Mr. KERRY. I want to thank our Chair, Senator Snowe, for holding this hearing, and thank our witnesses - Administrator Barreto, Tony Wilkinson , David Coit , Mary Matthews and Ellen Golden - for taking the time to be here and share their thoughts with us on the SBA's FY2005 Budget request. I also want to welcome all those who have come to hear the discussion and those who have, or will, submit written testimony for the record. Written testimony and letters of comment are very important to helping the Committee members assess the budget and for establishing a public record on what works and what doesn't for small businesses, and for the SBA's lending and counseling partners.
The FY2005 budget request for the Small Business Administration is a disappointment. Each year this Administration's budget requests have had serious flaws, and I was really hoping this year would be different. I thought maybe real help for small business would be proposed in this budget because the first quarter of this year has been so brutal on small businesses and SBA's private sector partners that deliver the assistance to them. They are our country's biggest job creators, after all, and jobs are what so many in our country need. Of course, I am referring to the unnecessary shutdown of the SBA's largest small business lending program, the shutout of 2,000 small business borrowers who needed their loans, and the past month's operation at half capacity with, again, unnecessary and unreasonable restrictions. The repercussions on small businesses are serious, causing unconscionable financial hardships, and I was hopeful that out of the damage would come some positive proposals that would really help this important part of our economy. For example, maybe the 7(a) program would be funded to meet demand.
Instead, the President proposes to cut every penny of Federal help for working capital loans. Instead, the President wants to cut every penny for microloans and eliminate the program. Instead, the President wants to raise the fees on two of its venture capital programs and requests nothing to fund the venture capital program that targets the most under-invested, high-unemployment areas in the country. Areas like Appalachia, Kentucky and Harlem, New York. Instead, the President wants to eliminate half of all the SBA's counseling and contracting assistance that benefit those with the least opportunities and the most need for financial security and economic independence. Assistance to micro-entrepreneurs. Gone. Assistance to Native American businesses. Gone.
Overall, the President wants to cut the budget 15 percent over what he requested last year. The SBA now has the distinction of being the most cut of major Federal agencies under this Presidency - almost 25 percent. Madame Chair, I ask that the chart, entitled S-3, Agency Growth in Discretionary Spending on page 367 of the Historical Tables volume of the President's FY 2005 Budget be included in the record. Every year, despite rhetoric to the contrary, the President has cut help that should go to the little guy, when the little guy is what's keeping this country in business. Even when it came to helping small businesses survive after the terrorist attacks of September 11, 2001, the Administration blocked a bi-partisan bill of some 60 senators for months.
Although budget issues are very technical and can be tedious to examine, I believe it is important that the public knows exactly what the proposals mean and why they are not in the best interest of small businesses and the economy.
The cuts and reductions proposed for many important SBA programs are numerous and extremely detrimental to the depth and breadth of assistance that small businesses will be able to receive if this budget proposal were enacted. I submit for the record a list of SBA programs which identifies the adverse effects of the budget proposal on a program-by-program basis.
Now to examine some of the specifics of the proposals, starting with the Agency's flagship lending program, known as the 7(a) Loan Guarantee Program. For the Administration to claim its proposal will result in record levels of loans because it requests a program level of $12.5 billion in loan guarantees is misleading when it does not provide the funding to pay for it. Under the budget proposal, the cost will be dumped on small borrowers and lenders through fee increases, when they already pay about 99 percent of the cost. For the government to contribute 1 percent to leverage otherwise unavailable financing to small businesses is not a fiscal burden. The SBA exists for this very reason, and it is a benefit to the economy and the prosperity of this country.
To increase fees on borrowers and lenders is wrong. And unnecessary. It takes us in the wrong direction when bipartisan legislation passed over the last couple of years has finally set the program going in the right direction. The accounting seemed to be more accurate. The fees were less burdensome on the small business community and the lenders that serve them . And, consequently, more small businesses were getting working capital loans.
Congress and the small business community worked hard to get this program back on track. Through a series of legislative actions, Senator Bond and I succeeded in rolling back those unnecessary fees and I am opposed to letting this budget increase those fees, as is the Senate.
On September 26, 2003, the Senate passed legislation to make the fee reductions permanent as part of S. 1375. The President's budget goes against the will of the Senate and clear preferences of SBA's lending partners to let the fee reductions expire in order to pay for the government's current share of the cost.
To slow down the impact of this program is unwise. The SBA's 7(a) Loan Guarantee Program is critical to our small businesses because it provides about 40 percent of all long-term small business loans in this country. Longer terms spread out the repayments so that small businesses can keep their monthly payments more affordable. This is not available in the private sector, and I doubt there are many other programs in the government that have such an immediate impact on the economy and job creation. As the SBA estimates, every $33,000 loaned creates one job. That means this loan program fostered the creation or retention of about 340,000 jobs in FY2003. Given job loss in this country, it is foolish to hamstring this program. Further, these are loans; they are not handouts. Most small businesses repay the government, and for eight years the 7(a) small business borrowers and lenders did more than repay the government - they overpaid by more than $1 billion.
