[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
        THE BUDGET OUTLOOK FOR THE SMALL BUSINESS ADMINISTRATION
=======================================================================



                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS

                             UNITED STATES

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             APRIL 24, 2013

                               __________

                               [GRAPHIC] [TIFF OMITTED] 
                               

            Small Business Committee Document Number 113-013
              Available via the GPO Website: www.fdsys.gov




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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missour
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Sam Graves..................................................     1
Hon. Nydia Velazquez.............................................     8

                               WITNESSES

Hon. Karen Mills, Administrator, United States Small Business 
  Administration, Washington, DC.................................     2

                                APPENDIX

Prepared Statements:
    Hon. Karen Mills, Administrator, United States Small Business 
      Administration, Washington, DC.............................    27
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Digital Hands Testimony......................................    29


        THE BUDGET OUTLOOK FOR THE SMALL BUSINESS ADMINISTRATION

                              ----------                              


                       WEDNESDAY, APRIL 24, 2013

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:00 p.m., in Room 
2360, Rayburn House Office Building. Hon. Sam Graves [chairman 
of the Committee] presiding.
    Present: Representatives Graves, Chabot, Luetkemeyer, 
Mulvaney, Herrera Beutler, Huelskamp, Schweikert, Bentivolio, 
Collins, Velazquez, Schrader, Clarke, Chu, Payne, Meng, 
Schneider, Barber, Kuster, and Murphy.
    Chairman GRAVES. We will go ahead and bring the hearing to 
order. The ranking member is detained and we have permission 
from her to go ahead and get started this afternoon. We do have 
votes at 2:30, so we should be in pretty good shape when it 
comes to that.
    Good afternoon to everybody. At today's hearing we are 
going to hear about the President's proposed Fiscal Year 2014 
Budget for the Small Business Administration, and I would like 
to welcome Administrator Karen Mills back to the Committee; 
obviously, for probably her last testimony, unfortunately.
    Small business owners have to balance their books every 
single year, and if necessary that includes eliminating 
unnecessary costs. In contrast and despite a federal deficit of 
$16 trillion, the SBA, in its budget proposal, makes no effort 
to eliminate wasteful and overlapping programs that would 
contribute to reducing that federal deficit.
    Given the deficit, you might think that the SBA would find 
ways to cut back. Instead, the agency has requested nearly $57 
million in new funding for new entrepreneurial programs.
    And by contrast, the SBA only asked for $4 million to 
increase the number of procurement center and commercial 
marketing representatives. Last year, this Committee moved 
legislation, ultimately signed into law, which enhances the 
authority and responsibilities of those SBA employees. Given 
these new responsibilities, as well as their long track record 
of helping small businesses get federal contracting dollars and 
creating jobs, it makes sense for the agency to make a more 
significant investment than the 34 new hires offered in the 
budget.
    The agency has initiatives in the budget to increase the 
availability of loans to small businesses--certainly a very 
worthwhile goal. At the same time, the SBA is reducing 
resources that would be devoted to the Loan Management 
Accounting System. This system that tracks the agency's $100 
billion loan portfolio is an information technology project the 
deputy administrator stated was a top priority of the agency. 
Given the agency's management problems in lender oversight, 
this proposal increases loans and cuts back on loan management 
tools and puts taxpayers at a little bit greater risk.
    To summarize, the SBA offers a budget that is long on its 
priorities but seriously underfunds the proven programs that 
Congress has designed and ignores some longstanding management 
deficits.
    With that, we will move past the ranking member's 
statement. I am sure she has got a statement. Okay. And we will 
just go ahead and move to Administrator Mills. And again, thank 
you for being here today.

    STATEMENT OF KAREN MILLS, ADMINISTRATOR, SMALL BUSINESS 
                        ADMINISTRATION.

