Full Committee Hearing On Oversight of The Sba and Its Programs

FULL COMMITTEE HEARING ON
OVERSIGHT OF THE SBA AND ITS PROGRAMS
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS

UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
HEARING HELD
JULY 29, 2009
Small Business Committee Document Number 111-040

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HOUSE COMMITTEE ON SMALL BUSINESS

ZQUEZ, New York, Chairwoman
NYDIA M. VELA
DENNIS MOORE, Kansas
HEATH SHULER, North Carolina
KATHY DAHLKEMPER, Pennsylvania
KURT SCHRADER, Oregon
ANN KIRKPATRICK, Arizona
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine
MELISSA BEAN, Illinois
DAN LIPINSKI, Illinois
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
BRAD ELLSWORTH, Indiana
JOE SESTAK, Pennsylvania
BOBBY BRIGHT, Alabama
PARKER GRIFFITH, Alabama
DEBORAH HALVORSON, Illinois
SAM GRAVES, Missouri, Ranking Member
ROSCOE G. BARTLETT, Maryland
W. TODD AKIN, Missouri
STEVE KING, Iowa
LYNN A. WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
MARY FALLIN, Oklahoma
VERN BUCHANAN, Florida
BLAINE LUETKEMEYER, Missouri
AARON SCHOCK, Illinois
GLENN THOMPSON, Pennsylvania
MIKE COFFMAN, Colorado
MICHAEL DAY, Majority Staff Director
ADAM MINEHARDT, Deputy Staff Director
TIM SLATTERY, Chief Counsel
KAREN HAAS, Minority Staff Director
(II)
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STANDING SUBCOMMITTEES
Subcommittee on Contracting and Technology

GLENN NYE, Virginia, Chairman
KURT SCHRADER, Oregon
AARON SCHOCK, Illinois, Ranking

ROSCOE BARTLETT, Maryland
MARY FALLIN, Oklahoma
Subcommittee on Finance and Tax

KURT SCHRADER, Oregon, Chairman
DENNIS MOORE, Kansas
GLENN NYE, Virginia
VERN BUCHANAN, Florida, Ranking

STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
Subcommittee on Investigations and Oversight

JASON ALTMIRE, Pennsylvania, Chairman
HEATH SHULER, North Carolina
MARY FALLIN, Oklahoma, Ranking

LOUIE GOHMERT, Texas
(III)
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Subcommittee on Regulations and Healthcare

KATHY DAHLKEMPER, Pennsylvania, Chairwoman
DAN LIPINSKI, Illinois
JASON ALTMIRE, Pennsylvania
LYNN WESTMORELAND, Georgia, Ranking

STEVE KING, Iowa
VERN BUCHANAN, Florida
Subcommittee on Rural Development, Entrepreneurship and Trade

HEATH SHULER, North Carolina, Chairman
KATHY DAHLKEMPER, Pennsylvania
BLAINE LUETKEMEYER, Missouri, Ranking

STEVE KING, Iowa
AARON SCHOCK, Illinois
(IV)
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CONTENTS
OPENING STATEMENTS
Page
Velazquez, Hon. Nydia M. .......................................................................................

Graves, Hon. Sam ....................................................................................................
1
2
WITNESSES
Mills, Hon. Karen, Administrator, U.S. Small Business Administration ...........
Shear, Mr. William, Director, Financial Markets and Community Investment,
U.S. Government Accountability Office ..............................................................
3
5
APPENDIX
Prepared Statements:
Velazquez, Hon. Nydia M. .......................................................................................

Graves, Hon. Sam ....................................................................................................
Mills, Hon. Karen, Administrator, U.S. Small Business Administration ...........
Shear, Mr. William, Director, Financial Markets and Community Investment,
U.S. Government Accountability Office ..............................................................
23
25
27
34
Statements for the Record:
GAO Report to the Chairwoman: Additional Steps Should be Taken to Address Reforms to the Disaster Loan Program and Improve the Application
Process for Future Disasters ...............................................................................
Small Business Administration Response to Questions for the Record: August
2009 .......................................................................................................................
46
88
(V)
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FULL COMMITTEE HEARING ON

RECENT GAO REPORTS ON SMALL
BUSINESS ADMINISTRATION PROGRAMS
Wednesday, July 29, 2009
U.S. HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., in Room 2360
Rayburn House Office Building, Hon. Nydia Velazquez [chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Moore, Dahlkemper, Bean,
Clarke, Ellsworth, Graves, Buchanan and Luetkemeyer.
Chairwoman VELA ZQUEZ. This hearing is now called to order.
This past January, the House adopted Rule 11, which requires
quarterly hearings on waste, fraud, abuse and mismanagement of
programs under the Committees jurisdiction. In the last six
months, we have held 13 oversight hearings on a broad range of
issues. Today we will continue that track record of upholding transparency. Our discussion will include an examination of several SBA
programs and an evaluation of steps that the agency has taken
thus far.
In recent months, Americans have been reminded of the important role that small films play in our economy. The Recovery Act
alone contains several provisions designed to help small businesses,
and the majority of those measures fall under the SBA umbrella.
That is why it is important that we take time to assess the agencys progress.
Even as our economy starts to rebound, small firms are facing
significant challenges in accessing capital. The Recovery Act took
steps to address those obstacles. For one, it increased the SBA loan
guarantees, giving banks greater incentive to lend. Any policy that
puts cash back into the hands of entrepreneurs is critical. And yet
SBA has not implemented these provisions as quickly as we would
have hoped.
Lending measures are vital, and we need to be sure SBA has the
direction it needs to put them in place.
As those of us who have been on the Committee for some time
know, SBA has a history of struggles with lending. Perhaps the
most salient example would be the Disaster Loan Program, which
faced significant challenges following Hurricane Katrina. At the
time, we asked GAO to take a look at the initiative and to evaluate
SBAs response to the hurricane.
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The resulting report led to the passage of the Disaster Response
and Loan Improvements Act. Later in this hearing, we are going
to hear from GAO about what SBA has accomplished since the act
was passed. We will also discuss areas in which work is yet to be
done. That way we can be sure that the agency is fully primed and
fully prepared the next time around.
In addition to obstacles in lending, SBA has often grappled with
contracting issues, perhaps most notably the embattled HUBZone
program. It is important that we have an idea of where that initiative stands. Fraud within the program was the primary focus of
our oversight hearing in May, and it is this Committees hope that
the abuse has since then been rooted out.
Oversight is a critical part of the legislative process. For federal
agencies, it provides an honest analysis of current programs and an
opportunity to change direction. After all, that is the primary purpose of GAO. As the investigative arm of the United States Congress, it does not seek to simply point out wrongs. Its ultimate goal
is to provide objective recommendations for efficiency and improvement.
In examining the current state of SBA, it is clear that there is
still significant work to be done, and the stakes could not be higher. Our economy, while recovering, has a ways to go. Now more
than ever, we are counting on small firms to drive growth and create jobs. In making sure they are able to do that, we need an SBA
that can step up to the plate and fulfill its role as a champion of
small business.
With renewed focus and a fresh direction, I feel confident that
SBA can play that role. I look forward to seeing progress unfold in
the coming weeks and months ahead.
I would like to thank both Administrator Mills. Congratulations
on your appointment. Welcome to this Committee. This is your first
appearance, and Mr. Shear for being here for this discussion. I
know we all look forward to hearing what they have to say, and
with that, I yield to Ranking Member Graves for his opening remark.
Mr. GRAVES. Thank you, Madam Chair.
And I also want to thank Administrator Mills for being here and
Mr. Shear for being here. We appreciate you coming in. We look
forward to hearing what you have to say about all the many different programs at SBA.
The Small Business Administration is tasked with a great responsibility providing all of the necessary tools for entrepreneurs to
start and grow small businesses. In order to complete this task, the
SBA employs a number of programs, including the HUBZone Program, the 8(a) Program, the Disaster Loan Program, and the 7(a)
Program, just to name a few of them.
It is the responsibility of the Committee on Small Business to insure that the SBA operates efficiently and effectively, and when it
becomes apparent that the SBA is failing to reach its goals or serve
its purpose, it is also the duty of this Committee to evaluate the
program and assess the Small Business Administration and get it
back on track so that it can continue to serve Americas entrepreneurs.
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In the wake of Hurricanes Katrina and Rita, it became apparent
that the Small Business Administration was not equipped to carry
out the responsibilities of its disaster loan program, and as a result, new requirements were put in place to strengthen the program and make sure it was, in fact, as efficient and helpful to victims as possible in the event of an emergency.
Similarly, the HUBZone Program at the Small Business Administration, which is designed to bring businesses to areas that have
been traditionally under served, has struggled to correctly identify
and enforce those who are eligible to participate in the program.
And, again, recommendations have been made to begin to remedy
that problem.
This hearing provides an opportunity to examine these problems
and others in which the Small Business Administration may be
struggling and to ascertain the success they have had in implementing these new requirements. The small businesses of America
play a crucial role in maintaining a healthy economy. Consequently, the manner in which the Small Business Administration
conducts itself has a direct result on the health of the American
economy.
This is a very important hearing taking place at a very important time, and the testimony that we hear today will have a direct
impact on the health of Americas small businesses.
And, again, I want to thank the witnesses, both of you, for being
here and, Madam Chair, thank you for holding the hearing.
Chairwoman VELA ZQUEZ. Thank you, Mr. Graves.
And it is my pleasure to welcome the Honorable Karen Mills. Ms.
Mills was sworn in April 6th, 2009, as the 23rd Administrator of
the United States Small Business Administration.
Prior to being confirmed as SBA Administrator, most recently
Ms. Mills served as the president of A&P Group in Brunswick,
Maine. The SBA helps small business owners and entrepreneurs
secure financing, technical assistance, training, and fairer contracts.
Welcome, Ms. Mills.
STATEMENT OF THE HONORABLE KAREN MILLS
Ms. MILLS. Thank you very much.

