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







       SBA-CREATED INITIATIVES: NECESSARY OR REDUNDANT SPENDING?

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             APRIL 30, 2014

                               __________


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



            Small Business Committee Document Number 113-066
              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 LUETKEMEYER, 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. Sam Graves..................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Mr. Rhett Jeppson, Associate Administrator, Office of Veterans 
  Business Development, Small Business Administration, 
  Washington, DC.................................................     3
Mr. Javier Saade, Associate Administrator, Office of Investment 
  and Innovation, Small Business Administration, Washington, DC..     5
Ms. Tameka Montgomery, Associate Administrator, Office of 
  Entrepreneurial Development, Small Business Administration, 
  Washington, DC.................................................     6

                                APPENDIX

Prepared Statements:
    Mr. Rhett Jeppson, Associate Administrator, Office of 
      Veterans Business Development, Small Business 
      Administration, Washington, DC.............................    22
    Mr. Javier Saade, Associate Administrator, Office of 
      Investment and Innovation, Small Business Administration, 
      Washington, DC.............................................    26
    Ms. Tameka Montgomery, Associate Administrator, Office of 
      Entrepreneurial Development, Small Business Administration, 
      Washington, DC.............................................    30
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    America's SBDC Statement of C.E. ``Tee'' Rowe, President/CEO, 
      America's SBDC.............................................    33
    SBIA - Small Business Investor Alliance Letter Submitted by 
      Brett Palmer, President....................................    50

 
       SBA-CREATED INITIATIVES: NECESSARY OR REDUNDANT SPENDING?

                              ----------                              


                       WEDNESDAY, APRIL 30, 2014

                  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, 
Tipton, Huelskamp, Collins, Velazquez, Schrader, Chu, Meng, and 
Schneider.
    Chairman GRAVES. Good afternoon. We will call the hearing 
to order.
    In recent years, the Committee has witnessed an alarming 
trend in the SBA's budget regarding entrepreneurial development 
programs. Despite reports that the federal government is 
riddled with redundant programs for entrepreneurs, the SBA has 
increasingly spawned its own entrepreneurial development 
initiatives. In doing so, the SBA has repeatedly requested 
increased funding for its own initiatives while allowing 
funding for statutorily authorized programs, such as SBDCs to 
remain static.
    The Committee, on a bipartisan basis, has expressed 
concerns regarding the SBA's diversion of funds. Earlier this 
year, Ranking Member Velazquez and I sought clarification from 
the SBA on how they intend to utilize funds allocated to these 
initiatives. Together we sought to ensure that scarce taxpayer 
dollars would be properly utilized on truly necessary and job-
creating programs with adequate performance metrics. The SBA's 
response did not allay these concerns, and I continue to 
question the necessity of these initiatives given the potential 
overlap with both private and public sector efforts already in 
existence. Additionally, as previous reports have uncovered 
inadequate funding metrics, and a lack of agency collaboration 
in the federal entrepreneurial development arena, I am 
concerned that the SBA lacks the ability to measure the success 
or failure of the programs it initiatives.
    The majority of the funding goes to four of its 
initiatives: the Entrepreneurial Education Program; the Growth 
Accelerators Program; the Boots to Business Program; and the 
Regional Innovation Clusters Program. Our witnesses are going 
to be sharing with us their insights into these initiatives, 
and I thank all of you for taking time out of your busy 
schedules to be here. It does mean a lot.
    On this Committee, we seek to promote entrepreneurship as a 
vital part of reviving the economy. Plus, owning your own 
business is an integral part of the American dream. If changes 
to existing federal entrepreneurial development programs are 
necessary, I am certainly open to hearing those proposals. 
However, the SBA's current manner of picking and choosing how 
to use taxpayers' money while bypassing Congress's role is one 
thing that concerns me quite a little bit.
    And with that I will turn to Ranking Member Velazquez for 
her opening statement.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    For more than 50 years, the SBA has been assisting 
America's entrepreneurs and small business owners. By providing 
loans, training, and contracting opportunities, the agency has 
helped create new businesses and the jobs that come with them 
throughout the nation. Last year, it channeled more than $25 
billion in loans to small firms, provided counseling and 
training to over one million entrepreneurs, and helped small 
businesses secure nearly $100 billion in federal contracts.
    To accomplish this, the SBA relies on a broad network of 
programs, most of which have been established in law for 
decades. These initiatives are overseen by the GAO and the 
agency's own inspector general and have codified regulations 
and performance benchmarks. As a result, many of these efforts 
have been able to deliver services to small businesses in a 
manner that is efficient for the taxpayers.
    Unfortunately, the SBA has repeatedly diverged from this 
path and created numerous unauthorized pilot programs aimed at 
assisting businesses in underserved markets. Since 2003, the 
SBA has created not less than six entrepreneurial development 
pilots and 16 access to capital pilots. Unfortunately, 
independent evaluations of these pilots have shown SBA 
typically fails to properly set goals, conduct timely program 
evaluation or provide adequate oversight. This has led to 
increased costs for taxpayers, and in many circumstances 
limited agency resources going to waste.
    For Fiscal Year 2015, the SBA has proposed continuing this 
practice. The agency has requested $15 million for 
entrepreneurship education, $6 million for regional innovation 
clusters, $7 million for goods to business, and $5 million for 
Growth Accelerators. In addition, the SBA has undertaken 
similar efforts in its Small Loan Advantage program, the 
Community Advantage Program, the Impact Investing Fund, the 
Early Stage Innovation Fund, as well as the Business USA 
website. The cost of this program for the next fiscal year will 
be $39 million and together constitute nearly 20 percent of the 
SBA's noncredit program's budget.
    Some of these pilots may deliver limited benefits, and 
today the SBA is sure to provide the Committee with anecdotes, 
and maybe even some hard data of their success. The real 
question is why spend money on initiatives that lack the proven 
track record and safeguards that the other SBA programs have. 
This makes no sense.
    Initiatives like the Small Business Development Centers 
have recognized delivery mechanism for nearly every 
entrepreneurial development pilot program the agency has 
created. Why not use it? Programs on the books, like the New 
Markets Venture Capital Program duplicate the SBA's new SBIC 
initiatives but have wasted away due to a lack of funding. Why 
not fund it?
    By choosing not to do so, the agency has continuously 
diverted taxpayers' dollars to programs that lack clear goals, 
programmatic guidelines, and performance metrics.
    Today, we will examine these initiatives while trying to 
better understand the agency's spending rationale. With the 
recent sequester, setting appropriate budget priorities is more 
important than ever. Doing so is critical for both the small 
businesses who depends on SBA programs and taxpayers who foot 
the agency's bill.
    The SBA remains an important institution for America's 
small businesses. It must continue to evolve and change with 
the growth of the economy, but it must do so in a manner that 
is well thought out and prudent. In this regard, I look forward 
to working with the agency to ensure that it can continue to 
progress and meet the needs of tomorrow's entrepreneur.
    With that, Mr. Chairman, I yield back.
    Chairman GRAVES. We obviously have a series of votes that 
came a little earlier than we were expecting. So I think what 
we will do is just--instead of breaking up your testimony we 
will just recess right now and come back and we will start with 
you, Mr. Jeppson. So we will be back, well, right after this 
one, I guess. So that makes that easy. So we will be right 
back.
    The Committee is in recess.
    [Recess]
    Chairman GRAVES. We will call the hearing back to order.
    Our first witness is Rhett Jeppson, the Associate 
Administrator for the Office of Veterans Business Development 
within the Small Business Administration. Mr. Jeppson oversees 
the Boots to Business Program, and additionally is currently a 
lieutenant colonel in the United States Marine Corps Reserve.
    I would like to thank you for your service. Go ahead and 
start.

