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[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]

 
            MARKUP OF COMMITTEE VIEWS AND ESTIMATES 
               ON THE SMALL BUSINESS ADMINISTRATION'S 
               FY 2015 BUDGET

=======================================================================

                                HEARING

                                BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             MARCH 25, 2014

                               __________

                              
                              
[GRAPHIC NOT AVAILBLE IN TIFF FORMAT]

            Small Business Committee Document Number 113-062
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                   HOUSE COMMITTEE ON SMALL BUSINESS
                   

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                      BLAINE LUETKEMEYER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Sam Graves..................................................     1
Hon. Nydia Velaazquez............................................     2

                                APPENDIX

Additional Material for the Record:
    Views and Estimates of the Committee on Small Business on 
      Matters to be set forth in the Concurrent Resolution on the 
      Budget for Fiscal Year 2015................................     4

                     BUSINESS MEETING TO CONSIDER 
 COMMITTEE VIEWS AND ESTIMATES ON THE SMALL BUSINESS ADMINISTRATION'S 
                    FISCAL YEAR 2015 BUDGET REQUEST

                              ----------                              

                        TUESDAY, MARCH 25, 2014

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 11:02 p.m., in Room 
2360, Rayburn House Office Building, Hon. Sam Graves [chairman 
of the Committee] presiding.
    Present: Representatives Graves, Coffman, Mulvaney, Tipton, 
Herrera Beutler, Hanna, Schweikert, Bentivolio, Collins, 
Velaazquez, Schrader, Payne, Schneider, and Barber.
    Chairman Graves. Good afternoon. We will call the Committee 
on Small Business markup to order. Today we are undertaking our 
responsibility to provide views and estimates on the Small 
Business Administration's budget for Fiscal Year 2015. Due to 
the President's failure to nominate an Administrator in a 
timely fashion so that the individual could be confirmed by the 
Senate, the Committee has not had the opportunity at this point 
to hear from this sufficiently senior superior SBA official on 
the rationale behind the budget request.
    The views and estimates before us today represents a 
balanced approach of eliminating unnecessary funds from the 
SBA's budget while keeping core programs at the Agency intact. 
The views and estimates letter calls for a reduction in 
spending and reallocating a small portion of those savings to 
other areas that are going to improve agency oversight and 
promote greater opportunity in the federal procurement 
marketplace for small businesses.
    During the past 2 years, Congress enacted a number of 
changes to the government contracting programs that is overseen 
by the SBA. These changes require the SBA to take a dozen 
separate actions to implement the changes mandated by Congress, 
and to date, not a single one of those changes has been made, 
and some are more than a year behind schedule. In fact, the 
SBA's budget justification document makes almost no mention of 
these changes or any effort by the agency to implement them.
    While the SBA is ignoring mandates from Congress, it has 
the gall to request $39 million to continue entrepreneurial 
outreach initiatives of its own creation. To make matters 
worse, these initiatives duplicate already existing agency 
programs and none of these SBA-created programs have proven 
track records of providing assistance to small business owners.
    By necessity, the budgets require hard choices. To the 
extent that the SBA Fiscal Year 2015 budget request makes hard 
choices, they ultimately make them in the wrong places. The 
views and estimates letter is the corrective to those misguided 
choices. And if implemented, the views expressed in the letter 
to the Committee on the Budget will: improve recoveries on 
defaulted SBA-guaranteed loans; it is going to improve the pace 
of improvements to the SBA's loan management accounting 
systems; increase the number of SBA personnel devoted to 
assisting small businesses obtain federal contracts and 
subcontracts; and strengthen the Inspector General's effort to 
uncover waste, fraud, and abuse at the agency.
    It will also reduce the SBA's overall budget by more than 
$50 million without harming the agency's capacity to serve the 
generator of the most jobs in this country--that is America's 
small businesses.
    Now, I recognize Ranking Member Velaazquez for her opening 
statement.
    Ms. Velaazquez. Thank you, Mr. Chairman. The SBA continues 
to be an important agency for spreading economic activity. 
Through its access to capital, procurement and entrepreneurial 
