[Senate Hearing 113-]
[From the U.S. Government Publishing Office]



 
  FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL 
                               YEAR 2015

                              ----------                              


                        WEDNESDAY, MAY 21, 2014

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 1:45 p.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Tom Udall (chairman) presiding.
    Present: Senators Udall and Johanns.

                     SMALL BUSINESS ADMINISTRATION

                      Office of the Administrator

STATEMENT OF HON. MARIA CONTRERAS-SWEET, ADMINISTRATOR

                 OPENING STATEMENT OF SENATOR TOM UDALL

    Senator Udall. The subcommittee will now come to order. 
Good afternoon.
    I am pleased to convene this hearing of the Appropriations 
Subcommittee on Financial Services and General Government on 
the fiscal year 2015 budget request for the Small Business 
Administration and the Community Development Financial 
Institutions Fund.
    First, I want to welcome Ranking Member Senator Mike 
Johanns. Others may be joining us today. We are not sure on 
that. But they may participate with us as we progress.
    With us today are two distinguished witnesses, the new 
Administrator of the Small Business Administration, Maria 
Contreras-Sweet, and the Acting Assistant Secretary of 
Financial Institutions of the Treasury Department, Amias 
Gerety.
    Thank you for your service, and I look forward to hearing 
your testimony.
    Last week was National Small Business Week, recognizing 
small-business owners and entrepreneurs. Small businesses, as 
we all know, are the backbone of our American economy, creating 
two out of every three jobs in the United States. In my home 
State of New Mexico, small businesses make up 96 percent of all 
employers.
    I welcome the opportunity today to conduct oversight of 
these two Federal entities. They play an important role in 
supporting small businesses, creating jobs, revitalizing 
distressed communities, and strengthening our economy.
    The Small Business Administration does four important 
things. It offers training and mentorship services with partner 
organizations across the country. It helps small businesses 
compete for $80 billion in Federal contracts. It provides $36 
billion in guaranteed loans to help small businesses start up 
and grow, and another $1 billion in direct loans to help small 
businesses rebuild after natural disasters.
    The Community Development Financial Institutions (CDFI) 
Fund at the Treasury Department also provides valuable support 
to financial institutions that serve distressed communities and 
to help develop these underserved areas. It supports over 800 
CDFI institutions across the country with financial assistance, 
tax credits, and a new bond program. The CDFI Fund was awarded 
$1.7 billion in financial assistance for community development 
organizations and $33 billion in tax credits.
    The Small Business Administration (SBA) and CDFI Fund are 
crucial for new entrepreneurs needing help with creating a 
business plan. For well-established businesses, it is crucial 
because they are still struggling to recover from the economic 
crisis and need help with credit.
    These programs help entrepreneurs open grocery stores in 
neighborhoods without healthy food options. They help new 
homeowners afford their first homes. And together, the SBA and 
the CDFI Fund provide access to capital, and they leverage 
funds to help grow our economy and create new jobs.
    The fiscal year 2015 budget request for the SBA is $865 
million, a decrease of $64 million from the fiscal year 2014 
level. In large part, this reduction is the result of a 
stronger economy with small-business owners less likely to 
default on their federally guaranteed loans, saving taxpayer 
dollars.
    However, there are the reductions that are troubling. The 
request eliminates the State Trade and Export Promotion 
program, a program that helps small businesses increase their 
exports.
    As a Senator from a border State, I know firsthand how such 
programs can help an economy grow.
    Similarly, the total request for the CDFI account is $225 
million. That is slightly less than the fiscal year 2014 level. 
With this total, the request eliminates the Bank Enterprise 
Award program, a program that provides financial incentives to 
FDIC-insured banks to increase their investments in distressed 
communities.
    I look forward to hearing from both witnesses on why these 
reductions were requested.
    Both agencies have also requested to extend programs that 
help provide access to capital that is not available on the 
private market.
    SBA's 504 loans provide credit for small businesses to 
purchase real estate and equipment. The budget proposals to 
allow 504 loans to be used to refinance commercial mortgages so 
small-business owners can lock in low interest rates and free 
up resources to reinvest in their businesses, helping them get 
back on their feet.
    The CDFI bond program currently provides $750 million in 
30-year bonds to CDFIs, which are then leveraged to community 
investors to support development. The budget proposes to 
continue and increase this bond program for another year.
    Both proposals would provide credit to reinvest in our 
communities at no cost to the taxpayer. I look forward to 
hearing from these witnesses about the resources they need to 
do their jobs and how the subcommittee can help to support 
their vital missions and help this recovery reach Main Street, 
which I think should be an important focus of this hearing.
    I now turn to my distinguished ranking member, Senator Mike 
Johanns, for his opening comments.

                   STATEMENT OF SENATOR MIKE JOHANNS

    Senator Johanns. Mr. Chairman, thank you for calling this 
hearing today.
    To our witnesses, welcome. We are glad to have you here. I 
look forward to your testimony. I look forward to testimony 
about the Small Business Administration and other efforts to 
promote economic growth in our Nation.
    The American economy is still facing rocky times. 
Unfortunately, I believe many current policies are hindering 
rather than helping growth. We especially need to do more for 
our country's small businesses. In States like mine, and across 
the country, they are the backbone of the economy and represent 
the majority of all new jobs created over the last decade.
    When I meet with small businesses in business roundtables 
and that sort of environment, it doesn't take very long before 
they are talking to me about regulatory reform and the need for 
that. An uncertain regulatory environment affects lenders and 
small-business owners.
    I constantly hear from financial institutions all over 
Nebraska about how correct regulatory burdens and ever-changing 
rules are negatively affecting availability and access to 
credit. Businesses have to have capital to grow. They have to 
have capital to expand, to create jobs, so we need to ensure 
that the Government is not throwing up roadblocks in terms of 
capital development.
    The SBA has a critical mission in our Nation, providing a 
helping hand to small businesses through guaranteed and direct 
loans. SBA also does important work to help businesses, 
homeowners, and communities affected by disasters.
    We have, unfortunately, seen the unbridled hand of Mother 
Nature affect communities in Nebraska. Just 10 days ago, 
tornadoes devastated the areas of Beaver Crossing, Sutton, 
Nebraska, Cordova, and elsewhere. In just one example, 1,200 
Nebraskans volunteered, though, to help with cleanup in a 
community of 400 people. What a remarkable response.
    It signifies the true character of a great State. But that 
does not mean these folks who lost everything won't need some 
help in terms of loans from the SBA. They need that to get back 
on their feet.
    I have been in close contact with the Governor and others 
in the State. I have every indication that a request will be 
forthcoming, probably this week. And I know that the SBA will 
very carefully, attentively, and responsibly look at the 
request. These good people need your help.
    These folks had a rough Mother's Day, and I am hopeful that 
we can get them appropriate assistance quickly.
    On the CDFI program, the President's budget request 
proposed a slight reduction for the program. While I appreciate 
the efforts to hold down spending, I do question some of the 
rearranged priorities in this CDFI account.
    For instance, the President's budget zeroed out the bank 
enterprise award program in order to finance increases to the 
healthy foods financing program. So there are instances where I 
will have some questions that I would like to have answered 
today.
    I would say that both of these agencies have very worthy 
goals. The job of both agencies is to generate economic growth. 
Given our Government's fiscal restraint, we must carefully 
review every agency budget to ensure that taxpayers are 
receiving the best value for the dollar.
    I look forward to hearing from our witnesses about the 
efforts they are making to work with small businesses and 
community lending institutions to ensure that these programs 
are having an impact in both urban and rural America.
    Mr. Chairman, again, thank you for calling this hearing. I 
look forward to the testimony.
    Senator Udall. Senator Johanns, thank you for very much for 
that opening statement.
    Administrator Contreras-Sweet, I invite you to present your 
remarks on behalf of the Small Business Administration.

