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



 
DUPLICATION, OVERLAP AND FRAGMENTATION IN FEDERAL FINANCIAL ASSISTANCE 
                                PROGRAMS 

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

                                HEARING

                               before the

             SUBCOMMITTEE ON AGRICULTURE, ENERGY, AND TRADE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                            FEBRUARY 6, 2014

                               __________

                   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            Small Business Committee Document Number 113-054
              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, Missouri
                     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. Scott Tipton................................................     1
Hon. Patrick Murphy..............................................     2

                               WITNESSES

Mr. William B. Shear, Director, Financial Markets and Community 
  Investment, United States Government Accountability Office, 
  Washington, DC.................................................     3
Ms. Ann Marie Mehlum, Associate Administrator, Office of Capital 
  Access, United States Small Business Administration, 
  Washington, DC.................................................     4
Ms. Lillian Salerno, Administrator, Rural Business-Cooperative 
  Service, United States Department of Agriculture, Washington, 
  DC.............................................................     6

                                APPENDIX

Prepared Statements:
    Mr. William B. Shear, Director, Financial Markets and 
      Community Investment, United States Government 
      Accountability Office, Washington, DC......................    20
    Ms. Ann Marie Mehlum, Associate Administrator, Office of 
      Capital Access, United States Small Business 
      Administration, Washington, DC.............................    36
    Ms. Lillian Salerno, Administrator, Rural Business-
      Cooperative Service, United States Department of 
      Agriculture, Washington, DC................................    39
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


DUPLICATION, OVERLAP AND FRAGMENTATION IN FEDERAL FINANCIAL ASSISTANCE 
                                PROGRAMS

                              ----------                              


                       THURSDAY, FEBRUARY 6, 2014

                  House of Representatives,
               Committee on Small Business,
     Subcommittee on Agriculture, Energy and Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Scott Tipton 
[chairman of the subcommittee] presiding.
    Present: Representatives Tipton, Luetkemeyer, Mulvaney, 
Hanna, and Murphy.
    Chairman TIPTON. Good morning. Thank everyone for taking 
the time to be with us today. I would like to be able to call 
this hearing to order.
    To bolster our economy, Congress recognizes that it is 
essential, when possible, to reduce barriers to small business 
growth. One area where small businesses consistently feel that 
barriers exist is accessing capital. Capital is the lifeblood 
of a business. It is essential for the growth and expansion of 
every business. Without it, businesses are not able to develop 
products, services, and to be able to market themselves or to 
be able to hire employees. This is particularly true in rural 
areas where there are limited resources available for 
businesses.
    In light of this, Congress created the Small Business 
Administration 7(a) and 504 loan programs and the United States 
Department of Agriculture Business and Industry Loan Program to 
help businesses access capital. Despite this effort to help 
entrepreneurs, the Government Accountability Office has found 
that overlap exists between these programs, potentially 
confusing the people they are intended to benefit and wasting 
scarce taxpayer resources.
    Along with identifying areas of overlap in government 
financial assistance programs, GAO has offered recommendations 
to federal government agencies on best practices to ensure that 
programs are indeed meeting those goals.
    Progress in eliminating overlap, however, is dependent on 
the agencies placing a priority on implementing GAO's 
recommendations and best practices. Not only will this help 
agencies focus on programmatic improvements, but it will also 
provide entrepreneurs and government resource partners with a 
clear understanding of the goals of each program and how it can 
best work for local businesses.
    Unfortunately, the agencies have not taken GAO's 
recommendations as seriously as we had hoped, and we still have 
three programs, spread across two different federal agencies, 
that can offer similar assistance in the form of government-
guaranteed loans to similar beneficiaries--in this case--small 
businesses.
    Today we are here to learn what steps agencies have taken 
to implement GAO's recommendations to eliminate duplication in 
the federal guaranteed lending programs and what legislative 
changes, if any, are necessary to be able to assist these 
agencies in their efforts to eliminate overlap and duplication.
    With that, I would like to again thank all of our witnesses 
for taking the time to be able to be here with us this morning, 
and I now yield to Ranking Member Murphy for his opening 
statement.
    Mr. MURPHY. Thank you, Mr. Chairman. Excuse me for being a 
couple minutes late. I was at the prayer breakfast this 
morning, and beating the motorcade is quite a mission.
    I also want to thank the witnesses for being here with us 
all this morning and giving us an update on what Small Business 
Administration (SBA) and the U.S. Department of Agriculture 
(USDA) have done to reduce wasted taxpayer dollars as a result 
of duplicative programs.
    Mr. Shear, I am a big fan of the GAO and the work it does 
to evaluate our government's performance and stewardship of 
American resources. I was extremely concerned when I read the 
report from a couple years ago identifying 53 potentially 
overlapping programs across the SBA, USDA, Department of 
Commerce, and the Department of Housing and Urban Development. 
A handful of these 53 were SBA and USDA loan programs, and I 
understand the two agencies along with the administration, have 
been working to improve coordination of programs and services.
    I am particularly interested to hear about these agencies' 
efforts in two areas. The first is performance measurement. GAO 
has made the case in a number of instances that agencies have 
been unable to produce consistent, reliable, and meaningful 
metrics on their programs' successes. This makes it incredibly 
difficult for an oversight body like Congress to make 
meaningful assessments and funding decisions.
    My second area of interest is how SBA and USDA are 
collaborating at the local level to improve services for 
private lenders and for businesses in need of loans. This is 
where the rubber meets the road. It makes no difference what 
strategies are devised or MOUs signed at the headquarters level 
in Washington, D.C., if they are not effectively implemented 
across agencies at the local level. Now, almost two years after 
GAO's initial report was issued, I want to see how SBA and 
USDA's services are more effectively helping businesses grow 
and generate new jobs.
    I again thank the witnesses and look forward to your 
testimony. Thank you.
    Chairman TIPTON. Thank you, Mr. Murphy.
    I believe you are all familiar with the timing lights that 
we have. Start out as green. When there is one minute 
remaining, will turn yellow. And then red, obviously, if you 
can conclude your testimony at that time.
    And if Committee members do have an opening statement, I 
would ask that it be submitted for the record.
    Our first witness is Bill Shear, the director of Financial 
Markets and Community Investment team at the Government 
Accountability Office. The Financial Markets team works to 
improve the effectiveness of regulatory oversight and financial 
and housing markets. Mr. Shear is a frequent guest before the 
Small Business Committee based on his audit work for the Small 
Business Administration.
    Mr. Shear, I would like to thank you for taking the time to 
be able to be here with us this morning. We look forward to 
your testimony. Please begin.

STATEMENTS OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS AND 
 COMMUNITY INVESTMENT, UNITED STATES GOVERNMENT ACCOUNTABILITY 
 OFFICE; ANN MARIE MEHLUM, ASSOCIATE ADMINISTRATOR, OFFICE OF 
 CAPITAL ACCESS, UNITED STATES SMALL BUSINESS ADMINISTRATION; 
  LILLIAN SALERNO, ADMINISTRATOR, RURAL BUSINESS-COOPERATIVE 
        SERVICE, UNITED STATES DEPARTMENT OF AGRICULTURE