Chairwoman Velazquez, Ranking Member Graves, members of
the Committee, it is a great honor to testify before you as my first
time as the SBA Administrator. Given the Obama administrations
mandate to us to eliminate and prevent waste, fraud, and abuse in
government programs, I am pleased to testify as my first of these
regularly scheduled hearings on this topic. I consider this to be one
of my most important responsibilities.
As you know, as all of you know and as you mentioned, small
businesses account for 60 to 80 percent of the new jobs that are
created. Over half of Americans who work own or work for a small
business, and small businesses are going to continue to be the
foundation of innovation and competitiveness and the creation of
our 21st Century jobs.
But we know that these are difficult times for small businesses,
making the SBAs mission more important than ever. We maintain
a lending portfolio at the SBA that supports nearly $90 billion,
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mostly in loan guarantees. We are charged with making sure that
23 percent of federal government contracts are given to small businesses.
We have a strong network of over 14,000 affiliated counselors
that help small business owners grow their businesses, and we currently have on call more than 2,000 employees who stand ready to
help in case of a disaster. We are committed to integrity, accountability and effectiveness in all of these programs. These principals
are at the core of what we do as an agency, and at the core of who
we are.
The Recovery Act, which was passed with all of your help and
creation, is a great example of this commitment. Since the act
passed, the SBA has supported nearly seven billion in lending approvals to small business. Weekly volumes are up 45 percent over
the weeks before the Recovery Act, and most importantly, more
than 750 lenders who had not made a loan since October when the
lending markets froze are back in the program making SBA loans,
and some of them had not made a loan since 2007.
We have a chart here in the green of where we are in the Recovery Act programs. The light green is sort of when it was in the
planning phase and when it is in the dark green, it is in the market, and I will be happy to take questions on that as well.
But one of the first actions I took on becoming Administrator was
in implementing these Recovery Act programs, to make sure there
was a senior level risk management team in place to oversee the
roll-out, and we work closely with the Inspector General in terms
of risk mitigation and with small teams in each individual program
to build them.
I just want to mention the ARC Loan Program, Americas Recovery Act, as an example of how this risk management worked. This
is a new program for a specific purpose in a unique time. It is a
bridge over troubled water for viable but struggling small businesses. This is not in our traditional risk profile, but we were
charged with creating a program that was 100 percent guaranteed
by the SBA with zero interest cost for the borrower. So we knew
we would have a considerably higher default rate.
We also knew we would have to do extensive lender education,
and I am happy to say that we trained about 1,300 institutions in
the week following the roll-out. As a result, we have 47 states
where ARC loans have been made and 26 million in the hands of
small business owners.
That level of discipline that we are putting forth in the Recovery
Act is now the model that we are transferring to the core programs
at the SBA. We are optimizing operations in areas such as disaster
assistance, where we have added to the on-call employees. We have
added surge space in case of a catastrophic disaster, and we are
doing marketing and outreach in order to prepare areas to know
what it is they need to do in a disaster, and we have instituted
electronic loan processing, which now accounts for about a third of
the applications we received.
But overall there is a number of issues that still need to be addressed. Many of these problems have built over a number of years.
They will not be solved in days or weeks, but they will, indeed, be
solved.
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I look forward to working with the distinguished members of the
Committee to make that happen, and I look forward to your questions.
Thank you.
[The prepared statement of Ms. Mills is included in the appendix.]
Chairwoman VELA ZQUEZ. Thank you, Ms. Mills.
Our next witness is Mr. Bill Shear, and he is the Director of the
General Accountability Office, Financial Markets and Community
Investment. The Financial Markets team works to improve the effectiveness of regulatory oversight in financial and housing markets. It also oversees the management of community development
programs.
Mr. Shear, welcome.
STATEMENT OF WILLIAM SHEAR
Mr. SHEAR. Thank you.