            SUMMARY STATEMENT OF HON. MARIA CONTRERAS-SWEET

    Ms. Contreras-Sweet. Thank you, Mr. Chairman. And thank 
you, Ranking Member Johanns, and the distinguished members of 
the subcommittee. Thank you for this opportunity to testify 
before you today.
    We appreciate your ongoing leadership and your support for 
the SBA as we work to assist the entrepreneurs who are so 
critical to economic growth and local job creation. We all know 
that they create right now two out of three new jobs, and they 
employ half of the private sector workforce. So it is 
important, the work that we are doing.
    I have been on the job, I am pleased to say, for about 6 
weeks now, 38 days to be precise. And I have traveled across 
the country to meet with our core constituencies, meaning the 
small-business owners, veteran entrepreneurs, SBA lenders, 
procurement officials, exporters, and victims of the 
devastating mudslide in Washington.
    I can tell you that at every stop, I have heard powerful 
testimony about how SBA has been a critical force in helping 
our small businesses succeed.
    Again, I want to thank this committee, in particular, for 
enabling SBA to increase access to capital, to counseling, and 
to contracts, and, of course, to disaster assistance for small 
businesses throughout our country.
    This budget request gives me the tools I need to pursue 
three core goals: number one, to expand access to capital to 
create more quality jobs; two, to embrace an inclusive vision 
for SBA; and three, to ensure our programs are giving taxpayers 
a strong return on their investment, a real bang for their 
buck.
    With respect to the first goal, to create jobs through our 
loan programs, last year was the third straight year that SBA 
supported over $29 billion in lending to more than 47,000 small 
businesses. We also assisted 46,000 businesses and individuals 
through $2.8 billion in disaster loans.
    For fiscal year 2015, SBA is requesting an appropriation of 
$710 million plus an additional $155 million for our disaster 
assistance program. This request would enable us to guarantee 
loans totaling $36.5 billion over the next year, and it would 
help us facilitate access to $80 billion in Federal contracts 
for our small businesses.
    We are also requesting full funding for disaster loan 
assistance, as we continue to make process reforms to ensure 
that homeowners, renters, and businesses have access to rapid 
SBA assistance when they need us the most.
    We have dramatically reduced our subsidy for the 504 loan 
program down to $45 million. And for the second year in a row, 
SBA is requesting no credit subsidy for the 7(a) loan program.
    Overall, our fiscal year 2015 request represents a $64 
million reduction because of the subsidy decrease, as you aptly 
pointed out.
    These two lending programs, both 7(a) and 504 together, 
will support an estimated 650,000 jobs for fiscal year 2015.
    This budget also seeks authority to extend 504 refinance 
lending. The 504 refi helps entrepreneurs unlock equity that 
they already own in their businesses. A restructured loan under 
504 refi means a better rate on long-term debt, allowing owners 
to use their equity to create jobs and to grow.
    Before expiring at the end of fiscal year 2012, the 504 
refi supported $5.5 billion in lending over 2 years. And the 
good news is, again, this request is at zero subsidy cost to 
the taxpayer.
    In terms of the next core value, in terms of an inclusive 
vision for entrepreneurship, this budget would help SBA get 
more loans into the hands of entrepreneurs from diverse 
backgrounds. And toward that end, we encourage our lending 
partners to approve more small-dollar loans.
    SBA is once again setting fees to zero under our 7(a) loans 
under $150,000.
    This budget would allow us to continue working with our 
resource partners to counsel and train more than 1 million 
small-business owners annually.
    To that end, we are seeking funding for our nationwide 
network of Small Business Development Centers (SBDCs), our 
Women's Business Centers (WBCs), our Veteran's Business 
Outreach Centers (VBOCs), and our volunteer SCORE counselors. 
Each year more than 250,000 servicemembers transition out of 
the Armed Forces. Our Boots to Business program allows them to 
continue to serve their country and become job creators.
    We are requesting $7 million to meet the Department of 
Defense's request to train transitioning servicemembers at more 
than 200 installations worldwide. We are making it easier for 
veterans to access capital by reducing or eliminating their 
fees on certain SBA loans.
    We are also investing more in our Native American programs, 
working in 84 communities across America to facilitate new 
business opportunities for this underserved population. Through 
our 8(a) program, we have helped native entrepreneurs and 
tribal businesses secure more than $10 billion in Government 
contracts in fiscal year 2012.
    Finally, a return on investment for the taxpayer, in terms 
of ensuring that they are getting the maximum Return on 
Investment (ROI), the SBA continues to focus on rooting out 
waste, fraud, and abuse in contracting and lending programs. 
Since 2008, SBA has suspended and debarred more companies and 
individuals for abusing SBA programs than in the previous 10 
years combined.
    I am committed to ensuring that Federal dollars go to 
deserving small businesses that play by the rules.
    At the same time, we have tightened our belts within our 
own operations, saving $600,000 in rent by moving our DC 
district office, reducing our fleet expenses by more than 9 
percent, and reducing SBA travel by 25 percent over fiscal year 
2012 levels.
    Our fiscal year budget ensures that America's small 
businesses have the resources and the tools and the training to 
realize their potential, strengthen our economy, grow 
communities, grow jobs, and grow America.

                           PREPARED STATEMENT

    With that, I thank you. I thank the subcommittee for its 
leadership, for its support for small businesses. And I would 
be delighted to take your questions at the appropriate time.
    [The statement follows:]
              Prepared Statement of Maria Contreras-Sweet
    Chairman Udall, Ranking Member Johanns, and distinguished members 
of this subcommittee, thank you for this opportunity to testify today.
    We appreciate your ongoing support for the Small Business 
Administration (SBA) as we work to assist the entrepreneurs who are so 
critical to economic growth and local job creation.
    I've been on the job for 6 weeks now. I've traveled across the 
country to meet with our core constituencies: small business owners, 
veteran entrepreneurs, SBA lenders, Certified Development Companies 
(CDCs), procurement officials, exporters, and victims of the 
devastating mudslide in Washington State.
    At every stop, I've heard powerful testimonials about how SBA has 
been a critical force in helping our small businesses succeed. We're a 
small agency with a big mission. We call it ``3 Cs and a D''--providing 
access to capital, counseling, contracts and disaster assistance. Our 
fiscal year 2015 budget will help us fulfill that mission and support 
the entrepreneurs who are creating most of the new jobs in America.
    Last year was the third straight year that the SBA supported over 
$29 billion in lending to more than 47,000 small businesses. We also 
assisted more than 46,000 businesses and individuals through $2.8 
billion in disaster loans.
    For fiscal year 2015, the SBA is requesting an appropriation of 
$710 million, plus an additional $155 million for our disaster 
assistance program.
    This request would enable us to guarantee loans totaling $36.5 
billion over the next year and help us facilitate access to $80 billion 
in Federal contracts for small businesses.
    This budget request gives me the tools I need as Administrator to 
pursue three core goals: expand access to capital to create more 
quality jobs; embrace an inclusive vision for the SBA in which our 
borrowers better reflect the geographic and socioeconomic diversity of 
America; and ensure our programs are giving taxpayers a strong return 
on their investment--real bang for their buck.
    It would allow us to work with our resource partners to counsel and 
train more than 1 million small business owners. To that end, we're 
seeking full funding for our Small Business Development Centers, 
Women's Business Centers, Veteran's Business Outreach Centers and our 
national network of SCORE chapters and volunteer mentors.
    We're also requesting full funding for disaster loan assistance as 
we continue to make process reforms to ensure that homeowners, renters, 
and businesses have access to rapid SBA assistance when they need us 
the most.
    We've dramatically reduced our subsidy for the 504 loan program 
down to $45 million, and for the second year in a row, the SBA is 
requesting no credit subsidy for the 7(a) loan program. Overall, our 
fiscal year 2015 request represents a $64 million reduction because of 
the subsidy decrease.
    Our borrowers report that these two lending programs--7(a) and 
504--together have supported more than 650,000 jobs.
    This budget seeks authority to extend 504 Refinance lending. 504 
Refi helps entrepreneurs unlock equity they already own in their 
businesses. Restructuring a loan under 504 Refi means better rates on 
long-term debt, allowing owners to use their equity to create jobs and 
grow.
    504 Refi supported $5.5 billion in lending over 2 years when it was 
originally authorized, but it expired at the end of fiscal year 2012. 
This is a zero subsidy request. The tremendous benefits of reinstating 
this program would come at zero subsidy cost to the taxpayers.
    Each year, more than 250,000 servicemembers transition out of the 
armed forces. Our Boots to Business program allows them to continue to 
serve their country as job creators. In fact, on my very first day at 
the SBA this week, I met with a group of these heroes who've started 
their own businesses.
    We're requesting $7 million to meet the Department of Defense's 
request to train transitioning servicemembers at more than 200 
installations worldwide. We're also making it easier for veterans to 
access capital by reducing or eliminating their fees on certain SBA 
loans.
    This budget will help SBA get more loans into the hands of 
entrepreneurs from diverse backgrounds.
    Toward that end, the SBA is once again setting fees to zero to 
encourage our lending partners to approve more 7(a) loans under 
$150,000.
    We're also investing more in our Native American programs, working 
in 84 communities across America to facilitate new business 
opportunities for this underserved population. Through our 8(a) 
program, we helped Native entrepreneurs and tribal businesses secure 
more than $10 billion in government contracts in fiscal year 2012.
    Finally, the SBA continues to focus on rooting out waste, fraud, 
and abuse in our contracting and lending programs.
    Since 2008, SBA has suspended and debarred more companies and 
individuals for abusing SBA programs than in the previous 10 years 
combined. I have a zero-tolerance policy for these and I am committed 
to ensuring that Federal dollars go to deserving small businesses that 
play by the rules.
    At the same time, we've tightened our belts within our own 
operations. The SBA is saving $600,000 in rent by moving our DC office 
into our SBA national headquarters. We've reduced our fleet management 
expenses by more than 9 percent through reductions in our fleet. We've 
invested in new equipment that will save us a half-million dollars in 
copying expenses over the next 5 years. And we've reduced SBA travel by 
25 percent over fiscal year 2012 levels.
    In closing, I would like to share something Federal Reserve Chair 
Janet Yellen said last Thursday when she addressed small business 
leaders from all 50 States during National Small Business Week: 
``America has come a long way since the dark days of the financial 
crisis, and small businesses deserve a considerable share of the credit 
for the investment and hiring that have brought that progress. Although 
we have come far, it is also true that we have further to go to achieve 
a healthy economy, and I am certain that small businesses will continue 
to play a critical role in reaching that objective.''
    Our fiscal year 2015 budget ensures that America's small businesses 
have the resources, tools and training to realize their potential and 
strengthen our economy. With that, I want to thank this subcommittee 
for its leadership and support of small businesses, and I am happy to 
take your questions.

