Mr. KERRY. I would like to thank Senator Snowe for calling this hearing on the reauthorization of the U.S. Small Business Administration. I would also like to thank Mr. Barreto, Administrator of the Small Business Administration, for taking the time to be with us this afternoon.
The Administration’s budget proposal for fiscal year ’04 would seriously undermine essential programs aimed at allowing small businesses to thrive. Small businesses are the engine of economic growth for this nation and should be bolstered by our government, especially in this slumping economy. The Administration has proposed to reauthorize the Small Business Administration for six years, freezing funding for virtually all SBA programs for the entire period. The proposal includes no adjustment for inflation or demand, despite SBA’s own statistics that show demand is up for its programs. Departments within the SBA, such as the Office of Advocacy, are severely under-funded and understaffed when you compare their current staffing and spending levels to the growing expectations placed on the office by Congress and the small business community.
Mr. Administrator, over the past couple of weeks, the Committee has heard from a diverse but unified group of small business advocates, representatives and practitioners about the value of the Small Business Administration’s credit and investment programs. As you know from traveling around the country, most industry sectors have still not fully recovered almost two years after the terrorist attacks on our financial centers, air transportation and government. And the economy was already slumping then. With so little confidence in the economy, banks continue to ration credit, annual venture capital raised has dwindled from $106 billion to $6 billion, and small businesses have turned with increasing number to the SBA for financing. 504 Certified Development Company lending is up by 21 percent and SBA’s own FY2004 budget submission to Congress notes the increased demand for microloans because of the poor economy. What this information tells us is that times have changed and the need for SBA’s credit and investment programs is more important than ever before. Level funding and no review for six years is unwise. The Agency needs more funding and more oversight, not less.
For example, as noted loud and clear in the Committee’s credit roundtable on May 1st, SBA still has not put in place some of the improvements we enacted in the last reauthorization – three years ago. On a practical level, this has prevented more of SBA’s 504 lending partners from becoming more active in the program and prevented growing small businesses from having more access to affordable credit to buy equipment or expand their companies.
Also of great concern is the deficiency in funding for the 7(a) loan program. Lender after lender – from California to Kansas -- told us that this year’s $9.3 billion is not going to be enough to meet the demand of small businesses seeking SBA loans for working capital -- capital which is very hard to obtain in the private sector even in good times. Not only did the Agency once again request an insufficient amount, but it has dragged its feet in deciding to help correct the situation by applying the new accounting method for the 7(a) loan program to the 7(a) loans made to victims of 9/11, the so-called STAR loans. I am pleased that, as of yesterday, SBA has decided to follow Congressional intent with respect to the STAR loan subsidy rate and make an estimated $1.4 billion immediately available to small businesses in loans. This despite its insistence at the April 30th roundtable before this Committee that it has sufficient money to meet ITS 7(a) demand projections.
This issue raises another continuing and troublesome problem at the SBA - lack of cooperation with and responsiveness to its Congressional oversight committees. In March, Chair Snowe and I sent a letter to the SBA requesting justification of its initial decision not to apply the new 7(a) accounting method to the 7(a) STAR loans. Although I am pleased with the SBA’s decision, it should not take two months to respond to a request for information from this Committee. The Committee has also submitted a list of other outstanding and incomplete requests for information from the SBA, but no response has been forthcoming. The Committee requests information that is necessary for its oversight and reauthorization work and these delays are simply unacceptable. The House Committee on Small Business has expressed similar problems, as the General Accounting Office. This Committee would appreciate your future efforts to answer our requests for information in a timely fashion.
Another area of concern is SBA’s microloan program, that chronically suffers from underfunding and lack of administration support. I will continue to question the Administration’s priorities when its request for SBA’s travel budget is more than the funding for microloans. What we know about the microloan program is that the Agency reduced its funding by 36 percent, that the Agency is undermining the success of the program by holding back funds from intermediaries, and that the Agency thinks the 7(a) Community Express and SBAExpress programs are a substitute for the SBA’s microloan program. Fortunately, the Committee has an impressive record from the April 30th roundtable in which expert microlenders demonstrated that SBA cannot serve the same borrower through the 7(a) loan program. There are no merits to the Administration’s plans to substitute the microloan program with the 7(a) program, and I strongly urge you to reverse course on them.