Madam Chairwoman, Representative Graves and members of the
Committee, it is a pleasure to be here today to discuss our work
at the Small Business Administration. My statement is based on
our report, Small Business Administration: Additional steps should
be taken to address reforms to the Disaster Loan Program and improve the application process for future disasters. This report is
being released at todays hearing.
In that this is a general oversight hearing, I also look forward
to contributing to the discussion at the hearing on other SBA programs.
After the 2005 Gulf Coast hurricanes, many deficiencies were exposed in the agencys disaster loan program and demonstrated the
need for reform. For example, as we state in our February 2007 report, SBA did not engage in or complete comprehensive disaster
plans before the Gulf Coast hurricanes.
Since then SBA has taken several steps to reform its disaster
loan program, which includes creating a online loan application
and increasing the capacity of its disaster credit management system.
In June 2008, Congress enacted the Small Business Disaster Response and Loan Improvement Act to expand steps taken by SBA
and require new measures to ensure that SBA is prepared for future catastrophic disasters. In my statement today, I will summarize the extent to which SBA addressed the requirements of the Act
and how SBAs response following the major disasters of 2008
aligned with key components of its June 2007 disaster recovery
plan.
First, with respect to addressing the requirements of the act, as
of June 2009, SBA met 13 of 26 requirements of the act, partially
addressed eight, and did not take action on five which are not applicable at this time. SBA officials told GAO the agency has not yet
completely addressed some provisions that require new regulations
because to do so, the agency must make extensive changes to current programs or implement new programs.
For two requirements that will involve private lenders, SBA
plans to implement pilots before finalizing regulations. SBA has
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not yet addressed the acts requirements for region specific marketing and outreach, nor has it insured that disaster loan program
information is readily available to regional entities, such as small
business development centers.
By doing so, SBA could leverage the efforts and capacity of local
resources and emergency management groups, and it could better
ensure that it and they will be better prepared for future disasters.
Also, as of June 2009, SBA has not met deadlines to issue an annual report to Congress or an updated disaster response plan. Failure to do so can lead to a lack of transparency on the agencys
progress in reforming the program, and it can limit its ability to
adequately prepare for and respond to disasters.
Furthermore, SBA did not have an implementation plan for addressing the remaining requirements.
Second, with respect to SBAs response to major disasters in
2008, SBAs initial response after the 2008 midwest floods and
Hurricane Ike aligned with certain components of the initial disaster recovery plan, such as using technology and outreach efforts
to insure timely assistance. The individuals GAO interviewed and
results from SBAs 2008 disaster loan program customer satisfaction survey provided some positive feedback about SBAs performance following these recent disasters.
However, interviewees and survey results indicated areas for improvement. In particular, both indicated that application paperwork was burdensome, and that the application process needed improvement.
SBA officials told GAO that they have been taking steps to improve the application process, but did not provide documentation of
such efforts. As a result, it did not appear to us that SBA has a
formal process for identifying problems in the application process
and making needed improvements.
In our report, we make five recommendations that we think will
facilitate SBAs progress in meeting the requirements of the act
and improve the disaster loan program.
Madam Chairwoman, it is a privilege to testify before this Committee. I would be pleased to answer any questions on this work
and other recent work we have conducted at SBA.
[The prepared statement of Mr. Shear is included in the appendix.]
Chairwoman VELA ZQUEZ. Thank you, Mr. Shear.
Ms. Mills, Administrator Mills, GAO has recommended that SBA
conduct unannounced site visits on HUBZone terms, and as you
are aware, GAO conducted an investigation, and it was not a great
message from the government to taxpayers and to agencies regarding the responsibility of making sure that taxpayer safeguards are
in place, to make sure that people are playing by the rule.
Are you doing unannounced site visits? And how many has your
agency conducted since GAO made this recommendation in March?
Ms. MILLS. Yes, Madam Chair, we are making unannounced site
visits. In the time until the last hearing in March and when this
report was released, there had been only seven visits in six months.
Since that time, we have done over 600 in the last four months.
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We are using the data from the site visits to build a risk based
mechanism in order to see what documentation indicate noncompliance. So we will continue to make unannounced site visits and we
will continue to work on this mechanism.
In addition, I believe you are referring to the March 2009 GAO
report which was very helpful. I just wanted to report back on
what has been done. There were 19 firms cited. Two had already
been de-certified when we got the report and one actually was
okay. Of the remaining 16
Chairwoman VELA ZQUEZ. Administrator.
Ms. MILLS. Yes.
Chairwoman VELA ZQUEZ. I want to deal with that specific issue
later.
Ms. MILLS. Yes.
Chairwoman VELA ZQUEZ. So allow me to follow my train of
thought here.
Mr. Shear, in your report you note that SBA failed to meet several deadlines, some by several months. What were SBAs explanations for missing deadlines, and how has this affected the agencys preparedness for large scale disasters?
Mr. SHEAR. The reasons for not meeting deadlines fall into a few
different categories. The first one that I will mention is one category that has to do with the coordination with FEMA--where you
have regulations that have to be coordinated between the agencies-and we were told that coordination was a fairly extensive, cumbersome process, and that was the reason for delay.
Another category, this is a place where I think one area where
we just disagree with SBA, we think that the act is clear in calling
for regional marketing plans and to have plans that are specific to
the types of disasters that can occur in specific parts of the country, and that is one requirement where it seems there is some disagreement over whether what is already there at the national level
meets the requirements of that act. So that is one where we just
have a fundamental disagreement, it seems.
Some of the others, such as having programs that involve private
lenders, for those programs SBA wants to conduct pilots before rolling out an actual program to have some experience with the program. That is one where even though SBA has not met the requirements in terms of deadlines, we are fairly sympathetic to because
from our general work dealing with federal loan insurance and
guaranty programs, sometimes when you go into a new type of venture, pilots could be very effective.
Those are some of the examples as far as why there have been
delays. One of the reasons we made a recommendation that SBA
should come up with time frames for the implementation of completing the requirements of the act is we think that action will help
facilitate a certain discipline in terms of getting to where it should
be.
Chairwoman VELA ZQUEZ. Ms. Mills, one of the most surprising
findings of the report is the fact that nearly four years since Hurricane Katrina the agency is still struggling to develop a risk based
disaster response plan, and as we enter the peak of hurricane season next month, will the SBA continue to rely on a disaster plan
that is over two years old and that contains obsolete information.
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Ms. MILLS. Now, I presume that you are talking about our annual disaster plans. We submit monthly plans to Congress and assessments of where we are, but we will complete this annual plan.
We agree that it is dramatically important and overdue, but we
will complete it.
Chairwoman VELA ZQUEZ. Do you have a time line?
And my next question is will that disaster plan, comprehensive
plan, have the components mandated by the law?
Ms. MILLS. Yes, it will, and many of these components are in
place, and I think we need to just get you the plan.
Chairwoman VELA ZQUEZ. When do you think it will be expected,
since I mentioned that the hurricane season is coming?
Ms. MILLS. I will get back to you with an exact date, but we
promise that we will look to do it as soon as possible.
I do want to say we want to thank Mr. Shear because these actually have been a very helpful template for us to go through and
execute these things. So I think we are poised to bring you this report.
Chairwoman VELA ZQUEZ. But you understand the urgency
Ms. MILLS. Yes, I do.
Chairwoman VELA ZQUEZ. of having this plan in place before
the hurricane season is over us.
Ms. MILLS. Yes, we do, and we actually have the capacity in
place. So I think it is a matter of the report, which we owe you and
will get to you.
Chairwoman VELA ZQUEZ. Administrator Mills, this Committee
has asked SBA on a number of occasions if it has the resources and
controls necessary to prevent contracting fraud. In the past, the
agency has said that they have the resources necessary to prevent
fraud in the HUBZone Program only to have the GAO to find otherwise.
So let me ask you today: do you have sufficient resources and internal controls to prevent fraud in the 8(a) program?
Ms. MILLS. Thank you, Madam Chair.
The 8(a) program is for small businesses. It is not for big businesses masquerading as small businesses. This has been a concern
about this program.
We have done a number of things to begin to make sure that we
eliminate fraud and abuse and address the issues that have been
raised. The first is that we have had a strong up-front certification
program, and a formal certification that is done in two geographic