    Senator Udall. Thank you very much for your testimony.
    Mr. Gerety, please present your testimony on behalf of the 
Treasury Department.

                       DEPARTMENT OF THE TREASURY

                    Office of Financial Institutions

STATEMENT OF AMIAS GERETY, ACTING ASSISTANT SECRETARY 
            FOR FINANCIAL INSTITUTIONS
    Mr. Gerety. Thank you, and good afternoon, Chairman Udall, 
Ranking Member Johanns, and other members of the subcommittee. 
Thank you for inviting me to speak in support of the 
President's fiscal year 2015 budget request for the Treasury 
Department's Community Development Financial Institutions Fund, 
or CDFI Fund.
    I would like to start by expressing my appreciation to the 
subcommittee and to Congress for its long history of support 
for the CDFI Fund, and by requesting your continued strong 
support for its critically important mission.
    The 2015 budget requests $225 million for the CDFI fund's 
flagship program, the CDFI program, which spurs economic growth 
and increases access to capital in low-income communities; for 
the Healthy Food Financing Initiative, which supports the 
growth of businesses that increase access to affordable, 
healthy food in low-income communities; the Native American 
CDFI Assistance Program, which increases access to credit, 
capital, and financial services in Native American communities; 
and resources for the administration of the CDFI Fund.
    The budget also proposes a 1-year extension of the CDFI 
bond guarantee program, which provides a source of long-term 
capital to financial institutions that support lending in 
underserved communities.
    The CDFI Fund programs create economic growth in 
communities often considered too risky for mainstream financial 
institutions. Let me offer you an example from a business I 
visited in New Orleans earlier this month.
    Circle Foods is a grocery store that opened in 1939, and 
was New Orleans' first African-American owned and operated 
grocery store. In 2005, it was heavily damaged by Hurricane 
Katrina, and for 7 years, the owner tried to secure financing 
to renovate and reopen his business, but he was unable to find 
any willing investors and lenders.
    In 2012, Hope Credit Union, a leading CDFI serving the 
Midsouth, provided Circle Foods with financing through a 
partnership that included the city of New Orleans' fresh food 
retail initiative. And this year, a new 22,000-square-foot 
Circle Foods reopened and is now providing access to fresh 
produce and affordable food.
    In addition, the grocery store has created 62 new jobs, the 
majority of them filled by people who live in that community.
    The President's 2015 budget reflects a careful balance of 
savings proposals and targeted investments in key priorities. 
Continued strong funding is needed if the CDFI Fund is to be 
able to continue its critical work, generating new economic 
opportunity where it is needed most.