                 STATEMENT OF WILLIAM B. SHEAR

    Mr. SHEAR. Thank you.
    Chairman Tipton, Ranking Member Murphy, and members of the 
Subcommittee, I am pleased to be here today to discuss our work 
on programs that provide financial assistance to entrepreneurs.
    In August 2012, we reported information on 52 programs at 
the Departments of Commerce, Housing and Urban Development, 
Agriculture, and the Small Business Administration. This 
statement is based on our report issued in August 2012 and 
information we have received since from the four agencies and 
the Office of Management and Budget.
    In summary, we found the following:
    First, federal programs that offer financial support to 
entrepreneurs, including loans, are fragmented and overlap 
based on the type of support they are authorized to offer and 
the type of entrepreneur they are authorized to serve. The four 
agencies and OMB have taken steps to collaborate more. However, 
the four agencies have not implemented a number of good, 
collaborative practices we have identified, such as 
establishing compatible policies and procedures to better 
support small businesses. The GPRA Modernization Act's cross-
cutting framework requires that agencies collaborate in order 
to address issues, such as economic development, that transcend 
more than one agency, and it directs agencies to describe how 
they are working with each other to achieve their program 
goals. Without enhanced collaboration, agencies may not be able 
to make the best use of limited federal resources in the most 
effective and efficient manner, and small businesses may 
struggle to navigate these fragmented programs.
    Our second major point is that while the four agencies 
collect at least some information on program activities, they 
do not track such information for many programs, a practice 
that is not consistent with government standards for internal 
controls. In addition, we found that the four agencies 
conducted program evaluations of 13 of the 30 financial 
assistance programs we reviewed. We found that SBA has 
conducted program evaluation studies on five of its 10 
programs. We also found that USDA has evaluated one of its 
eight financial assistance programs, but the study did not 
address the extent to which the program was achieving its 
mission.
    The GPRA Modernization Act requires agencies to set and 
measure annual performance goals and recognizes the value of 
program evaluations because they can help agencies assess 
programs' effectiveness and improve program performance. 
Without more robust program information, agencies may not be 
able to administer programs in the most effective and efficient 
manner, and scarce resources may be going toward programs that 
are less effective.
    We recommended that the four agencies and OMB explore 
opportunities to enhance collaboration among programs and that 
the four agencies track program information and conduct more 
program evaluations. Since that report was issued, OMB has 
established an interagency group, including Commerce, SBA, 
USDA, and others, that aims to streamline existing programs, 
improve cooperation among and within agencies, ease 
entrepreneurs' access to the programs, and increase data-based 
evaluations of program performance. SBA has told us that it has 
undertaken a modernization project for its resource partner 
data collection system. USDA has told us that it has completed 
initiatives to improve the quality of performance measurement.
    Going forward, we will continue to obtain updates on the 
agencies' progress. We will report on the actions taken by the 
agencies as we do for other areas included in our mandated work 
addressing federal programs with fragmentation, overlap, and 
duplication.
    Chairman Tipton and Ranking Member Murphy, this concludes 
my prepared statement. I would be happy to answer any 
questions.
    Chairman TIPTON. Thank you, Mr. Shear.
    Our next witness is Ann Marie Mehlum, the Associate 
Administrator for Capital Access at the Small Business 
Administration. In this capacity, Ms. Mehlum is responsible for 
overseeing SBA's financial assistance programs, and prior to 
joining the SBA, Ms. Mehlum served as CEO and director of 
Summit Bank in Eugene, Oregon.
    I appreciate you being here with us today, and please 
begin.

                 STATEMENT OF ANN MARIE MEHLUM

    Ms. MEHLUM. Chairman Tipton, Ranking Member Murphy, and 
distinguished members of the Subcommittee, thank you for 
inviting me to testify on SBA's ongoing work to expand access 
to capital for small businesses, while enhancing collaboration 
and avoiding duplication with other government programs. I 
greatly appreciate the opportunity to discuss our lending 
products and successful partnerships. As a former community 
banker from a largely rural state, it is truly an honor to be 
before this Subcommittee and alongside my colleagues from USDA 
and GAO. Together, we are committed to providing all 
entrepreneurs with the tools they need to start and grow 
companies and create jobs.
    Small businesses are the engine of our economy and one of 
our country's greatest assets. They employ half of the private 
sector workforce and create two out of every three net new 
private sector jobs. And we know that innovation is not limited 
to Boston and Silicon Valley. It is happening in rural and 
industrial communities--from Florida to Colorado, and in my 
home state of Oregon. That is why at SBA we are focused on 
reaching all entrepreneurs in every part of this country.
    In my role as associate administrator for Capital Access, I 
rely on my 30-year career in commercial lending to help SBA 
better support small businesses. It is our top priority to fill 
market gaps by providing access to capital to small firms whose 
financing needs would not be met without our guarantee. Our 
loan guarantee programs have made it possible for lenders to 
support more businesses in rural and underserved communities. 
In Fiscal Year 2013, approximately 15 percent of all of our 
7(a) loans and 16 percent of total dollars went to rural 
entrepreneurs.
    In order to reach even more small businesses in rural 
markets and ensure effective collaboration, SBA has signed 
several Memorandums of Understanding (MOU) with other agencies, 
including USDA. Leveraging SBA's nationwide network of district 
offices and resource partners, as well as USDA's extensive 
footprint of field staff in nearly every county in America, we 
are able to advise potential small business borrowers and 
lenders on both SBA and USDA loan programs. Through our 
collaboration, we educate each other on our respective products 
and services, exchange marketing materials, and host joint 
lender training sessions.
    We have seen the benefits of our collaboration through the 
success of countless small businesses like the Maupin Market in 
Maupin, Oregon. In 2011, the only grocery store in this 500-
person town was slated to close, which would have forced 
residents to travel over 40 miles to buy food. Fortunately, a 
young couple, a local couple, Allison and Randy Bechtol, 
decided to reopen the store. Unable to obtain conventional 
financing, the Bechtols turned to the local Small Business 
Development Center (SBDC) for help. The SBDC connected them 
with a community bank that identified SBA's 504 Loan Program 
and USDA Rural Development's Intermediary Relending Program as 
strong matches for their capital needs. With a $279,000 SBA-
guaranteed loan and a separate loan for $100,000 through USDA's 
program, these entrepreneurs were able to remodel the old 
building and reopen the new Maupin Market. They created seven 
good-paying jobs in the community and provided new 
opportunities for the local farmers.
    SBA also supports rural small businesses through our Small 
Loan Advantage (SLA) loans. One of our signature low-dollar 
loan programs, SLA is designed to expand access to loans up to 
$350,000. Drawing on extensive input from our lending partners, 
we significantly reduced the paperwork and simplified the 
application process for this program. In order to make these 
loans even more attractive and less costly for lenders, we 
allow banks to use their own collateral, closing, and 
disbursing guidelines.
    At SBA, we are committed to collaborating with our federal, 
regional, and state partners to fill market gaps and ensure 
that all entrepreneurs have the resources and training they 
need to turn great ideas into growing businesses. By taking an 
inclusive view of entrepreneurship, one that expands access and 
opportunity to more communities, we can spur new business 
formation, innovation, job creation, and help build strong 
regional economies throughout America.
    Thank you again for the opportunity to be here, and I look 
forward to answering your questions.
    Chairman TIPTON. Thank you very much, Ms. Mehlum, for your 
testimony.
    Our final witness is Lillian Salerno, Administrator for the 
Rural Business-Cooperative Service within the Office of Rural 
Development at the United States Department of Agriculture. Ms. 
Salerno was first appointed as Acting Administrator in 
September of 2012 and became Administrator in July of 2013. 
Prior to joining the Rural Business Cooperative Service, Ms. 
Salerno served as Special Assistant in the Rural Housing 
Services.
    Welcome to the Small Business Subcommittee, and thank you 
for taking the time to be with us here today. Please continue.