    Ms. MILLS. Well, thank you very much, Chairman Graves, and 
Ranking Member Velazquez, and the members of the Committee. I 
am very pleased to be testifying before you today.
    I want to start by thanking this Committee for its ongoing 
support of the SBA and America's 28 million small businesses 
and entrepreneurs.
    The president's 2014 budget is focused on job creation and 
accelerating our economic growth.
    We know where American jobs come from. Half of all working 
Americans either own or work for a small business, and these 
businesses create two out of every three net new private sector 
jobs in the United States.
    The 2014 budget makes strategic investments in America's 
small business. It fills the remaining gaps in the market, 
particularly for small dollar loans, while supporting proven 
programs that fuel job creation, new business formation, and 
American innovation. These are critical to a full and robust 
economic recovery.
    And it is important to note that due to decreased subsidy 
costs for our 7(a) loan program, the SBA's 2014 budget reflects 
a savings of $109 million from our 2012 budget.
    Four years ago, when I first appeared before this 
Committee, small businesses were struggling in the face of one 
of the worst economic environments since the Great Depression. 
At the SBA, we rolled up our sleeves and we went to work. We 
eliminated fees, streamlined programs, and in some cases took 
more than 100 pages of paperwork out of loan products. The 
results have been significant, including two record years in 
2011 and 2012 of delivering over 30 billion dollars in loan 
guarantees.
    Our 2014 budget builds on these efforts. Three key 
initiatives are: the elimination of fees for borrowers and 
lenders for all 7(a) loans under $150,000; an extension of the 
504 refinance program; and SBA ONE, which creates a single 
application for all 7(a) loans and allows borrowers to more 
easily complete lending forms.
    The 2014 budget also invests in SBA's powerful counseling 
and mentoring network. These investments focus on the types of 
small businesses that are best positioned for job creation--
expanding firms and startups. Expanding firms created 8.7 
million jobs between March 2011 and March 2012.
    The budget requests $40 million for an intensive business 
leadership program that provides the skills training to help 
more of these established business owners successfully scale 
their operations and create more jobs.
    The program is built as a private-public partnership that 
allows us to maximize its reach.
    The other area poised for growth is startups. These 
businesses punch above their weight when it comes to job 
creation.
    At the SBA, we have had our third consecutive record-
breaking year for our Small Business Investment Company 
program. And the 2014 budget allows us to further support 
startups through targeted tools such as growth accelerators and 
clusters.
    We also know that for both established firms and startups, 
the opportunity to sell to the federal government can be a game 
changer.
    As a result of our efforts, in the last three years of 
reporting, small businesses have accessed $32 billion more in 
contracts than the previous three years, even as overall 
contract spending decreased during those years.
    We continue to take a zero tolerance stand on fraud, waste, 
and abuse in federal contracting to make sure that small 
businesses are the ones getting these contracts, and we have 
instituted programs like QuickPay to make sure they get paid 
more quickly.
    Our 2014 budget will continue this emphasis on contracting 
by putting more resources known as Procurement Center 
Representatives in the field. Our research shows that 32 new 
PCRs proposed in the budget can influence approximately $7 
billion in small business contracting.
    Today, thanks to agency-wide efforts and the support of 
Congress, small businesses are interacting with a different 
SBA, one that is more customer-focused, more data driven, and 
more transparent.
    On a personal note, this is likely the last time I will be 
testifying before this Committee. It has been an honor and a 
privilege to work with you over the past four years. And once 
again, I would like to say thank you.
    Chairman GRAVES. Thank you very much. And we are going to 
move right over to questions now.
    Mr. Bentivolio, first.
    Mr. BENTIVOLIO. Thank you very much, Mr. Chairman.
    Ms. Mills, thank you for your service and your leadership, 
and I thank everyone at the Small Business Administration for 
their hard work towards getting our economy rolling again. I 
apologize that I only have a few minutes here to ask what 
appear to be ongoing issues with the Small Business 
Administration, not about what is working well. And you can 
submit your responses in writing in 14 calendar days or less. 
And I will give my questions after I read them to the clerk and 
they will give you a copy.
    First question. How many times has the SBA overhauled the 
design and links on its website in the past four years? What 
was the total cost of these overhauls?
    Two, how much did the SBA spend to create the RFP-EZ 
website and how much does the SBA spend to maintain the 
website?
    And according to the budget justification, SBA ONE the 
agency's new initiative to improve the electronic application 
process and its loan programs will use commercial off-the-shelf 
software. How will the SBA integrate that with its COBOL-based 
loan management accounting system?
    The fourth question, the SBA budget for fiscal year 2014 
reduces 2 million from the budget to modernize the Loan 
Management Accounting System but requests 7 million for SBA1. 
Do you think it is wise to take on new information technology 
initiatives when the LMAS program is still based on COBAL?
    Thank you, and I appreciate any elaboration you can provide 
in the written response and to hear about COBAL for the first 
time in decades since the `70s, I think. That was a bit of a 
shock to me. And I think it says a lot about the information 
technology problems at the SBA. Thank you very much, and I 
yield back.
    Chairman GRAVES. All right. We will go to Mr. Murphy.
    Mr. MURPHY. Thank you, Mr. Chairman. And thank you for 
being here.
    You outlined in your opening statement some of the new 
programs that you are laying out--the entrepreneurship 
education, the growth accelerators. We had a presentation by 
GAO and I think we have probably all read the studies on some 
of the duplications, some of the overlap that we have in some 
of these programs. I think there were 52 that they outlined. 
Just curious on the reasoning for these two new programs when 
we have so many already out there and why not a focus on 
improving what we have?
    Ms. MILLS. Thank you. As you know, our entrepreneurial 
development programs are a key part of the SBA. And across the 
entire SBA resource partner network we have made some important 
accomplishments in order to what we call link, leverage, and 
align those programs on the ground to make sure we are giving 
taxpayers the best bang for the buck in eliminating any 
duplication. Progress on that has been substantial, and with 
that success we have noticed that there are some gaps in the 
market.
    As I explained earlier, this budget is focused on job 
creation. There are two major sources of job creation--
expansion of existing firms that have new opportunities, 
perhaps in government contracting, perhaps in exports. And 
those firms need to be able to have the skills to take 
advantage of those opportunities. Our Intensive Entrepreneurial 
Education program proposed here is like a mini MBA. It is 
missing in the marketplace but it will be delivered through the 
existing network that is out there. It does not----
    Mr. MURPHY. And you said it is a P3; correct?
    Ms. MILLS. Pardon?
    Mr. MURPHY. You said it is a public-private partnership?
    Ms. MILLS. And it is a public-private partnership--which is 
what we generally do in order to give taxpayers the best bang 
for their buck.
    Mr. MURPHY. And was it based on something that we have seen 
proven to work on, one of these already existing programs, just 
expanding it?
    Ms. MILLS. Yes. It is based on proven programs that work. 
Kauffman FastTrac, Goldman Sachs 10,000 Small Businesses, the 
SBA's E200 all share a nine-month intensive curriculum. We are 
pulling best practices from all of these areas and there are 
metrics behind each one.
    Mr. MURPHY. What will your plans be to track them and their 
performance?
    Ms. MILLS. Well, we are a metrics-driven organization and 
we are building at every stage the metrics that involve what is 
the success rate of small business that graduate. We already 
tracked that for some of our existing programs, and we know 
that after this curriculum some small businesses increase their 
sales. One I talked to last week from Baltimore said they 
doubled their sales in the first year out. In addition, they 
create more jobs, and we also measure how much additional 
financing they get.
    Mr. MURPHY. You said some do that. Are you confident over 
50 percent or so?
    Ms. MILLS. Yes. The metrics are very good. We would be 
happy to share them with you.
    Mr. MURPHY. Okay. I would love to see that.
    One last question. It looks like you are cutting the SBDC 
and SCORE 9 and 7 percent respectively. How are you cutting 
that? What are you going at there? Is there some waste and 
fraud you have identified or is it just simply funding?
    Ms. MILLS. Well, first of all, this is not an either/or 
proposal; this is a both/and. The SBDCs are an integral part of 
delivering the intensive entrepreneurial experience. So the 
funding from that will flow down to those who deliver the 
programs which will be our resource partners. So this is a way 
to measure outcomes, make sure there is consistency, deliver 
best practices, fill a gap in the marketplace, and still use 
our existing resource partners to deliver the program.
    Mr. MURPHY. Great. All right. Thank you.
    Thank you, Mr. Chairman.
    Chairman GRAVES. Mr. Mulvaney.
    Mr. MULVANEY. Thank you, Mr. Chairman. Thank you, Ms. 
Mills.
    Let us stay on this emerging leaders program for a little 
bit because I am a little confused. You talked about the 
metrics that you are using. I think you mentioned that sales 
and jobs would be some of those metrics, which makes perfect 
sense. But how is that different from the existing programs 
that you already have? How is it different--those metrics 
different from the Kauffman FastTrac program and the next level 
program, for example? Are those not also designed to help small 
businesses increase sales and employ more people?
    Ms. MILLS. This Intensive Entrepreneurship Program is the 
Kauffman FastTrac program, the Goldman Sachs 10,000 Small 
Business, and the current E200 program pulled together with 
best practices. These programs differ from the mentoring.
    Mr. MULVANEY. Let me cut you off. And I am sorry to cut you 
off, but are the other ones going away if these are pulled 
together?
    Ms. MILLS. Right now these other programs do not exist 
across many of the smaller marketplaces, and we have worked 
with those partners who do not have the capacity to serve, you 
know, rural areas. We are in 27 cities now. Goldman Sachs is in 
nine, and we want to make sure that we reach more entrepreneurs 
in more of these places that do not have access to an intensive 
entrepreneurship experience, like a mini MBA.
    Mr. MULVANEY. And I understand that, and I represent a 
rural district. I guess my question is if we are having 
difficulty providing those services to the rural areas, for 
example, under the existing programs, why do we think our 
experience will be different with this new program?
    Ms. MILLS. The existing programs, such as the Small 
Business Development Centers and SCORE, provide absolutely 
fantastic services, but they are different. One of the things 
we do with SCORE is we do one-on-one mentoring. In our Small 
Business Development Centers we have an extraordinary record of 
long-term client counseling with very, very good results. But 
there is still a gap for that medium-size business in the small 
category--it is still a small business.
    Mr. MULVANEY. Sure.
    Ms. MILLS. That needs to grow 20 employees. Needs to take 
its sales up to the next level. The gap is that the 
entrepreneur does not have the skills to take that business to 