                           PREPARED STATEMENT

    Mr. Chairman, this concludes my formal statement, and I 
will be happy to answer any of your questions. Thank you very 
much.
    [The statement follows:]
                   Prepared Statement of Amias Gerety
                              introduction
    Good afternoon Chairman Udall, Ranking Member Johanns, and 
distinguished members of the subcommittee. Thank you for inviting me to 
speak today on behalf of the Department of the Treasury's Community 
Development Financial Institutions Fund (CDFI Fund) and in support of 
the President's fiscal year 2015 budget request. I would like to start 
by expressing my appreciation to this subcommittee and to Congress for 
its long history of support for the CDFI Fund.
    During my tenure at Treasury it has always been an honor to work 
with the dedicated men and women at the CDFI Fund. They're talented 
public servants who are focused on strengthening our country and they 
performed with excellence under quite difficult conditions over recent 
years. So I want to thank them for their service and commitment.
    The President's fiscal year 2015 budget requests your continued 
strong support for the CDFI Fund and its critically important mission: 
To increase economic opportunity and promote community development 
investments for underserved populations and in distressed communities 
in the United States. As a vital component of the Treasury, the CDFI 
Fund is closely aligned with Treasury's core priority of promoting 
domestic economic growth.
    In fiscal year 2015 the CDFI Fund requests $224.9 million. This is 
slightly below the fiscal year 2014 enacted level. The budget includes:
  --$151.3 million for the CDFI Fund's flagship program, the CDFI 
        Program, which spurs economic growth and increases access to 
        capital in low-income communities;
  --$35 million for the Healthy Food Financing Initiative (HFFI), which 
        supports the growth of businesses that increase access to 
        affordable, healthy food in low-income communities;
  --$15 million for the Native American CDFI Assistance Program, which 
        increases access to credit, capital, and financial services in 
        Native communities; and
  --$23.6 million for administration of the CDFI Fund.
    The budget also proposes a 1-year extension of the CDFI Bond 
Guarantee Program, which provides a source of long-term capital to 
financial institutions that support lending in underserved communities.
    The CDFI Fund's programs create economic growth in communities 
often considered too risky for mainstream financial institutions. The 
CDFI Fund accomplishes much of its work through a nationwide network of 
over 850 certified Community Development Financial Institutions, or 
CDFIs. CDFIs are mission-driven financial institutions that are 
dedicated to community development and provide financial products and 
services for businesses, consumers, affordable housing developers, and 
community service providers. CDFIs fill a critical gap in the financial 
industry by serving markets that are historically underserved and by 
providing the economic development expertise and specialized financial 
products and services that these communities urgently need. CDFIs 
provide loans for small businesses and job creation; finance the 
development of affordable housing for low-income Americans; support 
community-based social service organizations and create high-quality 
community facilities; and provide retail banking services to the 
unbanked and others often targeted by predatory lenders.
    When I was in New Orleans earlier this month, I had the opportunity 
to see firsthand how CDFIs are providing critically needed financing 
for communities most in need. One of the sites I visited was Circle 
Foods, a grocery store that opened in 1939 and was New Orleans' first 
African American-owned and -operated grocery at a time when African-
Americans were not allowed to shop in other parts of the city. In 2005, 
Circle Foods was heavily damaged by flooding in the 7th Ward caused by 
Hurricane Katrina. For years, the owner tried to secure financing to 
renovate and reopen the store, but was unable to find any willing 
lenders and investors.
    That changed in 2012, when Hope Credit Union, a leading CDFI 
serving the Midsouth, provided Circle Foods with financing through a 
partnership that included the City of New Orleans' Fresh Food Retail 
Initiative. Thanks to Hope Credit Union, a new 22,000-square-foot 
Circle Foods reopened earlier this year and is now providing access to 
fresh produce and affordable food in the 7th Ward. In addition, the 
grocery store has created 62 new jobs, the majority of them are filled 
by people who live in the local community. And Hope Credit Union soon 
will open a branch within the new Circle Foods that will provide 
convenient access to financial services and give people in the 
community a reliable, affordable alternative to the payday lenders that 
moved into the Ward following Hurricane Katrina.
    This story is just one of many examples of the way that CDFIs are 
helping to meet critical needs in underserved communities. CDFIs all 
across the Nation are truly making a difference.
                   the critical role of the cdfi fund
    One of the main factors that makes the critical work of CDFIs 
possible is this subcommittee's support of the CDFI Fund.
    CDFIs take a variety of forms. There are CDFI loan funds, credit 
unions, community banks, and venture capital funds. There are small 
local and regional CDFIs that focus on serving particular communities, 
as well as large national CDFIs with offices in several States and 
cities. But all CDFIs share a commitment to stimulating economic and 
community development in distressed communities. These organizations 
have decades of experience providing financial products and services 
that offer the people they serve a way to enter the financial 
mainstream and build successful, productive lives.
    The CDFI Fund is dedicated to expanding the capacity of these 
invaluable organizations, and it accomplishes that in two main ways: by 
certifying CDFIs and by providing a variety of financing and capacity 
building programs for CDFIs.
                           cdfi certification
    To be eligible for most of the CDFI Fund's programs, any financial 
institution must be certified as a CDFI in order to participate in our 
programs. In addition, formal certification of a CDFI is important to 
many prospective financing partners, including banks and foundations. 
To be certified, a CDFI must meet a strict set of criteria, including 
having a primary mission of community development and serving a target 
market that meets at least one of the CDFI Fund's definitions of a 
distressed or low-income community. One common type of target market is 
a census tract that has a poverty rate of at least 20 percent, or a 
median family income at or below 80 percent of the statewide or 
metropolitan average.
    In 2013 the CDFI Fund undertook a formal process to recertify all 
existing CDFIs whose most recent certification was more than 3 years 
old. This process was both an investment in the integrity of the 
certification status for organizations and a way to position the CDFI 
Fund for the future. During fiscal year 2013, the CDFI Fund recertified 
425 CDFIs and certified 76 new CDFIs. Today, there are over 850 
certified CDFIs headquartered in all 50 States and the District of 
Columbia, as well as in Guam, Puerto Rico, and the U.S. Virgin Islands.
                        programs and initiatives
    In addition to certifying CDFIs, the CDFI Fund provides programs to 
support them. The oldest of these is the Community Development 
Financial Institutions Program (CDFI Program), through which the CDFI 
Fund provides financial assistance awards and technical assistance 
awards to enable CDFIs to expand their services and to build their 
technical capacity. Over the years, the demand for CDFI Program awards 
has continued to grow. For the fiscal year 2014 award round, the CDFI 
Fund received 336 applications requesting $393 million in funding, 
which was nearly three times the $146.4 million available through the 
program.
    Within the CDFI Program, the CDFI Fund administers the Healthy Food 
Financing Initiative (HFFI), an innovative interagency program created 
to address the problem of food deserts in underserved communities. An 
estimated 23.5 million Americans lack convenient access to healthy 
food. Through the HFFI, the CDFI Fund provides flexible financial and 
technical assistance awards to CDFIs that invest in businesses that 
increase access to healthy food in low-income communities. In fiscal 
year 2014, the CDFI Fund received applications from 33 eligible 
organizations requesting $85 million through the HFFI, almost four 
times the $22 million available.
    Another program is the Native American CDFI Assistance Program 
(NACA Program). As a part of the CDFI Fund's Native Initiatives, the 
NACA Program promotes economic opportunity in Native communities that 
lack adequate access to affordable financial products and services by 
providing financial and technical assistance awards to CDFIs that focus 
on serving Native American, Alaska Native, and Native Hawaiian 
communities. The Native Initiatives also include specialized training 
programs to help CDFIs expand their capacity to serve Native 
communities. Since the NACA Program's inception in 2001, the number of 
certified CDFIs that serve Native communities has increased from 7 to 
68. For the fiscal year 2014 funding round of the NACA Program, the 
CDFI Fund received 46 applications requesting more than $22 million in 
funding, almost double the $12.3 million available.
    The CDFI Fund's Capacity Building Initiative complements the CDFI 
Program, HFFI, and the NACA Program, by providing direct technical 
assistance and training to CDFIs. The Capacity Building Initiative 
helps CDFIs improve their ability to deliver financial products and 
services and to achieve long-term sustainability. By offering training 
workshops, webinars, market research, customized technical assistance, 
and informational resources, the Capacity Building Initiative helps 
CDFIs develop, diversify, and grow.
    The Capacity Building Initiative training series focuses on 
specialized issues of critical importance to CDFIs and the communities 
they serve. Among the training series presented thus far are: CDFI 
Capitalization; Financing Healthy Food Options; Foreclosure Solutions; 
Innovations in Small Business Lending; Portfolio Management; Leadership 
Journey for Native CDFI Growth and Excellence; Scaling up Microfinance; 
Preserving and Expanding CDFI Minority Depository Institutions; 
Financing Community Health Centers; and Strengthening Small and 
Emerging CDFIs.
    In addition to offering these training programs, the CDFI Fund 
compiles training materials, webinars, and research reports that 
supplement the training topics and provides them in a Resource Bank on 
the CDFI Fund's Web site. The Resource Bank is a one-stop source for 
current information on topics of critical importance to CDFIs, and it 
is available to anyone--members of the CDFI industry and the general 
public alike--at no charge.
    The CDFI Fund's newest program is the CDFI Bond Guarantee Program, 
a groundbreaking effort to accelerate community economic growth and 
development. The CDFI Bond Guarantee Program offers CDFIs unprecedented 
access to significant, long-term capital. Because Treasury fully 
guarantees the bonds, CDFIs can borrow for up to 30 years at an 
attractive fixed interest rate and use the funds to finance community 
development projects. Because participating CDFIs must have excellent 
performance histories and management and be financially capable of 
carrying the programs strong loan requirements, the guarantees are 
projected to have no cost to taxpayers. For the fiscal year 2013 round 
of the CDFI Bond Guarantee Program, $500 million in guarantee authority 
was available. The CDFI Fund received eight guarantee applications 
requesting a total of $825 million in bond guarantees. Treasury entered 
into agreements to guarantee and approved term sheets for bonds 
totaling $325 million.
                 the cdfi fund's impact and performance
    CDFIs are dedicated to serving distressed and low-income 
communities, and the data indicate that they are doing just that. On 
average, 70 percent of the customers of certified CDFIs are low-income 
and 60 percent are members of a minority community. Moreover, the CDFI 
Fund strives to proportionately serve both urban and rural areas. In 
fiscal year 2013, 53 percent of the CDFI Program's financial assistance 
awardees served major urban areas, 27 percent served minor urban areas 
and 20 percent served rural areas. The CDFI Fund also recently released 
an analysis on 10 years of data provided by CDFIs on their total 
portfolios. The data demonstrated that 25.4 percent of loans and 
investments (19.2 percent of total dollars) were made in non-
metropolitan rural areas by CDFIs from 2002-2012. Approximately 17 
percent of Americans reside in non-metropolitan areas, so it is clear 
that CDFIs are giving these traditionally underserved target markets 
the opportunity to benefit from services that they could not receive 
from mainstream financial institutions.
    It is also clear that these services have a tangible impact. CDFI 
Program awardees reported on the most recent activities in 2012 and 
indicated that they had:
  --Created or maintained more than 35,000 full-time jobs (up from 
        25,600 in fiscal year 2011);
  --Originated almost 6,500 small business and microenterprise loans 
        (up from 6,345 in fiscal year 2011);
  --Financed more than 17,700 units of affordable housing (down from 
        24,466 in fiscal year 2011);
  --Provided more than 293,000 individuals with financial literacy 
        training and other financial education (up from 233,100 in 
        fiscal year 2011); and
  --Made more than 24,000 loans and investments totaling almost $2 
        billion (up from 17,500 loans and investments totaling almost 
        $1.3 billion in fiscal year 2011).
    In addition, all 12 of the first-round HFFI awardees reported on 
their first year of investments, which included 43 projects totaling 
$29 million in eligible HFFI activities. Of these 43 projects, 30 were 
retail projects--ranging from small green grocers to large supermarkets 
serving low-income communities--that created 339,226 square feet of new 
retail space. The other 13 HFFI projects involved other activities such 
as production and distribution facilities needed to increase access to 
healthy food.
    The CDFI Fund is committed to rigorous evaluations that measure the 
impact of its programs. In 2012, the CDFI Fund commissioned a study to 
examine the financial performance and social impact of its flagship 
CDFI Program. That study is now underway and will be completed by the 
end of fiscal year 2014. In addition, the CDFI Fund has begun the 
``Access to Capital and Credit in Native Communities'' study, a follow-
up to a 2001 study that looked at access to financial services in 
Native American, Alaska Native, and Native Hawaiian communities, and 
that established some of the key guidelines of the NACA Program. The 
study will use a combination of existing research, consultations with 
tribes, and focus groups to identify important economic issues in 
Native communities. The results of both of these studies will allow the 
CDFI Fund to assess its programs more effectively and to determine ways 
to serve low-income communities even better in the years ahead.
    The performance of CDFIs speaks volumes about their strength, 
commitment, and ability. And that's what the work of CDFIs and the CDFI 
Fund is all about. It's about more than creating programs and providing 
services; these are just the means to a greater end. The work is 
ultimately about expanding opportunities for families and communities 
to reach their full potential and contribute to the Nation's economic 
growth.
                               conclusion
    CDFIs have established a strong track record of leveraging the CDFI 
Fund's awards with private investment. Indeed, on average, CDFI Fund 
awardees leverage their awards with private investment by a factor of 
more than 6:1, which means that the total of $201 million in program 
funding requested in this budget may ultimately generate more than $1.2 
billion dollars of investment. Clearly, the funding requested offers 
strong potential for significant local impact at a relatively small 
Federal cost.
    The President's fiscal year 2015 budget reflects a careful balance 
of savings proposals and targeted investments in key priorities. As the 
numbers reflect, the CDFI Fund has been and remains one of those key 
priorities. Continued strong funding is needed if the CDFI Fund is to 
be able to continue its critical work generating new economic 
opportunity in communities where economic opportunity is needed most.
    On behalf of everyone at Treasury and the CDFI Fund, I would like 
to again express our gratitude for the support of this subcommittee, 
and I look forward to continuing to work with you in the future.
    Mr. Chairman, this concludes my formal statement, and I will be 
happy to answer any of your questions.