                  STATEMENT OF LILLIAN SALERNO

    Ms. SALERNO. Chairman Tipton, Ranking Member Murphy, and 
members of the Subcommittee, thank you for this opportunity to 
discuss USDA's Business and Industry Guaranteed Loan program 
and the economic opportunity it provides to rural America.
    I am pleased to report that outreach and collaboration and 
leveraging of resources, both nationally and at the local 
level, are top priorities for this administration and are at 
the center of the USDA delivery system. As a former 
entrepreneur and rural small business owner, I am particularly 
aware of the value of federal financial assistance programs. In 
fact, the company I started in 1994 began with an SBIR grant 
and still employs approximately 150 persons in rural North 
Texas and supports additional jobs for suppliers and 
distributors in this small town.
    We appreciate the other agencies' programs provide to 
assist rural businesses. While both the B&I program and the SBA 
7(a) program seek to ensure small businesses have capital, 
Congress has determined that B&I serves the distinct purpose of 
providing resources to rural businesses that have greater 
individual capital needs.
    Let me emphasize the distinguishing feature of our program 
is providing assistance to businesses in those rural 
communities. Working with local lenders in rural communities, 
the B&I program is a critical component to increasing 
opportunities for rural Americans. Our field staff has worked 
closely with SBA offices for many years. The MOU signed late 
last year extended and broadened these opportunities for 
collaboration. USDA and SBA worked together to identify the 
best funding options for businesses. For example, the Iowa Cold 
Storage Company in Altoona, Iowa, recently needed capital to 
expand their business. Although USDA had previously provided a 
$17 million B&I loan to the company for the construction of the 
warehouse cold storage facility, USDA and SBA determined that 
the best option now for the company was a $3 million SBA loan 
to accomplish this mission and expansion. By working together, 
our agencies are able to increase access to private investment 
capital for small businesses.
    Since the GAO report, we have improved the process for 
tracking, verifying, and reporting of the performance measures. 
We have issued and put into action a guidance document to our 
field offices. We have implemented an improved process for 
reviewing and verifying the data, and we have created a 
standardized format for reporting this data. Furthermore, 
because of the budget certainty you have afforded us, we are 
now able to make additional improvements, including IT 
enhancements, making it easier for our lenders and 
intermediaries to report our requested performance measures.
    In sum, no other federal agency is positioned as well as we 
are at USDA to meet the needs of rural America. Our extensive 
physical presence in rural communities distinguishes us from 
other federal agencies. We have the expertise and experience 
about the economic, social, and geographical characteristics of 
the rural communities to better serve them. Through our 47 
state offices and 400 local offices and service centers, we 
overcome the physical distance barriers that alone can hinder 
service delivery in these areas.
    I appreciate the opportunity to testify before you 
alongside my colleagues from SBA and GAO. We are committed to 
helping entrepreneurs and businesses succeed, and I welcome the 
chance to engage in a dialogue. Thank you for your support of 
rural business programs, and I am happy to answer questions.
    Chairman TIPTON. Thanks so much.
    We will start out with the questioning. I would like to 
begin with Director Shear. Based on your audit, can a small 
business located in a rural area obtain financial assistance 
from either the SBA's 7(a) program or the SBA's 504 program or 
through the USDA Business and Industry Loan program?
    Mr. SHEAR. The answer is generally yes, that the 7(a) 
program funds a broad range of activities, including working 
capital. The 504 program is more specific in that it finances 
fixed assets, so it funds a smaller subset of activities. 
Business and industry loans are available for a very broad 
range of activities. So the idea is that the programs certainly 
overlap in terms of the types of financial assistance they can 
provide.
    Chairman TIPTON. Okay. So we have got the two different 
programs, and this may well be a better question maybe for 
administrators. Do we have a streamlining process in terms of 
those applications? Because one of the great challenges that we 
hear from small businesses is the confusing nature of actually 
trying to be able to access capital even though the intent of 
the programs is obviously good.
    Ms. Mehlum?
    Ms. MEHLUM. Chairman Tipton, I would like to answer that 
from the lender perspective. Most of my career has been in the 
private sector as a lender and then as a chief credit 
administrator, and then as a CEO of a bank. And the reality 
from that perspective was that it was very helpful when we 
sometimes had more than one option to help a small business 
that we could not finance with conventional underwriting. If we 
had a customer that clearly we believed they were going to be 
successful but we could not do it with our underwriting 
guidelines, they did not have enough experience maybe or enough 
capital or whatever the deficit was, then we would look to the 
SBA or the USDA programs. And sometimes we had both options. 
Not always. But I always felt that was complementary. And it 
was helpful in some cases, like the example that I mentioned in 
my testimony where we could use a combination. So I feel like, 
from a lender's standpoint, having complementary loan programs 
from SBA and USDA is not a negative issue; it is a positive 
situation.
    Chairman TIPTON. Ms. Salerno.
    Ms. SALERNO. I would just like to add as a small business 
person, when one goes to get financing, the bank is your 
intermediary. We are committed to educating the bank about our 
suite of services. We have been doing a good job. I think we 
can do a better job and we are committed to do that. But I will 
give you one example. In Colorado, Mr. Chairman, we closed a 
$1.8 million guaranteed loan program with a company called 
White Rock Specialties. The bank that we were working with was 
a community bank and the company also needed a working capital. 
The SBA provided for that, coordinating with our field staff, 
by working with the bank and giving a cap line of credit for 
$250,000. So we have examples of those kind of things and we 
believe that is working.
    Chairman TIPTON. Mr. Shear, the SBA and the USDA singed a 
MOU on August 22, 2013, and I would like to know in your view 
does this agreement clearly define what steps the agencies will 
take to be able to eliminate duplication?
    Mr. SHEAR. The MOU is a positive step. We have looked for 
the use of other practices such as establishment of clearly 
defined roles and responsibilities and strategies for 
leveraging resources. There are some other actions we looked 
at. We know from USDA that for a number of years, even 
preceding our August 2012 report, it reached out to its state 
offices to report on what collaboration they have with local 
SBA district offices. So it seems like there is activity that I 
will call ``check the box,'' and there is interaction going on. 
As the witness said, there are joint training-type sessions 
going on, but in terms of duplication, to the degree that it 
might exist and certainly dealing with fragmented programs, we 
are looking for some movement to try to address how can these 
programs be better positioned so that if they are 
complementary, they are complementing each other in the right 
way. For those programs that substitute for each other--which 
are the best ones? Or in other words how do you get businesses 
to be served by the program that can serve them best?
    Chairman TIPTON. So you are not seeing any movement?
    Mr. SHEAR. We are not seeing a lot of evidence. So, for 
example, as part of this mandate, as an agency we reach out to 
agencies to obtain information on what actions they have taken. 
And just taken from the last submissions that we have received 
very recently from SBA and USDA, there is not anything in those 
submissions that would suggest to us that anything more than 
that they are tracking how many offices are collaborating with 
each other. We do not see movement or any suggestions as far as 
coming up with joint strategies or trying to coordinate 
policies and procedures that could make the programs serve 
rural areas better.
    Chairman TIPTON. Right. Thank you.
    Are you working on joint strategies?
    Ms. SALERNO. Yes. Thank you for the question.
    As Mr. Shear said, we are doing a variety of joint 
trainings and webinars, and I think part of the challenge for 
us is we are field based. We do best when we do not do things 
from up here, when we do stuff in the states. And so we really 
rely on our district offices and our field offices to work out 
those. So for us to give a one direction from Washington about 
how to work in rural Colorado or rural Missouri we think is a 
mistake. And so we do let our field offices work out these 
strategies, but we do ask them to report, and we have received 
very good evidence which we have submitted to Mr. Shear 
regarding those roundtable and joint lender trainings.
    Chairman TIPTON. Thank you.
    I want to be respectful of our other members here. I will 
probably like to be able to come back to this but I would like 
to follow up again real quickly with Mr. Shear. In your 
testimony, you stated that you were not able to access data to 
determine whether duplication actually exists. What data do you 
need that is not available, and why is it not collected?
    Mr. SHEAR. Especially with respect to duplication, I know 
the focus today is on financial assistance programs, but what 
we have found on counseling and training programs, and what we 
have found just generally is that when somebody walks in to an 
SBA district office or a USDA state office, the kind of 
information that is available is based on who is coming in 
where. So basically, a lot of times it is which office a small 
business owner might walk into that will determine which 
financial assistance program they are participating in.
    So what is collected on technical assistance in terms of 
who is being served based on geographic location, some 
characteristics would be very useful on that. From a standpoint 
of the financial assistance programs, the way I would 
characterize it for SBA, is that SBA has at its disposal 
extremely rich data on who is being served, and where they are 
being served. We have certainly used SBA loan level data to 