STATEMENTS OF RHETT JEPPSON, ASSOCIATE ADMINISTRATOR, OFFICE OF 
  VETERANS BUSINESS DEVELOPMENT, UNITED STATES SMALL BUSINESS 
 ADMINISTRATION; JAVIER SAADE, ASSOCIATE ADMINISTRATOR, OFFICE 
  OF INVESTMENT AND INNOVATION, UNITED STATES SMALL BUSINESS 
  ADMINISTRATION; TAMEKA MONTGOMERY, ASSOCIATE ADMINISTRATOR, 
  OFFICE OF ENTREPRENEURIAL DEVELOPMENT, UNITED STATES SMALL 
                    BUSINESS ADMINISTRATION

                   STATEMENT OF RHETT JEPPSON

    Mr. JEPPSON. Sir, good afternoon. Thank you, Chairman 
Graves, Ranking Member Velazquez, and distinguished members of 
the Committee. Thank you for inviting me to testify today.
    Veterans are a cornerstone of small business ownership. 
They have the skills to adapt to the many challenges as well as 
the leadership and discipline required to own and operate small 
businesses.
    Research demonstrates that veterans over index in 
entrepreneurship. In the private sector workforce, veterans are 
45 percent more likely than those with no active military 
service to be self-employed.
    As small business owners, veterans continue to serve our 
country and create jobs in our communities. According to the 
most recent U.S. Census data, nearly one in 10 small businesses 
is owned by a veteran. These businesses generate over $1.2 
trillion in receipts annually and employ nearly 5.8 million 
Americans.
    As a way to continue to help our veterans pursue 
entrepreneurship, SBA has created the Boots to Business. Boots 
to Business is the entrepreneurship track of the newly 
implemented Department of Defense Transition Assistance 
Program, commonly referred to as TAP, which was developed at 
the interagency level by the Department of Labor, VA, DOE, and 
SBA.
    The goal of TAP is to help successfully transition our 
service members from military to civilian life. Through TAP, 
service members receives core education and post-service 
veterans' benefits. In addition, veterans choose from one of 
three optional tracks for training--higher education, Vo-Tech 
training, or entrepreneurship. SBA was directed to provide 
training to veterans and oversee participation by its resource 
partners in delivering this training to transitioning service 
members who opt in. In response, SBA created Boots to Business.
    If a service member chooses to take advantage of the 
program, he or she attends a two-day course at their military 
installation. SBA Resource Partners collaboratively deliver 
face-to-face introductory entrepreneurship training. The 
instructors introduce transitioning veterans to the essentials 
of entrepreneurship, including a feasibility analysis, 
discussion of business financials, and a review of available 
SBA resources.
    The final phase of the program is an eight-week, 
interactive course taught online by a professor. The course 
walks participants through the fundamentals of developing a 
business plan, as well as other techniques and tips for 
starting a business. The relationship that the participant 
establishes with the instructor helps reinforce the importance 
of the SBA resource partner network. The program not only 
teaches participants core business fundamentals, but it also 
introduces them to SBA's network that consists of VBOCs, WBCs, 
SBDCs, and SCORE counselors.
    With the funding provided in the Fiscal Year 2014 budget, 
SBA plans to expand Boots to Business to more military 
installations within the United States and launch the program 
at overseas installations. Without any appropriated funding, 
more than 6,000 service members were trained in the first year 
of the program. We project that we will train an additional 
12,000 to 15,000 participants through B2B in Fiscal Year 2014.
    Participation in Boots to Business is as dynamic as the 
services themselves. In 2013, 21 percent of the participants 
were African American, 10 percent were Hispanic, five percent 
were Asian-Pacific Islander, and two percent were American 
Indian/Alaskan native. Women, especially, are over-indexing in 
the program. Though women make up 14 percent of the Armed 
Services, they make up more than 25 percent of our Boots to 
Business participants. Spouses of transitioning service members 
are also taking advantage of this course as a way to provide 
stability for their families.
    Investing in our veterans is investing in America's future. 
We know that our nation's veterans helped reshape America's 
economy following World War II. They helped to build one of the 
longest periods of economic growth in our country, and we know 
that they can do it again.
    The SBA is committed to ensuring that these amazing men and 
women have the training, access, and opportunity they need to 
fulfill their potential as entrepreneurs and small business 
owners. There is no one who deserves to live the American dream 
more than those who have worn the uniform and fought to defend 
it.
    Thank you for your time and allowing me to appear before 
this Committee.
    Chairman GRAVES. Our next witness is Javier Saade, the 
Associate Administrator for the Office of Investment and 
Innovation at the Small Business Administration.
    In addition to overseeing the SBIC, the SBIR, and the STTR 
programs, Mr. Saade is responsible for overseeing the Growth 
Accelerator Program.
    Thank you for being with us, and I appreciate you coming 
out.

                   STATEMENT OF JAVIER SAADE

    Mr. SAADE. Thank you, Chairman Graves, Ranking Member 
Velazquez, distinguished members of the Committee. Thank you 
for giving me the opportunity to testify here today.
    SBA's Office of Investment and Innovation leads programs 
that provide the high-growth small business community with 
access to long-term financial capital and R&D funds aimed at 
commercializing innovations. We do this through three programs: 
the Small Business Investment Company Program, the Small 
Business Innovation Research Program, and the Small Business 
Technology Transfer Program.
    The SBIC program has been a successful model for public-
private partnerships. Professionally managed investment funds 
raise private capital from institutional investors. The private 
capital is then matched by SBA guaranteed leverage and enable 
the funds to capitalize more small businesses in the form of 
equity, structured loans, or combination of both.
    The SBIR and STTR programs have helped small businesses 
compete and obtain federal R&D funds. One of the key goals of 
these programs is to commercialize small business inventions. 
These programs are paramount in keeping the U.S. at the 
forefront of science and technology in our global economy and 
in allowing us to expand the frontiers of human knowledge.
    In addition to these programs, to keep the U.S. in a 
leadership role we are focused on innovation. During the bulk 
of our nation's history, the backstop of innovation ecosystems 
resided in the walls of large corporations. Companies like 
Xerox, General Motors, and DuPont were centers of innovation 
and entrepreneurial activity. They invented, produced, built, 
and distributed products creating world-changing technologies 
like the computer mouse and Teflon.
    Times have changed. Small businesses have taken the lead, 
outpacing innovation rates of larger companies. Itemized pools 
of capital formed and more technologies were made available. 
This democratized the entrepreneurship process but has also 
created gaps in funding and scaling mechanisms.
    The SBA is determined to be a partner in helping friends 
work and innovate in the new economy. This is why we are taking 
a role in developing and enhancing effective pass-through 
entrepreneurship which is important to our economic growth and 
to maintain America's competitive edge when it comes to 
nurturing innovative firms.
    SBA runs two programs to address these gaps: the Growth 
Accelerator Fund and the Regional Innovation Clusters which my 
colleague, Tameka Montgomery, will discuss further. 
Accelerators focus on start-ups and early-stage firms. Clusters 
focus on scalable and more mature firms. Both are critical to 
the growth of regional economies and address different stages 
in the lifecycle of businesses. Accelerators are physical 
microcosms of the larger clusters. They provide physical space, 
mentoring, networking, and often capital to the smallest start-
ups, usually on a rotating basis of three to nine months or 
until a start-up can graduate and continue to grow on its own.
    Accelerators fill this gap in new and exciting ways, and 
they are growing. Our agency estimates that there are about 700 
accelerators in the United States. We are launching a $2.5 
million competition for accelerators. The awards are meant to 
assist in funding their operations and to allow more capacity 
to scale up. The competition will award capital to the best-in-
class models and will focus on geographic areas in which 
financing is in short supply, as well as models that are run by 
and support the underrepresented groups.
    The evaluation criteria will be similar to those we use for 
our SBIC applicants: management team, track record, business 
model, and policy impact, including identifying what gaps the 
applicant will fill. We will choose entities that have the best 
models for financial success and impact. Winners will be 
selected by a combination of SBA personnel, venture 
capitalists, and entrepreneurs, and our hope is to announce 
winners by the end of the fiscal year.
    We plan to forge long-term partnerships with these 
accelerators. Through establishing these relationships, we will 
be introducing a sector which is historically unfamiliar with 
our agency's suite of services to our resource partners 
programs and our more traditional loan programs. The SBA must 
lead the new economy and meet the needs of scalable and high-
growth small businesses.
    I look forward to working with all of you on these and 
other programs that will help us achieve this goal. Thank you 
so much.
    Chairman GRAVES. Our final witness is Tameka Montgomery, 
the Associate Administrator for the Office of Entrepreneurial 
Development at the Small Business Administration. In this 
capacity, Ms. Montgomery is responsible for overseeing the 
SBA's counseling and training programs for entrepreneurs. I 
appreciate you being here today. Thanks. Please go ahead.

