Mr. KERRY. Good morning. Thank you all for being here. Senator Snowe, I thank you very much for holding today's and tomorrow's roundtables to review the SBA's loan and venture capital initiatives. Both the SBA's programs and the nation's economy have been through extremely uncertain times over the past few years. The reauthorization process gives us the our opportunity to review what the Agency has been doing to provide capital and credit to small businesses in this slumping economy, how its actions match Congress's intent, how we can maximize SBA's resources to create jobs and spur business investment, and what the government's partners – 7(a) lenders, microlenders, 504 certified development companies, small business investment companies, new markets venture capital companies, and small business advocates – recommend based on their day-to-day experiences. I encourage all of you to use this format today and tomorrow to air the issues affecting these critical credit and investment programs and have a healthy and constructive dialogue with us.

As I said a few weeks ago at the roundtable on SBA's entrepreneurial and contracting programs, I oppose SBA's proposal to reauthorize the Agency's programs for six years at level funding. Based on the direction the SBA has been going over the past few years, the Agency needs more frequent oversight, not less. There is a tremendous opportunity for the SBA to help our nation's small businesses, our economy and the more than 2 million Americans who need jobs, yet most of the programs are starved for funding and staff. Level funding for six years is tantamount to a cut when adjusted for inflation, and there is a disconnect between what SBA requested legislatively and what it requested for the budget.

Take for example the microloan program. In the Administration's legislative proposal, for the next six years, starting with FY2004, it has requested a program level of $100 million for microloans and $70 million for technical assistance. However, in its FY2004 budget, it requested less than $2 million to leverage $20 million in microloans – more than a 36 percent cut from the year before – and $15 million for technical assistance. This is one of many reasons SBA continues to lose credibility with the small business community and this Committee.

Let me run through some major concerns I have for the loan programs being reviewed today that should be addressed in a reauthorization package. Starting with the 7(a) loan guarantee program, the Agency's largest small business loan program, I support the trade association's recommended loan levels of $16 billion, $16.5 billion and $17 billion for fiscal years 2004 through 2006. It is reasonable given that the demand for these loans was up around 38 percent the first two quarters of this year.

As part of reauthorization, Congress needs to ensure that SBA and OMB cooperate with GAO as it tries to respond to a Congressional request to validate the new subsidy rate model for the 7(a) loan program. The model appears to be more accurate, and implementing the new model has freed up money in fees and loan dollars to help more small businesses, but it needs to be reviewed by GAO. Unfortunately, reports continue to grow that the SBA is obstructing the validation process. The Agency is undermining what seems to be good work, exacerbating a troublesome working relationship it has with Congress, and perpetuating the public's distrust in what should be the people's government.

And now let me mention a topic that should be addressed today – the authority of credit unions to make business loans, particularly loans to small businesses guaranteed by the SBA. It had been a long-held position by SBA that credit unions are limited membership organizations that are not "open to the public" and therefore in general should not be allowed to participate in a taxpayer paid program. SBA recently revised its position, allowing all credit unions to make 7(a) loans. However, the Agency did not allow the public to comment on its change, and it needs to do that immediately.

Turning to microloans, I first want to acknowledge and thank Committee Chair Snowe for her commitment to SBA's microloan program. She has cared about and actively supported this program for long before she became Chair of this Committee. Together for the past six years, we have either lead written campaigns or introduced joint legislation to increase appropriations and strengthen this program that helps the smallest businesses start and grow. We have been successful on many levels, and I hope that she will reintroduce with me this year our Microloan Improvements bill from last Congress, formerly S. 174, so that we can work towards its enactment as part of the final SBA reauthorization package.

As for needed changes to the microloan program, first and foremost the Administration needs to request adequate funding for microloans and technical assistance for microborrowers. The SBA contends its goals are making more small loans, reaching more minorities, and creating jobs, yet each year the Administration has cut the program and for the second year in a row it has requested more money for its travel budget than for microloans. SBA's rationale for cutting the program more than 36 percent this year is that it believes it can serve micro businesses through the SBA's 7(a) loan program and that making small loans through the 7(a) loan program is cheaper. SBA neglects to disclose, however, that the program's cost is inflated because the microloan subsidy rate is inaccurate. For example, this year, fiscal year 2003, the subsidy rate almost doubled from 6.78 percent to 13.05 percent even though, to my knowledge, the government has suffered no losses from the program. Instead of diminishing the microloan program, SBA should fix the problems and adequately fund it.

In addition to concerns related to funding issues, the Committee is receiving more and more complaints that the SBA takes too long to approve and disburse loan proceeds to the microlending intermediaries. Because of SBA's inaction, intermediaries in Massachusetts and Maine have run out of money to loan and have been forced to turned away small businesses. And because SBA doesn't disburse the loans, the program doesn't loan out all of the microloan dollars available. Then SBA uses that self-created situation as evidence that there isn't demand for microloans. I suggest as part of reauthorization that we enact a provision requiring the SBA to report to its Senate and House oversight committees every month on the status of microloan and technical assistance applications, approvals and disbursements. I welcome other suggestions to address this problem.

Tomorrow the Committee will review SBA's remaining credit and investment programs: the Certified Development Company or 504 Loan Guaranty Program, the Disaster Loan Program, the New Markets Venture Capital (NMVC) Program and the Small Business Investment Company (SBIC) program. The list of changes needed to maximize these programs is long, and I will submit for tomorrow's record a detailed statement regarding my concerns.

Madam Chair, I thank you and your staff for all your work in reauthorizing the SBA's programs and for your collaborative spirit. To all the participants, thank you again for participating in the Committee's roundtables this week, and please let us hear your comments, your concerns and your recommeded changes now, or in writing for the reauthorization record. We want SBA's programs to continue to improve and evolve for the best of small businesses and the nation's economy. I ask that my full statement be included in the record.