On a positive note, I am glad that the Agency has labeled this the “Year of the 504 Program.” The Congress has spoken with one voice about the need to improve the program’s subsidy rate, improve lender oversight, establish uniform guidelines to restore fairness in treatment of all CDCs, and put a stop to reports of unreasonable pressure and retaliation from district offices with inadequate oversight.
I am very pleased that the SBA has started addressing some of the findings of the GAO regarding its Assets Sales Program, specifically with respect to the sale of its disaster loans. In addition to working towards getting the financial records straightened out, I am pleased there is a moratorium on selling the loans and that the SBA is trying to improve its process of tracking complaints from victims whose loans have been sold. One concern I have is that the Agency continues to represent the level of complaints as trivial based on the ratio of loans sold to complaints. One abuse should be too many. Take for example the letter I received in April from a man who was a victim of the 1994 Northridge Earthquake. He is trying to refinance properties which carry sold SBA disaster loans – loans on which he has never missed a payment in eight years. The loan servicing company will permit the refinancing, but only at a higher interest rate. SBA staff has been unwilling to intervene on the borrower’s behalf, telling him incorrectly that “they were instructed by Congress to sell these loans and that there is nothing they can do.” Just so the record is clear, SBA loan sales are not a Congressionally mandated policy. SBA’s role should be to assist small businesses, not to make excuses for failing to do so.
Mr. Administrator, there is a serious problem with the basic policy of selling loans made to disaster victims that needs to be reviewed. Sometimes the private sector cannot perform certain functions as effectively as the government, and this appears to be one of those times. SBA itself seems to concur, at least in part, as endorsed by its statement at the recent roundtable that it has no plans to sell disaster loans of 9/11 victims. We all recognize that the public simply would not stand for those victims, making their payments in a timely way, to be taken advantage of by inflexible bill collectors. I couldn’t agree with Senator Dorgan more when he said in his statement to the Committee:
“I urge you to consider the purpose of this program. The government may not make a lot of money on these loans, but the purpose of the program is to help people. The private sector is in business to make money. This should be a public service for those who suffer disasters in our country....Those who have been hit with disaster in this country don’t deserve to be handcuffed later by a private company that is able to buy deeply discounted SBA disaster loans.”
At the very least, there needs to be an effective grievance system established at the SBA to remedy problems that occur after loans are sold. In addition to the credit programs, I would like to raise some concerns I have about the direction of SBA’s procurement and entrepreneurial development programs.
The Committee has conducted a hearing on Federal contract bundling and three roundtables, which brought a number of issues to light regarding programmatic and regulatory challenges at the SBA and currently affecting the ability of small business to grow and compete in the federal procurement arena. One significant shortfall in SBA’s procurement programs is in the number of Procurement Center Representatives (PCRs). These representatives advocate on behalf of small businesses in cases directly affecting contracting, such as the bundling or consolidation of contracts. There are currently only 47 PCRs to review contracts from hundreds of agency buying divisions nationwide. Meanwhile, the bundling of contracts by federal agencies continues to grow to epidemic levels, robbing small businesses of hundreds of millions dollars worth of federal contracts they deserve. Bundled contracts, while seemingly an efficient and cost-saving means for federal agencies to conduct business, are anti-competitive and anti-small business. The inability for the 47 PCRs to review and un-bundle the necessary number of consolidated contracts is clearly a symptom of why contract bundling has grown to such a degree that it has significantly hamstrung small businesses. According to the SBA’s own numbers, approximately 40% of federal contracts (nearly $90 billion) are not reviewed by PCRs. Unfortunately, the SBA continues to treat the problem with “Band-Aids”, relying solely on the expansion of electronic monitoring systems and online services to correct the problem. While this is a step in the right direction, it does not give the small business community what it needs: a more reasonable number of PCRs to review the large number of federal contracts. The Administration’s reauthorization proposal eliminates the BusinessLINC program, which has been showing promise in creating real teaming opportunities for small businesses in the private sector. Since the first roundtable held by this Committee earlier this year, I have received numerous letters from supporters of the BusinessLINC program, from Massachusetts and across the nation, who have ongoing, successful BusinessLINC teaming programs. I ask that these letters be included in the record for today’s hearing. The program was originally authorized to run until 2006, but the SBA proposes to eliminate it in 2003. The SBA argues that the work done by the BusinessLINC program overlaps with existing programs. This is not the case. The BusinessLINC program is unique in its approach to teaming small businesses with non-governmental organizations that can have a direct impact on the businesses’ bottom-lines through contracting or mentoring. While other programs focus on mentoring and training for small businesses seeking to gain contracts from Federal agencies, BusinessLINC focuses on private sector business-to-business links.
