[Senate Hearing 112-908]
[From the U.S. Government Publishing Office]
S. Hrg. 112-908
CREATING JOBS AND GROWING THE ECONOMY:
LEGISLATIVE PROPOSALS TO STRENGTHEN THE ENTREPRENEURIAL ECOSYSTEM
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
NOVEMBER 29, 2012
__________
Printed for the Committee on Small Business and Entrepreneurship
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______
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED TWELFTH CONGRESS
----------
MARY L. LANDRIEU, Louisiana, Chair
OLYMPIA J. SNOWE, Maine, Ranking Member
CARL LEVIN, Michigan DAVID VITTER, Louisiana
TOM HARKIN, Iowa JAMES E. RISCH, Idaho
JOHN F. KERRY, Massachusetts MARCO RUBIO, Florida
JOSEPH I. LIEBERMAN, Connecticut RAND PAUL, Kentucky
MARIA CANTWELL, Washington KELLY AYOTTE, New Hampshire
MARK L. PRYOR, Arkansas MICHAEL B. ENZI, Wyoming
BENJAMIN L. CARDIN, Maryland SCOTT P. BROWN, Massachusetts
JEANNE SHAHEEN, New Hampshire JERRY MORAN, Kansas
KAY R. HAGAN, North Carolina
Donald R. Cravins, Jr., Democratic Staff Director and Chief Counsel
Wallace K. Hsueh, Republican Staff Director
C O N T E N T S
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Opening Statements
Page
Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana. 1
Snowe, Hon. Olympia J., Ranking Member, and a U.S. Senator from
Maine.......................................................... 6
Moran, Hon. Jerry, a U.S. Senator from Kansas.................... 10
Witnesses
Panel I
Greene, Sean, Associate Administrator for Investment and Senior
Advisor for Innovation Policy, U.S. Small Business
Administration................................................. 13
Chodos, Michael, Associate Administrator for Entrepreneurial
Development, U.S. Small Business Administration................ 21
Panel II
Gardiner, Scott, Executive Vice President, Granite State Economic
Development Corporation........................................ 39
Lindfors New, Fonda, Chief Executive Officer, Quaternary Resource
Investigations, LLC............................................ 46
Etemadi, Joshua A., Sales Manager, Construction Bonds, Inc., a
Division of Murray Securus, and Chair, Small and Emerging
Business Committee, National Association of Surety Bond
Producers...................................................... 53
Clough, David R., State Director, Maine Chapter, National
Federation of Independent Business............................. 61
Furchtgott-Roth, Diana, Senior Fellow, Manhattan Institute for
Policy Research................................................ 70
Weeks, Julie R., President and Chief Executive Officer,
Womenable, and Chair, Association of Women's Business Centers.. 83
Alphabetical Listing and Appendix Material Submitted
Association for Enterprise Opportunity
Prepared statement........................................... 166
Beutler, Brian
Talking Points Memo.......................................... 162
Chodos, Michael
Testimony.................................................... 21
Prepared statement........................................... 23
Clough, David R.
Testimony.................................................... 61
Prepared statement........................................... 63
Etemadi, Joshua A.
Testimony.................................................... 53
Prepared statement........................................... 55
Furchtgott-Roth, Diana
Testimony.................................................... 70
Prepared statement........................................... 72
Gardiner, Scott
Tesimony..................................................... 39
Prepared statement........................................... 42
Greene, Sean
Testimony.................................................... 13
Prepared statement........................................... 16
Landrieu, Hon. Mary L.
Opening statement............................................ 1
Responses to post-hearing questions from:
Sean Greene.............................................. 100
Michael Chodos........................................... 104
Fonda Lindfors New....................................... 113
Joshua A. Etemadi........................................ 116
David R. Clough.......................................... 120
LeClair, Lawrence E.
Letter dated December 5, 2012, transmitting response to
Senator Shaheen's question................................. 140
Levin, Hon. Carl
Responses to post-hearing questions from the Small Business
Administration............................................. 142
Lindfors New, Fonda
Testimony.................................................... 46
Prepared statement........................................... 48
Moran, Hon. Jerry
Opening statement............................................ 10
Mid-Tier Advocacy
Prepared statement........................................... 172
National Women's Business Council
Letter dated December 7, 2012, to Chair Landrieu............. 164
Snowe, Olympia J.
Opening statement............................................ 6
Responses to post-hearing questions from:
Sean Greene.............................................. 121
Michael Chodos........................................... 124
Fonda Lindfors New....................................... 135
David R. Clough.......................................... 139
Weeks, Julie R.
Testimony.................................................... 83
Prepared statement........................................... 85
Weiss, Robert F. and Laura
Paper titled ``The Innovation Network''...................... 149
Women Impacting Public Policy
Prepared statement........................................... 176
CREATING JOBS AND GROWING
THE ECONOMY: LEGISLATIVE PROPOSALS
TO STRENGTHEN THE ENTREPRENEURIAL ECOSYSTEM
----------
THURSDAY, NOVEMBER 29, 2012
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The Committee met, pursuant to notice, at 10:03 a.m., in
Room SR-428A, Russell Senate Office Building, Hon. Mary L.
Landrieu, Chair of the Committee, presiding.
Present: Senators Landrieu, Shaheen, Snowe, Risch, Rubio,
Ayotte, and Moran.
OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, AND A U.S.
SENATOR FROM LOUISIANA
Chair Landrieu. Good morning, and I thank everyone for
joining us for this hearing this morning at our Small Business
Committee, Creating Jobs and Growing the Economy: Legislative
Proposals to Strengthen our Entrepreneurial Ecosystem in the
United States.
I apologize for being a few minutes late. We were taking
some, what I hope and think will be, historic photographs in
the back with my so able and wonderful Ranking Member and our
staff, because this is a very special meeting for Senator
Snowe. Welcome, Senator Shaheen. Thank you for joining us.
So I want to say good morning to everyone and I would like
to thank our witnesses for being here. We are looking forward
to your testimony before our Small Business Committee this
morning.
But before we begin to talk about what is on the agenda
today, I want to take a point of personal privilege, and let me
acknowledge that this is our Ranking Member, Olympia Snowe of
Maine, who is attending her final Small Business Committee
hearing. We did not add up how many Small Business Committee
hearings she has attended. That would be extremely difficult.
It has got to be over the 100s, both here, on Commerce, and in
Finance, and she has served for literally decades here in the
Senate, some years in the House, and as a legislator in Maine.
So we did not even attempt, but trust me, it will be hundreds
if not thousands of hearings.
Let me say it has been a privilege, Senator, to lead this
committee with you. In 2009, we made history by becoming the
first two female lawmakers to ever be Chair and Ranking Member
of any standing committee in Congress and we are really very
proud of that milestone. We hope there will be many more to
follow. But it is something that the two of us have been very
proud of, and our close working relationship, as well. During
the four years leading this committee together, there were many
tough battles, but more than not, they resulted in important
victories on behalf of small businesses in Maine, in Louisiana,
and throughout this country.
For nearly four decades, Senator Snowe has proved time and
time again to be a hard working, dedicated public servant and a
role model for men and women alike, and she has demonstrated
time and time again the art of political compromise, a skill, I
might say, that is required in any democratic form of
government.
In 1978, at the age of 31, she was elected to represent
Maine's Second Congressional District, making her the youngest
Republican woman ever elected to Congress. In 1994, she won her
first Senate election and became only the second woman to
represent Maine in the Senate, following ably in the large
footsteps of Margaret Chase Smith. During her 18 years in the
Senate, she has earned a reputation as an extremely
intelligent, well informed, and able legislator who knows how
to tackle the toughest issues and get the job done. In 2006, we
will remember that Time Magazine named her as one of the top
ten United States Senators, quite an accomplishment.
Aside from the important work, Senator, that you have done
both as Chair and Ranking Member of this committee--and your
contribution has been enormous--you have been a leader on so
many important national issues, from national defense, to tax
policy, to education, to women's health, welfare reform, and
campaign finance reform, just to name a few. But your true
strength as a legislator comes from how hard you fought for
your State of Maine and how you have used your experiences in
Maine as a legislator, as a person who knows your State well,
to extrapolate their experiences and the struggles of the small
businesses in Maine to bring that experience to the nation.
A great example was in 2005, when you led a successful
fight to overturn the Pentagon's decision to close Portsmouth
Naval Shipyard and the Defense Finance and Accounting Service
Center in Limestone. You also fought to ensure Maine got
Federal assistance needed after disasters of the ice storms in
1998 and the 2006 flood that struck the Southern part of your
State. So you are not unfamiliar with those kinds of local
challenges and you have stepped up.
The void left by your departure in the Senate will not be
easily filled. American small businesses are losing a strong
champion in the United States Senate. The people of Maine are
losing a tireless advocate. And Congress is losing yet another
voice of reason and moderation, a voice willing to speak to
those on the other side of the aisle and to work for what is in
the best interest of the American public.
So I want to just say, Senator, what a privilege it has
been to serve with you, how much our committee and the Senate
is going to miss you, and we so appreciate your service to our
nation. And can we give a standing ovation.
[Applause.]
Senator Snowe. Thank you.
Chair Landrieu. And if any of the other members want to add
just a comment now, it would be appropriate, and then we will
go into some opening statements. Senator Moran.
Senator Moran. Madam Chairman, thank you very much, and I
join you in your tribute to my colleague from Maine and thank
her for her public service, exemplary public service. I regret
that my time in the Senate with you overlapped only two years.
I regret that you will not be my senior colleague much longer.
I wish you well in the next step of your life. Know that only
care and concern will continue for the people of Maine and the
people of this country, and thank you for being a role model
for how the Senate can and should operate.
Thank you, Madam Chairman.
Chair Landrieu. Senator Shaheen.
Senator Shaheen. Thank you, Senator Landrieu.
I want to echo Chair Landrieu's remarks about what a
privilege it has been to serve with you, Senator Snowe. You are
not only a colleague, but you are a neighbor, and I know how
much the people of Maine and the people of New Hampshire will
miss your service here.
As Senator Landrieu pointed out, when Portsmouth Naval
Shipyard was under a BRAC closing announcement, you were one of
the people who helped make sure the shipyard is still there and
we will miss that advocacy. And for small businesses, not only
in Maine but throughout New England, in particular, your loud
voice here to make sure that concerns of small businesses have
been addressed will really be missed.
And on a personal level, I just want to say how much I
appreciated your willingness to come over to New Hampshire to
listen. The hearings that we did together in Maine and New
Hampshire were really important to me and to the small
businesses in my State. So we will all miss you and especially
miss your ability to work with people of all ideologies here in
the Senate and to forge a compromise. There is not enough of
that, as has been said already. So I hope as you leave, the
example that you have set will be one that all of us can
follow.
Chair Landrieu. Thank you.
Let me go into my opening statement, and then, Senator, we
will have a response from you.
When I took over as Chair of this committee in January of
2009, our country was facing the worst economic recession since
the Great Depression. The U.S. economy had lost 818,000 jobs in
that month alone. From September 2008 through the end of 2009,
the Great Recession wiped out seven million American jobs. In
the face of tightening credit markets, insufficient resources
to assist small businesses, small businesses were struggling to
keep their doors open, and the primary agency responsible for
assisting them, the Small Business Administration, was itself
struggling to keep up with the demand after laboring under
significant budget cuts that had happened in the previous
years.
At the time, this committee faced the enormous challenge of
increasing the Federal Government's capacity to assist small
businesses and ensuring they maintain their historic role as
key job creators and innovators, spurring our economy, and we
had to do this without substantially adding to our nation's
increasing debt. It was an enormous challenge, but not an
impossible one, and one that I think that we have met through
an aggressive legislative agenda, and we are continuing to meet
that today.
After passing the 2009 American Recovery and Reinvestment
Act, in which this committee was actively involved, we continue
with one of the most substantial pieces of small business
legislation, the Small Business Job Act. This bill was a prime
example of the role this committee played and continues to play
in ensuring the future economic success of America's small
business. This bill added billions of dollars of lending and
investment to America's entrepreneurs and provided $12 billion
in tax relief to small businesses from coast to coast at a time
when they need it the most, and, of course, in conjunction with
our Finance Committee.
In addition, recognizing that less than one percent of
small businesses export, this bill expanded trade and export
opportunities to provide real and timely assistance for them to
find new markets when the markets at home were diminishing.
Finally, the bill increased small business access to
Federal contracts, expanded counseling and technical assistance
programs by partnering with hundreds of nonprofits throughout
the country, thus leveraging our muscle without having to add
millions of dollars to undergird that.
Since the passage of SBJA, the Small Business
Administration supported approximately $60 billion in lending
over the last two years, which were two of the highest SBA
lending years on record. It has financed almost 2,424 small
business commercial mortgages totaling more than $2.3 billion
in the commercial mortgage refinancing program. And I might
say, Senator Snowe was one of the leading voices on this
provision. This helped contribute to the highest 504 lending
year of all time, which supported over $15 billion in lending
to small and medium businesses.
SBA successfully rolled out its first round of State Trade
and Export Promotion, STEP grants, in 2011 to 47 States, four
territories, totaling $30 million. STEP grants maximize the
Federal-State-local resources to help small businesses export.
In Louisiana, we received an $85,000 grant, one of the largest,
and our Governor, of course, who is a Republican, and his team
have praised that effort and say it is one of the most
important grants that our State has received to help them in
their efforts to support small businesses in Louisiana.
The SBA has 20 new micro lenders on board to participate in
the Intermediary Lending Program championed by Senator Levin.
The ILP created in this bill is a three-year pilot project to
provide direct loans to eligible nonprofit intermediaries for
the purpose of making small business loans up to $200,000 for
start-ups and growing small businesses. What a need there is
for this in the country. We see it every day in small
businesses with four or five employees that are having just a
heck of a time getting that next $30,000 or $50,000 or $150,000
to expand, to buy the equipment necessary to hire that next one
or two persons. We are going to work on that.
The U.S. Department of Treasury has approved $1.4 billion
for State Small Business Credit Initiatives under the SSBC
programs and under the State Small Business Credit Initiatives,
again promoted by members of this committee. Treasury
distributed $4.2 billion in the Small Business Lending Fund for
community banks. We have now almost doubled, Senator Snowe, the
number of banks using the SBA programs since a low of several
years ago, and you have really been a leader in that effort,
along with me.
One of the major accomplishments, and again, this was with
Senator Snowe's great help and support, was an eight-year--not
two-year, not four-year, but an eight-year--reauthorization of
the Small Business Research Innovation Program, SBIR and STTR,
two of the most effective small business research programs in
the nation that support our small businesses, collaborate with
our universities, and get new, emerging ideas, technology,
services, and goods to the marketplace.