conduct analysis by geocoding data. So data for the SBA 
financial assistance programs is not a problem. It is the 
question of SBA's willingness to use it in collaboration with 
its efforts with USDA.
    With USDA, we asked ourselves when we did this work, should 
we be asking for loan level data from USDA to try to geocode as 
we have done for SBA, and try to look at who is serving where? 
Specifically, the USDA data on the financial assistance 
programs like Business and Industry loans is very granulated. 
It is quite good in that sense, but with the way it is 
collected, we question whether the data is collected in a way 
that is conducive to such analysis. You can run ad hoc reports 
but we question whether it is collected in such a way that it 
would really be conducive to say who is serving which borrowers 
where in rural-defined areas. So I think USDA has further to 
come in that respect in comparison with SBA. SBA, it is more 
of, I think, a willingness to use the data it has at its 
disposal.
    Chairman TIPTON. Thank you.
    I will ask one more and then yield to the ranking member 
and then come back after the other members have asked their 
questions.
    Mr. Shear, the SBA recently decided to end several pilot 
programs, including one aimed at being able to reach out to 
rural businesses. I noted in the testimony that it was at 15 
percent. That is a drop. Was this pilot program effective at 
reaching small businesses in rural areas?
    Mr. SHEAR. Here are you referring to Rural Advantage?
    Chairman TIPTON. Yes.
    Mr. SHEAR. Yes. I cannot answer that question, and I do not 
know how well SBA can answer that question. The pilot program 
we recently looked at was a pilot program called Patriot 
Express to serve the veteran community. One of the things that 
we observe when SBA does have pilot programs or initiatives 
like this is that there really is not the evaluation around who 
is being served by the program. So like with Rural Advantage, 
it is here that there can be reasons why USDA might be able to 
serve certain rural areas better than SBA, and this is part of 
why we think at the national level there should be more 
collaboration looking at who the programs are serving. The 
potential problem with SBA going into Rural Advantage is that 
it might be trying to expand its presence in an area without 
first asking the questions working with USDA, and working with 
this Committee and the Congress in terms of saying where should 
we be placing our resources? Who should we be serving? Because 
otherwise you are acting with incomplete information when you 
are introducing more programs and more initiatives.
    Chairman TIPTON. Do you have any comment on that?
    Ms. MEHLUM. Chairman Tipton, I would like to mention in the 
Small Rural Loan Advantage program, it was a program that 
started initially only for lenders that did a few loans which 
would imply that they were in rural areas, and it was a little 
clunky. It was not as streamlined. We actually have morphed 
that program into a much more streamlined loan called Small 
Loan Advantage, which I talked about. And I do have statistics 
on how those loans have grown and how they have also grown in 
rural areas. So basically, we have just made improvements to 
that program. We also have studied immensely our programs, 
including the veterans' programs as to who they serve and how 
effective they are and how do we make them more effective. And 
we are doing that work all the time.
    Chairman TIPTON. Okay. Is there some concern, and then I 
will wrap up here, but I am a little concerned, that rural 
lending, it dropped from 25 percent of the portfolio to 15 
percent of the portfolio. What is the reason for the decline?
    Ms. MEHLUM. That is information that I would be happy to go 
look for and bring back to you.
    Chairman TIPTON. I think, going back to your original 
testimony, being able to reach out into the rural communities, 
noting the job creation potential, and the entrepreneurialship 
that is there. With that kind of a drop, I think there is some 
concern in terms of some of the access to capital to be able to 
grow these businesses. Coming out of a rural area, I can tell 
you we are still in a recession.
    Ms. MEHLUM. Absolutely. And I am not sure it is a drop in 
total dollars. You said it was a drop in our portfolio. It 
might be that we are growing in other areas more. So I would 
like to get back to you on that. That is an important question.
    Chairman TIPTON. Is it your sense that these rural small 
businesses now have greater access to capital?
    Ms. MEHLUM. Than----
    Chairman TIPTON. Before.
    Ms. MEHLUM.--five years ago? Yes. I would say yes.
    Chairman TIPTON. Okay. Great. Thanks.
    With that I will yield to Ranking Member Murphy.
    Mr. MURPHY. Thank you, Mr. Chairman.
    Mr. Shear, when you were with us last March you noted the 
importance of key metrics and data points to really evaluate 
some of the programs, see what is working, what is not working.
    I am wondering from Ms. Salerno first, if you could talk 
about some of the key metrics that you use at USDA and perhaps 
how long you have been using them and what you think about how 
it is going.
    Ms. SALERNO. Certainly, thank you for the question.
    We use the data, first of all, to determine if we are 
meeting certain benchmarks, such as reaching underserved 
populations, and if we are complying with our initiatives. For 
example, local foods is an initiative. Growing bio economies is 
an initiative. We use it to also help reduce waste, fraud, and 
abuse by conducting cross-program verification. As a guarantor, 
our data and our data collection system is based on a GLS 
system, a guaranteed loan system, where we rely on banks to 
give us the information.
    So there are about 62 data points. The question is whether 
or not we can access certain data. Over the course of a 25- to 
3-year loan, that is a lot of data for the history of a loan. 
As mentioned earlier, we are storing loan data in a guaranteed 
loan system. We analyze it on a monthly to quarterly basis, 
depending on what we are looking for. We can run a report 
either in a spreadsheet form or we can ask for information on a 
specific initiative, for example, how many local food projects 
are in a given area. For our secretary, the local food 
initiative is very important. We can find out how many local 
food initiatives we are doing in Colorado or Missouri or 
Florida. We certainly can improve what we are doing, and with 
budget certainty, part of our objective is to enhance our IT 
systems. Furthermore, one of our hires is going to be a person 
dedicated to data integrity because we have not previously been 
able to put the kind of funds we would like into that part of 
the operation.
    Mr. MURPHY. So you are more concerned with the data 
collection than you are the analysis of the data?
    Ms. SALERNO. Yes.
    Mr. MURPHY. Okay.
    Ms. SALERNO. What we have done in response to the hearing 
last year is go back and verify the data. We guaranteed a 
little less than 400 or about 420 loans in 2013. When we 
collected the data we were looking for an opportunity to make 
sure that it was consistent with the types of investments that 
were made. We sent anything that fell outside the norm back to 
the states and to the lenders to validate. Now we have 2013 
data cleaned up and we now are using that kind of operation to 
verify our 2014 data. And I would just like to add that because 
of our field presence, we are able to go and validate. So that 
field person can go and drive by and make sure that the 
manufacturer does indeed have the 200 jobs that they submitted 
that they were going to create.
    Mr. MURPHY. Okay.
    Ms. Mehlum, can you talk about some of the metrics that you 
use and that have been successful?
    Ms. MEHLUM. Could you specify exactly what you are asking?
    Mr. MURPHY. Some of the key metrics you used to evaluate 
SBA, GAO pointed out this morning and then last March that that 
is one of the keys to----
    Ms. MEHLUM. If the programs are successful?
    Mr. MURPHY. Yes.
    Ms. MEHLUM. One of the things that we measure pilot 
programs against is just the amount of lending that we do on 
our flagship programs, the 7(a) Guarantee program and the 504 
program. One of the things that we found in our veterans' 
initiative--Veterans Express, which sunset because we have a 
better loan now for veterans called SBA Veterans Advantage 
Loan--is that we found that in those pilot programs there would 
be something about them that was not as attractive or workable 
for the borrower or the lender. And so we track the totals. We 
talk to bankers. We talk to borrowers. And if the programs are 
not growing, we look for ways to either enhance them and fix 
them or modify existing programs to fill that gap.
    Mr. MURPHY. So how often do you analyze that data? Is that 
a monthly or----
    Ms. MEHLUM. Weekly, daily, weekly, monthly, quarterly. It 
just depends. We are looking at, I mean, one of the things I 
was very, very pleasantly surprised--not surprised, I really 
did not have a preconceived notion, but when I came to the SBA 
six months ago, how much data is collected and analyzed and 
reviewed consistently, constantly. There is an amazing amount 
of analysis of data that goes on at SBA.
    Mr. MURPHY. And are you working with the USDA on what is 
working, what is not working?
    Ms. MEHLUM. We are definitely working with them in the 
field of the programs. What are working together? Where are 
they complementary? We do share marketing materials. This last 
MOU has put more, as Mr. Shear has said, it has put more sort 
of specifics into how we collaborate, and that has been an 
evolving process, and I feel like we are making very good 
progress there.
    Mr. MURPHY. I do not want to oversimplify it too much, but 
Mr. Shear, it seems you would like more data points, more 
analysis, more key metrics to analyze, and Ms. Salerno, you 
pointed out some of the best improvements you have had have 
been really at the local level, some of the training. Is there 
a bridge there that needs to be crossed? I mean, I can 
completely understand at the local level--that is where the 
rubber meets the road, so of course that is where you would see 
the biggest difference. And inputting all the data is annoying, 
it is a nuisance, and reviewing it--but that is how Mr. Shear 
and us get to review it. Have you had that discussion?
    Ms. SALERNO. Yes, we have. Lots of discussion. I mean, if 
we had all the resources in the world, would we put more money 
there? Yes, we would. Where we are able to, we made sure that 
the data was correct. We had a session where our leadership 
reviewed the files that were inputted in GLS and said, you 
know, if there was a zero and we had given a million dollar 
