[Senate Hearing 113-176]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 113-176
 
  THE FISCAL YEAR BUDGET REQUEST FOR THE SMALL BUSINESS ADMINISTRATION

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


                                HEARING

                               BEFORE THE

            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP


                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 17, 2013

                               __________

    Printed for the Committee on Small Business and Entrepreneurship


         Available via the World Wide Web: http://www.fdsys.gov




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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                    ONE HUNDRED THIRTEENTH CONGRESS

                              ----------                              
                   MARY L. LANDRIEU, Louisiana, Chair
                 JAMES E. RISCH, Idaho, Ranking Member
CARL LEVIN, Michigan                 DAVID VITTER, Louisiana
TOM HARKIN, Iowa                     MARCO RUBIO, Florida
MARIA CANTWELL, Washington           RAND PAUL, Kentucky
MARK L. PRYOR, Arkansas              TIM SCOTT, South Caarolina
BENJAMIN L. CARDIN, Maryland         DEB FISCHER, Nebraska
JEANNE SHAHEEN, New Hampshire        MICHAEL B. ENZI, Wyoming
KAY R. HAGAN, North Carolina         RON JOHNSON, Wisconsin
HEIDI HEITKAMP, North Dakota
WILLIAM M. COWAN, Massachusetts
                Jane Campbell, Democratic Staff Director
           Skiffington Holderness, Republican Staff Director



                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana.     1
Risch, Hon. James E., a U.S. Senator from Idaho..................     6

                               Witnesses

Mills, Hon. Karen, Administrator, U.S. Small Business 
  Administration.................................................     7
Gustafson, Hon. Peggy E., Inspector General, U.S. Small Business 
  Administration.................................................    24
Sargeant, Hon. Winslow, Chief Counsel for Advocacy, U.S. Small 
  Business Administration........................................    39

          Alphabetical Listing and Appendix Material Submitted

Gustafson, Hon. Peggy E.
    Testimony....................................................    24
    Prepared statement...........................................    27
    Response to post-hearing questions from Senator Risch........    72
Landrieu, Hon. Mary L.
    Opening statement............................................     1
Levin, Hon. Carl
    Questions for the record.....................................    78
Mills, Hon. Karen
    Testimony....................................................     7
    Prepared statement...........................................     9
    Response to post-hearing questions from:.....................
        Chair Landrieu...........................................    58
        Senator Risch............................................    61
        Senator Cantwell.........................................    82
        Senator Pryor............................................    85
Risch, Hon. James E.
    Opening statement............................................     6
Sargeant, Hon. Winslow
    Testimony....................................................    39
    Prepared statement...........................................    40
    Response to post-hearing questions from Senator Risch........    65
Small Business Administration Office of Advocacy
    Report on the Regulatory Flexibility Act FY 2012.............    87


  THE FISCAL YEAR BUDGET REQUEST FOR THE SMALL BUSINESS ADMINISTRATION

                              ----------                              


                        TUESDAY, APRIL 17, 2013

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:07 a.m., in 
Room 428-A, Russell Senate Office Building, Hon. Mary L. 
Landrieu, Chair of the Committee, presiding.
    Present: Senators Landrieu, Cardin, Shaheen, Cowan, and 
Risch.

 OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chair Landrieu. Good morning, everyone. Thank you all for 
joining us this morning.
    Administrator, please have a seat wherever you are 
comfortable. I thank all the members of the Small Business 
Administration that work so hard and are so committed to our 
country and to our economy.
    Before we begin, I want to acknowledge that this is 
Administrator Mills's last budget hearing, unfortunately. She 
has served as a steady hand of this ship now for several years, 
and it has been my real honor, Administrator, and pleasure to 
work so closely with you as did our former ranking member of 
Olympia Snow, who was a dear friend and a wonderful colleague 
and a great partner on this Committee.
    I thank you for strengthening this agency under your watch 
and focusing its resources on entrepreneurship and job 
creation. When you stepped into this job, you took over an 
agency that had atrophied due to lack of resources and, to some 
degree, leadership; but under your guidance, SBA transformed 
into a more effective federal champion for small businesses.
    Your efforts were recognized last year when President Obama 
recommended that the SBA have a seat in the cabinet room. That 
is something that Senator Snow, Senator Kerry, and others of us 
that have served on this Committee for some time have 
advocated; and I think because of your outstanding performance 
and leadership, the President said yes to that long-standing 
request.
    So now, small businesses have a seat where they belong in 
the cabinet room of the President of the United States when 
many issues of importance are being discussed about the 
economic future of the country. Congress is losing a talented 
and effective partner and American's small businesses are 
losing a tireless advocate in Administrator Mills.
    The next Administrator, which we hope will be equally 
amazing, will soon have some big shoes to fill, and I am hoping 
that the President will make his choice public so this 
Committee can get to its task of oversight on that appointment.
    As I have said many times, there is nothing small about 
small business in America. According to the SBA, small 
businesses are responsible for employing roughly half of all 
working Americans. These entrepreneurs pump almost $1 trillion 
into the economy and have most interesting generated 60 to 80 
percent of the new net jobs annually over the last decade as 
well as produce 14 times more patents than large businesses and 
universities.
    Many of these small business owners rely on the SBA's 3 Cs. 
As you and I have made many speeches around the country, they 
need capital, counseling, and contracting programs to succeed 
to develop a business plan and get their businesses off the 
ground, meet their payrolls, buy equipment, or building to 
expand or compete in an increasingly competitive global 
marketplace.
    In this year's fiscal year 2014 request for the SBA, the 
President has once again signaled his commitment to our 
Nation's nearly 28 million small businesses, submitting a 
strong and fiscally responsible budget of $810 million in 
funding for the agency plus another $192 million for disaster 
loans for the ongoing and multiple disasters that are still 
open.
    While this represents a seven percent increase over the 
SBA's CR funding level, a significant portion, I am sorry, 
decrease, while this represents a seven percent decrease over 
the SBA's CR funding level, a significant portion of that 
decrease is happily because the 7(a) program no longer needs a 
subsidy. It is working well which is good news, and I will talk 
a little bit more about that in a minute.
    Overall, I think this is a solid budget in a very tough 
budgetary times. We all wish we had more, but we have got to 
live within the constraints that have been set.
    It makes investments in key SBA programs but there are 
other crucial programs that I would like to highlight that I 
believe deserve a bit more focus.
    First of all, the sequestration. The importance of 
thoughtful and strategic budgeting is more apparent today as 
the agency continues to operate at those sequester funding 
levels. While we will not receive the final breakout of the 
SBA's spending plan under sequester until next week, if the 
full amount of the agency's five percent cut is applied equally 
across their programs, it will severely limit the ability to 
deliver services to small businesses at a time when we can ill 
afford to retreat.
    The SBA has stated that the cuts in business loan subsidy 
programs will prevent more than 1900 loans to small businesses, 
and over 33,000 fewer clients will receive counseling from our 
Women's Business Centers, our Small Business Development 
Centers, and our volunteer 350 SCORE chapters that operate on a 
voluntary basis throughout the country.
    It will also impact the resources the SBA has to combat 
fraud, waste, and abuse through its reviews of our important 
7(a) and HUBZone programs.
    The small business impacts from sequester are certainly not 
limited to the SBA. They can be felt across the government. 
Several weeks ago I sent a letter to more than 30 agencies 
requesting that they share with our Committee how their small 
business contracting goals will be affect by the budget cuts 
they have received. I am eager to receive those responses and 
work with federal agencies to mitigate the impact of these 
cuts.
    As we know, much of government spending is not spent 
actually in-house. It is contracted out to many businesses that 
conduct the important work of the government and we want to 
make sure that the sequester cuts are not falling 
disproportionately on the small- to medium-sized businesses 
that are contracting with agencies of the Federal Government.
    With that in mind, I am just going to walk through briefly 
the Committee's funding request for the three Cs--capital, 
contracting, and counseling; and then we will hear from our 
Administrator and the Chief Counsel of Advocacy.
    My hope is that today's hearing will be a constructive 
discussion about making smart choices to fund programs that 
enable this agency to be successful in its core mission. This 
is a budget hearing. We are going to focus on the SBA budget.
    The SBA has requested $107 million of credit subsidies for 
the business loan program for fiscal year 2014 to support $17.5 
billion in lending for 7(a) and $7.5 billion for 504.
    The biggest news in this budget for the capital access 
program is that there is no subsidy required. The program is 
operating on a self-sustained basis thanks to your 
administration and the recovery of the economy.
    The subsidy request in the budget is exclusively for the 
504 program. It is a program I strongly support. This request 
for $107 million is down slightly from $113 million but it 
leverages up to $7.5 billion in loans that are otherwise 
unavailable in the commercial market and have been a lifesaver 
to many businesses that are able to refinance and get their own 
equity out of the buildings that they are in, not government 
money, their own money, to advance the goals of their business. 
I strongly support this modest subsidy and I would urge my 
members to support as well.
    I want to remind you of two exciting examples of this. One, 
something that you know very well if you shop like I do in the 
local market, Chobani yogurt.
    The original founders of Chobani yogurt were immigrants to 
this country. They were in the feta cheese business. They saw a 
closed-down Kraft plant in a boarded-up town, not the whole 
town but boarded-up plant in Emerson, New York, which is in 
upstate New York which suffered terribly, I understand, in the 
recession.
    They wanted to start a feta cheese factory. In the middle 
of it, decided to change it to yogurt and use their official, 
you know, old-fashioned, traditional yogurt recipe. The rest is 
history.
    I mean Chobani yogurt is up and running. They literally 
took the entire supply of milk in New York, every dairy in New 
York could not, at a hundred percent, produce the milk 
necessary to produce this yogurt. That is how successful this 
business is, and I am proud to say it was one of the recipients 
of one of those small business loans.
    The business became so successful they ran through the 
dairy supply. The brothers were not able to obtain a loan from 
their conventional lender because the bank was not comfortable 
assuming all the risk on their own for a food production 
company.
    Another success story is one from the now expired 504 
refinancing program. It happened in Richmond, Virginia. 
Richmond Piano Rebuilders purchased their facility in 2006 with 
a loan. Their monthly payments became difficult to afford.
    In 2012, despite the property retaining its value and 
threatening the company's ability to keep the facility, thanks 
to a 504 refinance loan of $863,000 which cost the taxpayers 
absolutely nothing, the company was able to reduce their 
payments by $50,000 a year.
    I mean, these programs might seem small and inconsequential 
but $50,000 to a small business owner annually is a lot of 
money. These programs, when the leadership is right, as yours 
is, can really work to be helpful in partnership with our local 
lenders, banks and non-bank lenders.
    Let me mention contracting real quickly, and it is 
appropriate that Senator Cardin has come in. He has been a 
champion of this effort. In 2011, the Federal Government 
awarded $91.5 billion or 21.65 percent of prime contracting 
dollars to small businesses.
    To ensure infrastructures in place to reach our 23 percent 
goal--we were close but did not hit our goal--this budget 
smartly requests $4 million in additional funding to increase 
to increase the number of procurement centers which are called 
PCRs and Commercial Marketing Representative, CMRs in the field 
by adding 32 personnel.
    I think this is a strategic, important move to help small 
businesses have an opportunity to contract with the Federal 
Government. In addition, there will be other requests 
associated with this and I will have the Administrator speak 
more specifically to that in her remarks.
    Let me mention just a word about counseling which I feel 
very strongly about. The SBA has requested $198 million for its 
entrepreneurial development programs which provide critical 
technical assistance, counseling, training, and mentoring to 
entrepreneurs across the country.
    Included in this request, the agency is seeking $40 million 
for entrepreneurship education which will support programs such 
as the very successful emerging leaders e200 Program, a popular 
and successful federal training initiative that specifically 
focuses on executives of businesses poised for growth. These 
are not startups, businesses that are poised for growth in 
traditionally challenged communities.
    I support this initiative broadly, conceptually. I am very 
interested, Administrator, in hearing some more of your detail 
about how this would be rolled out, and I know that the 
Committee will be too. But I do applaud you for the 
partnerships that you have developed with private for-profit, 
not-for-profit, university-based, and community-based programs 
that are really pushing out, and some large companies like 
Google, Goldman Sachs, and others that are really pushing out 
the training of entrepreneurs in America because that is, I 
think, a very wise investment in time, energy, and resources.
    The SBA has also requested $700,000 to conduct an 
evaluation of the businesses in their technical assistance 
programs, and I want to underscore this for our members. We 
partner with over 1000 delivery service points to our small 
business programs all around the country. I want to make sure 
that we really are getting the most for our dollar.
    Senator Shaheen, you were governor of your State. You 
understand that you can have a center, you can have several. We 
want to know if they are really working well and if there is 
something that we can do to enhance their performance. And, we 
cannot do that unless we can measure their performance 
initially. So, I have been really pushing you all for 
performance measures. So, I am happy to see that $700,000 in 
the budget to do just that.
    While I support some of the funding for the administrative 
initiatives, I am concerned about some of these decreases. I 
just want to mention quickly. Small Business Development 
Centers are being reduced. Women's Business Centers are being 
reduced. And according to the SBA budget justification, with 
modest federal investment of $112 million, the SBDCs helped out 
13,600 entrepreneurs start new businesses last year. So, we are 
going to go over these numbers very carefully.
    SCORE which comprises over 13,000 volunteers, I want to 
underscore this, in approximately 350 chapters across the 
country I think represents the best possible investment for the 
$7 or 8 million that we get a SCORE they take that like the 
loaves and fishes and they distribute it around the country 
very modestly.
    But for the bang for that buck by getting volunteers to 
mentor small businesses whether it is in Idaho or New Hampshire 
or Louisiana or Maryland, I think and I find the SCORE chapters 
very enthusiastic around the country and find by businesses 
that have been helped by them very grateful for their volunteer 
support. So, we are going to focus on that.
    Finally, when it comes to trade and export promotion, 
Senator Shaheen has been a great leader on this Committee for 
understanding that because one percent of all American 
businesses export or one percent of small businesses export, 
what a great potential there is, Senator, for 99 percent of our 
other small businesses who now can tell about their products 
and export their products because of the Internet, because of 
technology, this was never possible before.
    But with new technologies, you know, people in Idaho or 
Louisiana who just normally sold in their own little 
communities can now sell their products all over the world. But 
that expertise as to how to navigate some of those difficult 
rules and regulations or challenging rules and regulations is 
important.
    So, the STEP program was not something that the Federal 
Government did. They were grants that we gave out to states and 
the feedback that we have gotten from governors and economic 
development departments have been, you know, just very 
enthusiastic.
    I am sorry to see that the President in his budget zeroed 
out this program. So, I am going to be calling a meeting with 
some of the governors, Republicans and Democrats, economic 
development initiatives to see or economic development leaders 
to see what we could do to restore a portion of this if, in 
fact, it is as effective as I have been told.
    So, in closing, looking at this request, I am glad to see 
the Administration has once again made small business a top 
priority, not just with words but with actions reflected in his 
budget by adequately funding the SBA's successful programs, 
eliminating some that they did not think work as well, and we 
are going to have a little argument about that STEP program.
    But we have two panels today that are going to give us a 
little bit more information on the budget that is before us and 
this is a budget hearing.
    Let me close by turning to my Ranking Member for opening 
remarks. We will submit your statements for the record and go 
to the opening statement for the Administrator.

