Good morning. Thank you Chairman Snowe for calling this hearing today. I welcome our witnesses and thank them for being here today. I also want to thank those who have submitted letters and written testimony for the record. All of the information is important to helping us make sure small businesses are getting the support they need. Thank you all.

Today is the beginning of our deliberation over the SBA’s FY2006 Budget. As a member of this Committee, I have spent years working to support the start-up and growth of small businesses, and I simply do not agree that this is a budget “to be proud of,” as Administrator Barreto told the House Committee on Small Business last week. I understand that the SBA and its programs are not perfect. However, starving the programs that provide credit and counseling to our small businesses, the job-creators of this country, is not a good plan. For five years now, the SBA has developed the habit of creating problems and then exploiting them to justify proposals that end up hurting small businesses, such as zero funding for loan programs or broad workforce cuts. President Bush has cut the SBA more than any other Agency. When he was handed the reins, the Agency had about $1 billion in funding, and today the President proposes less than $600 million. Morale at the Agency is low, and the Agency has had repeated problems getting a clean audit.

The Administration tries to obscure the true picture and instead paints a rosy scenario. For example, they use optimistic sound-bites about “doing more with less” and “saving taxpayer money.” The SBA has omitted a key aspect to their “zero funding for loans” plan: that is that they’ve shifted the cost to borrowers and lenders through higher fees, and that those higher fees will put loans out of reach for the neediest of small-business borrowers. Most of us in this room know that the SBA is taking credit for successes that were realized in spite of the Administration’s actions and not because of them.

The President’s rhetoric on small business doesn’t square with this crippling budget proposal. Over the last four years, President Bush has cut the SBA’s budget by more than one third, leaving our entrepreneurs struggling for access to credit, federal contracts, and adequate training.

Why has the SBA been able to back more small-business loans? There are several reasons. In the 7(a) Loan Guarantee Program, it is because Congress and the small-business community of borrowers and lenders have come together every year, to rescue the SBA for the sake of small businesses, to pass legislation that reduces the cost of the program, leveraging more loan dollars, and to raise money through fee increases to compensate for the lack of funding provided by the Administration. In the 504 Loan Guarantee Program, aside from natural growth in demand, it is because the Congress has supported bigger program levels and because of the increased number of 504 deals that came from the 7(a) Loan Guarantee Program when the SBA had imposed loan caps, eliminated combination loans, or completely shut down the 7(a) loan program. Madam Chair, it is important that the record document what the appropriators refer to as the Administration’s “funding schemes” each year, and how those hurt the long term operation of the 7(a) loan program rather than caused record lending. I submit a letter for the record that I sent to the Senate Appropriators a couple of years ago, which details the situation through FY2004 leading up to last year’s shutdown of the 7(a) loan program.

In general for the lending programs, I don’t think the proposed program levels give us a safety net for more lending. To avoid a shut down like we had last year in the 7(a) program, or other types of credit rationing to stretch dollars, I support increasing the proposed program levels to the full amount allowed by law. That is $17 billion, as passed by the Congress just last December. For the 504 program, I support a higher level of $6.5 billion, as the industry forecasts it will need. In addition, I call upon the SBA to allocate more resources to processing loans in Sacramento because demand is up 24 percent, and finally to issue regulations regarding 504 liquidations that are years behind the schedule. I disagree with the proposals to eliminate the SBA’s microloan program and the SBIC participating securities program. They each serve a financing gap in the market left by traditional lenders and venture capitalists.

In the microloan program, in all these years since its inception in 1992, there have only been one or two defaults. It creates jobs at the bargain rate of less than $4,000 versus the $33,000 of the SBA’s other programs and meets the SBA’s goal of serving more “start-ups.” The 7(a) Community Express program, while a good program for certain, more-established small businesses, is not a substitute for the SBA’s microloan program.

In the SBIC program, there are indeed problems. For five years, the SBA has been asleep at the wheel, and now there are billions in losses. Despite requests from this committee and the SBIC industry to work together to develop a solution that would keep this venture capital available to our fastest-growing small businesses, in this budget, the SBA proposes throwing in the towel and doing away with a very successful source of equity capital. Folks, we need the SBA’s investments. If we don’t take the risk, then the country will not continue to benefit from companies like California Pizza Kitchen and Coinstar, which are paying dividends of millions in taxes and thousands of jobs.

Of major concern to me is this budget’s request to grant the SBA authority to charge a fee for 7(a) loans sold on the secondary market. While we all agree that fiscal soundness is important, this proposed fee seems unnecessary and tantamount to double-booking the small business lenders and borrowers. The 7(a) secondary market fund has never run out of money, and it is only a possibility that there will even be a problem. If there is one, it won’t even happen until 2018, 13 years from now, according to information we were given last year. There are other ways to address this potential problem than giving unlimited authority to the SBA to impose any fee it wishes. Further, the accounting model the SBA uses for the general 7(a) loan program is still not accurate. As anyone who has followed this program can tell you, inaccurate subsidy rates are not a new problem. In the Fiscal Year 2006 budget, we learned that despite the highly touted “econometric model,” the subsidy rate for the year that just ended was wrong by 70 percent, wasting $42 million in appropriations and charging borrowers and lenders fees that weren’t even needed. It is a black mark on the Agency and its ability to project the true cost of its biggest and most far-reaching loan program.