development programs, the agency assists hundreds of thousands 
of entrepreneurs each year. The SBA's annual budget submission 
gives this committee the opportunity to assist the agency's 
priorities and whether it is carrying out its statutory mission 
appropriately.
    The SBA's near-term blueprint for accomplishing its mandate 
is its fiscal year 2015 budget request of $710 million. This 
funding will enable the agency to continue to provide loans, 
contracts, and training to small businesses across the country. 
In this capacity, the SBA truly plays a vital role 
strengthening our economy and providing job creation.
    While SBA's fiscal year 2015 aggregate budget level is 
reasonable, I have concerns with its allocation. Similar to 
prior years' budgets, the SBA continued to support initiatives 
that lack a specific statutory authorization. This includes 
spending $39 million across several programs, such as 
Entrepreneurship Education, Boots to Business, Growth 
Accelerators, Regional Innovation Clusters, and the Business 
USA Web site. Other similar activities are undertaken in the 
agency's financing programs. Simply put, this practice is 
wasteful and should not be allowed to continue. And on this 
point, we enthusiastically concur with the chairman.
    These private initiatives often lack appropriate safeguards 
and guidelines as well as agency oversight, and the absence of 
performance benchmarks makes it nearly impossible to understand 
what these initiatives are accomplishing. By creating new 
initiatives, the SBA is squandering its limited resources. 
Instead, it should be relying on time-tested programs for a 
fraction of the cost.
    While we agree with the majority on this important point, 
there are a couple of areas that we disagree on. Proposing to 
transfer the Veterans Business Outreach Center program to the 
Department of Veterans Affairs is unnecessary. SBA has 
experience in funding various assistance centers serving 
different demographics and the Veterans Business Outreach 
Center program can benefit from this knowledge. And just last 
month, this committee passed legislation transferring a portion 
of the VA's small business program to the SBA. Moving the VBOC 
from the SBA to the VA will undermine this work and create 
confusion.
    On this, I believe that we should speak with one voice and 
continue to stress that the SBA, while not perfect, is the best 
agency to serve small businesses.
    In addition, while the Majority talks about its concerns 
that the SBA is too concentrated in Washington, D.C., it fails 
to provide concrete steps for distributing personnel. It simply 
proposes to reduce both field staff and headquarters staff 
alike, which do not necessarily lead to a more diffuse SBA. 
Instead, the agency's personnel structure should be evaluated 
and steps taken to ensure that all areas of the country have 
access to the SBA resources they need.
    As we all know, disagreement in priorities in the agency's 
annual budget is not unusual. However, this year I believe that 
Chairman Graves and I have a lot in common in our views of the 
SBA's budget submission. Put simply, continually spending 
taxpayers' money on priorities not approved by Congress is 
never a good use of scarce resources.
    As we move on with our work, I look forward to working to 
refocus the SBA on its core statutory mission of serving small 
businesses in a manner that is both efficient and prudent.
    Thank you, and I yield back.
    Chairman Graves. Does any other member wish to be 
recognized for a statement on the views and estimates?
    Seeing none, the committee now moves to consideration of 
views and estimates. The Clerk will please read the title of 
the document.
    The Clerk. Views estimates of the Committee on Small 
Business----
    Chairman Graves. I ask that the views and estimates be 
considered as read and open for amendment in its entirety. Does 
any member seek recognition for the purpose of offering an 
amendment?
    Seeing no amendments, the question is on adopting the views 
and estimates.
    All those in favor, signify by saying aye.
    All opposed, no.
    In the opinion of the chair, the ayes have it and the views 
and estimates is adopted. And I now recognize ranking member 
Velaazquez for a motion.
    Ms. Velaazquez. Mr. Chairman, I would like to give notice 
pursuant to House Rule XI, clause 2(1) that the Committee 
Democrats will be filing additional views with the Committee on 
the Budget regarding SBA's fiscal year 2015 budget.
    Chairman Graves. Without objection, that is so ordered.
    And with that, I would ask unanimous consent that the 
Committee be authorized to correct punctuation and to make 
other necessary grammatical and technical corrections on the 
document considered today. And without objection, that is also 
so ordered and this committee is now adjourned. Thank you, 
everybody, for coming.
    [Whereupon, at 1:10 p.m., the meeting was concluded.]
                            A P P E N D I X