The SUCCESS Act, which is pending now, received 57 votes
before we left. It paints a picture of how far we have come in
the last several years. The results of these recommendations in
the SUCCESS Act, which is Success Ultimately Comes from
Capital, Contracting, Education, Strategic Partnerships, and
Smart Regulations bill, the SUCCESS Act of 2012 received 57
votes on July 12 as part of Senate Amendment 2521 to the Small
Business Jobs and Tax Relief Act of 2012. Five Republicans,
including the Ranking Member Snowe and Senator Vitter,
supported this Act on the floor. It is pending now before the
Senate. We want to continue to work on this to move it forward.
I am just going to mention a few things in closing. In that
bill, which hopefully will be under consideration, Senator, in
whatever grand bargain there may be, it extends 100 percent
capital gains tax relief on qualifying investment for small
business stocks, doubles the existing deduction for start-up
costs for entrepreneurs, temporarily reduces the S Corporation
is required to hold its assets after converting from a C
Corporation which effectively frees up capital for these
businesses. It allows small businesses to carry back business
credits, which helps them, and extend the availability of
enhanced Section 179, all very familiar to Senator Snowe. She
has promoted these on the Finance Committee and we have put
them forward as the best things we can do in the tax code to
help small businesses continue to advance.
Let me just say, one key provision that is attached or an
addendum, potentially, to the SUCCESS Act is Expanding Access
to Capital for Entrepreneurial Leaders that we introduced
earlier this year, Senator Snowe and I. The EXCEL Act would
modify the Small Business Investment Company program to raise
the amount of SBIC debt the Small Business Administration can
guarantee from $3 billion to $4 billion. The President has
called on us to do this. It would also increase from $225
million to $350 million the amount of SBA guaranteed debt.
Another key part of the SUCCESS Act would extend for one year a
provision allowing small business owners to use the 504 loans,
et cetera, et cetera.
And in addition, the TEAM Act is pending, and the only
thing I will say about this Act is it stands for Today's
Entrepreneurs are America's Mentors, that entrepreneurship is
not just about capital. It is not just about access to capital
or loans or equity. It is also about receiving the right
technical assistance. So the business owner may know their
product well. They may know their service well, Senator. But
they do not really have the knowledge or technical ability to
move their company from an eight-person employer to 16 or to
24, and mentorship. Now, does the government have to do that
completely on their own? Absolutely not. But our government
needs to be supporting the nonprofit mentors that are out
there, and there are hundreds of thousands at universities, at
our Small Business Entrepreneurship Centers, at the Women's
Centers that you have championed and literally been--I mean, we
should name that program after you, which is a good idea. You
have championed it so strongly. But, you know, entrepreneurs
need cash and money and they also need advice, mentorship, and
technical assistance.
So those are just some of the things that are pending
before our committee today. I wanted to start with that because
today's hearing is about the ideas that are pending, other
ideas that members of this committee have that can continue to
support the entrepreneurship drive that is helping to revive
our economy today in the United States and to see what our
committee can do to continue to pass legislation when it is in
our jurisdiction, and if not, at least to use this committee as
a platform to promote good ideas in hopes that other committees
will pick up those ideas and march forward.
So let me recognize Senator Snowe for opening remarks and
then we will get right into the testimony this morning.
OPENING STATEMENT OF HON. OLYMPIA J. SNOWE, RANKING MEMBER, AND
A U.S. SENATOR FROM MAINE
Senator Snowe. Well, thank you, Chair Landrieu, most of all
for those very kind, gracious, and generous words. It is hard
to believe that this is my final Small Business Committee
hearing. It has certainly been a tremendous privilege to work
with you and to have made history, as you said, as the first
women to serve simultaneously both as Chair and Ranking Member
of any standing committee in both the U.S. House of
Representatives and the United States Senate.
I have immensely enjoyed our partnership and working on
issues. No one has been more devoted to championing small
businesses than Chair Landrieu. And so it has been a special
pleasure to be able to work with you and alongside you on so
many of the critical issues facing our nation's small
businesses. You have been an exceptional partner and I want to
express my enormous gratitude to you for creating that
collegiality and the collaborative environment in which we have
been able to develop so many significant initiatives that
benefit small businesses, certainly in my State of Maine, your
State of Louisiana, and all across the country, because without
small businesses, we truly cannot have a recovery.
So I just want to let you know that I will never forget the
opportunity to work with you and to have had this special time
in working on these issues that have been certainly important
to me and to my State throughout my tenure of, I hesitate to
say, 34 years in both the House and Senate.
And I also want to express my gratitude to the fellow
committee members, Senator Shaheen, which we do have a special
partnership. We are neighboring States. We share Kittery-
Portsmouth Naval Shipyard. I call it Kittery-Portsmouth Naval
Shipyard. It is in Kittery, but that is a matter of dispute.
[Laughter.]
On their side. We know where it is.
[Laughter.]
But it has been a joy to work with Senator Shaheen because
I know how much she cares about small businesses and has been
totally devoted to this issue.
And to my colleagues on the Republican side, thank you for
giving me the opportunity to serve as both Chair and Ranking
Member of this committee for the last decade when I assumed the
Chairmanship from then-Senator Kit Bond from the State of
Missouri, and I want to thank you for your kind remarks,
Senator Moran. I have enjoyed getting to know you, as well. I
know you are committed to small businesses and you are devoted
to doing the things that are so important to making them the
engine that drives this economy, and for working with you
overall and collaborating. So I really appreciate that.
And to Senator Rubio, it is great to have this great team
on our side and working on these issues that matter to our
respective States, and so I want to thank you, as well, for
giving me this opportunity.
And I also want to recognize two committee members who will
no longer be serving here, as well, because they are retiring,
Senator Brown from Massachusetts. He has been a very active
member of this committee and was instrumental in providing the
leadership to addressing the issue of the withholding
requirement of three percent from government contractors that
became law, which was certainly essential.
And also to Senator Lieberman, with whom I have worked on
manufacturing issues--in fact, we co-chaired the Manufacturing
Task Force--and worked on so many issues on a bipartisan basis,
including the Chair, I might add, because we co-chaired the
Common Ground Coalition, as well, to build that bipartisan
consensus that is so critical.
As my final term draws to a close, I want to say how proud
I am of the work that we have accomplished over the years. When
I was Chair following Hurricane Katrina and the government's
failure to respond to its devastation in the Gulf, and in
particular in the Chair's home State of Louisiana, we worked
hand in glove to reform the SBA's disaster programs and fought
to assist the individuals and small businesses recovering.
And in reaction to the credit crisis of 2008 and beyond,
again, we worked mightily and vigorously to collaborate to
enact measures that were credited for helping the SBA support
over $30 billion in lending in 2011, which was the highest mark
in the agency's history.
The Small Business Jobs Act of 2010 included numerous
measures that we worked alongside and drafted together to make
sure that this legislation would get enacted, and including
provisions to provide vital tax relief to small firms,
comprehensive export provisions to assist small businesses in
reaching foreign customers, and crucial limitations on contract
bundling so small businesses have greater access to Federal
contracts.
And late last year, as the Chair mentioned, we passed
legislation, and thanks to the leadership of the Chair, we
authorized the Small Business Innovative Research Program and
the STTR for an additional six years so small firms would
continue to receive the valuable Federal research dollars for
years to come.
Looking back at my own service on the Small Business
Committee, and the Chair mentioned it would be very difficult
to add up the number of hearings that I attended in Small
Business Committees, and I think it would be very difficult
since I have served on the Small Business Committee since my
very first days in the U.S. Congress starting in 1979, and, in
fact, several of my senior staff were kind enough to inform me
that that was before they were even born.
[Laughter.]
Hard to imagine that, is it not? But I cannot think of any
higher priority than being a megaphone for the 150,000 small
businesses in my State of Maine and, of course, the more than
30 million small businesses nationwide.
As we all know, small businesses are willing to take risks
that others will not. They have their fingers on the pulse of
their local communities. And that is one of the reasons I have
made Main Street tours across Maine a hallmark of my tenure in
public office. I have often said, I do not need a survey to
understand what is going on on Main Streets and what is
happening that they do not like in Washington. And the fact is,
I always could understand it almost immediately when I was on
Main Street doing those small business tours because I would
hear exactly what was going on in a particular community.
That is why, along with Senator Landrieu, we urged the
President to restore the SBA Administrator to cabinet level
status, where it rightfully belongs, and we are fortunate in
our State of Maine to have Maine's own Karen Mills now having a
seat at the President's cabinet table because America's prime
job generator should have a voice at the highest levels of
decision making. I was pleased to recommend Administrator Mills
to head the SBA, where she has proven to be a superlative
leader for small businesses within the administration. And I
hope in the months ahead, the President will continue to rely
on her wide ranging expertise and knowledge, hands-on
knowledge, on how to create jobs, because they are desperately
needed, as we all well know.
In speaking of Maine, the small businesses in my home State
have another staunch advocate who is here today, the Maine
Director of the National Federation of Independent Businesses,
David Clough, who has been a longstanding friend, as well. I
think David has been head of the NFIB as long as I have been in
the United States Congress--almost. I have had the immense
privilege to serve with David over the years and I want to
thank him most especially not only for testifying here today on
the second panel, but also for his longstanding dedication and
devotion to small businesses across the State of Maine.
I also want to express my appreciation to the other
panelists that will be on both the first and second panel, and
most especially Ms. Julie Weeks, with whom I have worked for
the last 20 years on issues that are important to women-owned
businesses. So I want to thank her, as well, for being here.
As these witnesses can all attest, small businesses are the
embodiment of the American dream, and indisputably the fight
for their well-being is integral to the future success of our
nation. Small businesses consistently identify access to
affordable capital among their top priorities, and this
committee has worked unceasingly to increase SBA lending. The
provisions Chair Landrieu and I championed in response to the
credit card system in both 2008 and 2009 were recognized as
increasing SBA lending across the country 90 percent, and in my
own State of Maine, 236 percent. And the Small Business
Innovation Research program, the Women's Business Center
program, HUBZone program, the women's contracting program, are
advancements that remain some of my signature accomplishments
in this Congress in working with the Chair of this committee
and the members of this committee.
Finally in all of the initiatives I have undertaken as a
legislator and as an advocate is the remarkable work of my
staff, without whom I could not have possibly done the job on
so many of these issues over the years. They have moved heaven
and earth on a daily basis to make things happen for small
businesses because they truly care about America's
entrepreneurs as much as I do, and they are truly the best.
So I want to thank them, behind me, which is where they
have always been, my Staff Director, Wally Hsueh, my Deputy
Staff Director, Matt Walker, Meredith West, Adam Reece, Scott
McCandless, Shelley New, James Gelfand, Tara Crumb, Jake
Triolo, and Con Efstathiou. I want to thank each and every one
of them from the bottom of my heart for all they do----
[Applause.]
And also, I want to thank the Chair's staff, as well, Don
Cravins, the Staff Director, who has been great to work with
over the years, and Brian Van Hook and Robert Sawicki. We thank
you very much for all the work that you have done to make it
work here on the committee.
And finally, I would just say, I know there are a number of
issues that are going to be important going forward and I will
not restate them here today. Suffice it to say that, obviously,
in order to seek the accomplishments that are so important to
small businesses, whether it is a regulatory reform, a tax
reform, opening the doors for entrepreneurs that we are going
to hear about today, what will make the most effective
approaches to eliminating those barriers to entrepreneurship,
and also to meeting the statutory goals under the contracting
program within the Federal Government. There are so many issues
out there that can make a profound difference for the health
and well-being of small businesses. But none of these goals can
be accomplished without compromise and without bipartisanship.
And I truly have been gratified in serving on this committee to
have been blessed with the ability to work across the political
aisle with the leadership of the Chair. That has been the
signature, frankly, of this committee. It has been a bipartisan
committee from start to finish and I have truly appreciated
that, because public service has to be about problem solving
and that is what this committee has been all about.
So I wish you all well in the future. I know you will
continue to do extraordinary work on behalf of those that are
going to be so instrumental for our nation's recovery.
So, Madam Chair, thank you for this opportunity and thank
you for the ability to work with you over the years, and to all
the committee members, on these key issues that all of us care
so much about.
Chair Landrieu. Thank you, Senator Snowe, for that eloquent
opening statement. And again, we will miss you, your voice on
this committee. But I am sure that you will land somewhere
where we can continue to hear that loud megaphone.
Senator Moran wanted to make a brief opening statement, and
I would ask the other members if you would like to say a word
or two, we will go right into our comments.
OPENING STATEMENT OF HON. JERRY MORAN, A U.S. SENATOR FROM
KANSAS
Senator Moran. Madam Chairman, thank you for that courtesy.
Several of us on this committee, including Senator Rubio, asked
that we have a hearing on entrepreneurship. Thank you very much
for agreeing to that. I know this is something that you care a
great deal about. You have introduced legislation dealing with
entrepreneurs and start-ups.
We are actively engaged in an attempt to recognize the role
that entrepreneurs and start-up companies play in our economy.
History shows this is where jobs are created. Unfortunately,
the statistics now show that that is declining. Start-ups in
the United States are less. The number of jobs they create are
fewer. In a global survey, the United States is no longer in
the top two or three countries in the world in which we are
rated to be the place to start a business. Those things are
very disturbing. As we want to work to grow the economy, which
really means put Americans to work, it is entrepreneurs and
start-ups that deserve significant attention.
In a bipartisan way, as the Senator from Maine suggested is
the only way to get anything done around here, Senator Rubio
and I, along with Senator Warner from Virginia and Senator
Coons from Delaware, have introduced legislation, Start-Up Act
2.0, that we will continue to pursue in a serious effort to
address these issues. It comes about from academic research
done by the Kaufman Foundation with policy recommendations
dealing with taxes and regulations, with Federal research and
how to commercialize that research, and perhaps most
importantly, the issue of the global battle for talent--our
ability to attract and retain individuals who have educated
themselves in ways that are so advantageous to our economy, as
well as individuals who have entrepreneurial skills and desires
who happen to be foreign born but have the ability to create
jobs in the United States.
And so in this brief moment of an opening statement, we
look forward to working with you and our colleagues across the
Senate to make certain that we do the things necessary to grow
the economy and put Americans to work. And there is something
special about small business, about entrepreneurs, that makes
America what it is. And it is that sense of independence and
the ability to survive and struggle and succeed, and we want to
be helpful to you and to our colleagues to see that those goals
are met and the American Dream is lived.
Thank you very much.