Regarding this budget proposal, I continue to be bothered by the Agency’s rhetoric and policy justifications that pit its programs against each other, 7(a) against 504, 7(a) Community Express Loans against Microloans, and PRIME and Microloan Technical Assistance against Women’s Business Centers, SCORE, and the Small Business Development Centers. These programs serve different types of small businesses and different, but worthy purposes, but the budget does not recognize this fact.

In addition, Madam Chair, the President’s fiscal year 2006 budget request, like his fiscal year 2005 proposal, continues the Administration’s assault on programs that help low-income, minority, home-based, rural and women entrepreneurs. If Congress accepts the President’s fiscal year 2006 budget proposal for the Small Business Administration, entrepreneurial development assistance for those who need it most will be decimated.

This year, the President eliminates the Program for Investment in Microentrepreneurs (PRIME), does away with sustainability centers in the Women’s Business Center program, cuts $1 million from the Small Business Development Center (SBDC) program, reduces Native American Outreach assistance by 20 percent, and again provides no funding for the Business Information Centers (BICs), the SBIR Rural Outreach Program (ROP) and the SBIR Federal and State Technology (FAST) program. 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. Eliminating these programs, along with the Microloan program as mentioned above, will drastically undermine new business startups, cripple long-term micro-enterprise development, and undermine the ability of states and local communities to grow their economies.

The most critical cuts to entrepreneurial development programs at the SBA proposed by the President are to the PRIME program, to the Women’s Business Center (WBC) program, and to Native American Outreach.

In commenting on the importance of micro-enterprise development, SBA Administrator Hector Barreto himself has said, “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.”

Unlike any other SBA program, the PRIME program provides highly in-depth and intensive, one-on-one business counseling and training. The Small Business Development Center program defines a “client” as someone who has received two hours of training. The PRIME program is targeted to help 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 micro-enterprise development (through programs such as PRIME and the Women’s Business Centers) ranges from $2.06 to $2.72 for every dollar invested. Micro-enterprise contributes to our national economy through public tax revenues, private income increases, and reduced dependence on public assistance, such as TANF.

Last year the SBA awarded PRIME grants to only 16 states and the District of Columbia, despite receiving the same amount of funding for the program from Congress. Now, instead of 66 centers nationwide, there are only 27. With the poverty rate continuing to increase, 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 fifth year in a row, has eliminated PRIME from his budget.

Also in need of urgent attention is the Women’s Business Center program. The Administration has repeatedly said that it will not support the most experienced, the most effective, and the most efficient Women’s Business Centers. On this issue as well, the Administration continues to be on the wrong side of entrepreneurial development, on the wrong side of small businesses, and on the wrong side of women. This is a program that helped 106,000 women entrepreneurs last year alone. Despite repeated success and improvement, President Bush has proposed near flat funding for the program each year of his Administration. This year his $12 million request is $500,000 less than the program received 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 September 2003. That program was written by me, cosponsored by a bipartisan group of 30 Senators, including Senator Snowe, and passed in 1999. Repeated requests from the women’s business community and strong support from some leaders on the Hill -- such as Chair Snowe, Congresswoman Nancy Johnson, the Senate appropriators, and Senate Democrats -- have kept the sustainability program going. Last year, at the request of Senator Snowe and myself, the Senate appropriators gave 48 percent of the programs funding to the sustainability program. However -- because the program was not reauthorized as part of the last-minute SBA reauthorization that was included in the end-of-the-year Omnibus Appropriations bill -- sustainability is only funded through fiscal year 2005.

The SBA has 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 16 years. Last year, the SBA underfunded the 49 WBCs that receive sustainability grants. Instead of providing full funding at $125,000, the SBA made grants ranging from $70,000 to $81,000. This has forced centers to cut back on staff, decrease assistance, and close their doors altogether. The Women’s Business Centers in sustainability already represent 39 states and territories. In fiscal year 2006, about 60 percent of the Women’s Business Centers will be in sustainability, and will be forced to close if the President’s proposals are followed.

Opening new centers – which on average take two to three years to get up to speed -- instead of fully funding performing and proficient Women’s Business Centers is bad policy, bad for women, and bad for the economy. Last year, Senator Snowe and I passed legislation through the full Senate that would have secured the Women’s Business Center for the long-term. I was extremely disappointed that this legislation was not included in the SBA’s mini-reauthorization developed in the waning hours of the 108th Congress by Chair Snowe, Chairman Manzullo and Republican leadership; however, I am optimistic that Chair Snowe and I will again work together to address this critical issue. Chair Snowe has been a leader on this issue and I commend her for that. 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.

The Administration is also cutting Native American Outreach, a program the President has proposed eliminating altogether for the last two years. This is the only SBA 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 the Administration for Native American assistance at the SBA and instead appropriated $2 million and $1 million, respectively, for the last two years. The SBA, however, failed to establish a definitive, continuing Native American program with these funds.