areas specializing in this, Philadelphia and San Francisco.
In addition, we have done some things since our last visit to you
to specifically invest in this activity. The first is leveraging technology. We have added to our business development management
information system in order to be able to better track these companies through their nine-year cycle. We are mandated to invest in
them for business development, and we have two tools.
Chairwoman VELA ZQUEZ. Administrator, administrator, excuse
me one second, but I have a lot of other questions, I just want to
make sure that today you are telling our Committee that you understand that you have the resources and the controls in place and
necessary to prevent fraud in the 8(a) program.
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Ms. MILLS. We are making investments now in those things. We
have put in the 2010 budget some additional resources that would
be very helpful, and we are working on a package of regulatory
changes which will soon be brought public before you.
Chairwoman VELA ZQUEZ. The same with the service disabled veteran program.
Ms. MILLS. Yes, the service disabled veteran program is extremely important, as you know. That is slightly different because
we need to work in conjunction with the Veterans Administration.
We have a very important report coming, I think, from the GAO
to help us work with them.
I have a meeting with the Veterans Administration to work on
the issue of their database, which is the database that is the governing database on who is a service disabled veteran. That is critical for this program to only be able to deliver to service disabled
veterans.
Chairwoman VELA ZQUEZ. Mr. Shear, given everything that you
have reviewed in putting together this report, are you comfortable
that the SBA is prepared to meet the challenges of another natural
disaster on the scale of Hurricane Katrina?
Mr. SHEAR. I wish I could give another answer, but do I and do
we feel comfortable about the question you posed, the answer is no.
These are some of the reasons why.
There are certain parts of the requirements in the act that have
not been met, and among them let me just go back to the disaster
recovery plan from 2007. At the time it was provided to us, the Administrator proposed it to us as conceptual approach. Part of our
view in our recommendations to the Administrator and also with
respect to the act itself, we think strategic planning should be a
very living document.
So, for example, there have been disaster simulations that have
occurred. Yet we do know that simulation is the best thing to do
to prepare for disasters the size of Katrina.
Chairwoman VELA ZQUEZ. Mr. Shear, lets clarify that. That was
under the previous Administrator.
Mr. SHEAR. Yes, from the previous Administrator, yes. Thank
you.
In terms of the disaster simulations, we know the disaster simulations the agency used in 2008 and they are of catastrophic disasters. Yet what we do not know, and this committee does not
know is what were the results of those simulations in terms of the
capacity of the agency to deal with a disaster the size of another
Hurricane Katrina nor what lessons have been learned from running those simulations.
So in the absence of some evidence that the agency is in a position of responding, even on a simulation type basis, causes us to
answer that question in the way we do.
Chairwoman VELA ZQUEZ. Ms. Mills, I hope that you understand
that we are here fulfilling our role and our duty of overseeing and
making sure that things that need to be in place are in place. Hurricane Katrina was a disaster of major proportions where people
lost their lives, lost their businesses.
So four years later after that, we need to hear that the GAO feels
that you have something in place where we can feel comfortable.
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And I very much am listening to this issue that you raised about
the plan. I would like to just mention that we have tactically
added. Before Hurricane Katrina we had 880 trained staff. We now
have 2,400 staff and reservists, and our reservists are ready to go
across the country anyplace that there is a disaster.
We also used to have 366 work stations and one of the things we
took from this review that you did which was very helpful is we
now have 2,100; from 366 to 2,100 work stations in our disaster
areas of Fort Worth and Surge Seats in Sacramento.
And we upgraded our management information system so that
we can do 12,000 concurrent users. So in terms of investing in fixed
infrastructure, trained people, we are in a very, very different
place.
We also reengineered our loan processing system. In the middle
of Katrina, it took us 85 days to process a loan. We now in any disaster do 14 days for homes and 18 days for businesses, and we are
piloting some additional programs.
Chairwoman VELA ZQUEZ. Mr. Shear, do you have any comments?
Mr. SHEAR. We acknowledge in our report that a lot of progress
has been made. The types of problems in this program, many of
them have been addressed, including the expansion in DCMS,
greater availability of reserves, and the types of things the Administrator is talking about. So we acknowledge these improvements,
and the program has improved.
The response to the 2008 disasters, which were much smaller
than anything on the scale of Katrina, was at least somewhat positive, but we are pointing out do we feel comfortable yet, and there
are still other pieces that are related to the other provisions in the
act, and in particular the lessons learned from having gone through
simulations and other types of exercises that we think are very important to demonstrate the type of preparedness I think were all
looking for.
Chairwoman VELA ZQUEZ. Thank you. Thank you.
Mr. Graves.
Mr. GRAVES. Thank you, Madam Chair.
Ms. Mills, the Office of Chief Counsel for Advocacy is required
by statute to monitor agency compliance for the Regulatory Flexibility Act, and given the amount of increased legislation that may
come from health care reform and from the reduction in greenhouse gases, you know, that responsibility is just going to get even
greater.
My question to you is: do you expect that the Chief Counsel is
not going to continue to monitor agency compliance with the Regulatory Flexibility Act to the same extent that it did under President
Clintons Administration, president Bushs administration?
Ms. MILLS. Absolutely, yes. This issue of excess regulation causing cost to small business is a critical mandate not only for the Office of Advocacy, but for all of the SBA, including the Ombudsmans
Office, and this is one of the number one concerns for small businesses. So it will be a priority.
Mr. GRAVES. Mr. Shear, in comparison to other federal agencies,
how quickly do you think the SBA adopts GAO recommendations
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just compared just to the other agencies you obviously have to deal
with?
Mr. SHEAR. That is a difficult question. I am trying to think of
how to come up with a tactful answer, but I would say over the
years it has been an agency that has been relatively slow to implement recommendations. I think that the recommendations in the
Disaster Loan Program from our work back then--where we still
say there is a way to go--but with respect to expanding the disaster
credit management system and those recommendations, that was
a priority, and I think that those were implemented over the course
of a number of years.
But you know, there are still remaining recommendations and
there are many that seem to --what I will call just linger for very
long periods of time.
Mr. GRAVES. Would you like to comment on that?
Ms. MILLS. Yes. Well, we are going to have to change that, Mr.
Shear, and we are going to have to get into the top end of the good
performers on that list.
We are very committed to working in partnership with the GAO
and with the IG also because if we are going to create a culture
where there is a real responsiveness on these reports, we find them
very helpful. They are a very strong road map, and we know we
can improve these programs on an ongoing basis. So we want to
be able to change that answer and be at the top end of the responders.
Chairwoman VELA ZQUEZ. Ms. Clarke.
Ms. CLARKE. Thank you, Madam Chair and Ranking Member
Graves, for holding this hearing, and thanks to you, Administrator
Mills and Mr. Shear, for your attendance today and your testimony
today.
I look forward to working closely with all of you to insure that
waste, fraud, mismanagement and abuse are reduced and ultimately eliminated. While this is being done, we want to be able to
maximize on the effectiveness of SBAs fantastic programs which
serve Americas economic engines, her small businesses.
Administrator Mills, my first question is for you. I have long
been a supporter of the SBAs efforts to create opportunities for
women and minority, veteran owned businesses, and today I would
like to focus on women and minority owned businesses and their
ability to access credit.
Typically women and minority owned businesses tend to employ
a more diverse workforce, and this is especially an issue today as
minority employment is at high levels relative to the rest of the
country.
In this vein, I would like to insure that existing programs, such
as the Womens Business Centers and other technical assistance
programs have the capacity and capability to assist minority and
women owned businesses in identifying finance opportunities. I
think it is vital that they have the tools they need to serve this important segment of the business population. I think we must maximize the existing resources to insure that the WBCs have what
they need to help foster our economic recovery.
Has there been some progress in the area of grant disbursements
by WBCs? And will you commit to working with me to discover
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methods to increase access to credit for women and minority owned
small businesses right away?
Ms. MILLS. Yes, I would be delighted to commit to you to do that.
The SBA has part of its core mission, and we are three to five
times more likely than a conventional lender, to lend to women and
minority owned businesses. So this is really what we do. It is at
the essence of what we do.
I am pleased to report to you that in the Recovery Act funding