loan, why did that not create a job? And so we went back to 
make sure that it had. We looked at what fell out of the norm. 
We think with the budget certainty, we now are able to allocate 
resources, and we feel very confident that we are going to do 
better, and we have been speaking a lot to my associate 
administrator colleague about ways I can learn from them, but 
we have not had those resources. We have been depending on our 
field staff which have done the best job that they can with the 
resources they had.
    Mr. MURPHY. Can you use SBA's data systems and anlaysis? 
Are the systems integrated?
    Ms. SALERNO. My understanding is they are not integrated.
    Ms. MEHLUM. The systems are not integrated but we are, as I 
think someone mentioned early on, we are involved, both of us. 
I have not been personally involved with it but one of my 
deputies has been involved with a meeting of several agencies 
which is working on this issue of data sharing, making it--it 
is not that we do not share data. If anybody asks us for data, 
we give it to them, but they are trying to come up with systems 
to make that data sharing as part of the process. And I know 
that that is ongoing.
    Mr. MURPHY. Mr. Shear, any data?
    Mr. SHEAR. I think that what the associate administrator is 
referring to is the OMB working group that is addressing these 
issues. And as I said in my statement, the OMB-led group is 
addressing the types of issues that we think should be 
addressed, so we think it is very positive that this working 
group has been put into place. What we have not seen yet is 
progress. We look forward to working with OMB and the agencies 
in their attempt to facilitate a more strategic approach. In 
this case, regarding the topic of this hearing, serving rural 
areas in terms of small businesses in rural areas seeking 
financial assistance. So we certainly hope it moves in that 
direction. So far we know that meetings have occurred. We have 
not seen a real framework established yet, but that is what we 
are looking for and hoping evolves over time. We just do not 
have evidence of it yet.
    One disappointment I will just state with the two agencies 
here is while we received feedback from OMB when we reached out 
and asked what progress has been made, we found it surprising 
that when SBA and USDA came back to us for information on what 
has occurred, there was no reference to that OMB task group. So 
I certainly hope that both agencies and all the agencies 
involved with OMB are really committed to the purpose of that 
task group and that they make progress.
    Mr. MURPHY. Okay. Thank you. I appreciate it.
    Thank you, Mr. Chairman.
    Chairman TIPTON. Thank you, Mr. Murphy.
    I now recognize Mr. Luetkemeyer for his questions.
    Mr. LUETKEMEYER. Thank you, Mr. Chairman.
    I come from a town with 300 people, so it does not get any 
more rural than that. So this is an important hearing to me 
from the standpoint of being able to help the small businesses 
and agricultural folks in my district.
    Mr. Shear, do you get a lot of complaints with regards to 
these two agencies with regards to the lack of their ability to 
address rural access to credit concerns?
    Mr. SHEAR. I would not call it complaints. It is not like 
you have people who are seeking loans who call up GAO, like we 
are a complaint line.
    Mr. LUETKEMEYER. Well, I was talking about the 
collaboration you are talking about, the overlap. Do you get 
complaints from different groups, different entities saying, 
hey, you know, these programs are nice but they are not working 
very well?
    Mr. SHEAR. What we have as we pointed out in our report, we 
really did an extensive effort to reach out to rural areas, in 
particular areas that are served by the Appalachian Regional 
Commission, the Appalachian Authority, the Delta Regional 
Authority and other entities involved with rural economic 
development. What we found in what they were reporting to us 
was the difficulty, especially with counseling and training-
type resources, how hard it is for small businesses to navigate 
those areas. So I would say that was the major concern that we 
heard as an outgrowth of really reaching out to those who 
represent rural areas.
    Mr. LUETKEMEYER. Ms. Salerno, you made a comment a while 
ago with regards to the validation and I guess basically 
oversight over the funds that are given out or guaranteed. Can 
you give me a little bit of an insight as to your process? Do 
you work with the lending institution and they take the lead, 
and therefore, they do all of the underwriting, they do all of 
the servicing of this? What part do you play or what action do 
you take in this whole process that allows some oversight by 
you? Or are you totally relying on them?
    Ms. SALERNO. Thank you for the question.
    We are very fortunate that we have our field offices and 
they go through the entire process with the business with the 
lender. But we are, of course, the guarantee for the lender, so 
the lender has the paperwork at the state level. We, of course, 
want everything to happen at the state level, not to have to 
come up to Washington and potentially delay loans. The 
application only comes up to D.C. when the request is above a 
certain dollar amount. And so the business program officer 
works through the loan documents with the business, which is 
really important in rural American where folks maybe have 
special needs because of the low density of population. 
Sometimes they need to work with the city or the small town in 
order to get easements or ways to work with the rural co-op. 
There are just all kinds of needs there. That is why our field 
structure is so important. And what happens from the data that 
is given by the bank, it is self-reported, so the business 
tells the bank, you know, I need a $5 million loan. I am going 
to put manufacturing into a small town in Missouri. I am going 
to create 100 jobs over the next two years. That is self-
reporting. And then it comes back to us and we validate that 
information at the national office.
    Mr. LUETKEMEYER. Coming from the financial service 
community, as I recall, you have a checklist that you go 
through that the institution has to complete to be able to do 
things and I think it is the same way with SBA if I am not 
mistaken. So there is some coordination there. I was just kind 
of curious from the standpoint that, you know, it is very 
important that you continue to work with and verify and provide 
some oversight because at the end of the day we have got 
taxpayer dollars at risk here. So the lending institution 
probably has a better feel for what is going on there but 
certainly interaction is very important.
    As I was listening to the previous discussion here, one of 
the concerns that I had was the collection and review of data. 
It is wonderful to get that but if we do not act on it, what 
good is it?
    It sounds like in the last discussion we talked about this 
committee that was put together, and apparently there is some 
reaction to some of that information that was collected. Can 
you elaborate on it just a little bit, Ms. Mehlum?
    Ms. MEHLUM. Can I elaborate on what is happening with that 
committee?
    Mr. LUETKEMEYER. Yes. You had a committee that had some--we 
were kind of working on some issues here, and I think there was 
an inference that there was actually something being done.
    Ms. MEHLUM. My understanding is that that committee is 
working on this data issue of how to connect databases, how to 
utilize data and share the data so that we can use it more 
comprehensively.
    Mr. LUETKEMEYER. But there is some action.
    Ms. MEHLUM. My understanding is that those meetings are----
    Mr. LUETKEMEYER. Those meetings are on the recommendations 
and the findings of the committee?
    Ms. MEHLUM. Yes.
    Mr. LUETKEMEYER. Okay.
    I have one more question before I am out of time here if I 
can indulge the chairman for just one second. Question for the 
two administrators. Each of your programs have caps as to how 
much you can guarantee per loan and what you have per program. 
Are those caps adequate? Are you utilizing the full amount of 
the money that is at your disposal? Should they be lowered? Do 
you have excess funds or should they be raised? Just a comment.
    Ms. SALERNO. I will happily answer that. We get our money. 
The rural sector needs more money. There is a huge issue about 
access to capital. That is what we hear at these roundtables 
and that is the kind of information we want to be able to give 
back to you is that there are still access to capital issues.
    Mr. LUETKEMEYER. Of the percentage of good loans that are 
applied for, how many do you not make because you are out of 
funds or cannot guarantee it?
    Ms. SALERNO. Two things. Thank you for the question. One is 
I am not sure I can give you that information but I will do my 
best and I will have to supplement that.
    Mr. LUETKEMEYER. Just round figures. It does not have to be 
perfect.
    Ms. SALERNO. Well, the issue is because of the last year 
and the uncertainty of funding, there was a lot of starting and 
stopping, and that was really hurtful to small businesses in 
rural America. So now with the certainty of funding I think I 
will be able to answer that better. I just do not want to give 
you non-information. But we had businesses that were hurt 
because we did not have a pipeline of funds.
    Mr. LUETKEMEYER. Ms. Mehlum, could you?
    Ms. MEHLUM. I think our levels are at the right levels 
right now. We have not had to recently not make loans because 
of capital levels.
    Mr. LUETKEMEYER. Okay, perfect. Thank you very much. Thank 
you, Mr. Chairman, for your indulgence.
    Chairman TIPTON. Mr. Mulvaney. No questions? Okay.
    I would like to be able to follow up just a little bit 
because I would like to get down to the purpose of the hearing. 
You have demonstrated that you are serving a need, being able 
to help small businesses in a variety of different areas, but 
when we go back to the crux of the hearing, the GAO had made 
recommendations that the financial assistance programs and the 
report of the GAO that was released in August of 2012, that has 
been over a year and a half ago. Following this, our Committee 
held a progress report hearing a year ago where your agencies 
testified about your commitment to being able to increase the 
collaboration. And we are back here again today asking what is 
being done to address the collaboration and to be able to 
actually respond to the GAO's actual recommendations. Are we 
making progress as opposed to continuing just to hold meetings 
and to be able to get our people together? What is the goal? 
What is the timeline? When is it going to be able to be 
achieved?
    Ms. Salerno or Ms. Mehlum?
    Ms. MEHLUM. I will answer to the best of my ability.