the next level. This is a nine-month program which meets every 
two weeks. It creates kind of a mini forum, like a YPO forum 
among the CEOs that are in that forum. They create a specific 
business plan for their own company and then get prepared to 
execute it. They learn financial planning and analysis. They 
find out where they are making their money. And I would invite 
you to come to one of the graduations or one of the classes 
because you will hear specifically how they could not have 
grown their businesses without this type of program. These very 
often were clients of SCORE or of our Small Business 
Development Center, but they had an opportunity to dramatically 
change and improve their business and grow. They needed a more 
intensive experience.
    Mr. MULVANEY. I am a big fan of the SBDCs. In fact, I think 
we have been to see some with some of my fellow colleagues 
across the aisle all over the country. You are reducing funding 
for those in this budget request though and that is where I am 
caught up. I hear what you are saying and I have got issues 
about whether or not we are going well beyond your authority in 
doing this. Are we actually getting in the business school 
business? You know, the SBDCs make sense to me. It is a place I 
can go in as a small business person to get mentored and that 
is great. I see value in that and certainly the market does not 
necessarily always provide that, but the market provides 
exactly what you are talking about.
    Let us stay on the first topic, which is tell me about the 
$8 million reduction in their quest for SBDCs, which is how is 
that going to affect their service?
    Ms. MILLS. Well, first I want to make sure that this 
Committee understands that all of SBAs programs are conducted 
under the authority as provided by Congress, so we do not have 
any unauthorized programs. And this program is not a new bricks 
and mortar program. It is conducted through our on-the-ground 
resources, including our Small Business Development Centers. So 
these funds will find their way to those Small Business 
Development Centers who participate, as most of them do, in 
implementing these programs in their cities.
    Mr. MULVANEY. Thank you. I yield back the balance of my 
time.
    Chairman GRAVES. Mr. Schrader.
    Mr. SCHRADER. Thank you, Mr. Chairman.
    First, I want to thank you very much, Administrator Mills, 
for your service. You have been a breath of fresh air in 
general to this Committee, and frankly, to the agency itself. I 
think there is a newfound sense of mission and purpose and 
frankly, there is a sheriff in town to watch some of these 
programs that we do have. You have set a new standard. I think 
your background in small business as an entrepreneur yourself 
and venture capitalist, you understand how this should be 
happening. So I appreciate that. I am going to miss you 
personally. So good luck moving forward.
    Having said that, this would not be a Small Business 
hearing if we did not talk about some of the programs that we 
would want to do maybe slightly differently than you are 
suggesting. I think we are all hearing about the SBDC issue. I 
think it is important for the Committee to understand that 
under your tutelage we have shifted a little bit in terms of 
priorities, maybe not necessarily in terms of programs, but you 
have been focused a lot on the medium-sized small businesses, 
if you will, where I think we have had previous testimony that 
maybe there are a lot of jobs created. I think your contention 
has been that is the biggest bang for the buck. But there are 
many of us that are really worried about the recession; a lot 
of new people starting their own very small business. So the 
reductions to SBDCs are probably unacceptable to a lot of us 
and we hope to find a way to work with you and the 
administration to maybe ameliorate those and still be able to 
support those medium-size small businesses going forward.
    So to get to a question here would be you are also looking 
at decreasing the fees for folks trying to go for $150,000 
loans. Question one, you know, how do we know that is going to 
guarantee us some increased uptake by small businesses? I like 
the idea of more small businesses being able to compete because 
I am a small little veterinary clinic? I never had a $200,000 
loan. I was taking out, you know, $40-, $50-, maybe $100,000 at 
a time. So I am curious, if you do not know, what are the 
metrics you are going to gauge the success of the program by?
    Ms. MILLS. Well, first of all, thank you very much for your 
kind words. And I want to make sure you understand in the Small 
Business Development Centers, it is not an either/or; it is a 
both/and.
    Let me address your question on the 150,000--the loans 
below $150,000. As you know, the SBA just finished two record 
years at $30 billion, but the loans below $150,000 have not 
recovered. And the numbers are quite dramatic. You know, those 
loans dropped by two-thirds in 2009 and then they stayed flat. 
They have not come back up. So we need to address getting more 
loans into the hands of the small businesses in these areas. 
They are the underserved areas, they are the smaller 
businesses, they are the earlier stage businesses, and we know 
we have a proven way to do this because it worked during the 
Recovery Act. When we eliminated fees during the Recovery Act, 
we were able significantly increase both the supply and the 
demand of loans. And we have very good metrics to measure this 
and we will be tracking the number of loans, the dollars of 
loans, and the geography of the loans.
    Mr. SCHRADER. Okay. Thank you.
    The second question beyond----
    Ms. VELAZQUEZ. Will the gentleman yield?
    Mr. SCHRADER. Yes, certainly. I yield to the chair.
    Ms. VELAZQUEZ. Let me just take one second----
    Ms. MILLS. Hello, Congressman. Yes.
    Ms. VELAZQUEZ.--one second to really thank you on behalf of 
the American people and small business for your service. But I 
just would like to ask you, was it lowering the fee that 
increased the number of loans or was that coupled with the 
guaranty?
    Ms. MILLS. It appears, as we have looked back on the 
lowering of the fees, that the lowering of the fees was an 
absolutely critical part of increasing demand. Back in the 
credit crunch when banks were concerned about their capital, 
the increased guaranty was also important but we know that the 
fees were a really big drive.
    Ms. VELAZQUEZ. But we did notice it dropped in the volume 
when the guarantee expired.
    Ms. MILLS. Well, we will get back to you on the exact 
numbers on that.
    Mr. SCHRADER. Thank you, Madam Chair.
    Ms. VELAZQUEZ. Thank you.
    Mr. SCHRADER. Good clarification.
    The other program that you made some great strides in was 
the HUBZone program. There are a lot of people taking advantage 
of that and I see the funding for that is decreasing in your 
budget, concerned about how that might affect the outcomes that 
you have been very successful with I think so far. So could you 
comment on why we are decreasing that in that area where there 
has been rampant fraud and abuse?
    Ms. MILLS. Well, first of all, we have had a really intense 
effort on fraud, waste, and abuse. We aggressively went after 
large businesses pretending to be small businesses, people who 
were saying they were in a HUBZone but were not in a HUBZone. 
And we have largely gone through that process of----
    Mr. SCHRADER. I am just worried about going forward.
    Ms. MILLS.--monitoring. I am not aware that we are reducing 
our efforts in that area in any way, so we will be happy to 
talk further about your concern.
    Mr. SCHRADER. All right. Thank you. And I yield back, Mr. 
Chair.
    Chairman GRAVES. Mr. Collins.
    Mr. COLLINS. Thank you, Mr. Chairman. Administrator Mills, 
we chatted a little bit. Maybe I just would share with this 
group a little that 31 years ago I started my first company 
with an SBA loan, and it is safe to say without that loan I 
would never have started that company or got involved with the 
20 or so companies subsequent.
    But maybe again for the Committee's edification, I have 
been involved for 12 years with something I think very similar 
to your intensive entrepreneurship, leadership training, and I 
have been a member of YPO for 25 years. What I have found I 
think is what you are talking about--the gap of the person with 
25, 30, 40 employees. You will get a bigger bang for your buck 
if you can get that person over the hurdle of understanding 
what his variable margin is, how does he grow. Then the true 
startup. We need both, but the startup is one or two employees 
and there is a plateau and four or five years later they have 
still got just a handful of employees. If you want the big 
push, it is the company with 30 or 40 employees that wants to 
go to 50 or 60, does not know how to get there, and actually 
does.
    Now, the program I have been involved in with the 
University of Buffalo, The Center for Entrepreneurial 
Leadership, and 40 people took place in that. It was a nine-
month program like you are talking about. They met once a 
month, had a mentor assigned to them, but then they developed a 
business plan with the class. They would present, get their 
business plan ripped apart from one end to the other, just as a 
learning thing, but it is like a mini MBA. We charged $5,000 
per student at the University of Buffalo.
    Now, in partnering, is there any thought that the SBA would 
partner with someone like universities on something like this? 
Because it is a very worthwhile program.
    Ms. MILLS. Yes. Absolutely. The model is to partner very 
often with community colleges and other activity that also 
exists in that area.
    Mr. COLLINS. Now, we charge $5,000 a person to go through 
their program. Would the SBA be subsidizing some part of that 
or----
    Ms. MILLS. Yes.
    Mr. COLLINS. How would the company president who is--he is 
signing up to go through an intensive MBA, if you will--does 
this help lower that fee in some way?
    Ms. MILLS. Yes. This would lower or eliminate the fee. And 
the reason is that our job is to serve gaps in the market, 
where you have a terrific company but they may not be in the 
position to make that investment or they may not be in a 
geography where that investment exists.
    Mr. COLLINS. And I do think, too, that would help. I have 
been on the recruiting side of recruiting businesses in, 
because we have 40 businesses a year that go through their 
program--20 on Tuesday night and 20 on Thursday night. 
Sometimes the $5,000, believe it or not, when cash is king, a 
lot of times the companies that need to go through that are the 
ones that do not have the cash, and they are trying to convince 
either their board or their partner. Sometimes it is the second 
generation that wants to grow the company and that second 
generation guy has to convince the father to go spend $5,000 to 
grow the business and sometimes it is that dialogue. So I do 
agree.
    Just the other comment I would make is, again, having 
started a company, paid the SBA fee at the end of which I was 
out of money so I was broke the day we closed. Cash is king. 
Sometimes that small fee, somebody would say how much is that 
small fee? It is just enough to keep the company from moving 
forward because the banks are bad enough. But, you know, I 
agree with you that anything you can do to reduce the fee, 
especially some of these startup loans is something needed.
    So thank you for your service. The SBA will always have a 
soft spot in my heart since that is how I started my first 
company and certainly as your replacement comes in I think on 
this Committee all of us would just like to be an integral part 
of your decision-making on some of these programs. Because from 
what I am sensing is sometimes the communication has not been 
what it could have been. You are off doing your thing and I do 
not think this Committee feels they are engaged. Sometimes the 
best way is just engage us more and perhaps we will have more 
pleasant hearings.
    Thank you.
    Chairman GRAVES. Ms. Chu.
    Ms. CHU. I, too, want to thank you, Administrator Mills, 
for your service. And I wanted to ask about the 504 loan 
refinance program. I was glad to see that in the president's 
budget for fiscal year 2014 the SBA has requested that the 
Congress reauthorize this program. I know that bankers and 
small business owners in my area have given the program very, 