To exacerbate an already troublesome situation, the Administration now wants to double charge the small business community by imposing a second subsidy rate on the 7(a) loan program. Starting in FY2005, the Administration will treat loans sold on the secondary market separately from loans originated in the program. Many lending and budget experts argue that these risks are implicit in the current subsidy rate and that it would be fairer to simply make program changes to address any potential accounting problems. No one argues that the reserve fund for the pools of 7(a) loans should not be solvent. It should be. But unfortunately, no one trusts the OMB to be fair and not outcome driven in creating a model to predict losses. Many fear that the Agency will do more harm than good when fine tuning a program that has never missed a payment. I ask the Agency and the OMB to work with the industry to identify and implement any changes, and to consult with our Committee and the House Committee on Small Business.
I need to address some problems with the 7(a) program for this current year, FY2004. One has to do with the funding crisis, and another has to do with double standards in accounting. I have been outspoken about the mismanagement of the 7(a) loan program this year. I will submit for the record my letters to the SBA and to the President regarding these problems. Let me say quickly that there was no reason to shut down that loan program and there was no reason to impose crippling restrictions when it was reopened.
I do not consider the program to be up and running, as the Agency claims. It is a token operation when loans of more than $750,000 that were in the pipeline before January 8th have still not been made. It is a token operation when loans of more than $750,000 are not allowed going forward. And it is a token operation when combined loans, known as "piggyback loans," are not allowed. I remind the Administration that the program, indeed the entire agency, is there to serve the small business, and different products and loan sizes are necessary to meet the needs of small businesses around this country. Until these restrictions are removed, I will not consider this program to truly be back in business. The Administration has had more than a month to send up a reprogramming request and to send up a request for a supplemental. It has done neither. And on February 4th, 2004, almost two weeks after the continuing resolution had passed, which was the Administration's excuse for the shutdown, the SBA was holding loans and rejecting loans based on false claims of Congressional budget constraints. I submit the letter documenting such practice for the record.
For the SBA's entrepreneurial development (ED) programs, this is also the worst budget proposal that this Committee has received from President Bush in four years. If enacted, the President's budget will all but decimate SBA's entrepreneurial development assistance - particularly for those who need it most: women, minorities, and low-income entrepreneurs.
As described in the list I've submitted for the record, the President has proposed terminating 10 of the 20 ED programs at the SBA, cutting three and flat-funding seven. All of these programs are designed to provide targeted, expert, and unique assistance to sectors of the small-business community that have few, if any, other resources.
The SBA has said it expects its core programs - the Small Business Development Centers (SBDCs) , SCORE and the Women's Business Centers (WBCs) programs - to address the full host of small business needs, including those currently being met by the 10 programs being eliminated. This claim is disingenuous at best. As I have just said, the current programs at the SBA are specific and unique. And while the SBA's core programs are well suited to the address the entrepreneurial development needs of many small businesses, they are in no way able to make up for the loss of 10 key programs - particularly when the Administration has flat-funded or cut their funding each year. To compound the problem, the Administration expects these three core programs – on top of absorbing the clientele of the 10 eliminated programs -- to expand services and increase productivity. All this without additional funding.
The WBCs, SCORE and the SBDCs are very productive and very efficient; however, they are reaching capacity. Already, they are struggling to meet the constantly growing demand for small business counseling services. There are ever-lengthening waiting lists for courses and small-business owners are already being turned away. Without full funding for these and other programs, the prospects for small business job creation, expansion and growth will only worsen.
With over 70 BICs across the country, these centers provide small-business owners access to the latest computer technology, entrepreneurial publications, management resources and planning tools that offer guidance and assistance for starting and growing a business. They are an integral part of one of the SBA's most successful core programs, SCORE, and are closely linked with other SBA resource partners such as the SBDCs. Often the only information available to budding businesses, the BICs are tailored to the needs of their community, whether rural or urban, high-tech or manufacturing, computerized or labor-intense. This is not the first time the Administration has cut the BICs. In 2002, the Bush administration dismantled the infrastructure of SBA's only program aimed at helping Native Americans - the tribal business information centers (TBICs). Since the vast majority of BIC resources are donated by the private sector, it makes little sense to eliminate this valuable program.
Now, for the third time in four years, the Administration is eliminating funding for Native American Outreach, again, the only program tailored to meet the needs of the Native American community. According to a report released by the U.S. Census Bureau, the "three year average poverty rate for American Indians and Alaska Natives [from 1998-2000] was 25.9 percent higher than for any other race groups." With unemployment as high as 70 percent and poverty rates well above the national average, Native American communities need a commitment from the Federal government that we will help. For the past two years, Congress did not adopt the ill-advised proposals of Administration for Native American assistance at the SBA and appropriated $2 million. The SBA, however, failed to establish a definitive, continuing Native American program with the funds.
Over the past several years, I have worked closely with my colleagues in Congress to fund Native American support programs at the SBA. This year, Senator Snowe and I included the Native American Small Business Development program in the SBA Reauthorization bill. This legislation, which was reintroduced by Senators Johnson, Smith and me last year, would ensure that the SBA's programs to assist Native American communities cannot be dissolved by making the SBA's Office of Native American Affairs (ONAA) and its Assistant Administrator permanent. Our legislation would also create a statutory grant program, known as the Native American Development grant program, to assist Native Americans. It would also establish two pilot programs to try new means of assisting Native American communities and require Native American communities to be consulted regarding the future of SBA programs designed to assist them. In short, this legislation will ensure that our Native American communities receive the adequate assistance they need to help start and grow small businesses.
