of the risk with, et 
cetera.
    We do not want a no.
    Ms. Nelson. Right.
    Chair Landrieu. We want a yes, or we want a we can do it 
partially.
    So I want to come back to that, but go ahead, Mr. Lopez, on 
the same. What are the two or three things that you have seen 
that are very different than what you saw a couple of years 
ago?
    Mr. Lopez. You know, I have been--I am fairly new to the 
agency. I have been with the agency three years, but echoing 
all the issues of capital, getting access to capital is what I 
hear in Colorado.
    However, the other things that I am hearing are there are 
26 Federal agencies in the State of Colorado that do 
procurement. Hopefully, a good thing for us is last year we 
were able to do $1 billion in Federal contracting to the 8(a) 
program for the State of Colorado.
    But here are the things I am hearing from the small 
businesses as it pertains to getting Federal contracts: 
Contracting officers are not necessarily returning back phone 
calls as it pertains to trying to build relationships. 
Contracting officers are not necessarily interesting in 
utilizing small business. They feel that it is a little bit 
easier to go large.
    A perfect example, in the building that I am in, they are 
doing a renovation of the building. I got a phone call from the 
agency that is overseeing it, informing me that they believe 
that there were no small businesses that could do the 
renovation. I had a conversation with them, philosophical 
meetings. After six meetings of going back and forth, and 
trying to make sure that I understood what they were looking 
for, I am proud to say that that building has gone now 100 
percent small business. It is $23 million. It is creating more 
jobs in Colorado.
    But I think there is a tendency to believe that small 
business, perhaps it is the title, perhaps it is something 
else, but they are more inclined to go large.
    Chair Landrieu. Isn't it ironic that the Small Business 
Office would be renovated by a large business, or a major 
business? I mean that would have been a headline.
    Mr. Lopez. It would have, and I told the committee that----
    Chair Landrieu. So thank you for stopping that headline 
from being printed.
    Mr. Lopez [continuing]. They were not going to do large in 
my house. You know. They might be able to do it somewhere else. 
But yes, the Small Business Administration, as far as where 
offices were, we had to be able to find the--and we were. You 
know.
    And I can tell you right now everyone is pleased with the 
schedules. Everything is moving forward. So there are no 
concerns anymore as it pertains to how that works.
    But I visit with a lot of the Federal agencies, talking 
about small business and the importance of them. I think we 
have a long ways to go in educating the procurement officers of 
the importance of using the small business programs because 
that creates jobs, which then creates access to capital, which 
then creates an economic engine, which then creates the quality 
of life that everybody is seeking. So when we are not being 
able to give contracting opportunities to small business, it 
causes a problem.
    The other thing I am hearing is corporate America. You 
know, corporate America is not necessarily interested in paying 
their bills on time. So they are asking small businesses to 
accept a 60-day pay, a 90-day pay. And of course, cash flow is 
the heart and blood of a small business. So when corporate 
America is asking them to delay their payments because they 
need to balance, increase their balance sheets, it causes some 
real strain within the communities.
    So we are working very closely with all the community 
leaders. We have a new governor. We have a new mayor. We are 
all kind of in sync with what we need to do as it pertains to 
being strong in the message of small business, but those are 
the things that I am hearing.
    Chair Landrieu. Okay. Mr. Cadena, and then I will get Mr. 
Nelson and then Mr. Goldberg.
    And I am sorry. Wait. Let me see. Senator Shaheen had a 
follow-up question, I think.
    Senator Shaheen. Well, actually, it was just a comment. I 
do not know if any of you have seen the New York Times today. 
They had an article about the State of Connecticut. Nobody here 
is from Connecticut. Greta used to be.
    Ms. Johansson. Sort of.
    Senator Shaheen. So I do not think I am stepping on 
anybody's toes.
    But what got my attention; it was about the economic 
challenges that the State is facing today, and it pointed out 
that one of the challenges is that the economic strategy had 
been focused very much on large corporations as opposed to 
small business and that most of the jobs, new jobs that are 
being created, are being created in small business. So it bears 
out what everybody has been saying about the importance of the 
work that you do, and your story about who was renovating the 
building brought it to mind.
    Chair Landrieu. Thank you for sharing. We will make sure we 
get that article circulated, but continue.
    Mr. Cadena. I wanted to echo what Mr. Lopez was saying. The 
8(a) procurement program is very good. Our 8(a) contractors are 
really very good contractors, and they do struggle trying to 
get procurement.
    As far as in Nevada one of the biggest issues we have is--I 
have sat down and have talked to almost all the lenders--we 
have the highest foreclosure rate in the country; we also have 
the worst economy in the country. And one of the things that is 
happening is we have businesses that most of the homes that 
they live in are worth half of what they paid for them.
    So when they go to your friendly neighborhood banker, even 
though their loan may cash flow. You know, we ask three things 
at the SBA: How much money do you need, what are you using it 
for, and how do you pay it back? So we are cash flow lender.
    However, having come from 18 years of being with the FDIC, 
I understand conceptually that you need to have usually from a 
prudent man theory, that you have collateral. Well, if your 
collateral was a $225,000, only worth $125,000, all of a sudden 
now you do not have any collateral.
    So the loan, even though it may cash flow, the lenders are 
concerned. Two things happen; we have foreclosures or short 
sales. And if they have not foreclosed or short-saled, they are 
concerned that that is what is going to happen.
    Chair Landrieu. I think this is a very serious issue. We 
actually had a whole roundtable on the specific issue of the 
deflation, or the devaluation, of commercial real estate. But 
it is also commercial and residential, and when you think of 
that commercial real estate and residential real estate being 
the collateral that is funding the small businesses in this 
country.
    And Senator Shaheen, we have got to find a way forward on 
this. It has got to be a major policy shift because if we do 
not give the banks some relief, the regulators some guidance 
about how to do this, I do not see how this recovery ever gets 
its footing because it just becomes a self-fulfilling prophecy.
    I know that this is heresy in some financial circles, but 
we should all become cash-flow lenders for right now, to get 
ourselves moving, because if you are trying to lend on the 
value of real estate we are just not going to be lending. And 
then the recession gets worse.
    You have got to lend on good ideas, on hope, on cash flow 
and not on the value of the house you live in, or the shopping 
center that you are occupying. There has got to be some policy 
shift at a major level. And it is going to be a battle between 
those of us that are promoting this more aggressively, but a 
risk worth taking because in my view, without taking some of 
these steps, we just cannot get ourselves out of the hole.
    And we just keep digging deeper and deeper and deeper. You 
cannot get the loan. You cannot expand the business. You cannot 
create the job. Therefore, then no one has the money to buy the 
house. The house then stays on the market for another year and 
goes down another 13 percent.
    I mean do you see what I am saying? It is just never-
ending.
    And people do not realize, I think, what real estate has 
become for the United States in terms of everybody's net worth, 
your equity, what you use to leverage.
    And when it is pulled out from underneath you and then the 
banks will not lend on your smart idea, they will not lend on 
the fact that your product actually has a very bright future, 
and they are only lending on your real estate and your 
collateral, you can see where we are--not going very fast, very 
far.
    Go ahead, Mr. Umberger.
    Mr. Umberger. Some comments along those lines--sorry.
    We saw the downturn. We saw the numbers, the loan numbers 
go down. We see them start to creep back. And then we see, 
because of the Jobs Act, the first quarter of this fiscal year 
2011, tremendous growth, and we continue. There was a little 
bit of a dip in January, but it is coming back.
    So the lenders are using us more and more. They are using 
us, I believe, to get over some of this risk adversity or risk-
adverse nature of their analysis. But we are obviously seeing a 
lot more community lenders coming back into the game.
    So when the large nationals dropped out, and they were 
basically doing credit scoring and a lot of that stuff that was 
producing, in my district, a couple hundred loans a year for 
one particular lender that did one last year. You know. And a 
lot of that has gone away. The community banks have stepped up, 
but there is still a huge gap.
    And it is tough to find, other than a community lender, 
somebody that is willing to come in and look at a deal that has 
been kicked to the curb because the other banks want to get 
their cash back, and now they have a technical default because 
of some ratio issue. And we all know sales are down and those 
kinds of things. But they can only do it to a certain extent.
    In our district, a small community lender beat out and in 
January 2011 was the number one lender. The number one lender 
who had been in first place for five years prior to that held a 
team meeting and said do not ever let this happen again. You 
know. So they wound up one and two.
    But that small community lender produced about $11 million 
in loans to deals that would have otherwise, possibly, just 
been let go for a need for cash.
    So I think when all is said and done we have a good--we 
were seeing some positive signs, a lot of it because of the 
Jobs Act, in the numbers of lenders that are coming back and 
the number of loans that are produced, but there is still a 
large gap in the microlending Main Street arena.
    Chair Landrieu. Mr. Goldberg.
    Mr. Goldberg. I would like to discuss the issues that we 
are seeing in Northern Ohio.
    Chair Landrieu. Try to speak a little bit closer. Yes, the 
two or three things that you are seeing.
    Mr. Goldberg. But before I do, there are two issues that 
were raised, and I would like to address those real quickly.
    One was that designated driver that Linda brought up and 
the issue with community banks. Community banks do not do 50 
percent of all the loans in Cleveland, but as Steve had 
mentioned, they are the ones that take the time to do the due 
diligence, kick the tires. They do not do the credit scoring.
    So the question is how do you get them to use the program 
since they are the ones that have the time and the inclination 
to do the real due diligence, the old-fashioned credit due 
diligence that the large banks used to do, but the large banks 
now have shifted to credit scoring, a very quick and easy way 
of proving or declining a loan.