                 STATEMENT OF TAMEKA MONTGOMERY

    Ms. MONTGOMERY. Chairman Graves, Ranking Member Velazquez, 
and distinguished members of the Committee, thank you for 
inviting me to testify before you about your Regional 
Innovation Clusters and our Entrepreneurship Education 
Programs.
    Strong and thriving small businesses are key to a 
flourishing economy. While we know that small businesses create 
two out of every three net new jobs, the bulk of these jobs are 
being created through the sustained, incremental expansion of 
existing small businesses across a wide range of industries. 
According to outside sources, 92 percent of new jobs come from 
the expansion of existing businesses, while start-ups accounted 
for around seven percent of net new jobs in the past decade.
    SBA believes that by providing additional technical 
assistance to more growth-oriented entrepreneurs, our 
government's limited resources will be maximized and 
strategically focused on the firms that have the highest 
potential to create positive economic impact. SBA's clusters 
and entrepreneurship education programs do exactly this. Each 
program has a proven track record of helping entrepreneurs 
better lead and grow their businesses.
    SBA created the clusters program to strengthen small 
business participation in existing regional economic clusters. 
We do this by fostering a network of small businesses, 
universities, and investors that work to grow a related set of 
industries.
    Leveraging these resources, each cluster acts as a 
networking hub, connecting small businesses to innovation 
assets, while providing targeted matchmaking, training, and 
mentoring.
    Small businesses participating in our clusters are able to 
access new markets, commercialize products, thus accelerating 
their growth. These clusters are powerful at creating an 
environment where small businesses can successfully 
participate. According to the data, revenue of small business 
participants increased by 23 percent. Employment grew on 
average by more than 18 percent. And the program helped small 
businesses access more than 66 million in private funding 
sources as well as 14 million from federal SBIR and STTR 
awards.
    The San Diego Advanced Defense Technology Cluster provides 
expert assistance with product development, as well as 
networking opportunities to help small businesses secure 
customers, investors in cybersecurity, autonomous systems, and 
other defense-related sectors. Resource partners, like the 
North San Diego Small Business Development Center, provide the 
businesses with information and management assistance on key 
building blocks of business success.
    Like the clusters program, SBA's entrepreneurship education 
programs help equip entrepreneurs to better lead and grow their 
businesses. Growth-oriented businesses face an entirely 
different set of challenges than start-ups, and the 
Entrepreneurship Education Program provides them with some of 
the tools they need to sustain their growth trajectory. Through 
this program, we have seen much success with our Emerging 
Leaders Initiative. This initiative, now in its seventh year, 
was launched to assist small businesses in underserved 
communities that are poised for growth. By providing nearly 100 
hours of in-person and out-of-classroom coursework over a 
seven-month period, business owners learn how to refine their 
core strategy, gain a stronger foothold in the market, and 
secure more customers.
    A third-party evaluator found that 62 percent of 2012 
graduates saw an average revenue increase of 45 percent, with 
median revenue increasing from $894,000 before participation to 
$1.1 million following the first year of completion. 
Additionally, 40 percent of participants in 2012 reported 
security contracts with an average value of approximately $2.1 
million.
    Leveraging SBA's local presence and convening power, our 
district offices administer this initiative, while also 
engaging local resource partners in a variety of ways.
    Both the Regional Innovation Clusters and the 
entrepreneurship education programs help to improve the 
competitiveness of high-potential, growth-oriented small 
businesses. We know these programs provide relevant assistance 
in education that address the unique challenges of growing 
small businesses.
    Thank you for the opportunity to testify before you today. 
I look forward to answering any questions that you may have.
    Chairman GRAVES. I will start off with Mr. Collins.
    Mr. COLLINS. Thank you, Chairman.
    I am new to Congress, but I am not new to life. I have 
noticed from the opening statements of our chairman and ranking 
member that you have united this Committee in opposition to the 
SBA's continued evolvement of new programs and not perhaps 
funding, as the ranking member said, the SBDC as we should. So 
I am really baffled by this.
    And so let me ask you kind of, do you not care what 
Congress things? Mr. Jeppson? Was it not obvious to you that we 
are not happy with you and your new programs, right? You have 
sensed that? You heard the opening statements, right? Or did 
you?
    Mr. JEPPSON. Sir, I did hear the statement.
    Mr. COLLINS. So what do you think about that? Does that 
concern you at all?
    Mr. JEPPSON. Sir, I understand that there is some concern 
about new programs and about metrics here.
    Mr. COLLINS. More than a concern.
    Mr. JEPPSON. Yes, sir.
    Mr. COLLINS. Are you not concerned that you seem to be 
flying in the face of what Congress wants? I mean, do you 
really not care? Does your agency not care?
    Mr. JEPPSON. Sir, I cannot speak for the other programs, 
but I will tell you that in my case I think that we are 
fulfilling the responsibility that Congress gave us. The 
organizing language in my statute that set up my office, 10650, 
we were tasked to provide entrepreneurial development among 
other things to service veterans. In the 2008 Small Business 
Act, we were specifically directed to participate in the TAP 
program. If you look at the program or the statute that 
authorized TAP back in 1990, we were authorized----
    Mr. COLLINS. All right. Well, let me ask Mr. Saade. I will 
ask you the same question. You have heard the opening 
statements, and clearly we would like you to be taking another 
direction relative to, you know, we are not looking for new 
programs. Is that obvious to you? We in Congress are not 
looking for new programs. Is that clear or not clear?
    Mr. SAADE. Thank you for the question.
    Our general legislative authority for these programs----
    Mr. COLLINS. I am not asking about authority. Is it clear 
that we are not looking for new programs? From the opening 
statements of our chairman and ranking member, is that clear or 
is that somehow----
    Mr. SAADE. It is clear you want to discuss how we arrived 
at these programs.
    Mr. COLLINS. It is not clear that we do not want new 
programs? We would prefer you to be funding at a better level 
existing programs, that is not clear to you? I think it should 
have been clear.
    Mr. SAADE. I heard the comments. Absolutely.
    Mr. COLLINS. Are you going to relate that back to your 
superiors, that Congress is not happy with these new programs? 
We are more than not happy. We do not want any more new 
programs. Is that clear? Is it?
    Mr. SAADE. I am listening to what you are saying. Yes.
    Mr. COLLINS. Okay. All right.
    Ms. Montgomery, I will ask you the same thing.
    Ms. MONTGOMERY. Well, yes. Obviously, from your comment, it 
is very clear on your concerns about the programs, and I think 
that is the reason why we are here today is to answer any 
questions that you may have regarding the reason why we have 
launched these programs, and then also the evidence on how 
these programs impact small businesses. So that is why we are 
here today.
    Mr. COLLINS. Yeah. I guess, again, like I said, I am new to 
Congress. I am not new to life. It just is astounding to me 
that with that much clear direction, bipartisan united 
opposition to this agency's continuation of new program after 
new program when we have limited funding, and clearly we are 
not satisfied with the metrics or the follow-up that goes with 
it, but your agency seems to just not care about Congress, 
which represents the people and the dollars and the funding. 
And I really do not get it. I mean, usually people do recognize 
the direction of Congress, so I guess what I would just hope is 
that you report back to your supervisors, plain and simple, we 
do not want new programs. If we wanted new programs, we would 
tell you we wanted new programs. We want you to do a better job 
on current programs, taking the dollars we have. Again, as the 
ranking member said, the SBDCs do work. We do not need people 
going on a wild goose chase. And if you have got so many people 
there you have got nothing to do but dream up new programs, 
maybe you need less people. That would be my conclusion. Let us 
work on what we have got and all these folks creating new 
programs, I would say it is obvious to me we do not need you. I 
would remove you from your positions and then I would save the 
taxpayers money. That is what I would do.
    So thank you, Mr. Chairman.
    Chairman GRAVES. Ranking Member Velazquez.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Definitely, personally, I am embracing the issue that it is 
Congress's authority. We are the ones that create new programs, 
but you decided to go ahead and create new pilot programs. And 
it is our responsibility to make sure that you have proper 
mechanisms in place so that we could measure whether or not 
those programs are producing the results that are expected.
    I would like to talk to you about the entrepreneurship 
pilot program. It has been expanded to 27 communities by 2012, 
and your numbers are telling us that only 450 business were 
assisted annually. And this, when you look at this number, 450 
and compare it to over one million clients assisted, 15,000 
businesses created at SBDCs, Women Business Centers and SCORE 
chapters alone, then we question how do we take money, why do 
we cut money from the Women's Business Development Center, the 
Small Business Development Centers that have a track record 
that are assisting over a million client a year and creating 
15,000 businesses to put their money into a program that only 
has been able to create 450 businesses annually.
    Ms. Montgomery, in order to participate in the SBA's 
Emerging Leaders Program for 2014, a business must have at 
least $400,000 in revenue; right? And been in operation for at 
least three years. Given this, I guess it is not a surprise 
that the SBA found that the companies that participate in this 
program become successful because, indeed, they are successful. 
They have $400,000 in revenues and have been in operation for 
three years.
    So my question is, with all the emphasis on start-ups, why 
not focus on those small businesses that are truly struggling 
and could benefit from the intensive training of this 
initiative?
    Ms. MONTGOMERY. So I want to thank you for the feedback 
that you gave with respect and the confidence that you have in 
our Small Business Development Centers. I was a SBDC director 
for seven years, and so I know about the hard work that SBDCs 