Also in need of urgent attention is the Women's Business Center program. This is a program that helped more than 100,000 women entrepreneurs last year alone. Despite repeated success and improvement, President Bush has proposed flat funding for the program each year of his Administration. This year his $12 million request is $1.5 million short of projected funding needs for fiscal year 2005. A critical part of the WBC program -- sustainability grants, which allow the most experienced and productive centers to continue receiving funding -- was authorized as a pilot program that was set to expire in Sept. 2003. However, all SBA programs, including pilot programs, have been continued through March 15, 2004, until the SBA Reauthorization bills are passed. The sustainability grant program that I drafted in 1999 is made permanent in both the Senate and House SBA Reauthorization bills, and is expected to be included in final Reauthorization legislation.
Last year, the SBA testified that the agency is more interested in opening new, inexperienced centers than continuing those experienced centers that have made up the foundation of the program for 15 years. Because of this stance, the SBA underfunded the 33 WBCs that receive sustainability grants, which are typically made at $125,000, in order to fund 11 new centers. This year the funding situation is more severe, with 53 centers across the country competing for sustainability grants -- which are capped at 30.2 percent of available funds. Unless the Reauthorization bills are passed or the program is extended, these 53 sustainability centers will be forced out of the program. Even if the 30.2 percent cap were kept in place, the SBA would need to either cut the $125,000 grants in half or terminate 23 centers. Because of the WBC program's importance to women entrepreneurs across the country, I find it illogical that the Administration doesn't address the issue of sustainability grants in its budget request given that, in that request, even the Administration admits that this is one of its "core programs". Despite the reduced funding, the SBA expects the WBCs to take on several new tasks -- as well as take up the clientele of the 10 non-credit programs that are terminated by SBA's proposed budget. This unreasonable and unrealistic.
I want to thank Chair Snowe for her steadfast leadership on this issue and full-fledged support of the WBC program. I look forward to working further with her, my colleagues on the House side and the Administration to find a workable solution to this issue.
In commenting on the importance of microenterprise development, SBA Administrator Hector Barreto has stated, "The PRIME program was created to help the smallest of small businesses. These are entrepreneurs at the most basic stage of starting a business and who typically require the greatest amount of committed service and guidance. In order to succeed, they require training and technical assistance that must be accessible." The program is targeted to help low-income and very low-income families, defined as those at 150 percent of the poverty line or below. A very low-income family of four earns about $23,000 a year. The International Labor Organization estimates that the return on investment in microenterprise development (through programs like PRIME) ranges from $2.06 to $2.72 for every dollar invested. Microenterprise contributes to our national economy through public tax revenues, private income increases, and reduced dependence on public assistance, such as Welfare.
Small Business Development Centers define a "client" as someone who has received two hours of training. On average, however, the PRIME program organizations spend 10 hours with low-income and very low-income entrepreneurs. Some confuse PRIME with the Microloan technical assistance. Unlike the Microloan program's technical assistance, which is directly tied to helping microentrepreneurs obtain access to capital through microlenders, the PRIME program is designed to help microentrepreneurs who may not be credit-worthy or don't need or want loans, but do need intensive technical assistance. Further, there are only 15 Microloan non-lending technical assistance providers (NTAPS) to provide the Microloan program's technical assistance, and the SBA has said it is not going to increase this number, which is already inadequate. Currently, there are only 66 organizations providing PRIME assistance. The need for PRIME assistance is now greater than ever. While access to credit is vital to microentrepreneurs, for low-income individuals, there is often a severe gap between their current experience and being credit-worthy. Receiving PRIME technical assistance can fill that gap and help them become successful in business. Despite this overwhelming need, the President, for the fourth year in a row, has eliminated PRIME from his budget.
The U.S. Export Assistance Centers (USEACs) are a joint venture involving the Commerce Department, the Export-Import Bank, the Department of Agriculture, the U.S. Agency for International Development (USAID) and the SBA that provide hands-on export marketing and trade finance assistance. They work with local, state, federal, public and private entities to provide unparalleled support to American businesses looking to compete in the global marketplace. They are a focal point of international business for many communities. The SBA has full-time staff at 19 USEACs across the country, yet the President's budget request terminates the SBA's presence at these centers. Removing the small business presence at the USEACs would not only hurt small businesses and small manufacturers, but ultimately, it would hinder job creation, increase the trade deficit and dampen the economy. Without the SBA, small exporters and startups - which comprise 97 percent of all export businesses in the country - will have less direct access to SBA's export assistance loans and counseling. Not only do the SBA-supported USEACs counsel thousands of small businesses and lenders on exporting and finance issues, but each year they assist in making hundreds of loans that were responsible for over $1 billion in export sales in fiscal year 2003 - creating over 14,000 jobs. The USEACs are one of the SBA's most rewarding investments, one that has produced astounding results each year. At a time when jobs are being taken overseas and 3 million have already been lost under this Administration, cutting SBA's partnership in the USEACs is ill conceived. Putting our resources into the USEACs means putting our resource into jobs, and that's exactly what we should be doing.