very positive reviews. And I have introduced the Creed Act, the 
Commercial Real Estate and Economic Development Act, which 
would extend this program.
    Can you share with the Committee the purpose of the 504 
debt financing mechanism and how it helps small businesses and 
also can you share with us the performance of the existing debt 
refinancing portfolio and how you would characterize that 
performance.
    Ms. MILLS. The 504 refi program, as you know, ended last 
September when the Small Business Jobs Act expired. But the 
program was extremely successful. It had--2,700 loans valued 
over $2.5 billion. And we had 200 banks participating in the 
program. We know that demand still exists in the marketplace 
because interest rates are low and many small businesses have 
equity value in their real estate that they want to unlock by 
refinancing their debt. But conventional financing is not 
available. The 504 Refi Program allows them to refinance their 
debt and then take that money and use it for their equity and 
use it in their business.
    We know that on the last day of the program--in 2012, we 
had over 400 projects pending and about half a billion dollars 
that did not get funded. And we do know that this program will 
operate in the future at zero subsidy based on the fact that we 
can charge an adjusted fee at the agency to cover projected 
costs.
    Ms. CHU. And the performance of the portfolio?
    Ms. MILLS. Yes. The portfolio is very, very early. It has 
had very few, almost no defaults, but it is very early and it 
is only a year out.
    Ms. CHU. So just to be clear, the portfolio of these loans 
have not cost the taxpayers any money?
    Ms. MILLS. At this moment the portfolio is very new, so it 
has not really, you know, matured or come to fruition, so it 
has not.
    Ms. CHU. Very good.
    I wanted to follow up on the SBA 7(a) loan guarantee 
program. And I was interested in your effort to increase these 
loans of smaller size, the 7(a) loan program. This program has 
been very good for small businesses to obtain financing when 
they have not been able to find other sufficient credit from 
normal lending channels. Now, you have proposed waiving fees. 
And although this could save borrowers a couple of hundred 
dollars, there would be more significant savings for the very 
small businesses if there was a lower interest rate on these 
smaller loans. So I would like to know in what ways could the 
SBA reduce interest rates on these smaller-size loans versus 
lowering the fees.
    Ms. MILLS. The SBA has the authority to set fees, but the 
interest rates are set by the banks. So these are public-
private partnerships. Banks see the loans. They determine 
whether they can do them without a guarantee. If they determine 
that they would not be able to do it and they ask for an SBA 
guarantee, then it will be at the rate that the bank sets.
    Ms. CHU. Well, I would also like to add my voice to the 
chorus of people that are very concerned about the decrease in 
the SBDC funding. I am very concerned because it looks like it 
could amount to a reduction of $10 million and yet there are 
some proposals for pilot programs. For instance, one called 
Operation Boots to Businesses. It seems that it is similar to 
those services provided by the Veteran Business Outreach 
Centers and the Small Business Development Centers. So could 
you please explain to me how it would be different from that? 
And also what effect would there be for the current SBDCs in 
terms of closings, reduction in hours, or employee layoffs.
    Ms. MILLS. First, the Boots to Business program is 
completely different from the services provided by the Veterans 
Centers. Boots to Business is targeted at our returning 
veterans. It is service members, while they are still in the 
service, at their bases in the Marines, in the Army, in the Air 
Force, as part of the TAPS program--which is the Transition 
Assistance Program--to make sure these returning service 
members are able to have a path forward when they come back 
after giving this country their service. Many of them want to 
go back to school. Many of them want to get a job. But some of 
them want to go back to an entrepreneurial business or start an 
entrepreneurial business. And that track is covered by the SBA 
under Boots to Business. It will be delivered by our Small 
Business Development Centers. So the funding in the Boots to 
Business line will flow through to those Small Business 
Development Centers. That is why this does not constitute a cut 
in Small Business Development Centers. What we have one is an 
integrated resource partner platform that collaborates on the 
ground in absolutely extraordinary ways, and with discussion 
with them--in fact, we are piloting this now in a number of 
bases with the Marines and the Navy and the Army. The Small 
Business Development Centers are very excited to serve our 
veterans in this way, and with this funding they will receive 
cash flow to pay for their efforts.
    Ms. CHU. Thank you. I yield back.
    Chairman GRAVES. Ms. Herrera Beutler.
    Ms. HERRERA BEUTLER. Thank you, Mr. Chairman. And thank you 
for joining us again, Director Mills.
    I wanted to ask two questions. Well, two different issues. 
One is about HUBZones, but first I want to ask about the 
Natural Resources Sales Assistance program. I have a number of 
smaller timber producers in my region who have actually 
specifically come to me about this with concern. So three parts 
to that question.
    I want to know if the SBA is engaging with the Forest 
Service and ensuring that there will be a set aside for small 
timber mills. Also, is the SBA ensuring that the Forest Service 
is complying with the terms of the interagency agreement? I 
asked the IG about this in a different hearing a few weeks ago 
and I could not get an answer. And then lastly, I have heard 
from some constituents that the SBA has been using firewood and 
wild mushroom sales to fulfill the requirements for the timber 
set aside. Please tell me that is not true.
    Ms. MILLS. Well, first of all, the Natural Resource Sales 
Assistance program is something the SBA is fully committed to. 
And as you clearly know, it is a program that allows a set 
aside for small timber mills. And having been to small timber 
mills actually in Arkansas, not in your area, and had many 
conversations with them, I want to reassure you that we are 
working very closely with the Department of Agriculture and the 
Forest Service on this issue. We had many conversations with 
the--I will get back to you on the firewood and wild mushroom 
issues and whether they qualify and are eligible.
    Ms. HERRERA BEUTLER. Well, I am pretty sure they do not 
qualify under the intent of Congress, which you were talking 
about the authority we have granted. It was not for timber 
sales or, excuse me, firewood sales or wild mushroom sales; it 
is for timber set asides for these small guys. And we will 
provide you with the specific information about these cases. 
But it is pretty much Washington statewide. I mean, mills from 
all over. So it is an area of concern that we would like 
someone to look specifically in on.
    Ms. MILLS. Yes. So we will absolutely follow up.
    Ms. HERRERA BEUTLER. Great. And then the other question was 
about HUBZones, specifically. And I know people are talking 
about the dollar amounts. The numbers that I have for fiscal 
year 2012--actually, they are SBA numbers--approximately 1,175 
HUBZone applications were withdrawn. And that is nearly twice 
the amount that were approved and nearly four times as many as 
were declined. And I know you talked about cracking down, so I 
assume that is part of that number. I would be surprised if 
that is that much of that number, but I would like to hear your 
thoughts on that because I have three instances in a HUBZone 
that we keep coming back to you and each time you help, but I 
am not sure this is how this is supposed to work.
    One of them was--one of my business owners--and this is the 
same area--was out of town. So basically, they turn in the 
information, they wait five weeks, and then they get someone, a 
specialist calls them and says you have 10 days to get us 
supplemental information. Well, in one instance, a guy is out 
of town on vacation, so he has to withdraw and start over. On 
another instance the business owner was only given 72 hours to 
provide the supplemental information--had to withdraw and start 
over. And just yesterday the HUBZone application, it happened 
again. Somebody turned in information in February and has not 
heard back.
    I appreciate the help with these individual instances, but 
I am starting to worry what is going on. Maybe, I do not know 
if it is the region but I was hoping maybe you could speak to 
at least some of the numbers. I am wondering if the numbers 
have something to do with that. I mean, I do not know if it is 
fair to say we are withdrawing and you get to--are they 
withdrawing because there is a frustration because something is 
not being timely? Or is this isolated?
    Ms. MILLS. Well, first of all, we have cracked down on 
eligibility. And this was a very important push. That said, we 
would very much like to follow up on any of these specific 
instances. We want to make sure that our applicants have every 
opportunity to comply and to join the program. We are looking 
for great HUBZone companies to be part of the program, so we 
will do everything we can to service them.
    Ms. HERRERA BEUTLER. Well, we will provide you the 
information again. Hopefully I do not have to every time come 
to you with one of these because obviously I do not want to 
waste your time. So thank you.
    Thank you, Mr. Chairman. I yield back my zero seconds.
    Chairman GRAVES. Mr. Schneider.
    Mr. SCHNEIDER. Thank you. And thank you, Administrator 
Mills, for your service. As a new member, I am sorry we will 
not have the chance to work together, but knowing that small 
businesses do represent half the employment and two-thirds of 
new job creation, it is critical that we continue to foster the 
spirit of enterprise and pursue the entrepreneurial 
opportunities in this country to get the economy growing.
    I represent Illinois. It is the northern suburbs of 
Chicago. We have suffered extensively from flooding throughout 
the region in the last several days. Some of the areas that I 
visited this past weekend to see the impact, it is not just 
hopes but it is also businesses that are underwater and are 
going to have a hard time picking up in some of the resort 
areas as the season starts. They are losing their opportunities 
in a very limited window to achieve what they need to this 
year. And at the same time we are having the impact obviously 
of sequester.
    So my initial question is what impact do you see sequester 
having as we help these businesses who are just starting to 
assess the impact of the floods on their future?
    Ms. MILLS. Well, we are absolutely ready to come aid in 
this disaster. The process is that the governor would ask for a 
disaster declaration and we would declare it and we would be on 
the ground immediately thereafter. We have a 2,000 person ready 
reserve. We are finishing a really intensive set of operations 
around Hurricane Sandy, of course, but we are prepared and 
ready to come in. We know flood season, tornado season, 
hurricane season is coming. We are ready to serve.
    Mr. SCHNEIDER. Will the sequester limit your ability? I 
mean, these businesses, the families are just now seeing the 
waters recede. They are receding slowly. Until we have the full 
assessment of the impact of the damage, the governor cannot 
make his request. But to them it has already been a long time 
and I want to make sure once we do make the request we get 
people there as soon as possible.
    Ms. MILLS. We will be able to be there without a problem. 
We did take sequester cuts but we do have a force ready to come 
in.
    Mr. SCHNEIDER. Okay. My second question, you talked about 
it not being either/or but both/and. And I want to give you the 
opportunity--it is critical that we expand and understand the 
priorities for small businesses. I ran a 10-person company with 
a partner. I had the opportunity to be part of an advisory 
group through a group then called Tech, now Vistage. And that 
was an ongoing relationship that helped me understand and deal 
with some of the challenges we faced over the years I ran that 
business. As you are doing this both/and and working with 
