Mr. KERRY. I would like to thank Senator Snowe, Chair of this Committee and her Committee staff for working with me closely in a bipartisan way over the past several weeks to make some real gains in the Senate for small business. Together we were able to obtain Senate confirmation of Harold Damelin to be SBA's Inspector General, Senate passage of our small business drought assistance bill, S. 318, and Senate passage of an amendment to the Supplemental Appropriations bill which will make available more than $1 billion of loan guarantees to small businesses by permitting SBA to apply an appropriate accounting measure to remaining 9/11 STAR loan funds. And just yesterday, we reintroduced a bill to underscore and ensure the independence of the Office of Advocacy.

I would like to also thank Senator Snowe for calling this roundtable to address the reauthorization of the U.S. Small Business Administration's non-credit programs. These programs directly affect the ability of this nation's small businesses to survive and grow and successfully compete in the Federal procurement marketplace.

I thank the attendees for taking their time to participate in this roundtable. I am sure that with your recommendations, we can make some real improvements to the SBA. I also want to thank the representatives from U.S. Small Business Administration for their participation today: The Honorable Thomas Sullivan, Chief Counsel of the Office of Advocacy, Mr. Fred Armendariz, Associate Deputy Administrator of the Office of Government Contracting and Business Development, and Ms. Kaaren Johnson Street, Associate Deputy Administrator of the Office for Entrepreneurial Development.

As important as capital is to entrepreneurs, debt is not always the answer. SBA Administrator Hector Barreto and past SBA Administrators acknowledge this. In the SBA's FY 2004 budget request, there is reference to information from the Ewing Marion Kauffman Foundation and Dun & Bradstreet that indicates "80 percent of new businesses discontinue operation within five years because of lack of 'knowledge' of key business skills." Despite the recognized importance of such assistance, the SBA's funding request for FY 2004 and its legislative proposal to implement that request would freeze funding levels for virtually all Agency programs, without even accounting for inflation, for a six year period. That means SBA proposes to cut its programs to help small businesses start and grow despite our country's weak economy and small businesses' track record of pulling the nation out of recession.

Cuts to or inadequate funding of the SBA's entrepreneurial development programs are often attributed to vague and unfounded claims of duplication. Such claims mistake a common mission of training and counseling for duplication, ignoring the reality that small businesses vary greatly, are at different stages of development, and have different needs. Just as it would be ineffective to only have one type of loan or venture capital financing structure for the 25 million small businesses in this country, it would be ineffective to water down specialized management and training programs to impose a one-size-fits-all approach.

As the Federal entity responsible for fostering small business development, the Small Business Administration is charged with the great responsibility of enhancing opportunities for entrepreneurs and for those who want to offer products or services to the Federal government. In turn, it is the responsibility of the Congress and the Administration to ensure that the SBA has the tools and funding necessary to effectively and efficiently operate its programs that support and encourage the development of these small businesses. It is in furtherance of that responsibility that I raise a number of concerns regarding the reauthorization bill proposed by the Small Business Administration.

Reauthorization Schedule

The Administration's proposal to reauthorize the Small Business Administration for six years, in my opinion, undermines the oversight authority of the United States Congress. The business and economic cycles of this nation are too fluid and change too rapidly for Federal policy with respect to most small business assistance programs to continue, without review, for six years. Even more problematic is the fact that the proposal freezes funding for virtually all SBA programs for six years. The proposal includes no adjustment for inflation or demand, despite SBA's own numbers that show demand is up for its programs. Show me a meaningful business plan or family budget where the assumptions are the same for six years. Can anyone show me a loan application in which a small business can get approval with no change in projected business expenses for six years? The answer is no. Banks would consider that unrealistic.

The flat funding included in this reauthorization proposal amounts to a cut in virtually all of SBA's programs, placing the effectiveness of some programs, and possibly the viability of others, into serious question. When these programs are compromised, it's the nation's small businesses and local economies that lose.

Office of Advocacy

SBA's Office of Advocacy was created to be the independent voice of small business in the Federal arena. From studying the role of small business in the U.S. economy, to promoting small business exports, to advocating for the best interests of small business in a myriad of areas, to lightening the regulatory burden of small businesses through the Regulatory Flexibility Act (RFA) and the Small Business Regulatory Enforcement Fairness Act (SBREFA), the Office of Advocacy has a wide scope of authority and responsibility.

I have been working closely with my colleague and Chair of the Committee, Senator Snowe, to reintroduce the Independent Office of Advocacy Act, which former Committee Chairman Kit Bond and I introduced and this Committee unanimously endorsed last Congress. This legislation will reinforce the ability of the Office of Advocacy and the Chief Counsel for Advocacy to advocate freely on behalf of small business within the Executive Branch. The bill would give the Office its own line-item budget and strengthen the position of Chief Counsel with respect to budgetary issues, especially those related to his ability to hire additional staff as he deems necessary.