20 percent of the loans have gone to minority owned businesses
and 19 to women owned businesses. We have over 100 women
owned business centers in our network. We currently have a new
and very talented and energetic person running these who has conducted regional meetings and has visited all of them and is coming
back with a lot of ways to improve and help this important constituency, and we are going to execute on that, and I would look
forward to working with you on it.
Ms. CLARKE. Thank you, and I want to also draw your attention
to the HUBZone Program. We are all aware that the HUBZone
Program encourages small businesses to locate in and hire from the
nations most distressed communities. Given that the focus of this
hearing is exploring ways to address mismanagement, I would be
remiss if I did not ask about the progress in the areas of certification of HUBZone firms.
At a hearing before this Committee in March, GAO testified that
the SBA fell short in removing certain fraudulent companies from
HUBZone participation, and this oversight resulted in another 7.2
million in HUBZone contracts being awarded to those same firms.
I want to be clear that there is no place in this economic climate
for fraudulent firms to take opportunities that belong to more deserving entities.
So would you please comment on the progress in oversight of the
HUBZone certification/decertification process in order to address
this imperfection?
This is a good program, and it should not suffer due to the shortcomings such as the ones that I have described.
Ms. MILLS. Thank you.
Yes, we at this moment have initiated a business process reengineering. So that is a full start to finish reengineering with an
outside firm that is in place on the certification process in
HUBZone because of the issues that you have described.
So we have tightened it up. We require more documentation already, but we are also going to do a business process reengineering
of it. So that is on the certification side.
In addition, on the continued eligibility, as I responded to the
Chairwoman, that is where we did the extra 600 visits, and we are
conducting the risk based analysis to try to find out how to indicate
where there are issues of fraud or mismanagement.
In addition, we went after the 19 that were cited in the GAO report. Five voluntarily withdrew. Six were decertified, and six we
have proposed for decertification. Two are already decertified, and
one actually is okay.
Ms. CLARKE. Thank you very much, Madam Chair. I yield back.
Chairwoman VELA ZQUEZ. Mr. Buchanan.
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Mr. BUCHANAN. Thank you, Madam Chair, for this hearing and
congratulations on your new opportunity. It is a big job.
Let me mention small businesses are getting literally killed.
When I look at what we have done with TARP, and this is not a
Republican- Democrat thing. I am just looking at the country now.
All of the big banks, AIG, everybody got a lot of money. Small business was supposed to get something. There was supposed to be
more credit available.
There is no credit. I did a town hall meeting with businesses
about two months ago; had 130 businesses, some in southwest Florida just south of Tampa. We had the SBA there. They did a very
good job, by the way, in terms of answering questions, but I asked
in the room how many people can get credit or have access to credit, you know, that do not work with banks? Or how many people
has it changed their credit.
Everybody in the room raised their hand. I want you to know I
have been in business 30 years. I have been on bank boards for 20
years. We in Florida anywayevery region is different in the countrythere is no credit. They might say there is credit, but the reality of it is if you put up a $1 million CD they will lend you $1
million.
Small businesses today, in Florida we had in our federation
137,000 small businesses. They create, I think everybody agrees,
70, 75 percent of the jobs. We talk a good game, and I think the
President is committed to small business. I have talked to him personally about that, but we just are not doing anything to get the
money out there.
They have no money. They have access to no capital. So I just
want to say that in general. Banks will tell you that, but they are
all under pressure. Their own capital base themselves, they are
trying to all survive. Small banks, little banks, I am talking to
them. They are not lending any money.
So what do you say to these small businesses in my community
and communities across the country that need credit? Because if
they have no credit, we are going to lose a third of them or a big
number of them.
Ms. MILLS. Well, Congressman, I also have been traveling and
hearing these issues, and I know the Chairwoman has mentioned
to me as well some of these places that she has gone. We are all
hearing that small businesses are suffering, and one of the things
I have to thank you for is that the Recovery Act did actually get
the formula right because we have been able to leverage with the
funding that you gave us so far $7 billion into the hands of small
businesses through the Recovery Act funds, and that is going to
continue.
And 750 banks that had stopped lending, they were frozen; they
were not on our books from October to the start of the Recovery
Act, but are now back lending. So these are very often community
banks and other banks, and they are back. Some of them had not
been in SBA lending since 2007.
So we are very glad about that. We are going to be working very
hard to leverage those programs into these places where the lending is frozen.
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In addition, as you know, the President is committed to small
business, and there are a number of additional programs, many
discussions going on about how to address this. It is a critical issue
to resolve for the nations economy.
Mr. BUCHANAN. I am telling you in Florida, and I am sure Nevada and areas that have been really hit hard, all of these banks,
even though they are getting capital, they are not lending. You
know, I will be glad to talk to you about this later, but the truth
of the matter is they are not lending. So these businesses, a lot of
them are going to end up going out of business.
I do not understand
Chairwoman VELA ZQUEZ. Would the gentleman yield?
Mr. BUCHANAN. Yes.
Chairwoman VELA ZQUEZ. One of the issues that we discussed is
now that, yes, the banks are not lending because the secondary
market is locked, and so it is important that SBA implement the
Section 503 and 509. That will help unlock the secondary markets
so that those banks will have the liquidity to start lending again.
Do you have like a time line of when those programs will be up
and running?
Ms. MILLS. Madam Chair, you are entirely correct, that if the
secondary market is not functioning, then banks do not lend because they have no place to sell their loan and get the liquidity.
We have the two programs up there on the time line. The two
ones you mentioned are still in the light green, and that is why the
Chairwoman is continuing to mention them to me.
I will say that the secondary market has recovered. It is back to
pre- October volumes, and we can give you that data and information. We track it. It happens on a monthly clearing basis. So we
are back at about 340 million. We have been back there, and there
is 15 billion of TARP money that stands ready to purchase in the
secondary market if that gets stuck again.
But we have committed to execute those programs, and we will
execute them.
Chairwoman VELA ZQUEZ. When?
Ms. MILLS. Three weeks, two weeks. August.
Chairwoman VELA ZQUEZ. Three weeks.
Ms. MILLS. Right where they are on that chart.
Chairwoman VELA ZQUEZ. Thank you for yielding.
Mr. BUCHANAN. Thank you, Madam Chair. It is a great point.
Let me just say my thought is if we can give as a country in this
environment 200 billion, whatever the number, plus all of these
contingencies to AIG, General Motors 50 billion, why dont we take
100 billion, take something significant because that is what it is
going to take to help these small businesses?
I am just telling you, and I would love to have you come down
to our area. I will take you anywhere in Florida. I can tell you a
lot of these businesses are rolling out of business, and they have
created a lot of the jobs. I mean, most in our area, our one Chamber, we had 2,600 businesses. Most of them are 20 and 30 employees or less. A lot of them are folding up. They are getting their
lines of credit pulled. You know, they like to work with SBA. Sometimes it takes too long, but we have got to find a way where they
empower you, and maybe it sunsets over time, but we need real
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money, real results, and right now we have lost three million jobs.
This is not one administrative or another or my mind. The reality
is we have lost three million jobs. These are a lot of working families.
We have got to get more money out there in good loans that
make sense right now, and I will just close with that.
Chairwoman VELA ZQUEZ. Time has expired. Mr. Ellsworth.
Mr. ELLSWORTH. Thank you, Madam Chair. Thank you, Secretary Mills. Good to see you again.
I would like to make an observation first, and then I will have
a question.
First, we talked at the luncheon a few months ago, and one of
the things I have been on this Committee three years, and I have
noticed that every time we have a new person come in, we would
ask them these questions, and they would say, We are looking into
that. We are working on that. We are going to do a study on that.
And three, four, five months later we come back and sometimes
there was a new person who said, I just got on the job, and we
are looking into that. We are going to study that. I was not there
then.
So I wish you a long tenure, and I also say in four or five months
I hope you say you can show us the progress that we have made
in there.
My question would be now that you are new at the job, what are
a couple of things that you walked in the door, you start peeling
stuff apart, and have really shocked you and you have said, We
have got to do this right away, either in the fraud mitigation? I
think you mentioned that in your testimony, some of the waste and
fraud mitigation efforts you have made.
And I would like to ask Mr. Shear the same thing when she is
done. If you had her job, what would you say this is something we