    What has happened in Ohio; a number of former bankers from 
large banks have left these banks and become very 
entrepreneurial and developed their own company to be the back-
room provider for these community banks.
    Chair Landrieu. That is a great concept. That is exactly 
what we want to talk about, Jeanne, is that back-room 
entrepreneurship opportunity.
    Mr. Goldberg. It has worked very well. It has brought on a 
number of community banks as well as credit unions that never 
used our programs before. The community bank makes the credit 
decision and does the due diligence, but the back room with 
regard to our regulations and making sure the loan is booked 
properly, et cetera, is handled by these former bankers that 
formed the company and know our business.
    Chair Landrieu. What is the name of their company? Do you 
know?
    Mr. Goldberg. Well, there are about two of them. I am sorry 
I do not have the name. I could let you know.
    Chair Landrieu. You could get that to our staff, please, so 
we want to maybe use them as a model.
    Mr. Goldberg. Definitely, I will do that.
    So that was my quick comment on that designated driver 
community bank issue.
    Senator Shaheen mentioned economic strategy. Typically, in 
Northern Ohio, communities have economic strategies to bring in 
large corporations, and they forget about the small business.
    We went out to a number of communities, and the one that 
stands in mind is Youngstown. And it has gone through a number 
of mayors, in Youngstown, where we approached them. And 
Youngstown traditionally has been a fairly depressed area, hard 
hit by the economy, not just this recession but traditionally.
    We went out and talked with the mayor and city council, 
their economic development director, and developed a program 
where they would offer similar things that they do for large 
business to small businesses, for small businesses, with one 
exception. They added a real sweetener to this.
    We told them that the problem a lot of small business have 
of qualifying for an SBA loan is an equity issue--where do I 
get enough equity, so my leverage is not too high and scares 
the bank--because they could look at cash flow and get cash 
flow, but equity is very important. So we discussed the issue 
of supplemental equity.
    So the city came up with the funding for what they call a 
performance grant, that if they take technical assistance from 
the Small Business Development Center in Youngstown, develop 
their business plan, their business model, then take that to a 
bank that has joined our initiative here for Youngstown, the 
bank reviews it and approves it. Then the city will provide 
supplemental equity in the form of a performance grant that is 
forgiven over a three-year period.
    And those city funds are put on standby and subordinated 
because that way, according to our regulations, if they are 
subordinated and put on standby with no payments made we can 
consider that as equity. So that is why it is called 
supplemental equity.
    Chair Landrieu. Very interesting.
    Mr. Goldberg. And it is forgiven a third, a third, a third, 
and there are job creation requirements.
    Chair Landrieu. Very interesting idea. And for cities that 
have very limited options, that would be a very attractive 
model because these cities, they look at themselves, and the 
mayors: Where are our jobs going to come from?
    They are not going to come like Superman flying in. We have 
got to create them here. And so, you have got to sort of 
believe in your city to kind of get things started again.
    I could actually see this model working. So please send us 
the details on that as well.
    Mr. Goldberg. Oh, I will do that.
    Chair Landrieu. And then I want to get everyone. So you 
have one more thing?
    Mr. Goldberg. Okay. Oh, on this economic model, the city 
leveraged their $5 million that they put in over the course of 
time to a $20 million investment in small business in the city, 
with our funds and the small businesses were required to put 
funds in, and in Youngstown we only had a 2 percent default 
rate per year on those.
    Chair Landrieu. That is terrific because it is modeled with 
not just giving money out to a small business, but the small 
business has taken the technical advice; they have gotten the 
training, et cetera. So there is a good reason to believe that 
they will be successful.
    In fact, if my staff will help me, did we not put a billion 
dollars in this Jobs Bill to start or to support programs at 
the State and city levels, like this? Who knows about that?
    Why don't you just sit up there and say something about 
this?
    Mr. Gillers. This is the--in the Small Business Jobs Act--
--
    Chair Landrieu. Tell them who you are, David.
    Mr. Gillers. David Gillers, and I work for Senator 
Landrieu, Chair Landrieu.
    The State Small Business Credit Initiative, which is part 
of the Small Business Jobs Act, it is a very similar idea. It 
basically allows States that have either collateral enhancement 
programs, which is similar to the equity piece you were talking 
about, or capital access programs, and it actually provides a 
grant from the Treasury Department to individual States. Every 
single State who had filed an intend-to-apply has now actually 
applied to the Treasury Department for this program. About 11 
States have already received funding for it, and Ohio has 
already applied.
    Chair Landrieu. So while the money went to the States under 
the way we designed it, there is absolutely no reason that the 
cities within those States could not be working.
    Do any of you all have a model?
    Okay, Lynn, and then I want to get to Pravina. Okay, go 
ahead, Lynn.
    Ms. Douthett. In the State of North Carolina, we received 
$46 million through that program, and the NC Rural Development 
was the State's program that had actually utilized this same 
model in a previous life. And right now we----
    Chair Landrieu. Right. They testified before our Committee.
    Ms. Douthett. Right. They have over 15 banks participating, 
and I think to date they have probably--I think there is an 
estimate in terms of like $1.4 million that has actually been 
leveraged right now out in the marketplace, which has been in a 
very short window of time. So they have recruited a lot of 
lenders who had utilized a program similar to this in the past. 
So it is very well received.
    And in addition to that, the State also is using a Biz 
Boost program that SBA and the UNC network have fostered. So 
they hired these Biz Boost counselors, and as a result, we have 
actually funded $48 million in new lending. There have been 
over 5,100 jobs created and over $213 million----
    Chair Landrieu. And what are Biz Boost counselors?
    Ms. Douthett. Biz Boost counselors, this was a concept that 
the State actually came up with, and they were working with 
businesses who actually had the potential to create a large, 
significant number of jobs in a short period of time because 
the funding. When you all raised the program limit as a 
permanent, that really addressed a demand need in the 
marketplace, and so they wanted to work with those businesses 
that were going to be able to create jobs quickly, and that is 
what they targeted as their market.
    So there were over 1,300 small businesses that were 
immediately assisted in this 16-month period of time, with the 
net effect of 5,100 created/retained over this period. It is a 
very good model to consider, going forward, in how to leverage.
    Chair Landrieu. That sounds very interesting and very well 
coordinated in how to leverage the Federal action to get 
something really going on the ground.
    Mr. Nelson, you had----
    Mr. Nelson. I was going to address your initial question 
regarding the three challenges. You know, Massachusetts is 
fortunate, where the economy is healthier than most of the 
States, but we are still experiencing issues similar to what 
was mentioned by my counterparts.
    I wanted to specifically address two separate spectrums 
where I see challenges in Massachusetts, and one is on loans to 
underserved markets and loans to minority entrepreneurs. In 
Massachusetts, we have done a phenomenal job with our 7(a) loan 
program and our 504 loan program. We are one of the top States 
in the U.S. with delivery. We are probably fortunate because we 
have 150 banks that do business for us in Massachusetts, but 
when we look at the loans to minority entrepreneurs and loans 
to underserved markets, it is half of what it used to be.
    The SBA, through a couple new loan programs--the Small Loan 
Advantage and the Community Advantage Program--it is intended 
to try to address that and to fill those gaps, but it is going 
to take some time. And it comes back to where we started off, 
with the staff that we have and the challenges that we have, 
that there is not enough people and not enough hours in the day 
to do everything that we need to do in order to make the 
impacts. So that is one challenge in Massachusetts.
    Now on the opposite end of the spectrum, Massachusetts is 
such an innovative economy--high tech, high growth, life 
sciences. You know, there are so many phenomenal ideas, and I 
come across so many young entrepreneurs who are looking for 
early-stage seed money, who are having difficulty and cannot 
get the access to that seed money. There is a tremendous 
potential for job creation if we can get that early-stage seed 
money into the hands of those entrepreneurs on the innovative 
side.
    Chair Landrieu. Do you have any ideas about that early seed 
money and where it could come from?
    Mr. Nelson. Well, I know like through the SBA, and the 
President announced through the Startup America, that there is 
going to be $2 billion SBIC funds. One is targeted to the 
early-stage seed fund, but it is not here right now. These 
businesses, these entrepreneurs, they need the money now. They 
need the access.
    Chair Landrieu. Okay.
    Mr. Nelson. We need the jobs now.
    Chair Landrieu. Pravina.
    Ms. Raghavan. So to go back to the designated driver 
concept, one of the things that we did was with the money that 
the State got, which was $55.3 million for the State of New 
York. We have actually been working with the City of New York. 
When our programs changed, they actually, complementary with 
the Office of Comptroller, complemented the SBA program.
    So the State is going to be doing a similar thing, and 
actually we are sitting down with them next week to start 
architecturing that program because what we found out from the 
SBA, being in New York, New York State is huge. As you know, we 
have the city. Everybody knows about that, but we also have 
Mid-Hudson.
    And we took a program that we did with just county banks. 
So these are small community banks that serve a very small 
area, and we have a second look program. So what happens is if 
you are an entrepreneur and you get a no from your bank, you 
put it up online. And then we have 12 banks that look at it, 
and they actually pitched in a fund where each one contributed 
about $10,000 to a fund.
    Chair Landrieu. Great idea.
    Ms. Raghavan. And then the fund actually goes ahead and 
makes that loan, so depending on what your rejection.
    And what happened when we originally announced it is they 
were getting very little loans coming through, and we asked the 
question, and the question became people never went to their 
original bank to begin with. So once they started going, the 
banker would look at it because it is a community bank, and so 
we can fund this without going through the second look program.
    We announced it last year, actually this year, with the 
City Council of New York. They are doing the same thing. So now 
we have two second look programs that do exactly that.