 OPENING STATEMENT OF HON. JAMES E. RISCH, A U.S. SENATOR FROM 
                             IDAHO

    Senator Risch. Thank you very much, Madam Chairman. It is 
unfortunate that we are having a hearing on a budget that we 
all know will never become law; and if we are going to do 
things like this, it really ought to be pragmatic and dealing 
with something that actually is going to become law.
    I want to be brief, and I am interested in hearing from the 
Administrator. I had a chance yesterday to review your comments 
on the Joe Scarborough program (MSNBC) last November where you 
indicated that you were not hearing from small businesses that 
Obamacare was devastating. I have got to tell you that I do not 
know who you talk to but it is entirely different than the 
businesses that I talk to.
    So, one of the things that I am going to be focused on 
here, as we talk about the budget, is what the agency is going 
to do to help small businesses get out from underneath this 
healthcare burden.
    This is not the bill [referencing large stack of 
regulations placed behind him]. These are the regulations that 
have resulted from Obamacare. The bill was only two feet tall. 
This, I understand, is over seven feet tall.
    Small businesses all over the country are trying to find a 
way to get out from under this, just as all big businesses and 
medium-sized businesses are. The difference, of course, is that 
big- and medium-sized businesses have a gaggle of lawyers, 
accountants, and human resource officers who can help them to 
get out from under this.
    The small businesspeople, of course, have less options. If 
they get people to work under 30 hours, they can get out from 
under this. If they trim their payroll to under 50 employees, 
they can get out from under this. I hear all the time from 
businesses who are doing just that.
    So, you all know the SBA wants to help small businesses. 
Have you created something at the Agency to help the small 
businesses get out from underneath this, to get around it like 
big businesses and medium businesses are doing?
    Thank you very much, Madam Chairman.
    Chair Landrieu. Thank you. You all can submit statements 
for the record.
    Administrator Mills, thank you so much for being here and 
we are ready to hear about your budget that I think is going to 
be before the Appropriations Committee, not this Committee for 
approval.

   STATEMENT OF HON. KAREN MILLS, ADMINISTRATOR, U.S. SMALL 
                    BUSINESS ADMINISTRATION

    Ms. Mills. That is correct.
    Thank you very much, Chair Landrieu, and Ranking Member 
Risch and members of the Committee. I am very pleased to be 
testifying before you today.
    I want to first start by thanking this Committee for its 
ongoing support of the SBA and its support of America's 28 
million small businesses and entrepreneurs.
    The President's Fiscal Year 2014 budget is focused on job 
creation and accelerating our economic growth. We know where 
American jobs come from. Half of all the people who work in 
American either own or work for a small business. And these 
businesses create two out of every three net new private sector 
jobs in the United States.
    The Fiscal Year 2014 budget makes strategic investments in 
America's small businesses. It fills the gaps in the market, 
particularly for small dollar loans, while supporting proven 
programs that fuel job creation, new business formation and 
American innovation. These are critical to a full and robust 
economic recovery.
    It is important to note that due to the decreased subsidy 
costs for our 7(a) loan program, the SBA's 2014 budget reflects 
a savings $109 million from our 2012 budget.
    Four years ago when I first appeared before this Committee, 
small businesses were struggling in the face of one of the 
worst economic environments since the Great Depression, and at 
the SBA, we rolled up our sleeves and we went to work. We 
eliminated fees, we streamlined programs, and in some cases, we 
took a hundred pages of paperwork out the loan products.
    The results have been significant, including two record 
years in 2011 and 2012 of delivering over $30 billion in loans 
supported by our guarantees.
    Our 2014 budget builds on these efforts. Three key 
initiatives are the elimination of fees for borrowers and 
lenders for all 7(a) loans under $150,000, an extension of the 
504 refinance program, and a new program called SBA ONE, which 
creates a single platform for all 7(a) loans and allows 
borrowers to more easily complete lending forms.
    The 2014 budget also invests the SBA's powerful counseling 
and mentoring network. These investments focus on the types of 
small businesses that are in the best position for job 
creation.
    Expanding firms and startups. Expanding firms created 8.7 
million jobs between March 2011 and March 2012. Our budget 
request $40 million for an intensive business leadership 
program that provides the skills training to help more of these 
established businesses to successfully scale of their 
operations and create more jobs. This program is built on a 
public-private partnership that will allow us to maximize its 
reach.
    The other poised for growth is startups. These businesses 
punch above their weight when it comes to job creation. At the 
SBA, we have had our third consecutive record-breaking year for 
the small business investment company program, and the 2014 
budget allows us to further support startups through targeted 
tools such as the growth accelerators and clusters.
    We also know that for both established firms and startups 
the opportunity to sell to the Federal Government can be a game 
changer. As a result of our efforts, in the last three years of 
reporting, small businesses have accessed $32 billion more in 
federal contracts than in the previous three years, even as 
overall contract spending decreased during those years.
    We continue to take a zero tolerance stand on fraud, waste, 
and abuse in federal contracting to make sure that small 
businesses are the ones getting the contracts, and we have 
instituted programs like QuickPay to make sure they get paid 
more quickly.
    Our 2014 budget will continue this emphasis on contracting 
by putting more resources, known as Procurement Center 
Representatives, in the field. Our research shows that the 32 
new Procurement Center Representatives proposed in the budget 
can influence approximately $7 billion in small business 
contracting.
    Today, thanks to Agency-wide efforts--and the support of 
Congress--small businesses are interacting with a different 
SBA. One that is more customer-focused, more data driven, and 
more transparent.
    On a personal note, this is likely the last time I will be 
testifying before this Committee. It has been an honor and a 
privilege to work with you over the last four years. And, once 
again, I want to say thank you.
    [The prepared statement of Ms. Mills follows:]