have to start right now and get done that you would implement on
day one from your observation of being in the agency?
So, Ms. Mills, if you will go first and then Mr. Shear.
Ms. MILLS. Absolutely. I am looking back to just make sure I
read the same words to you in my opening statement because I am
on record with the following, which is that many of the problems
that have been built up over years and that they are not going to
be solved in a matter of days or weeks, but they will, indeed, be
solved.
We have a top management, risk based approach to addressing
these issues. They are all on our radar. We track every single GAO
report and IG recommendation. We work our way through them.
We either agree with them and execute them or we have further
discussion as to, you know, how we should move forward with
them. Because we cannot run an agency that is so critical to the
economy going forward with our $90 billion loan portfolio, with
being responsible for 23 percent of government contracts going to
small business, with being responsible for disasters which could be
catastrophic.
We cannot execute unless we execute at the highest levels of effectiveness and transparency. So that is the commitment. We are
working on that.
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I would have to say that what I have found actually on the flip
side is that we have great people. We have a great team, and we
have great bone structure. And the secret that I have found is that
our bone structure is our people and also our partners.
We have over 4,000 lending partners. We have over 14,000 counselors in our SBDCs and our SCOREs and our Women Business
Centers. We have a network throughout this whole country where
we touch businesses. We are within, one person told me, an hour
to 40 minutes of most businesses with a counselor.
So we have an important and critical role to play. We are breaking down silos, and that also helps with this waste, fraud and
abuse because it cannot live in this open, transparent environment,
and we are working together to bring the power of that entire network to small businesses in order to bring the economy out of the
recession and give it strength and make it competitive going forward.
Mr. ELLSWORTH. Mr. Shear, if you were in charge, what is the
number one thing you would tackle? It may be on the same line.
Mr. SHEAR. I will make one flippant remark, which is we are not
supposed to make management decisions. So let me just make
some observations if you could live with observations.
As an accountability organization, when we see the what Ill call
a complete lack of internal control in fraud prevention in a program like the HUBZone Program, some people might say, Well,
the HUBZone Program is not that important, but whenever we
look at anything in government dealing with HUBZone or contracting programs, internal control and fraud prevention is something that, as an audit agency, something that we think is very important to address and address aggressively for these programs to
work.
With respect to the Capital Access Programs, this I will make a
statement just because it is such a big part of what SBA does, and
it is such an even more important part now, now that we have the
credit crisis that faces us.
Over the years, among the things we have recommended is that
in running its programs where SBA is delegating authority to lenders and SBA is so compliance oriented, and compliance is good, but
SBA does not get into questions as far as how are those lenders
using the authority SBA is granting to them. Are they meeting the
intent of the program?
So as we go forward, for example, now in looking at the Recovery
Act, we say can SBA step back and become more evaluative in the
way it manages its capital access programs so SBA can help figure
out how to implement different provisions that are to meet an intent in the credit markets where you are relying on private lenders
to carry out certain authorities. So that would be the second area.
The third area I would point out and as an audit agency, we do
not make recommendations to either increase or decrease any
agencys budget. I mean, we are just not in that business. It is a
congressional prerogative.
But with SBA over the last few years, at a minimum we always
are asking a budget-related question in your entrepreneurial development programs like Womens Business Centers, in running var-
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ious programs, including the contracting programs, including 8(a),
do you have the resources needed in place?
So what we tend to look for is some type of strategic planning.
What do you need to get the job done?
So those are the three areas I would point out.
Chairwoman VELA ZQUEZ. Mr. Shear, and to have all of those
things in place, the agency will need resources because when Mr.
Graves addressed the question to you about how does this agency
compare to other agencies, we have to answer the way you answer
it, but also take into account that this is the agency where for the
last six, seven years the budget was cut by almost 40 percent. That
is another element that we need to factor in.
Mr. Luetkemeyer.
Mr. LUETKEMEYER. Thank you, Madam Chair.
Ms. Mills, the Committee has heard that you and your staff have
been approving contracts requested by the Office of Inspector General, and we are concerned that this could interfere with an ongoing investigation in violation of the Inspector General statute. Are
you approving contracts requested by the Inspector Generals Office?
And, if you are, how are you ensuring that there is no interference with the ongoing investigation of the Inspector Generals
Office?
Ms. MILLS. So the question is are we approving contracts, and
maybe you could clarify what sort of contracts.
Mr. LUETKEMEYER. Dealing with the Inspector General. Can you
explain the relationship first, I guess, and maybe we can go from
there?
Ms. MILLS. Yes. The Inspector General is an independent actor
in the agency. They are funded independently. They are very active
and work separately from us but we hope collegially and in partnership. We provide information as requested.
Mr. LUETKEMEYER. Do you work together in any sort of contractual obligations?
Ms. MILLS. Not to my understanding, but I am happy to get back
to you with an answer on that for the record.
Mr. LUETKEMEYER. Okay. That is fine.
A while ago you mentioned something about you were looking at
a number of programs based on a risk-based approach. Can you explain to me what your description of and how you would determine
a risk-based approach?
Ms. MILLS. Yes. There are two times, I think I mentioned that.
One, overall we have a senior risk team that looks at a number of
things because although we have small risk teams that go program
by program, we are now looking more on a comprehensive basis on
a senior level about how much risk are we taking on in various aspects of what we do.
And consciously, for instance, in the ARC program there may be
a mandate or we may decide that a program should be a higher
risk program. We should do that consciously.
Mr. LUETKEMEYER. I assume when you are talking about risk,
you are talking about how you discern, how you evaluate a loan application and whether you are willing to look at, say, somebody
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who is less financially able or less financially stable. Is that where
you are going with this?
Ms. MILLS. So, for instance, the ARC Loan Program that is part
of the Recovery Act is a much riskier program than the SBA usually does in its profile, and we expect very high default rates from
that program, but it is a very important program for this particular
time. It is for viable businesses who are experiencing some difficulty, but it is a bridge over troubled water for them.
So we are making a conscious assessment that that is a program
where we are executing as part of the Recovery Act, but it is also
a program that is not within our normal risk profile. So that is one
of the risk assessments.
Mr. LUETKEMEYER. At what point do you pull back on a program
if you feel it is becoming too risky?
Ms. MILLS. Well, we set the parameters in the beginning.
Mr. LUETKEMEYER. What are your parameters?
Ms. MILLS. About what the default rates will be. We work a
model
Mr. LUETKEMEYER. What are your default rate specifications?
Ms. MILLS. The default rate specification was in a model that we
built with OMB, and it is quite high. it is over 60 percent for the
ARC loans, and that is well beyond what we have in any of our
other programs. So our expectation is, you know, that is what we
will get.
Mr. LUETKEMEYER. Okay. Just one final comment here. Mr.
Shear also made the same comment, and we got a question here
I was wanting to ask also. A couple of weeks ago we had a group
in here that talked about the amount of paperwork that is involved
in the 7(a) program, and Mr. Shear made the same comment a
minute ago, that it was so cumbersome that many of the people
were refusing to participate because of that.
Have you looked into that at all or do you have any plans or is
it on your radar at all to try and do something about the paperwork?
My family is in the banking business. I used to do this. It is horrible, absolutely horrible, and to go through this process, and a
minute ago you made a comment that you on your Disaster Relief
Program here went from 14 days to 18 days. I just wish that it was
14 days on an SBA bank loan.
Ms. MILLS. Well, actually it is less on an SBA bank loan. I believe it is under seven business days, five to seven days
Mr. LUETKEMEYER. Not in my area, but that is fine. Go ahead.
Ms. MILLS. for an SBA bank loan, but that is because since we
have done process reengineering. That is a continuous task. I am
a big advocate of process reengineering, and we need to make these
programs effective and efficient for the borrower while maintaining
the oversight and getting the information and calculating the information we need so that we have good loans.
But we have significantly reduced the turnaround time and made
the process much more friendly for the bank and the borrower.
Mr. LUETKEMEYER. That did not sound like a commitment to me.
Are you going to make us a commitment that you are going to look
at the 7(a) program and fine-tune that?
Ms. MILLS. Yes, I am.
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Mr. LUETKEMEYER. Thank you very much.