    Views and Estimates of the Committee on Small Business on 
Matters to be set forth in the Concurrent Resolution on the 
Budget for Fiscal Year 2015

    Pursuant to clause 4(f) of Rule X of the Rules of the House 
and Sec. 301(d) of the Congressional Budget Act of 1974, 2 
U.S.C. Sec. 632(d), the Committee on Small Business is 
transmitting herein: (1) its views and estimates on all matters 
within its jurisdiction or functions to be set forth in the 
concurrent resolution on the budget for Fiscal Year 2015; and 
(2) recommendations for improved governmental performance.

    The budget request for the Small Business Administration 
(SBA) in FY 2015 is $864.64 million--a decrease of 
approximately $64 million from the levels appropriated for FY 
2014. The majority of the decrease (about $47 million) stems 
from the reduction in appropriations needed to cover the cost 
of the SBA loan programs. There are other minor decreases 
spread across other SBA programs. Of these funds, approximately 
half are devoted to salaries and expenses.\1\ Total employment 
remains constant at 2,136 employees. The SBA also has requested 
nearly $39 million in SBA-initiated entrepreneurial development 
programs that have not been reviewed or approved by this 
Committee and duplicate existing longstanding small business 
outreach efforts funded through the agency's appropriation.
---------------------------------------------------------------------------
    \1\ The salaries and expenses is subdivided further into three 
subaccounts: 1) general agency operations; 2) business loan 
administrative costs and 3) disaster loan administrative costs.

    In the Committee's view, most of the funds for these new 
SBA-created outreach efforts should be eliminated while a 
modest amount should be reallocated to other areas, including 
improvements to the SBA's information technology and the hiring 
of additional personnel to assist small businesses in obtaining 
federal government contracts. These modest reallocations will 
reduce risk to taxpayers without increasing the overall size of 
the SBA. Ultimately, the changes recommended will provide 
greater assistance to small businesses--the primary generator 
---------------------------------------------------------------------------
of needed jobs in the economy.

    Capital Access Programs

    As the economy continues its embryonic recovery, small 
businesses will seek funds to expand their businesses. Yet, 
small businesses still have difficulty obtaining needed credit 
to operate as the hangover from the restrictions on lending due 
to the financial crisis remain. Businesses with solid operating 
histories have seen their credit lines reduced or eliminated. 
The SBA capital access programs provide businesses with 
necessary capital and credit to create jobs that the economy 
needs.

          7(a) Guaranteed Loan Program

    The 7(a) Loan Program is the primary program for providing 
financial assistance to entrepreneurs. The program utilizes 
private lenders who make loans and receive guarantees from the 
SBA that a portion (varying from 50 to 85 percent of the loan) 
will be repaid by the United States Treasury even if the 
borrower defaults. Until FY 2006, Congress appropriated funds 
to supplement the fees charged by the SBA in order to cover the 
cost of the program as required by the Federal Credit Reform 
Act.\2\ From FY 2005 until FY 2010, fees covered the cost of 
the program without the need for an appropriation. From FY 2010 
to FY 2014, the economic downturn required Congress to 
appropriate funds to cover the costs of the 7(a) Loan Program 
that were not obtained from fees charged by the SBA and 
recoveries on collateral from defaulted loans. The economic 
recovery enabled the 7(a) Loan Program to return to a zero 
subsidy.
---------------------------------------------------------------------------
    \2\ Under the Federal Credit Reform Act, the SBA must determine the 
costs needed to cover potential losses from the cohort of loans made in 
the fiscal year in which the loans were made. Determining the net 
present value involves estimating expected loan defaults in the future 
less any recoveries of collateral on the defaulted loans. According to 
the agency's estimates, defaults are only expected to rise very 
modestly; the real issue is the expected recoveries will be lower due 
to reductions in the value of collateral.