Chair Landrieu. Thank you very much, Senator. I really
appreciate you and Senator Rubio joining us in a longstanding
effort to highlight the importance of entrepreneurship in our
country. In the last two years, we have had a half-dozen
roundtables where this room has been packed with experts from
the Kaufman Foundation that have testified before our
committee. I mean, I can recall at least two times, if not
three, just recently, about some of the principles that you
have outlined, and we have had some of the leading experts from
universities and think tanks, from a broad variety. We have had
some of our extraordinary partners from the banking community,
from the regulatory. So we really appreciate your willingness
to join that effort.
Secondly, the bill, which we have reviewed, as you know--
unfortunately, our committee doesn't have jurisdiction over the
majority of the issues in that bill. However, our committee can
continue to be a platform to talk about some of the significant
pieces in that bill, which I personally, as you know, support.
So any opportunity we have to be able to talk about some of
those, but immigration is under Judiciary. Your finance issues
are under the Finance Committee. And so the things that relate
to the Small Business Administration will be under the
jurisdiction of this committee. But we really appreciate your
championing that.
Anybody else? Senator Shaheen and then Senator Rubio and
then we will get right into our testimony.
Senator Shaheen. I am not going to make an opening
statement, but I just want to recognize some New Hampshire
folks who are here: Scott Gardiner, who is from the Granite
State Development Corporation who is going to be testifying on
our second panel, and with him are William Donoghan [phonetic],
who is a New Hampshire businessman and he has taken advantage
of some of the lending programs through the SBA, and David
Schwartz [phonetic], who has probably been working on the 504
refinancing programs longer than anybody I know of in New
Hampshire. We are delighted that all of you are able to join us
today. Thanks.
Chair Landrieu. Senator Rubio.
Senator Rubio. Just briefly. Actually, just a comment to
the Chair on a comment that you made. I am new here, so I know
how much--but I have already picked up on how jealous
committees are about their jurisdiction. I would just say, and
I do not know what we can do about it as you went through the
different scenarios, we will hear a lot of testimony today
about all kinds of things that affect small businesses, but we
cannot do anything about it in here, and these other committees
are considering it in the vacuum of a legal issue or a big
company issue, and yet these are critical to what we are trying
to accomplish.
So I know jurisdictions are a hard thing to change around
here, but I just hope there is more of a role for us to play in
this committee. This is the logical place for----
Chair Landrieu. Yes. Do not take what I said as this
committee does not have influence. We have been a major
influence, not only passing legislation, but influencing the
outcome of some serious legislation. But we do not write the
tax code in this committee. We do not oversee the immigration
laws in this committee. So we have to do that in conjunction
with the Chairs and Ranking Members of the other committees,
which we have done on many occasions through either legislation
or by letters that we all sign together, sending them to the
committees saying, your bill will not get very far unless you
include X, Y, and Z. So this committee remains, I think, the
largest, strongest voice for small business on the Hill and
thank you. We are going to continue to do that.
Senator Rubio. I guess I just was expressing the view that
if they just let us handle all----
Chair Landrieu. Well----
Senator Rubio [continuing]. It might get taken care of
before they would.
Chair Landrieu. Why do you not bring that up with your
leadership and see what they think about that?
[Laughter.]
I will let you try it with your leadership first, and then
I will go talk to Harry Reid.
[Laughter.]
But anyway, let me introduce our panel this morning, and
they are going to limit their opening statements to five
minutes because we do have four very active members here and
they want to ask you questions about what we are doing today,
what is working and not working.
First, Sean Greene is the Associate Administrator for
Investment and Special Advisor for Innovation at the SBA. In
his role, he is responsible for both the Small Business
Investment Company, SBIC, program, as well as the Innovation
Research program. He also leads the SBA's efforts on promoting
high-growth entrepreneurship, particularly as part of the
President's Start-Up America Initiative.
We have Michael Chodos, Associate Administrator for the
Office of Entrepreneurial Development. He is responsible for
overseeing the agency's counseling, mentoring, and training
programs, which, as you know, I think, is extremely important
and does that with partners all over the country.
So, again, we are focused on start-ups. We are focused on
gazelles and fast-growing companies. But I want to say, also,
Senator Moran, that I am very focused on lifestyle businesses
and family businesses that do not want to be the next
Microsoft, but they just want to feed their family, contribute
to their community, and they have a right to be heard, as well.
So it is a combination of promoting the fast-growth potential
start-ups and also the lifestyle businesses, which many people,
of course, in your State and my State, choose to be
entrepreneurs as a lifestyle, and I think we need to honor
that, as well. So that is what we are doing, trying to find
that balance.
So, I do not know, Mr. Greene, do you want to start,
please.
STATEMENT OF SEAN GREENE, ASSOCIATE ADMINISTRATOR FOR
INVESTMENT AND SENIOR ADVISOR FOR INNOVATION POLICY, U.S. SMALL
BUSINESS ADMINISTRATION
Mr. Greene. Sure. Chair Landrieu, Ranking Member Snowe,
members of the committee, I am pleased to testify before you
today and I want to thank you for calling this hearing and for
your strong support of not only SBA, but promoting more
effective and creative new ways to serve entrepreneurs all
around the country.
So one of my primary focuses at SBA is on high-growth
entrepreneurship, and as you know, high-growth small businesses
create the vast majority of net new jobs in our economy. But we
also know that they have different needs, and to address those
needs, the administration launched the Start-Up America
Initiative, a major initiative focusing on what we can do to
help how we serve high-growth companies and entrepreneurship.
Now, one of the first things that we did within Start-Up
America was to get out and say, we have to listen to our
customers. And so we traveled the country. We talked to over
1,000 entrepreneurs, investors, and other stakeholders in the
entrepreneurial ecosystem. And what we heard was these
companies that are facing significant challenges, ranging from
access to capital to securing the right human capital to
support their companies. And there are many opportunities for
the public and private sectors to work together to address
those challenges.
Based on the feedback that we heard, we have acted. And one
of the primary focuses has been improving our core programs to
support high-growth entrepreneurship, and at the heart of those
improvements is focusing on ways that we can streamline,
simplify, and strengthen those core programs.
One of the programs in which we have made great strides and
where legislative changes that this committee is both
supporting and sponsoring will allow us to do even more is with
the Small Business Investment Company program, the SBIC
program. As many here today know, the SBICs are part of a
unique program at SBA to put long-term patient investment
capital into America's small businesses, allowing them to grow
and to create jobs. Today, the SBIC program serves as a model
for successful public-private partnerships, and the program,
which has been around since 1958, is completely market-driven.
We do not make the investment decisions. The private investment
fund managers do.
Today, the program is more than 300 SBA licensed funds
which invest in a wide variety of small businesses, such as JSI
Store Fixtures in Milo, Maine, which after receiving an
investment from an SBIC more than doubled the number of
employees, from 80 to 200. The company was just recognized by
the Small Business Investor Alliance as the SBIC Portfolio
Company of the Year.
In fiscal year 2012, I am proud to report we have had the
third consecutive record-breaking year for the program. And so
for our venture program, we have reached all-time highs in the
50-plus years of the venture program in terms of how many funds
we license, the amount of private capital we attracted to the
program, SBA commitments of leverage into these funds, and most
importantly, how many investment financings go out to small
businesses themselves. Importantly, in executing that, we took
the average time for a new fund to come into the program from
an average of 15 months to just over five months, and that
streamlining was a critical part of the success they were able
to accomplish.
Now, we believe that two legislative changes that are
before the committee and have been embedded into the SUCCESS
Act, the RESTART Act, and other initiatives can help us do even
more to help those high-growth small businesses. The first
change is an increase in the annual authorization for the
program from $3 billion to $4 billion. We have not hit that
limit now, but if you look at the growth trajectory that we are
on, we are likely to hit that soon, and getting ahead of that
growth trajectory, we think is important.
And then, secondly, is a change in the family of funds
limit from $225 million to $350 million. What we see right now
is some of our most successful funds in the program are hitting
that cap, and we believe by changing that cap, it creates a
great way to continue to grow the program while at the same
time doing it at very little risk to taxpayers. Critically
importantly, this program runs at zero subsidy and we want to
continue that growth while maintaining its zero subsidy status.
Now, another set of programs that is critical is the SBIR
and STTR program, and we would like to thank the committee for
its efforts to reauthorize the program. Since the
reauthorization at the end of last year, we have been
incredibly busy with the rulemaking. We are close to finishing
that rulemaking. I am also pleased to say that we have put into
effect two new policy directives for SBIR and STTR. In the
prior reauthorization, it took two years to get the new policy
directives in place. This time around, we have done it in seven
months. So we feel good about the program, but there is still a
lot more work to do in implementing the reauthorization at the
participating agencies, but we are staying on top of it and we
are committed to working with you and keeping you informed of
our progress.
In addition to these two programs, though, SBA----
Chair Landrieu. In one minute, if you would.
Mr. Greene [continuing]. Looks to continue its role as
advocate for small business and entrepreneurs across the
Federal Government. The administration has instituted a
Presidential Innovation Fellows Program to bring entrepreneurs
from the private sector into the government to help develop--to
address key problems with more innovative solutions. And I know
the committee is looking at legislation to address similar
kinds of issues.
We have also been working with other agency partners on
everything, on ideas around immigration, to supporting
accelerators and mentorship programs all around the country. So
that advocacy role, working with agency partners, are
critically important, as well.
And so in conclusion, Chair Landrieu, I once shared with
you my favorite definition of entrepreneur, which is someone
who does more than anyone thought possible with less than what
everyone thought necessary. And so as a former entrepreneur in
the private sector, it is this entrepreneurial spirit that we
are bringing to SBA, to generate more entrepreneurial
approaches and to continue to do more than anyone thinks
possible in service of our nation's entrepreneurs.
So we look forward to working with you to implement those
kind of actions and thank you for taking the time and I look
forward to questions.
[The prepared statement of Mr. Greene follows:]
[GRAPHIC] [TIFF OMITTED]
Chair Landrieu. Thank you, Sean. Your leadership has really
been visible and you have made a market change and we really
appreciate that.
Mr. Chodos.
STATEMENT OF MICHAEL CHODOS, ASSOCIATE ADMINISTRATOR FOR
ENTREPRENEURIAL DEVELOPMENT, U.S. SMALL BUSINESS ADMINISTRATION
Mr. Chodos. Chair Landrieu, Ranking Member Snowe, and
members of the committee, thank you for the opportunity to
testify here today before the committee.
Before I start, I know that both Sean and I would like to
say how much Administrator Mills would like to echo all of the
comments that were made here this morning about the long and
tireless and extremely important service and to express
gratitude for all the service that Ranking Member Snowe has
provided over these many years in this committee and on behalf
of small business. So thank you on Administrator Mills's behalf
as we start today.
We at the SBA, of course, generally support your strong
support of the agency, as well as your continued leadership on
all the issues impacting America's small businesses.
SBA's entrepreneurial development programs, of which I am
in charge, and all of our partners, are deeply embedded in
local and regional economic development ecosystems across
America. We support over one million clients annually as they
start and grow their small businesses. We have more than 14,000
business counselors, mentors, and trainers available through
over 1,000 Small Business Development Centers, 106 Women's
Business Centers, and over 350 SCORE chapters. Since 2009, we
have also provided intensive entrepreneurship training to over
1,300 small businesses in 27 cities across America through our
groundbreaking e200/Emerging Leaders Program. This past year
alone, the clients we assisted started almost 16,000 new
businesses and accessed over $4 billion in new capital.
But we and our partners do not just support innovation. We
practice it. That is why for this past year we have made
collaboration and coordination a key goal and objective across
all our resource partner and cluster networks. In addition, in
direct coordination with our resource partners, we are working
on better ways to measure and report out comparative
performance metrics across the entire network. We believe that
transparency leads to ongoing self-reflection, innovation, and
improvement, and we look forward to great progress on this
front in the coming year.
In addition to in-person training and counseling, the SBA
continues to expand its online engagement with small business.
Since 2009, more than 2.5 million people have accessed the
courses, assessments, and tools available on SBA.gov on topics
as diverse as business planning, market and competitive
analysis, use of social media, and navigating the Federal
contracting landscape.
One of SBA's top priorities is making sure tools are in
place for helping small businesses receive Federal contracts.
We strongly support permanently increasing the size of the SBA
surety bond guarantee from $2 million to $5 million, as has
been called for by this committee in various pieces of
legislation.
Another important change which is part of the SUCCESS Act
and the RESTART Act is the women-owned contracting provision,
which would remove caps on contract awards under the Women-
Owned Small Business Program. We believe this will allow more
Federal contracts to flow to women-owned small businesses.
Over the past four years, SBA has developed new
partnerships and programs that expand the agency's reach to
more small business owners in more communities across the
country. For example, we know that veterans over-index in
entrepreneurship. So, working with the Departments of Defense,
Veterans Affairs, and Labor, we recently launched Boots to
Business in pilot locations at selected military facilities
across the country. When fully rolled out, Boots to Business
will provide an introduction to the opportunities and realities
of small business ownership and entrepreneurship as an optional
track for the 250,000 service members transitioning each year
through TAP.
In addition, we are working with AARP to train and counsel
more than 100,000 encore entrepreneurs this coming year on
opportunities to use their experience and skills to start and
grow businesses. We are also working with the Department of
Labor to pilot Start Young, an entrepreneurship training
program for young people at 13 Job Corps sites across the
country. And we have engaged with Historically Black Colleges
and Universities and other minority-serving institutions to
help traditionally underserved young entrepreneurs access life-
long entrepreneurship training and support in our network.
Increasing small business exports is a major focus of the
SBA, and thanks to the exporting provisions of the Small
Business Jobs Act of 2010, the agency has had new resources and
tools to put towards this priority. We are working with
agencies across the administration to build on our recent
successes in this area and look forward to continuing to work
with the committee on these efforts.
Finally, our Regional Innovation Clusters drive economic
growth by connecting small business innovators with targeted
technical support in our network as well as investment and
funding partners in procurement and supply chain opportunities.
I have reviewed the SUCCESS Act, the TEAM UP Act, the
RESTART Act, and the other pieces of legislation that are
before this committee. We share a common commitment to
providing small businesses with the tools they need to start,
grow, and create jobs. Our resource partner and clusters
network has an extraordinarily diverse range of experts in
every part of the small business ecosystem and we look forward
to working together in order to support them.
Of course, I am happy to answer any questions.
[The prepared statement of Mr. Chodos follows:]
[GRAPHIC] [TIFF OMITTED]
Chair Landrieu. Thank you very much.