    Senator Udall. Thank you very much. And both of your full 
statements will be put into the record.
    We are at this point now going to start 7-minute rounds of 
questioning. I will start out.

                          ECONOMIC DEVELOPMENT

    To both of you, a few weeks ago, this subcommittee held a 
hearing on the Treasury Department, and Secretary Lew testified 
about the growing economy. The economy is slowly recovering 
from the recession. The unemployment rate is slowly improving.
    But for many States, towns, and neighborhoods, including 
many in New Mexico, they are not yet feeling the effect of this 
growth, and many Americans are still looking for jobs.
    For both witnesses, can you please explain how the fiscal 
year 2015 budget request for the SBA and the CDFI will help 
grow the economy and create jobs? And then how will you target 
underserved populations, including Native American communities, 
which have become some of the hardest hit communities in our 
country?
    Ms. Contreras-Sweet, please, you can start.
    Ms. Contreras-Sweet. Thank you.
    SBA intrinsically does just that. In terms of our entire 
portfolio, what we are focused on is spurring economic 
activity. And to that extent, I think that as we think about 
small businesses, and we think about their journey through 
entrepreneurship, as they first start to think about 
entrepreneurship, we want them to think about it more 
aggressively. So whether you are a veteran, to your point, Mr. 
Chairman, we want to have the Boots to Business program.
    First, it starts with sort of just a general conversation 
about it. Then we put them through a 2-day program. We put them 
through an 8-week program to get them to think about 
entrepreneurship. So that is one way in which we do it.
    But throughout our partnerships, whether it is the 
volunteers at SCORE or the women at the Women's Business 
Center, or it is in disadvantaged communities, this is what SBA 
is. It is our strength. We go out and we talk to people who are 
thinking about entrepreneurship, and we take them through a 
training program. We give them the tools, the tips, and the 
relationships that they need to help develop the right business 
plan.
    And then after that, if it makes sense, then we introduce 
them to possible work. The contracting opportunities, whether 
it is in the Government sector though our contracting 
opportunities or through our American supplier initiative, 
where we introduce entrepreneurs to private sector 
opportunities, we help create jobs.
    And then after that, they tell us that sometimes they need 
a performance bond or bid bond, so we have for the surety 
program.
    And finally, when they are ready and they have work, we 
provide them the debenture, the Government guarantee to provide 
them the access to capital.
    And so that is, if you will, the journey. The key 
milestones that exist in entrepreneurship, the SBA is there.
    So at the end of the day, we are delighted that essentially 
what we are, are job creators.
    Thank you very much for the question, Senator.
    Senator Udall. Thank you.
    Mr. Gerety.
    Mr. Gerety. Thank you. I think the issue of the growth in 
our economy and the disparate effects in different communities 
is particularly important to the CDFI Fund, which has as its 
mission over the last 20 years, focusing particularly on those 
communities, whether urban, rural, or Native American 
communities, that are underserved by traditional financial 
institutions.
    Within the President's budget, we have both the core 
program, which includes grants, and other opportunities to 
support the financial capacity of CDFIs. We have two programs 
within that, one focused on small and emerging CDFIs and other 
focused on more established CDFIs.
    The budget also includes specific $15 million funding for 
the Native American CDFI assistance program, recognizing that 
Native American communities are particularly underserved. And 
this is part of a more than 10-year effort to develop and 
support both the financial and the technical capacity of Native 
American CDFIs, CDFIs that serve Native American communities.
    I think it is also important to recognize that underserved 
communities are not just found in urban areas, but they are 
found all across this country. And as we have looked at the 
past 10 years of CDFI funding, we found that over 25 percent of 
the loans and investments that are made by CDFIs are in rural 
communities, which only have 17 percent of the population.
    So across each of these types of communities, we are very 
focused on building the capacity of lenders and supporting 
those lenders in providing capital and job support to those 
institutions that are really focused on developing those 
communities and providing the flow of capital to small 
businesses, entrepreneurs, and affordable housing.
    Senator Udall. Thank you.
    Senator Johanns.
    Senator Johanns. Thank you, Mr. Chairman.

                             LOAN SUBSIDIES

    Let me start out, if I could, Administrator, and ask you a 
question about the loan guarantee program. For fiscal year 2014 
and 2015, the 7(a) loan program, as you know, doesn't require a 
subsidy. That is a good thing. We celebrate that.
    However, it is my understanding that the 504 program, which 
guarantees loans for major assets like real estate and heavy 
equipment, will again require an appropriation to subsidize the 
cost of the loan guarantees.
    What is your thought about where we go from here? Is this 
an area where we can reasonably expect that someday you will 
come in and say we don't need the subsidies for this program? I 
would like your thoughts on that.
    Ms. Contreras-Sweet. Thank you. I am delighted to have an 
opportunity to address that point.
    As I understand, and my research has indicated, because it 
was an important question as I came on board, and as I have 
seen historically, it did not require--you remember the 
downturn began in 2008. And as I saw in the prior years and 
leading up to, I believe it was 2012, we did not require a 
subsidy. So there was a lag, if you will.
    And then you saw that, 2011, 2012, 2013, is where we 
required the subsidy. So I am delighted that it flattened out 
first. It came on and then it flattened. Now we are seeing a 
dramatic decrease.
    It is based on commercial real estate values. So I think 
that as we continue to see this coming back up, it allows for 
the entrepreneur to use their debt more appropriately, and make 
sure that they are fulfilling the terms of the SBA guaranteed 
loan.
    So just based on the trajectory, the flattening out and now 
the decrease, I am hopeful that that will continue to decrease, 
so that you get the trajectory that you want. Then we will be 
able to come back to you and say we are back to a zero subsidy.
    Senator Johanns. Great.

                          AFFORDABLE CARE ACT

    In testimony before the House Appropriations Committee last 
month, then-Acting Administrator Marianne Markowitz stated that 
she conducted about 30 outreach seminars on Obamacare. I will 
be very honest, that caught my attention. I didn't know that is 
what this agency should be doing.
    Do you currently have Obamacare outreach programs 
scheduled? Are you planning on doing more of the same? Do you 
have staff assigned to this? Is there a budget for it?
    Ms. Contreras-Sweet. Thank you, Senator.
    The way the counseling centers work throughout the country 
is that they are there to respond and to counsel small 
businesses about the laws, about the way programs work, and 
about how to grow the business. And so we are there to 
implement the law.
    And when they come in, or we are out doing the work that we 
do, and they ask us about the Affordable Care Act (ACA), that 
is what we respond to. We respond to a panoply of questions, 
including the laws that they have to face and deal with.
    So yes, we are out in the field, sometimes answering those 
questions. And we are delighted to say that when we are out in 
the field responding to any question that they might have, 
including the ACA, and we respond, we are learning that they 
get to know us better, they get to understand and make 
important decisions.
    And what we have learned from that process is that 
entrepreneurs see their small business as family, and they are 
wanting to know how to provide for their families.
    The ACA, fortunately, has provided them an opportunity to, 
in some instances, draw from a pool so they can get more 
competitive rates on health care. That has helped them.
    And it has also helped them learn more about SBA. So in 
that regard, we are able to pivot and direct them to other 
resources that we provide to continue to help them grow and 
prosper.
    Senator Johanns. That is interesting, because I have had 
the opposite experience. Small businesses really are frustrated 
with Obamacare, very frustrated. And I have had small 
businesses in Nebraska tell me they won't grow past 50 because 
they don't want to go over the limit.
    Have you ever had anybody tell you that?
    Ms. Contreras-Sweet. I have traveled now across the country 
with seven stops, and I have not had anybody share that with 
me.
    On the contrary, they said that, in one instance, they were 
able, if they were below 50, that they were able to partake in 
the tax credit that provided them a break in order to provide 
for their employees.
    Senator Johanns. I would welcome you to Nebraska sometime, 
and we will get a business roundtable together, and you can 
hear what I have heard.
    Ms. Contreras-Sweet. Thank you, Senator.
    Senator Johanns. Yes.
    Let me turn to, if I might, Mr. Gerety.