    In fact the 7(a) Loan Program will operate at a negative 
subsidy rate, i.e., it will take in more in fees and recoveries 
than is necessary to cover the cost of the program. Since these 
funds cannot be reallocated to any other SBA account, the 
Committee suggests that it would make sense for the SBA to make 
minor reductions in the fees charged to borrowers and lenders 
---------------------------------------------------------------------------
such that the program operates at zero subsidy.

    The SBA requests authorization to make $15.65 billion in 
loans under the 7(a) Loan Guarantee Program. Given expected 
demand and the fact that the program is operating at a negative 
subsidy rate, the Committee believes that it would be 
appropriate to authorize an increase in the authorized lending 
to $16.65 billion. This should prevent the program from a 
reaching a limit that might necessitate restrictions in lending 
without adding any cost to the federal government from the 
increased authorization amount.

    The Committee remains strongly concerned about the SBA's 
use of its pilot program authority pursuant to Sec. 7(a)(25) of 
the Small Business Act. This authority originally was crated to 
provide the SBA with some flexibility to meet unexpected needs 
of a diverse small business economy. The SBA, however, abuses 
this authority by creating programs that last for decades \3\ 
and frequently add to the overall cost of the 7(a) Loan Program 
(through higher defaults). Furthermore, the programs are 
created without notice and comment so that neither lenders nor 
borrowers provide input that might improve the overall 
operations of the pilots. The Committee recommends that no 
funds be allocated from the 7(a) Loan Program or any other 
account be used to establish any new pilot programs unless the 
SBA establishes the program after notice and comment and places 
strict limits on the length such programs can operate. In 
addition to limitations on funding, the Committee may consider 
additional legislative restrictions on this pilot program 
authority.
---------------------------------------------------------------------------
    \3\ For example, the SBA announced that it will extend the 
Community Advantage Pilot Program until 2017, SBA, FY 2015 
Congressional Budget Justification 76 (2014). The program was created 
in 2012 which means that the pilot program (after the most recently 
announced extension) will last longer than many government agency 
authorizations. Despite this, the SBA calls it a pilot program and 
avoids the transparency that would come with notice and comment 
rulemaking if the program was not a pilot.

---------------------------------------------------------------------------
          The Certified Development Company Loan Program

    The Certified Development Company (CDC or colloquially the 
``504 loan'') program utilizes both private and government-
guaranteed financing to provide long-term financing on larger 
capital projects that provide economic development to local 
communities. Loans made by CDCs must meet certain public policy 
goals (such as assisting manufacturers or promoting economic 
development) and demonstrate that the loans will create jobs.

    Fees are charged to borrowers and lenders to cover the cost 
of the program in order to drive the subsidy rate to zero, 
i.e., so that there would be no appropriation needed to cover 
the cost of the program under the Federal Credit Reform Act. 
Despite the statutory mandate to maintain a zero subsidy, 
Congress also limited the size of fees that the SBA could 
impose on CDCs and borrowers. As with the 7(a) Loan Program, 
economic conditions (particularly lower than expected 
recoveries on the value of collateral)\4\ have made it 
impossible for the SBA to continue operating the CDC Program 
without an appropriation. The SBA requested $45 million dollars 
in subsidy to cover $7.5 billion in lending. Given the value 
that CDC lending has to small businesses seeking to create 
jobs, the Committee believes it would be inappropriate to 
reduce the $7.5 billion in an effort to save money. The 
Committee does not expect that demand for loans by CDCs will 
exceed the requested amounts.
---------------------------------------------------------------------------
    \4\ Most of the collateral for CDC loans is in commercial real 
estate. Although the initial cause of the financial crisis was not 
commercial real estate, the ensuing economic downturn has adversely 
affected the value of commercial real estate.