Senator Risch has joined us. Welcome, Senator, and thank
you for your active support of the work of this committee.
Let me begin by asking both of you this question, and we
will do a five-minute round. We realize that government cannot
do it all, and I have been a very big supporter of partnerships
with nonprofits and the private sector to accomplish goals. Can
you both take 30 seconds or 45 seconds and be very specific
about how this small agency, which is only $1 billion--I mean,
it is dwarfed by Education, Health, Defense, Commerce, et
cetera--how you are leveraging partnerships either with banks,
governments, nonprofits, et cetera, and why you think that is
so important, and how successful are we in leveraging the power
of others, because we obviously are not a big enough agency to
do this all alone.
Let me start with you, Mr. Greene.
Mr. Greene. Sure, and let me talk about that on the capital
side and then on the broader side. On the capital side, again,
I think the SBIC program is the embodiment of a smart----
Chair Landrieu. Speak closer into your microphone, if you
would.
Mr. Greene. I am sorry. The SBIC program is the embodiment
of a smart public-private partnership in which we say we are
not going to make the investment decisions. Let us let
investment professionals do that. The incentive, the economic
incentives are aligned to do that. And we have had a
significant focus on not only attracting more high-quality fund
managers into the program, but reaching out to the investors
who invest in those funds and increasing transparency and
information about the program to make them want to come to the
program, as well. So on the capital side, that is critically
important.
But it is also critically important on the broader side, as
well. So one of the primary focuses that we have had on
supporting mentorship, et cetera, is in and around something
that we call accelerators, and these are organizations that
come in many shapes and sizes that are all over the country,
and they are doing great work, not only to help more companies
start, but to accelerate the growth of those companies.
And as one example, I would point to people like Idea
Village in Louisiana, who are not just helping companies one at
a time, but are doing great work to say, how do we strengthen
the entrepreneurial ecosystem in Louisiana? And there are
examples of that literally in every State of the country.
And so what we have to be doing is saying, how can we help
accelerate these accelerators? And we are looking at a range of
different things to do that. We feel good about the progress,
but there is much more work to do.
Chair Landrieu. Thank you.
Mr. Chodos.
Mr. Chodos. Chair Landrieu, thank you for the question. I
think there are two things that we would like to focus on as
part of the ways in which the agency leverages taxpayer dollars
in order to engage and support with small business.
First and foremost, all of our key, core grant partnerships
with our SCORE network, with our Small Business Development
Centers, and with our Women's Business Centers involve match
requirements that create at the very foundation a partnership
between the Federal Government, research institutions, and
local resources, including foundations and local contributors,
in order to make a connected-based approach to supporting small
business.
But in addition, we work with partners in all of our
outreach and mentoring activities. I mentioned our recent
partnership with AARP in order to support encore entrepreneurs
all over the country. Our cluster networks all across the
country act as convening and networking entities to bring
together small business innovators with local commercial and
supply chain opportunities, along with the local investment
community, as well as large defense contractors or other prime
contractors in order to knit together the different pieces of
the economic community.
We believe economic development and small business support
is a ground game. It requires us to work one business at a time
with all of the pieces they need to succeed. That is what we do
and what we build into the program right from the very----
Chair Landrieu. Thank you very much.
Let me ask you about the 504 program, because this is a
very important program that has expired. There are literally
seven pieces of legislation, at least, that have the extension
of this 504 provision. In 2011, through this program, we
leveraged $4.8 billion in capital. In 2012, it was $6.7
billion. What are the consequences, in your mind, Mr. Greene,
of not extending the benefits of this program? I mean, what
will happen to the commercial refinancing, I guess, sector in
this country for small business?
Mr. Greene. So, Senator Landrieu, we agreed this was a
critically important program. In 2012, we get $2.2 billion for
the 504 refi. Over 2,700 small businesses benefitted from this.
So we know there is strong demand from small businesses as well
as from CECs as intermediaries looking for this product.
So the administration is taking a hard look to evaluate
whether to support this specific proposal. Critically important
will be maintaining the zero subsidy nature of the program and
making it--continuing to make it an attractive vehicle, both
for the small businesses and the lenders. Of course, if
Congress decides to reauthorize, we will be there to make sure
that we efficiently and effectively implement the changes that
you legislate.
Chair Landrieu. Okay, and I want to underscore this. It is
a little point of contention. I realize that it would be ideal
to run every program at absolutely no cost to the government. I
mean, that would be ideal if we could figure out ways and we
continue to press that agenda. But a modest subsidy or a
planned-for moderate subsidy is still quite valuable if it is
leveraging billions of dollars that are otherwise completely
unavailable to small businesses in the conventional lending
that is either going on or not going on in this country.
So while philosophically people argue for zero-subsidy
programs, I urge our committee members to be open to weigh the
benefits of the subsidy that is being provided for the benefit
that is occurring. And, obviously, it needs to be a large net
benefit.
Senator Snowe.
Senator Snowe. Thank you, and I want to thank both of you
today for the contributions you are making to these vital
programs because I think start-ups, obviously, are crucial to
generating economic growth in this country and we are reliant
on those starting new firms.
What do you think, when entrepreneurs are thinking about
starting a new firm, what are the issues that are the most
significant in making those decisions, in your estimation?
Mr. Chodos. Thank you, Senator Snowe. I speak to small
businesses all the time and they talk a lot about the things
that they are concerned about when they start their businesses.
I think, first and foremost, every small business wants to know
where are they going to get the money to pay for the first few
months of payroll, the first set of equipment and machinery,
and the first set of inventory or raw materials. So access to
capital in the early stages of the business is always top of
mind.
But I also speak to small businesses all the time who come
into business with a particular area of expertise. For example,
they know manufacturing. They are a mechanic. They know how to
do something in terms of marketing or consulting or that sort
of thing. But they need help learning about the other parts of
business with which they are not familiar. They do not know how
to read a financial statement. They do not know how to put
together a balance sheet.
What I find is that businesses say, we need the kind of
help that we need to answer the questions we do not yet know
how to answer and we want it to be available in our communities
or available online so that it is straightforward and
accessible. That is what I hear regularly.
Senator Snowe. And do you find that the existing programs--
and I think that what the Chair is discussing about sort of
formalizing a mentorship program, because I think that is
crucial--would be beneficial at the very outset?
Mr. Chodos. Yes. Let me say this--oh, I am sorry.
Senator Snowe. No, go ahead.
Mr. Chodos. Yes. We find that our mentors act--really, at
the end of the day, there are those questions that small
businesses know that they have when they start, and almost as
important are all the things they do not yet know they do not
know about what they need to learn in order to start and grow
their businesses. Having a mentor, whether it is in a high-
growth business or whether it is in a Main Street business, is
critical to not making the mistakes that somebody else has
already made so that you can actually deploy your resources to
creating that next job or getting that next product out the
door. We find that mentorship, once accessed by a small
business, becomes a critical pillar of their success.
Senator Snowe. And given the current uncertainty with
respect to both taxes and regulations and the overall
environment and what is going to happen regarding the fiscal
cliff and going forward, to what degree is that suppressing
entrepreneurship at this point?
Mr. Chodos. Well, Administrator Mills and the President met
with small businesses just a couple of days ago at the White
House and heard, I think, one message again and again and
again, that small businesses want certainty, they want to know
what the situation is going to be, they want to make sure that
their customers are going to have money to spend on their
products and services, and they want to have resolution.
Senator Snowe. Do you think it is possible to draw a line,
the cutoff on $250,000? I know it is much debated, in terms of
what effects it has on small businesses, where we could draw
that line, whether it is on an income tax return and deducting
small business income, because, as you know, the preponderance
of small businesses file individual tax returns, or through a
dollar figure. But I do think that that happens to be a major
issue that we have to address, as well, to make sure that we do
not create unintended consequences.
Mr. Chodos. Well, I do know that the level at which any
particular terms of a deal might be reached are under very,
very focused discussion at the moment, and I do know that the
small businesses with whom we speak simply say that, at this
point, what they are most interested in is the spirit of
compromise and of problem solving and of resolution that has
really been the hallmark of this committee and that is so
important in order for them to work well with their customers
and to plan for the future.
Senator Snowe. One of the programs, and the President, I
think, referred to it last year in his State of the Union
Address, was the Early Stage Innovation Fund under the SBIC.
Exactly where does that stand today and how effective has that
been, because I do think it is a great approach in helping
early-stage companies to get established.
Mr. Greene. So we launched this program last year. When we
saw the data--not only do we hear from small business about the
difficulty of raising early patient capital, but the numbers
spoke for themselves, where venture capital as a whole has
decreased significantly, particularly at the early stages, and
there was a massive unequal distribution of where that capital
goes so that 70 percent of early-stage financings only happened
in three States. On the other hand, all the data shows that
there are companies with high-growth potential all across the
country, not just located in those three States.
So we need to make some regulatory changes within the SBIC
program to launch that. We executed that last year. We
identified a process by which the funds would apply. We had
over 30 funds applying and we gave green light letters to six
funds who are now completing their private capital raised and
will come back to us.
So we are off to a good start. We expect to license about
four to five funds per year over a five-year period. So we are
off to a good start.
Senator Snowe. Thank you.
Chair Landrieu. Thank you.
Senator Shaheen.
Senator Shaheen. Thank you. Thank you both for your
testimony and for being here today and for all the work that
the SBA is doing. Ninety-five percent of New Hampshire workers
work for what the SBA technically calls a small business. So,
obviously, your work and the importance of small businesses are
significant in New Hampshire.
One of the things that I did was to ask some of the folks
in New Hampshire who work with small businesses what questions
they would like to see asked at the hearing today, and this one
comes from someone who has an incubator, but I would think she
could also be described as an accelerator, as well. And she
points out that one of the components of the SUCCESS Act is a
provision to require SBA to coordinate and make consistent data
collection and outcome metrics for entrepreneurial development.
She is concerned that the metrics change from year to year,
which makes sense, but how are the metrics formulated and are
they truly given a chance to work before they change? Are we
picking the right metrics? And then are we putting the
resources behind them and really giving them a chance to work
before we make changes in them? And I do not know which one of
you would like to answer that.
Mr. Chodos. Perhaps I can, Senator. In our department, in
the Office of Entrepreneurial Development, we maintain the core
database and surveying systems for all of our entrepreneurial
activities across the country. So we have our EDMIS system,
which is essentially the Entrepreneurial Development,
Management, and Information System, as well as an ongoing
annual survey of the recipients of the counseling services
across our network in order to identify the outputs from our
program, the demographics of those who access our program, and,
essentially, the outcomes they achieve by virtue of having
access to our program.
I will say that the question of making sure that we measure
the right things, that we measure them consistently, and that
we report out promptly and effectively is--it has always been
our goal, but it is an opportunity, I think, constantly, for
improvement. We are very focused in the Office of
Entrepreneurial Development and across the agency at having a
performance metrics analysis framework in our core programs,
the WBCs, the SBDCs, and SCORE, as well as in our cluster
network, and as well across our other programs, which is
consistent and which actually measures those things that the
agency, that Congress, and that our stakeholders care most
about.
So we have implemented this year two things. First of all,
we have listened to our resource partners. We have listened to
stakeholders across the country. And we are currently engaged
in an upgrade of the EDMIS system in order to make it more
effective, more reliable, and more accessible for those who use
it, and we are talking to all of our resource partners to find
out what is the right way in order to collate and actually
align all of the different measures we use, because everybody
here knows that different people come to Congress on a regular
basis, and to us, and say, I have my set of metrics, and
somebody else has their set of metrics, and you never really
get a sense of how they all compare to each other.
We think it is critically important--it is both an
obligation and it is an opportunity--to be able to actually
compare and cross-correlate and actually coordinate and align
everybody's metrics, so we ask the same questions and find out
how we are all doing compared to each other and against those
goals we think are most important.
Senator Shaheen. Thank you.
Mr. Greene, you talked about the work to streamline
programs and make them more effective. One of the provisions in
the SUCCESS Act improves small business access by reducing
paperwork and red tape. And again, this is a question from New
Hampshire. The concern is that we should reduce paperwork for
all kinds of small business contracting opportunities, grants,
et cetera, and simplify the process based on the size of the
grant or the award so that we are not asking for the same
amount of paperwork for something that is going to offer
$20,000 versus something that is going to offer $200,000. So
can you talk about what the effort is there to look at that
difference and see how to address that?
Mr. Greene. Absolutely. So, first of all, on the
streamlining, I think it is critically important, back to the
measurement point, that we measure and so that we look at turn-
around times, et cetera.
Secondly, it is important that we be transparent and we
publish the information about how we perform so that everyone
can know, both to hold ourselves accountable and also so that
small businesses can have predictability when they know that
they are interacting with us.
Now, more specifically on the issue of one size does not
fit all, you know, that is a critical component that we are
looking in many, many different areas. But one specific place
that we are looking at this is on the contracting side. So I
mentioned earlier a Presidential Innovation Fellows effort to
bring entrepreneurs into the Federal Government to tackle tough
problems. This is a tough problem, to say, how do you
customize.
And so a specific project that SBA is leading is an effort
we are calling RFP-EZ, and the notion is just like 1040-EZ, is
a simpler form for taxes----
Senator Shaheen. Terrific. Love it.
Mr. Greene. Let us do the same thing for government
contracting. And we are starting small. We are going to do it
as a pilot. We are going to focus on information technology,
where costs have come down by 10X in the private sector but not
necessarily on the government side. But by reducing the
transaction costs of doing business with the government, we
think that we can bring more innovative technology companies
into Federal procurement, lower costs for taxpayers, and, by
the way, get more dollars to the companies who create jobs, not
just on their balance sheet, but on their P&L.
Senator Shaheen. Well, I hope, Madam Chair, that we can
maybe get more----
Chair Landrieu. Detail.
Senator Shaheen [continuing]. Detail, yes, expansion on
this proposal for the committee. Thank you.
Chair Landrieu. Well, thank you. We will. And Senator
Shaheen, you have been a real advocate for efficiency,
streamlining, transparency, and let us continue to work on it.
But that is very good, promising news for that launch of that
pilot.
Senator Moran.
Senator Moran. Madam Chair, thank you.
I appreciate your testimony. It has generally been focused
on SBA programs and I appreciate their value. I want to take
the soapbox opportunity that we have described for our
committee and for the SBA to advocate on behalf of businesses,
entrepreneurs, start-ups, and indicate, first of all, I think
there are, as I indicated briefly in my opening comments, there
are some troubling trends in regard to start-ups and
entrepreneurship in the United States. Our economy obviously
has slowed down. There are fewer entrepreneurs starting
businesses. And those new businesses are hiring fewer workers.