    So now the State is saying maybe we do the same thing on a 
statewide with the new funds that we brought in and using our 
SBDC network. And the City of New York has Small Business 
Solutions to use that network to provide the technical 
assistance. So one of the boxes on the application will be: Did 
you get technical assistance before putting in your second look 
application?
    Chair Landrieu. Okay.
    Ms. Raghavan. And just to address seed funding, we have 
been working with the entrepreneurship campuses in New York, so 
Columbia, NYU. They do business plan competitions with their 
entrepreneurship, and some of these have very good endowment 
funds. So we gave over $750,000 to entrepreneurs through NYU as 
well as Columbia, with their assistance, through their business 
plan competition.
    So we have been looking at that and trying to expand that 
into the SUNY network, asking these universities that have the 
graduates that have already gone through, who have new 
technology ideas, to bring it into a business plan competition 
to give away some money, either between $50,000 to $250,000.
    Chair Landrieu. That is a great model as well. I am just 
really thrilled with, Jeanne, what they have started.
    Tell me your State again. New York?
    Ms. Raghavan. New York.
    Chair Landrieu. They have called it a second look program. 
So if you get turned down by your bank, you go online and put 
basically your information up online, and they have lined up 
eight or so other banks that take a second look at that loan. 
And something like that is really terrific.
    And then the other thing that you shared which I want the 
staff, of course, to make notes on, is the opportunity to link 
with universities that have strong business entrepreneurship 
programs.
    And we should identify--I want our staff to identify what 
universities in the country. So give me the top 100, and I 
would like to send them out a letter, just saying these are 
some things that we are hearing are going on in New York and at 
Colombia, maybe you all could model, because if they are 
training entrepreneurs and they have some of the smartest kids 
in America going to these schools. And they are training the 
entrepreneurs, and the problem is they have a great idea but 
they cannot get money. Maybe some of the government programs 
that we are funding by being creative can help leverage.
    Now some of the schools are wealthy and have these 
endowments, but a lot of the business schools do great work, 
but they do not have the endowments to give $50,000 to every 
graduate to get their business started.
    Senator, thank you for joining us, Senator Ayotte. This is 
a very informal roundtable. We are getting a plethora of ideas 
on some of our issues.
    So Mr. Cadena, do you want to add to this?
    And then I am going to finally get to my second question. 
We have only had one question and we have talked it for almost 
45 minutes now.
    Mr. Cadena. Yes, I wanted to get back to the microlending 
in my State. First, I got there 10/10/10, so it is easy for me 
to remember when I got to Nevada. But the first thing I wanted 
to do is bring together our microlenders, and we did not have 
any. We had one and one that was kind of in trouble.
    So developing microlenders, alternative lenders, is really 
something that is difficult, but what I found out is that there 
is a lot of people that will help us, like the casinos. You 
know, in Nevada we have the entertainment industry, but we also 
have the mineral industry now, and construction has died. So we 
are trying to pull them into play.
    We also in Nevada have a very high minority rate, and we 
are not reaching them very well. So we have the number one 
SCORE counselors that come out and help folks, but we did not 
have a lot of folks that spoke Spanish, and we have 33 percent 
of our population that spoke Spanish.
    So what I have done is I have gotten together with the 
councils, the consulates, and I am helping recruit Spanish-
speaking folks by getting on the radio with the Mexican 
consulate and the Spanish consulate and the Costa Rican as they 
have their radio programs, and try to bring them in, so that we 
will give them the information. We have the information in 
different languages, and we share it with--we can share it with 
whoever, whichever consulate, so that we can get more of these 
counselors because without the technical assistance they are 
not going to get in.
    We need to develop more alternative lenders until there is 
a regulatory respite or change in dings because any kind of 
foreclosure, or what have you, will stop people. So we are 
looking in our State to get some kind of respite.
    I am talking with the FDIC, the OCC and the Federal 
Reserve. We are going to have a roundtable, frankly, hopefully, 
within the next month in my office to talk about how we could 
do something specifically.
    But for help in the small businesses in the minority 
communities that have the language problem, which I understand, 
it is great when they come in and they speak Spanish because I 
can at least speak Spanish to them. But when they come in, in 
Chinese and so forth, then we work with them. But at the end of 
the day it is our community, and it is the responsibility of 
our communities, and that is what I do when I talk to our 
folks. It is our community of Spanish-speaking folks that are 
Spanish-speaking Americans to help our own Spanish-speaking 
folks.
    Chair Landrieu. Well, that is excellent. And it really is a 
barrier.
    We had an excellent presentation, I recall. She was sitting 
right where you are, Mr. Lopez, from the Vietnamese--no, the 
Asian American Chamber, and they said they are having terrible 
difficulty with language barriers, accessing the government 
programs.
    If you think about that Asian community, a broad range of 
different countries represented, the power of the 
entrepreneurship in that community, as well as in the Latino 
community, but with a Latino community more and more people are 
speaking Spanish. It is not that. But when you think about 
these Asians, it is a very serious barrier, and we are really 
short-changing our own country by not thinking carefully 
through that.
    Let me go to my second question. Then I would love Senator, 
if you want to--we have all said, Senators, a few words--if you 
want to add anything.
    I want to switch, if I could, subjects--the HUBZone, as you 
are very familiar with the HUBZone programs, and there are 
certain areas of the country that are in HUBZones. Some of you 
might represent HUBZones in your districts. What kind of 
oversight does your office provide to firms claiming to be in 
HUBZones, or how does that work with your offices once a 
HUBZone firm is awarded its first contract?
    The Louisiana District, I know this, conducts a site visit 
to ensure the firm is actually located in a HUBZone and it is 
what it claims to be. So can we have a conversation about that?
    Greta, you were the first one up, so please go forward.
    Ms. Johansson. We had a very recent case that we were 
involved with, and it actually precedes becoming a HUBZone 
firm, where an applicant, to become a HUBZone firm, had 
contradictory information in the application file. It was 
difficult to substantiate the place of business. And we were 
asked up-front from our folks in headquarters to do a site 
visit, so that we could make the determination or add some 
credibility to either side of it, either to the business really 
is located there or they really are not located there and it 
just a front. So that is one of the ways that we are helping 
with oversight is to address questions before someone is 
awarded a HUBZone contract.
    And we also perform both a set number of assigned onsite 
reviews of our approved HUBZone firms as well as additional 
site visits as we are able, where we do a little more than just 
confirming place of business. We will also confirm payroll 
records and the kinds of things that support eligibility for 
the HUBZone program.
    Chair Landrieu. So one of the challenges this Committee 
needs to be mindful of, the more we cut back staff in these 
offices, the less oversight. And if our goal is to narrow down 
on fraud and eliminate waste, fraud and abuse, you do not do 
that by waving a magic wand and breathing air. You have to have 
actual people focused on fraud detection, et cetera.
    Go ahead, Mr. Dickson.
    Mr. Dickson. As a small business owner, obviously, there 
are only three ways to extend your services or products: You 
can sell more domestically, you can sell more by exporting, and 
you can sell more to the government.
    And Greg was talking about it earlier. These government 
contracts for small businesses are very, very important. 
HUBZone is part of that. You know. The last time I looked there 
was only like 1.2 percent of all the small businesses in the 
United States even signed up to do business with the 
government. We need to be out recruiting and training 
businesses to do business with the government, to include the 
certification programs and the self-certification programs.
    We do a lot of procurement in Eastern Pennsylvania--NICPs, 
Defense Logistics Agency, the Army Corps of Engineers. It goes 
on and on and on. We are very active in the procurement side.
    And we have HUBZones. We have 8(a)s, and we have service-
disabled veteran-owned businesses throughout Eastern 
Pennsylvania. And we just came across a HUBZone business just 
about a week and a half ago that was a fraud. It was the 
HUBZone----
    Chair Landrieu. How did you discover it?
    Mr. Dickson. Well, it was in one of our drive-bys.
    Chair Landrieu. So you went by the look.
    Mr. Dickson. Literally, I sent my--I always send two people 
out because of the HUBZones are in some pretty tough areas, to 
make sure somebody does not get hurt or whatever.
    So I always send two people out, and one of my leads and 
one of my government contract employees found this place that 
looked like it did not smell right. Right?
    So they checked it out. We are not investigators, but we 
are trying to gather some facts.
    And then I went out again with the lead to take a look at 
it, and the HUBZone business, quite honestly, is being run by 
this person from his $400,000 house. All right?
    Chair Landrieu. Okay. That is good.
    Mr. Dickson. I contacted the----
    Chair Landrieu. I mean that is not good. That is not good. 
Do not say the Chairman said that was good, but I am glad we 
caught them.
    Mr. Dickson. I contacted the IG, gave them the information, 
and they love it. My guess is by the time it is done that 
person will end up going to jail for fraud, and quite honestly, 
they should.
    We have a lot of businesses out there that can do business 
with the Federal Government if we teach them how to do it. I 
was a defense contractor after I was a program manager in the 
Army. All right?
    Doing business with the government is different than doing 
business with commercially. All right? And we have to teach 
these businesses how to do that.
    There is a ton of business out there to be had by small 
businesses, but we have to teach them how to be a HUBZone 
contractor, how to be an 8(a) contractor, how to be an SDB. You 
know the new women-owned program. I mean there are great 
programs out there, and it is good for the United States 
business. It is also good for the United States government.
    Chair Landrieu. Okay. Mr. Lopez, did you want--I am trying 
to get everybody.
    But I just want to say for the record that the Federal 
Government purchases a half a trillion dollars in goods and 
services every year. And if small businesses could get more of 
that, of those goods and services, (a) the taxpayers in many 
instances get the better products or best products or better 
technology, cutting-edge technology.