    My understanding is that the MOU is a three-year MOU with a 
possibility to renew. I may be incorrect on that. But we are 
continuing to work on all the issues in the MOU. It is about 
six or seven months old. We have definitely made progress in 
the field where they are doing joint trainings. We are sharing 
marketing materials and all that. And I feel like this is an 
MOU that is being taken very seriously at the SBA and we are 
all in agreement with it. It is the right thing to do. I am 
very proud that the 7(a) program is a zero subsidy program and 
we want it to continue and be sustainable, and it will be more 
effective as long as we can continue to do it cost-effectively 
and collaboratively.
    Chairman TIPTON. Ms. Salerno?
    Ms. SALERNO. Thanks for the question. I think we will have 
a better opportunity. I cannot promise anything. All I can do 
is we are doing the best we can with the information that we 
have, but I do think because of this consistent meeting that is 
going on about the technical assistance and trying to set 
metrics that is being really shepherded by OMB which all of our 
agencies participate in, I think they have got some pilots 
going on, so we will get that information. But for what we know 
how to do with our two programs for the Business and Industry 
Loan and the SB 7(a), I think we have made a commitment to make 
sure that we share data. We want to learn at USDA if there is a 
better way to collect data that is more in line with theirs, we 
want to learn that. But we do have challenges, but I do think 
because of the budget certainty we will be better able to 
address this.
    Chairman TIPTON. Well, just to be able to get a specific, 
can you point? Because you have been collaborating, you have 
been talking about it. What duplication have you identified?
    Ms. MEHLUM. I would like to answer that by saying I am not 
aware that we have specifically asked that question at a broad, 
strategic level. I think those are the questions we have been 
working on the field.
    Chairman TIPTON. Is this not the point though of the GAO 
report? We were talking about duplication.
    Ms. MEHLUM. As I mentioned when I first started, there is 
duplication and there is complementary products. And I do not 
think there is an exact duplication of specific product that is 
really the issue. And I have misunderstood that if that is what 
we are talking about.
    Chairman TIPTON. Do you have any comment, Mr. Shear?
    Mr. SHEAR. In our work, we did not find any evidence of 
duplication, meaning that you had multiple programs, multiple 
agencies undertaking the same activities, serving the same 
beneficiaries, and it does not mean that duplication does not 
exist. We did not find it. There are issues over how well from 
an internal control standpoint the agencies are following where 
the services are going.
    Chairman TIPTON. That was the point of the question.
    Mr. SHEAR. And so that is basically where we do not know. 
What we do observe for sure is that it just seems like there 
are inefficiencies associated with overlap and fragmentation 
and ability to evaluate how programs are serving their 
missions, and that is really a major focus for us, and we 
certainly hope, and it seems to be a focus of this OMB-led 
working group.
    Chairman TIPTON. We have business people that sit on this 
panel, obviously. Coming out and you are always looking to be 
able to create those efficiencies, to be able to streamline it 
to make sure that you are not getting overlap, not trying to go 
after the same customers, I guess, if you will. And during this 
process now over this last year and a half, in terms of trying 
to be able to identify, be able to get some of this 
collaboration going on, do you have any kind of a number of 
what we have been able to save the American taxpayer in terms 
of dollars through your efforts?
    Ms. MEHLUM. That is a really good question, and I would 
like to go back and see if we can tackle that. That would be an 
interesting question to look at because certainly that would be 
something that we would all be wanting to know and that is what 
we are all working towards.
    Chairman TIPTON. Are you aware of any, Ms. Salerno?
    Ms. SALERNO. From a USDA perspective, we look at 
duplication and strengthening of services and Secretary Vilsack 
has been very robust on his cost-savings measures which he has 
reported as $1.2 billion in tax dollars saved by the 
department. So our continued regionalization and ability to 
deliver services by streamlining at USDA, that is the only 
number that I know to give you.
    Chairman TIPTON. And we would like to follow up. Mr. 
Luetkemeyer brought it up. I had the opportunity to sit on a 
bank board before and we had loan officers, there is a 
checklist, and Ms. Salerno, you had mentioned that at the 
district offices you were having to be able to count on these 
folks to be able to create some awareness. Is that an actual 
checklist item for the district offices when they are working 
with local lenders saying here are the programs that are 
available? And by the way, the USDA has these programs that are 
available. Is that being done as an actual checklist item for 
your people in the field?
    Ms. SALERNO. Thanks for the question.
    If I am understanding the question correctly, at our USDA 
program level, our program officers in the field, they make 
contact with their SBA counterparts and they have their suite 
of services. So yes, it would be something where we show all of 
SBA's loan programs as well as ours. I mean, I have been to 
enough of those meetings. That is for sure going on. That is 
for sure at the state and local level that is going on.
    Chairman TIPTON. Okay. And that is being expressed fully to 
the lenders, to the private lenders?
    Ms. SALERNO. That has been where we have really been the 
most successful, for the rural space, those lenders, I mean, 
those big banks are not coming to rural Colorado. They are not 
there to give that capital, so what SBA has been doing very 
well for our rural folks, which I know they care about also, is 
to make sure some of those big banks know about the rural 
services that we do and vice versa. And mostly those community 
banks now know about the SBA services, our services, and are 
able to help the customer more.
    Chairman TIPTON. Just a couple more questions just out of 
curiosity. On the USDA, it does not, to my understanding at 
least, track loans based on the size of a business. In order 
for it to be able to eliminate duplication and overlap in our 
rural areas, would this information be useful to determine how 
many small businesses utilize the USDA as opposed to the SBA 
resources?
    Ms. SALERNO. I hope I am understanding the question, Mr. 
Chairman.
    The USDA, when we were tracking the size, we have the 
number of projected jobs that will come out of any kind of loan 
that we do. So we are able to monitor that and do monitor that 
because we monitor the financial statements that are given to 
the bank that are given to us of that business that we have 
given a loan to.
    Chairman TIPTON. I think the other component of this is 
strictly the size of the business. We talked about the $1.8 
million, a little bigger business than some others. Is that 
information being tracked as well?
    Ms. SALERNO. We certainly have the size of the business, 
but you are absolutely right. We help not just small 
businesses. I mean, we have helped businesses that have 500,000 
employees in rural American because we do manufacturing loans, 
so then you are asking if we track it. We track the number of 
employees. I do not know if we are tracking it in the same way 
that SBA is but I can get back with you on that and submit 
that.
    Chairman TIPTON. I appreciate that.
    I guess my last question is I have got a note here that 
November 2012, the USDA reported to GAO that over the next two 
years the USDA would conduct a broader analysis of its program 
data to assess program impact. And we are now in 2014. That 
started in 2012. Can you just give a status report of that 
effort?
    Ms. SALERNO. Yes. We have done what I described. Because of 
our budgets, we have not been able to put the kind of resources 
towards that. It is in our budget now to put those kind of 
resources, so we are still working on it. We have put into 
action the guidance document that I talked about and tried to 
make it more standardized, but we have not put the resources 
towards the IT enhancements that will allow us to do I think 
what we reported in 2012.
    Chairman TIPTON. Okay. So basically from 2012 we had not 
made any real progress to straighten it out or really move on 
it?
    Ms. SALERNO. I believe that we made progress by actually 
validating the data which we did in 2013, and we have advised 
our field offices to make sure that they complied with the 
guidance document. We certainly can improve and plan on.
    Chairman TIPTON. Okay. Well, I would like to thank you all, 
unless any of our other members have any questions. I would 
like to thank you for participating today. One of the big 
issues--I think we all have a responsibility for those of us 
that are serving here in Washington--is to be looking out for 
the American taxpayer. And that is the idea of trying to be 
able to address some of the concerns that have been put forward 
by the GAO, and make sure we move beyond meetings into action 
on behalf of those taxpayers. Because when we are talking about 
budgets, the best way to be able to have the resources is to be 
able to assure the American people that we are doing the very 
best we can to be able to not only grow the economy but be able 
to handle those limited resources well.
    I do thank all of you for taking the time to be 
participants with us here today. We know that capital is 
critical for these small businesses in our rural areas and 
these programs can play an incredibly important role in helping 
businesses access that capital. However, these programs that 
confuse businesses and owners and waste taxpayer resources, I 
believe we can agree that it simply cannot be tolerated. 
Agencies need to be able to find a way to be able to work 
together, and I hope today's hearing shows some of the 
importance of being able to bring together the issues and some 
of the challenges in terms of programs that are offered by the 
USDA and the SBA, and their efforts to be able to implement 
those GAO recommendations into best practices for true 
collaboration.
    With that, I would ask unanimous consent that members have 
five legislative days to be able to submit statements and 
supporting materials for the record.
    Without objection, so ordered.
    With that, this hearing is now adjourned. Thank you.
    [Whereupon, at 11:07 a.m., the Subcommittee was adjourned.]