    [GRAPHIC] [TIFF OMITTED] 86152.001
    
    [GRAPHIC] [TIFF OMITTED] 86152.002
    
    Chair Landrieu. Thank you, Administrator.
    Let me jump right into ask you to give a bit more detail, 
if you will, about the $40 million request for growth 
accelerators and the emerging leaders program which, I think, 
is the big new and different part of this budget that I want to 
get a little bit more comfortable and I know the members are 
going to want to as well.
    I understand that we do not have a specific authorization. 
You have a general authorization to conduct this program and I 
would like to be supportive if I can, but I want to understand 
a little bit more about how it is going to be designed. So, 
could you spend a minute please or two explaining that in some 
detail?
    Ms. Mills. Let me start by explaining a little bit the 
economic underpinnings of these programs. We know that most of 
the job creation in this country actually comes from two 
segments of small businesses, startups and existing businesses 
expanding.
    So, right now we are looking at investment in the small 
businesses that are expanding and creating many jobs. We call 
this program sometimes within the SBA a kind of mini-MBA.
    Small businesses, unlike four years ago, are seeing 
opportunities. They can export as you described earlier. They 
can get a government contract. They can get in the supply chain 
of a larger company.
    But sometimes they are being held by lack of access and 
opportunity to two things--access to capital and access to the 
skills they need to grow their business.
    Entrepreneurship skills are a very important part of the 
skills component and what we have done in our budget proposal 
is built on the terrific network of resource partners that are 
out there--our Small Business Development Centers and our SCORE 
representatives are counseling small businesses all the time.
    But a small segment of these businesses who create most of 
the job growth by expanding need an even more intense 
entrepreneurial education experience.
    We are building this program on a number of proven programs 
that are out there where we collected a lot of data about how 
much these business owners can improve their business, and I 
had the great pleasure of visiting several of them.
    One in West Memphis, Tennessee, called Western Tennessee 
Ornamental Doors. To hear a business owner described the skills 
that they gain in this nine-month, intensive program, delivered 
in large part by our resource partners--we are not creating any 
new bricks and mortar; we are using our resources on the 
ground--and to watch how they gain new sales, how they took on 
that business expansion, and how they successfully grew their 
business to the next level as a result of this program has been 
the impetus to make this request for a substantial expansion 
the program we now run and other partners run.
    Chair Landrieu. Yes, and I just want to underscore that 
because I have been following closely the Goldman Sachs 
initiatives, the Google initiatives, with a lot of excitement; 
and I am hoping that we are not reinventing the wheel because 
there are models out there where I think Google went into 30 
cities--New Orleans was one which is what got my attention but 
I was interested even before they came into New Orleans, 
working with the local community colleges to give an 
opportunity for 30 or 40 businesses that already existed but 
wanted to expand but just did not happen either the confidence, 
the marketing skills, or the ability to take their business to 
the next step.
    I am very interested in having a hearing at some point, a 
roundtable, to get some information back about the success or 
lack thereof of those programs. I have heard they are very 
successful but I would like to get it officially on the record.
    Are you modeling this program in some ways after that or 
other programs that you just want to mentions as touchstones or 
models that you have in mind?
    Ms. Mills. Yes, Senator. We are collaborating with Goldman 
Sachs, 10,000 Small Businesses, with the Kauffman Foundation, 
FastTrac, and with community colleges. The curriculum is the 
same model, and it is the same nine-month intensive.
    But we have the capacity to expand this beyond where 
Goldman Sachs and others have taken it for a very good bang for 
the taxpayer buck because we have such a strong existing 
network of Small Business Development Centers and SCORE 
partners out there to help us deliver the curriculum.
    Chair Landrieu. My last question before returning it to the 
Ranking Member and then to others here, give us a few minutes 
on the 504 refinance program and why this is so important.
    Our real estate markets have not yet recovered fully, there 
are some markets that are stronger than others. And I know this 
is really under the jurisdiction of the Finance Committee and 
us as well as a finance issue. But give us a bit about the 504 
loan program, why it is important.
    And Johnny Isakson and I have introduced a bill to 
reinstate it as you know for one year. I would actually like to 
see a five-year extension because by the time you do it and 
people know about it, half the year is over and then they 
cannot get their applications through. I would like a three- or 
a five-year extension.
    If we decide it works, then we should make it work, not 
decide it works and give them one year. So, give us, you know, 
your best thoughts about the 504 program? And is it has 
effective as I believe that it is?
    Ms. Mills. Yes. 504 refi program has been very effective. 
The program ended September 30 when the Small Business Jobs Act 
expired, and it was extremely successful. We had 2700 loans 
that were made for over $2 and a half billion and we had 200 
lending partners making those loans with us.
    Demand still exists in the marketplace because commercial 
real estate prices are still depressed. In the last day of the 
program in 2012, we had over 400 projects pending work and 
about 500 million that did not get funded. So, we have 
requested an extension of the program.
    I want to make the point that this program has zero cost to 
taxpayers. It operates at zero cost because we have as adjusted 
fee flexibility to cover the projected costs.
    What it does, as you described in your opening remarks, is 
it allows a small business owner to unlock the equity value in 
their real estate and use it for working capital financing and 
to take advantage of low mortgage rates that exist today and 
move their business to the next level.
    So, we think this is an very important and effective 
program and once again zero budget impact.
    Chair Landrieu. Senator.
    Senator Risch. Thank you very much, Madam Chairman.
    You heard my opening statements, Ms. Mills, that the thing 
I get all the time from small businesses is ``you have got to 
help me on this Obamacare.'' What happens if a small business 
owner walks into an SBA office and says: ``Look, Obamacare is 
killing me; help me get out from underneath this. I do not have 
a gaggle of lawyers or accountants to help me. What can I do? 
Help me get around this?'' What do you tell them?
    Ms. Mills. Well, let me assure you----
    Senator Risch. Toughen up?
    Ms. Mills. Senator, no--that we are very, very active with 
small businesses and the Affordable Care Act because access to 
affordable health care is the number one concern, as you know, 
of small businesses all over the country. Their major concern 
is that they pay 18 percent more than big companies just 
because they are small.
    With the Affordable Care Act, over 96 percent of small 
businesses will be exempt from any of the employer 
responsibility requirements. But there is an opportunity with 
the marketplaces that are opening this summer for many small 
businesses to get access to more affordable health care because 
there are going to be insurance companies bidding on their 
business in an open and competitive environment.
    Right now if you are a small businessman and you want to 
provide health care, you can barely get a quote. Now, if you 
have an Affordable Care Act marketplace which will exist in 
every state, by next fall there will be enrollment; and by next 
January, small businesses will have the opportunity, not the 
requirement, but the opportunity to participate and buy their 
health care on those exchanges.
    Senator Risch. We are not communicating.
    Your statement that you said, ``Senator, you know that the 
access to quality health care is the number one concern of 
small businesses in America,'' did I hear you right on that?
    Ms. Mills. That is correct, according to NFIB since 1987.
    Senator Risch. Thank you.
    Well, let me tell you what they tell me is their number one 
concern--staying in business because they cannot compete when 
the government tells them they have to spend money on something 
they do not want to spend money on, or they want to spend the 
money they want to spend it; not the way Washington, D.C., and 
the people who work here, tell them they have to do business.
    I guess that is what I am looking for. You know that 
businesses all over America are trying to get out from under 
this. They are trying to get away from it. They are trying to 
get around it. They are not embracing this. You do not see 
anybody coming up and hugging this stack of documents and say 
``Look, this is what I want to do.'' They want to get away from 
this.
    So, how do you counsel them? How do you tell them, ``Look, 
do not give me this stuff about standing in line to get another 
health care policy or I am going to apply for this.'' They say, 
``Look, I do not want to do it. I do not want anything to do 
with the Federal Government telling me what I have got to do.'' 
Help me out here, because I get this all the time.
    You know, of course, my defense is real easy. I say I did 
not vote for this. No Republican in this institution voted for 
this. But, you know, it is not as easy for you since you are 
part of the Administration.
    What do you tell them?
    Ms. Mills. Well, let us be clear. For over 95 percent of 
small businesses, there will be no change. They will not have 
to provide any different health care or provide health care at 
all under the Affordable Care Act.
    One of the issues that we have is that many small 
businesses do not have good information. At the SBA, we are 
aggressively providing information to small businesses both in 
person and on our website. So, at SBA.gov and at 
healthcare.gov, we have very clear and detailed explanations 
that a small business can walk through to see what the effect 
might be and the opportunity might be for them.
    One of the things that we have seen is that many small 
businesses do not know that they are eligible for a health care 
tax credit. One of our jobs is to walk them through their 
eligibility and see if they are.
    Any small business that you come to who has these concerns, 
please send them to our office. We are educated and equipped to 
walk them through, to provide any kind of service that they 
need to understand what access and opportunity they might as a 
result of this Affordable Care Act.
    Senator Risch. Well, I appreciate that, and you tell me 
that you will provide them with any kind of services that they 
want to help them in this area?
    Ms. Mills. Yes, we have an outreach on information. We are 
prepared throughout our network, we are educating our entire 
network because, as you have described, small businesses do not 
have a lot of capacity to work through and understand things. 
We will be there for them
    Senator Risch. So, to be clear, you will help them and 
counsel them as to how to get around this so they do not have 
to comply with the requirements from the Federal Government? 
You will help them do that?
    Ms. Mills. Let me be clear, that is not what I said.
    Senator Risch. Okay. I am done here.
    Thank you, Madam Chair.
    Chair Landrieu. Thank you.
    Senator Shaheen.
    Senator Shaheen. Thank you very much, Chair Landrieu.
    I want to begin by recognizing Administrator Mills for all 
of the great work that you have done at SBA since you have 
taken on that task. As you said, this is probably the last time 
that you will come before this Committee, and I have very much 
enjoyed working with you and the willingness you have had to 
get out to come to New Hampshire, to hear from our small 
businesses about what their concerns are. So, we will miss you.
    New Hampshire is very much a small business state, as you 
know. 96 percent of our employers are small businesses, and so, 
we are very concerned about what is in SBA's budget for the 
upcoming year.
    Like Senator Landrieu, I was pleased to see that the budget 
calls for reauthorizing the 504 refinancing program. I am a 
cosponsor with Senators Landrieu and Isakson of that 
legislation. I think it is very important.
    There were some things in the budget proposal, however, 
that I was very concerned about. Like Senator Landrieu, I was 
concerned that the STEP program to help small businesses with 
exporting was not funded again. As she said so well, one 
percent of small and medium-sized businesses do business 
outside of the United States but 95 percent of the markets are 
outside of the United States. So, the more we can do to help 
our small businesses with getting into those international 
markets the better they are going to do.
    I was also, frankly, very concerned to see that there was a 
new program being funded around entrepreneurship. I think that 
is very important. But I think it comes at a cost to the 
programs within SBA that are already working very well.
    The Small Business Development Centers, I was disappointed 
to see the cut there that SCORE and the Women's Business 
Centers were cut because in New Hampshire we are seeing that 
our SBDC is going to have to lay off people.
    I just think it does not make sense for us to start a new 