The number of new businesses started in the United States
has declined every year since 2006. In 2010, there were
approximately 394,000 new businesses started in our country,
and we are glad for that, but that is the lowest number of
start-up businesses per year since 1977. These new businesses
created more than 2.3 million jobs in 2010, but that is the
third fewest number of jobs created by new businesses in more
than 30 years.
Secondly, there are external indicators showing that the
United States is becoming less friendly to entrepreneurs. The
World Bank has an annual report called ``Doing Business.'' It
ranked the United States as the fourth easiest place in the
world to start a business in 2007, but four years later, we
dropped to 13th in that measure and we remained there again
this year.
Since starting on this--paying attention to this
entrepreneurial start-up issue, one of the things that stands
out to me--I have only been a member of the United States
Senate for a little less than two years now, but in that two
years, seven other countries have adopted legislation, things
that we have not done, pursuing entrepreneurial start-up
policies that create greater opportunities in those countries.
Chile stands out as an example of where they are doing many
things to increase the opportunities for businesses to start up
in their country. They have an initiative called Start-Up Chile
that provides entrepreneurs with capital to develop their
business, free office space, and temporary visas. These
incentives are attracting entrepreneurs from around the world
to Chile, including from the United States, and that is the
part I wanted to emphasize. And, in fact, 20 percent of the
grant recipients, or the recipients of those incentives, came
from the United States. So one-fifth of the businesses that
received those incentives were U.S. businesses.
There is this global battle for start-ups, for
entrepreneurship, and we are falling behind. The United States
is falling behind. And if we lose entrepreneurs, we lose the
jobs they create.
I remember being in California talking to a business who
was waiting on the decision on an H-1B visa for 68 potential
new employees at their company. They did not make it in the
competition. At the appropriate time, they were unable to get
the visas. So the story to me was, we hired those folks anyway,
but we hired them in Canada. And so 68 jobs lost because we
have a visa program that did not work, does not work. And while
68 jobs is a significant loss, what troubles me even more is my
guess is that some of those 68 people hired in Canada will
start the next entrepreneurial business that may result in
significant job creation that could have been in the United
States but will now occur in another country.
And so I want to use the megaphone of the committee and of
the SBA to highlight the immediacy, the need to act more
quickly than this Congress and this administration are doing.
We have a lot to lose, and we are going to work our way through
legislative proposals, but we also ought to recognize that we
do not have much time, that every day, every week, every year
that goes by, others are moving in a direction that we are not.
Of the provisions in Start-Up Act 2.0, some deal with the
regulatory environment, some deal with the tax code, as I said,
some deal with the ability to take Federal dollars used in
research and more rapidly commercialize that research. The most
contentious or controversial deals with visas for STEM,
foreign-born, U.S.-educated individuals with talents and
intellect that we, in my view, desperately need. It deals with
entrepreneurs staying in the United States.
And I know that the House today is taking up a STEM jobs
bill. The President yesterday at the White House indicated that
that bill, they supported, but would not sign the bill because
it is not all-encompassing.
I just want to highlight that we do not have--if Congress's
history is any indication of how long it takes to get
immigration completed in a comprehensive form, we are going to
be at a much greater disadvantage if we cannot--and here is my
concern, if you can help when Administrator Mills talks to the
White House and as I talk to my colleagues. I am concerned that
there is a growing approach to this issue of STEM and
entrepreneurial visas. I think 80-plus percent of my colleagues
agree with the provisions of our legislation. We have to be
careful that we do not take the approach that says, if we
cannot do everything, we cannot do anything. This perhaps is
more of a message to my colleagues, but it is certainly a
message, I think, that is valuable for the White House based
upon the President or the White House's statement yesterday in
regard to legislation pending today in the House of
Representatives.
My time has expired. I did not realize that I was on my
soapbox as long as I was, but I would appreciate any advocacy
for the immediacy of solving, addressing the issues that we
face and to make sure that entrepreneurial skills and talent,
as well as the environment in which they operate, is changed
now, not sometime down the road.
Thank you, Chair.
Chair Landrieu. Thank you, and I will take a moment to
respond to that. I would simply say, yes, we cannot wait to do
everything while we fail to do some things right before us. But
we also cannot just continue to do the easy things on
immigration without doing the hard things, because in a
democracy, you need the leverage to get the whole thing done.
So we do not have to get into that argument now, but that is
the resistance that you are feeling, and there is some
resistance because we cannot just keep doing the easy things
until we get some of the tougher things done that really affect
the economy.
And let me just add this, too, Senator Moran. To this
morning, in terms of growth rate, the real domestic product
rose this morning announced at 2.7 percent in the third
quarter, which is the highest since the end of last year, and
went over projections. It was projected to be, I think--it rose
by 1.3 percent in the second quarter of this year, two percent
in the first. They are going to uptick it to 2.8. They had
estimated it, I think, to be two.
So I realize that there are still some challenges, but as I
stated in my opening remarks, we have lost seven million jobs
in America, and because most of the jobs are with small
business, you are right. We have lost a lot of small business
jobs and we need to continue to work to improve that.
Senator Rubio.
Senator Rubio. Thank you. One of the things I enjoy about
being on this committee and talking about small business is
that I think it is really the cornerstone of middle class, and
middle class is what distinguishes us from the world. Every
country has rich people. Unfortunately, every country has poor
people. But what has really distinguished America and one of
the things that makes us exceptional is this vibrant, broad-
based middle class, of which I think small business is such a
critical part of it.
So a couple things I wanted to talk about that I have
heard. In fact, as we were here--I do not know how they are
watching us, maybe on C-SPAN or on the Internet--but a small
business in South Florida texted me a question in real time.
Here are two things they wanted me to mention.
The first is, and I think some of it was referenced, Mr.
Greene, in your opening comments--you wrote something about
attracting the right human capital. There is this real concern
that even if we have an economy that is creating a lot of small
business and the jobs, if people do not have the skills to do
those jobs, it is for naught. So what can we do, or what are we
thinking about in terms of bridging that, for example,
partnerships between our education system and our small
businesses and our business community in general to ensure that
we are equipping people with the skills they need for the new
21st century middle class jobs. You know, one of the things
that I think we made a mistake in this country of doing, and I
know some States are getting it right now, is we stigmatized
career education and vocational education, and I think
community colleges can play a tremendous part in turning the
corner on that.
So that is something that I hope you will address, in terms
of what you are hearing from small businesses with regards to
that, to the skills gap, in essence. You know, some people are
saying there are jobs out there that cannot be filled because
we do not have people with the skills to do them. What can we
do to close that gap quicker?
Mr. Greene. So, a number of points, and if I may respond to
both Senators in my comments. I think, first of all, in terms
of the passion for start-ups and doing everything that we can
to help entrepreneurship, I clearly share the passion of the
committee members.
I do want to suggest, Senator Landrieu, that to the
question of high-growth entrepreneurs versus lifestyle
entrepreneurs, in the economic environment we are in, it is not
either/or. We need to do everything that we can to help all
kinds of entrepreneurs. And it may be the case that different
policies are needed to serve these different kinds of
entrepreneurs, but we need an ``all of the above'' approach.
I think, secondly, similar to the comments that you talked
about in terms of jurisdiction of different committees, it is
critically important for us that many of the issues that we are
talking about are not necessarily SBA issues, but that we have
to be advocates in working with all the other agencies, whether
it is USCIS or Labor or whatever the case may be, and that has
to be a fundamental part of our role, and that is something
that we take very, very seriously.
On the specific issue of talent, we hear this over and over
again from entrepreneurs, that this is critically important,
both on the immigration side as well as on the skills side. And
I think, critically importantly, while on the immigration side,
legislative change is critical, and the President has obviously
supported changes in high-skilled immigration as part of
overall comprehensive immigration reform, but also there are
things that we can do administratively.
So one example of that is a little-known program called the
OPT program that allows for graduates, Ph.D. graduates in STEM
fields to stay after they get their Ph.D. for an additional
year and a half. Well, what we found was the number of fields
that were included in that program were limited. So we more
than doubled the number of fields to include things like
computer science, nanotechnology, math, to allow more people to
stay. Now, it is a step. It is not the broad. But we need to be
doing that on the urgency.
Now, more broadly on skills, again, a critical issue, and
we are seeing similar data to say there is massive mismatch. So
a fundamental commitment to doing more on STEM education, at a
minimum, is something incredibly important, something that the
administration is focused on.
And the one last point I would make on STEM is let us add
an ``E'' to STEM. Let us talk about entrepreneurship education
as part of something we more fundamentally need to change.
Senator Rubio. And just the specific case that I am talking
about is this is actually the epitome of a small business. It
is a guy who used to work at a body shop who went out and
opened his own body shop and he cannot find guys and gals that
know how to do the work and he cannot afford to train them. So
he has got to hire people with the skills to do that, but he
does not have people who are trained to do it, and he cannot
afford to train them, and there is nowhere for him to send them
to be trained.
So I am not saying you have the answer. I know it is a
difficult thing we have got to accomplish. But I think that is
one of the things we have to really concentrate on, is why are
we not graduating kids from high school with an industry
certification in a field, in a career? And we have got to
figure out a way, what role the Federal Government can play in
incentivizing that, because there are a lot of small businesses
out there, and these are not poor-paying jobs. I mean, a BMW
technician in South Florida, 18-year-old who graduated high
school with that skill, is making in the mid-$30,000s to start,
at 18, and can increase from there as they get more
certifications. These are middle-class jobs.
So I hope we will have a conversation about that component
of it, because I am hearing a lot of that.
Chair Landrieu. Thank you.
Senator Risch.
Senator Risch. Thank you, Madam Chair.
First of all, let me thank Senator Snowe for her service to
this committee and to America, which we sincerely appreciate.
Gentlemen, I doubt there is any argument amongst Americans
or Congress or anyone else that small business is certainly one
of the cornerstones of the American economy. It does not get
the play that it should get. When the CEO of a large
corporation stands up and says something, it gets a lot of
play. When a CEO of a small business who arguably is as
important says something, it does not get the play, and that is
very unfortunate. But I think most people understand how
important it is.
Once you drill down and you understand small business and
how important it is, then the next item you look at is, well,
what is it that makes small business work? And I think that,
again, most everyone would agree that it is capital. If you do
not have capital, you cannot operate a small business. You
cannot go forward. It is the limiting factor, in my experience,
in almost all small businesses as they try to expand, as they
to operate their businesses.
Well, today, as you know, there is a great debate going on
here in Washington, D.C., over tax structure, and people who
have an open mind on this are interested in facts. They want
information. The question I have for you is, being advocates
for small business, have you--has someone at the Small Business
Administration sat down, taken the President's proposal, and
determined exactly how much cash, how much capital that that
proposal will extract from the small businesses in America? Has
anybody done that?
Mr. Greene. We are working with the White House on the
broader range of implications for small business as part of tax
reform. As you suggest, it is critically important and there
are many individual components embedded in much of the
legislation that this committee has endorsed in the broader,
but we are working hand-in-hand to understand the implications
of any changes on small businesses.
Senator Risch. Well, with all due respect, that is not good
enough. I am looking for some numbers. We are constantly told
that if the President's proposal is enacted, it will greatly
hurt a lot of small businesses in America, and I would like to
know how many. I would like to know how much. I would like to
know--so that people know when they are voting on this what
kind of capital are they taking out of the hands of small
businesses and placing in the hands of, in my judgment,
probably the least effective entity in America, namely the
Federal Government. People need to know this. I mean, this is
money that creates jobs. It is--people whip around the rich
people in this country, but the fact is, that is money that is
going to employ middle-class Americans and we need to know how
much. We need to know what the effect is going to be. And we
need to know what the snowball effect of that is, how taking
that money out of the hands of small businesses is going to
affect us as we go down the road.
So I hope you will take that question for the record. I
hope you will get back to me on that. And I think that it will
be important as people make a decision as to whether they
should vote for this proposal or perhaps use it as they
negotiate forward to get us out of this horrible mess that we
are in.
Thank you, Madam Chairman.
Chair Landrieu. Thank you, and maybe this will help, and I
am going to submit this for the record--to you, Senator, and
for the record of this committee. Prior to the Bush tax cuts
that were put into effect, the average annual small business
job growth was 2.3 percent. After the Bush tax cuts, it was 1.0
percent. Now, there could be a different view of the material--
a different analysis of the material that I am going to present
for the committee, and I am looking at it for the first time,
but I want to submit that.
Also, the research that has been done by Tax Policy Center,
U.S. Treasury Department, Center for Budget Priorities, and
Congressional Research Service all have concluded that less
than three percent of small businesses are even subject to the
top two marginal tax rates. Now, that is not answering your
whole question, because you have got capital gains, you have
got dividends that are being debated, you have some other
potential, I guess, benefits in the tax code that may no longer
be there that could affect small business, but let us build a
record on that because I think it is a very important question
that the Senator has raised, and I would like to submit that
for the record, but let us continue to get that information out
as we debate this important subject.
Senator Risch. Madam Chairman, I am told that Treasury has
said that at least eight percent of small businesses are
subject to the two tax rates that we are arguing about----
Chair Landrieu. Okay. Well----
Senator Risch [continuing] And that these businesses earn
72 percent of all small business income and pay 82 percent of
the income taxes paid by small business.
Chair Landrieu. I am going to ask the staff to reconcile
these so that we can have one set of facts that actually----
Senator Risch. I think that is----
Chair Landrieu [continuing]. That we can really get to the
nub of this, because I think this is a very important issue
before the Congress right now. So I am going to ask both staffs
to get together and report back to us on what they have found.
All right. Thank you all so very much. We are going to have
to go to the second panel now.
[Pause.]
We have got a large second panel, so I am going to go ahead
and get started as people are taking their places and just
introduce everyone briefly and ask you all to limit your
comments to four--three-and-a-half to four minutes.
Mr. Scott Gardiner is Executive Vice President of Granite
State Economic Development Corporation, a regionally certified
development company serving New Hampshire, Massachusetts,
Maine, and Vermont.
Fonda Lindfors New is founder and Chief Executive Officer
of QRI, an LLC which is a multi-faceted environmental
consulting company based in Baton Rouge, Louisiana, that
specializes in geophysical assessments, drilling, and
remediation. She is a successful small business entrepreneur.
Joshua Etemadi, Chairman of the Small and Emerging
Contractor Committee through the National Association of Surety
Bond Producers, serves on the Government Relations and
Automation and Technology Committee. He is going to be
testifying about his firsthand knowledge of the contracting
surety bond situation.