startups, working with growing companies, how are you going to 
place your priorities? How do we make sure that we are not 
shortchanging one versus the other?
    Ms. MILLS. Thank you for bringing us back to the startup 
community, because they are equally strong in job creation. And 
in fact, in recent years the startup rate in the United States 
has gone down quite a bit. And one of the important requests in 
this budget is a program for jobs, for small business startup 
accelerators. All across this country, accelerators are spring 
up. They are kind of the evolution of incubators where small 
businesses can get access to mentors and networks and capital. 
We have convened accelerators all around the country. We are 
working in a competitive fashion to accelerate the access to 
capital, the access to networks for these small entrepreneurial 
startups. I was in one in Austin a few weeks ago. We are seeing 
them come up all around the country. What we would like to do 
is catalyze best practices and catalyze the availability of 
these in places outside of traditional startup areas like 
Silicon Valley where they might not yet be operating at full 
force.
    Mr. SCHNEIDER. I think it is crucial that you have the 
accelerators that we put in place, multipliers, amplifiers, 
accelerators for businesses to start and grow. For me I know 
throughout my career, my successes have all been related to 
having mentors along the way. So I want to make sure we do not 
cut off that interpersonal relationship so we have, whether it 
is SCORE or other programs, mentors to help these businesses 
not just get started but to grow and succeed and nurture beyond 
those first few years.
    Ms. MILLS. The reason I say it is both/and is many of our 
startups are Main Street businesses and our SCORE 
representatives really spend the bulk of their time at early 
stage and startup business plans. High growth companies tend to 
need a different kind of mentor. Those mentors tend to be 
gathered around these accelerator networks. That is why we need 
a both/and approach.
    Mr. SCHNEIDER. Right. Thank you very much. I yield back my 
time.
    Chairman GRAVES. Both Huelskamp.
    Mr. HUELSKAMP. Thank you, Mr. Chairman. Madam 
Administrator, I appreciate you being here.
    A couple questions. I want to follow up on the issue of the 
$10 million of cuts in the SBDCs versus the expansion of 57 
million for a variety of initiatives.
    In my visits with SBDCs, just last week apparently there 
was a little confusion. They were not told that there was money 
that would be flowing through them. They still have the $10 
million of cuts. Can you explain what you told them and how 
that is different from what I am hearing from you today?
    Ms. MILLS. I want to be clear. We have worked through this 
with the SBDC leadership. We have been working on Boots to 
Business for a year already, so they are completely involved. 
They are engaged today with E200 (Emerging Leaders), and we 
value this partnership we have with all our resource partners, 
particularly the SBDCs, who are one of the core pieces of what 
we call our bone structure.
    Now, we understand that traditionally each of these places 
has operated as a silo. And making sure that one sees the world 
in a collaborative fashion is a process, and we understand that 
the SBDCs are concerned about making sure that they continue to 
deliver what they are delivering, and we are equally as focused 
on that. That is why--I want to make sure you understand--that 
the request we are making today is the same request that we 
made in the last budget. So we are making the same dollar 
request that we did prior. We have not changed our assessment. 
And we do value the Small Business Development Centers, so we 
are going to make sure that they have incremental resources; 
that they are the core recipients, if they choose to be, of 
delivering Boots to Business and the intensive entrepreneurial 
experience.
    Mr. HUELSKAMP. So your budget does or does not cut $10 
million from the Small Business Development Centers?
    Ms. MILLS. To be clear, our budget request is the same 
budget request the president made last time.
    Mr. HUELSKAMP. Well, I appreciate budget request; how about 
current year budget--actual approved budget? Is it a $10 
million cut then from the current budget you are operating 
under?
    Ms. MILLS. From the current budget, this request is not at 
the same level as you point out, but it does not include all 
the dollars that would flow through through these absolutely 
targeted programs that are proven to deliver value, that the 
Small Business Development Centers are already engaged with in 
a highly productive way. So we are focused on making sure we 
put our efforts against proven programs that deliver results.
    Mr. HUELSKAMP. I understand that. Let me get back to the 
issue of what they have heard and communicated with me and 
apparently some other members is they were not told they were 
going to get this money and be providing those services, but 
you are telling the Committee now that you believe the new 
initiatives and the money flowing through would more than cover 
the $10 million in budget cuts that you proposed?
    Ms. MILLS. We have sat down with our partners to talk about 
these efforts over the past several weeks and covered this with 
their leadership, and we will be happy to continue to 
communicate about this, to work with our partners to make sure 
that Small Business Development Centers can continue to provide 
the role that they have.
    Mr. HUELSKAMP. Are you still proposing changes to the Small 
Business Act as part of this package?
    Ms. MILLS. I do not believe we are.
    Mr. HUELSKAMP. I had understood otherwise, so all these 
programs--the initiatives are currently full authorized?
    Ms. MILLS. Yes, they are fully authorized.
    Mr. HUELSKAMP. Okay.
    Lastly, with apparently the lack of communication and 
perhaps it is a rural area where the communication has not 
gotten that far. When you are 100 miles from your nearest 
center, maybe 250 miles if you are not using the SBDC, it is 
pretty hard to avoid a silo approach when you are the only one 
within a 100-mile radius. How do you address that? How do I 
encourage them to continue to offer those services when they 
see you cut the line item. I mean, you actually cut 10 million 
out and then say, ``Oh, do not worry. We are going to cover 
that with these new initiatives.''
    Ms. MILLS. Well, I also come from a rural area. I come from 
the great state of Maine. So I have a lot of sympathy for the 
rural areas.
    Mr. HUELSKAMP. Let me interrupt. How wide is the state of 
Maine?
    Ms. MILLS. I will have to get back to you on that.
    Mr. HUELSKAMP. Well, let me, I will just tell you, it is 
not as wide as Kansas. It is not as wide as my district. We are 
talking 250 miles from the nearest SCORE office if you were 
using this to a corner of the district. We are talking a three 
or four hour drive. And when you put budget figures in there 
that say we are going to cut 10 million out of the closest 
office and then suggest, well, do not worry, we are going to 
move the money around, I mean, that is a rural area and that is 
the concern we are hearing.
    Ms. MILLS. Well, as I said, I share your concern about 
rural areas and I am happy to address this with your Small 
Business Development Centers in Kansas as well.
    Mr. HUELSKAMP. Okay, thank you.
    Chairman GRAVES. Ms. McLane Kuster.
    Ms. KUSTER. Thank you, Mr. Chairman. Thank you very much, 
Administrator Mills. Great to see you, another New Englander. I 
am a new member from New Hampshire and it is--we consider it 
rural but absolutely not as wide as Kansas. So I will grant 
that to my colleague.
    I wanted to mention--have a conversation about women-owned 
small business. In New Hampshire, 90 percent of our employers 
are small business owners, and we have a wonderful relationship 
with the Small Business Administration and appreciate the loans 
and the guidance and the mentorships that are provided. But I 
would love to get a little more from you particularly on two 
programs--the Women's Procurement program and the Women's 
Business Centers, if you could, just to give us an update. I 
know the Women's Procurement program in particular had had a 
rocky slow start before you came on board, and I would love to 
hear what the update is, how we are doing, and whether women-
owned businesses have grown during your tenure.
    Ms. MILLS. Well, thank you, because I would like to take a 
moment to thank the team at the SBA for the progress that we 
have been able to make on the women's procurement rule. It was 
passed in the year 2000. It was not implemented, and when we 
came in it was proposed to be implemented in almost such a 
limited way that it would not work at all. Instead, we went 
back. We were able to implement the procurement rule for 83 
industry sectors with 374 industry subcategories, and I am very 
pleased to say that over 13,000 small businesses that are 
women-owned have uploaded their self-certification into our 
registry. In addition, we have a very significant, positive 
development with the passage of the Defense Authorization Act 
in January, which removed the caps on women-owned business 
contracting, and we are in the process of implementing all of 
those regulations at this time.
    So we are highly focused on women's contracting. We just 
launched yesterday a program called ChallengeHer, which is a 
partnership with WIPP (Women in Public Policy) and American 
Express to bring more women-owned small businesses into the 
contracting world and educate them about the opportunities that 
exist. Our Women's Business Centers, we have over 100, and they 
are an integral part of all of our activity.
    Ms. KUSTER. Great. And I will yield back my time. But thank 
you for your service.
    Ms. HERRERA BEUTLER. Oh, would the gentlelady yield for a 
little follow up on women-owned businesses?
    Ms. KUSTER. Absolutely. Happy to.
    Ms. HERRERA BEUTLER. Thank you. I am glad you brought that 
up.
    The Women's Caucus will be sending a letter specifically on 
contract sizes, the CAPs. As you know, on January 2nd, the 
president signed legislation removing the CAP size of the 
contracts for the women-owned businesses set asides. However, 
they are still in place four months later. And I wanted to see 
if you could give us an update on that because this is 
obviously something we would like to see something. It is 
something Congress finally agreed on, the president signed. 
Where are we at with that?
    Ms. MILLS. It is a top priority for us. As I said, this is 
an absolutely terrific development and we have made it a top 
priority in the regulatory process. So we are moving that 
through the regulatory process and it is moving as one of our 
number one priorities.
    Ms. HERRERA BEUTLER. So it is out of final rulemaking? 
Where is it in the rulemaking?
    Ms. MILLS. I am happy to get back to you on that. I believe 
it is at OMB.
    Ms. HERRERA BEUTLER. Thank you. Thank you for the time. We 
will find out.
    Ms. KUSTER. Absolutely. Thank you very much. And once 
again, thank you, Administrator Mills, for your leadership and 
particularly for women-owned businesses. We are very grateful. 
And good luck to you in your future. Thank you. I yield back.
    Chairman GRAVES. Ranking Member Velazquez.
    Ms. VELAZQUEZ. Yes. Administrator, you heard members from 
both sides on how much we care about the stability and 
continuity and the contribution that SBDCs do. It is a network 
that has helped us. As we all know, the economy is still 
fragile, and in order for us to get small businesses to do 
better, SBDCs play an important role. So when people question 
the fact that there are new programs that have not been 
authorized by us and yet they are getting funding and you are 
cutting SBDCs, that really creates concern. And yes, they were 
cut by $10 million based on your own submission. I heard you 
say before that they were not; that it is not $10 million.
    Ms. MILLS. Do you want me to answer?
    Ms. VELAZQUEZ. Look, you have the numbers. I have the 
numbers.
    Ms. MILLS. Yes.
    Ms. VELAZQUEZ. So let us move to the next question.
    You answered Ms. Chu regarding the fact that you chose to 
reduce the fee rather than the interest rate and you said that 
you cannot do that. Is that correct?
    Ms. MILLS. I believe what I said to Ms. Chu is that we set 