The President's FY2005 budget request also shortchanges minority, women and veteran-owned small businesses and entrepreneurs in the Federal procurement arena. Instead of creating new jobs and true economic growth throughout this nation by helping small businesses grow, President Bush's budget cuts funding for Small Business Administration (SBA) programs intended to increase opportunities in Federal contracting for small firms. The budget shortchanges Federal contracting assistance programs and fails to fund the necessary level of oversight and accountability needed in Federal procurement to ensure that small businesses receive their fair share of contracts.
The 7(j) Technical Assistance program was cut by approximately 25%, a reduction of $479,000. This program provides essential technical assistance to 8(a) companies. The lack of effective technical assistance that trains these businesses in areas such as effective accounting practices, how to bid on Federal contracts, and writing Federal grant applications has been repeatedly listed as the main reason why so many 8(a) companies fail after graduation from the program. Sufficient technical assistance funding will allow these companies to gain the management, self-marketing and proposal-writing skills needed to compete with larger firms after graduating from the program. According to the SBA, the shortfall in available technical assistance to minority firms can be compensated by sending them for training through the SBA's so-called "core programs," programs such as the Small Business Development Centers, the Women's Business Centers, and the Veterans Business Centers. However, the Bush budget offers no additional money to fund this effort in the so-called core programs, essentially creating an unfunded mandate for them.
Funding for the Historically Underutilized Business Zone (HUBZone) program, a contracting assistance program that gives preferences in Federal procurement to underserved rural and urban areas, was eliminated. Not funding this program shows a clear lack of commitment by the President to foster real economic growth in areas that have high unemployment rates and low income levels. Zero funding cripples the program's ability to reach out to small firms in poor urban and rural areas that are most likely to invest in capital improvement and hire new workers from those low-employment areas when awarded a Federal contract. The budget fails to fully fund the Small Disadvantaged Business (SDB) program, which, if adequately supported, could help create real job opportunities across the country. It has been flat funded in the FY2005 budget. While the SBA continues to fall short in its effort to foster minority business growth and development, the African American and Hispanic American unemployment rates remain at 10.5 percent and 7.3 percent, respectively, well above the national average of 5.6 percent in January 2004.
The FY 2005 budget offers no additional funds for Procurement Center Representatives (PCRs), which runs counter to this Committee's view as expressed in the Senate-passed SBA Reauthorization legislation, that the number of PCRs should be increased to better serve small businesses. These representatives advocate on behalf of small businesses in cases directly affecting contracting, such as the bundling or consolidation of contracts. Unfortunately, the number of PCRs have been reduced from over 200 at its peak in the late 1980s to the current level of just 47. In addition to reducing the number of traditional PCRs, the Administration has also eliminated the Breakout PCRs, specially trained advocates that analyze highly technical large contracts and "unbundle" contracts and break out portions that are appropriate for small businesses. Their responsibilities have been rolled into that of Traditional PCRs, even though the number of PCRs continued to decline. Often, the role of Commercial Marketing Representatives (CMRs) has also been incorporated into the responsibilities of Traditional PCRs. CMRs are responsible for identifying opportunities and developing marketing strategies for small businesses to appeal to large prime contractors. The SBA's attempt to streamline their offices and replace trained individuals with electronic systems has resulted in the disenfranchisement of small businesses and a hamstringing of the SBA's ability to maintain a proper level of oversight over Federal contracting.
Although the President has issued statements and Executive Orders on Federal procurement proclaiming the need for increased accountability in Federal agencies and an increase in the number of contracts available to small firms, the action falls well short of the rhetoric. How can you increase the number of contracts for small businesses if there is not sufficient oversight on the consolidation and allocation contracts currently being awarded? How can you have sufficient oversight without the appropriate level of funding and staff needed to do the job? This Committee learned during the SBA reauthorization process that the level of oversight needed in the contracting arena actually requires more PCRs to investigate the nearly $90 billion of Federal contracts that are currently not being reviewed. The SBA Budget seems to ignore this responsibility.
As small businesses continue to be shut out of the Federal procurement market, they must rely more heavily on the private sector to offer opportunities. Although the SBA is also responsible for fostering small business growth in the private sector, they eliminated funding for one of their most successful programs that creates measurable returns on business-to-business relationships between large and small firms. The BusinessLINC program is unfunded in the FY 2005 budget, essentially eliminating the program. This is not the first sign, however, of the Bush Administration's attempt to systematically dismantle this program. Although the Administration recommended eliminating the program during the SBA reauthorization process, the reports this Committee received regarding the overwhelming success of the existing nine programs funded in FY2003 made it clear that the SBA did not have sufficient information about BusinessLINC to make an informed decision on its effectiveness. The Committee chose to retain the program, allowing the nine centers to remain operating and creating business in their home states. Unfortunately, the SBA found it appropriate to use $1 million of the $1.75 million available in the last year the program was funded to pay for Hewlett Packard's traveling version of a matchmaking program. This left only enough resources this year to fund three of the nine successful BusinessLINC centers that submitted testimony to the record during last year's reauthorization. Unfortunately, this is not the only example in the SBA's budget where funding was removed from proven and effective existing programs and redirected to new initiatives with unpredictable track records for success.