---------------------------------------------------------------------------
          Commercial Refinancing under the CDC Program

    As an economic development program that was aimed at 
creating jobs, small businesses could not use loans from CDCs 
to refinance existing debt. The Small Business Jobs Act of 
2010, Pub. L. No. 111-240, created a temporary, two-year 
program that authorizes refinancing of existing debt using the 
CDC Loan Program. The authority for the program lapsed. 
However, the SBA has requested reauthorization of this program 
for another year so that CDCs could refinance $7.5 billion in 
commercial real estate loans on the basis that the program will 
receive sufficient fees to operate at zero subsidy.

    In its views and estimates since the enactment of the Small 
Business Jobs Act of 2010, the Committee has expressed 
significant concerns about the potential future costs to 
taxpayers. According to reestimates by the Office of Management 
and Budget (OMB), the subsidy rates for the commercial 
refinance program are 3.19 percent for loans made in FY 2011 
and 1.38 percent for loans made in FY 2012.\5\ Thus, the 
Committee's concern about risks to the taxpayer were completely 
justified by OMB's own calculations and the Committee has no 
assurances that the fees collected under a reauthorized 
commercial refinance program would meet the zero-subsidy 
requirements given past experience.\6\ As a result, the 
Committee cannot, at this time, support the allocation of any 
funds or authorization of lending levels for a commercial 
refinance program similar to that created in the 2010 Small 
Business Jobs Act.
---------------------------------------------------------------------------
    \5\ OMB, FY 2015 Federal Credit Supplement, Budget of the U.S. 
Government 73 (2014) [hereinafter FY 2015 Credit Supplement].
    \6\ Unlike investments in the stock market in which brokerages must 
claim that past performance is not indicative of future returns, the 
Committee's experience with the SBA strongly suggests that past 
performance is an accurate predictor of future results.

---------------------------------------------------------------------------
          Microloans

    The Microloan Program is a microfinancing program in which 
very small loans are made to very high risk customers, usually 
those that would not consider utilizing banks. The SBA makes 
loans, at below market rates, to intermediaries who then turn 
around and lend to small businesses. Although the default rate 
on loans to intermediaries is nearly zero, there is a cost to 
subsidize the difference between market interest rates and the 
interest rates charged to intermediaries. The SBA requests an 
appropriation of $2.5 million to cover lending to 
intermediaries of $25 million which represents a reduction of 
$2.1 million from FY 2014. Given the cost of the subsidy and 
the effectiveness of the program in providing startup funds to 
potential entrepreneurs that otherwise would have no access to 
debt financing, this modest investment in microfinancing should 
continue.

          Small Business Lending Intermediary Pilot Program

    Under the program, 20 intermediaries will be loaned 
$1,000,000 each to make loans of up to $200,000 to small 
businesses. The intermediaries will not have to repay these 
$1,000,000 loans for a period of two years (either principal or 
interest) and then the interest rate is one percent. In short, 
this program could wind up making loans to exactly 100 
businesses (each intermediary making $200,000 loans to five 
businesses). According to the SBA, the purpose of the program 
is to alleviate the lack of credit availability to small 
businesses. Considering that there are about 28 million small 
businesses, this program could be limited to a total of less 
than three-ten thousandths of one percent of the small 
businesses in the United States. And according to the 
President's budget, the subsidy rate for this program is almost 
29 percent for loans made in FY 2011 and 23 percent for loans 
made in FY 2012.\7\ In contrast, the 7(a) Loan Program has a 
negative subsidy rate and provides loans to thousands of 
businesses. Thus, the program helps very few businesses at a 
high risk to the taxpayer and no funds should be allocated for 
it. Again, the Intermediary Lending Pilot Program further 
demonstrates the inability of the SBA to control risks 
associated with its pilot programs.
---------------------------------------------------------------------------
    \7\ FY 2015 Credit Supplement, supra note 4, at 51.