    And those entrepreneurs--think about it. If you are a 
business with three or four people and you land a $10 million 
contract or a $5 million contract, you are not going to be able 
to absorb that work into your two or three employees. You are 
going to go out and hire six people or seven people to meet the 
terms of the contract that you have just received.
    So you are really, really--sometimes a large business, they 
get a contract. They will absorb the contract in their current 
workforce.
    Now you can argue it helps retain jobs in a big firm, but 
it actually really creates extraordinary growth in a small firm 
that might receive a good contract. They have to go out and 
actually execute it, perform it.
    But go ahead, Mr. Lopez.
    Mr. Lopez. You know, I was going to add that all the 
offices go out and do site visits and look at those, and there 
is a lot of great companies that are in HUBZones. You know, 
there is a lot of good small businesses that are doing it 
right.
    One of the things that we are doing in Colorado is trying 
to educate the procurement officers for the Federal agencies to 
understand the importance of a HUBZone contract. It is not just 
another goal that they are trying to meet, but it is more of 
making sure that they understand how to service that contract 
and help us, along with them, to make sure that the people that 
are actually doing the business are the small business owner or 
are the small business that stood up for it to be at the 
HUBZone level, so that we do not have that continued black eye 
as it pertains to the program itself.
    So it is bringing together as many people as we can to 
understand the importance of the HUBZone program and how we can 
best leverage it to be successful.
    Chair Landrieu. Wonderful. Okay, Mr. Goldberg. I am just 
going to catch you all as quickly as I can, and then I would 
like to ask the Senator if she wanted to add anything, or a 
statement.
    Go ahead.
    Mr. Goldberg. I guess there is an advantage sometimes to 
being the old guy in the room. I think I was a district 
director when the HUBZone legislation was passed, and that was 
probably sometime in the late 1990s. And at that time our 
office had 36 people, approximately 36 people. Now we have 11.
    And when that legislation was passed, I designated one of 
my managers as the HUBZone police. That individual went out to 
every company that applied to make sure that it just was not a 
post office drop; it was not an answering machine, the old-
fashioned answering machines before things got sophisticated.
    But as the office shrunk and tried to streamline, we could 
not dedicate a person to be the HUBZone police. Now what we do 
is like everyone else in the agency. We do a random sample.
    A couple of years ago, we went a little beyond the random 
sample because one of my BOSes, Business Opportunity 
Specialists, that deals in government contracting, had heard 
something about some company in Canton that was a HUBZone-
certified company. So I said, tell me what he had heard. I 
said, go down and investigate.
    So he went down, and he found that there was a shingle out, 
but no one was there. Then he went across town out of the 
HUBZone, and they were there.
    We reported it to the IG, and just like our office had 
shrunk, the IG's regional office in Chicago had shrunk. And his 
comment was--and he is a really good guy to work with. He said, 
I do not have the staff, and I can only use them when there is 
loss to the government.
    And here, because no contract was involved at the time, 
there was no technical loss to the government.
    So what I did then was the next best thing was I called up 
a friend of mine who happened to be the special agent in charge 
of the FBI in Cleveland. He had somebody running Canton for 
him. He said, Gil, what if I call up Canton, have the agent 
there talk to them and put the fear of God in them?
    So the agent went down and talked to the company, and it 
worked for a year. Now I have just found out that the IG is 
investigating and bringing them up on fraud charges.
    Chair Landrieu. Well, that is a very important point, and 
again, you have got to maintain a certain amount of staff level 
to be able to do this work and to make these programs 
effective. Otherwise, you are just really running programs that 
cannot be effective, but they are valuable and can be. But if 
you undermine them so much, you just do not get the benefit 
from them.
    Go ahead, Mr. Umberger.
    Mr. Umberger. While we are on fraud, waste and abuse, and 
talking about some of the staffing issues, we all know we do 
HUBZone site visits. We had one last year where one of my 
Business Opportunity Specialists was out in Western Maryland. 
The entire county is a dedicated HUBZone. Well, when they go to 
town where this business was supposed to be located, they had 
to actually call the business owner to come to the purported 
location to try to verify that they did have some bona fide 
location and existing business.
    But there are a couple things that are going on in my 
particular district. We have right now 350 8(a) firms that are 
certified, and I have 3.5 full-time equivalents handling all 
those cases. That is roughly, on average, 100 cases apiece. And 
you know the number here, anywhere from 40, 50, 60, but I only 
have--well, now I am down to 12 employees, and there were 33 
before I got there 5 years ago.
    But to spread out with lender relations and capital access 
and marketing programs and promoting the programs, I cannot 
take and designate more resources there. There has got to be 
something wrong with the formula here.
    Chair Landrieu. Right. This is not the time to be slashing 
these budgets. As I said, we have gone from 1,800 people in 
President Bush's Administration down to 900 in President 
Obama's Administration. That is a 50 percent reduction at a 
time when the challenges are, you could roughly estimate, at 
least 5 times as great, the economic challenges, if not 10 
times as great, based on the atmosphere that we are all 
experiencing. So it really is a real challenge for us.
    Lynn, go ahead.
    Ms. Douthett. I can tell you that in the State of North 
Carolina 85 percent of our State is rural, and with the 
economic situation there we have quite a few designated 
HUBZones. We have 441 HUBZone-designated firms that have been 
certified, and I have gone from a staff of 35 to 15. We, 
because we have 9 military bases, have received well over $5 
billion in contract spending in North Carolina, and over $400 
million of that has gone to HUBZones.
    So there is opportunity for waste, fraud and abuse, and my 
folks who are out in the field to go out and do these onsite 
reviews have actually within the last year uncovered two firms 
that were not actual certified HUBZones. The problem is that 
they are in these rural areas and they think that nobody is 
going to come and check on them.
    Chair Landrieu. And they need to know that we will and that 
is important to----
    Ms. Douthett. Exactly.
    Chair Landrieu [continuing]. Spend taxpayer money wisely.
    Ms. Douthett. Exactly. So within the last year we have 
actually--2 years--we have actually gone out and reviewed 135 
firms, but that is woefully under what we should be doing, 
considering the amount of dollars that are going to these 
HUBZone firms in our State.
    Chair Landrieu. Okay. Let me ask Senator Ayotte to say 
anything she would like to.

OPENING STATEMENT OF HON. KELLY AYOTTE, A U.S. SENATOR FROM NEW 
                           HAMPSHIRE

    Senator Ayotte. I wanted to thank Madam Chairman for having 
this hearing, appreciate it.
    And I also wanted to welcome our District Director, Greta 
Johansson, here. You know one thing we share is that we are 
both relatively new to our position. So appreciate what you are 
doing in our State.
    And Senator Shaheen and I actually were privileged to co-
host a recent event called a Matchmaker Event in the State of 
New Hampshire that I think I got very good feedback from our 
small businesses on, to connect small businesses to Federal 
contractors, to build those relationships, and I think that was 
very helpful.
    You know, one of the things that I cannot help but thinking 
when I heard what you had to say, Mr. Goldberg, in this 
discussion about the HUBZones, one of the things that I would 
like to hear your insight on is do we need to give you also 
greater authority and greater tools in terms of if someone is 
caught in a situation like you have identified, Mr. Goldberg, 
that you would have the opportunity to put them on a list where 
you are off--no more contracting, no more receipt of the funds.
    I think I get concerned often that even the bureaucracy you 
have to follow in trying to eliminate those who commit 
fraudulent behavior may be overly burdensome. And can we help 
you by giving you some tools here or more authority on your end 
to deal with this fraud and to cut people off sooner and in a 
more expedited fashion? I would love your insight on that.
    [Laughter.]
    Chair Landrieu. That is a great question. It has prompted a 
lot of room to talk.
    Senator Ayotte. Because you know that is something that we 
could address in this Committee and make sure you have those 
tools and you have the authority to do what needs to be done 
too.
    Chair Landrieu. All right. Let's respond to that.
    Go ahead, Mr. Dickson.
    Mr. Dickson. You are sort of darned if you do and darned if 
you do not. All right?
    Part of our job is to help recruit those businesses to do 
business with the Federal Government and train them and also 
regulate them.
    I like the idea, personally, about having that authority to 
be able to say if you are running a fraudulent business on a 
HUBZone or a women-owned business or a service-disabled 
veteran-owned business, or even a small business that is 
supposedly small and you find out it is not by the NAICS codes, 
that we could do something a lot more expeditiously than we do. 
All right.
    That is in fact one of the problems. It just takes too long 
to act on it, and the bureaucracy in order to act on it takes a 
long time. And then by the time you get to the end of the road, 
a lot of these companies, nothing happens to them anyway. So 
there is not a--as Gil said, there is not a fear of God in them 
because they are going to get----
    Chair Landrieu. Well, we need to hone down on that and why, 
when you say the bureaucracy is not working fast enough. It 
gets back maybe to that the prosecutors themselves do not have 
the staff necessary to prosecute. That may be one thing. Or, it 
could be something else. I do not know.
    And Ms. Johansson, if you would comment, I am going to slip 
out and have my Brian Van Hook step up, but we are in very able 
hands to finish this roundtable in the next 35 or 40 minutes.
    It has been excellent. Your comments have been terrific, 
your suggestions. We really appreciate getting a better feel 
for what our district offices are actually up against, what 
your challenges are and what you need as we prepare for these 
budget discussions, but as we prepare to run the best agency 
and provide the oversight we can to the SBA, the best we can.
    So Greta, and then I am going to slip out. Thank you all so 
much.
    Ms. Johansson. Thank you. I just wanted to follow up on the 
is there something that we could do. And I agree; it is sort of 
yes and no. There is an upside and a downside.