program when we have got these programs that are working very 
well and we are short funding them to start a new program. I 
think we ought to be looking at doing everything we can to 
ensure that our SBDCs and our SCORE program, our Women's 
Business Centers are funded at the level that allows them to 
support as many businesses as we can.
    So, I wonder if you could give me some insights into the 
thinking behind the Administration in reducing funding for what 
is working to start a new program.
    Ms. Mills. I think it is important that we clarify exactly 
what we are doing here. Number one, this is not a new bricks 
and mortar program. This is a new initiative that is actually 
executed by the resource partners that you describe.
    So, I do not think it would be correct to characterize it 
as taking away from our terrific resource partners that are out 
there. In fact, what we did when we came into the SBA is remove 
silos and encourage collaboration because we need to make sure 
every dollar gets used many different ways and we have fabulous 
resource partners but they were not working together. Now, they 
are.
    The next step after that collaboration was really 
solidified on the ground is to use what I call our bone 
structure to build new capacity collaboratively, not just one 
silo by itself, in a way that will really drive the needs of 
small business in job creation. That is what you see here with 
our educational initiative program.
    It will be done by a collaborative group of SCORE, Small 
Business Development Centers, and our community colleges that 
are in the area, and we will be able to measure it and share 
best practices in a much more efficient way in the way that we 
proposed here.
    And I want to say, we have the same levels of proposal for 
our resources partners in this budget that we have had in past 
budgets. So, we are not trying to in any way diminish the 
importance or the strength of their role.
    Senator Shaheen. That is actually not my understanding. As 
we looked at the budget, we saw that the Small Business 
Development Centers would be funded with a $9.8 million 
decrease from fiscal year 2012 and that the Women's Business 
Centers and SCORE would receive similar cuts which is about 
eight percent.
    I certainly applaud the effort to reduce the silos. I think 
we all agree that that is very important and that is a better 
way to help the folks who come to the SBA.
    But the fact is, if the SBDCs have to lay off people or if 
SCORE cannot function, then they are not going to be able to 
help with this new program even though I appreciate it is not 
bricks and mortar but the people are not there to do the 
current work under the layoffs required by sequestration.
    And so, I would urge the Administration to take another 
look at whether funding something new while we are decreasing 
funding for our programs that we know work makes sense.
    Thank you very much.
    Chair Landrieu. Senator Cardin.
    Senator Cardin. Thank you, Chair Landrieu.
    Administrator Mills, I also want to add my congratulations 
for your extraordinary leadership at SBA and your public 
service.
    You point out in your testimony that you are proud that 
small businesses are interacting with a different SBA, one that 
is customer focused, more data driven and more transparent.
    I want to add that the SBA has become an effective advocate 
for small business and that advocacy is not only in the public. 
It is also within the Administration.
    The $32 billion of additional procurement is a testimony to 
your leadership in the transformation of the SBA. So, I 
congratulate you for that. I am proud also the way you have 
worked with this Committee. Senator Landrieu and your 
leadership, together we have made a huge difference in helping 
small business and we are proud of that record.
    We strengthened the tools that you have. The borrowing 
tools absolutely have been more effective. The numbers show 
that the direct participation by SBA has made a huge difference 
in those programs.
    I am proud of the surety bond increase. We have gone now up 
to 6.5 million from 2 million and the role that that has played 
in providing more opportunities for small businesses, and, yes, 
the passage of the Affordable Care Act, which has provided an 
opportunity for small businesses today who have been shut out 
of the competitive market to be able to get into a competitive 
market to provide health benefits for their employees and to do 
it in an affordable way with a credit and a more accurate 
premiums.
    Senator Risch is right. Small businesses principal 
objective is to stay in business, to expand, and do what they 
do; and you are correct that historically the number one 
challenge has been affordable health care.
    I think, though, in recent years that has taken second 
place to access to capital, and I just want to talk about that 
for a moment because as much progress as SBA has made in its 
direct programs, assisted by Congress changing the laws, giving 
you stronger tools and the more resources, it is still the 
number one issue I hear prompts all businesses.
    I had two or three small business forums over the last week 
in Maryland in all parts of our state, and the number one issue 
I hear is that it is so difficult in the private sector to get 
access to capital as a small business even though the money is 
there.
    The community banks are still not loaning the way that they 
should be loaning. I know that the Obama Administration has had 
an initiative to try to change that. I do not think it has been 
effective.
    What I would like to learn from you is what can we do to 
make it easier for small businesses to get access to capital. I 
know some of this is not within the jurisdiction of the Small 
Business Administration. A lot of this has to do with the 
banking issues.
    I had suggested in the last Congress to give you the 
authority for direct loans. Now, you were not exactly excited 
about this or let me say the Administration was not exactly 
excited about it.
    I think the money would have been better focused and would 
have done a better job quite frankly if you had any control 
over it rather than the way the Administration went forward 
with it.
    But it is still a problem and we have got to do a better 
job if we are going to be able to unleash those startup 
companies to create the jobs and, and the innovation that keeps 
America competitive. And if we want to see the expansion of 
small businesses and job growth in this country, they have to 
get access, more access to the private sector markets that are 
still being denied.
    Any advice on how we can try to do a better job in that 
area.
    Ms. Mills. Thank you, Senator. We have actually two pieces 
of the budget that speak directly to access to capital and to 
opening up more loans for more banks.
    The first is that we are eliminating fees on the loans 
under $150,000. When, as you know, four years ago the credit 
markets froze, we came in with a program and reduced or 
eliminated fees on almost all our loans, and that was very, 
very successful in the Recovery Act.
    We are now coming off two record years of SBA lending, but 
one segment has not responded. There is a gap in loans under 
$250,000. In fact, they were reduced by about two-thirds in 
2009 and they have remained at that level.
    So, we are going to take a proven method which is to 
eliminate fees, and we know that that will drive more activity 
of small business to the banks, and we are going to be able to, 
we hope, fill the gap for loans under $250,000--under 150,000.
    In addition, the second program is called SBA ONE, and that 
is to make a more seamless front end of the loan process, one 
single application for all the different kinds of SBA loans. 
What will that do?
    That will allow more banks to do more SBA loans, 
particularly the smaller loans, in more areas of the country 
because it will be simpler and cheaper to process without 
taking on additional risk.
    Senator Cardin. Would you make sure that we are kept 
informed as to how well this is working so that we can be your 
partner. We want you to succeed in these programs, believe me 
we do.
    I saw the letter that you wrote to Chairman Mikulski on the 
effects of sequestration.
    I am deeply concerned, Madam Chair, as to how sequestration 
is going to affect the availability of credit to small 
businesses because it is going to contract your capacity. I 
still believe this is an area that this Committee needs to 
weigh in.
    You have been extremely effective, when other Committees 
have moved legislation, to sensitize it to small business. I 
would hope we will find some opportunities in this Congress to 
do exactly that, and I believe access to capital is still one 
area we need to focus on.
    Chair Landrieu. Thank you, Senator Cardin.
    Senator Cowan.
    Senator Cowan. Thank you, Madam Chair.
    Administrator Mills. Madam Chair, with your indulgence, 
before I begin my questioning of the Administrator, I just want 
to take this opportunity, my first, to thank everyone on this 
Committee and in the Senate and the Congress, frankly in the 
Nation for their outpouring of concern and support for the 
people of Boston and Massachusetts in the wake of the bombing 
incidents on Monday.
    I know you all follow the news. You see the latest updates. 
It was a tragedy in the sense that we lost lives. People lost 
limbs, and we still have people in critical condition.
    But it is worth saying here because it needs to be said and 
will be said many times over, the people of Boston and 
Massachusetts are resilient. We will bounce back.
    This appears to be an act of terror, but we will not be 
terrorized. We will move forward. I thank you all for your 
support.
    Chair Landrieu. Thank you. And, Senator, let me just say, I 
was remiss in not mentioning or noting that in my opening 
remarks. You know, our thoughts and prayers are with those who 
have been injured. It was such a tragic day on such a happy and 
celebratory day in Boston.
    I was literally, as you know, just there last week with the 
Administrator celebrating, I think it was the 50th anniversary 
of women being allowed into Harvard Law School and the 
celebration of some extraordinary entrepreneurship that your 
State and your city and your area are leading.
    So, it was particularly heart-felt to have literally just 
left the community last week. But our support will be there and 
if there is anything we can do to assist you and your 
delegation, please let us know
    Senator Cowan. Thank you, Madam Chair.
    Administrator, sort of brings up an issue around disaster 
relief, small business, SBA disaster relief funding. It remains 
to be seen what people scope of the damages will be in greater 
Boston as a result of this incident on Monday, and I am 
wondering if you might be able to comment on your thoughts 
about whether the budget proposal as it relates to disaster 
relief funding is sufficient generally speaking for the 
anticipated needs but frankly may be sufficient for these 
unexpected circumstances.
    And if you also comment, as you know, you and I have spoken 
before about availability of disaster relief funding for an 
important industry in Massachusetts, the fishing industry, and 
I would love your thoughts on both of those issues please.
    Ms. Mills. Well, thank you, Senator, and thank you for 
mentioning the difficult days in Boston. I grew up in Boston 
and my son, all my children are in Boston, and my son was at 
the marathon and had left, and my sister lives a block and a 
half away.
    So, it has been a difficult time, and the outpouring of 
support and the spirit of Boston I think shown through in a 
positive way.
    In terms of disaster operations, as you know, we have just 
come into the last stages of the support for a very dramatic 
disaster in Hurricane Sandy. I am very pleased to say that we 
were able to perform very, very strongly in this disaster 
particularly by comparison to the way we were able to perform 
five years ago.
    We have transformed our disaster operations since Hurricane 
Katrina. We now have 2000 ready reserve staff versus about 880 
during Katrina. We have a facility that we filled up during 
this disaster of 2100 seats when we only five years ago had 366 
seats available.
    Back in Katrina it took us 72 days on average to process a 
loan. Now, in general, it takes us on average eight days; and 
going Sandy it was 29 days. So, we are working continuously to 
be ready particularly for a very difficult and encompassing 
disaster like Sandy.
    There is a chart in the materials I gave that shows that 
this is the third largest disaster in the history of our 
disaster operations and we have already put forward over $2.2 
billion in loans and loan guarantees.
    We have asked in our budget request for the ability to 
continue in the post-Sandy environment. It is now flood season. 
It is tornado season. It will soon be hurricane season, and we 
will stand ready to perform again.
    With respect to the fisheries, I believe our staff and your 
staff and the staff from NOAA met yesterday and I am happy to 
get back to you with the results of those meetings and what we 
can do about the fisheries.
    Senator Cowan. Thank you. If I could pick up on the 
exchange that you had with Senator Shaheen about Small Business 
Development Centers. Looking at the budget as I understand it, 
there is a proposed reduction, and as it would impact 
Massachusetts, that reduction would be enough to close one of 
our centers.
    I am wondering. As you look ahead and doing your planning, 
your thinking about your budget, how might we who are going to 
be impacted in this way working with SBA mitigate the costs of 
those reductions as they impact those centers?
    Ms. Mills. Thank you for the opportunity to again clarify 
what is requested in this budget.
    Number one, what I said was that we continue to ask each 