Over the past several years, I have worked closely with my colleagues in Congress to fund Native American support programs at the SBA. Last 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 Congress, 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, which we plan to reintroduce this Congress, would also create a statutory grant program, known as the Native American Development grant program, to assist Native Americans to start and grow small businesses.

Madam Chair, I am deeply concerned with the Administration’s ongoing strategy that limits transparency and reduces the oversight authority of this Committee by removing program funding from a line-item in the budget and incorporating them into larger operating budgets of managing offices. The FY2006 budget rolls funding for the 8(a) program, HUBZone program, 7(j) program, Native American Outreach, and U.S. Export Assistance Centers into the budget of the Government Contracting and Business Development (GCBD) office, Salaries & Expenses or Agencywide Costs. The removal from a line-item reduces the authority of this committee to ensure that the funds allocated to a specific program are applied to that program in an appropriate manner. Instead, once incorporated into the Government Contracting and Business Development budget, those funds may be used at the discretion of the Associate Administrator of that department.

In general, I do not think the Committee should support the proposal to eliminate line-item funding, but particularly not for services and offices that exist to level the playing field for minorities, foster entrepreneurship among the under-served, and serve as an independent voice for small-business owners. Line-items ensure, to the extent possible, that the government obligate funds for a purpose that we, the oversight committee, and the Congress, think are important. These conclusions are often reached after deliberations like we are having here today, where the public tells us what works and what doesn’t and why a program is needed. Over the past few years, the Agency has not listened to the very people who deliver its programs: small business groups and Agency partners. In some cases, SBA has punished its partners by delaying disbursements or cutting funding, and the Agency has been less than cooperative with its Committees of Oversight, often ignoring or delaying even the simplest of oversight requests. Short of extremes like subpoenas, line items are one of the few effective oversight tools Congress can use with the Executive Branch. Eliminating them will set a bad precedent.

Even more disturbing is the transfer of research dollars from the jurisdiction of the Chief Counsel for the Office of Advocacy to the account for Executive Direction. Advocacy Research is responsible for impartial reports that address the economic impact on small firms caused by Federal regulations and actions. Independence from political influence is essential for ensuring accurate and impartial reporting. One such recent report found that 44 firms were incorrectly reported as small and received over $2 billion in Federal contracts. I have grave concerns regarding the ability of the Office of Advocacy to perform such research without full independence. With the funds being absorbed by the Administrator’s budget, the research of the Office of Advocacy will lose independence and would now be conducted at the discretion of the Administrator.

This transfer of funds is a prime example of the need for an Independent Office of Advocacy bill, which the Chair and I cosponsored in the 108th Congress. This bill will allow the Office of Advocacy to better represent small business interests before Congress, Federal agencies, and the Federal Government without fear of reprisal for disagreeing with the position of any current Administration. I believe this attempt to gain control over the research conducted by the Office of Advocacy increases the urgency to pass this legislation. I look forward to receiving the commitment of the Chair in redoubling our efforts to get this legislation passed as soon as possible in the 109th Congress. What this budget also doesn’t adequately address is what every small business wants to know: How are we going to fix the health care crisis in this country for small businesses? Instead, President Bush's budget request recycles many unpopular proposals from years past, including his desire to create Association Health Plans for small businesses. I'm known as an environmentalist, but some things just aren't meant to be recycled. I remain strongly opposed to AHPs, and I believe that they will do little to help small businesses find the relief they so desperately deserve. In fact, the Congressional Budget Office has shown that many small businesses will actually be harmed if AHPs are enacted, as they estimate that premiums will likely go up for four out of five small business workers and their families. Because AHPs have the potential for such negative consequences, an unusual array of consumer, provider, insurer, and state organizations has opposed Association Health Plans. This Committee should join in that opposition.

That's not to say there isn't a crisis. With only 62 percent of small businesses offering their employees health insurance, we certainly all can agree that we must step forward with solutions to this persistent problem. However, AHPs are very problematic. I think a better approach would be to offer small businesses the option to buy into the Federal Employee Health Benefits Program and to give them substantial tax credits to make it affordable. By giving small businesses the buying power of purchasing in the large group market, we solve their access issues. By supplying tax credits, we solve their affordability crunch. And compared to AHPs, this approach would also ensure more choices of health plans, better quality coverage, and would strengthen fundamental consumer protections in the marketplace. I think this is a smart approach that we should all get behind.

In closing, with respect to the SBA’s proposal to continue its aggressive workforce transformation efforts, let me say that the words like “streamlining,” “realigning the Agency’s human capital resources,” and “running itself like a business,” sound very good in theory, but the SBA’s trade record of implementation has not been good. Take for example, the SBA’s centralization of 7(a) loan liquidation from around the country to Herndon, Virginia. Centralizing these functions without leaving any expertise in the field turned out to be a mistake. Even a year after the center was to be up and running, it is, I understand, having trouble staying fully staffed and juggling its workload. Suffice it to say that the Committee will very carefully review any future workforce consolidation or buyout plans that the SBA may propose.

Again, I thank the Chair for having this important hearing. I look forward to hearing from the witnesses, the opinions of my colleagues, and I ask that the full of my remarks be published in the record along with letters and other written testimony provided to me.