                   ALLOCATION OF FUNDS TO RURAL AREAS

    Since its creation in 1994, the CDFI Fund has awarded more 
than $1.9 billion to community development organizations, 
financial institutions. However, I would note that entities 
located in Nebraska have received grant awards totaling $5.8 
million over 20 years, 2 decades. That is three-tenths of 1 
percent of the total dollar amounts of awards.
    By comparison, entities in New York have received awards 
totaling $250 million. California has received $225 million. 
Illinois has received $140 million.
    It seems to me that the way the program is being 
implemented, it favors large population centers or States, and 
States like mine, Nebraska, kind of get what is left behind.
    Tell me what is going on. Is this what you wanted to 
happen? Or is this an anomaly that you hope to fix?
    Mr. Gerety. Senator, I think you raise a really important 
issue, which is the goal of the CDFI Fund is to provide access 
to capital, and to promote the capacity of lenders in 
underserved communities, wherever they are across the country.
    One of the things that we have been the beneficiaries of 
from this subcommittee is a $1 million line item that is 
explicitly focused on improving the CDFI Fund's ability to 
target, identify, and build capacity for underserved 
communities, both urban and rural.
    And that is beyond just the natural mission of the CDFI 
Fund, which is to serve underserved communities who are 
underserved by mainstream financial lenders, but this is 
explicitly to target communities that are underserved by CDFIs.
    I think one of the things that we have seen is that, and 
particularly in rural communities, there are real opportunities 
to do outreach, to build capacity, to strengthen those 
programs.
    For example, I know working with Senator Moran, we were 
able to do two explicit outreach programs in Kansas to try to 
build up the CDFI community in that State. And I know that 
there are six CDFIs located in Nebraska. And we, certainly, are 
always looking for opportunities to build the capacity of CDFIs 
across the country and, in particular, to do targeted outreach 
where there are areas that are underserved by the CDFI 
community.
    This is an important part of our program and something that 
we continue to try to prioritize.
    Senator Johanns. I would offer this, if you could take out 
the Nebraska file, and I hate to sound so parochial, but my 
office would be more than willing to work with you to see how 
we can make this program more relevant for our State. 
Obviously, it is not connecting much.
    I don't know if that is something happening on our end of 
the equation or your end of the equation. That doesn't really 
matter to me so much as how do we fix it? How do we boost this 
effort? Because our natural tendency is to look at a program 
like this and say, gosh, it is hard to get capital in rural 
States. On your best day, you are competing with States that 
are much more populated and have greater advantages et cetera.
    So we want to support these, but then 20 years into it, we 
look back and we say, gosh, it is doing some things for urban 
areas. It is not doing much for our State. We have to rethink 
what we are doing here. We want to be helpful in trying to do 
that.
    If you could do that and have somebody reach back to my 
office, that would be appreciated.
    Mr. Gerety. Certainly, Senator, we will be glad to reach 
out and to continue to work with you to strengthen the CDFI 
programs in areas that are underserved.
    Senator Johanns. Mr. Chairman, I took a little liberty with 
my time there, but what I was thinking is maybe I would ask 
each witness questions and then I know we are called to a vote, 
maybe we submit questions in writing. It is up to you, but I 
would be willing to do that.
    Senator Udall. I think we should probably do that. I think 
we can leave here in the next 10 minutes, if we wanted to do 
just a short 5-minute round. That is my understanding.
    Let me do one quick question, and then if you would like 
to.

                    STATE TRADE AND EXPORT PROMOTION

    I just want an explanation on the State Trade and Export 
Promotion Program. You know the President's goal of doubling 
exports and all of that. This has created some real opportunity 
out there.
    We have seen $29 million in STEP funds, responsible for 
$300 million in export. And I am just really wondering, 
Administrator Contreras-Sweet, what is in the budget for them 
to look in other places, and why has the decision been made to 
eliminate the program?
    Ms. Contreras-Sweet. Thank you so much for the excellent 
question, and I am delighted to speak to it.
    As a former banker and now the head of the SBA, I think 
that one of the most important things that we should be 
considering is how we help our small businesses compete in an 
international economy. We know that 95 percent of our customers 
are outside of our country. And with the technological 
advancements, we have lowered the threshold of being able to 
enter international markets.
    So we want to make sure that small businesses have a level 
playing field to get outside and to compete in those markets.
    To that extent, we are now ready almost imminently, to 
release the Request for Proposal (RFP) for the State Trade and 
Export Promotion (STEP) program for this year. And so I feel a 
duty to assess a program than be knee-jerk and just respond and 
say we are going to do it again. So since it is a new program, 
I felt it was important to assess its efficaciousness, to 
examine what worked, what didn't work, and to refine it, and 
then come back with something that was really supportive and 
successful and effective for small businesses in the next 
budget ground.
    Senator Udall. Thank you very much for that.
    Senator Johanns. I will submit my questions.
    Senator Udall. Okay, we will both submit additional 
questions for the record.
    Let me just thank you for participating today. Today's 
discussion has provided, I think, very helpful insights on both 
of your budgets for the CDFI and the SBA.