                            A P P E N D I X


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Tipton, Ranking Member Murphy, and distinguished 
Members of the Subcommittee. Thank you for inviting me to 
testify on SBA's ongoing work to expand access to capital for 
small businesses, while enhancing collaboration and avoiding 
duplication with other government programs. I greatly 
appreciate the opportunity to discuss our lending products and 
successful partnerships across the federal government. As a 
former lender from a largely rural state, it is truly an honor 
to be before this Subcommittee and alongside my colleagues from 
USDA and GAO. Together, we are committed to providing all 
entrepreneurs with the tools they need to start and grow 
companies and create jobs.

    Small businesses are the engine of our economy and one of 
our country's greatest assets. They employ half of the private 
sector workforce and create two out of every three net new 
private sector jobs. And at SBA, we know that innovation is 
hardly limited to Boston and San Francisco. It's happening in 
rural and industrial communities--in the South and across the 
Midwest. It's happening in Florida and Colorado and in my home 
state of Oregon. That is why we are focused on ensuring that 
the economic benefits of entrepreneurship reach every corner of 
America.

    In my role as Associate Administrator for Capital Access. I 
rely on my 30-year career in commercial lending to inform how 
SBA can better support small businesses across the country. It 
is our top priority to fill market gaps and expand 
opportunities for companies that are often overlooked by 
investors and financial institutions. Over the past five years, 
our loan guarantee programs have made is possible for lenders 
to support more small businesses in rural and underserved 
communities. In Fiscal Year 2013 alone, approximately 15 
percent of all 7(a) loans and 16 percent of total dollars went 
to rural entrepreneurs.

    In order to reach even more small businesses in rural 
markets and ensure effective collaboration across the federal 
government, SBA has signed several Memorandums of Understanding 
(MOU) with other agencies, including USDA. Leveraging SBA's 
nationwide network of district offices and resource partners as 
well as USDA's extensive footprint of field staff in nearly 
every county in America, we are able to advise potential small 
business borrowers and lenders on both SBA and USDA loan 
programs. Through our collaboration, we educate each other's 
staff on our respective products and services, exchange 
marketing materials, and host joint lender training.

    We have already seen the benefits of our collaboration 
through the success of countless small businesses like the 
Maupin Market in Maupin, Oregon. In 2011, the only grocery 
store in this 500-person town was slated to close, forcing 
residents to travel over 40 miles to go food shopping. Maupin 
was en route to becoming a food desert when Allison and Randy 
Bechtol decided to reopen the store. Unable to obtain 
conventional financing, the Bechtols turned to the local Small 
Business Development Center (SBDC) for help. The SBDC connected 
the Bechtols with a community bank that identified SBA's 504 
Loan Program and USDA Rural Development's Intermediary 
Relending Program as strong matches for their capital needs. 
With a $279,000 SBA-guaranteed loan and a separate loan for 
$100,000 through USDA's Intermediary Relending Program, the 
Bechtols were able to remodel the old building and reopen the 
new Maupin Market. They have created seven good-paying jobs in 
the community and provided new business opportunities for the 
local farmers.

    The success of SBA's strategic alliance with USDA has led 
to similar partnerships with the Delta Regional Authority (DRA) 
and the Appalachian Regional Commission (ARC). We are also 
working with the White House Rural Council on a number of 
initiatives to increase investment in rural communities. 
Specifically, we announced a new commitment with USDA to expand 
access to capital and provide targeted training and counseling 
services in rural markets.

    SBA also supports rural small businesses through our Small 
Loan Advantage (SLA) platform. One of our signature low-dollar 
loan programs, SLA makes loans up to $350,000 more attractive 
and less costly for banks. After receiving feedback from our 
lending partners on how to make the program more effective, we 
simplified the application process, allowed banks to use their 
own collateral, closing, and dispersing guidelines, and 
expanded the program to include all lenders.

    We also redesigned our CAPLines program, which provides 
working-capital to small businesses to help them meet contract 
obligations and fill work orders. This streamlined, and 
therefore less costly, process allows banks to reach smaller 
and more rural businesses. In FY 2012 and FY 2013, we 
experienced a significant increase in activity in this program 
with over 1,200 loans approved for more than $920 million. That 
is up from just 300 loans and $255 million approved during the 
three prior fiscal years combined.

    At SBA, and across the Administration, we are committed to 
collaborating with our federal partners to fill market gaps for 
loans in underserved communities and ensure that all 
entrepreneurs have the resources and training they need to turn 
great ideas into growing businesses. By taking an inclusive 
view of entrepreneurship, one that expands access and 
opportunity to more communities, we can spur new business 
formation, innovation, job creation, and build strong regional 
economies throughout America.

    Thank you again for the opportunity to be here, and I look 
forward to answering your questions.
  Statement of Lillian Salerno, Administrator, Rural Business-
                      Cooperative Services

            United States Department of Agriculture

 Before the House Committee on Small Business Subcommittee on 
                 Agriculture, Energy and Trade

                       February 06, 2014

    Chairman Tipton, Ranking Member Murphy, and members of the 
subcommittee, I am pleased to have this opportunity to discuss, 
as a follow-up to last year's hearing on the Government 
Accountability Office (GAO) report on ``Entrepreneurial 
Assistance,'' the coordination of the Business and Industry 
(B&I) Guaranteed Loan program with the Small Business 
Administration's (SBA) 7(a) program and improvements we have 
made in our performance measure verification. Rural Business-
Cooperative Service (RBCS) is committed to ensuring that 
entrepreneurs in rural communities have every opportunity to 
succeed.