Senator Snowe has invited Mr. David Clough, Maine State
Director for the National Federation of Independent Businesses,
that will have a lot of comments about some of the issues we
have discussed.
Diana Furchtgott-Roth is a Senior Fellow at the Manhattan
Institute for Policy Research in New York. From 2003 to 2005,
she was Chief Economist at the Department of Labor. She brings
a tremendous amount of expertise and leadership to this issue.
And lastly, we have Julie Weeks, President and CEO of
Womenable, a nonprofit social enterprise that works to enable
women entrepreneurship worldwide. She is Executive Director of
the National Women's Business Council and has testified before
our committee on several occasions. Welcome back, Julie.
Let us start with you, Scott, if we could, Mr. Gardiner.
Thank you for being with us. And let us set it at four minutes,
please, because we really do want to get through everybody's
comments and get to our questions.
STATEMENT OF SCOTT GARDINER, EXECUTIVE VICE PRESIDENT, GRANITE
STATE ECONOMIC DEVELOPMENT CORPORATION
Mr. Gardiner. Thank you, Madam Chair, Ranking Member,
Senator Shaheen, and members of the Small Business Committee.
Thank you for inviting me here today to provide my testimony
regarding the SBA 504 program and specifically the SBA 504
refinancing program on small business companies.
My name is Scott Gardiner. I have been involved with the
SBA 504 loan program since 1988. Over the last 24 years, I have
been active in the management, marketing, loan structuring, and
credit underwriting. I am the Executive Vice President of
Granite State Economic Development Corporation, established in
1982, doing business in New Hampshire, Vermont, Maine, and
Massachusetts. We are the leading 504 lender in the region and
currently we are the number four CDC in the country.
In February 2001, under the Small Business Jobs Act of
2010, the SBA implemented a temporary program allowing small
businesses to refinance eligible fixed assets in its 504
program. Additional fees were charged to the borrower to cover
the cost of this refinancing program, and as a result, no
subsidy to the 504 program was needed. SBA continued to perform
the full review of the loan applications in Sacramento in the
Loan Processing Center.
A key feature of this new program was that it did not
require an expansion of the business in order to qualify.
Borrowers were able to refinance up to 90 percent of the
current appraised property value and use the funds to pay off
business-related debt or other eligible business expenses. In
today's reality of more stringent banking regulations, many
performing loans continue to be declined for financing. This is
not because these borrowers are missing payments or need a
bailout. It is simply caused by the drop in commercial real
estate values and the negative impact that drop has had on the
banks' policies.
In the end, the availability to offer the 504 loan program
to these performing borrowers was often the only option
available to these businesses. The SBA 504 refinancing program
created a unique and time-driven opportunity to refinance
owner-occupied commercial real estate and capital requirement
with long-term fixed-rate financing.
The SBA began accepting applications in February of 2011.
The initial utilization of this program was relatively
insignificant nationwide given the restrictive regulations that
were initially set forth by the SBA. As a result, only 307 SBA
504 refinance loans totaling $255 million were made nationwide
during the first year of this program, and that is offset
against an appropriation of $7.5 billion, and $7.5 billion for
each year. So there was $15 billion allocated, and in the first
year, only $255 million was used.
Finally, in October of 2011, SBA expanded the program
parameters. However, to a large extent, the modifications set
forth in late October of 2011 were not fully integrated into
the small business lending community for several months.
Granite State's firsthand experience required the CDCs and the
SBA to essentially remarket the program to overcome the initial
restrictive guidelines from program launch in February.
Activity started to pick up in March of 2012, and through
September 2012, nearly 2,700 small businesses have taken
advantage of this refinancing opportunity by taking out $2.5
billion. On an annualized basis, during the months of August
and September 2012 nationwide, 504 refinancing accounted for
approximately 30 percent of the total 504 loan volume.
With the end of the program in September of 2012, there
were close to 400 loan applications that were left in the queue
at the SBA in Sacramento, representing over $400 million. These
are loans that were submitted and just because the program
ended were not approved.
Chair Landrieu. Scott, I really want to ask you to try to
speak up a little bit. This is very important testimony to get
in, and I have got my staff here and Senator Snowe's staff. We
are all ears. Are you testifying that the 504 commercial
refinancing program was operated in such a way that it was too
restrictive and virtually unusable to the businesses that you
serve? Is that what your testimony is?
Mr. Gardiner. Yes. I believe----
Chair Landrieu. Okay. Why do you not try to say that in
your own words----
Mr. Gardiner. Based on my experience----
Chair Landrieu [continuing]. And speak into the microphone,
please.
Mr. Gardiner. Based on our CDC's experience and my
experience, when the program was launched, it was--in February,
the restrictions were just too tight and very----
Chair Landrieu. Were they ever loosened to your
satisfaction?
Mr. Gardiner. Yes. They were loosened, finally loosened in
October. There were a couple rounds of----
Chair Landrieu. Okay. And then the program expired when?
Mr. Gardiner. In September.
Chair Landrieu. The following September?
Mr. Gardiner. The following September.
Chair Landrieu. So for the year that the rules got sort of
in order, it worked, in your opinion, fairly well?
Mr. Gardiner. Well, yes, but it took--the program was
launched and we spoke to many small businesses that were
inquiring, the small business community, and we had to say no
so many times that I think the community, the small business
lending community, just kind of turned the program off.
Chair Landrieu. Okay. Well, would you suggest that if we
try to do that again, we lengthen out the authorization period
so it is not so short and use the new modified rules? Is that
what you are testifying?
Mr. Gardiner. Yes. Under the new modified rules, it works
very well.
Chair Landrieu. And that could be a four- or five-year
extension if we could find the offset, because all of these
extensions require an offset. But I really want to know this
from the small business community because it is going to
determine how hard I will fight for this or not, because there
are about 100 other things that are pushing against the amount
of money that we have. And so I am urging you all to speak with
one voice on this. If this program is something that can work
under certain circumstances, then we want to know what those
circumstances are and not use the little money that we are
going to be given to advocate for a program that is not having
an impact, okay.
So please visit with my staff after this, Scott, and give
them--David Gillers is here.
[The prepared statement of Mr. Gardiner follows:]
[GRAPHIC] [TIFF OMITTED]
Chair Landrieu. All right.
Fonda.
STATEMENT OF FONDA LINDFORS NEW, CHIEF EXECUTIVE OFFICER,
QUATERNARY RESOURCE INVESTIGATIONS, LLC
Ms. Lindfors New. Thank you, Chair Landrieu, Ranking Member
Snowe, and members of the committee. My name is Fonda Lindfors
New from Baton Rouge, Louisiana. I am the founder and CEO of
QRI. My testimony today will focus on the legislative proposals
currently before the Senate, including the SUCCESS and TEAM
Acts.
I was born in Charleston, South Carolina, and graduated
from the College of Charleston in 1981 with a B.S. in Geology.
Upon graduation, I moved to Louisiana and worked at the
Louisiana Geological Survey as a geologist from 1981 to 1986.
While working in the coastal zone for LGS, I noticed thousands
of oilfield production pits that needed to be remediated and
closed. Thus, QRI began in 1986 to assist in the restoration
process of coastal Louisiana by bringing oil field legacy sites
into compliance.
Over the past 27 years, QRI has grown through hard work and
dedication of a staff that now produces annual sales of over $8
million, has completed over 4,500 projects, and provides
services in six divisions. This geologist learned very quickly
that my geologic education did not teach me about capital,
contracting, how to administrate a business, strategic
partnerships, and how State and Federal laws impacted my
business, thus, many challenges were faced in the early years.
I will say that the on-the-job training that QRI required
vastly improved my prayer life in the early years. However, I
would not recommend, ``Oh, God, oh, God, please help me be a
better business person,'' as any business woman's only plan to
improve her administrative skills.
The three biggest challenges QRI has faced over the last 27
years are capital, entering the Federal market, and winning
Federal contracts, which to date we have won 77 Federal
contracts in the last four years. We have provided specific
examples of how QRI has overcome those challenges as a woman-
owned business in our written testimony.
One of the ways we overcame the challenges was to
participate and attend every course offered by the SBA in our
area. One of those courses, Emerging Leaders, or e200, required
six months of efforts and continues to benefit the growth of
QRI. I first became aware of e200 in an e-mail from Jo Ann
Lawrence of the SBA. I contacted her to get additional details
on the program and she assured me that the class would be well
worth the vast amount of time it takes to take this course.
She was correct. e200 was an excellent course that I
attended from April to October 2011. The e200 curriculum was
well thought out and included written resources that my upper
management at QRI still uses, such as the Strategic Growth
Action Plan. The instructor, Sherif Ebrahim, was an excellent
teacher who pushed me to success in this course. The SGAP was
so detailed that it was instrumental in increasing our bank
accounts receivable line by 32 percent. At the request of our
major banker, an updated SGAP was prepared and submitted in
June of 2012 to once again successfully increase our AR line by
another 24 percent.
The difference between e200 and other private sector
offerings that I attended is that the course was real world and
not just a class where you learn terms to take a test and then
you forget it. The e200 course allowed me to develop a valuable
set of tools that are repeatedly used by my upper management.
Today, Sherif Ebrahim continues to be a resource to me and
my company. If I would have had the benefit of a program like
e200 in my early years of QRI, my challenges would have still
occurred, but I would have achieved success more quickly. As a
result of our participation in the 8(a) program and courses
such as e200, QRI's revenue and access to capital increased by
over 50 percent from 2010 to 2011 and staffing increased by 22
percent.
QRI is extremely interested in changes to the EDWOSB
program, also. In addition to removing the contract award price
limits, removing the economically disadvantaged requirement,
and adding sole source contract vehicles, QRI would like to ask
the committee to consider adding a formal mentor-protege
program.
As the Chairwoman and other Senators have stated today,
entrepreneurs are the backbone of our economy. With just a
little investment from the Federal Government, small business
owners are given the tools to thrive, and in doing so provide
jobs that turn around neighborhoods. This bill is essential to
many small businesses, economic future including QRI.
I would like to thank the committee on behalf of QRI and
small businesses for their attention to these important matters
and their support for entrepreneurs. I would also like to thank
the committee for their continued endeavors to make sure
outstanding SBA employees, such as Jo Ann Lawrence, and e200
contractors, like Sherif Ebrahim, are funded and able to
continue to assist companies such as QRI.
I am happy to answer any questions on these issues and
serve as a resource to this committee. Thank you.
[The prepared statement of Ms. Lindfors New follows:]
[GRAPHIC] [TIFF OMITTED]
Chair Landrieu. Thank you, Fonda, for that excellent
testimony. We appreciate the specificity in which you
identified some of the programs that have been helpful to you.
Joshua.
STATEMENT OF JOSHUA A. ETEMADI, SALES MANAGER, CONSTRUCTION
BONDS, INC., A DIVISION OF MURRAY SECURUS, AND CHAIR, SMALL AND
EMERGING BUSINESS COMMITTEE, NATIONAL ASSOCIATION OF SURETY
BOND PRODUCERS
Mr. Etemadi. Chair Landrieu, Ranking Member Snowe, members
of the committee, thanks for the opportunity to speak to you
this morning. My name is Joshua Etemadi and I am a licensed
bond producer with Construction Bonds, Inc., a division of
Murray Securus, and I am testifying on behalf of the National
Association of Surety Bond Producers, which is a national trade
association that employs companies that hire people like
myself.
I have personally focused my career, albeit it kind of
short, on assisting small and emerging construction firms to
get surety credit through the SBA Bond Guarantee Program and
also through the standard surety market. And if I have more
time during the question period, I would be happy to share some
case studies where I was able to use the SBA bond program to
help contractors get bonds and are now very successful
businesses.
My testimony this morning will highlight the importance of
the SBA Bond Guarantee Program and your efforts to enhance its
reach. The NASBP extends its appreciation to the committee for
recognizing and for taking action in the SUCCESS Act that the
current contract limit of the SBA Bond Guarantee Program is
insufficient and that it fails to comport with the realities of
the current procurement environment for contractors seeking
award of public construction contracts, especially Federal
contracts.
Now, the SBA Bond Guarantee Program was created to ensure
that small and emerging contractors, which for various reasons
cannot get standard surety credit, can get access to surety
credit, and the program will provide guarantees anywhere from
70 to 90 percent to surety companies as an enticement to extend
surety credit to these firms. Now, the contractor and the
surety company pay fees to access the program and the current
contract limit is $2 million.
In recent years, the SBA has undertaken tremendous
administrative efforts to improve the functioning of the
program, for example, streamlining its application process,
reduction in paperwork, implementing a fast track application
for bonds up to $250,000, quickly responding to claims, and
expanding the program's reach to include design-build
contracts. The SBA has also expanded its marketing efforts to
bond producers and surety companies throughout the country and
we applaud the SBA for taking these positive measures which
could be magnified through statutory program enhancements.
Now, recently, Congress recognized that the contract limit
of the program should be increased to aid these businesses that
are trying to get bonded contracts. Under the American Recovery
and Reinvestment Act, Congress increased the contract limit
from $2 million to $5 million, and up to $10 million in certain
circumstances. They also vested discretion in the program
administrator to determine the program's liabilities. We
supported these important and needed enhancements, but
unfortunately, they expired in September of 2010.
Now, by increasing the contract limit back to $5 million,
the SUCCESS Act would restore these enhancements, but only in
part. We continue to support increasing the contract limit of
the Surety Bond Guarantee Program, but we believe that a higher
contract limit of $6.5 million would allow the program to serve
more small businesses. The NASBP also believes that the program
administrator must be vested with statutory discretion to
determine program liability to attract more surety company
participation.
Beyond increasing the contract limit, investing the
administrator with discretion, we believe additional
enhancements to the program are necessary to improve its
effectiveness in providing assistance to small contractors and
we request consideration of the following additional
enhancements.
One, raising the guarantees that are offered by the surety
companies to a uniform level of 90 percent.
Reducing the fees charged to businesses to access the
program. Now, this could be done on a short-term basis to help
small businesses with the current economic climate.
And then support the current SBA efforts to establish a
system of internal coordination between the Bond Guarantee
Program and other SBA departments, like the Loan Guarantee
Program and the Business Assistance Programs. And those
recommendations are detailed more in my written testimony.
The NASBP appreciates the opportunity to address you on the
importance of enhancements to this program and I hope my
testimony proves beneficial to your deliberations regarding the
SUCCESS Act. I welcome any questions that you may have for me.
[The prepared statement of Mr. Etemadi follows:]
[GRAPHIC] [TIFF OMITTED]
Chair Landrieu. Thank you, Joshua, and please give us some
additional information about how the SBA works with Governors
and local governments and other organizations that are trying
to provide the same kind of surety bond expansion so we can see
if we are coordinated across the country, if you can provide
some testimony later about that----
Mr. Etemadi. Sure.