    On the one hand, the last thing we want to do is stall 
someone who--if we are mistaken. I mean, how much investigation 
can you do to know is this a legitimate HUBZone firm? That is a 
challenge, and that is a challenge with our staffing levels and 
with the kinds of information you need to have access to.
    But there, it would be very beneficial, I think, if we had 
some sort of fast way of throwing up a red flag that could 
launch enough of an investigation to figure out what is it we 
would need to confirm, yea or nay, without disheartening anyone 
who belongs in the program, without risking a contract that 
should be awarded, if there was some sort of a fast way that we 
had the ability to send up an alert. And that is something that 
we ought to be able to do internally, subject to resources. You 
would think that we would be able to find a way to have 
knowledgeable enough staff in both the districts and in 
headquarters to be able to identify a way to make that quicker.
    Before we implemented that, I would want to feel 
comfortable that we are not going to either overburden 
ourselves or discourage legitimate firms, yet still catch, some 
sort of an early warning way to catch, those ones who are 
corrupt because it does not really take all that much. It only 
takes one or two bad contracts to firms that should not have 
gotten them to seriously damage the viability of what is 
otherwise a very good program.
    And it discourages the contracting officers from even 
trying to do HUBZone. I mean just it is bad all around, to have 
contracts misappropriated.
    I am not sure. A lot of it does seem to come down to 
resources. How would we go about doing that in a way that was 
both effective without being destructive or burdensome?
    Mr. Van Hook [presiding]. And Ms. Nelson.
    Ms. Nelson. I just had a thought just before she started 
talking. We have a similar model in that our lender oversight 
folks send out reviewers, auditors to do reviews periodically, 
and if they find problems within a loan that might jeopardize 
the guaranty at purchase time, should it be, it is flagged 
within our system.
    I do not know exactly how you relate that to the HUBZone, 
but if there is a flag, a contractor who is looking for a 
HUBZone, at least we would have some leverage to get their 
attention to come in and prove to us that they are who they 
said they were and a legitimate business. We call it a Guaranty 
Repair Flag.
    Mr. Van Hook. And Pravina.
    Ms. Raghavan. I was just going to add that I do think it 
would be great to have a list. And I agree with both 
colleagues; it is a good thing and a bad thing.
    And one of the good reasons is in the State of New York as 
well as the City of New York, the MTA, we have some major 
agencies that do business with us and do business with our 
HUBZones. They actually look at our list to figure out whether 
they are real bona fide firms. And to be able to put someone on 
a list, so that they are not only defrauding the Federal 
Government but also the State and the city, would be a 
fantastic thing.
    And one of the things we have been trying, back to the 
original question, is how do we get to make sure we prevent 
fraud. Actually, we have been holding our training sessions in 
HUBZones. So the firms actually have to be physically present 
in their HUBZone when they get trained. So their orientation 
meeting actually happens in their place of business at the 
HUBZone, but granted, it has to have staff to do that.
    And we actually sometimes do it with the city and State. We 
bring them in with us because then you can learn about our 
programs as well as the other two. When you look at the State 
of New York, there is quite a lot, but the city alone has quite 
a few programs. So it would be nice to have a great list to sit 
there and go: You are not going to defraud us on three 
different levels.
    Mr. Van Hook. Yes, Gil, if you wanted to make a comment, 
and then I would turn it back over to the Senator.
    Mr. Goldberg. Okay. I think the Senator hit the nail on the 
head. I think we do need more responsibility and more tools at 
our disposal. Again, as I said, being the old guy in the room, 
not only do I remember when the HUBZone legislation was rolled 
out and we rolled out the program and I had a big enough staff 
to have HUBZone police, I have seen that happen in other areas 
of the agency as well. But we have to have the staff to go 
along with the authority and the responsibility because if we 
do not have the staff then we end up in a situation where it is 
on the books that we are doing it, but in reality we are doing 
it by putting a Band-Aid over it. And we really need that staff 
to make it work.
    Mr. Van Hook. And Senator, did you have a follow-up?
    Senator Ayotte. I do not know if anyone had any additional 
comments on this issue. I did not want to cut anyone off. It is 
important.
    Mr. Van Hook. Okay, gotcha.
    Greg.
    Mr. Lopez. You know, I think it is important for us to 
remember that when the contracts are awarded to the HUBZone 
companies they are awarded by the procuring agency, and so SBA 
does not have the authority to determine who gets a contract 
and who does not get a contract. And I think that is why it is 
very important when the SBA is working very closely with the 
procurement Federal agencies to understand the HUBZone program, 
and it is contract oversight that really falls within the realm 
of the contracting officer. We are an extension of that process 
by ensuring that they are meeting the eligibility, but we 
really need to work in partnership.
    And I think that message has yet to really resonate within 
the procurement arms of some of the other agencies, but they 
are starting to hear. For the last 18 months, 2 years, we have 
been going out. So they are starting to pay a little bit more 
attention as to the importance of the HUBZone and how we are 
looking at them.
    So I think we are making a lot of progress, but I really 
think that at the end of the day the stronger we build those 
relationships with the contracting officers that actually do 
the oversight of the contract, we will be able to really 
minimize a lot of the fraud, waste and abuse, if we all work 
together.
    Mr. Van Hook. Mr. Umberger.
    Mr. Umberger. Just a quick comment, that whether it is a 
HUBZone determination based on a site visit that it is a 
fraudulent firm, or what have you, or an 8(a) firm that comes 
up under an annual review that it is determined that at least 
in the district's eyes this is a fraudulent firm, rather than 
what we do now is we put them into a termination process, and 
the termination process is out of our hands. It is at a higher 
authority, and it takes time.
    I could never, for the life of me, understand if we had 
made a recommendation for a termination, why is that firm not 
suspended from further contracting opportunities. So that would 
be something; I think a tool that we could really use to sink 
some teeth into this.
    Mr. Van Hook. And Mr. Dickson.
    Mr. Dickson. Just sort of a final comment on procurement, 
you know, Greg and I think a lot alike. It is really scary, 
Greg.
    In another life I was a procurement officer in the 
government for the Army, and it astounds me the lack of 
understanding that the procurement officers have these days of 
the small business set-aside programs, to include not only the 
small business at 23 percent but also the 55 and the 33--okay, 
5 percent SDB, 5 percent women, 3 percent HUBZone, 3 percent 
service-disabled veteran.
    If you look at the Defense Acquisition University, you 
might be very chagrined and surprised to find, since there is 
23 percent of all the prime contracts are supposed to go to 
small businesses in the country, how little the training goes 
to the contracts officers and their staffs.
    I know, like many of my colleagues around the table here, I 
mean, we do a lot of training in the procurement agencies in 
our districts as to what these programs are and how to use them 
because they honestly do not know. I sat in the Union League 
several years ago, in Philadelphia, and there was a HCA, Head 
of a Contract Agency. He was wearing two stars on his 
shoulders, and he was talking about his small business goals. 
And he said we are doing fine, and he specifically was talking 
about HUBZone. And it really surprised me because his goal was 
3 percent and they are at 1.3 percent. Because they had done 
better than the previous year, which they were at 1.2 percent 
the year before, he thought they were doing fine.
    And I felt like standing up and saying, General, you do not 
get it. I mean your goal is 3 percent. You are not doing fine 
until you have surpassed your goal.
    And it was just the mentality: Well, we did better than 
last year, rather than meeting the goal.
    These goals, these set-aside programs are good for the 
United States. It is good for industry. It is good for the 
government.
    Until these contract officers not only understand these 
programs, but also as they are looking at their procurement 
requirements in the one hand, they need to be looking at their 
actual goal attainment in the other hand and have the authority 
to be able to say, well, I am going to take this one; I am 
going to make it a HUBZone. Or, I am going to take this one; I 
am going to make it a women-owned business or just a small 
business.
    They need to be able to look at that stuff on a daily and 
weekly and monthly basis. And until they do that, we are not 
going to get their attention.
    Mr. Van Hook. And Greta, did you have a comment?
    Ms. Johansson. Just a quick follow-up, and it is really 
only specific to HUBZones is most of what I have heard here 
today, and my own experience, is the HUBZone firms that were 
not really HUBZone firms was based primarily on they did not 
really have a real place of business in a HUBZone. And for much 
of the country that may be hard to assess before a firm is 
approved into the HUBZone program, but there are areas where 
drive-bys are really not difficult. Maybe I am biased because I 
come from New England and we can actually drive by just about 
anywhere we need to, and that is not true everywhere.
    But some of those things, rather than catching the fraud 
after someone is in a program or receiving contracts, we may be 
able to prevent it up front if the primary problem, is in the 
HUBZone program anyway. The most frequent problem seems to be 
place of business. That can be checked. And if we cannot do it 
ourselves, there are resources all over the country, and we all 
have partners that we work with.
    And I am just curious if there is some way that we can do a 
more effective job before they get in the program. And it is 
also less public that way, so it is not discouraging for either 
the contracting officers or legitimate HUBZone firms. I am just 
curious if that might be an area where we could do better, 
subject to resources.
    Senator Ayotte. I wanted to thank all of you for being here 
and for the important work that you do. I, of course, want to 
give special thanks to our District Director in New Hampshire. 
We can get around New Hampshire probably a little bit easier 
than some of the other States you represent, but very much 
appreciate the work you are doing for small businesses in the 
country.
    My husband is a small business owner. So you know it is 
always a challenge to start your own business and to grow it, 
enhance it, and we just want to create a positive climate for 
all of them to do that, particularly in these difficult 
economic times.
    So I have to run, but I want to thank you all for being 
here today.