    As a former entrepreneur and rural small business owner, I 
have firsthand knowledge of the value of Federal financial 
assistance program. In fact, the medical device company I 
founded in 1994 began with a Small Business Innovation Research 
(SBIR) grant and has grown to approximately 150 employees in 
rural north Texas.

    In the August 2012 report on Entrepreneurial Assistance, 
GAO recommended that we do more to coordinate our programs and 
that we help entrepreneurs more efficiently identify the 
program that can assist them. Outreach and collaboration with 
other Federal agencies regarding our programs here at a 
national level and educating and encouraging our field staff to 
work with other Federal agencies in promoting our programs at a 
local level have been top priorities for me since I became 
Administrator in July 2013.

    B&I Guaranteed Loan Program

    Rural communities have historically lacked adequate access 
to private investment capital to support business development 
and job creation. The B&I Guaranteed Loan program helps to 
improve the economic condition of rural communities by 
enhancing the existing private credit structure through loan 
guarantees. Over the course of the past year, RBCS has provided 
$939 million in B&I loan guarantees to over 400 businesses 
across the country.

    We appreciate that other agencies' programs may provide 
assistance to rural businesses. However, the distinguishing and 
critical feature of RBCS programs in general, and the B&I 
guaranteed loan program in particular, is our mission--to 
provide assistance to rural businesses in rural communities. 
While both the B&I program and the Small Business 
Administration's 7(a) loan program have the goal of ensuring 
small businesses have capital, Congress has determined that B&I 
serves the distinct purpose of providing resources to rural 
businesses that have greater individual capital needs. The B&I 
program is a critical component to increasing economic 
opportunity and improving life for rural Americans. The 
delivery system of our agency, with personnel and offices in 
rural areas, is particularly suited to assisting rural 
businesses and helping them to succeed.

    Furthermore, the universe of borrowers is broader for 
participants under the B&I program. The 7(a) program limits 
eligible borrowers to for-profit businesses, while the B&I 
program allows eligible borrowers to be for-profit, 
cooperatives, non-profit, individuals, corporations, or 
partnerships located in rural areas with a population of less 
than 50,000. Also, the guarantee loan limits for the B&I 
program are greater than those for the 7(a) program.

    USDA & SBA Coordination

    My agency works diligently to ensure effective coordination 
of the B&I program (as well as our other programs) with our 
partners, especially with SBA. While the National Office meets 
with SBA frequently because of our participation on 
Administration-wide, cross-cutting initiatives, the 
coordination is even more evident at the state and local 
levels. Although our field staff has worked closely with SBA 
offices for many years, the Memorandum of Understanding (MOU) 
signed by former SBA Administrator Karen Mills and Department 
of Agriculture (USDA) Secretary Thomas J. Vilsack in September 
of last year provides an opportunity for even more 
collaboration. The intent of this MOU is to benefit small 
businesses and agricultural producers through a joint effort 
and to encourage sustainable growth and development through 
financial assistance from both SBA and USDA.

    On a recent visit to a Small Business Lender roundtable 
with bankers and small businesses, the State SBA representative 
highlighted the efficacy of the new MOU in an email to me, 
which reads in part:

          At the district level, we cut through red tape and 
        bureaucracy much of the time because our leaders give 
        us that ability. The MOU lays out the guide--which is 
        very good in that it gives more details and specific 
        achievements desired, but lets us design specific 
        applications to fit our markets. I think this could be 
        a best practice for other government programs to 
        ``virtually'' consolidate ourselves around those common 
        areas we naturally have. This is achieved without the 
        cost and time involved in a full-blown reorganization 
        and consolidation but achieves the same thing faster 
        and better.

    Further, my agency, together with SBA, is committed to 
providing $175 million in micro-capital to rural small 
businesses and small farms over Fiscal Years (FY) 2013 and 2014 
to support entrepreneurship in rural communities across 
America. This commitment represents a ten percent increase from 
FY 2012 micro-lending levels at both agencies. Through our 
coordination with SBA, we are able to increase access to 
private investment capital for small rural businesses, which 
helps ensure that rural communities are economically thriving 
and can compete in the global economy, This coordination 
includes outreach and promoting each agency's programs, 
resulting in better access for entrepreneurs and, in a number 
of instances, jointly funded projects. For example, last year, 
a lender in Sumter, South Carolina, was able to leverage both 
the B&I program and the SBA 7(a) program to help finance two 
projects that involved common ownership. Because the SBA 7(a) 
program has an exposure cap of $5 million, the lender needed to 
finance the remaining $6.5 million using the B&I guaranteed 
loan program.

    Measuring Performance

    RBCS has been, and continues to be, focused on improving 
our metrics by improving processes, increasing human resources, 
and investing in Information Technology. In the past year, RBCS 
has taken steps to improve its data collection and data 
validation. In the second quarter of FY 2013, we published 
guidance to our field offices to provide clarification and 
guidance regarding the collection, tracking recording, and 
verifying of jobs created/saved and other measures of impacts 
and outcomes of RBCS programs (e.g., energy saved or produced, 
producers of local foods projects).

    The Agency undertook an extensive data validation effort of 
FY 2013 data. National Office personnel reviewed all of the 
performance measures for FY 2013, identifying in particular 
data that were deemed ``outliers.'' The data was distributed to 
our state offices and program offices for validation. We asked 
all offices to carefully review the data and to pay special 
attention to the information identified by the National Office 
as ``outliers.'' Once the data was confirmed or amended by the 
state and program offices it was resubmitted to the National 
Office.

    Concurrently, we created a specific spreadsheet that will 
be updated on a periodic basis to compile performance measures. 
The spreadsheet will improve the consistency and accuracy of 
our performance outcomes when we submit reports to the various 
oversight organizations, such as OMB, USDA's Office of Budget 
and Policy Analysis (OBPA), the Office of the Inspector General 
(OIG), and the Government Accountability Office (GAO).

    For FY 2014, we are now able to undertake several actions 
as we have certainty in the amount of funding made available to 
us. Our first priority is a critical hire to oversee our data 
collection and verification activities. We are also revising 
the personnel description of one of our senior staff to address 
reporting consistency. Further, we will begin making IT 
enhancements including making it easier for our lenders and 
intermediaries to report the performance measures we request of 
them.

    Importance of RBCS Programs

    As Administrator, I have had the opportunity to meet with 
many small business owners and listen to their struggles to 
acquire needed capital to start, improve, or develop their 
businesses. Numerous small business owners have told me that 
without the B&I program the bank would not have made the loan.

    To more efficiently and effectively deliver our programs, 
RBCS utilizes ten team leaders and two regional leaders. This 
allows us to better coordinate activities with the states and 
most importantly to assist rural Americans on a ``horizontal'' 
basis rather than the slower, less efficient ``vertical'' 
basis. For FY 2014, we are proposing to hire additional people. 
These additional positions will enable RBCS to further focus 
our resources on the economic needs at both the regional and 
community levels, thereby ensuring that our resources support 
the rural development needs specific to that region or 
community.

    In sum, no other Federal agency is positioned as well as we 
are to meet the needs of rural America. Our extensive physical 
presence in rural communities distinguishes us from other 
Federal programs. We have the expertise and experience with the 
particular economic, social, and geographic characteristics of 
rural communities. Through our 47 State Offices and hundreds of 
local offices and service centers, we overcome the physical 
distance barriers that alone can hinder service delivery in 
rural areas.

    Concluding Remarks

    I appreciate the opportunity to testify before members of 
the Committee alongside colleagues from SBA and GAO. We are 
committed to helping entrepreneurs and small businesses 
succeed. As you can see from the testimony above, we work well 
together and I anticipate that we will continue to do so in the 
future. I welcome the chance to engage in a dialog on even more 
ways we can further support American competiveness and growth. 
Thank you for your support of Rural Business programs. And at 
this time, I am happy to answer your questions.

                                 
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