Chair Landrieu. Okay.
David.
STATEMENT OF DAVID R. CLOUGH, STATE DIRECTOR, MAINE CHAPTER,
NATIONAL FEDERATION OF INDEPENDENT BUSINESS
Mr. Clough. Good morning, Chair Landrieu, Ranking Member
Snowe, members of the committee. My name is David Clough and I
am very pleased to be here to testify on behalf of NFIB, the
nation's leading small business advocacy group. It has a
typical member of eight to ten employees and about $500,000 in
sales, almost the size of this committee a few moments ago.
I would like to recognize the Chair and Ranking Member
Snowe and their teamwork that they have showed over the years
and recently in the tax extenders bill and working on behalf of
small business owners across the country. It is very valuable.
I also want to use this opportunity to underscore the
tremendous contributions Senator Snowe has made to the State of
Maine and to small business owners. It is with great sorrow
that we heard last February that she had decided not to run for
reelection, and also I can say that the legacy that she is
leaving is one that is going to be hard to duplicate, in our
eyes. But her accomplishments will be ones that have lasting
effects for many years to come, so we do take comfort in
knowing that and hope that when she leaves, she does not get
out of her role as advocating for small business.
I would like to also comment that one of the things that is
of concern to small business owners, and what we are seeing,
actually, policy leaders in the State of Maine and elsewhere,
recovery from this Great Recession. Several years ago, the
Economic Forecasting Commission of the State forecast that
Maine would recover the jobs lost in the Great Recession in
about five years. A few months later, they said it would take
about seven years. The most recent forecast that came out
earlier this month said it will take until 2017 to get back to
the employment level that existed in 2007. That is not very
encouraging for those who have lost their jobs, and it is not
very encouraging for those who have graduated from colleges,
community colleges and high school who are looking for jobs,
and I will get back to that in a moment.
One of the things that NFIB is learning from its members is
there is a tremendous amount of uncertainty out there, and the
uncertainty could be classified as uncertainty about economic
trends and conditions. Is there a reliable enough trend going
on that they can make business plans, they can go to a bank,
they can make investment decisions? They have uncertainty about
costs and things like the fiscal cliff, what decisions are made
by Congress on that, decisions on Section 179 expensing, estate
tax, the top marginal rate, and so forth. And then uncertainty
about the Affordable Care Act and what effect that will have on
employment costs to businesses and new hires.
And then there is an emerging uncertainty, too, that is not
receiving a lot of attention that has been mentioned this
morning. That is uncertainty whether a trained workforce will
be available for the jobs that the businesses have, and I have
heard manufacturers, for example, say they cannot find the
people for the jobs that they have. They would happily--and it
is not just in Maine. They cannot find them anywhere, for
example, in New England or the Northeast United States. And it
is not because of the Maine winters that they cannot find them.
It is because they just do not have the skilled workforce.
I would mention, though, that those are realities we have
to deal with. One reality that is also important to recognize
is the spirit of free enterprise and entrepreneurs. They are
the people who will get the job done any way they possibly can,
do more than expected with less than anybody thought was
necessary, which I thought was a wonderful description of that
kind of determination. They are the little engine that could.
And one of the things that is terrific about them is they will
do things that they did not even think were possible, but they
figured that, somehow, some way, they will find a way to do
that.
NFIB looks forward to working with the committee and
working with other groups to accomplish what this country
needs, and that is more jobs. My last comment is, if every
small business could create just one new job, we would not have
an unemployment problem. Thank you.
[The prepared statement of Mr. Clough follows:]
[GRAPHIC] [TIFF OMITTED]
Chair Landrieu. Thank you. I say that constantly, and thank
you for repeating it here.
Diana.
STATEMENT OF DIANA FURCHTGOTT-ROTH, SENIOR FELLOW, MANHATTAN
INSTITUTE FOR POLICY RESEARCH
Ms. Furchtgott-Roth. Chair Landrieu, Ranking Member Snowe,
Senator Shaheen, thank you so much for inviting me here to
testify today. And Senator Snowe, thank you so much for all
your years of service and all the wonderful things you have
done in this committee and also outside.
Thanks also for holding this hearing today. This is really
a vitally important issue. So the programs we have talked about
today, the SBA programs, reach millions of entrepreneurs, but
there are many more whom these programs do not reach. That is
why it is important to look at the whole regulatory and tax
structure of what entrepreneurs are facing.
So if you are an entrepreneur today--and I am married to
one entrepreneur, I am the mother of another entrepreneur--you
do not know what your tax rate is going to be in a month. If
you are at the bottom, you do not know if it is going to be ten
percent or 15 percent. If it is at the top, you do not know if
it is going to be 35 percent or 42 percent, including the
phase-outs of the deductions and personal exemptions. About 48
percent of small businesses pay tax at the 35 percent rate,
according to calculations from Internal Revenue Service data.
If you are an entrepreneur, you do not know if the small
business tax exemption, if the estate tax exemption is going to
drop to $1 million and the tax rate rise to 55 percent, as is
due on January 1. That means if you die the first month of
January or before Congress has finished and sorted this out,
your heirs might have to sell the business in order to pay the
estate taxes. This is just a terrible situation to be with.
It is not just the uncertainty of the fiscal cliff that is
a problem, but the new health care act has real effects on
small business and entrepreneurs because it takes effect as
businesses move from 49 to 50 workers. And, Chair, you
presented evidence before showing that a smaller number of jobs
had been created by business. Well, the Affordable Care Act
discourages business from creating jobs. If you move from 49 to
50 workers and you do not have the right kind of health
insurance, you have to pay penalties of $40,000 a year. Move to
51 workers, it is $42,000 a year in penalties. And that
encourages businesses to keep employment below the 49--at 49 or
below. You can, of course, solve this problem if you are an
entrepreneur by laying off your full-time workers and hiring
part-time workers, but that is not good for employees of small
business. It is not good for the small business owners, who
would, of course, prefer to have more experienced employees
working for them.
Another cloud of uncertainty lies over energy regulations.
We all know the great American energy revolution caused by
hydrofracturing. We look at North Dakota, three percent
unemployment rate. Hydrofracturing, our new natural gas
supplies, we have 200 years of an inexpensive fuel. But guess
what. The Environmental Protection Agency and the Energy
Department have rules in the wings they are going to be rolling
out over the next few months that might stem that supply of
natural gas. We do not know what those regulations are. And if
you are a small business, maybe you are in the petrochemical
area, maybe you are doing some subcontracting from one of these
large companies, these regulations can just wreck your
business. Plus, it would raise your energy costs. So that is
another big source of uncertainty.
I would really like to echo what previous panelists said
about the need for immigration reform. There are innovators,
entrepreneurs, all over the world who want nothing more but to
come to America, and the Start-Up Act and the Kerry-Lugar bill
would allow them to come for a five-year period and then get a
green card if they managed to create jobs for native-born
Americans. And I would underscore the importance of immigration
reform, being an immigrant myself.
Thanks very much, and I would be glad to answer any
questions.
[The prepared statement of Ms. Furchtgott-Roth follows:]
[GRAPHIC] [TIFF OMITTED]
Chair Landrieu. Thank you for that excellent testimony.
Julie.
STATEMENT OF JULIE R. WEEKS, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, WOMENABLE, AND CHAIR, ASSOCIATION OF WOMEN'S BUSINESS
CENTERS
Ms. Weeks. Thank you, Chair Landrieu, Ranking Member Snowe,
Senator Shaheen, for inviting me to be here with you today. I
am representing not only myself as a woman business owner, but
the 8.3 million women-owned businesses that are sitting behind
me in the room, out in the world doing business, and I have, as
Senator Snowe recognized at the beginning--thank you very
much--been working in the vineyards of women's enterprise
development for quite a long time.
We know from analyzing census data, conducting research,
that women-owned firms continue to grow in number at rates one-
and-a-half times the national average. We have been saying all
along in this hearing this morning, bemoaning the lack of small
business job growth. Well, the only small businesses really in
any great number creating jobs these days are women business
owners. Other privately-held companies are not creating jobs
and not generating revenue. Women-owned businesses are.
I would suggest that part of the reason for that is the big
bang of women's entrepreneurship that happened back in 1988,
the Women's Business Ownership Act. We are coming up--next year
will be the 25th anniversary of the Women's Business Ownership
Act, so it is very important to not only look at what the
progress has happened since then, but to look at the major
underpinnings of that Act and see, how can we make them better
going forward.
The four main tenets of that Act was extending the Equal
Credit Opportunity Act of 1974 to include business credit. Up
until that Act--Senator Snowe remembers this well--women
business owners could not get business credit in their own
name. It told the Census Bureau, please start counting all
women-owned businesses, including C Corporations. It
established the National Women's Business Council, which gave
women entrepreneurs a voice. And it established the
demonstration project, which has grown into the 106 Women's
Business Centers today. I would suggest that those four areas
are continuing to be important.
Another key area, though, that is of great importance is
access to markets. As some folks may realize, or remember back
to 1988, there was a provision in the introductory bill of H.R.
5050 that included a Women-Owned Small Business Procurement
Program. It was removed to ensure passage of the Women's
Business Ownership Act of 1988 and it was only--the five
percent procurement goal was only put in the mid-1990s. The
Women-Owned Small Business Program, as we all know, took a long
time between passage and implementation, and we need more teeth
to that Act.
I would suggest--I have three specific recommendations for
consideration for this committee, the first one of which is to
eliminate that monetary limit on the women-owned small business
contracts tool and to allow agency purchasing to be reserving
procurements specifically for women-owned small businesses.
Once women-owned businesses get into procurement, the playing
field, we have seen in research, is relatively level, but
getting in is the challenge.
Secondly, Women's Business Centers is a very critical,
important program. Senator Landrieu, I love your idea of naming
it the Olympia Snowe Women's Business Center Program. I think,
personally, that would be a marvelous idea. But I believe--we
have been talking this morning and the folks from the SBA said
that they are going to be harmonizing and analyzing the
outcomes of SBA's Entrepreneurship Development Programs in
commonality, but I would suggest that if we are looking at the
only point of comparison between the three programs of SCORE,
SBDC, and Women's Business Centers, which is one-on-one
counseling, we are missing the majority of the activities that
Women's Business Centers perform. They not only provide one-on-
one counseling, but training, mentoring programs, peer
mentoring, incubator programs, access to capital, either
directly or loan packaging. We are not capturing the full value
of the Women's Business Center Program.
And, finally, I would recommend that we maintain analysis
and research and information on women- and men-owned
businesses. A survey of small business owners of the Census
Bureau has also been under the knife. I realize that is not
under the purview of your committee specifically, but I do know
that in the Women's Business Ownership Act, you directed the
Census Bureau to start counting all women-owned businesses. I
have a couple of ideas of some additional analysis that the
census could perform to better understand the growth continuum
of women- and men-owned businesses that is included in my
written testimony.
And I guess, finally, even though I am running a tad over,
if I am the last person to testify at a hearing, a Small
Business Committee hearing, being co-chaired by Ranking Member
Snowe, I want to, on behalf of all women business owners all
around the country, thank you. Thank you very much for your
service.
[The prepared statement of Ms. Weeks follows:]
[GRAPHIC] [TIFF OMITTED]
Chair Landrieu. Thank you, Julie.
We are going to have to bring this committee to an end in
about 12 minutes, so we are going to each take four minutes for
questions, and thank you all for your excellent testimony. So
if your answers can be very brief.
David, let me start with you. It is quite a conundrum that
you have testified, and it is true, that we have lost many
businesses in the United States through this great recession,
and you testified in Maine your experiences with NFIB. But on
the other hand, you said that when business owners go to hire,
there is a lack of human capital. What is NFIB's position on
training, or does NFIB have a position on investments in
training for human capital that is already here in the country?
We have heard about immigration, people coming in with skills
from other countries and getting the Ph.D. or the Master's
degree here. But what about people that are here in the country
that need Ph.D.s and Master's degrees? What is NFIB's position
on those investments?
Mr. Clough. I do not have a detailed answer for you, Chair
Landrieu, on that. I will get an answer to you after this
hearing. It is something that they are beginning to recognize,
they are spotting in their periodic surveys of problems and
priorities. And what it is is it is the skills, that people
have the skills that are needed in the workplace. It is
something that they are hearing about, we are hearing about,
and it is even showing up--I think McKinsey did a report on the
global shortage of skilled workforce. So it is not just the
United States. It is other developed countries.
Chair Landrieu. Well, I would really look forward to that
and really urge the NFIB to come with some strong suggestions
about whatever methods, approaches, investments to develop the
skill set of Americans that are already here as well as people
seeking to become citizens of our country.
Diana, let me ask you this. When you talk about--and we
struggled with this when we did this health care bill, believe
me. It was a topic of much discussion, about where to set the
requirement for businesses to maintain health insurance for
their employees. And as you know, I fought very hard to move
that limit up from 25, which was originally proposed, to 50.
And we recognize the challenges of that. But on the other hand,
to have a system of health care that is a public-private
partnership, where individuals have to take responsibility,
where businesses have to assume some responsibility, and
government has to assume some responsibility, how would you
craft the ramp effect, if you would?
We are not going to repeal the Affordable Care Act. It will
not be repealed. So in implementing it, how would you suggest
that the ramp effect between the 49th and the 50th or the 50th
and 51st employees--do you have any suggestions about how to
make that less of a barrier to hiring or a more able way for
small businesses through the subsidies, maybe, to help them to
provide that health insurance that is important for their
workers?
Ms. Furchtgott-Roth. I would say that the government should
not require businesses of any size to provide health insurance.
We should allow individuals to choose the health insurance they
want, just as they choose auto insurance and home insurance. We
never hear someone say, oh, my goodness, I am losing my job. I
am not going to be able to drive because I do not have auto
insurance because they purchase it outside from the employer.
That is what we need to do in this case. We also need to have a
wider variety of plans available on the exchanges, not just the
qualified benefit plan. People need more choice----
Chair Landrieu. Well, I could not agree with you more. I
could not agree with you more. And there was a bill that I
actually supported that would have done just that. But I will
be honest with you. It was too far of a reach for the Congress
to move from a system traditionally of employer-sponsored
health care, with many of our largest employers already
sponsoring health care, to move to a complete private
individual model. So what Congress did was try to find a
balance between preserving the best of the employer-sponsored
plans but allowing that individual freedom of choice through
exchanges that, ironically, some of the more conservative
Governors in our country were refusing to set up, exactly what
you said, to give individuals the freedom to get their
insurance not attached to their employment.