I have letters and email communications here from members of the public expressing their views of this budget proposal, and often of its effects on them or on small businesses. I ask that they be included in the record for this hearing.
The FY2005 budget request for the Small Business Administration is a disappointment. Each year this Administration's budget requests have had serious flaws, and I was really hoping this year would be different. I thought maybe real help for small business would be proposed in this budget because the first quarter of this year has been so brutal on small businesses and SBA's private sector partners that deliver the assistance to them. They are our country's biggest job creators, after all, and jobs are what so many in our country need. Of course, I am referring to the unnecessary shutdown of the SBA's largest small business lending program, the shutout of 2,000 small business borrowers who needed their loans, and the past month's operation at half capacity with, again, unnecessary and unreasonable restrictions. The repercussions on small businesses are serious, causing unconscionable financial hardships, and I was hopeful that out of the damage would come some positive proposals that would really help this important part of our economy. For example, maybe the 7(a) program would be funded to meet demand.
Instead, the President proposes to cut every penny of Federal help for working capital loans. Instead, the President wants to cut every penny for microloans and eliminate the program. Instead, the President wants to raise the fees on two of its venture capital programs and requests nothing to fund the venture capital program that targets the most under-invested, high-unemployment areas in the country. Areas like Appalachia, Kentucky and Harlem, New York. Instead, the President wants to eliminate half of all the SBA's counseling and contracting assistance that benefit those with the least opportunities and the most need for financial security and economic independence. Assistance to micro-entrepreneurs. Gone. Assistance to Native American businesses. Gone.
Overall, the President wants to cut the budget 15 percent over what he requested last year. The SBA now has the distinction of being the most cut of major Federal agencies under this Presidency - almost 25 percent. Madame Chair, I ask that the chart, entitled S-3, Agency Growth in Discretionary Spending on page 367 of the Historical Tables volume of the President's FY 2005 Budget be included in the record. Every year, despite rhetoric to the contrary, the President has cut help that should go to the little guy, when the little guy is what's keeping this country in business. Even when it came to helping small businesses survive after the terrorist attacks of September 11, 2001, the Administration blocked a bi-partisan bill of some 60 senators for months.
Although budget issues are very technical and can be tedious to examine, I believe it is important that the public knows exactly what the proposals mean and why they are not in the best interest of small businesses and the economy.
The cuts and reductions proposed for many important SBA programs are numerous and extremely detrimental to the depth and breadth of assistance that small businesses will be able to receive if this budget proposal were enacted. I submit for the record a list of SBA programs which identifies the adverse effects of the budget proposal on a program-by-program basis.
Now to examine some of the specifics of the proposals, starting with the Agency's flagship lending program, known as the 7(a) Loan Guarantee Program. For the Administration to claim its proposal will result in record levels of loans because it requests a program level of $12.5 billion in loan guarantees is misleading when it does not provide the funding to pay for it. Under the budget proposal, the cost will be dumped on small borrowers and lenders through fee increases, when they already pay about 99 percent of the cost. For the government to contribute 1 percent to leverage otherwise unavailable financing to small businesses is not a fiscal burden. The SBA exists for this very reason, and it is a benefit to the economy and the prosperity of this country.
To increase fees on borrowers and lenders is wrong. And unnecessary. It takes us in the wrong direction when bipartisan legislation passed over the last couple of years has finally set the program going in the right direction. The accounting seemed to be more accurate. The fees were less burdensome on the small business community and the lenders that serve them . And, consequently, more small businesses were getting working capital loans.
Congress and the small business community worked hard to get this program back on track. Through a series of legislative actions, Senator Bond and I succeeded in rolling back those unnecessary fees and I am opposed to letting this budget increase those fees, as is the Senate.
On September 26, 2003, the Senate passed legislation to make the fee reductions permanent as part of S. 1375. The President's budget goes against the will of the Senate and clear preferences of SBA's lending partners to let the fee reductions expire in order to pay for the government's current share of the cost.
To slow down the impact of this program is unwise. The SBA's 7(a) Loan Guarantee Program is critical to our small businesses because it provides about 40 percent of all long-term small business loans in this country. Longer terms spread out the repayments so that small businesses can keep their monthly payments more affordable. This is not available in the private sector, and I doubt there are many other programs in the government that have such an immediate impact on the economy and job creation. As the SBA estimates, every $33,000 loaned creates one job. That means this loan program fostered the creation or retention of about 340,000 jobs in FY2003. Given job loss in this country, it is foolish to hamstring this program. Further, these are loans; they are not handouts. Most small businesses repay the government, and for eight years the 7(a) small business borrowers and lenders did more than repay the government - they overpaid by more than $1 billion.
To exacerbate an already troublesome situation, the Administration now wants to double charge the small business community by imposing a second subsidy rate on the 7(a) loan program. Starting in FY2005, the Administration will treat loans sold on the secondary market separately from loans originated in the program. Many lending and budget experts argue that these risks are implicit in the current subsidy rate and that it would be fairer to simply make program changes to address any potential accounting problems. No one argues that the reserve fund for the pools of 7(a) loans should not be solvent. It should be. But unfortunately, no one trusts the OMB to be fair and not outcome driven in creating a model to predict losses. Many fear that the Agency will do more harm than good when fine tuning a program that has never missed a payment. I ask the Agency and the OMB to work with the industry to identify and implement any changes, and to consult with our Committee and the House Committee on Small Business.