It is clear that the reduced independence and a shortage of staff at the Office of Advocacy have been of concern to various small business interests. There are currently 47 positions in the Office of Advocacy but not all are filled. Even with all 47 positions filled, the Office is likely to be inadequately staffed to effectively meet the growing demand. Past Chief Counsels have been fully staffed with 50 or more positions. These staffing needs must be addressed either by an SBA plan for prompt action or within the reauthorization legislation that this Committee will develop. The role of the Office of Advocacy is too important to be hindered by inadequate staff and funding.

Small Business Development Centers

There are significant changes proposed to the Small Business Development Centers (SBDC), which are located in every state. One SBA proposed change to the program would require competition for funding every 5 years, even for those SBDCs that are doing a superlative job. This proposal, in addition to the recommendation that SBDCs be required to create two online learning programs per year -- without increasing funding, are undue burdens to those organizations that are running effective, efficient programs. Another proposal would eliminate the requirement of the Governor's endorsement of the SBDC. Circumventing the approval of the Governor is unnecessary and could become a barrier to the future of the program. If enacted, these proposals would have a seriously deleterious effect on the ability of so-called "lead centers" within each state to obtain matching funds for the SBDC program. Many states provide more matching funds than the 50 percent required by law. If these changes were enacted, small businesses in those states would lose access to important business counseling and training.

The SBA, over the past year or more, has not fully staffed important advisory councils, such as the SBDC Advisory Board and the National Women's Business Council. Without their full complement of board members, these panels are unable to fulfill their statutory duties of assisting and advising the SBDC Network, and providing Congress with current data and insights into issues of concern to women-owned business issues.

Women Business Centers Sustainability Matching Grants

Started in 1988, the Women's Business Centers program is a vital resource for women entrepreneurs. These centers play an important role in 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 strike out on their own in 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 over the past 15 years.

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.

Agency Outreach and Co-sponsorship

I have significant concerns regarding the change proposed to the Agency's outreach and co-sponsorship authority. This proposal would allow corporate sponsorship for Agency supported programs, services and events. Current restrictions on that authority were put in place to prevent significant conflicts of interest, Agency participation in inappropriate political events, and impairment of SBA's visibility, independence and influence with respect to certain governmental activities. While existing law currently allows private sector cosponsorship of certain programs, we need to be very careful about the expansion of such gift-acceptance and co-sponsorship authority.


The Administration's reauthorization proposal eliminates the BusinessLINC program. 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 their bottom-line 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.

There is a great potential for BusinessLINC programs to match suppliers with distributors, which directly benefits the local economy while allowing access to vendors in the distributors' backyards.

Procurement Center Representatives

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. One of the greatest challenges to the Administration's ability to meet these goals is the practice of contract bundling, against which PCRs represent the best defense. They advocate on behalf of small businesses in cases directly affecting contracting. There are currently only 47 PCRs to review contracts from hundreds of agency buying divisions nationwide.

Despite the Administration's plan to use Procurement Center Representatives to limit bundling of Federal contracts, which will allow more small businesses to participate as prime contractors, the reauthorization proposal does not increase the number of Procurement Center Representatives (PCRs) and does not provide any additional funding for them. PCRs are crucial to assisting small businesses with the Federal procurement process, but they currently cover only 11.6 percent of procurement centers and just 60 percent of government contracting dollars. This leaves nearly $90 billion in contracting that are not reviewed by PCRs. Given this lack of coverage and in order to effectively meet the growing needs of small businesses, it is essential that the number of and funding for the Procurement Center Representatives be increased to reflect the growing demand.

Procurement Reporting Requirement

The proposal consolidates and eliminates various reporting requirements on government contracting and changes 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 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 efficacy. Further, the Federal Procurement Data Center within the Office of Management and Budget is in the process of bringing the Federal Acquisition Management Information System (FAMIS) online. This electronic system of contract reporting is scheduled to be up and running by October of this year and will significantly reduce the delay of information from OMB to SBA. Once that system is fully implemented, there is no reason the SBA would not be able to meet the pre-existing deadline.

Again, I thank the Chair, Senator Snowe, for holding this roundtable, which allows us an opportunity to hear from those closest to these program how we can enhance Federal advocacy, contracting and entrepreneurship development through the SBA's programs. I thank all of you for taking the time to participate in this roundtable today. Your input is very valuable and will be carefully considered when the Committee drafts the SBA reauthorization bill. With your recommendations, we will be able to ensure the SBA has the necessary tools to aid, counsel, assist and protect this nation's small businesses.