year in our requests for a similar level for our resource 
partners; and one of the reasons why we have done the budget 
this way is that that will not be all the money that are going 
to our resource partners.
    We fully expect our resource partners and their 
collaborators to come forward and be the recipients of the $40 
million and other funding, perhaps even the accelerator 
funding, depending on the proposal, as they stay the leaders in 
their community on entrepreneurship, education delivery.
    The reason that we can be so effective in delivering a 
program like this is that we will do it through our existing 
bone structure. This is not a new bricks and mortar program.
    So, we will work with all of the Small Business Development 
Centers to make sure that they understand how to access 
resources to deliver the best bang for the buck in terms of 
entrepreneurial education that will help particularly this 
segment of existing businesses that have expansion 
opportunities grow, and succeed, and create jobs.
    Senator Cowan. Thank you for the further clarification.
    Chair Landrieu. Let me just follow up with you, and thank 
you, Senator, for raising disasters. I will get to that in a 
minute but one more question on accelerators.
    Is it the concept of this program to direct your bone 
structure to develop specific partners in each community to 
deliver high-quality entrepreneurship education? Is that how 
you are going to structure this program?
    In other words, they are partners, community colleges. They 
are offices of the mayors. They are economic development 
offices funded by the state. They are other large corporations 
that would have some interest whether through their foundations 
or otherwise to be engaged in such an activity.
    Could you try to drill down a little bit more about how 
exactly this $40 million is going to be spent, taking one 
segment or one area of the country?
    Ms. Mills. Senator, first let me clarify. I will talk about 
accelerators separately in a second. But on the $40 million 
entrepreneurship education, we are planning to leverage our 
resource partner network, and the way this program would 
operate is, based on the fundamental proven models that we have 
from Goldman Sachs, 10,000 Small Businesses, from the e200 
curriculum that has been proven successful with metrics and 
from the Kauffman FastTrac program and others like Google, we 
will ask our resource partners to align together to develop 
locally the best delivery mechanism.
    That may well vary by region, but most often we anticipate 
that our resources will be those best equipped to deliver this 
mini-MBA, this intensive entrepreneurship education.
    And where we are doing it now, I was just in Ithaca and I 
asked a gentleman who had just completed the program who was 
there, you know, and I turned to the Small Business Development 
Center person, were you involved, the answer was yes.
    So, they are already involved and engaged in this, in the 
program where it exists as e200. We know that, I want to 
emphasize, this is not an either/or. It is a both/and.
    Chair Landrieu. Okay. The Economic Development 
Administration in the Department of Commerce also does some 
granting and program development for entrepreneurs.
    The President has been commented, in fact, in several of 
speeches before the Congress about streamlining and not 
duplicating.
    So, can you just comment for a minute about what your 
knowledge is of what the Department of Commerce does for 
entrepreneurs, how the SBA programs are little different, if 
they are, so that we can respond to these claims or these 
challenges? [chart]
    Ms. Mills. Just like we have worked on no silos within the 
SBA, we have actually worked on no silos across the 
administration. We are partnered very, very closely with the 
Department of Commerce on manufacturing, on our clusters, on a 
whole series of activities on the ground, particularly with the 
Economic Development Authority, EDA.
    For example, we actually do joint solicitations for 
proposals with many other agencies, sometimes including Labor 
or EPA or others or the Defense Department for our cluster 
program. That is a model that we plan to continue and to move 
forward.
    We also are very, very closely tied to the Department of 
Commerce in our integrated export activity. We are on the 
ground. Our USEACs in the Department of Commerce export people 
and Import-Export Bank have joint products, joint activities, 
joint objectives to deliver more.
    Chair Landrieu. Thank you. Let me get another question in 
and we are going to move to our second panel in just a moment. 
If the Senator from Massachusetts has additional questions, I 
will acknowledge him in just a moment.
    But, let me go back to disasters because after I believe 
Isaac it might have been, yes, it was before Sandy, several of 
the members, leaders from the House and the Senate, passed some 
additional authorizations giving you authority to set up quick 
loans, small loans.
    And, I understand that that program has not yet been 
established. It has been over five years and I do not believe, 
I do not believe that those programs have been put in place.
    In fact, it was the 2008 Farm Bill provided a provision for 
a $150,000 bridge loan to recovery-related businesses. Could 
you please comment about why it is taking your administration 
so long to get these quick disaster loans in place, or is our 
information incorrect?
    Ms. Mills. I am happy to arrange a detailed update for you. 
We have, in fact, made progress on this; and I think the 
objective has been to implement it in a way that does not 
duplicate or add cost to existing programs and to figure out 
the right public-private partnerships. These would be public-
private partnerships with banks that would implement this.
    I do know, and we will give you further updates, that this 
is further along in progress and was part of the discussions, 
if not the actions, during the recent Sandy activity.
    Chair Landrieu. Because I think the Senator from 
Massachusetts will agree with me that, you know, after a 
disaster, businesses are really struggling to make a decision 
whether to come back or not.
    And until the businesses come back, home owners do not feel 
comfortable coming back because there is no signal that their 
community will rebound.
    So, why would you invest which is what--most families, 
their entire net worth or a large part of it is wrapped up in 
the equity in their home. So, why would you risk your entire 
net worth or a large part of it to come back to a community 
that is no longer going to exist? And the signs of a community 
existing again are when the barber shop opens and the 
restaurant opens and the gas station opens and, you know, the 
beauty salon opens again.
    And if they do not open, it gives a very negative signal to 
homeowners that are trying to say should I take my $500,000 
insurance or $250,000 insurance and rebuild here or on behalf 
of my children and grandchildren this is their money as well as 
mine, most parents feel that way, should I take it somewhere 
else?
    So, I have become a passionate advocate, Senator Cowan, as 
you can imagine having gone through what we went through to get 
low interest loans or grants, a combination of loans and grants 
into the hands of businesses that, in my mind, are part of the 
recovery. It is part of the investment to recover in the 
community, of course, that we want to recover which is 99.9 
percent.
    Maybe you are out on an island somewhere out in the middle 
of the ocean where you should not have built anyway and that is 
a whole different matter. But when you are in downtown, you 
know, Brooklyn or you are in downtown Boston or you are in 
downtown New Orleans, most certainly you want to come back.
    So, I am going to ask you the staff to really press this 
issue for quick, smart, outlays to pioneering businesses, and I 
hope that you will work with us on that.
    Thank you.
    Ms. Mills. Senator, I did just want, on a personal note, 
thank you for your leadership in all of our disaster recovery 
thinking and operations. You and I traveled very early on in my 
tenure down to some severely affected areas and you talked 
about recovery, really took note of many of the things that we 
discussed on that trip; and even in recent times as we put 
forward the recovery task force on Sandy, those words were 
resonating with me.
    So, thank you for your leadership.
    Chair Landrieu. Well, thank you. I am going to continue to 
push this because of the horrors that I witnessed personally.
    And again following up on the Senator from Massachusetts, 
if your staff could provide us with some of your best thinking 
about fisheries, I think it is an industry that gets lost 
between agriculture of which it is a part of what but it is not 
really their core and it is such a unique business but a 
business that is very important to the economies of many of our 
coastal communities, Senator, but more than the economy, the 
culture of our communities.
    So, I am going to ask your staff to submit some additional 
information to this Committee about your best thinking about 
what could be done after a storm. And, Senator, do you want to 
add anything to this, based on your experience with some of 
your, you know, fisheries, the importance of getting loans to 
them when their boats are wrecked, their nets are destroyed, 
their customers are gone.
    How in the heck do they walk into a bank and say I would 
like a $200,000 loan. They say, well, who are you going to sell 
your fish to, where is your boat, and what happened to your 
nets? And it is a sad story from there.
    Senator Cowan. Thank you for that, Madam Chair, and I thank 
you for those comments and your concern, heartfelt and genuine, 
for the fishing industry. And I know that Administrator Mills 
knows that industry well from her time in Massachusetts and we 
spent a lot of time talking about it.
    And you are right. It can get lost sometimes between 
Committees. But I manage to find a way no matter where I am and 
no matter what the Committee to raise it, and I will continue 
to as long as I am here as I am sure my colleagues from 
Massachusetts will.
    The only thing I would add in addition to your powerful 
comments, Madam Chair, is that, you know, the fishing industry 
are not just the men and women, the families who own the boat 
and the nets, and they are very important.
    But there is a corollary industry, the seaside industry, 
the shoreside industry. Those small businesses who are impacted 
as much as the boats and others, and I know that Administrator 
Mills is very mindful of that and I look forward to continuing 
dialogue and the additional information you might be able to 
offer us there.
    Ms. Mills. Thank you. Being now a resident of the great 
State of Maine, I share your concern about the fisheries.
    Chair Landrieu. Okay. Thank you very much, Administrator. 
You have been very generous with your time.
    I think we have a second panel.
    [Pause.]
    Let us just stand at ease for just a minute. My staff is 
going to go check this message. We may take a recess but let us 
just sit calmly for a one second. Would the staff go check this 
please?
    Thank you all for coming is morning.
    Let us go ahead and take a seat. As announced, there is a 
package that is being investigated on the third floor of 
Russell, but we have been advised to continue on. If that 
changes, I will let you all know and we will take a brief 
break.
    Before we start with our second panel, let me just put into 
the record some interesting information about the small 
business lending fund. This program has been highly criticized 
and it was the first time we attempted to do it.
    It is a program that no longer exists. But I want to put 
into the record the details that we have recently received 
about the increase in lending that was generated by this 
program.
    Although it did not meet the $30 billion lending target, I 
think we ended up through this program lending only for $4 to 5 
billion, and some of the banks used this money to pay their 
TARP loans back.
    It is interesting to see, as the data comes in, that the 
increase in funding for small business went up significantly 
relative to peer banks that did not receive or participate in 
the SBA program, significantly in every part of the country.
    So, it is not the subject of this hearing but I wanted to 
get into the record. [charts]
    Our second panel is Peggy Gustafson, our Inspector General. 
Ms. Gustafson previously served as General Counsel in the 
Missouri State Auditor's Office and was Chair of the Insurance 
Fraud Task Force.
    I think, Ms. Gustafson, you have done an outstanding job in 
the current position that you are in. You have given us a lot 
of good information and data about how to eliminate programs 
that do not work, identifying fraud and abuse where it exists 
and streamlining our operations.
    That is the role of the Inspector General, and I thank you 
very much for your professional help.
    Next we are joined by Dr. Winslow Sargeant from the Small 
Business Administrator Office of Advocacy. Of course, your 
office was created to be an advocate for small business when 
they have trouble with the Federal Government and rules and 
regulations that you can help them to navigate because we want 
to be a more, I do at least, want to be a more friendly 
government to small businesses and be a help and not a 
hindrance.
    There have been some issues raised that I know you are 
going to want to comment on but let us start with you, Ms. 
Gustafson, for your response to our Committee based on the 
budget that has been submitted by the agency.
    What do you think its strengths are? What do you think its 
weaknesses are? And are there any areas that this Committee 
should be focused on in terms of rooting out any fraud or 
corruption or waste?