the fees; the banks set the interest rates.
    Ms. VELAZQUEZ. You set the interest rate, and this is--I 
have chapter 4 of 7(a), the statute, and it says here, we stand 
in the provisions of the constitution of any state, limiting 
the rate or amount of interest rate may be charged, taken, 
received or reserved the maximum legal rate of interest on any 
financing made on a deferred basis pursuant to this subsection 
should not exceed a rate, but that does not preclude you from 
lowering the rate. And I just want for the record to reflect 
that.
    Ms. MILLS. Well, let me absolutely get back to you, but my 
understanding of that provision is that that is a cap.
    Ms. VELAZQUEZ. It is a cap but what it is saying is it does 
not preclude--it does not say that you cannot lower the rate. 
It says that you cannot exceed.
    Ms. MILLS. All right. It says that we cannot guarantee any 
bank rate that exceeds that rate. But we are happy to have the 
conversation.
    Ms. VELAZQUEZ. Her question was why do you choose to reduce 
the fee rather than lower the interest rate. Your answer 
basically contradicts the statute. That is my point.
    You know that for so many years as a member of this 
Committee I have been concerned about the integrity of the 
HUBZone program, and at my request the GAO conducted three 
investigations. And basically, those follow-ups showed that the 
program is wreaked with fraud, abuse, and mismanagement.
    So my question to you is given that and the fact that GAO 
has repeatedly recommended that SBA perform unannounced site 
visits before a firm becomes HUBZone certified and that the 
site visits have been proven to be an effective method of 
oversight, yet your budget outlines plans to reduce the number 
of site visits to 500. So why are you reducing the agency's 
commitment to this proven fraud prevention tool?
    Ms. MILLS. When I first came to this agency, fraud, waste, 
and abuse was a real issue. And we stepped right in and we 
delivered a three-part program going after fraud, waste, and 
abuse. And I think you will agree it has been pretty effective.
    One component of that was upfront eligibility. The second 
component was site visits and ongoing monitoring. The third 
program was going after bad actors and enforcement.
    Ms. VELAZQUEZ. How many of those bad actors that were shown 
to defraud have been fined?
    Ms. MILLS. Many, many have been eliminated from the 
program. So we now have a much more viable screen on the front.
    Ms. VELAZQUEZ. Will you be able to submit to the----
    Ms. MILLS. We will be happy to submit to the Committee. But 
we now have a very effective upfront screen on eligibility that 
we did not have at the time. We are happy to go over with you 
what we are doing on the HUBZone program, but the HUBZone 
program, as you know, is very, very important to us and the 
integrity of that HUBZone program, as you correctly pointed out 
day one, needed attention. We provided attention. We will 
continue to provide attention to make sure that anybody who is 
not a HUBZone is not in that program.
    Ms. VELAZQUEZ. I hope that the next time I ask GAO to 
conduct another investigation that you prove to be right 
because as you know, for many years now, we have been in this 
predicament. And to go from 1,050 visits to reduce to almost 
half of them, I hope that you are right and that what you are 
doing is effective and that you are protecting taxpayers' 
money.
    With that, I thank the Chairman for your time.
    Chairman GRAVES. Mr. Schweikert.
    Mr. SCHWEIKERT. Thank you, Mr. Chairman.
    Ms. Mills--and I am sorry. I should have actually had staff 
dig this out before getting here. When you look at sort of the 
guaranty portfolio, particularly those with a couple years on 
them, where are you seeing claims? Where are we seeing 
impairment? Just help me understand is there geographic 
separations? Is there category of business program separations? 
Where do you see both problematic and where are you surprised 
at performance?
    Ms. MILLS. We track very carefully loan impairments and 
defaults. And interestingly, the cohorts that were the most 
problematic are the 2005, 2006, and 2007 cohorts. And largely, 
the problem is in commercial real estate, particularly in the 
504 portfolio, which relies heavily on commercial real estate. 
Those inflated values did not prove to hold up through the 
recession, and that created losses in those cohorts, which have 
largely moved through the 7(a) portfolio, which is the reason 
the subsidy is down to zero, and are moving through the 504 
portfolio as well. So that portfolio will improve.
    Mr. SCHWEIKERT. And specifically on that, and just to make 
sure I am understanding it correct, so this is sort of an 
education to me, the individual lender or servicer for that 
lender does--on those occasions you have an interest in the 
underlying real estate, so do the foreclosure there. And so 
they act as the process. And at the end the shortage is where 
the claim is made to you?
    Ms. MILLS. We have a multi-pronged effort to go after 
taxpayer money. So first, the servicer or the CDC will go after 
it. Then we will go after it. And we have a multi-pronged 
effort to go after the money. We really try not to leave a 
penny of taxpayer money outstanding.
    Mr. SCHWEIKERT. Well, because the one aside on that was I 
understand the underlying real estate. You know, you have an 
interest there. And I did not know if also in that type of loan 
you have a right to go after personal properties that would be 
within the business.
    Ms. MILLS. We take lots of collateral. All collateral. But 
in the case of 504, it is a second lien.
    Mr. SCHWEIKERT. Okay. So you are in a secondary position. 
So in that case you are, particularly in real estate, you have 
been substantially wiped out.
    Ms. MILLS. Well, we have substantial recoveries. It 
depends.
    Mr. SCHWEIKERT. When you say depends, can you help me 
understand sort of what the numbers are?
    Ms. MILLS. Yes, we would be happy to talk to you about the 
recoveries in the portfolio and whatever----
    Mr. SCHWEIKERT. What I am trying to understand is also 
recovery on the underlying real estate and recovery within the 
personal property, the machine equipment, things that would be 
done on a bill of sale and your process for doing that. It is 
somewhat of an academic question on how some of the small SBA 
representing lenders are modeling and helping you get there.
    Second question. Some of the mentoring programs, unlike 
some of the previous discussion, I am from an urban-suburban 
district. And I have often had a concern on some of the 
mentoring programs because I find there seems to be dozens of 
them, at least in my community, those offered through the 
community college, through the university, through business 
groups, through trade associations. When is there enough within 
the community to make it so we are just becoming somewhat 
repetitive?
    Ms. MILLS. Well, as you mentioned, one of the things that 
we have done is really what I call link, leverage, and align. 
Our SBA partners and our other federal partners, and very often 
community colleges, mayors' offices, local economic 
development, in order to make sure that a small business can 
navigate through that resource that will be right for them. So 
if they want mentoring in exports, how to grow their business, 
they would go to one place. If they want to start a new 
business, the right place is SCORE.
    Mr. SCHWEIKERT. But if you are in a community that actually 
has a fairly robust both private sector, nonprofit sector, 
infrastructure to provide these? Is that an occasion where in 
your organization you are able to move resources to a member's 
rural district, or those of you in Maine--I am curious if you 
have the ability to sort of make those strategic decisions on 
directing the resources.
    Ms. MILLS. To specifically answer your question, in some 
cases no, and some cases yes. But you have to understand that 
in areas that are urban there may be a lot of programs but 
there is a lot of demand. And a lot of demand for different 
kinds of services that may look the same but for an 
entrepreneur, a high-growth entrepreneur, they need an 
accelerator. For a new Main Street startup, they need a SCORE 
representative. What we have been able to do with our new 
website and with our link, leverage, and align resource 
partners is navigate that person to the help they need. If they 
walk into a SCORE office and they need a Small Business 
Development Center, we can send them there.
    Mr. SCHWEIKERT. And Mr. Chairman, I appreciate your 
patience. I know I am over time. My concern is obviously I need 
to now hop on the website and do a little digging around. Does 
it actually direct you saying this is an organization that 
provides this service? Oh, by the way, we have no association 
with government dollars. We are funded by the community or by 
our participants. It seems amazingly duplicative some of the 
meetings I go to and the number of resources that are there.
    Thank you, Mr. Chairman.
    Chairman GRAVES. Mr. Payne.
    Mr. PAYNE. Thank you, Mr. Chairman.
    Ms. Mills, thank you for your service to the government and 
the people of the United States.
    I do not want to beat a dead horse but I guess I am going 
to beat it one more time. In terms of the SBDCs and the work 
that they have done that has been stellar in some areas, you 
know, the GAO even last year cited the program's best practices 
model in terms of the rate of return on investment among other 
things, but yet, and still, you know, on both sides it has been 
raised the $10 million in cuts that we see for the centers. And 
I need to understand under sequestration there was a 5 percent 
across-the-board cut but it appears the centers received an 8 
percent cut, and I need to understand why that is.
    Ms. MILLS. Well, let me come back to the Small Business 
Development Centers and once again say that we believe our 
Small Business Development Centers are an absolutely critical 
part of our resource partner network. They are highly valued. 
They are going to receive incremental funding from a multiple 
of different programs that reflect the priorities of the job 
creation numbers. So we are very much working in partnership 
with our Small Business Development Centers. We have to in 
sequestration make a number of very difficult choices, 
including cuts to resource partners that we wish we did not 
cut.
    Mr. PAYNE. Okay. But if the number is five, how did we 
determine eight in that area?
    Ms. MILLS. Well, we are going to reveal our sequestration 
plan tomorrow, so I am happy to go over that with you with 
those specific numbers and the rationale for each one. That 
will come out tomorrow.
    Mr. PAYNE. Okay. And the SBDCs are even helpful in Sandy 
relief efforts, and although they are receiving specific Sandy 
assistance dollars, my concern is still with that 8 percent cut 
in sequestration. And we are hoping that the Sandy money will 
be used to supplement and not supplant dollars for those 
programs.
    Let me just also, you know, Women's Business Centers were 
mentioned, the HUB's program was mentioned. The 
administration's focus sounds great, but can you explain how 
you have prioritized support for small and disadvantaged 
businesses? You have requested cuts for funding to the HUBZone 
program, Women's Business Centers, Veterans Business Outreach 
Centers, Native American Outreach, and eliminates the PRIME 
program. Can you outline your efforts to support disadvantaged 
and minority-owned businesses?
    Ms. MILLS. Well, as you know, our job at the SBA is to fill 
gaps in the market. And the biggest gap in the market is really 
in underserved areas. And this is where our 7(a) loan program 
is three to five times more likely to support a loan to a woman 
or minority-owned business than conventional lender. In our 
8(a) program, it is for socially and economically disadvantaged 
small businesses. And across really the entire SBA effort we 
have had a focus on the underserved market. We have a council 
on underserved communities that advises us on where those gaps 
exist and then we tailor our efforts to make sure that if the 
market is providing service to a community, we will focus on 
the places where there are gaps in the market.
    Mr. PAYNE. So based on that and the cuts that are going to 
happen in all of these programs, that has been the information 
and recommendations you have found?