I yield back. Thank you, Madam Chairman.
Chairwoman VELA ZQUEZ. Mr. Moore.
Mr. MOORE. Thank you, Madam Chair.
On July 1st, I hosted a forum in my district for small business
owners to discuss access to capital. I have heard from many of my
constituents, and I can tell you that there is a great deal of demand for these ARC loans, but last week the Finance and Tax Subcommittee held a hearing on access to capital, and witnesses testified there are very few banks actually making ARC loans.
I know in the Kansas City area, and I am on the Kansas side,
but in the whole Kansas City metropolitan area fewer than a dozen
of these loans have been made and issued throughout the entire
metropolitan area.
One witness last week made the important point, I think, that
there is really no incentive for banks to make ARC loans. There is
no secondary market in paper work and reg requirements are just
as stringent as they are for 7(a) or 504 loans which offer businesses
far more than just $35,000.
What, if anything, can SBA do to make these loans more attractive to lenders and get the process moving?
Ms. MILLS. Thank you.
ARC loans, now we have over 300 lenders. We are lending in 47
states. We are on track to have a limited number of ARC loans
available. There will be approximately 10,000 before the funding
runs out, and it is likely that demand will greatly exceed supply.
We trained 1,300 lenders in the first week on the call, and lenders have no risk. It is 100 percent guaranteed by the bank, and
they do make a profit because although the borrower pays no interest, the SBA funds the interest.
Mr. MOORE. I yield back, Madam Chair.
Chairwoman VELA ZQUEZ. Ms. Bean.
Ms. BEAN. Thank you, Madam Chair.
And thank you both for testifying today and sharing your expertise.
Administrator Mills, I want to commend your leadership at the
SBA. We have seen a real rebound in the secondary market. We
are seeing increased lending participation from new lenders, lending activity in terms of loans and amounts being lent. So important
to the small business community as we try to ease the credit
crunch from limiting their access to capital.
But you also talked about process reengineering. I know from our
past conversations you are one very committed to continuous improvement. There are some lenders where there needs to be trust
rebuilt between the SBA and those lenders because of something
in the history that may be undermined that.
What comments would you share that you are doing to help rebuild those relationships where there are lenders who are not participating but who could be participating, whether it be the ARC
loans, 7(a), or other SBA lending programs?
And before you answer, I also do want to acknowledge I worked
with some of your folks in Chicago. Senator Durbin and I held a
forum about not just the roll-out of the ARC lending program, but
some of the other things going on to stimulate the secondary mar-
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ket, and it was very well received, and your folks did a really good
job.
Ms. MILLS. Well, thank you very much.
It is very important that we rebuild and that we build, continue
to build our relationships with our lenders. Let me just tell you
quickly two things. One is transparency. We are making sure that
lenders know how they are rated in our lender oversight system,
and that was something of concern to them.
And we also are continuing our programs, our preferred lender
programs and our delegated authority programs. Once we have experience with a lender, we are able to do various things, let them
use their own paperwork, let them make their own decisions, and
then we monitor them, and we find that our best lenders end up
in those programs, and it is something that then we have a very
good, transparent and trustful relationship between us.
Thank you.
Ms. BEAN. Thank you so much.
I yield back.
Chairwoman VELA ZQUEZ. Mr. Graves.
Mr. GRAVES. I do have another question, Madam Chair.
Administrator Mills, we are concerned not only about the amount
of time it takes to implement recommendations, for instance, from
the GAO, but we are also concerned about how much time it takes
to implement things required by law. You know, we talked a lot
about the ARC Program, and we know for a fact that it was supposed to be implemented within 15 days of enactment, which would
have been March 2nd. It took until June 15th. We do not know if
that was because of a specific provision in the law or if it was because of other diversions.
But my question to you is I would like a commitment from you
that the agency is going to implement programs that are required
by law before implementing some of the pilot programs that you
are working on like the Floor Plan Financing Initiative and some
of the other things. We would like to hear you say that you will
do those things that are required or that Congress has passed before doing some of the other diversions.
Ms. MILLS. Well, I very much am committed to those things that
are required by law, and these Recovery Act things are our top priority list.
I do want to tell you that we did the ARC loan. The reason for
the time in the ARC loan is what I mentioned in my opening statement, that this was a risk profile that was very, very much higher
than the standard risk profile that the agency takes on, and that
is what took the time to create the risk mitigation that would allow
us to go out and make these loans appropriately.
But the second thing is the dealer floor plan. The Chairman had
mentioned to me the same issue, and you mentioned to me that
issue, and we did sequence them because that was the right thing
to do behind ARC.
Chairwoman VELA ZQUEZ. Ms. Mills, we are concerned about the
fact that there are certain provisions that the Congress passed requiring SBA to issue regulations and to get those programs up and
running. In answering your question to Mr. Graves, you mentioned
that those were high risk and so you needed to act cautiously.
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My question to you: floor financing is not risk?
Ms. MILLS. The floor financing risk profile is the same risk profile as the standard 7(a) risk profile. So that is how it was constructed.
Chairwoman VELA ZQUEZ. Okay. I want to go with you over some
of the provisions that we passed, and this happened when you were
not the administrator. I just want to make sure that you tell us
your intention and commitment to get those provisions up and running.
For example, in the Energy Independence and Security Act, this
includes the Energy Efficiency Technology Loan Program and the
Renewable Fuel Capital Investment Company. Those provisions
have not been implemented.
In the Military Service and Veterans Small Business Reauthorization and Opportunity Act of 2008, this includes Section 105, increasing the number of veteran outreach centers, has not been implemented.
Section 106, study regarding gaps in availability of outreach centers, and Section 208, the Veterans Loan Program, have not been
implemented, and these initiatives are in excess of two years.
So can you tell this Committee when the agency will have each
of these provisions up and running?
Ms. MILLS. Well, absolutely we are committed to executing those
things that you give us to execute. I would like to take the opportunity to come back to you on each of those specific ones and make
a timetable so that you can know when to expect it, and if there
are any issues why we are not able to do it, we would say so at
that time. But at this point I think we need to commit to you to
come back to you with what an implementation time and plan for
each of those is because they need to be done.
Chairwoman VELA ZQUEZ. Yes, and if there is anything that the
Committee needs to do, then that should be part of the legislative
package that the administration should be sending to us.
The map of HUBZone eligibility is what the agency and firms
use to determine if they can participate. When was the last time
that your agency updated its HUBZone map?
Ms. MILLS. The last time the map was updated was last fall. It
will be updated again this fall.
Chairwoman VELA ZQUEZ. Ms. Mills, the SBAs latest budget requests nine million for operating the HUBZone Program, and I am
going back to the HUBZone Program because it has taken a lot of
time to implement some of the recommendations that the Government Accountability Office included in its report.
For operating the HUBZone Program, this worked out to about
700 to 900 per participant in the program. While that seems significant, GAO examined 52 firms in the program and found over
half, 29, were ineligible.
So what are taxpayers getting for their $9 million and what are
you going to do about it?
Ms. MILLS. Well, as you know, 10.8 billion went to HUBZone
firms, and that is about 11,000 firms, and the specifications are
that you have to be a U.S. citizen. You have to be a small business.
You have to have your principal office in the HUBZone, and you
have to employ 35 percent of your workers inside this HUBZone.
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We are, as you know, in the process of executing some oversight
improvements in order to make sure that those criteria are met up
front in the certification and that those firms remain eligible. And
that is where we are doing the site visits, and that is where we
plan to improve our processes.
And we need to get that program to a place where we have a better outcome from Mr. Shear.
Chairwoman VELA ZQUEZ. Administrator Mills, I will request
from you that you submit to the Committee the following specific
time frames for when the SBA will have implemented the following
items: an updated written disaster plan that integrates regional
marketing information, that distinguishes the agency response to a
hurricane in Florida, and in California; the bridge loan programs
mandated by the act; the annual report to Congress on disaster assistance. And I would like to have those time frames and responses
in our offices in two weeks.
Ms. MILLS. Yes, we can do that.
Chairwoman VELA ZQUEZ. With that the witnesses are dismissed,
and I take this opportunity to really thank you for joining us today.
Mr. SHEAR. Thank you very much.
[Whereupon, at 3:12 p.m., the Committee meeting was concluded.]
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Full Committee Hearing On Oversight of The Sba and Its Programs