Ms. Furchtgott-Roth. Right.
Chair Landrieu. So this is a real conundrum. My time is
finished----
Ms. Furchtgott-Roth. If you look at Congressman Price's
Empower Patients First Act, that would allow individuals to
bring to their employer some kind of refundable tax credit. The
employer would then purchase the insurance for them at whatever
plan they choose. Then when the employee leaves for another
job, he does not have to switch plans. The new employer can
move the subsidy, if the employer has a subsidy, to the same
plan, kind of like with a 401(k) plan where you can just roll
it over and you do not have to liquidate it.
Chair Landrieu. Well, we are going to continue to work on
this.
Senator Snowe.
Senator Snowe. Thank you. I will be a fast talker. And I
want to thank all of you for your very impressive testimony.
David, let me start with you. I am going to ask one
question of the panel. Given the current situation regarding
the fiscal cliff and the much debated issue about whether or
not you can draw and delineate a line regarding a small
business exemption regarding the top tax rates, David, do you
think it is possible--and it is an important issue because 50
percent of all income above the $250,000 is attributable to
pass-through income--do you think we can draw that line, and
how?
Mr. Clough. I am going to beg off on the how. I will just
mention on drawing the line, the NFIB has been considering
that. I will let them get back to you and the committee with a
more specific answer. They have done a study. They are aware of
the Ernst and Young study, for example, that suggested there
could be very significant job losses over the long run,
depending on where the line is drawn. And also, I think, the
Congressional Budget Office showed in the short run that there
could be some significant job losses. The exact place, based on
what I hear, is going to vary in some respects on the business,
as well, and what stage of development the business is in.
Senator Snowe. Julie, do you want to add anything? And I
hope I am here for the 50th anniversary of the Women's Business
Centers, someplace in the world.
Ms. Weeks. Whatever happens, you are going to have to be
there. We will definitely invite you.
I am supposed to answer a fiscal-related question, too?
Senator Snowe. Yes.
Ms. Weeks. Well, I think that given that the only growth
that has been happening has been happening with women's
entrepreneurship, continuing to support a non-one-size-fits-all
but a targeted approach is certainly key. I think that the
uncertainty over what is happening here in Washington is the
most critical element to all small business owners, male or
female, with how are they going to grow their business.
So I guess my primary reaction and advice is just please do
something. The churning and the lack of activity is causing
perhaps more grief and lack of growth than having a problem--or
putting a solution out that not everybody agrees with. I think
it is just critically important. If we do not get our act
together here in Washington before the end of the Congress, it
is really going to be a horrible situation for all small
businesses--and large businesses, too.
Senator Snowe. Ms. Furchtgott-Roth.
Ms. Furchtgott-Roth. Yes. We can see that tax rates have
consequences. We can see how, right now, companies are rushing
to pay out dividends before January 1 because they think the
tax on dividends is going from 15 percent to 44 percent. There
will be other consequences of raising the tax rate for small
businesses. They will make fewer investments. More of them will
go offshore. They will cut back on job creation. And it is
extremely important. As President Obama said in 2010--in 2010,
he said--in December--it is not time to raise the tax rates
because of the current economic situation. Well, economic
growth is slower than it was in 2010 and we need to make sure
that we do not kill the goose that lays the golden eggs.
Senator Snowe. Thank you.
Mr. Etemadi.
Mr. Etemadi. Well, I do not know if I have a response to
that regarding the fiscal cliff, so I will just pass.
Ms. Lindfors New. What we have done at QRI, because of the
uncertainties up here, is we have focused our business
development, and again, this was in our SGAP plan, on issues
that are going to have to be addressed no matter what. One of
those issues is the infrastructure of the Mississippi River
levee. We have done multiple projects where we are installing
relief wells on the levees. They are either going to get
installed or the levees are going to fail. Congress is not
going to let that happen and they are going to have to put in
emergency funds to do that.
The other work that we are very focused on is coastal
restoration, obviously, being from Louisiana. We were very
involved in the Hurricane Katrina recovery. Our small company
is working for the Coast Guard. We are doing the biological
assessment for the BP Deep Water Oil Horizon job. We are
installing flood gates in Rockefeller Refuge for the State of
Louisiana.
So we are focusing on work that is going to have to happen
over the next several years, and by then, with our great
leadership that we have--thank you, Chair Landrieu, and I am
really saddened about you retiring, Senator Snowe. I mean, you
have been incredible----
Senator Snowe. Thank you.
Ms. Lindfors New [continuing]. For women-owned small
businesses, and small businesses in general. Surely, over the
next couple of years, you all are going to have all this
straight, because if I know if I can take my small business--
talking about a fiscal cliff, we faced our own fiscal cliff and
we figured out how to get around it. You all can figure out how
to get around it, too.
Senator Snowe. We could not agree with you more.
Chair Landrieu. Fonda, we could not agree with you more.
The two of us talk all the time. If we could just write the
bills and pass them, we could fix it and it would get done.
Unfortunately, we have got a big Congress to run into. But the
two of us kind of see things very similarly, trust me. But go
ahead, and I am sorry. And we have to--can we move on to----
Senator Snowe. Yes.
Chair Landrieu. Okay. Can we get to Senator Shaheen, and we
have been joined by Senator Ayotte.
Senator Shaheen. Again, thank you all very much for your
testimony. We appreciate it. And I think the point you make
about certainty is a very important one, and certainly I
believe that we are going to get this done. It may be messy,
but it is going to get done, and what I hope all of you will do
is encourage the businesses that you work with and your own
businesses to urge Congress to act. You do not have to tell us
how to act, but just say, get it done, because it is very
important.
Scott, I want to go back. Chair Landrieu picked right up on
what you were saying about the restrictions on the 504 refi
program. It is something that we talked about as that program
was ramping up and we tried to weigh in in a way to address
some of your concerns. But I wonder if you could elaborate just
a little more on the changes that were made to make the program
more effective and whether you think it is now working
adequately and what you see in your region, which includes New
Hampshire and much of New England, in terms of the interest
that would be out there amongst small businesses if the program
continued.
Chair Landrieu. And, Scott, before you answer, let me turn
the gavel, I think appropriately, to Senator Snowe for her to
close out this meeting. I have got to leave for a pre-scheduled
event, and I am very, very sorry. But I am going to turn the
gavel over. She definitely knows how to use it----
[Laughter.]
And she will finish this meeting, hopefully in the next ten
minutes, because I know members have to leave, including
Senator Shaheen. But thank you so much.
Mr. Gardiner. Thank you. Let me say this. The program is
working very well right now. The changes made in October of
2011 really have a good handle on the program and the needs of
the small business. And the changes that took place were the
SBA opening the program up to allow many more businesses to
access the program by taking the debt that they had on the real
estate and not limiting it to a two-year--that the debt had to
be maturing within two years. So that was one of the primary
repositionings that the SBA took.
But the program is working very well, I think as evidenced
by the existing applications at the SBA. Over approximately 400
applications are sitting there waiting to be approved. Those
affect jobs in New Hampshire, Maine, Louisiana. All the States
across the country have applications in there. So there is a
strong demand for this program.
And one point I would like to make on jobs. These are
businesses that are existing businesses. They have gone through
the recession. They have had to lay off staff, I am sure, to
maintain business. And now they are operating very lean. When
the economy turns around, these businesses that we are
assisting by reducing their cash flow, freeing up cash, they
will be able to use that to create more jobs. When they start
growing, they are going to immediately start hiring new staff.
So I think that is an important point.
Senator Shaheen. A very good point, so that this is a real
opportunity to create jobs if we can extend the program.
Mr. Gardiner. Yes.
Senator Shaheen. Mr. Etemadi, you talked about wanting to
see the increase on the surety bond guarantee go from $5
million to $6.5 million. Do you have any data or any analysis
that shows what that might be able to do in terms of job
creation and the businesses that that might help if we were
able to increase it?
Mr. Etemadi. Well, I can tell you that the average small
business contract by the Department of Defense was $5.9
million, and so having it increased to $6.5 million would be
beneficial to small businesses trying to access that program.
And on top of that, the----
Senator Shaheen. And do you have any numbers, any estimates
that you all have about how many businesses would be affected
if that increase happened?
Mr. Etemadi. I would have to check on that, but----
Senator Shaheen. If you could, that would be information
that I think would be very helpful to the committee.
Mr. Etemadi. Sure.
Senator Shaheen. Thank you very much. Thank you.
Senator Snowe [presiding]. Yes, and thank you.
And now I would like to recognize the other colleague from
neighboring New Hampshire, Senator Ayotte.
Senator Ayotte. Thank you very much, Chairman Snowe, and I
also want to thank my colleague from New Hampshire, Senator
Shaheen. I appreciate all the witnesses being here today, and
you obviously have discussed very important issues that impact
small businesses, which in our State, of course, is the heart
and soul of our economy. And I will echo what has already been
said here, that we hope to resolve the issues that are
impacting the fiscal cliff and we need to do it in a way that
does not hurt economic growth, because with the fiscal state of
the country and $16 trillion in debt, we not only need to deal
with the drivers of our debt, but also grow our economy if we
are going to recover. So I know the issues that you discussed
and I appreciate your testimony on those issues.
I wanted to also thank Mr. Gardiner for being here today. I
know that this panel appreciates your input and your expertise
on the proposed 504 refinance extension and I want to thank you
for the overall important work that you do with businesses in
New Hampshire. So I just have--and I know that we are going to
meet later to discuss those and I look forward to that meeting.
I have a couple of questions related overall to that
program. Number one would be we know that the refinance program
expired on September 27, as I understand it, and that in New
Hampshire, the Granite State provided ten of the 504 refinance
loans for about $9.4 million. You also noted that there were
396 refinance applications, or you said, roughly, just a minute
ago, about 400 applications, and there is strong demand for the
program, with an aggregate value of over $424 million that are
left in the queue, so to speak.
Mr. Gardiner. Correct.
Senator Ayotte. Can you give me an estimate? If we were,
for example, to approve the program for another year, how many
are in the queue for New Hampshire? How many do you think would
be eligible for approval in New Hampshire? I am just trying to
get a sense of our own State.
Mr. Gardiner. I think for New Hampshire, we see the volume
representing approximately 30 percent of the overall 504
volume. So it is a little bit hard to judge, but I would guess,
easily, 25 to 30 loans that could be approved.
Senator Ayotte. Estimating.
Mr. Gardiner. Estimating. In New Hampshire.
Senator Ayotte. Okay.
Mr. Gardiner. Yes, in the next 12 months.
Senator Ayotte. And this may have been addressed earlier,
and if it was, I certainly apologize for that, but one of the
key justifications for the program itself, and I believe you
touched on this in your testimony, was originally contained
within the Jobs Act of 2010, was really what we saw as a drop
in the commercial real estate market. Really, commercial real
estate prices at that time were dropping. And today, we have
seen, thankfully, some improvement in that market. And
according to estimates, the prices have been rising, and
fortunately, some of the vacancy rates are falling, showing
some rebound.
And my question, compared to where we were when we were
looking at extending this program in 2010 under the Jobs Act
when we established it--so one question I think is an important
question to address is if the commercial real estate market is
improving, why should we extend the program? And I think that
is, obviously, a fundamental question when we have a lot of
other competing interests and we want to make sure that we
address programs that are most effective, and I do not doubt
the effectiveness in New Hampshire, but I thought that was a
very important issue for you to address.
Mr. Gardiner. A large part of it is the decline in the
commercial real estate market, but another issue is just the
bank--the commercial banks out there have changed their
policies because of the recession, I think, and the downturn.
They have tightened up their credit policies. They are not--
even though there may be equity in real estate and the equity
may be improving, the banks have not come around to lending as
they did in the past. So I think this program helps the banks
to leverage the real estate to allow those businesses to use
that equity so that they can restructure their debt. So you are
basically taking short-term debt that may be used for term
loans, short-term equipment financing, and allowing the bank to
restructure it, use the equity in the real estate and turn it
into long-term debt. So you are immediately improving the cash
flow of the business. And these are strong businesses. They
have been proven. One of the criteria is that these businesses
have never missed a payment in the last two years. So we are
not talking about risky businesses that we are just trying to
bail out.
So the commercial real estate market or the commercial real
estate values, although it is climbing, I think it has got a
long way to go before the banks are able to restructure and
help the businesses like this refinance program can.
Senator Ayotte. I see my time is up. I know we will have a
chance to spend more time together in the afternoon. I
certainly appreciate everyone on the panel. This is a very
important time for our economy and making sure that we have the
best climate for small businesses, in particular, to thrive and
grow. So I thank you all.
Senator Snowe. Thank you, Senator Ayotte.
Again, I want to thank each and every one of you for being
here today, for submitting your testimony on how to approach
these critical issues confronting small businesses and the role
that each of you play in your respective arenas. And also, I
thank you for your patience, for waiting until you had the
opportunity to testify.
Again, I want to reiterate how crucial it is that these
decisions that we are going to be making, as you well know, in
the remaining weeks of this legislative session could really
determine the outcome for the future of our country, all the
issues surrounding the fiscal cliff, and most notably how it is
going to affect the entities of small businesses that we depend
upon to create those jobs.
I noted that there had been a letter submitted by so many
small business organizations to the Congressional leadership
regarding these issues and representing millions of pass-
through business entities, as they say, employing tens of
millions of workers, urging Congress to pursue comprehensive
tax reform and entitlement reform to reduce our long-term debt.
The point here is making sure that we do not create adverse
consequences to those that you represent and are a part of, and
that is the job creators. I mean, it is absolutely an
imperative for the future. Hopefully, those lines can be drawn,
because I think it is going to be--otherwise, it will have
profound impact on the future of this economic recovery.
You know, it happens to be the worst recovery in the
history of this country. I am stunned by the numbers that you
mentioned, David, regarding Maine, for example, and having to
defer and delay the years by which we are going to return to
the pre-recession levels of 2007 for employment. I mean, it is
stunning now it is 2017.
And so the more we hesitate and delay and defer and
obfuscate, the more this lingering uncertainty is going to cast
a shadow over our ability as a country to create those jobs
that people desperately need and certainly deserve, not to
mention, as you have raised here today, is what are the jobs
for the future, and that is another major issue. And we can
never get to those questions because we are still dealing with
the ultimate economic issues for far too long.
So I know we can do it. Hopefully, there will be that
bipartisanship that is the final ingredient that can make it
possible. So I thank you again for being here today.
The hearing is adjourned.
[Whereupon, at 12:30 p.m., the committee was adjourned.]
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