 STATEMENT OF HON. PEGGY E. GUSTAFSON, INSPECTOR GENERAL, U.S. 
                 SMALL BUSINESS ADMINISTRATION

    Ms. Gustafson. Thank you, Chair Landrieu, Ranking Member 
Risch and distinguished members of the Committee. Thank you for 
the opportunity to be here today and for your continued support 
of the work of the Office of the Inspector General.
    I am very proud to represent the dedicated men and women of 
the SBA OIG. As you know, our office is an independent office 
within the Small Business Administration. We conduct and 
supervise audits, inspections, and investigations relating to 
SBA programs and supporting operations.
    We seek to detect and to prevent waste, fraud, and abuse, 
and promote economy, efficiency, and effectiveness in the 
administration and management of the SBA's programs.
    I believe that our investigations and reports, 
recommendations are having a very positive impact on the 
integrity of SBA programs and that the results from our work 
are measurable.
    During fiscal year 2012, the Office of Inspector General 
issued 22 reports containing 126 recommendations for improving 
SBA operations, reducing fraud and unnecessary losses, and 
recovering funds. In addition, OIG investigations have led to 
59 indictments and 59 convictions of subjects who defrauded the 
Federal Government.
    In all, the Office of the Inspector General efforts 
resulted in more than $90 million in office-wide dollar 
accomplishments during fiscal year 2012.
    Our fiscal year 2012 operating budget was $17.3 million 
which included a $1 million transfer from the agency's disaster 
loan program account which means that the total office-wide 
dollar accomplishments represent a more than fivefold return on 
investment in the Office of the Inspector General to the 
taxpayers.
    Though these figures are reassuring that our work is 
focused on the areas of high risk within the agency, I remain 
concerned about the continued financial and operational risks 
facing the agency.
    For example, in the 7(a) and 504 lending programs, the 
maximum allowable guarantee per loan has grown from $2 million 
to $5 million and for manufacturers in the 504 loan program up 
to $5 and a half million, which, of course, means that there 
has been a dramatic expansion of the potential exposure to the 
taxpayer should these loans default.
    This exposure, combined with a swollen portfolio and 
limited agency oversight, increased the possibility of future 
losses.
    SBA's payments of guarantees on defaulted loans are 
significantly higher than a baseline of fiscal year 2007 when 
there was $1 billion in guarantees paid, up to a high of $5 
billion in 2010, $3.4 billion in fiscal year 2011, and $2.6 
billion in fiscal year 2012.
    It is noted that these figures are moving in the right 
direction though.
    In addition, SBA contracting programs continue to be 
subject to fraud and weak federal oversight. And finally, 
shortcomings in the agencies IT systems might hinder SBA's 
ability to effectively manage their programs.
    I appreciate the opportunity to discuss how the OIG 
proposes to address the noted and persisting risks. As with 
last year's fiscal year 2013 budget request, the President has 
requested a $3.1 million increase in the OIG's fiscal year 2014 
budget.
    We are poised to use additional resources to effectively 
target early defaulted loans, fraud, and lender negligence and 
to increase the capacity of our existing investigative 
personnel. In particular, additional resources would allow the 
OIG to establish a dedicated early defaulted loan review group 
to identify problem loans, would enhance our investigative 
capacity and enhance the OIG Hotline operations.
    When lender negligence is found, the early defaulted loan 
review group would recommend nonpayment of the guarantee, 
target the most offending lenders to obtain corrective actions 
and perhaps most importantly identify trends for operational 
improvement by SBA. It would also allow these loans to be 
referred to criminal investigators for possible prosecution.
    My office handles an average of 250 criminal and civil 
fraud investigations per year. Annually, we attain multiple 
indictments and convictions and recoveries of tens of millions 
of dollars.
    However, additional investigative support would enhance our 
existing investigative capacity and allow more effective 
utilization of the existing investigative resources in a cost-
effective manner.
    Finally, regarding our hotline operation which is very 
often the one way that citizens contact our office with 
allegations of waste, fraud, or abuse, in fiscal year 2012, 535 
hotline complaints were received by OIG and they were processed 
by just one professional staff member.
    Additional staff resources are required to adequately 
analyze incoming complaints for possible referral, for 
investigation and other resolution.
    In short, much work has been done but much more work 
remains to be done. The providing of additional resources at 
OIG undoubtedly would be met with a significant return on 
investment to the taxpayer and also a better SBA.
    So, I thank you again for the opportunity to speak to you 
and I look forward to your questions.
    [The prepared statement of Ms. Gustafson follows:]
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    Chair Landrieu. Thank you.
    Mr. Sargeant.