    Mr. Van Hook. Thank you.
    And I guess kind of following up on the discussion that you 
guys had, I know that a lot of district offices have road shows 
and kind of get out. But also when we mention the staffing cuts 
that you guys have had, could you just kind of briefly talk 
about what, how much time is spent in the office versus how 
much time is spent on the road because I know that as the staff 
has been cut that has kind of limited also the ability to get 
out and travel around?
    So I guess you are closer to me. I will go with you first.
    Mr. Cadena. Well, when I got to the office there were four 
of us in the office and two up in Reno, and we have one of the 
largest areas to cover. So we are now up to a total of eight 
people.
    Also, in Nevada, we are kind of like the national office 
based on one thing. We have so many conferences that come into 
Nevada, and we send people there all the time.
    So there is a lot of times in my office where it is 
literally I am there. And if I am not, somebody else is, and 
that is one person. So we do cover.
    So the reality is it is probably a little over 70 percent 
of the time we have got people out constantly. Up in Reno, 
because it is such a large area, I have one guy basically that 
lives on the road, literally lives on the road. He has his 
Durango that we finally got him, and he just drives around and 
goes from small town to small town. But that is an issue, but 
in our office, more so than anything else is.
    And it is great because it helps our training because we do 
get some wonderful--the one I am looking forward to is there is 
the WBENC, the women's businesses. It is going to be 4,000 
small businesses, a women's group that comes in. We are also 
going to have the DAC that should have well over a couple 
thousand.
    But it does take a lot of our people's time. So it kind 
of--yes, we appreciate it because we like doing it and it is 
high profile. We get to learn a lot. However, most of that time 
has nothing to do with my district because most of the people 
that we are talking to are from out of state.
    So it does have--we love it because we learn a lot, but we 
are not really supporting, if you will, our district because we 
are doing so much.
    And it makes sense. It does not make any sense to be 
sending people from all over the country when you have got an 
office there. The great thing is just give me a little more 
staff.
    Mr. Van Hook. Well, we keep track of that in New Orleans 
because we are also competing with you guys for conventions. So 
I think it is New Orleans or Vegas is kind of where folks split 
their time.
    Mr. Cadena. And we both have had different kinds of 
disasters.
    Mr. Van Hook. Yes, that is true.
    Lynn.
    Ms. Douthett. One of the things, we are fortunate in that 
we actually have three alternative work sites, which means that 
I have three guys on the ground that cover a territory. One is 
large; it is 34 counties. And one is small; it is 16 counties.
    But our office is set up in a model that works with those 
folks out in the field, utilizing their time. Probably at least 
70 percent of it is on the road because the charge was that we 
would actually see our loan production increase, our strategic 
alliances create more workshops and training for both small 
businesses and citizens, which we have effectively done over 
the last seven years, using this model.
    Where we have a challenge is in the district office because 
our procurement portfolio is we have 120 firms and we have 2 
people to manage the program, and that compliance issue is 
huge. So even though we can send them out to do some speaking, 
they have to remain really to do the annual reviews, which is a 
very time-consuming process.
    And as far as myself and our lender relations folks and our 
marketing people, they are on the road I would say at least 50 
percent of the time.
    Mr. Van Hook. And when you say certain staff travel more 
than other staff, so there is a certain complex relation.
    Ms. Douthett. I would say that the model was that we would 
transform ourselves into a marketing organization, and do more 
sales and marketing and training, which we have effectively 
done. But it is a challenge in terms of the reporting functions 
and compliance to be sure that we have every I dotted and every 
T crossed.
    Mr. Van Hook. Mr. Dickson.
    Mr. Dickson. The SBA actually categorizes the district 
offices as very small, small, medium, large and extra large. 
Okay?
    Pravina, for instance, is an extra large, New York City, of 
course. Philadelphia, last time I checked was the largest of 
the large. All right?
    Five years ago, we had 11 people, and we got down to 5. Now 
I am at 17, which has been a wonderful thing.
    We have broken up our staff into teams, geographical teams, 
and we have taken away silos where I have the lending people, 
the government contracting people and the marketing people all 
underneath a lead for a specific geographic area. And it works 
very well for us. All right?
    All the people, I have hired. Everybody has come from 
outside the government except for my deputy who just got back 
from Saddam Hussein's palace. He was the DLA Commander in 
Baghdad for six months. Everybody else came from outside the 
government, and very entrepreneurial, all the way from people 
from their early 30s to in their 60s, older than I am. All 
right?
    Their jobs are not in the office. I make them come to the 
office one time every two weeks for a staff call just so I can 
see their face and make sure that they know what is going on, 
et cetera. But they spend tons of time out of the office, 
dealing with banks and businesses and economic development 
agencies, and you name it. They are out there networking, 
counseling businesses, recruiting banks, et cetera. We have 
three government cars, and we run the wheels off of those 
babies because I mean it is a big district.
    I have got two-thirds of the State of Pennsylvania, and our 
job is to go out there and penetrate the market with the gospel 
of the SBA, as to the technical assistance that is out there, 
that is available, the counseling for government contracting, 
how do you do that, how do you get capital access, whether it 
is SBA guaranteed loans or commercial loans or USDA loans. You 
know, how do you get the money that you need to run your 
company and to hopefully expand your company? All right?
    So our people's jobs are on the road, and they do it. Our 
staff, and I know a lot of my colleagues' staffs, they do an 
absolutely excellent job. I am very proud of them.
    Mr. Van Hook. Okay. Thanks.
    I am going to turn it over to Linda, and then I know we 
have maybe 15 minutes or so. So I am going to turn it over to 
Diane because she might have some questions. And I have a 
couple more questions for you guys since the Senator covered 
some of my good questions, but I still have a couple more for 
you.
    So, Linda.
    Ms. Nelson. Okay. One of the things we have done is try 
to--we are a staff of 11. We are a small office, and we are 
pretty much at the max by the previous definition. We have had 
to retrain folks.
    For instance, if one of my lender relations is going to 
Batesville, Arkansas to do a lender training and there is a 
HUBZone there, she goes by, looks to see if it looks like a 
bona fide business, may check with the post office. We check 
water records to see if they have water running to the 
building. You know most of them need a restroom. We think, 
anyway, but not in Arkansas maybe.
    So we kind of share duties instead of just one person is 
responsible for doing all of this, and I am sure others have 
done this too.
    But we have learned to leverage our State agencies, and we 
have an MOU. This is a national pilot, and we are 1 of the 17 
States with the USDA Rural Development. They have more money 
than we do and sometimes more people because they have field 
agents around their State. And so, we put literature there, and 
sometimes they serve as a referral.
    But the Arkansas Economic Development Commission has 
recently reorganized their economic developers into industry-
specific. So we are going to be training them, and they are in 
all these different areas of the State more than we can 
possibly be. I mean we are out. We have three cars. We are out 
a lot--to alert us when there is something specific.
    You know, we sometimes go hold a bank's hand. They do not 
want to do the designated driver approach, and so we go hold 
their hands from the application. I have even typed up their 
closing documents, I am ashamed to say, because it was painful 
to watch this loan officer doing it, and I did. We will do 
whatever we can as far as leveraging that.
    So I think the main thing is retraining, sharing and 
leveraging some of the outside resources, including our SBTDC. 
They will do drive-bys for us in their area because they have 
six sub-centers.
    Mr. Van Hook. Thanks.
    And Diane, did you have a question?
    Ms. Dietz. Absolutely. I have about 50 questions for you 
all, but I know some of you have planes to catch, so we 
certainly will not keep you here that long.
    I would like to echo the Chair's remarks and sincerely 
thank you for coming today. Washington, DC, is for some of you, 
a train ride and for many of you, a plane ride away, and we 
certainly appreciate your taking this afternoon to spend with 
us. We could keep you here all afternoon, asking questions and 
still have more questions, but of course we will not.
    On behalf of the Ranking Member, we do sincerely appreciate 
your time, and I believe that today's panel is truly a jobs 
creation panel. So we cannot tell you enough how much this 
feedback is important to us.
    I did want to hit on one question. It is something we hear 
a lot about in the Committee. It is a primary concern for small 
business owners, entrepreneurs, and that is the regulatory 
environment.
    And I would love to hear from each of you. One of the 
fantastic aspects of this panel is that it is so broad. There 
are many of you from the Northeast. We love the Northeast, and 
we love the South as well, and there are some wonderful people 
here from the West.
    I am wondering, maybe specific to your state or industries 
that you see in your state, particularly maybe to 
manufacturing, what you see as a hurdle for small business in 
creating jobs. Is the regulatory environment something that you 
hear a lot about from small business owners?
    The Office of Advocacy at SBA released a report that said 
small businesses with 20 employees or less pay approximately 36 
percent more in regulatory costs, and we hear consistently that 
the regulatory environment is a major hurdle to job creation.
    So I am wondering if you could shed some light on what we 
can do from the Committee perspective, and Mr. Dickson, I will 
start with you.
    Mr. Dickson. Eastern Pennsylvania used to be a 
manufacturing heyday. It was really big there, and I think that 
is why then Administrator Hector Barreto sent me to 
Philadelphia, because of my manufacturing background. The 
comments I have for you are not from the SBA, are from just my 
personal experience.
    We go back to basics as to how do you grow a company, how 
do you expand your sales. Again, there are only three places--
domestic, international and government. Okay? And the 
government, of course, goes to Federal, State, local, metro 
airport authorities--you name it--all over the place.
    Manufacturing, for the most part, or much manufacturing, 
has gone offshore now. All right? In my background I have seen 
that, and it is very disturbing to me personally because I am 
an industrial engineer by trade.