    Ms. MILLS. Well, we are in a situation in this budget where 
we have to do more with less. And we are tightening our belts. 
We are cutting all across the agency. We are eliminating waste 
and we are forced to take cuts in the sequestration. And we are 
going to be determined to make sure every dollar we can goes to 
small businesses with particular emphasis on small businesses 
in the underserved community that do not have access and 
opportunity. That is our job.
    Mr. PAYNE. Thank you, Mr. Chairman. I yield back.
    Chairman GRAVES. Mr. Luetkemeyer.
    Mr. LUETKEMEYER. Thank you, Mr. Chair. And thank you, Ms. 
Mills, for your service. I know you have been busy the last 
four years.
    Just to follow up on some of the questions when you are the 
last questioner of the day here or second to last, you wind up 
with leftovers here. So I have a few little items I just want 
to kind of go back, touch on, and just kind of clarify in my 
own mind.
    With regards to the fee structure on loans, because of the 
success of the program, apparently, you are able to drop the 
fees on those loans under $150,000; is that correct?
    Ms. MILLS. Yes.
    Mr. LUETKEMEYER. And I guess my question is why are you 
doing that versus just lowering the fees across the board for 
all of the loans? It would seem there would be an economic 
benefit that is being had by those larger borrowers over the 
smaller borrowers.
    Ms. MILLS. When I came into this job four years ago loan 
volume had just frozen. And we were able to raise the 
guarantees and eliminate the fees. And that created a sharp 
recovery in our loan volumes. In fact, we had two record years. 
But when you parse the numbers out, the large loans above 
150,000 have recovered; under 150,000, they dropped from 79,000 
loans to 27,000, and they have remained at that level since 
2009. So we know that the small dollar loans, the banks are not 
making them, and we need to make sure we push on the demand 
side and on the supply side, and that is what this fee 
reduction program will do.
    Mr. LUETKEMEYER. Well, our staff did a quick review of the 
fee that you are talking about, and on a $100,000 loan it would 
amount to $38 a month. With all due respect, Director, that is 
not going to encourage somebody to take out a loan under 
$150,000 versus not take out a loan. Let us be honest here. The 
reason the loans in that category are frozen or have dropped is 
because of the demand. You cannot tell me banks are not out 
there. They have got all kinds of capital, all kinds of money 
to loan out right now, and a fee of $38 a month is going to 
make the difference between loaning it and not loaning it?
    Ms. MILLS. I respectfully have to say that our data 
differs.
    Mr. LUETKEMEYER. Well, okay. I will move on but I 
certainly--I do not--well, anyway.
    Very quickly, with regards to some of the other issues here 
that we have, the Disaster Loan program. We have had some 
disasters over the last several years and I am just kind of 
curious about the amount of money that is in the disaster 
program and the past dues that are in the program, how that is 
faring. What do you see in the disaster program versus other 
programs comparatively? And obviously, the recent disasters we 
have had, those folks have not had loans long enough or maybe 
not even in the hopper yet to even be part of the question, but 
I am sure over the last several years have had all kinds of 
problems.
    Ms. MILLS. Well, first of all, I am happy to say that our 
disaster operation has actually been completely transformed 
since Hurricane Katrina, and we have built the capacity to come 
in and serve in these disasters. I know this is not 
specifically your question but I just want to take the chance 
to tell you we have 2,000 ready reserve. We only had 880 staff 
during Katrina. And during Katrina we did not have enough 
seats. We had 366 seats to process those loans. Now we have 
2,100. And let me tell you, every single one of them was filled 
during Hurricane Sandy. We just finished processing $2.2 
billion of loans. It is the third largest disaster in the 
history.
    Mr. LUETKEMEYER. Okay. My time is limited.
    Ms. MILLS. Okay.
    Mr. LUETKEMEYER. I appreciate the education on that but my 
question is how are these loans performing comparatively?
    Ms. MILLS. Disaster loans are performing at about the 
standard that they always have.
    Mr. LUETKEMEYER. Right quick before my time runs out here. 
With regards to sequestration have you reduced your employee 
numbers at all as a result of sequestration? And if so, how 
much?
    Ms. MILLS. Yes. We instituted an employee freeze of 5 
percent of our vacant FTEs. And the reason that we did not have 
to do furloughs or layoffs is that a year ago at this time we 
did a voluntary force reduction that added up to about 200 
people. And those----
    Mr. LUETKEMEYER. A voluntary forced reduction. Can you 
explain that to me?
    Ms. MILLS. Yes. It is called a VERA VSIP and we offered 
early retirement.
    Mr. LUETKEMEYER. Okay.
    Ms. MILLS. At the SBA we have a very retirement ready team. 
And we are bringing in the next generation. So as we were----
    Mr. LUETKEMEYER. That is a nice way to say you have an 
aging population that you have employed; is that right?
    Ms. MILLS. And we were rehiring. We are in the process of 
rehiring. And instead of rehiring up to our limit we reduced 
our limit down.
    Mr. LUETKEMEYER. Okay. So basically you have done it 
through attrition.
    Ms. MILLS. So we did.
    Mr. LUETKEMEYER. Through a retirement program and 
attrition.
    Ms. MILLS. It happened that we had this early retirement 
program and we were able to not rehire.
    Mr. LUETKEMEYER. All right. Very good. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman GRAVES. Thank you.
    The question I have, if your agency had to take another 2 
percent cut, do you know where you would take that from?
    Ms. MILLS. Mr. Chairman, I have to tell you, it would be 
very difficult because we have really over the last four years 
taken every dollar that we have that does not touch a small 
business and streamlined, simplified, reduced waste in order to 
get that dollar in a place that would help small businesses. 
And right now, as you have heard from others, we really could 
use lots of--there are lots of small businesses out there that 
need our help and we are providing it as effectively as we can. 
So we are tightening our belt. We will continue to do process 
improvement. And if we turn up an extra dollar it will go right 
out into the field or someplace in a program that touches a 
small business.
    Chairman GRAVES. Because it is definitely possible we could 
see more cuts and it is something we have to think about, too.
    Any other questions?
    With that, I would like to thank Administrator Mills one 
last time for coming before the Committee. It has been a 
pleasure working with you over the last four years and I wish 
the very best of luck in whatever it is that you intend to do.
    Do you want to go ahead and make a statement? I have one 
more.
    Go ahead, Ms. Clarke.
    Ms. CLARKE. Thank you, Mr. Chairman. I thank you for your 
indulgence, Mr. Chairman. As always, you are dividing your time 
among so many different committee hearings and meetings, but I 
am glad I had an opportunity to just come in and to greet you 
this afternoon, Administrator Mills.
    I just want to quickly ask you a couple of questions. I 
know we are going to be saying farewell to you shortly, but I 
want to make sure that we have a basis on which to build from 
all that you have been able to accomplish during your tenure.
    And I am going to preface this first question by stating 
that I understand that the SBA, along with the rest of the 
Federal government were required to make cuts as a result of 
the very ill advised sequester legislation that is in place 
right now. That said, I am having a little bit of a hard time 
understanding the disproportionate cuts to a couple of 
programs--programs like the SBDCs and SCORE, while creating new 
technical assistance programs with similar mandates. Can you 
just give us some insight into your thinking about why you saw 
the necessity to do that and to create the new programs? Why 
cut programs that were not broken to create new ones? As far as 
I can understand, it does not seem like it was a request of 
anyone but give us a sense of the direction you are heading.
    Ms. MILLS. Well, first of all, Congresswoman, it is great 
to see you, and thank you again for your partnership over all 
this time.
    I am happy to come and also provide a longer explanation, 
but briefly, because I know we talked about this earlier, this 
is not an either/or; it is a both/and. We believe in our Small 
Business Development Centers, our SCORE partners, our resource 
partners, and we know what creates jobs. So we need to layer on 
programs that work through--they are not new bricks and mortar 
programs. They are programs that work through and optimize new 
efforts delivered by our Small Business Development Centers and 
others, such as our Intensive Entrepreneurial Education 
program. I would be happy to come take you through how that 
fills a gap in the marketplace, does not duplicate other 
activity now provided by the Small Business Development 
Centers.
    Ms. CLARKE. So can you just sort of give me a sense of the 
mechanics then? Because for the SBDCs, they were cut by 8.6 
percent; SCORE was cut by 6.8 percent. That is like $10 million 
for a program that was not like robustly funded to begin with. 
So is this an overlay on the missions that those organizations 
already have, the intensive piece you were talking about?
    Ms. MILLS. As I mentioned earlier, the Intensive 
Entrepreneurship Education experience delivered by the proposed 
program is a proven program. It exists today in 27 cities. We 
have metrics on it. It exists with Goldman Sachs 10,000 Small 
Businesses. It exists in FastTrac. We are taking this program, 
making sure it is delivered through our resource partners as it 
is today. The same is true of our Boots to Business program 
which is for returning veterans, providing them a pathway to 
entrepreneurship. And as I said, we would be delighted to have 
you come visit one of the graduations or one of the classes of 
the E200 so you can see how the Small Business Development 
Centers are integral to their delivery.
    Ms. CLARKE. Oh, okay. So essentially, the programs are run 
through the SBDCs? Is that how it works?
    Ms. MILLS. That is absolutely the intention and the 
practice.
    Ms. CLARKE. Okay. And then with SCORE, are we phasing SCORE 
out or is that just another component?
    Ms. MILLS. SCORE is a very important component. SCORE does, 
as you know, one-on-one mentoring.
    Ms. CLARKE. Yes.
    Ms. MILLS. Small Business Development Centers do classes, 
individual classes, and long-term counseling. This nine-month 
entrepreneurship program, Intensive Mini MBA, is geared to 
those mid-size small companies able to take the time and energy 
to move to the next level, providing the skills for that owner-
entrepreneur to be successful.
    Ms. CLARKE. Okay. So it is really a hands-on sort of let us 
take you to the next level. And that is something that you feel 
the SBDCs did not really have within their bailiwick prior to 
the creation of the program?
    Ms. MILLS. It does not exist currently in the SBDC world of 
individual classes and long-term counseling, which by the way 
is very valuable and very much a part of the SBA's core 
activity.
    Ms. CLARKE. Well, Administrator Mills, I hope that we can 
get together before your departure, and I want to thank you for 
all of your commitment to the small businesses of our nation 
and wish you all the best in all of your future endeavors.
    Ms. MILLS. Thank you.
    Ms. CLARKE. Thank you, Mr. Chairman. I yield back.
    Chairman GRAVES. Absolutely. And again, thank you for all 
the work you have done. Again, it was a pleasure to work with 
you the last four years.
    Ms. MILLS. Thank you, Mr. Chairman.
    Chairman GRAVES. Thank you, Mr. Chairman.
    And with that I would ask unanimous consent that all 
members have five legislative days to submit statements and 
supporting materials for the record. And without objection that 
is so ordered. And with that the hearing is adjourned.
    [Whereupon, at 2:34 p.m., the Committee was adjourned.]
                            A P P E N D I X