---------------------------------------------------------------------------
          Small Business Investment Company Program

    The Small Business Investment Company (SBIC) was instituted 
in an effort to ensure that small businesses could obtain 
equity as well as debt financing.\8\ Although an 
oversimplification, the SBIC program operates by the federal 
government guaranteeing an instrument sold by the SBIC to 
private investors. The SBIC repays the government from payments 
made to it by the companies in which the SBIC invested.
---------------------------------------------------------------------------
    \8\ The Committee on Small Business held hearings in the 110th 
Congress showing that small businesses still have difficulty raising 
equity capital. This problem has been compounded by additional burdens 
associated with Sarbanes-Oxley compliance and Dodd-Frank requirements. 
Nor has the Jumpstart Our Business Startups Act ameliorated these 
problems.

    The Debenture SBIC program is designed to provide equity 
injections to small businesses that have been operational for a 
number of years and have a track record of cash-flow and 
profits. Debenture SBICs have invested in enterprises such as 
Callaway Golf, Outback Steakhouse, Dell Computer, and Nike. The 
program is financially sound because the structure of 
repayments ensures that the government will not suffer 
significant losses.\9\ Thus, no changes are needed to the 
program and it operates on a zero subsidy basis without an 
appropriation. The SBA budget is fully supportive of this 
program and we concur in that recommendation. We also concur 
that the program should be provided with an authority level of 
$4 billion for FY 2015 (the same level as authorized in FY 
2014) is adequate.
---------------------------------------------------------------------------
    \9\ Without going into detail beyond the scope of this letter, the 
debenture SBIC program operates in terms more analogous to the SBA's 
7(a) and CDC programs.

    The SBA created two new initiatives in FY 2012: 1) an 
Impact Fund designed to help economically distressed regions; 
and 2) an Early Stage Fund to offer investments to startup 
businesses. The Debenture SBIC Program is not well designed to 
help startups (which is why Congress created the Participating 
Security SBIC Program in 1992). Congress also created a New 
Market Venture Capital Company Program to provide investment in 
economically distressed regions. Although the Congressionally-
enacted programs have problems, the SBA has never provided any 
suggestions on how to ameliorate those problems. Instead, the 
agency decided to create the two new programs without specific 
authority from Congress, utilize existing debenture SBIC 
authority (but potentially diverts it to SBA-selected targets 
rather than those of venture capitalists), and duplicate extant 
programs. This is typical behavior of the SBA and to prevent 
the SBA from modifying a successful investment program, the 
Committee strongly recommends that no funds be provided from 
any account for the continuation of these programs (the $4 
billion should be allocated to any debenture SBIC that files an 
adequate application without any precondition or preference to 
a specific investment strategy). The Committee on the Budget 
also should provide further protection to the existing 
debenture SBIC program by requiring any modifications to the 
program, whether a pilot program or not, be based on a new 
subsidy calculation that ensures the current debenture program 
---------------------------------------------------------------------------
will operate at zero subsidy without any increase in fees.

    The Participating Security SBIC Program became operational 
in 1994. The program was designed to provide equity capital to 
start-up small businesses--those without a significant 
operating history. The program operates under a significantly 
different reimbursement regime than that for the debenture 
program because the SBICs must wait significantly longer to 
obtain returns on their equity investments. There are existing 
estimates that the financial portfolio, if liquidated today, 
would result in losses to the federal treasury of about $2.4 
billion. The program has not provided additional funds to SBICs 
in more than nine years and the FY 2015 budget request does not 
seek to provide participating security SBICs with additional 
funds for investment. The Committee concurs in that 
recommendation.\10\
---------------------------------------------------------------------------
    \10\ The last participating securities were issued to SBICs in 
2004. They are to be repaid no later than 10 years after issuance which 
means the last of the participating securities will be repaid by 
December 31, 2014 after which there will be no more participating 
security SBICs unless the SBA decides to begin issuing new licenses.