I am also concerned about SBA’s proposal to consolidate and eliminate various reporting requirements in government contracting and to change the deadlines from a static date of April 30 of each year to a fluid goal of “no less than 90 days” after the release of Federal procurement data. This could be problematic for the work of this Committee and our House counterpart because it will delay the availability of such data to Congress. Without timely reporting by the SBA, it becomes more difficult for Congress to oversee agency procurement programs in order to increase their effectiveness.
The need for congressional oversight of the programs and data systems managed by the SBA was made even more evident by GAO’s May 7, 2003 study of the PRO-Net system. In their investigation of the use of PRO-NET by firms that are not small businesses, the GAO reviewed five large companies and found that they received $460 million worth of contracts that were intended for small businesses. The GAO recommended a number of changes to the way SBA administers Multiple Award contracts, including annual certification as small business entities. The SBA’s solution, simply removing the large firm from PRO-NET, did not go far enough. Any effective remedy needs to include a strategy of dealing with a company that has intentionally misrepresented its size in order to attain a small business contract.
On a larger scale, the Administration has failed to meet its goal for Federal contracting to Veterans, Women-Owned Businesses and HUBZone firms for FY 2000 and FY 2001. Through the third quarter of 2002, the Federal government was far from reaching its goals for last year. Without sufficient reporting and the resulting oversight, small businesses would see a continued erosion of their portion of federal contracting dollars, and contracting agencies and the economy overall will suffer.
Also of great concern to me, and troubling to much of the small-business community, are many of the changes offered in the SBA’s reauthorization proposal to non-credit programs. Of particular importance are those changes that could cripple the Small Business Development Centers nationwide and severely undercut the 15-year infrastructure of the Women’s Business Centers network.
First, it is important to point out the impact that SBDCs have on our nation’s small businesses. In 2001, SBDCs helped small businesses create or retain over 80,000 jobs, generate $3.9 billion in sales and obtain $2.7 billion in financing. For every dollar spent on an SBDC, $2.09 in tax revenue was returned to the Federal government. Numbers aside, the nationwide network of SBDCs provides important counseling services to small-business owners that are unable to afford private consulting, many of whom are women and minority clients.
Second, it should be noted that SBDCs have grown to serve 1.25 million small-business owners and entrepreneurs each year, nine million since its inception over 20 years ago, and there are nearly 1,000 centers serving small businesses in every state in nation.
The SBA has put forth a handful of changes that would greatly damage this unique program. Of most concern are the Administration’s proposals to open up the SBDC program to non-profit organizations, to require SBDC grants to be re-competed every 5 years, and to eliminate the requirement of the Governor’s endorsement of the SBDC.
These changes would undercut the program’s ability to deliver high-quality counseling and training services to small-business owners by potentially removing state governments and institutions of higher learning from the picture. I am also disappointed that the SBA has level-funded the program for six years, leaving no room for growth or improvement.
It is unfortunate that the Administration does not value the SBDC program as much as the small-business owners it serves, but it is far more disconcerting that the SBA would attempt to dismantle the very foundation of one of its most successful programs.
For 15 years the Women’s Business Centers have played an important role in both our economy and in promoting economic independence for women. They help women take an honest look at their strengths and interests to find out whether they should venture into the world of American business. They teach women how to turn their talents into a business. They train women in the fundamentals of starting and running a successful business, and they help improve their financial literacy. The centers are located in rural, urban and suburban areas, and direct much of their training and counseling assistance toward socially and economically disadvantaged women.
Today, America's 9.1 million women-owned businesses employ 27.5 million people and contribute $3.6 trillion to the national economy. Between 1997 and 2002, women-owned businesses increased 14 percent -- twice the rate of all U.S. firms. At this time of unparalleled growth for women-owned businesses, when demand for assistance is increasing, the Administration is proposing to cut a major portion of the Women’s Business Center program by eliminating the Women’s Business Centers Sustainability grants. These matching grants are crucial to maintaining the existing nationwide network of effective Women’s Business Centers, which has been established with Federal and local funds since 1988.
Again, the Administration proposes that, after 5 years, even a very successful and well-funded Women’s Business Center would no longer be eligible for Federal funds. At that point, the Federal investment and that infrastructure will be in jeopardy or lost. I agree with the members of the Association of Women’s Business Centers that the SBA should focus on maintaining the existing centers and infrastructure, while at the same time addressing the need for additional centers in certain underserved parts of the country.