                     ADDITIONAL COMMITTEE QUESTIONS

    The hearing record will remain open until next Wednesday, 
May 28, at noon, for subcommittee members to submit statements 
and questions to be submitted to the witnesses for the record.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
              Questions Submitted to Maria Contreras-Sweet
                Questions Submitted by Senator Tom Udall
                               microloans
    Question. While SBA is well-known for guaranteeing the 7a and 504 
loans that support numerous small businesses across the country, the 
SBA also provides $25 million in microloans and $20 million for 
technical assistance to microloan recipients. These loans, which 
average $13,000, help support the needs of very small businesses, 
including working capital, inventory or supplies, and equipment. The 
budget proposes to maintain the same lending level as fiscal year 2014, 
at a reduced cost, because the rate of default for these loans is 
decreasing. The SBA is currently developing a proposed rule to 
modernize the program.
    How will the microloan program be updated to improve access to 
credit for America's smallest businesses?
    Answer. The SBA is exploring a number of avenues for improvement of 
the Microloan Program and increased access to credit for our smallest 
businesses. We are currently working with, industry representatives, 
congressional representatives, and practitioners to gather appropriate 
ideas and build them into a strategic approach for program improvement 
and increased access to capital. In addition, we are moving forward 
with finalizing a rule that was proposed last March; with updating the 
Standard Operating Procedures (SOP) manual; and with exploring avenues 
to increase private sector involvement.
                      funding for new initiatives
    Question. The SBA provides funding for many entrepreneurial 
development programs, such as the Small Business Development Centers 
and SCORE, which provide training and mentorship opportunities for 
small business owners across the country. These programs have proven 
results--they help businesses start up, prosper and grow. Yet the 
fiscal year 2015 budget request keeps funding for these critical 
programs flat, while including significant increases two new 
initiatives that have not yet had any results.
    Why does the budget request significant increases for the new 
growth accelerators and entrepreneurial education programs, while 
keeping funding for successful programs flat?
    How do these new initiatives differ from existing programs provided 
through entrepreneurial development? Could these activities not be 
provided by existing programs?
    Answer. In today's economy, it is critical that we continue to 
support job creation wherever there's an opportunity among our Nation's 
28 million small businesses. The President's fiscal year 2015 budget 
proposal for SBA ensures that small businesses have the tools and 
resources they need to start and expand their operations and create 
good jobs that support a growing economy and a strong middle class. The 
Small Business Development Centers, Women's Business Centers, SCORE 
chapters, and Veteran's Business Outreach Centers--also known 
collectively as our resource partner network--are essential to the 
agency's ability to achieve these goals. As a result, we are pleased to 
be able to request full funding for these programs for fiscal year 
2015.
    As an agency, we strive to be as innovative and entrepreneurial as 
the small businesses we serve. Moreover, we strive to maximize our 
value to small businesses and ensure that we make efficient use of 
taxpayer dollars. Currently, millions of existing small business owners 
plan to grow their businesses, but they lack sufficient training in 
areas like accounting, market analysis, and finance. They have the will 
to succeed but require access to quality, targeted education and 
mentorship to help them create and implement strong growth plans, 
access capital, increase revenue, and ultimately create new jobs. Many 
of these businesses are located in underserved communities, where there 
is much need and opportunity.
    The fiscal year 2015 budget request seeks to address existing gaps 
in assisting small businesses. For example, the initiatives supported 
under Entrepreneurship Education differ from the services commonly 
offered by our resource partners, by their intensity and the time 
devoted to individual businesses coupled with training and complexity 
and level of expertise of the management support provided. There is an 
expressed need to offer intensive support that focuses on the unique 
challenges that growing firms face, which look very different from the 
needs of startups. A large number of SBA's existing resource partners 
have built up and concentrated their expertise in training and 
counseling for start-up businesses, and are limited in the amount of 
time they are able to devote to each business. The funding for 
Entrepreneurship Education programs allows us to address that gap.
    For example, the Entrepreneurship Education request will allow SBA 
to expand Emerging Leaders, which provides an intensive curriculum to 
existing small businesses and has a proven track record of helping 
these businesses grow and create jobs. Our Emerging Leaders initiative, 
now in its seventh consecutive year since starting in late 2007, was 
launched by SBA to assist existing small businesses possessing a high 
growth potential who are located in historically underserved 
communities across the United States.
    Participants receive over 100 hours of in-person and out of 
classroom training. Through our Emerging Leaders Program we try to make 
use of all our assets. Our District Offices facilitate hosting the 
classes, and our resource partners still play a key role, which may 
include hosting classes, teaching sessions, identifying participants, 
and providing ongoing technical assistance at the conclusion of the 
course.
                            504 refinancing
    Question. From 2010 to 2012, the 504 program allowed small 
businesses to use loans to refinance their commercial mortgages. This 
helped many small businesses in the same way that refinancing a home 
mortgage helped homeowners--it helped keep the doors open for many 
small businesses across the country. The budget requests the extension 
of this program which ended when the authorization lapsed in 2012. The 
budget proposes to reauthorize the program at $7.5 billion per year.
    What was the impact of the program while it was authorized? What 
are some of the success stories?
    Answer. The President's budget request supports reauthorizing the 
504 Refinance program, which was part of the Small Business Jobs Act of 
2010 and expired at the end of September 2012. Through this successful 
program, 200 SBA lending partners made over 2,700 loans valuing more 
than $2.5 billion. On the last day of the program in 2012, SBA had over 
400 projects pending work and almost $500 million that did not get 
funded. Demand still exists in the marketplace, as commercial real 
estate values are still depressed. By refinancing their debt to take 
advantage of historically low interest rates, businesses improve their 
cash flow, and access equity in their properties to inject into their 
businesses. This allows companies to retain jobs and expand by offering 
a favorable long-term fixed rate. The budget requests a 1 year 
reauthorization of the program. Since SBA is allowed under the 504 Refi 
program to charge an adjusted fee to cover the projected costs, this 
request does not require an appropriation from Congress for subsidy.
    Proceeds from the 504 Refinance program assisted businesses in all 
ten SBA regions:
  --Region I: A grocery store was able to restructure debt and provide 
        business expenses of $670,000.
  --Region II: A water bottling company experienced $1.2 million in 
        growth due to available working capital.
  --Region III: An assisted living facility restructured debt and 
        refinanced business expenses for three facilities.
  --Region IV: A concrete foundation company was able to purchase a new 
        pump to improve operations.
  --Region V: A gas station finance eligible business expenses saving 
        $43,000 annually.
  --Region VI: A steel company financed their A/P and inventory worth 
        almost $1.25 million.
  --Region VII: A telecommunications firm secured a $1.6 million 504 
        Refi loan for equipment modernization.
  --Region VIII: A restaurant had a balloon payment upcoming but was 
        able to refinance to continue operations.
  --Region IX: A medical equipment supplier refinanced balloon payments 
        due in less than 1 year.
  --Region X: A hotel was able to secure a $2 million loan for working 
        capital under eligible business expenses.
    Question. How would this loan compare to credit options that are 
available on the private market?
    Answer. The 504 Refinance program provides excellent terms compared 
to what is available on the private market. For example, 504 Refi is 
unique in that it provides a fixed rate for 20 years (10 years for 
equipment). The private market generally won't do fixed rates for a 20 
year term, but will either have variable rates or terms for a shorter 
period. The long-term fixed rate allows small businesses to better 
manage their debt, creating more stability and opportunity for job 
retention and creation.
                            lender oversight
    Question. Through the SBA's flagship 7a loan program and the 504 
program, SBA will guarantee approximately $36 billion in fiscal year 
15. In fiscal year 2011, approximately two-thirds of the SBA guaranteed 
loans were made using delegated authority with limited oversight. Both 
the SBA Inspector General and the GAO have identified weaknesses in 
SBA's oversight of these lending programs and provided recommendations 
to create an effective oversight program.
    What steps has SBA taken to improve oversight of these lending 
programs and implement the recommendations?
    Answer. SBA understands the importance of lender oversight in 
administering an effective 7(a) program. SBA has made significant 
progress in instituting a comprehensive credit risk management program 
for its business loan programs. All lenders participating in the 7(a) 
program are continually assessed and risk rated to ensure that those 
considered to represent highest risk receive greatest Agency attention. 
In fiscal year 2013, SBA undertook approximately 24 lender supervision 
and enforcement actions. SBA has also suspended or debarred 
approximately 27 parties, including but not limited to, actions against 
loan agents and borrowers. SBA has developed and implemented a 
regulatory framework to support credit risk management, including the 
promulgation of lender oversight/enforcement regulations that establish 
the grounds and procedures for lender supervision and enforcement, 
lender oversight Delegations of Authority, Lender Risk Rating 
Standards, and Standard Operating Procedures for lender supervision/
enforcement and reviews/examinations. SBA conducts lender supervision 
and enforcement through a separate Office of Credit Risk Management and 
a Lender Oversight Committee (LOC) comprised of senior Agency officials 
representing fiscal, credit risk, operations and legal areas.
                         7(a) total loan limit
    Question. SBA's flagship 7(a) loan program is one of the Federal 
Government's primary business loan program. Through these guaranteed 
loans, SBA provides up to $5 million for up to 25 years to small 
businesses. Funds can be used for a variety of purposes to develop and 
expand small businesses. In 2013, the program supported over 483,000 
jobs and 40,000 small businesses. The total loan level is currently 
capped at $17.5 billion in loan authority per year. But in 2013, the 
SBA reached this limit.
    What are your projections for the total 7(a) lending level in 
fiscal year 2015? Do you believe the cap on the 7(a) loan should be 
increased?
    Answer. SBA is supportive of both the Senate Committee on 
Appropriations and the House Committee on Appropriations plans through 
their fiscal year 2015 bills to increase the 7(a) loan authorization 
level. Based on prior year lending trends, when SBA formulated the 
fiscal year 2015 budget, we estimated that a $17.5 billion 7(a) 
authorization level would be sufficient to meet market demand for 
fiscal year 2015. However, in light of trends on fiscal year 2014 
volume, SBA does believe it is prudent to increase the authorization 
level for fiscal year 2015. As stated at the hearing, we would like to 
emphasize that an increase in the authorization level would not have 
any subsidy cost for the taxpayer.
                       disaster assistance (sba)
    Question. SBA provides direct loans to small businesses that are 
affected by natural disasters. These long-term, low-interest loans 
allow small businesses to repair or replace damaged property to limit 
the economic impact of natural disasters. The budget request for the 
administrative costs of these loans is decreasing by $5 million.
    How do you determine what will be needed to administer disaster 
assistance?
    Answer. The SBA reviews historical spending trends, expected 
carryover balances and staffing forecasts to determine what level of 
funding to request for disaster assistance. The SBA continually reviews 
processes and implements improvements in order to enhance program 
delivery and achieve greater efficiency. The $5 million reduction in 
the disaster administration request reflects cost reductions SBA 
expects to achieve through more efficient operations.
    Question. Do you believe the fiscal year 2015 request is 
sufficient?
    Answer. Absent a catastrophic disaster event or multiple major 
events in 2015, the fiscal year 2015 request should be sufficient.
    Question. What are your balances for disaster assistance, and how 
long will they last?
    Answer. As of May 31, the disaster administrative funding balance 
was $238 million and the disaster subsidy balance was $736 million. It 
is nearly impossible to predict the timing and severity of disasters, 
and therefore difficult to estimate how long these balances will last.
    Question. How do you determine the portion of disaster funding that 
will be for Stafford Act disasters?
    Answer. Previously, the SBA derived the Stafford Act allocation 
from a three-year average of loan applications processed by the Office 
of Disaster Assistance according to presidential and non-presidential 
disaster declarations. In 2014, the SBA conducted a cost study to 
determine the portion of overall disaster administration spending on 
Stafford Act disasters. The result of the study is a cost allocation 
model the SBA can update annually with actual spending to estimate the 
administrative funding needs of Stafford and non-Stafford disaster 
loans.
                                 ______
                                 