---------------------------------------------------------------------------
          Surety Bond Program

    Small federal contractors, particularly in the construction 
industry, are required to post bonds in order to protect the 
federal government against the failure to complete a project. 
Title IV of the Small Business Investment Act of 1958 
authorizes the SBA to reimburse surety bond writers between 70 
and 90 percent of the losses if a small business contractor 
defaults on a contract to which a surety issued a bond. The 
program operates on a revolving fund account and sufficient 
funds exist in the program so that no appropriation is needed. 
The Committee concurs that the program should not require any 
appropriated funds to cover the costs of defaults by 
contractors.

          Disaster Loans

    The SBA is the primary provider of assistance to the 
homeowners and small businesses after a natural disaster. The 
SBA does not request any additional funds needed to subsidize 
the cost of disaster loans in FY 2015 because the agency has 
sufficient carryover funds from those appropriated in response 
to Superstorm Sandy. Therefore, the Committee concurs with the 
SBA request to provide no additional monies for the revolving 
disaster loan account.

          Management of Capital Access Programs

    There are three primary costs that the SBA must face in the 
management of its capital access programs: (1) personnel to 
oversee the programs; (2) computer technology necessary to 
process data; and (3) capabilities to address defaulted loans. 
In all three instances, the SBA severely misplaces its 
priorities in the FY 2015 budget request.

    The administrative costs associated with the guaranteed 
loan programs are covered under an appropriation account 
separate from the rest of the SBA. The FY 2015 request reduces 
that account by $3.8 million. The Committee concurs that those 
savings are reasonable and any additional cuts might jeopardize 
the ability of the SBA to properly manage a loan portfolio that 
exceeds $100 billion. The Committee on the Budget should 
allocate the reductions in a manner that ensures full funding 
of the SBA's lender oversight function and its simplification 
of standard operating procedures that govern the lending 
programs.\11\
---------------------------------------------------------------------------
    \11\ The Committee continues to investigate the problems associated 
with the SBA's management of its lending program through ad hoc 
standard operating procedures rather than through the more transparent 
process of creating rules after notice and comment rulemaking.

    The administrative costs for operating \12\ the disaster 
loan program also are budgeted under a separate account. In 
addition, Congress permanently authorized the SBA to transfer 
unused disaster lending funds to administration of the disaster 
loan program. For FY 2015, the SBA requests $187 million which 
represents a reduction of about $5 million from FY 2014. The 
Committee believes that this should be sufficient to fund the 
administration of the disaster program. Any reductions would 
inhibit the agency's ability to provide sufficient personnel 
and information technology needed for disaster response, 
particularly a major disaster on the scale of a Hurricane 
Katrina or Superstorm Sandy.\13\
---------------------------------------------------------------------------
    \12\ The administrative costs for this program are not simply those 
associated with the issuance of disaster loans. Since this is the only 
direct lending program that the SBA operates, the agency also must 
service all of these loans until they are sold. In 2008, Congress 
prohibited the sale of disaster loans for a period of five years after 
the loans were issued.
    \13\ As the Committee discovered, mobilizing such resources on an 
ad hoc basis after Hurricane Katrina presents significant logistical 
problems inhibiting the ability of the SBA to distribute assistance so 
that communities can rebuild.

    The information technology needed to manage the SBA 
guaranteed loan portfolio is outdated and at significant risk. 
In particular, the agency still has not complied with a 
statutory mandate to have a robust modern loan management 
accounting system (LMAS) even though Congress directed the SBA 
to have it operational by 1997. The only mention of the LMAS in 
its budget justification is that it completed a quality 
assurance review on investments and projects associated that 
project. Despite having promised this Committee to have 
migrated the system off of a proprietary, COBOL-based system by 
January 1, 2012, the agency still has not done the migration. 
In fact, the agency is just now beta-testing the ``new'' COBOL 
\14\ code. In allocating funds, the Committee strongly endorses 
an approach that transfers funds from other projects of the 
Chief Information Officer to modernization of the LMAS.
---------------------------------------------------------------------------
    \14\ Use of the term ``new'' in reference to COBOL seems somewhat 
anachronistic given the fact that COBOL was invented in 1960. C. Brown, 
D. DeHayes, J. Hoffer & W. Perkins, Managing Information Technology 44 
(7th ed. 2012). COBOL is not used in any extensive way by the SBA's 
lending partners and those that still use it are migrating to newer 
mainframe languages using newer UNIX-based operating systems.