As a longtime staunch supported of women’s programs at the SBA, I am also pleased that in her recently introduced legislation, Chair Snowe recognizes the success of the Sustainability grants and proposes making the program permanent. I want to commend Senator Snowe for taking this first step toward improving the Women’s Business Center program, and I look forward to working with her and all of the women’s business groups in crafting legislation that protects and strengthens the current infrastructure of this successful and important program.
I would be remiss if I did not mention the SBA’s outreach to the Native American small-business community. As many of us know, the Native American population is one of the most secluded, disadvantaged, and underserved in our nation. The daunting challenges Native American entrepreneurs face are enough to discourage even the most spirited small-business owner.
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 an unemployment rate well above the national average and household income at just three-quarters of the national average, Native American communities need a commitment from the Federal government that we will help them, particularly during these difficult economic times.
It is surprising, that during this great time of need that the Administration has turned its back on Native American outreach. In its FY ’04 Budget, not only did the SBA fail to request more funding for Native American outreach, they have requested none at all. This after the agency cut funding last year for the Tribal Business Information Centers.
To address SBA’s apparent lack of commitment, Senators Johnson, Smith and I reintroduced the Native American Small Business Development Act, S.1126, to provide Native Americans the resources they need to take advantage of the opportunities of entrepreneurship and overcome the hurdles that hinder small-business success.
The Native American Small Business Development Act will 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 SBA to consult with Native American communities regarding the future of Agency 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.
I look forward to hearing, today, from Administrator Barreto. I am sure that if we work together, we will be able to ensure the SBA has the necessary tools to aid, counsel, assist and protect this nation’s small businesses. However, if we do not address the SBA program problems raised during the Committee’s prior hearing and roundtables as well as the clear shortfalls created by the current reauthorization proposal, SBA’s essential programs will be compromised and the nation’s small businesses and local economies will continue to feel the bite of our current economic downturn.
Again, I thank the Chair, Senator Snowe, for holding this hearing, which allows us an opportunity to hear directly from the SBA and learn how they plan to address the shortfalls in their programs discussed at the Committee’s three roundtables and how we can enhance Federal small business advocacy, financial assistance, contracting and entrepreneurship development through the SBA’s programs.
The Administration’s budget proposal for fiscal year ’04 would seriously undermine essential programs aimed at allowing small businesses to thrive. Small businesses are the engine of economic growth for this nation and should be bolstered by our government, especially in this slumping economy. The Administration has proposed to reauthorize the Small Business Administration for six years, freezing funding for virtually all SBA programs for the entire period. The proposal includes no adjustment for inflation or demand, despite SBA’s own statistics that show demand is up for its programs. Departments within the SBA, such as the Office of Advocacy, are severely under-funded and understaffed when you compare their current staffing and spending levels to the growing expectations placed on the office by Congress and the small business community.
Mr. Administrator, over the past couple of weeks, the Committee has heard from a diverse but unified group of small business advocates, representatives and practitioners about the value of the Small Business Administration’s credit and investment programs. As you know from traveling around the country, most industry sectors have still not fully recovered almost two years after the terrorist attacks on our financial centers, air transportation and government. And the economy was already slumping then. With so little confidence in the economy, banks continue to ration credit, annual venture capital raised has dwindled from $106 billion to $6 billion, and small businesses have turned with increasing number to the SBA for financing. 504 Certified Development Company lending is up by 21 percent and SBA’s own FY2004 budget submission to Congress notes the increased demand for microloans because of the poor economy. What this information tells us is that times have changed and the need for SBA’s credit and investment programs is more important than ever before. Level funding and no review for six years is unwise. The Agency needs more funding and more oversight, not less.
For example, as noted loud and clear in the Committee’s credit roundtable on May 1st, SBA still has not put in place some of the improvements we enacted in the last reauthorization – three years ago. On a practical level, this has prevented more of SBA’s 504 lending partners from becoming more active in the program and prevented growing small businesses from having more access to affordable credit to buy equipment or expand their companies.