                   U.S. SMALL BUSINESS ADMINISTRATION


                         WASHINGTON, D.C. 20416


                              TESTIMONY OF


                             KAREN G. MILLS


                             ADMINISTRATOR


                   U.S. SMALL BUSINESS ADMINISTRATION


                               BEFORE THE


                      COMMITTEE ON SMALL BUSINESS


                     U.S. HOUSE OF REPRESENTATIVES


                             APRIL 24, 2013


    Chairman Graves, Ranking Member Velazquez and members of 
the Committee--I'm pleased to testify before you today. I want 
to start by thanking this Committee for its ongoing support of 
the SBA and America's 28 million small businesses and 
entrepreneurs.

    The President's FY 2014 budget is focused on job creation 
and accelerating our economic growth.

    We know where American jobs come from: Half of all working 
Americans either own or work for a small business. And these 
businesses create two out of every three net new private sector 
jobs in the United States.

    The FY 2014 budget makes strategic investments in America's 
small businesses. It fills remaining gaps in the market, 
particularly for small dollar loans, while supporting proven 
programs that fuel job creation, new business formation and 
American innovation. These are critical to a full and robust 
economic recovery.

    Four years ago, when I first appeared before this 
Committee, small businesses were struggling in the face of one 
of the worst economic environments since the Great Depression.

    At the SBA, we rolled up our sleeves and we went to work. 
We eliminated fees and streamlined programs, in some cases 
taking more than 100 pages of paperwork out of loan products.

    The results have been significant, including two record 
years in 2011 and 2012 of delivering over $30 billion in loan 
guarantees.

    Our 2014 budget builds on these efforts. Key initiatives 
include: the elimination of fees for borrowers and lenders for 
all 7(a) loans under $150,000; and SBA ONE, which creates 
single application for all 7(a) loans and allows borrowers to 
more easily complete lending forms.

    The 2014 budget also invests in the SBA's powerful 
counseling and mentoring network. These investments focus on 
the types of small businesses that are best positioned for job 
creation: expanding firms and start-ups.

    Expanding firms created 8.7 million new jobs betweeen March 
2011 and March 2012.

    Our budget requests $40 million for an intensive business 
leadership program that provides the skills training to help 
more of these established business owners to successfully scale 
their operations and create more jobs.

    The program is built as a public-private partnership that 
will allow us to maximize its reach.

    The other area poised for growth is start-ups. These 
businesses punch above their weight when it comes to job 
creation.

    At the SBA, we've had our third consecutive record breaking 
year for our Small Business Investment Company program. And the 
2014 budget allows us to further support start-ups through 
targeted tools such as growth accelerators and clusters.

    We also know that for both established firms and startups 
the opportunity to sell to the federal government can be a game 
changer.

    As a result of our efforts, in the last three years of 
reporting, small businesses have accessed $32 billion more in 
federal contracts than the previous three years, even as 
overall contract spending decreased during those years.

    We continue to take a zero tolerance stance on fraud, waste 
and abuse in federal contracting to make sure that small 
businesses are the ones getting these contracts. And we've 
instituted programs like QuickPay to make sure they get paid 
more quickly.

    Our 2014 budget will continue this emphasis on contracting 
by putting more resources, known as Procurement Center 
Representatives, in the field. Our research shows that the 32 
new PCRs proposed in the budget can influence approximately $7 
billion in small business contracting.

    Today, thanks to Agency-wide efforts--and the support of 
Congress--small businesses are interacting with a different 
SBA. One that's more customer-focused, more data driven and 
more transparent.

    On a personal note, this is likely the last time I'll be 
testifying before this Committee. It has been an honor and a 
privilege to work with you over the last four years. And, once 
again, I want to say thank you.


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