STATEMENT OF HON. WINSLOW SARGEANT, CHIEF COUNSEL FOR ADVOCACY, 
               U.S. SMALL BUSINESS ADMINISTRATION

    Mr. Sargeant. Chair Landrieu, Ranking Member Risch and 
members of the Committee, good morning. Thank you for the 
opportunity to appear today to discuss the Office of Advocacy's 
budget request for fiscal year 2014. In the interest of time, I 
will summarize my prepared remarks and ask that my full 
statement be included in the record.
    On behalf of the entire Advocacy team, I would like to 
again thank the Committee for its continued support for the 
Office of Advocacy. Underscoring this support was the 
establishment of a separate account for Advocacy in addition to 
a requirement that SBA provide the operating support for our 
office.
    These provisions have enhanced our independence and have 
increased transparency for our many stakeholders on our costs 
and operations. The Office of Advocacy's budget submission is 
part of the president's request for SBA and the government as a 
whole.
    Since my testimony is not circulated for comment through 
OMB or other federal offices, my views on matters other than 
the official budget requests do not necessarily reflect the 
position of the Administration or SBA.
    For fiscal year 2014, the Office of Advocacy requests $8.45 
million for our direct expenses. In recognition of the need for 
federal agencies to reduce their budget requests during the 
current economic condition, this represents a reduction 
$191,000 or 2.2 percent from our fiscal year 2013 enacted 
level.
    This amount includes $7.3 million for personnel costs. 
$700,000 will be allocated for economic research. The balance 
of our requests, $395,000, covers all other direct expenses 
including travel, training, office supplies, subscriptions for 
legal and economic research resources and other miscellaneous 
expenses.
    With 95 percent of Advocacy's total budget request 
concentrated on staffing and research, any significant 
reduction from the amount requested must come from one or both 
of these areas.
    Advocacy's professional staff is our most important 
resource. We cannot accomplish our important mission without 
them. Therefore, the majority of Advocacy's funding reduction 
is coming from our budget for economic research.
    As a result, we are expecting a modest reduction in the 
number of research reports or data products in fiscal year 2014 
from 25 to 20.
    I would like to conclude by citing a benchmark that 
demonstrates what a good investment Advocacy is for America's 
taxpayers. On average during the most recent five years from 
which we have final data from fiscal year 2008 to fiscal year 
2012, each $981 Congress has spent on Advocacy has yielded $1 
million in regulatory cost savings for America's small 
businesses.
    Thank you again for your support of the Office of Advocacy. 
I look forward to continuing to work with you on issues of 
importance to small business and would be happy to answer any 
questions.
    [The prepared statement of Mr. Sargeant follows:]
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    Chair Landrieu. Thank you. I am going to take five minutes 
for questioning and then turned it over to my Ranking Member 
and then to the Senators that are here.
    Ms. Gustafson, you said that the SBA has made no progress 
at all in your testimony to modernize the SBA's loan accounting 
system and migrate it off the mainframe which is noted as 
challenge number 8 in your documents. As a result, you 
downgraded it from an orange to a red.
    Can you explain significance of this downgrade and 
elaborate on this challenge that the agency seems to not be 
able to make too much progress on?
    Ms. Gustafson. Absolutely. The LMAS loan management 
accounting system computer platform has been a source of great 
concern for my office for several years. It is a very large 
program that is behind the times. Since 2005, we have noted 
that it is, it is an antiquated program that is very, very 
difficult to upgrade.
    It uses a COBOL-based language that hardly anybody knows 
and what we have been saying since 2005 is that it needs to be 
moved off the mainframe onto a more modern web-based 
environment.
    Now, the agency has made several attempts, several fits and 
starts to modernize the system. The estimates to modernize the 
system are in the hundreds of millions of dollars. It is a very 
big system.
    Now, the progress that has been made, to be fair, is a 
couple of years ago the agency decided to undertake this 
process in the way that we had been suggesting that they do it 
in and in a way that OMB is also moving all big IT projects 
towards which is do it in stages.
    Do not try to do hundreds of millions of dollars all at 
once. If you make a mistake, then all of a sudden you find you 
spent hundreds of millions of dollars or tens of millions of 
dollars and you have to start over; and that, in fact, had 
happened.
    What has been happening recently is they now are taking it 
in incremental steps called incremental improvement projects, 
and there has been some progress made in the last year to begin 
to move it off the mainframe which is definitely a sign of 
progress.
    The moving to the red; there were three parts of the 
management challenge that moved to red that were of a concern 
to us, and are a concern to us, deal with the quality assurance 
program, the quality control program to make sure that all the 
checks are being done as it goes forward, independent 
verification and validation.
    It is crucial that those be paid very close attention to 
and that they make sure that those steps are done. I will tell 
you that I have been assured that progress will be made this 
year and I am very hopeful that that is the case.
    Chair Landrieu. But let me be very clear and I am going to 
do more reading on my own on this. But, is this the computer 
program that backs up the major lending programs that go 
through the banks in the country, the 7(a) and 504 and our 
lending partners?
    Ms. Gustafson. Right. This is their management of the 
loans. Again, I believe that what they have shown is that they 
are beginning to move it again. It is when you think of an old 
mainframe system, you know, servers in a room, they are 
beginning to migrate to a web-based environment.
    Chair Landrieu. Because, the reason I am pressing this, and 
I am going to really press this as an efficiency to achieve 
here is because technology is moving so quickly and so fast.
    And while you say that the estimates are that it will be 
hundreds of millions of dollars to change it, when I see 
businesses to changing technology, they might be spending a 
little bit more money but they are saving so much more money 
because the technology is now off the shelf.
    I cannot understand how large entities in this country, 
private entities, manage billions and trillions of dollars 
under management and have to track things just like this agency 
and they have been on a new system for over decades and we 
still cannot get to a new system. I am having a hard time 
figuring this out.
    I think the barrier of the estimate of the money is pushing 
them off when maybe there is a much simpler, much less 
expensive solution. I am going to ask my ranking member who is 
probably pretty good on this to give us some ideas about how to 
achieve this because, and any ideas that you have, please 
submit them. But I am going to spend a good bit of time the 
next couple of months on this.
    Let me just ask one more question. If you could, Mr. 
Sargeant, Dr. Sargent, give us, you know, two or three of your, 
real quickly, your best examples of regulations because that is 
what your office was created for. It was created before I got 
to be Chair of this Committee. It has been supported by 
Democrats and Republicans for many years.
    What have you been able to convince the Administration not 
to move forward with or several rules and regulations that you 
believe, and you could just mention two examples this year 
where you have been able to buffer some small businesses from 
regulations that either did not make sense or would have been 
too cumbersome.
    Mr. Sargeant. Chair Landrieu, thank you for your 
leadership. Thank you for your support of small businesses. As 
you know, small businesses are the backbone of our economy.
    We are pleased that our research shows the contributions 
that small business owners make. And what we know is that small 
business owners seek to do what they do best which is to create 
jobs, create money, create wealth.
    And so, what we seek to do within the Office of Advocacy, 
which is what we were created to do, make sure that small 
businesses have a voice within the regulatory process.
    We believe very early on that good research, just like good 
research leads to sound regulation, by having more stakeholders 
within the process when the voices who are at the table are 
being regulated, we believe that----
    Chair Landrieu. Can you give us two examples this year? And 
if you cannot off the top of your head, if you will submit 
those to us, two examples.
    Mr. Sargeant. Well, two examples. One, we are pleased that 
the IRS made some changes to the home office deduction; 52 
percent of all businesses are home-based businesses, and it was 
very complicated on how one would take advantage of the IRS 
home office deduction. So, we are pleased that this year alone 
that they came out, made sure----
    Chair Landrieu. Did you all do that administratively or did 
we do that legislatively?
    Mr. Sargeant. Well, what we did, under Executive Order 
13563, where the President asked for regulatory review and 
reform, we submitted what we heard from small businesses the 
things that they most thought was onerous and not clear, and so 
this was one of the rules and so we are pleased that that was 
repealed.
    We also were pleased, and this is near and dear to your 
heart with regard to the turtle exclusionary device. We met 
with NOAA. I went down to New Orleans, went on a shrimp boat 
and I saw that NOAA was going to move forward with the rule 
that would require this TED device to be on shrimpers and on 
skimmers.
    We know that the fisheries have been hard hit on a number 
of fronts, but this would have caused fishermen to lose their 
catch. And so what we did is that we had a roundtable, had NOAA 
on the phone. They were able to talk directly to the fishermen 
to say, well, this may not be the best way to move forward and 
we were pleased that they did not move forward. They are still 
going to collect data. So, that is two rules that we have 
worked on.
    Chair Landrieu. I am going to ask your office to submit for 
our review a list of about 20 very specific actions that you 
all took this year and I am going to review in your report how 
many actions that were taken that had the results of reducing 
regulations and I am going to turn it over to Senator Risch.
    Mr. Sergeant. Okay.
    Senator Risch. Thank you, Madam Chairman.
    I thank both of you for your service. These are critical 
services when the government is paying as much money as they 
are spending on these enterprises. We all know that money has a 
tendency to fall through the cracks and go places that people 
do not want it to go.
    So, thank you both for your service.
    I would like to help, Madam Chairman, on the computer 
matters but I would need my grandchildren here actually do give 
me a hand.
    Chair Landrieu. Well, maybe we should invite them because 
we need their help.
    Senator Risch. Anyway, but we rely on experts like you for 
those kinds of things because again if somebody does not build 
a fire under them, they do not seem to get changed.
    Mr. Sargeant, how many people do you have in the Office of 
Advocacy? What is the total?
    Mr. Sargeant. We have 46 full-time equivalents within the 
Office of Advocacy.
    Senator Risch. 46 people. And I do not know how the 
chairman feels about this but I noted, as you pointed out, the 
fact that in the President's proposal that your office was 
being cut; and at the same time that those cuts were being 
proposed, there is a proposal to add nine new programs in the 
SBA totaling just under $75 million. It would seem to me that 
your office ought to be increased; this thing ought to be 
reversed. It ought to be your office that is going up instead 
of down because obviously what I hear from businesses, small, 
medium, and large, is that the bureaucracy is killing them, 
that they are being smothered by the regulatory process.
    A good example of that is Obamacare. You know, that was an 
almost 3000-page bill. It was given to us about 30 minutes 
before we voted on it.
    But the real atrocities have come after the bill and that 
is the regulatory process. I have brought in today, this is, 
they tell me, seven feet three inches tall, and it includes the 
rules and regulations for Obamacare. None of us voted on these. 
These were put into place by the bureaucracies as it attempts 
to make Obamacare work.
    Your job, as I understand it, is to see when there are 
proposals for rules and regulations, that they have as modest 
an impact as possible on small businesses.
    Is that one of your charges?
    Mr. Sargeant. Yes, that is one of my charges.
    Senator Risch. Have you guys looked at every one of these 
pages?
    Mr. Sargeant. Well, we have looked at a number of rules 
that have come out under the ACA; and so, we work with DOL, we 
work with HHS, we work with the IRS, we work with SBA to make 
sure that they understand what impact the rules will have on 
small business.
    Senator Risch. And have you had some successes in walking 
them backwards on any of these rules and regs, or do you just 
talk with them and they patronize you and pat you on the head 
and send you back to the offices? Have you had any successes?
    Mr. Sargeant. Well, many of the rules that we have heard 
about from small businesses, mostly deal with not being sure of 
how to comply. And so, what we do is we work with agencies, not 
just on the rule itself but we make sure that small businesses 
will know how to comply, because we believe that once they know 
how to comply, then the rules will be effective.
    So, that is what we are trying to do, to make sure that the 
rules are written in plain language but also make sure that 
small businesses are at the table to give feedback to 
regulators so that they know how to make sure that these rules 
do not disproportionately impact small businesses.