Also of great concern is the deficiency in funding for the 7(a) loan program. Lender after lender – from California to Kansas -- told us that this year’s $9.3 billion is not going to be enough to meet the demand of small businesses seeking SBA loans for working capital -- capital which is very hard to obtain in the private sector even in good times. Not only did the Agency once again request an insufficient amount, but it has dragged its feet in deciding to help correct the situation by applying the new accounting method for the 7(a) loan program to the 7(a) loans made to victims of 9/11, the so-called STAR loans. I am pleased that, as of yesterday, SBA has decided to follow Congressional intent with respect to the STAR loan subsidy rate and make an estimated $1.4 billion immediately available to small businesses in loans. This despite its insistence at the April 30th roundtable before this Committee that it has sufficient money to meet ITS 7(a) demand projections.
This issue raises another continuing and troublesome problem at the SBA - lack of cooperation with and responsiveness to its Congressional oversight committees. In March, Chair Snowe and I sent a letter to the SBA requesting justification of its initial decision not to apply the new 7(a) accounting method to the 7(a) STAR loans. Although I am pleased with the SBA’s decision, it should not take two months to respond to a request for information from this Committee. The Committee has also submitted a list of other outstanding and incomplete requests for information from the SBA, but no response has been forthcoming. The Committee requests information that is necessary for its oversight and reauthorization work and these delays are simply unacceptable. The House Committee on Small Business has expressed similar problems, as the General Accounting Office. This Committee would appreciate your future efforts to answer our requests for information in a timely fashion.
Another area of concern is SBA’s microloan program, that chronically suffers from underfunding and lack of administration support. I will continue to question the Administration’s priorities when its request for SBA’s travel budget is more than the funding for microloans. What we know about the microloan program is that the Agency reduced its funding by 36 percent, that the Agency is undermining the success of the program by holding back funds from intermediaries, and that the Agency thinks the 7(a) Community Express and SBAExpress programs are a substitute for the SBA’s microloan program. Fortunately, the Committee has an impressive record from the April 30th roundtable in which expert microlenders demonstrated that SBA cannot serve the same borrower through the 7(a) loan program. There are no merits to the Administration’s plans to substitute the microloan program with the 7(a) program, and I strongly urge you to reverse course on them.
On a positive note, I am glad that the Agency has labeled this the “Year of the 504 Program.” The Congress has spoken with one voice about the need to improve the program’s subsidy rate, improve lender oversight, establish uniform guidelines to restore fairness in treatment of all CDCs, and put a stop to reports of unreasonable pressure and retaliation from district offices with inadequate oversight.
I am very pleased that the SBA has started addressing some of the findings of the GAO regarding its Assets Sales Program, specifically with respect to the sale of its disaster loans. In addition to working towards getting the financial records straightened out, I am pleased there is a moratorium on selling the loans and that the SBA is trying to improve its process of tracking complaints from victims whose loans have been sold. One concern I have is that the Agency continues to represent the level of complaints as trivial based on the ratio of loans sold to complaints. One abuse should be too many. Take for example the letter I received in April from a man who was a victim of the 1994 Northridge Earthquake. He is trying to refinance properties which carry sold SBA disaster loans – loans on which he has never missed a payment in eight years. The loan servicing company will permit the refinancing, but only at a higher interest rate. SBA staff has been unwilling to intervene on the borrower’s behalf, telling him incorrectly that “they were instructed by Congress to sell these loans and that there is nothing they can do.” Just so the record is clear, SBA loan sales are not a Congressionally mandated policy. SBA’s role should be to assist small businesses, not to make excuses for failing to do so.
Mr. Administrator, there is a serious problem with the basic policy of selling loans made to disaster victims that needs to be reviewed. Sometimes the private sector cannot perform certain functions as effectively as the government, and this appears to be one of those times. SBA itself seems to concur, at least in part, as endorsed by its statement at the recent roundtable that it has no plans to sell disaster loans of 9/11 victims. We all recognize that the public simply would not stand for those victims, making their payments in a timely way, to be taken advantage of by inflexible bill collectors. I couldn’t agree with Senator Dorgan more when he said in his statement to the Committee:
“I urge you to consider the purpose of this program. The government may not make a lot of money on these loans, but the purpose of the program is to help people. The private sector is in business to make money. This should be a public service for those who suffer disasters in our country....Those who have been hit with disaster in this country don’t deserve to be handcuffed later by a private company that is able to buy deeply discounted SBA disaster loans.”
At the very least, there needs to be an effective grievance system established at the SBA to remedy problems that occur after loans are sold. In addition to the credit programs, I would like to raise some concerns I have about the direction of SBA’s procurement and entrepreneurial development programs.