do and what their capabilities are. One of the unique things 
about the Emerging Leaders Program as I shared with you earlier 
is that it provides 100 hours of in-person and out-of-person 
classroom work. And I know just from my personal experience 
with leading a Small Business Development Center and serving a 
number of small businesses, it is quite a challenge for SBDCs 
to invest that much time into a program when average SBDC 
clients might receive about five hours or more of service, and 
so this particular program----
    Ms. VELAZQUEZ. My question is why are you providing 100 
hours in training to a company that has $400,000 in revenues 
and has been existence for three years, proving that it is 
already successful? Why not then focus on those businesses that 
are struggling?
    My next question is to Mr. Saade. According to industry 
statistics, there are more than 100 accelerators operating in 
the U.S., with more than $5 billion in funding commitments. 
Right?
    Mr. SAADE. Go ahead. I am listening.
    Ms. VELAZQUEZ. Even though accelerators are growing rapidly 
without government funding, so I just would like for you to 
explain to me, if the industry has $5 billion in funding 
commitments, why does SBA create this program and put $7.5 
million in the accelerator program rather than doubling the 
funding for microloans? Because $5 billion clearly, there is no 
such need to create a program diverting money that should go to 
the microloan program or SBDCs. What gap, $7.5 million, is 
filling that the private sector is not?
    Mr. SAADE. The number is actually 2.5, not 7.5 million. And 
you are correct that there is a burgeoning and thriving 
accelerator network in the United States. No question. The same 
can be said about a thriving and burgeoning research and 
development community. And the same can be said about the 
banking industry. And the same can be said about alternative 
asset management. But there are definitely gaps. And when we 
look at what is happening with the accelerator, the 
entrepreneurial ecosystems around the country, they are 
typically concentrated in states. If you were to look at where 
the venture capital and some of these accelerators happen, they 
are very concentrated in some states. So we do see some gaps 
that some of these accelerators in other places, so that 
everybody can have access to the potential of creating another 
Air B&B or another company that comes out of these 
accelerators. So the point of the program is to actually expand 
that ability to accelerators across the land.
    Ms. VELAZQUEZ. So the SBA cannot use its influence to get 
those accelerators to expand geographically, and so I do not 
know, and I do not understand what $2.5 million impact is going 
to have in a $5 billion industry. I do not.
    My next question is to Mr. Jeppson. The Boots to Business 
pilot relies heavily on Internet-based video instruction; 
correct?
    Mr. JEPPSON. No, ma'am. We conduct a two-day course on each 
of the installations, and we actually use the Resource Partner 
Network to deliver that two days in-person. So we have SCORE, 
SBDCs, WBCs, those that are located close to the base, to 
actually do that two-day training.
    We do have an eight-week online component that does do 
business plan development. That reaches a portion of the 
students who opt into that program.
    Ms. VELAZQUEZ. So how do you measure the efficiency and 
efficacy of the program in terms of the online training?
    Mr. JEPPSON. Right. So we look at that, just like we would 
any other program. And so what we have focused on right now----
    Ms. VELAZQUEZ. Can you give me metrics?
    Mr. JEPPSON. I can give you metrics right now on what the 
throughputs are. As you know, most service members, the 
program--I should back up. The VOW Act in 2011, which made TAP 
mandatory for all service members, became effective last 
October. So we are within the first year of operation where all 
service members are required to go through.
    So ideally, the service member goes through TAP now a year 
prior to leaving the service, so it will be this October before 
we see the first group of service members leaving the service. 
I am sure there are some who already have, but that is where we 
will actually see when the new business starts.
    I can give you the numbers of how many went to the two-day 
course, the numbers who have gone to the eight-week online 
course, those who completed the eight-week online course. As I 
mentioned, we did that without any funding, so capacity was an 
issue. We were only able to get a fraction and the waiting 
lists were long for the eight-week online course. But our 
intent is to be able to tell you how many new starts we have 
got at the one year mark, at the three-year mark, and what the 
mortality rate of the business is at five years.
    If you look at our other veterans' programs, I can tell you 
that for EVB, for example, or VWISE. And I will tell you that 
in our programs, which have an online component, our start rate 
is over 50 percent at first year and at year three we are over 
70 percent of participants who complete the course starting new 
businesses. So our track record with veteran entrepreneurship 
is very high, but we are still within that window where we 
cannot give you a new start number.
    Ms. VELAZQUEZ. And will you submit to this Committee the 
metrics and the data collection?
    Mr. JEPPSON. Absolutely.
    Ms. VELAZQUEZ. Okay.
    Mr. JEPPSON. Absolutely.
    Ms. VELAZQUEZ. Mr. Saade, and this is my last question, the 
Growth Accelerators Pilot Program was originally envisioned to 
operate with $25 million in appropriations and require a four-
to-one private investment matching. Is that correct?
    Mr. SAADE. That was the original intent. That is correct.
    Ms. VELAZQUEZ. So would you explain to me why was the 
matching requirement eliminated in the Fiscal Year 2015 budget 
request?
    Mr. SAADE. The program, as well know, it is a brand new 
program.
    Ms. VELAZQUEZ. Yeah, I know that.
    Mr. SAADE. And we just received funding for it eight weeks 
ago. And we just recently received authority from OMB to 
implement it. We are in the process of running a competition to 
supply that money, so that was the most efficient way.
    Ms. VELAZQUEZ. My question is why was the matching 
requirement eliminated in the Fiscal Year 2015 budget?
    Mr. SAADE. I have to get back to you.
    Ms. VELAZQUEZ. Well, it is important. Let me explain to 
you. Because we are facing budgetary constraints, and we do 
know about the effectiveness of the Small Business Development 
Centers, of the Women's Business Development Center, of the New 
Markets, SBICs. And for the Women's Development Center, there 
is a matching requirement and they have to fulfill that. So why 
is it that the administration eliminated this requirement when 
money is an issue? So we are going to have the public part of 
it, so the government is putting the money, but then the 
private sector is not required to put their part of the money. 
That is not right.
    Mr. SAADE. So the way in which accelerators work is you are 
not making bets or specific types of investments in companies. 
Just like the SBICs work, where you are providing money to 
platforms. So the idea behind the program, and it is actually 
pretty scalable, is that if you provide some operational funds 
to some of these accelerators in areas where there are gaps, 
not that much money is probably enough to get some of those 
companies within the accelerators to get there. So if we would 
have had more capacity to do it, we would have gone in a bigger 
way, but with what we have we are able to do it.
    Ms. VELAZQUEZ. I guess the simple answer here is that it is 
an unauthorized program. And basically, taxpayers are the ones 
paying for it after we created this illusion that it is a 
public-private partnership.
    Thank you, Mr. Chairman.
    Chairman GRAVES. Mr. Luetkemeyer.
    Mr. LUETKEMEYER. When I looked at the information for the 
hearing today and I saw what was going on I was like, you have 
got to be kidding me.
    I am kind of curious. When you started creating all these 
programs, did any of you contact the ranking member of the 
chairman to see if it was okay to go ahead with this? Or did 
you just continue on down this road without any sort of 
Congressional correction whatsoever?
    Ms. Montgomery, yes or no?
    Ms. MONTGOMERY. Well, I was not in this role when these 
programs were created. As I mentioned, the Emerging Leaders 
Program has been around since 2007, and the Regional Innovation 
Clusters has been around since 2010. And so I am not able to 
answer your question.
    Mr. LUETKEMEYER. Okay. Mr. Saade.
    Mr. SAADE. The agency takes direction on what programs to 
fund from the Joint Statement of Managers from the 
Appropriations----
    Mr. LUETKEMEYER. You did not call the chairman or the 
ranking member to see if it was okay to expand your role. Yes? 
No?
    Mr. SAADE. Me, personally? No.
    Mr. LUETKEMEYER. Okay.
    Mr. JEPPSON. Sir, if I could, we believe that we have 
statutory authority to execute----
    Mr. LUETKEMEYER. Well, obviously today there is a lot of 
discussion about that. We do not think you do.
    Mr. JEPPSON. Sir, in the 2008 Small Business Act, it 
directs us to participate in the Transition Assistance Program. 
That is what Boots to Business is. It is simply the 
entrepreneurship track of the Small Business Act that 
authorizes----
    Mr. LUETKEMEYER. It looks like----
    Mr. JEPPSON. Sir, it is also authorized again in the BOW 
Act and in Public Law 110 which was the originating act for 
TAP. So I had what I believe was authorization and finally 
received funding this year to execute what we were authorized 
to do for some time.
    Mr. LUETKEMEYER. Where did you get all the funds? You took 
funds away from other programs to do this, did you not? All 
three of you, you took funds away from other existing programs 
to do these new programs. Is that correct?
    Ms. MONTGOMERY. No, we did not. We received line item 
funding for Fiscal Year 2014 for the programs that we are 
discussing today.
    Mr. LUETKEMEYER. Mr. Saade.
    Mr. SAADE. It is the same answer. Line item funding.
    Mr. JEPPSON. Sir, the same here. The $7 million that we 
have for Boots to Business is a new appropriation and a line 
item funding in the ED account.
    Mr. LUETKEMEYER. Well, this is kind of interesting. There 
does not seem to be that feeling on this side of the table. I 
am very concerned about the direction of the agency from the 
standpoint that it does not seem to be a coordinated effort 
between the agency and Congress. As a member of Congress, our 
job is to represent the people, their concerns, their money, 
and make sure that it is maximized by the way it is spent to 
help the economy. SBA is something that should be helped with 
our local economies, the small business folks. Those dollars, 
we as a congressional group are responsible for those. And to 
basically go off and do some of these initiatives, which I 
applaud your willingness to think outside the box and do some 
new things here perhaps, but some of these look like 
duplicative programs to me. We are taking money from other 
programs, depending on what agency you were looking at, and it 