    We have a different cost basis in the United States. It is 
very difficult for manufacturers to compete on a level playing 
field when there is not a level playing field with 
international customers and international manufacturers.
    You know, in industry in the United States, when we have a 
barrel of used oil, we recycle it; we take care of it. In other 
countries they take it out back, and they throw it away. All 
right?
    Our plants are filled with safety devices for protecting 
our workers. You know, hard hats and glasses and steel-toed 
shoes and hand guards on CNC mills and lathes and things like 
that. That costs money, and those are really all good things.
    Do not get me wrong. I think they are wonderful things, but 
our manufacturers are competing on a worldwide basis now, with 
people that do not have that kind of cost basis. All right? And 
it puts them in a huge disadvantage.
    And I talk to people all the time, realizing that 19 out of 
every 20 customers are overseas when you look at the numbers. I 
talk to manufacturers all the time and try to get them to look 
into exporting their products, and they never think about it 
because they cannot compete with the prices overseas.
    Just in the company that I came from, before I came to 
here, I mean we were offloading all sorts of things to the 
Pacific Rim, to South America, to Eastern Europe and things 
like that.
    I mean when you look at the wrap rate, which is the labor 
rate and the material and overhead and everything else. When 
you look at the wrap rate overseas versus the wrap rate in the 
United States, it is not competitive.
    Ms. Dietz. What do we do to level the playing field for 
manufacturers? In 2008, if the manufacturing sector were a 
country, they would have been the 8th largest economy in the 
world. So what do we do? We need those jobs.
    Mr. Dickson. This sounds like protectionism, but it is 
really not. Okay? One thing that the Federal Government could 
do is put tariffs on those products coming from overseas 
countries that do not have the same type of environmental or 
worker safety laws. There has got to be a mathematical method 
of looking at the different industries and all of the countries 
that come to the United States to sell their products and if we 
could figure out how to mathematically equalize the playing 
field. Okay.
    For instance, you get a country that is manufacturing 
textiles. All right. And if we could figure out how much more 
our textile manufacturers are paying just for the environmental 
and just for the safety side of it, and then put a tariff on 
those products, that would probably do two things. First of 
all, it would certainly equalize the playing field, but it 
would also force other countries to increase their awareness of 
safety and environmental. All right?
    Ms. Dietz. Yes.
    Mr. Dickson. To me, it would level this playing field that 
has become very unlevel.
    And as a manufacturer, in a manufacturing background, you 
would not believe. It is 25, 30, 35 percent more expensive to 
manufacture in the United States. I could get things 
manufactured and shipped to the United States cheaper than I 
could manufacture them in the United States. That is a real 
disadvantage for a small business.
    Ms. Dietz. Thank you very much.
    Mr. Lopez, I know you have a plane to catch, and if you 
would like to answer this and then leave, I certainly 
appreciate your time today.
    Mr. Lopez. You bet. You know, going back, I want to go back 
to the last question about us going out and how much time we 
spend in the office and how much time we spend outside of the 
office.
    I can share with you--and I am sure we are experiencing it 
across the country--there is more and more demand from the 
general public and organizations for SBA to come out into the 
general public to talk about our programs and services. There 
is a thirst amongst small businesses to learn what SBA can do 
to assist them.
    And I can tell you in my office the staff does not 
appreciate when I go out and talk to the community because the 
phone starts ringing and I create more work because when people 
start realizing all the resources and all the depth and all the 
partners that we have at their disposal, at no cost, then they 
start realizing that what a great opportunity to learn more 
about the Federal contracting, business development, economic 
development, all those types of things. So I can just say that 
as we go out there, there is more and more that people realize 
this agency has to offer to the strength of our country.
    Now when it comes to the regulatory issues, clearly, there 
is a lot of need for regulatory guidance. However, I can tell 
you this; small businesses in my area are concerned as to the 
language. It is not written necessarily for the common 
businessman. You know, you need to have attorneys. You need to 
have staff interpretation as to what are these regulatory 
issues that they are supposed to follow. Even when they think 
they have it right, perhaps there is an attorney that has a 
different interpretation of what it is that the regulation 
should be doing and how it should be applied.
    So I would encourage that while we have the need for 
regulatory language, it needs to be simplified so that small 
businesses can understand it, so that they can better plan for 
the future as to how they are going to expand and how they are 
going to continue to deliver the services, recognizing that 
there are additional guidelines.
    And the other thing I would say is sometimes these 
regulatory policies are so well hidden that the small business 
owners does not even know about it until someone brings it to 
their attention, not in an informative manner but more in a 
punitive manner, that they are not following it.
    Ms. Dietz. Thank you very much.
    Ms. Raghavan.
    Ms. Raghavan. Congratulations. You said my name correctly.
    Ms. Dietz. You know what? Brian gave me a phenomenal 
phonetic spelling. So I must give the credit to Brian.
    Ms. Raghavan. I mimic, actually, Greg's comment about the 
way the wording of the regulation is. It is very difficult. And 
we get it a lot in the offices: Can you just explain what this 
means to me?
    And I think we have actually a great example in New York. 
You may have heard we have the New York Mets as one of our 
teams. They built a new stadium, but what people did not 
realize is by building a new stadium it has auto body shops. We 
have the largest bunch of auto body shops in the country, 300 
of them that employ over 1,000 people, sitting behind the 
stadium.
    So when Citi Field was built, they obviously asked to get 
rid of these people, and the City of New York gave some money. 
But one of the things that they did not talk about is how do 
you position 300 auto body workers into a different area, 300 
auto body workers.
    They have been working with us, the SBA, as well as we have 
been working with the city to not only get them to move to the 
Bronx, where we have a huge amount of manufacturing as its 
base, but it also has one of the highest rates of unemployment, 
at 19.2 percent, and move 1,000 employees over there.
    And one of the things we did is worked with the United Auto 
Workers, which has a Hispanic Chamber of Commerce for auto 
workers, to actually get them being compliant to the State, as 
well as the city, regulation for having an auto body work shop, 
by getting the city to help them pay with their settlement fund 
to actually make sure all these auto body shops are in 
compliance.
    And when they move over to work, one of the things we found 
out, the biggest thing, was the language barrier. Everyone 
speaks Spanish. So we had to go through that.
    Also, we had 300 people trying to get funds for loans who 
have 300 different sets of tax returns, so trying to put them 
together.
    They actually have been working with SCORE as well as the 
SBA to get them all together, to make it a cooperative. And 
they are going to buy a cooperative, buy a piece of land under 
our 504 program to actually move everything from Queens to the 
Bronx.
    But right there is a regulation. They did not even know 
they were violating them because they were just written in 
English but not English that anyone could understand. And 
actually sitting down there and actually translating, taking 
them through that, and actually saying here are your rights and 
this is what we can do to help actually helps a lot. So some of 
that will actually ease that.
    And I just wanted to comment on manufacturing and 
technology. You were asking what we can do. I think one of the 
programs that we do not exploit very well is actually the 
commercialization of technology into manufacturing.
    We have our SBIR program. I think if you look at phase 
three of that where about 47 percent of those who go from phase 
two to phase three is supposed to be for commercialization of 
technology.
    And I think if we were able to link that technology and 
that program with actually some of the manufacturing space we 
have in the United States, we would be surpassing because we 
are actually inventing new technology that has not been out 
there. So there are not other countries that can play in that, 
and we are one of the few countries that can do that. We have 
some of the greatest labs.
    I have the pleasure of having Stonybrook SBDC as part of my 
Small Business Development Network. They have one of the only 
nano-infrared technology type of things, which I still do not 
understand what it does, but there are only two of them. And 
they have four Nobel laureates working there. And you can 
imagine some of the commercialization of some of those projects 
to be out. We could be putting them not only in New York, where 
we also have manufacturing issues, but in our neighboring 
States and Philadelphia as well as in North Carolina.
    So I do think if we were able to use that program, which is 
already there, and actually link it to something else, we could 
be winning that battle as well.
    Ms. Dietz. Thank you. That is fantastic.
    Lynn.
    Ms. Douthett. To piggyback on what Pravina just said is 
that under the SBIR program every year it is always a big 
question of whether or not it is going to be refunded, and that 
was a comment that really resonated in the Startup America 
program. North Carolina was the first place where they held 
that particular conference in understanding reducing barriers 
for these technology companies, these high growth companies. So 
we actually invited 130 companies to come, who are located 
throughout the Research Triangle area as well as the mountains 
and the coast, to participate in giving feedback on how it is 
that these barriers can be reduced.
    In the small group forums that I attended, one of the 
patents and trademarks was a huge area in terms of being able 
to get that pushed through more quickly prior to other 
countries stealing that information. Right? That was one of the 
top things that came out, also FDA approvals.
    I mean a lot of these companies are doing R&D here, but 
their greater market share is globally. It is really not here. 
So their manufacturing costs are being recouped; the R&D costs 
are being recouped overseas, but we are really not the market 
for that product, or creating the manufacturing of that product 
here.
    So there is a lot of good output and commentary that are 
going to come out from this regulatory barrier dialogue that 
has happened all over the country. That will put our Federal 
agencies in a position to understand better where their 
processes are being clogged up, in order to free up these 
internal processes, as well as address regulation that is 
prohibiting us from creating jobs and allowing our businesses 
to move forward.
    Ms. Dietz. Thank you.
    Mr. Goldberg.
    Mr. Goldberg. I think you heard a number of DDs talk about 
staffing issues and the need for their employees to be out in 
the community, out with the small business, reaching out to the 
small businesses and the bankers, and I would like to add a 
little historical perspective here.