The Committee has conducted a hearing on Federal contract bundling and three roundtables, which brought a number of issues to light regarding programmatic and regulatory challenges at the SBA and currently affecting the ability of small business to grow and compete in the federal procurement arena. One significant shortfall in SBA’s procurement programs is in the number of Procurement Center Representatives (PCRs). These representatives advocate on behalf of small businesses in cases directly affecting contracting, such as the bundling or consolidation of contracts. There are currently only 47 PCRs to review contracts from hundreds of agency buying divisions nationwide. Meanwhile, the bundling of contracts by federal agencies continues to grow to epidemic levels, robbing small businesses of hundreds of millions dollars worth of federal contracts they deserve. Bundled contracts, while seemingly an efficient and cost-saving means for federal agencies to conduct business, are anti-competitive and anti-small business. The inability for the 47 PCRs to review and un-bundle the necessary number of consolidated contracts is clearly a symptom of why contract bundling has grown to such a degree that it has significantly hamstrung small businesses. According to the SBA’s own numbers, approximately 40% of federal contracts (nearly $90 billion) are not reviewed by PCRs. Unfortunately, the SBA continues to treat the problem with “Band-Aids”, relying solely on the expansion of electronic monitoring systems and online services to correct the problem. While this is a step in the right direction, it does not give the small business community what it needs: a more reasonable number of PCRs to review the large number of federal contracts. The Administration’s reauthorization proposal eliminates the BusinessLINC program, which has been showing promise in creating real teaming opportunities for small businesses in the private sector. Since the first roundtable held by this Committee earlier this year, I have received numerous letters from supporters of the BusinessLINC program, from Massachusetts and across the nation, who have ongoing, successful BusinessLINC teaming programs. I ask that these letters be included in the record for today’s hearing. The program was originally authorized to run until 2006, but the SBA proposes to eliminate it in 2003. The SBA argues that the work done by the BusinessLINC program overlaps with existing programs. This is not the case. The BusinessLINC program is unique in its approach to teaming small businesses with non-governmental organizations that can have a direct impact on the businesses’ bottom-lines through contracting or mentoring. While other programs focus on mentoring and training for small businesses seeking to gain contracts from Federal agencies, BusinessLINC focuses on private sector business-to-business links.
I am also concerned about SBA’s proposal to consolidate and eliminate various reporting requirements in government contracting and to change the deadlines from a static date of April 30 of each year to a fluid goal of “no less than 90 days” after the release of Federal procurement data. This could be problematic for the work of this Committee and our House counterpart because it will delay the availability of such data to Congress. Without timely reporting by the SBA, it becomes more difficult for Congress to oversee agency procurement programs in order to increase their effectiveness.
The need for congressional oversight of the programs and data systems managed by the SBA was made even more evident by GAO’s May 7, 2003 study of the PRO-Net system. In their investigation of the use of PRO-NET by firms that are not small businesses, the GAO reviewed five large companies and found that they received $460 million worth of contracts that were intended for small businesses. The GAO recommended a number of changes to the way SBA administers Multiple Award contracts, including annual certification as small business entities. The SBA’s solution, simply removing the large firm from PRO-NET, did not go far enough. Any effective remedy needs to include a strategy of dealing with a company that has intentionally misrepresented its size in order to attain a small business contract.
On a larger scale, the Administration has failed to meet its goal for Federal contracting to Veterans, Women-Owned Businesses and HUBZone firms for FY 2000 and FY 2001. Through the third quarter of 2002, the Federal government was far from reaching its goals for last year. Without sufficient reporting and the resulting oversight, small businesses would see a continued erosion of their portion of federal contracting dollars, and contracting agencies and the economy overall will suffer.
Also of great concern to me, and troubling to much of the small-business community, are many of the changes offered in the SBA’s reauthorization proposal to non-credit programs. Of particular importance are those changes that could cripple the Small Business Development Centers nationwide and severely undercut the 15-year infrastructure of the Women’s Business Centers network.
First, it is important to point out the impact that SBDCs have on our nation’s small businesses. In 2001, SBDCs helped small businesses create or retain over 80,000 jobs, generate $3.9 billion in sales and obtain $2.7 billion in financing. For every dollar spent on an SBDC, $2.09 in tax revenue was returned to the Federal government. Numbers aside, the nationwide network of SBDCs provides important counseling services to small-business owners that are unable to afford private consulting, many of whom are women and minority clients.