does not appear to us to be the direction you need to go.
    Mr. Chairman, I would recommend that you request a report 
from these different agencies and probably SBA as a whole and 
have it submitted to you within the next 60 days for these folk 
to evaluate what programs they feel are necessary, they would 
support, and ask for approval from this Committee to enlarge 
their role to those new programs, and also ask in that report 
which programs are going to wind down and how quickly they are 
going to get done, because I think it is important that we 
control the SBA. That is our directive. This Committee's 
directive is to control this agency and be responsible for its 
actions, and at this point it does not seem like we are doing 
that.
    So I appreciate you bringing this Committee hearing to us 
today, and I certainly applaud your efforts to try to again get 
our Committee in charge of the actions of the SBA.
    With that I yield back.
    Chairman GRAVES. Thank you, Mr. Luetkemeyer.
    I might point out that on February 21st, Ranking Member 
Velazquez and I, we did request details on the SBA's use of 
funds for these various initiatives, but the response we 
received back, it appeared completely incomplete.
    Mr. LUETKEMEYER. Mr. Chairman, with all due respect, I 
think we need to follow up on that.
    Chairman GRAVES. We are.
    Mr. LUETKEMEYER. And if we do not get a response, I think 
the director needs to be in front of us within 30 days here to 
solve this problem.
    Thank you, Mr. Chairman.
    Chairman GRAVES. Mr. Schrader.
    Mr. SCHRADER. I will yield my time to Ms. Chu. She has got 
to leave here directly and go after the next.
    Chairman GRAVES. Ms. Chu? Go ahead.
    Ms. CHU. I am not necessarily against any new program; 
however, I do want to make sure that a program is not redundant 
and that it is authorized and that it is not taking away from 
other important programs.
    And so I wanted to ask Mr. Jeppson about the Boots to 
Business Program. I wanted to know, you have the Transition 
Assistance Program, you have the Veterans Business Opportunity 
Centers, so why did you feel the need to create this program 
and also make it seem as though it is a different program?
    Mr. JEPPSON. Yes, ma'am. It is actually apples and oranges, 
if you will.
    The VBOCs were authorized in 2008 under the Small Business 
Act. Well, those are similar to SBDCs or WBCs, and there are 15 
of them scattered throughout the nation. With Boots to 
Business, it is the track that we teach as part of the 
Transition Assistance Program for transitioning veterans, those 
leaving active service and returning to civilian life. The 
VBOCs in one or two instances are co-located next to military 
installations, and they do teach the Boots to Business class. 
But many of them are located in areas that are not close to 
installations, but they focus on the veteran entrepreneur who 
is out there already starting a small business or in the start-
up phase in their hometown when they return. As you know, most 
veterans will exit the service and return to their hometown and 
it is nowhere near an installation. So the limited number of 
VBOCs we have and the rest of the SBA Resource Partner Network 
is there to support those veterans. But the Boots to Business 
money is directed specifically at the transitioning vets and 
handles--when TAP became mandatory, we started to get an influx 
of veterans that come through the TAP pipeline. So where we had 
a few thousand going before when it was optional, now we have 
250,000 every year who come through the pipeline. So we needed 
to have a program to handle the number of veterans that would 
take the entrepreneurship track, and that is what Boots to 
Business is focused on.
    I can tell you that as a veteran who has transitioned and 
ran a small business and made a few mistakes when I was running 
that small business, I wish I would have known about a SBDC or 
a VBOC just down the road from my house. It could have saved me 
a lot of headaches.
    In the same vein, one of the most important things that we 
do in the Boots to Business class is, because we do ask the 
resource partners to teach those classes on base, and now with 
this funding we will actually pay them to do that and cover 
their travel costs, the introduction to that network is 
extremely important, because when they do transition, they are 
not going to leave from that installation and start a business 
in that community. They are going to go back home and start 
their business, whether it is rural American or inner city 
America or the suburbs. And so that knowledge and that 
interaction with the Resource Partner Network is one of the big 
benefits we see in the Boots to Business Program, which is 
simply the name we gave to the Transition Assistance Program, 
our component of the Transition Assistance Program that we have 
been told by Congress to execute.
    Ms. CHU. So I understand, because you said it a few times, 
about the authorization for the Transition Assistance Program, 
but did you really need to develop this Boots to Business 
Program? Because I do not think there was an authorization 
specifically for a Boots to Business Program; right?
    Mr. JEPPSON. No, ma'am. What it does say is it tells us to 
develop written materials and materials for the TAP program. 
Boots to Business was just a branding that we gave to those 
materials that we created for the Boots to Business, and then 
with the service, as you can imagine, the service is like a 
uniformed product for all of the service members and it is 
modular and it fits within the TAP Program. That is what we 
have distributed to the resource partners to use. So that if 
you are exiting from Stuttgart, Germany, or if you are exiting 
from Davis-Monthan or Pearl Harbor, you are going to get the 
same curriculum taught by a resource partner and that it is 
uniform across there. It makes it easier for our service 
members to deliver and for the Department of Defense to fit it 
in their modular curricular system.
    Ms. CHU. So basically, you are saying that this really is 
the Transition Assistance Program, a subcomponent of it?
    Mr. JEPPSON. Absolutely. It most certainly is.
    If I could, just briefly, it is one component. There is a 
component for Vo-Tech and there is one for Higher Education. 
And there is mandatory for all people, all transitioning 
service members, an employment workshop that is run by the 
Department of Labor. We think that it is beneficial to those 
who are not interested only in starting a business right off 
the bat but because it is modular, many of the people who go 
through the Vo-Tech training will come back and take that 
because we believe that a lot of the people who go and further 
their vocational education will be small business owners in 
their community and can benefit from the Boots to Business or 
the entrepreneurship track of TAP.
    Ms. CHU. So I am assuming then that you are not taking 
money away from the Veterans Business Opportunity Centers, the 
Small Business Development Centers, and the SCORE chapters? 
That is what I am concerned about.
    Mr. JEPPSON. No, ma'am. We are not taking any money away. 
As a matter of fact, what we had last year is we put 6,000 
service members through Boots to Business, and I was not able 
to reimburse any of the resource partners for the materials or 
their time or their travel. We are putting grants in place 
currently to be able to give them a stipend and the travel 
money for each of the Boots to Business classes that they 
teach. So it will actually go directly to the resource partner 
who delivers the course online. That is what a portion of that 
$7 million is for. In fact, it is almost half of the $7 
million, a little over $3 million total.
    And more specifically, to the VBOCs, the VBOCs were not cut 
any. The Veteran Business Owners were not cut any. They have 
been flat-lined at about $2.5 million since 2008.
    Ms. CHU. Thank you. I yield back.
    Chairman GRAVES. Mr. Schrader?
    Mr. SCHRADER. Thank you, Mr. Chairman.
    I understand you are all the sacrificial lambs, so please 
do not take anything I say personally. You are doing what you 
are trying to do and help people get jobs, and I appreciate 
that.
    Having said that, I guess I am curious. Each one of you 
real quick, what are the top two, maybe three programs in the 
SBA for small businesses? What do you think your top two or 
three programs are?
    Start with you, Ms. Montgomery, if you do not mind.
    Ms. MONTGOMERY. Well, I believe the top thing that we do is 
provide counseling and training to small businesses.
    Mr. SCHRADER. I meant which program?
    Ms. MONTGOMERY. So the programs that come out of my office, 
the Office of Entrepreneurial Development.
    Mr. SCHRADER. And you, Mr. Saade?
    Mr. SAADE. We each manage, as you pointed out earlier, we 
each manage a particular part of the agency.
    Mr. SCHRADER. Well, I am not talking about just yours. I am 
talking about the entire organization.
    Mr. SAADE. The entire agency? I am not in a position to--we 
have a new administrator, as you know, and she is tasked with 
figuring out all the programs. What I can echo, what Tameka 
said, is that the mission of the agency is to aid counsel and 
help small businesses. And we do that through all these 
programs.
    Mr. SCHRADER. Mr. Jeppson, what do you think?
    Mr. JEPPSON. Sir, if we broadly bend it, there are two 
things that we do that are hugely important. Number one is we 
provide access to capital. And two is we provide 
entrepreneurial development. But the two go hand-in-hand. With 
the entrepreneurial development, we help prepare small 
businesses, and each in our own way, but then that access to 
capital is vital. It is vital to our small businesses.
    Mr. SCHRADER. I appreciate that. That is probably the best 
answer I have heard so far, if I may say so.
    You know, really, it is clear from my tenure on this 
Committee, and I think the ranking member and the chairman 
would agree that the SBDCs are right up there, the 504 program, 
and the 7(a) program. Outside of that, I mean, there are a lot 
of other good programs, maybe some of yours, but those are the 
top ones.
    I guess my question would be is that adequately funded? Is 
anyone here prepared to answer that question? Or is that again 
out of your sphere of influence and expertise?
    Let us start with you, Mr. Jeppson, this time.
    Mr. JEPPSON. Sir, I would hate to comment for the SBDCs. I 
can tell you that our VBOCs operate on a shoestring. Our 
average grant is about $150,000 a year, and that is not a lot 
when you consider the amount of service that they give to our 
veterans. As I mentioned, we only have 15 VBOCs.
    Mr. SCHRADER. That is okay. I appreciate the work you are 
doing for our veterans, absolutely. With the limited funding, 
as the ranking member pointed out, it is tough to justify a lot 
of these other new programs, and I am looking forward next year 
to seeing absolutely great metrics, how well these new programs 
are doing compared to the older programs that are now 
underfunded as a result.
    Did any of you know if the Small Business Development 
Centers got an increase in funding this year? Ms. Montgomery?