                  Questions Submitted to Amias Gerety
                Questions Submitted by Senator Tom Udall
                           cdfi bond program
    Question. The CDFI bond program provides 30 year bonds to CDFI 
organizations to support additional lending for a variety of economic 
development efforts including--job creation, community revitalization 
and affordable housing. In fiscal year 2013, Congress provided $500 
million for the bond program, and then in fiscal year 2014 we provided 
another $750 million. The fiscal year 2015 budget proposes to increase 
it again, to the authorized level of $1 billion.
    Please explain how this program is using the funds provided in 2013 
and 2014, and why the budget proposes to continue and expand the 
program.
    Answer. The Administration continues to support and expand the CDFI 
Bond Guarantee Program (CDFI BG Program) because it addresses a 
fundamental challenge in revitalizing communities, creating jobs, and 
expanding economic opportunity: many low-income and underserved 
communities require long-term, fixed-rate financing that the private 
market does not generally offer. According to the Carsey Institute, 
CDFI loan funds do not have access to long-term debt to meet market 
needs for longer-term financing.\1\ The CDFI BG Program provides a 
long-term, fixed-rate source of capital so CDFIs can provide the 
financing communities need.
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    \1\ Carsey Institute, ``CDFI Industry Analysis Summary Report'', 
Spring 2012, pg 12. Accessed at: http://www.cdfifund.gov/docs/CBI/2012/
Carsey%20Report%20PR%20042512.pdf.
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    CDFIs may use bond proceeds to finance: charter schools; commercial 
real estate; daycare centers; healthcare facilities; rental housing; 
rural infrastructure; owner-occupied homes; licensed senior living and 
long-term care facilities; small businesses; not-for-profit 
organizations; and other CDFIs and similar financing entities.
    In the first two rounds of the CDFI BG Program in fiscal year 2013 
and fiscal year 2014, Treasury approved term sheets and executed 
agreements to guarantee a combined total of $525 million. Bond proceeds 
are expected to finance affordable housing, charter schools, healthcare 
facilities, commercial real estate, and lending to not-for-profit 
organizations. Financing of community development projects has recently 
begun.
    Question. Do you believe there is sufficient demand from CDFIs to 
support the $1 billion level?
    Answer. We believe that $1 billion is an appropriate cap for fiscal 
year 2015. Congress set the $1 billion level when it authorized the 
program. This level indicates to CDFIs that significant resources will 
be available if they make a commitment to participate in the program.
    The $525 million committed in the first 2 years of the program 
marks an encouraging start to a new and complex program. There is a 
promising initial level of interest and capacity, as evidenced by the 
four CDFIs that submitted high quality plans within a very short 
application period in fiscal year 2013 and the four additional CDFIs 
that received bond loans in fiscal year 2014.
    After completing two funding rounds for the Bond Guarantee Program, 
we have begun to explore ways to improve administration of the program, 
including opportunities to address any perceived impediments for 
program applicants.
                             healthy foods
    Question. Obesity and malnutrition are widespread in this country 
and have been linked to major health problems, such as diabetes and 
heart disease. In many low-income neighborhoods across the country, 
there are no healthy food options nearby, making it much more difficult 
to adopt a healthy lifestyle. CDFI's Healthy Foods Financing program 
provides assistance to CDFIs to finance grocery stores, farmers markets 
and other healthy food options in these low-income neighborhoods. The 
budget proposes to increase this program to $35 million, $13 million 
more than last year.
    Why does the budget propose such a significant increase for this 
program?
    Answer. The Healthy Foods Financing Initiative (HFFI) expanded 
healthy food options necessary to address obesity and malnutrition. It 
achieved this through improved access to affordable food outlets in 
areas where there has been a chronic absence of such alternatives. 
Continued support from Congress will enable CDFIs to expand access to 
healthy food options in low-income communities. To date, all 12 of the 
first-round HFFI awardees reported on the impacts of their first year 
of investments. The 12 HFFI awardees initiated 43 projects totaling 
$29,035,079 in HFFI eligible activities. Of these projects, 30 were 
retail HFFI projects with 339,226 square feet of new retail space 
developed from small green grocers to large supermarkets serving low 
income, low-access census tracts. Another 13 non-retail projects, such 
as production and distribution, resulted in the development of 5,073 
square feet of space for eligible healthy food activities.
    Question. How would the requested funds help address this national 
epidemic?
    Answer. The Healthy Foods Financing Initiative (HFFI) is dedicated 
to increasing access to healthy food options in low-income urban and 
rural communities. Through HFFI, the CDFI Fund provides competitive 
awards to CDFIs that finance healthy food retail outlets in underserved 
communities.
    CDFIs have a wealth of experience in financing grocery stores, 
local food processors and distributors, farmers' markets, and food co-
ops. As with other CDFI Fund programs, the HFFI-Financial Assistance 
award is designed to help CDFIs respond to local economic market 
conditions in the low-income communities they serve. CDFIs may use up 
to 25 percent of the award to finance non-retail HFFI activities, an 
option especially responsive to rural areas in need of financing for 
food production.
                  bank enterprise award program (bea)
    Question. The fiscal year 2015 budget eliminates an important CDFI 
Fund program, the Bank Enterprise Award program. Created in 1994, the 
program helps leverage CDFI dollars by supporting banks that provide 
lending, investment and service activities in economically distressed 
communities. Without the BEA program, many of these banks cannot 
compete for CDFI funds, and would be unable to finance development 
projects in low-income and distressed neighborhoods.
    Why did the budget eliminate this critical program?
    Answer. Treasury recognizes that the Bank Enterprise Award Program 
(BEA Program) provides important resources for FDIC-insured banks and 
thrifts to invest in underserved communities. However, in the current 
fiscal environment, difficult budget decisions have to be made.
    The BEA Program isn't the only CDFI Fund grant program that 
supports FDIC-insured banks; depository institutions certified as 
CDFI's are also eligible to apply for the CDFI Fund's flagship CDFI 
Program, which will continue to provide financial and technical 
assistance to invest in and build the capacity of CDFI banks. This 
program empowers them to grow, achieve organizational sustainability, 
and contribute to the revitalization of their communities. In the 
fiscal year 2014 round of the CDFI Program, 9 percent of total 
applicants were CDFI-certified banks. Out of these 23 bank applicants 9 
received financial assistance awards totaling $12.2 million.
    The CDFI Fund's Capacity Building Initiative also recently launched 
a ``Preserving and Expanding CDFI Minority Depository Institutions'' 
series to address the unique challenges facing CDFI MDIs. This program 
provides advanced training and technical assistance for CDFI MDIs to 
build their capacity to provide community development services to their 
underserved communities.
    Question. How would this elimination impact overall lending?
    Answer. The elimination of the BEA Program is not expected to have 
a material impact on overall lending to markets served by CDFIs. CDFI 
target markets are highly correlated with eligible areas under the 
Community Reinvestment Act (CRA), communities historically underserved 
by mainstream institutions. Banks eligible to apply to the BEA Program 
will continue to be incentivized by CRA to invest in these communities.
    In addition, due to the higher poverty level eligibility criteria, 
areas eligible under the BEA Program are a subset of CDFI investments 
areas and target markets. The CDFI Program will continue to provide 
financial and technical assistance to invest in and build the capacity 
of CDFIs which will help to mitigate the impact of eliminating this 
program.
                                 ______
                                 
            Questions Submitted by Senator Richard J. Durbin
    Question. Section 1206 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act established a grant program within the CDFI 
Fund to encourage financial institutions to offer affordable small 
dollar loans through technical assistance and loan loss reserve funds. 
Affordable small dollar loans would help borrowers who may otherwise 
turn to predatory payday loans, and this grant program can help 
financial institutions overcome some of the challenges that come with 
offering these products.
    To what extent have technical assistance and loan loss reserve 
funds under section 1206 been clearly included in the core program 
Notice of Funding Availability (NOFA) since authorization in 2009? If 
not, how can these be included in the core program NOFA in fiscal year 
2015?
    Answer. Since 2007, the CDFI Program NOFA has specified that 
eligible uses of Financial Assistance awards include loan loss 
reserves.to cover losses on loans made in their investment areas or 
target populations, which may include small dollar loans.\2\ Since 
2011, applicants are required to specify how much of their award 
request will be used for loan loss reserves. In fiscal year 2014, 126 
applicants requested approximately $59 million (or 17.4 percent of the 
total amount requested) for loan loss reserves. It is important to 
note, this data is prospective, based-on an institution's intentions at 
the time of application. The CDFI Fund is unable to track at this time 
the amount of Financial Assistance awards received that were then used 
to fund loan loss reserves specifically for small dollar loans.
    The Fund will explore including language in its NOFA concerning 
small dollar consumer lending and is open to establishing a new grant 
program as proposed in Section 1206 if, and when, funds are 
appropriated.
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    \2\ To carry out the purposes specified in the Technical Assistance 
application, funds may be expended for: compensation; professional 
services; travel; training and education; equipment; and supplies. 
Developing a small dollar loan program is an eligible purpose. However, 
data is not available on the number of applicants that request 
technical assistance awards to develop small dollar loan programs.
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                         CONCLUSION OF HEARINGS

    Senator Udall. The subcommittee is hereby adjourned.
    [Whereupon, at 2:23 p.m., Wednesday, May 21, the hearings 
were concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]