Second, it should be noted that SBDCs have grown to serve 1.25 million small-business owners and entrepreneurs each year, nine million since its inception over 20 years ago, and there are nearly 1,000 centers serving small businesses in every state in nation.
The SBA has put forth a handful of changes that would greatly damage this unique program. Of most concern are the Administration’s proposals to open up the SBDC program to non-profit organizations, to require SBDC grants to be re-competed every 5 years, and to eliminate the requirement of the Governor’s endorsement of the SBDC.
These changes would undercut the program’s ability to deliver high-quality counseling and training services to small-business owners by potentially removing state governments and institutions of higher learning from the picture. I am also disappointed that the SBA has level-funded the program for six years, leaving no room for growth or improvement.
It is unfortunate that the Administration does not value the SBDC program as much as the small-business owners it serves, but it is far more disconcerting that the SBA would attempt to dismantle the very foundation of one of its most successful programs.
For 15 years the Women’s Business Centers have played an important role in both our economy and in promoting economic independence for women. They help women take an honest look at their strengths and interests to find out whether they should venture into the world of American business. They teach women how to turn their talents into a business. They train women in the fundamentals of starting and running a successful business, and they help improve their financial literacy. The centers are located in rural, urban and suburban areas, and direct much of their training and counseling assistance toward socially and economically disadvantaged women.
Today, America's 9.1 million women-owned businesses employ 27.5 million people and contribute $3.6 trillion to the national economy. Between 1997 and 2002, women-owned businesses increased 14 percent -- twice the rate of all U.S. firms. At this time of unparalleled growth for women-owned businesses, when demand for assistance is increasing, the Administration is proposing to cut a major portion of the Women’s Business Center program by eliminating the Women’s Business Centers Sustainability grants. These matching grants are crucial to maintaining the existing nationwide network of effective Women’s Business Centers, which has been established with Federal and local funds since 1988.
Again, the Administration proposes that, after 5 years, even a very successful and well-funded Women’s Business Center would no longer be eligible for Federal funds. At that point, the Federal investment and that infrastructure will be in jeopardy or lost. I agree with the members of the Association of Women’s Business Centers that the SBA should focus on maintaining the existing centers and infrastructure, while at the same time addressing the need for additional centers in certain underserved parts of the country.
As a longtime staunch supported of women’s programs at the SBA, I am also pleased that in her recently introduced legislation, Chair Snowe recognizes the success of the Sustainability grants and proposes making the program permanent. I want to commend Senator Snowe for taking this first step toward improving the Women’s Business Center program, and I look forward to working with her and all of the women’s business groups in crafting legislation that protects and strengthens the current infrastructure of this successful and important program.
I would be remiss if I did not mention the SBA’s outreach to the Native American small-business community. As many of us know, the Native American population is one of the most secluded, disadvantaged, and underserved in our nation. The daunting challenges Native American entrepreneurs face are enough to discourage even the most spirited small-business owner.
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 an unemployment rate well above the national average and household income at just three-quarters of the national average, Native American communities need a commitment from the Federal government that we will help them, particularly during these difficult economic times.
It is surprising, that during this great time of need that the Administration has turned its back on Native American outreach. In its FY ’04 Budget, not only did the SBA fail to request more funding for Native American outreach, they have requested none at all. This after the agency cut funding last year for the Tribal Business Information Centers.
To address SBA’s apparent lack of commitment, Senators Johnson, Smith and I reintroduced the Native American Small Business Development Act, S.1126, to provide Native Americans the resources they need to take advantage of the opportunities of entrepreneurship and overcome the hurdles that hinder small-business success.
The Native American Small Business Development Act will 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 SBA to consult with Native American communities regarding the future of Agency 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.
I look forward to hearing, today, from Administrator Barreto. I am sure that if we work together, we will be able to ensure the SBA has the necessary tools to aid, counsel, assist and protect this nation’s small businesses. However, if we do not address the SBA program problems raised during the Committee’s prior hearing and roundtables as well as the clear shortfalls created by the current reauthorization proposal, SBA’s essential programs will be compromised and the nation’s small businesses and local economies will continue to feel the bite of our current economic downturn.
Again, I thank the Chair, Senator Snowe, for holding this hearing, which allows us an opportunity to hear directly from the SBA and learn how they plan to address the shortfalls in their programs discussed at the Committee’s three roundtables and how we can enhance Federal small business advocacy, financial assistance, contracting and entrepreneurship development through the SBA’s programs.