    Ms. MONTGOMERY. Yes. Over the previous year they did. And 
so for Fiscal Year 2014, SBDCs are at $113,625,000.
    Mr. SCHRADER. Is that adequate for their mission?
    Ms. MONTGOMERY. Yes, it is.
    Mr. SCHRADER. Okay. Well, my own SBDC officer does not 
agree with you, and I bet if I was to talk to every single SBDC 
officer around the country and various things, I do not think 
they would agree with you. That would tell me, with all due 
respect, you are a little out of touch with the folks you all 
are supposed to be hopefully representing and advocating for at 
the end of the day. I think it is a little disconcerting that 
the agency--thank you for your comment--that the agency feels 
like they can legislate all these new initiatives.
    I guess my last question perhaps would be--second to last 
question would be is it the responsibility of the executive 
branch to be legislating programs?
    I will start with Mr. Saade, just to make sure I am mixing 
it up.
    Mr. SAADE. No. That is not the intent of the division of 
government. The executive branch is to execute and manage.
    Mr. SCHRADER. That is my recollection, too.
    Mr. Jeppson?
    Mr. JEPPSON. Absolutely, sir. And as I mentioned earlier, 
we feel that we are, and at least in my instance, executing the 
statutes that are on the book.
    Mr. SCHRADER. I appreciate that.
    Ms. Montgomery?
    Ms. MONTGOMERY. We believe we are operating under the 
authority that we are given.
    Mr. SCHRADER. But you do not think you should be 
legislating, is that correct?
    Ms. MONTGOMERY. Correct.
    Mr. SCHRADER. Okay. So we agree on one thing anyway so far 
on the panel today. That is a good start. And I appreciate the 
fact you all think you are operating statutorily along the 
lines of what is allowed. But as some of my colleagues have 
said on both sides of the aisle, we are obviously in some 
disagreement. What is prohibiting you all from coming to this 
Committee after you dream up--that sounds inappropriate--come 
up with an excellent new program and getting our consent or 
buy-in? I mean, most good businesses, every small business I 
have been involved in, usually you come up with an idea. You 
have to get the team involved and have them support it, 
otherwise it goes down. So what is preventing you from coming 
to us about the Boots Program or the Entrepreneurial Growth 
Program or whatever? Why have you not come before us and said, 
``Hey, we would like to pursue this. We think it is under our 
statutory authority. Do you agree?'' since we sort of make the 
statutes.
    Mr. Jeppson?
    Mr. JEPPSON. Sir, happily. You know, I will be honest with 
you, Boots to Business, we felt like we were implementing the 
statute that Congress had passed. You know, we believe that we 
have legislative authority. It is very----
    Mr. SCHRADER. I understand all that. You have all been very 
clear. But why not come and make sure that we agree with what 
your interpretation is?
    Mr. JEPPSON. Sir, I think we have. I must be missing the 
disconnect on where, if we have statutory authority and 
appropriation, that we have----
    Mr. SCHRADER. Statutory authority is your--I will be done 
here real quick, Mr. Chairman. I apologize.
    Statutory is your interpretation. The Supreme Court 
interprets a lot of things we never intend, and with all due 
respect, so do the agencies. I know it is with good intentions. 
The real world is we are the people that should be deciding 
what happens or not. Whether or not it is a good idea or not. 
We are the people that are elected. You are unelected people. 
You are unelected officials, and I appreciate you are willing 
to serve. Public service is tough these days, whether you are 
on this side of the dais or your side of the dais, but it is 
our job--our job, not yours--to come up with the programs that 
should be going forward. And if they are not what we are 
wanting, and you have heard uniformly no one is supporting any 
of the programs that you have come up with, it seems to me the 
logical thing would be to go back to the legislators, to people 
who you agree should be legislating and say is this a correct 
interpretation of where we should be going?
    With that, I yield back, and I appreciate you coming all 
before us.
    Chairman GRAVES. Mr. Schneider?
    Mr. SCHNEIDER. Thank you, Mr. Chairman. I believe I am the 
last, so we are almost at the end.
    I appreciate you coming here. I appreciate the candor 
within the exchange.
    Look, having spent my career with small business, I 
understand the need for constant innovation and coming up with 
new ideas. I think what we are hearing today is the innovation 
within the SBA, within the agency, needs to fall underneath the 
guidance of this body of the people here. There needs to be 
measurement, and we touched on some of those, and there needs 
to be accountability. And my frustration is where we get 
outside of those bounds. But it is important that we do make 
sure that the guidance comes here. The need to help small 
businesses grow and prosper, accelerators to help small 
businesses go from idea to start-up to step-out to success, 
help veterans that are coming back and going truly from Boots 
to Business but integrating back into civilian society, they 
need to know the lessons they have learned and the skills they 
have developed, how to apply them.
    And again, speaking just for myself, there is no greater 
application than being your own boss, but there is no better 
way to be your own boss than learning the lessons from other 
people. So these, while good ideas, have to fall within the 
guidance of the programs we are laying out or the objectives we 
have set.
    Having said that, Ms. Montgomery, let me turn to you and 
talk about the sense of clusters, because there is a lot of 
discussion around the country on clusters and the ability to 
get people. In my district, we have a large pharmaceutical 
cluster, and there is a lot of small, medium, and large 
companies, but a lot of start-up opportunities. We have a lot 
of manufacturing. My district is the third highest 
concentration of manufacturing. There are small companies 
coming in there.
    What do you see or can you further explain how clusters 
play a role in the strategy of what you are trying to 
accomplish at the SBA?
    Ms. MONTGOMERY. Yes, thank you for the opportunity to 
respond.
    You know, one of the things I said in my opening testimony 
is that the programs that I spoke about and that I am here to 
talk about today really focus on how do we help growth-oriented 
businesses scale up and grow? Because we understand and the 
research shows that jobs are really created by established 
businesses growing and expanding. And so what our clusters do 
is give small businesses an opportunity to participate in the 
clusters. We know that oftentimes in the clusters you have this 
conglomeration of large businesses that are receiving business, 
but sometimes small businesses are not able to get in there and 
really access the opportunities and the revenue generation that 
is taking place. And so with SBA, our clusters is really about 
how do we increase participation of small businesses in those 
various clusters throughout the United States so that we can 
see increase in jobs, increase in revenue of those small 
businesses. And so that is the role that SBA is playing in this 
space.
    Mr. SCHNEIDER. Now, as far as clusters integrating with 
institutions like accelerators or incubators, I will throw it 
to both of you, how does that play, and how do we make sure 
that we are working hand-in-hand within the different 
departments of the agency and we are not creating the concern 
here you are hearing of redundancies and overlap and the 
alternative separation? How do we make sure that what we are 
doing is reinforcing each other rather than working against 
each other?
    Ms. MONTGOMERY. Well, as my colleague mentioned in his 
opening statement, when we look at clusters, in a cluster you 
may have an accelerator that is participating in that broader 
cluster, so they are most definitely working together.
    Mr. SCHNEIDER. Mr. Saade?
    Mr. SAADE. Yeah. No, I think the way to think, I mean, you 
can probably put the different models in a continuum of where 
they are. Is it an idea on a napkin? Is it poised for very fast 
growth quickly or is it more measured growth? And you can map 
where those different models of acceleration or creating 
clusters around Centers of Excellence. So there is no 
duplication. These are two models that enable us to deliver on 
our mission, which is not only to continue to help create jobs, 
but also the small business economy, just like our overall 
economy, is a very complex machine. And a lot of the focus that 
we have been discussing has talked about a lot of the SBDCs and 
the traditional loan programs, which are for more traditional 
businesses, but there is another set of constituents which are 
a very important part of our economy and either they are growth 
or high-growth, but both of those things need to be served 
differently. So we are working within the bounds of our 
authority as we understand them. It sounds like there is 
obviously some disagreement. Are we doing it? Are we not? But 
at the end of the day what we feel is that just--you mentioned 
you were in the private sector. I was in the private sector, 
too, and the people we serve, be them in Main Street or in the 
high-growth sector, they are entrepreneurs.
    Mr. SCHNEIDER. I think, and I will close with this, I think 
it is crucial, as you come up with these ideas, you work with 
programs, that you come to us. You talked about being within 
the mission. The mission comes from Congress. Comes from this 
Committee, and it is important that we understand that the work 
you are doing, the impact you are having, and I am going to 
close and touch on Boots to Business. The ability to help 
individuals and entrepreneurs is critical, but it has to fall 
within the guidelines of what we are laying out here. I think 
that is important.
    We have a program in my state, in my district, a Veterans 
Rapid Employment Initiative. It is a two-week, simple program, 
but it is introducing veterans to new ideas, new opportunities 
that they may not have seen before. Stuff working in partnering 
a public-private sector partnership where you can do that. 
Bring it to us, highlight it, celebrate it, and get us behind 
it, but make sure it is coming from our direction and not 
outside on the initiative.
    With that, I will yield back. Thank you again.
    Chairman GRAVES. With that, I want to thank you all for 
participating today.
    It is evident that both the Committee and SBA want to 
bolster the growth and development of entrepreneurs around this 
country. However, with limited federal funds, the Committee has 
to ensure that necessary programs remain intact, while 
advocating for the elimination of those that are just simply 
redundant or ineffective.
    And with that, I would ask unanimous consent that members 
have five legislative days to submit statements and supporting 
materials for the record.
    Without objection, that is so ordered.
    With that, the hearing is adjourned. Thank you.
    [Whereupon, at 2:30 p.m., the Committee was adjourned.]