I need to address some problems with the 7(a) program for this current year, FY2004. One has to do with the funding crisis, and another has to do with double standards in accounting. I have been outspoken about the mismanagement of the 7(a) loan program this year. I will submit for the record my letters to the SBA and to the President regarding these problems. Let me say quickly that there was no reason to shut down that loan program and there was no reason to impose crippling restrictions when it was reopened.
I do not consider the program to be up and running, as the Agency claims. It is a token operation when loans of more than $750,000 that were in the pipeline before January 8th have still not been made. It is a token operation when loans of more than $750,000 are not allowed going forward. And it is a token operation when combined loans, known as "piggyback loans," are not allowed. I remind the Administration that the program, indeed the entire agency, is there to serve the small business, and different products and loan sizes are necessary to meet the needs of small businesses around this country. Until these restrictions are removed, I will not consider this program to truly be back in business. The Administration has had more than a month to send up a reprogramming request and to send up a request for a supplemental. It has done neither. And on February 4th, 2004, almost two weeks after the continuing resolution had passed, which was the Administration's excuse for the shutdown, the SBA was holding loans and rejecting loans based on false claims of Congressional budget constraints. I submit the letter documenting such practice for the record.
For the SBA's entrepreneurial development (ED) programs, this is also the worst budget proposal that this Committee has received from President Bush in four years. If enacted, the President's budget will all but decimate SBA's entrepreneurial development assistance - particularly for those who need it most: women, minorities, and low-income entrepreneurs.
As described in the list I've submitted for the record, the President has proposed terminating 10 of the 20 ED programs at the SBA, cutting three and flat-funding seven. All of these programs are designed to provide targeted, expert, and unique assistance to sectors of the small-business community that have few, if any, other resources.
The SBA has said it expects its core programs - the Small Business Development Centers (SBDCs) , SCORE and the Women's Business Centers (WBCs) programs - to address the full host of small business needs, including those currently being met by the 10 programs being eliminated. This claim is disingenuous at best. As I have just said, the current programs at the SBA are specific and unique. And while the SBA's core programs are well suited to the address the entrepreneurial development needs of many small businesses, they are in no way able to make up for the loss of 10 key programs - particularly when the Administration has flat-funded or cut their funding each year. To compound the problem, the Administration expects these three core programs – on top of absorbing the clientele of the 10 eliminated programs -- to expand services and increase productivity. All this without additional funding.
The WBCs, SCORE and the SBDCs are very productive and very efficient; however, they are reaching capacity. Already, they are struggling to meet the constantly growing demand for small business counseling services. There are ever-lengthening waiting lists for courses and small-business owners are already being turned away. Without full funding for these and other programs, the prospects for small business job creation, expansion and growth will only worsen.
With over 70 BICs across the country, these centers provide small-business owners access to the latest computer technology, entrepreneurial publications, management resources and planning tools that offer guidance and assistance for starting and growing a business. They are an integral part of one of the SBA's most successful core programs, SCORE, and are closely linked with other SBA resource partners such as the SBDCs. Often the only information available to budding businesses, the BICs are tailored to the needs of their community, whether rural or urban, high-tech or manufacturing, computerized or labor-intense. This is not the first time the Administration has cut the BICs. In 2002, the Bush administration dismantled the infrastructure of SBA's only program aimed at helping Native Americans - the tribal business information centers (TBICs). Since the vast majority of BIC resources are donated by the private sector, it makes little sense to eliminate this valuable program.
Now, for the third time in four years, the Administration is eliminating funding for Native American Outreach, again, the only program tailored to meet the needs of the Native American community. According to a report released by the U.S. Census Bureau, the "three year average poverty rate for American Indians and Alaska Natives [from 1998-2000] was 25.9 percent higher than for any other race groups." With unemployment as high as 70 percent and poverty rates well above the national average, Native American communities need a commitment from the Federal government that we will help. For the past two years, Congress did not adopt the ill-advised proposals of Administration for Native American assistance at the SBA and appropriated $2 million. The SBA, however, failed to establish a definitive, continuing Native American program with the funds.
Over the past several years, I have worked closely with my colleagues in Congress to fund Native American support programs at the SBA. This year, Senator Snowe and I included the Native American Small Business Development program in the SBA Reauthorization bill. This legislation, which was reintroduced by Senators Johnson, Smith and me last year, would ensure that the SBA's programs to assist Native American communities cannot be dissolved by making the SBA's Office of Native American Affairs (ONAA) and its Assistant Administrator permanent. Our legislation would also create a statutory grant program, known as the Native American Development grant program, to assist Native Americans. It would also establish two pilot programs to try new means of assisting Native American communities and require Native American communities to be consulted regarding the future of SBA programs designed to assist them. In short, this legislation will ensure that our Native American communities receive the adequate assistance they need to help start and grow small businesses.