    In the late 90s, when the agency started to downsize and 
then streamline and centralize, we were set up as a wholesaler 
of the product. The banks made the loans, the centers processed 
them, and we were there to tell the SBA story and to market, 
and basically to do it by getting people out from behind their 
desk and going out into the community.
    I think that changed, at least in the Cleveland District, 
in April of 2008. That is when the recession first started to 
hit small business, and our phones were ringing off the hook. 
So we had to have people in the office, not just out in the 
field, answering the needs of small business--my bank just cut 
my line; my bank is demanding payment--and to deal with those 
situations.
    It is very labor intensive when you are trying to deal one-
on-one as opposed to a wholesale. We were talking to lots of 
people all at once. So we had to balance having the staff out 
there doing community outreach, talking to big groups and 
having roundtables, talking to bankers, with having enough 
people in the office to help these individual businesses that 
called in and wanted us to help them find a bank.
    I told them, we cannot find a bank for you. We cannot 
recommend a bank, but we could point you in the right 
direction. Come on in. We will talk to you about what the 
actual issue is, and then we will talk to some banks and work 
together with you.
    That is very labor-intensive, but it also saved a lot of 
businesses. With the Recovery Act and the Jobs Act to follow, 
that gave us the 90 percent guarantee and the tools to save 
those businesses.
    But we have to balance the need to be out in the community 
with the need to have people in the office to help these 
businesses when they call, and starting in 2008 those calls 
just came in. I think I was getting five or six calls, seven, 
eight, nine calls a day. The staffer were getting even double 
that. And we had to have people in the office.
    The last, let's say, 10 months or so those calls have 
subsided a bit because the banks are lending some again with 
our programs. But we still have become instead of that 
wholesaler we are like a hybrid organization now out in the 
field, where we are doing retail work as well as wholesale 
work. And I think we need to balance the act and have the right 
staff number to provide the service when they do call and they 
do come in, as well as be out in the field.
    Ms. Dietz. Thank you very much.
    Mr. Cadena and then Ms. Nelson.
    Mr. Cadena. Yes, I wanted to talk about the regulatory. 
Thirteen years I was in New Mexico, and I am going to take a 
New Mexico approach to this.
    We have the two national labs in New Mexico. In New Mexico, 
frankly, there is a lot of regulation. So the national labs 
really provide wonderful nanotechnology, solar technology.
    All kinds of companies start in New Mexico. Not one Fortune 
500 company is there because too much regulation, too much tax, 
too much everything. They go to Texas; it is a little less. Go 
to Nevada; there is nothing. You can do whatever you want. It 
is a wild West. Come on, let's play.
    So the difference is as you have small businesses, as they 
are trying to do something, watching Texas, New Mexico and 
Nevada, just everybody around, every State has different 
regulations. So it is not just Federal regulations.
    And as Mr. Lopez was talking about, when they bring 
something and bring it to me--I am educated; I can read--I have 
no clue what half of those regulations are. So we not only have 
the Federal problem, but depending on where you are at, you 
have different State regulations that just add additional 
burden.
    So we are moving. You know, we are not doing anything from 
a national basis. We are just stirring the pot.
    And when we are looking at trying to get increased jobs in 
America, we have to make that regulatory environment less 
because I can assure you--and I am talking as a New Mexican--
that that is probably one of the hardest places to go work, yet 
we have two national labs that are awesome, one that hopefully 
has not burned down today during the fire.
    There is a lot of stuff going on. But you know, that is 
where the Intels and the Microsofts started. They are not there 
because it is just too much regulation.
    The SBIR also is a big issue; it is. Every year we would 
have folks coming in saying, well, we will go to step one, step 
two, what have you. But they are concerned about well, if we 
get started, are we going to be able to go through the whole 
mix. So that uncertainty really stops people from trying.
    I mean because there is a lot of good technology. There is 
no question. In America, especially in the State of New Mexico 
with the two national labs, you are getting a lot of innovation 
and everything that starts.
    But it is some of this uncertainty. You do not want to get 
in, start and then what happens when you get through step one. 
Are you going to be able to take it all the way through?
    Then again, with your patents and your copyrights, that 
process, because it gets real difficult, those things need to 
be either streamlined because that really does hurt small 
businesses, the innovation part, because that is what keeps 
this country going. We are innovative.
    I mean you know the hardest thing with working with the 
scientists, like from Stonybrook, they always--when they come 
in and they want: So how do you take it to market?
    You know, they come in and tell you this is how. I 
understand how to use a cell phone, actually not completely 
because they change it all the time, but they want to tell you 
how it works.
    We do not care. We want to know how do you take it to 
market.
    And the same thing with the regulatory, the regulations 
that are out there, you read them, and they do not make any 
sense. And Greg is 100 percent right. I have read through some 
of those things and even had some of my attorneys try to 
explain some of this stuff to us, to me, and even the legal 
opinion of the regulation does not make any sense.
    So if that does not make any sense, then you are having a 
small business that has a great idea, has an SBIR. So we are 
just adding layers upon layers while our good friends in China 
and everywhere else, they just figure it out and just do it. So 
that is something.
    And I agree with you, Mr. Dickson, that we do need to have 
some kind of a number to make it fair. Otherwise, all we are 
doing is creating and innovating, and other people are building 
and making money.
    Ms. Dietz. And that is an excellent point. Thank you.
    Thank you, Ms. Nelson, for being so patient.
    Ms. Nelson. Sure. Our Administrator likes to say that now 
everybody wants to dance with us. And I love to dance, but you 
cannot do it 24-7.
    [Laughter.]
    We have kind of the opposite problem. We have less than 3 
million people spread over 51,000 square miles. And they are in 
small, little communities, and some of them are very isolated 
from broadband. You know, piping sunshine in is a problem 
sometimes.
    But they have some skills, and what we are seeing is some 
grassroots leadership. Mayors who have left those communities 
when they got old enough to get out of town, to get their 
education and a career, retire early, come back, and they are 
taking leadership.
    And they are joining together in small clusters of these 
very small communities--I am talking 500 people--and locating a 
business incubator, just a small place to kind of hold and 
nurture some. We have a photographer. We have someone who does 
some of the best craftwork you would ever see in carving wood, 
birds. It was one of the White House ornaments.
    They are not even aware of the services. We are trying to 
hook them up with SCORE counselors, the SBTDC and our office, 
technically, with Skype which we are doing through SCORE. We 
cannot possibly go there every time and share every single 
thing, but we can go and establish a relationship, and then we 
can pipe the sunshine in through the technology.
    But within our program, we are not able to do this. We are 
having to find resources, and the Arkansas Rural Development 
looks like it is going to step up to the plate. We have worked 
with EDA to see if they possibly could.
    But as to the regulatory issue--and by the way, I brought 
packets. If you want boring statistics about Arkansas, you are 
welcome to them.
    Mr. Van Hook. That is great.
    Ms. Nelson. So if you cannot sleep some night.
    I am also a CPA, and for about 12 years I practiced part-
time. I primarily did a lot of tax, and that is the most awful 
set of regulations. I do not understand most of it.
    I have done tax returns that were 900 pages for a very 
small company because of their structure, and they were not 
making a whole lot of money. And you can only guess how much 
that cost them, and there is no value added, other than keeping 
them out of IRS prison.
    We have at least four cities that have a problem with IRS 
because they have not paid payroll taxes. They cannot possibly 
go forward. We are working with the ombudsman because the 
ombudsman can also help small communities, small 
municipalities. They will not even talk to them to come up with 
a compromise plan.
    Yes, we know we need to pay, but we cannot move forward and 
get more revenues and people and grow our communities with this 
cloud and lien on the town. IRS literally owns them.
    Mr. Lopez. You know, I am going to have to excuse myself to 
catch my flight.
    Ms. Dietz. Please do.
    Mr. Lopez. But before I leave I do want to leave you with 
some articles about success stories from different companies, 
from SBA. I am very proud to say that one of the Colorado firms 
was recognized in this.
    But I do want to leave it with you because I think it is 
important for everybody to understand how well SBA approaches 
all the small businesses and to see it in writing and to see, 
hear firsthand from the small business owners because we could 
sit here all day and tell you all the success stories that we 
deal with every single day, but I think it is important for 
this Committee to understand the impact that we have. So I just 
want to leave these with you.
    Ms. Dietz. Absolutely. Thank you very much for bringing 
them.
    Mr. Umberger. How would you like those provided?
    Mr. Van Hook. We can follow up with you.
    And then I just want to end on a good note. I know that is 
how the Chair likes us to end. I just want to point out that 
this roundtable was a little unique because usually when we 
have roundtable each participant is an expert on one issue. So 
I noticed when we would have a question each of your name tents 
would go up because you are all experts on a lot of these 
issues and you are all familiar with it.
    Then also, I just wanted to thank Julie Verratti on our 
staff. She has been on detail for a couple of months. She 
helped us with SBIR, trying to get it passed a few months ago, 
and she has been invaluable to our staff. And I think she also 
helped Diane with the pronunciations.
    Ms. Dietz. Thanks, Julie.
    Mr. Van Hook. Yes. So, Julie, it is her last day tomorrow. 
So she is kind of going out on a high note.
    So we just want to thank everybody on that.
    I do not think I had anything else to include. I just want 
to thank everybody for flying up here, taking a train, driving.
    And then, the record is going to be open for two weeks, to 
July 14th. So if you have any materials, any information, any 
Arkansas statistics that we can throw in there, on tourism, any 
Las Vegas convention information, we can throw that in there as 
well.
    Mr. Cadena. I will send you whatever you want.
    Mr. Van Hook. Okay. We appreciate it.
    And this meeting is adjourned.
    [Whereupon, at 4:44 p.m., the hearing was adjourned.]

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