                            A P P E N D I X



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    Veterans are a cornerstone of small business ownership. 
They have the skills to adapt to many challenges as well as the 
leadership and discipline required to own and operate a small 
business. By investing in our veterans' futures, we are 
investing in the future of America.

    As small business owners, veterans continue to serve our 
country and create jobs in our communities. According to the 
most recent U.S. Census data, nearly 1 in 10 small businesses 
are veteran-owned. These businesses generate about $1.2 
trillion in receipts and employ nerly 5.8 million Americans.\1\

    Reserch also demonstrates that veterans over index in 
entrepreneurship. In the private sector workforce, veterans are 
at least 45 percent more likely than those with no active-duty 
military experience to be self-employed.\2\

    Boots to Business is the entrepreneurial track of the newly 
revamped Department of Defense Transition Assistance Program 
(TAP) and provides transitioning service members with the 
training, tools and resources they need to make the transition 
from military service members to successful business leaders.

    The program not only teaches participants business 
fundamentals, but introduces them to the SBA network that 
consists of 15 Veterans Business Outreach Centers, more than 
100 Women's Business Centers, over 900 Small Business 
Development Centers and more than 11,000 SCORE Counselors. 
Often times, when a veteran returns home, they do not live near 
a military installation, but these SBA Resource Partners are 
dispered through the United States in local communities.

    Since the creation of the Transition Assistance Program in 
1990, the Small Business Administration has been providing 
information and programs to those seeking to start their own 
small business.\3\ The Office of Veterans Business Development, 
within the SBA, has been intimately involved in providing the 
programs and information to service members since we were 
directed to do so by Congress in 2008.\4\

    The overall goal of the TAP, which was developed at the 
interagency level by DOL, VA, DOE and SBA, is to strengthen the 
transition of all of our service members from military to 
civilian life and to prepare them for success. Each service 
member will receive ``core'' education in post-service 
veterans' benefits. In addition, the goal is for each veteran 
to choose from three ``optional'' tracks for further, targeted 
training: 1) Higher Education; 2) Technical Training; and 3) 
Entrepreneurship.

    Boots to Business is the entrepreneurship track of TAP. SBA 
was directed to provide training to veterans and oversee 
participation of its Resource Partners by delivering the 
entrepreneurship track to transitioning service members who 
opt-in to receive entrepreneurship training. In order to handle 
the increased flow of service members created by the VOW to 
Hire Heroes Act,\5\ SBA used its existing authority \6\ to meet 
its responsibility to train and educate veterans \7\ by 
overseeing the participation of its Resource Partners.

    The SBA's role in supporting veterans who are, or who want 
to become, business owners has never been more important. Many 
have either returned from overseas or are coming to an end of 
military career and have both the skills and the motivation to 
continue serving their country by building a business and 
creating jobs for themselves, their neighbors and other 
veterans.

    In the first phase of the TAP program, transitioning 
service members gain exposure to smal business ownership by 
viewing an introductory video highlighting the character 
traits, skillsets and lifestyles of successful entrepreneurs.

    If a service member chooses to take advantage of the Boots 
to Business program, they attend the two-day course, on their 
military installation. SBA Resource Partners collaboratively 
deliver face-to-face introductory entrepreneurship training as 
a network. The instructors introduce transitioning service 
members to the essentials of entrepreneurship including a 
feasibility analysis, discussion of business financials and a 
review of available SBA resources and programs.

    The final phase of the course is an 8-week, interactive 
course taught online by Syracuse University professors. The 
course walks participants through the fundamentals of 
developing a business plan, as well as other techniques and 
tips for starting a business. The program not only teaches 
participants core business fundamentals, it provides a lifetime 
of business support available locally across the U.S. by 
introducing them to SBA's network of VBOCs, Women's Business 
Centers, Small Business Development Centers and SCORE 
Counselors.

    With the funding provided for Fiscal Year 2014, the SBA 
plans to expand Boots to Business to more military 
installations within the United States and launch the program 
internationally. We project that we will train an additional 
12,000-15,000 participants through Boots to Business in FY 
2014, setting these separating service members on the path to 
realizing the American Dream of self-employment and small 
business ownership.

    Participation in the Boots to Business program is as 
culturally dynamic as the services themselves. In 2013, 21 
percent of Boots to Business participants were African 
American, ten percent were Hispanic, five percent were Asian/
Pacific Islander and two percent were American Indians/Alaskan 
natives. Women, especially, are over indexing in Boots to 
Business. Though women make up 14% of the services, they make 
up 25% of Boots to Business participants. Spouses of 
transitioning service members are also taking advantage of the 
course as a way to provide stability for their families.

    By training transitioning service members in the Boots to 
Business program, we are introducing them to the SBA network 
and the resources we provide. Introducing vets to SBA's network 
provides them with a network of counselors who will be able to 
assist them not only when they start their business, but 
continue to assist for the rest of their lives as they run and 
grow their businesses.

    Investing in our veteran is investing in America's future. 
We know that our nation's veterans helped reshape the American 
economy following World War II. They helped to build one of the 
longest periods of economic growth in our country's history. 
And, we know they can do it again.

    The SBA is committed to ensuring that these amazing men and 
women have the training, access and opportunity they need to 
fully recognize their potential as entrepreneurs and small 
business owners. There is no one who deserves to live the 
Amerian Dream more than those who wore the uniform and fought 
to defend it. Thank you for your time today and for allowing me 
to appear before this committee.

    ----------------------------------------
    \1\ ``Survey of Business Owners - Veteran-Owned Firms, 2007,'' U.S. 
Census Bureau, Department of Commerce, May 2011.

    \2\ ``Factors Affecting Entrepreneurship among Veterans,'' Office 
of Advocacy, U.S. Small Business Administration, March 2011.

    \3\ 10 U.S.C. Sec. 1142 (b)(13), Pub. L. 101-510.

    \4\ 15 U.S.C. Sec. 657b (d)(1), Pub. L. 110-186.

    \5\ 10 U.S.C. Sec. 1144 (c), Pub. L. 112-56.

    \6\ 15 U.S.C. Sec. 637 (b)(1)(A), Pub. L. 106-554 and Pub. L. 108-
447, 15 U.S.C. Sec. 637 (b)(17), Pub. L. 105-135 and Pub. L. 108-447, 
and 15 U.S.C. Sec. 648 (n)(1), Pub. L. 110-186.

    \7\ 15 U.S.C. Sec. 657b (d)(1), Pub. L. 110-186.


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    Chairman Graves, Ranking Member Velazquez, members of the 
committee--thank you for giving me the opportunity to speak on 
some exciting programs today.

    I am proud to report the important work my office is doing 
to support high growth small businesses across the United 
State; I want to start by giving a quick overview of the 
programs in our office. I will then discuss our regional 
innovation clusters program and our growth accelerator fund--
two programs which are part of what we call the 
entrepreneurship ecosystem and are designed to further support 
start-ups and job growth across the country.

    SBA's Office of Investment and Innovation (OII) leads 
programs that provide the high-growth small business community 
with access to two things: financial capital and R&D funds 
aimed at commercializing technologically driven innovations. We 
do this primarily via three programs which you are familiar 
with--the Small Business Investment Company (SBIC) program, the 
Small Business Innovation Research (SBIR) program and the Small 
Business Technology Transfer program (STTR).