Also in need of urgent attention is the Women's Business Center program. This is a program that helped more than 100,000 women entrepreneurs last year alone. Despite repeated success and improvement, President Bush has proposed flat funding for the program each year of his Administration. This year his $12 million request is $1.5 million short of projected funding needs for fiscal year 2005. A critical part of the WBC program -- sustainability grants, which allow the most experienced and productive centers to continue receiving funding -- was authorized as a pilot program that was set to expire in Sept. 2003. However, all SBA programs, including pilot programs, have been continued through March 15, 2004, until the SBA Reauthorization bills are passed. The sustainability grant program that I drafted in 1999 is made permanent in both the Senate and House SBA Reauthorization bills, and is expected to be included in final Reauthorization legislation.
Last year, the SBA testified that the agency is more interested in opening new, inexperienced centers than continuing those experienced centers that have made up the foundation of the program for 15 years. Because of this stance, the SBA underfunded the 33 WBCs that receive sustainability grants, which are typically made at $125,000, in order to fund 11 new centers. This year the funding situation is more severe, with 53 centers across the country competing for sustainability grants -- which are capped at 30.2 percent of available funds. Unless the Reauthorization bills are passed or the program is extended, these 53 sustainability centers will be forced out of the program. Even if the 30.2 percent cap were kept in place, the SBA would need to either cut the $125,000 grants in half or terminate 23 centers. Because of the WBC program's importance to women entrepreneurs across the country, I find it illogical that the Administration doesn't address the issue of sustainability grants in its budget request given that, in that request, even the Administration admits that this is one of its "core programs". Despite the reduced funding, the SBA expects the WBCs to take on several new tasks -- as well as take up the clientele of the 10 non-credit programs that are terminated by SBA's proposed budget. This unreasonable and unrealistic.
I want to thank Chair Snowe for her steadfast leadership on this issue and full-fledged support of the WBC program. I look forward to working further with her, my colleagues on the House side and the Administration to find a workable solution to this issue.
In commenting on the importance of microenterprise development, SBA Administrator Hector Barreto has stated, "The PRIME program was created to help the smallest of small businesses. These are entrepreneurs at the most basic stage of starting a business and who typically require the greatest amount of committed service and guidance. In order to succeed, they require training and technical assistance that must be accessible." The program is targeted to help low-income and very low-income families, defined as those at 150 percent of the poverty line or below. A very low-income family of four earns about $23,000 a year. The International Labor Organization estimates that the return on investment in microenterprise development (through programs like PRIME) ranges from $2.06 to $2.72 for every dollar invested. Microenterprise contributes to our national economy through public tax revenues, private income increases, and reduced dependence on public assistance, such as Welfare.
Small Business Development Centers define a "client" as someone who has received two hours of training. On average, however, the PRIME program organizations spend 10 hours with low-income and very low-income entrepreneurs. Some confuse PRIME with the Microloan technical assistance. Unlike the Microloan program's technical assistance, which is directly tied to helping microentrepreneurs obtain access to capital through microlenders, the PRIME program is designed to help microentrepreneurs who may not be credit-worthy or don't need or want loans, but do need intensive technical assistance. Further, there are only 15 Microloan non-lending technical assistance providers (NTAPS) to provide the Microloan program's technical assistance, and the SBA has said it is not going to increase this number, which is already inadequate. Currently, there are only 66 organizations providing PRIME assistance. The need for PRIME assistance is now greater than ever. While access to credit is vital to microentrepreneurs, for low-income individuals, there is often a severe gap between their current experience and being credit-worthy. Receiving PRIME technical assistance can fill that gap and help them become successful in business. Despite this overwhelming need, the President, for the fourth year in a row, has eliminated PRIME from his budget.
The U.S. Export Assistance Centers (USEACs) are a joint venture involving the Commerce Department, the Export-Import Bank, the Department of Agriculture, the U.S. Agency for International Development (USAID) and the SBA that provide hands-on export marketing and trade finance assistance. They work with local, state, federal, public and private entities to provide unparalleled support to American businesses looking to compete in the global marketplace. They are a focal point of international business for many communities. The SBA has full-time staff at 19 USEACs across the country, yet the President's budget request terminates the SBA's presence at these centers. Removing the small business presence at the USEACs would not only hurt small businesses and small manufacturers, but ultimately, it would hinder job creation, increase the trade deficit and dampen the economy. Without the SBA, small exporters and startups - which comprise 97 percent of all export businesses in the country - will have less direct access to SBA's export assistance loans and counseling. Not only do the SBA-supported USEACs counsel thousands of small businesses and lenders on exporting and finance issues, but each year they assist in making hundreds of loans that were responsible for over $1 billion in export sales in fiscal year 2003 - creating over 14,000 jobs. The USEACs are one of the SBA's most rewarding investments, one that has produced astounding results each year. At a time when jobs are being taken overseas and 3 million have already been lost under this Administration, cutting SBA's partnership in the USEACs is ill conceived. Putting our resources into the USEACs means putting our resource into jobs, and that's exactly what we should be doing.