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FULL COMMITTEE HEARING ON

OVERSIGHT OF THE SBA AND ITS PROGRAMS

COMMITTEE ON SMALL BUSINESS

Small Business Committee Document Number 111-040

U.S. GOVERNMENT PRINTING OFFICE

VerDate Aug 31 2005

11:12 Dec 10, 2009

For sale by the Superintendent of Documents, U.S. Government Printing Office

HOUSE COMMITTEE ON SMALL BUSINESS

VerDate Aug 31 2005

11:12 Dec 10, 2009

Subcommittee on Contracting and Technology

AARON SCHOCK, Illinois, Ranking

Subcommittee on Finance and Tax

VERN BUCHANAN, Florida, Ranking

Subcommittee on Investigations and Oversight

MARY FALLIN, Oklahoma, Ranking

VerDate Aug 31 2005

11:12 Dec 10, 2009

Subcommittee on Regulations and Healthcare

LYNN WESTMORELAND, Georgia, Ranking

Subcommittee on Rural Development, Entrepreneurship and Trade

BLAINE LUETKEMEYER, Missouri, Ranking

VerDate Aug 31 2005

11:12 Dec 10, 2009

Velazquez, Hon. Nydia M. .......................................................................................

Velazquez, Hon. Nydia M. .......................................................................................

Statements for the Record:

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11:12 Dec 10, 2009

VerDate Aug 31 2005

11:12 Dec 10, 2009