    Since 1958, the SBIC program has served as a model of 
successful public-private partnership in which the SBA 
guarantees leverage to privately owned and professionally 
managed private equity funds that in turn provide long term 
loans and equity funding to small businesses. Last fiscal year, 
SBICs provided almost $3.5 billion in financings to 1,068 small 
businesses across the country, the highest amount of financings 
in over ten years. For every dollar of SBA-guaranteed leverage 
issued to SBICs in 2013, SBICs provided two dollars in 
financings to small businesses. Today, the program oversees 
about 280 active SBICs with over $20 billion in private and 
SBA-guaranteed capital under management. Given SBICs have 
already provided almost $2.4 billion in financings as of the FY 
2014 midpoint, we expect to exceed FY 2013 numbers.

    The SBIR and STTR programs are two set-aside programs 
designed to help small businesses compete in the world of 
federally funded R&D and help drive them towards 
commercialization of their inventions and ideas. These programs 
are paramount in keeping the U.S. at the forefront of science 
and technology in our global economy given the dearth of 
investment at the earliest stages of world-changing 
innovations.

    The SBIR program operates across 11 government agencies 
through which R&D grants are awarded to small businesses, so 
they can support the needs of the federal government. Thanks to 
the work of this committee, this program is authorized to be 
2.8% of the extramural research budget; and up to 3.2% by 2017 
for all agencies with over $100 million in extramural budgets.

    The STTR program operates across 5 government agencies and 
facilitates cooperative R&D between small businesses and 
research institutions in the United States. This makes up .35% 
of the extramural budget for the five agencies with extramural 
budgets over $1 billion.

    In addition to these programs, my department works on a 
series of other projects related to innovation. To keep the 
U.S. in a leadership role, SBA, and in particular the Office of 
Investment and Innovation are especially focused on that second 
``I'', the one for Innovation. Our office is committed to 
helping innovative Americans access capital and launch lasting 
businesses in new and cutting edge ways.

    In the first half of the 20th century large corporations 
were key drivers of our country's innovations. This is no 
longer the case as the entrepreneurial ecosystem has been 
significantly atomized in terms of innovation, capital, 
institutional support and human resources. This atomization has 
created an entrepreneurial ecosystem that is the most dynamic 
in the globe, but in which funding gaps still exist, especially 
geographics that are far from the coasts. In the past three 
years, almost 80% of U.S. early and seed stage venture 
financings were provided to companies in four coastal states: 
California, Massachusetts, New York and Washington.\1\ These 
figures demonstrate that startups and small businesses in other 
parts of the country have less support from conventional 
private capital and the big banks. But what they can do is pool 
together talent and resources, share best practices and create 
their own local ecosystems. At the SBA we are aiding in this 
process through Regional Innovation Clusters and the new Growth 
Accelerator Fund.
---------------------------------------------------------------------------
    \1\ Numbers based on Thomson One Data for all U.S. Venture Capital 
Deals between 1/1/2011 and 4/15/2014.

    Capital isn't available to small startups from large banks 
and institutions in the way it used to be pre-2007. Regional 
Innovation Clusters tap into resources, talent and capital to 
create deeply entrenched networks for industry or region 
specific groups of small companies. Through these clusters, 
companies have access to technology and opportunities which 
---------------------------------------------------------------------------
they otherwise wouldn't be able to tap into.

    Accelerators are typically a physical microcosm (think of a 
hub) of these larger clusters (think of threaded spokes). They 
provide physical space, mentoring, networking, and often 
capital to the smallest startups; usually on a rotating basis 
of 3 to 9 months cohorts; or until a startup can graduate and 
continue to grow on its own. Accelerators fill a resources gap 
in the entrepreneurial ecosystem in a new and exciting way; and 
they're growing--SBA estimates that there are now about 700 
accelerators in the United States.

    To that end, SBA is launching a $2.5 million contest for 
accelerators. The cash awarded to contest winners is to assist 
in funding their operations and thus allow more capacity to 
scale up. The overall goal of the competition is to award 
capital to the best in class models, with a special focus on 
geographic areas in which financing is in short supply, and 
models which are run by women or other underrepresented groups.

    SBA will use evaluation criteria similar to those we use to 
evaluate our SBIC applicants; management team; track record; 
business model/strategy; and policy impact (including 
identifying what gaps the applicant will fill). We will award 
entities that have the best models for financial success and 
impact. Winner will be selected by a combination of SBA 
personnel with experience in evaluating venture fund 
performance as well as people from the private equity industry.

    We will be announcing this contest through a variety of 
media conduits, as well as through events such as Demo Days and 
webinars, in partnership with groups such as the Global 
Accelerator Network. We will make the award decisions by the 
end of this fiscal year, and winners will be asked to report 
back results on a quarterly basis.

    SBA will forge long term partnerships with these 
accelerators. Through establishing these relationships, we will 
be introducing a sector which, historically, has been 
unfamiliar with SBA's suite of services and connecting them to 
our resource partners' programs and our more traditional loan 
programs.

    Thank you and I am happy to answer any questions you may 
have.


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    Chairman Graves, Ranking Member Velazquez, and 
distinguished members of the Committee. Thank you for inviting 
me to testify before you about our Regional Innovation Clusters 
and our Entrepreneurship Education Programs.

    Strong and thriving small businesses are key to a 
flourishing economy. While we know that small businesses create 
2 out of every 3 net new jobs, the bulk of these new jobs are 
being created through the sustained, incremental expansion of 
existing small businesses across a wide range of industries. 
According to outside sources 92% of new jobs come from the 
expansion of existing businesses; while start-ups accounted for 
around 7% of net new jobs in the past decade.

    SBA believes, that by providing additional technical 
assistance to more growth-oriented entrepreneurs, our 
government's limited resources will be maximized and 
strategically focused on the firms that have the highest 
potential to create a positive economic impact. SBA's Clusters 
and Entrepreneurship Education Program do exactly this. Each 
program has a proven track record of helping entrepreneurs 
better lead and grow their businesses.

    SBA created the Clusters program to strengthen small 
business participation in existing regional economic clusters. 
We do this by fostering a network of businesses, universities, 
and investors that work to grow a related set of industries.

    Leveraging these resources, each cluster acts as a 
networking hub, connecting small businesses to innovation 
assets while providing targeted matchmaking, training, and 
mentoring.

    Small businesses participating in our clusters are able to 
access new markets and commercialize products, thus 
accelerating their growth. These clusters are powerful at 
creating an environment where small businesses can successfully 
participate. According to the data:

           Revenue of small business participants 
        increased by 23%;

           Employment grew on average by more than 18%;

           And, the initiative helped small businesses 
        access more than $66 million in private funding sources 
        as well as $14 million from federal SBIR and STTR 
        awards.

    The San Diego Advanced Defense Technology Cluster provides 
expert assistance with product development, as well as 
networking opportunities to help small businesses secure 
customers and investors in cyber-security, autonomous systems, 
and other defense-related sectors. Resource partners like the 
North San Diego Small Business Development Center provide the 
businesses with information and management assistance on the 
key building blocks of business success.

    Like the Clusters program, SBA's Entrepreneurship Education 
Program helps equip entrepreneurs to better lead and grow their 
businesses. Growth-oriented businesses face an entirely 
different set of challenges than start-ups, and the 
Entrepreneurship Education Program provides them with some of 
the tools they need to sustain their growth trajectory. Through 
this program we have seen much success with our Emerging 
Leaders Initiative. This initiative, now in its seventh year, 
was launched to assist small businesses in underserved 
communities that are poised for growth. By providing nearly 100 
hours of in-person and out of classroom coursework over a 7-
month period, business owners learn how to refine their core 
strategy, gain a stronger foothold in the market, and secure 
more customers.

    A third party evaluator found that 62% of the 2012 program 
graduates saw an average revenue increase of 45%; with the 
median revenue increasing from $894,000 before participation to 
$1.1 million following the first year of completion. 
Additionally, 40% of participants in 2012 reported securing 
government contracts with an average value of approximately 
$2.1 million.

    Leveraging SBA's local presence and convening power, our 
District Offices administer this initiative while also engaging 
local resource partners in a variety of ways.

    Overall, the objective is for us to continue meeting the 
needs of small business owners in the dynamic and changing 
environment that exists for entrepreneurs. Our approach is 
evolving and to meet those needs our Entrepreneurship Education 
Program agenda will include more than the Emerging Leaders 
Initiative. In the coming weeks and months we will be looking 
at finalizing an initiative that builds off the existing 
platforms through programs run within the agency.

    In closing, both the Regional Innovation Clusters and the 
Entrepreneurship Education Program help to improve the 
competiveness of high-potential, growth-oriented small 
businesses. We know these programs provide relevant assistance 
and education that address the unique challenges of growing 
small businesses.

    Thank you for the opportunity to testify before you today. 
I look forward to answering any questions you may have. Thank 
you.




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