The President's FY2005 budget request also shortchanges minority, women and veteran-owned small businesses and entrepreneurs in the Federal procurement arena. Instead of creating new jobs and true economic growth throughout this nation by helping small businesses grow, President Bush's budget cuts funding for Small Business Administration (SBA) programs intended to increase opportunities in Federal contracting for small firms. The budget shortchanges Federal contracting assistance programs and fails to fund the necessary level of oversight and accountability needed in Federal procurement to ensure that small businesses receive their fair share of contracts.
The 7(j) Technical Assistance program was cut by approximately 25%, a reduction of $479,000. This program provides essential technical assistance to 8(a) companies. The lack of effective technical assistance that trains these businesses in areas such as effective accounting practices, how to bid on Federal contracts, and writing Federal grant applications has been repeatedly listed as the main reason why so many 8(a) companies fail after graduation from the program. Sufficient technical assistance funding will allow these companies to gain the management, self-marketing and proposal-writing skills needed to compete with larger firms after graduating from the program. According to the SBA, the shortfall in available technical assistance to minority firms can be compensated by sending them for training through the SBA's so-called "core programs," programs such as the Small Business Development Centers, the Women's Business Centers, and the Veterans Business Centers. However, the Bush budget offers no additional money to fund this effort in the so-called core programs, essentially creating an unfunded mandate for them.
Funding for the Historically Underutilized Business Zone (HUBZone) program, a contracting assistance program that gives preferences in Federal procurement to underserved rural and urban areas, was eliminated. Not funding this program shows a clear lack of commitment by the President to foster real economic growth in areas that have high unemployment rates and low income levels. Zero funding cripples the program's ability to reach out to small firms in poor urban and rural areas that are most likely to invest in capital improvement and hire new workers from those low-employment areas when awarded a Federal contract. The budget fails to fully fund the Small Disadvantaged Business (SDB) program, which, if adequately supported, could help create real job opportunities across the country. It has been flat funded in the FY2005 budget. While the SBA continues to fall short in its effort to foster minority business growth and development, the African American and Hispanic American unemployment rates remain at 10.5 percent and 7.3 percent, respectively, well above the national average of 5.6 percent in January 2004.
The FY 2005 budget offers no additional funds for Procurement Center Representatives (PCRs), which runs counter to this Committee's view as expressed in the Senate-passed SBA Reauthorization legislation, that the number of PCRs should be increased to better serve small businesses. These representatives advocate on behalf of small businesses in cases directly affecting contracting, such as the bundling or consolidation of contracts. Unfortunately, the number of PCRs have been reduced from over 200 at its peak in the late 1980s to the current level of just 47. In addition to reducing the number of traditional PCRs, the Administration has also eliminated the Breakout PCRs, specially trained advocates that analyze highly technical large contracts and "unbundle" contracts and break out portions that are appropriate for small businesses. Their responsibilities have been rolled into that of Traditional PCRs, even though the number of PCRs continued to decline. Often, the role of Commercial Marketing Representatives (CMRs) has also been incorporated into the responsibilities of Traditional PCRs. CMRs are responsible for identifying opportunities and developing marketing strategies for small businesses to appeal to large prime contractors. The SBA's attempt to streamline their offices and replace trained individuals with electronic systems has resulted in the disenfranchisement of small businesses and a hamstringing of the SBA's ability to maintain a proper level of oversight over Federal contracting.
Although the President has issued statements and Executive Orders on Federal procurement proclaiming the need for increased accountability in Federal agencies and an increase in the number of contracts available to small firms, the action falls well short of the rhetoric. How can you increase the number of contracts for small businesses if there is not sufficient oversight on the consolidation and allocation contracts currently being awarded? How can you have sufficient oversight without the appropriate level of funding and staff needed to do the job? This Committee learned during the SBA reauthorization process that the level of oversight needed in the contracting arena actually requires more PCRs to investigate the nearly $90 billion of Federal contracts that are currently not being reviewed. The SBA Budget seems to ignore this responsibility.
As small businesses continue to be shut out of the Federal procurement market, they must rely more heavily on the private sector to offer opportunities. Although the SBA is also responsible for fostering small business growth in the private sector, they eliminated funding for one of their most successful programs that creates measurable returns on business-to-business relationships between large and small firms. The BusinessLINC program is unfunded in the FY 2005 budget, essentially eliminating the program. This is not the first sign, however, of the Bush Administration's attempt to systematically dismantle this program. Although the Administration recommended eliminating the program during the SBA reauthorization process, the reports this Committee received regarding the overwhelming success of the existing nine programs funded in FY2003 made it clear that the SBA did not have sufficient information about BusinessLINC to make an informed decision on its effectiveness. The Committee chose to retain the program, allowing the nine centers to remain operating and creating business in their home states. Unfortunately, the SBA found it appropriate to use $1 million of the $1.75 million available in the last year the program was funded to pay for Hewlett Packard's traveling version of a matchmaking program. This left only enough resources this year to fund three of the nine successful BusinessLINC centers that submitted testimony to the record during last year's reauthorization. Unfortunately, this is not the only example in the SBA's budget where funding was removed from proven and effective existing programs and redirected to new initiatives with unpredictable track records for success.
I have letters and email communications here from members of the public expressing their views of this budget proposal, and often of its effects on them or on small businesses. I ask that they be included in the record for this hearing.