    Senator Risch. Perfect. Do you think you get that done with 
46 people? I mean, I look at this. I do not know how--and this 
is just one law. Obamacare. You have got to deal with the EPA. 
You have got to deal with the IRS. You have got to deal with 
all of the other regulatory agencies, and they tell me, 
although we pass about 2,000 pages of law a year, that the 
bureaucracy produces about 70,000 pages of rules and 
regulations. Do you get that done with 46 people?
    Mr. Sargeant. Well, we work with what we have; and right 
now with the budget, we are able to accomplish and work across 
agencies. We have a dedicated and a talented staff with many 
years of experience.
    We work with small businesses. We work with our regional 
advocates. Our charge is to make sure that we follow the 
Federal Register, see what is being posted. Many times the 
agencies will notify us if a rule will have a significant 
economic impact, under the RFA, as they have to contact us.
    And so we make do with what we have. But, of course, the 
more responsibilities we take on, then we have to look and see 
how we can make the best use of our resources.
    Senator Risch. Well, first of all, I cannot tell you how 
delighted I am to hear an agency say, we do the best we can 
with what we have. Believe me, that is what we ask out of every 
agency. I appreciate the no whining and the comment that you 
are doing the best you can.
    The difficulty I have is, if there is one agency that 
should whine a little bit, it looks like it should be you. I 
just cannot understand how 46 people can look at 70,000 pages 
of rules and regulations every year, especially when you look 
at something like this. I mean, I do not know how many 
Philadelphia lawyers it would take to go through this and look 
at the law of unintended consequences and all of the other 
things that flow from these kind of regulations.
    So, bless you for what you do but it just seems to me that 
it would take a lot more of an effort. Again, I want to 
underscore, Madam Chairman, and want to note for the record 
that this business of adding nine new programs and $75 million 
when these guys are laboring with just 46 people trying to help 
small businesses, I just think is really, really the wrong 
direction to be going.
    So again, my time is up even though the clock seems to be 
frozen. Thank you, Madam Chairman. I do not know how that 
happened. I do not usually get that kind of break here, but 
thanks so much and I appreciate that.
    Again, thank you for what you do and the same with you, Ms. 
Gustafson. Thank you so much.
    Chair Landrieu. Thank you for your comments. But, Senator, 
I would be remiss if I did not underscore, though, that there 
may be nine new initiatives but it is being done with less 
money than last year.
    And the government is dynamic and they have got to 
eliminate things that are not working and moved to proven 
models, and I think that is what we are seeing in this budget.
    Now, I am not completely convinced of this accelerator 
model yet; but if it were nine new programs and the budget was 
going up 20 percent, that would be one thing but it is nine new 
programs within a lower dollar amount than last year.
    So, that is what I think we need to keep our eyes on, and I 
know you will join me in that, Senator.
    Senator Risch. I will do that, Madam Chairman, and was it 
the growth accelerators that you have questions about?
    Chair Landrieu. Well, yes.
    Senator Risch. That is only $5 million out of the $75 
million.
    Chair Landrieu. It is $40 million I think but I do not 
know.
    Senator Risch. That is the entrepreneurship education 
program.
    Chair Landrieu. Correct, and there are some initiatives in 
the budget that move money around in the budget. But I think 
that is what departments should do is to figure out, when it is 
up to us, to give our green light or red light or yellow lights 
because we are not the final say. Of course, the Congress is.
    But our comments about this budget and what we think is a 
good thing or a bad thing do influence what our colleagues will 
say. And what would concern me is if they were spending 20 
percent more money and not eliminating things but they seem to 
be cutting back on certain things, shifting their focus around, 
and that is what this hearing is about, to see if that 
allocation has been done correctly. And, I have not made any 
final decisions until after this hearing. So, we will get to 
visit about that.
    Senator Risch. You know, and I really appreciate that but, 
you know, when you spend $40 million on an entrepreneurship 
education program, look, we Americans understand 
entrepreneurship. We were born in entrepreneurship. We are the 
entrepreneurs of the world. You do not need to spend $40 
million educating people on entrepreneurship.
    I would much rather see this money go to Mr. Sergeant's 
office and have him go through this thing and get 
Administration by the throat and try to convince them of what 
they are doing, how they are strangling small businesses. That 
is my view. Thank you.
    Chair Landrieu. Thank you.
    Senator Cowan.
    Senator Cowan. Thank you. Thank you, Madam Chair.
    General Gustafson and Mr. Sargeant, it is good to see you 
again. Thank you for your testimony.
    First of all, I have great respect for both what you do and 
your agency's responsibilities. I think when we are in the 
business of expending public dollars, and we are, for important 
purposes, it is always an incumbent upon us to make sure those 
dollars are being spent wisely and efficiently, and it seems 
like you are both in the business of ensuring that. So, I thank 
you for that.
    And, I have some experience with that from my time with the 
state level in Massachusetts working closely with the Inspector 
General there who, I used to tell him all the time, did a great 
job of keeping all of us honest about the work that we had to 
do.
    Mr. Sargeant, as you know from our conversation when I was 
the governor's chief legal counsel, I, in effect, served in the 
role that you did when you came to the regulatory process of 
ensuring that when our agencies were proposing regulations, we 
were clear about the impact on small businesses and others and 
ensured that regulations would not have a negative impact and 
sought feedback from those who would be regulated.
    And frankly, when there was, and most recently looking at 
regulations that had been on the books for many, many years and 
deciding whether or not they still served a particular purpose 
in taking what some would say was the bold but seemingly 
reasonable action of actually removing some regulations from 
the books which is always interesting.
    General Gustafson, back to your issue about the loan 
program, your concern and, as the Chair has indicated, you 
moved, on the dashboard you moved it, we saw the light go from 
yellow to red which is never a good thing.
    I am curious. I would like to hear a little more about 
that. One of the most frustrating things I recall from my time 
in state service looking at some of these issues when you were 
dealing with agency officials and trying to get them to move 
forward or change some things, often the response was, well, we 
have always done it this way.
    Can you elaborate a little bit more about why you think we 
are not moving forward in the way that you propose and what is 
the basis of that resistance, and what, if anything, can we do, 
we the Senate, the Congress, do to help advance the cause?
    Ms. Gustafson. I think as far as the LMAS platform, the 
loan management platform, where they went from orange to red, 
the key thing that the Congress needs to continue to do, which 
they have done, is to continue to emphasize to the 
administration and to the Administrator how crucial this 
project is and to make sure that they know that, and they do 
know this, that we are watching and that you are watching.
    I mean, this is then again a subject of concern both within 
the agency and with this Committee and Congress for several 
years now.
    So, I would not say necessarily that in the last couple of 
years, I would not say that the problem has been a reticence on 
the agency to agree with us.
    As I said before, we had been pushing for several years for 
them to take this in stages and to try to not, you know, build 
an entirely new car from the get-go but, you know, start fixing 
the part of the car that needed to be fixed.
    And so, that has been a change, a very positive change that 
the agency has begun to do that. So, I do not think it really 
is a reluctance on their part.
    Part of the issues that the challenge report from last 
fiscal year showed had to do with things like getting the 
people on board that needed to be onboard timely as far as 
contracting and the quality assurance parts and on the 
independent verification and validation.
    Part of it was they had not yet gotten the people on board 
through contracting, or otherwise, that they needed to get on 
board and make sure there was a segregation of duties such that 
a lot of what those reds have to do with, have to do with is 
the process of them checking themselves as they go along with 
quality assurance part and stuff like that.
    And so, it was them following a little behind the curve on 
those aspects that resulted in those reds. And that is why, as 
I indicated to Senator Landrieu through--of course, we continue 
a constant dialogue with the agency on all of these management 
challenges.
    This is not something that we visit just once a year and, 
boom, now you are red, or you are orange, or something like 
that; and through the conversations that we continue to have, 
it seems to me, at least anecdotally, and of course, we go back 
and check this, we never take anybody at their word. We are the 
OIG. It seems like--it would not shock me if we did not see 
progress in that area, that that has been improved.
    Senator Cowan. Mr. Sargeant, we have a little bit of time 
left but I am just curious. Picking up where the Ranking Member 
expressed concern about the size of your staff and your 
willingness to do everything you can with what you have, has 
there any thought been given to ask the agencies themselves 
perhaps through some process to identify, as we did in 
Massachusetts at the State level, those regulations that the 
agency who should know the best believe are no longer useful or 
repetitive or outdated or do not serve any particular purpose, 
to identify those for consideration either being revised or 
revoked or removed from the books?
    Have you thought about a process like that?
    Mr. Sargeant. Senator Cowan, under Executive Order 13563, 
the President did call for agencies to look at the rules that 
were on their books and then to do an assessment in conjunction 
with us as to whether or not those rules were needed.
    And so, what we did is that we submitted rules that we got 
from small businesses, because it is one thing for the agency 
to do the analysis and to look at rules themselves, but it is 
another thing to get feedback from those who, you know, from 
the stakeholders.
    So, what we try to do is to make sure that it is not just 
that they are looking at the rules but there is a feedback loop 
where they are hearing what we are hearing in terms of how 
those rules will impact and to identify the rules that will get 
the best bang for the buck.
    So, we continue to work with the administration. There were 
three rules. One was the IRS rule that was mentioned that was 
on the books for a long time. There was a three percent 
withholding rule that was also on the books. That was repealed.
    And so, we will continue to work with the administration in 
terms of how to identify rules under what is called the RFA 
610. Every 10 years if a rule has been on the books for 10 
years, the agency is required to look at those rules to assess 
whether or not those rules are needed.
    One of my legislative priorities is to request that the 
agencies have a structured process so that the agency will not 
just look at the rule and say, well, okay, we think it is still 
needed.
    But to really do the analysis because now there are 10 
years that they can look back to see what the impact of that 
rule is and whether or not it has been effective and whether it 
is no longer needed.
    And so, those are some of the things that we hope to do, 
and I would welcome the opportunity to work with you on ways 
that we could strengthen this process.
    Senator Cowan. Thank you.
    Senator Risch. Madam Chairman, Senator Cowan, that is such 
a great idea to review those rules and regulations. In fact, it 
is unfortunate they do not expire and sunset and give us a 
chance to actually deal with them.
    The Executive Order you are referring to, is that the one 
that President Obama----
    Mr. Sargeant. Yes, that was Executive Order----
    Senator Risch. You know, for a long time, for a long time 
after that, we heard the only rule that was repealed as a 
result of that was EPA finally deciding that spilled milk was 
not a hazardous substance.
    Are there some other rules that were repealed under that 
Executive Order?
    Mr. Sargeant. Well, there were other rules.
    Senator Risch. Two others.
    Mr. Sargeant. One was the three percent withholding and 
also the one on the IRS home office deduction. And, there are 
others. Well, the rules that I am talking about----
    Senator Risch. Was not the three percent, did not we do 
that? Did not Congress do that?
    Mr. Sargeant. Yes.
    Senator Risch. So, it was not the administration.
    Mr. Sargeant. It was not, yes
    Senator Risch. So, there have been two rules repealed by 
the Administration as a result of his Executive Order, is that 
what you are telling us?
    Mr. Sargeant. Well, those are rules that I look at for 
small business. There may be some other rules that may have 
impacted large businesses.
    Senator Risch. Is one of them the milk rule that I referred 
to?
    Mr. Sargeant. Yes, the milk rule and the rule that dealt 
with the IRS.
    Senator Risch. I do not know of any others but perhaps 
there were, perhaps there were some others. But anyway, Senator 
Cowan, thank you for that. That is something that really needs 
to be done. I appreciate it.
    Chair Landrieu. Thank you, again thank you all very much 
and the meeting is adjourned.
    [Whereupon, at 11:53 a.m., the Committee was adjourned.]
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