    As already noted, collections on defaulted loans, 
particularly in the CDC Loan Program, are abysmal. The agency 
obtains about 23 cents on the dollar in recoveries on defaulted 
loans made by CDCs. If the rate of recoveries on CDC loans were 
doubled (hitting that of loans made in the 7(a) Loan Program), 
it probably would eliminate the need for any subsidy. CDCs have 
a vested interest in maximizing their recoveries because that 
will in the long-run reduce fees that they are required to pay 
for the operation of the program. Thus, the Committee strongly 
endorses eliminating SBA's responsibility for managing defaults 
and transferring it to CDC. This would result in a concomitant 
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reduction in SBA personnel.

    Entrepreneurial Development Programs

    Almost a quarter of the SBA's budget is devoted to 
providing outreach and technical assistance to small 
businesses. This is done through a panoply of programs that the 
SBA operates at the specific direction of Congress. In 
addition, the SBA also creates, using its general authority to 
aid small businesses, a number of agency-created initiatives 
that duplicate those that Congress specifically directed the 
agency to implement. These SBA-initiated outreach efforts 
represent nearly 20 percent of the overall entrepreneurial 
development budget. The Committee believes that the SBA request 
for funding of the agency's initiated training programs should 
be eliminated except for a modest $3 million dollars that 
should be reallocated to hiring additional personnel to assist 
small businesses in obtaining government contracts and 
implementing a variety of changes to SBA contracting programs 
mandated by Congress in the 111th and 112th Congresses that 
have Native American Affairs and International Trade should be 
terminated. The services, to the extent that they provide any 
utility at all, can be better performed by the Department of 
the Interior's Bureau of Indian Affairs and the Department of 
Commerce respectively. The Committee also believes that the 
Veterans Business Centers would obtain significantly greater 
funding and have access to more veterans if they were 
transferred to the Department of Veterans Affairs. The 
Committee expects that approximately $47 million would be saved 
through its recommended deletions to the agency's 
entrepreneurial development programs.

          Small Business Development Centers

    Small Business Development Centers deliver their services 
through 63 cooperative agreements with either state agencies or 
institutions of higher education. To the extent that a state 
agency is a grantee, the agency typically subcontracts that 
performance to an institution of higher education located in 
the state. These 63 grantees have established over 1,000 
service centers to provide technical assistance to small 
businesses for: business strategy development, technology 
transfer, government procurement, engineering, accounting, etc. 
The FY 2015 budget request for SBDC's is $113.625 million which 
is identical to the amount enacted for FY 2014. The Committee 
believes that this request underestimates the services and 
utility of the SBDC Program and strongly recommends that an 
additional $2 million be allocated to this program through with 
the funds that would be eliminated from the elimination of the 
Office of Native American Affairs at the SBA.

          SCORE

    SCORE provides face-to-face counseling from 389 chapter 
locations with 10,900 SCORE volunteers. SCORE volunteers 
provide the full gamut of business consultation services from 
development of business plans to strategic marketing to 
financing. SBA's SCORE database also enables small businesses 
to find a SCORE volunteer that best suits the need for the 
small business. For example, the owner of a restaurant can find 
SCORE volunteers who were in the food service business. The 
Committee concurs with the budget request of $7 million. As 
with the request for SBDCs, should the SBA-created initiatives 
impose new outreach efforts on SCORE volunteers, those should 
be met with a concomitant increase in funds for SCORE.

          7(j) Technical Assistance

    Section 7(j) of the Small Business Act authorizes the 
Administrator to contract for the provision of management, 
technical, and consulting services to participants in the 8(a) 
government contracting business development program. Unlike 
other assistance programs in which any interested individual 
may obtain an appointment and seek advice, this program is 
limited solely to participants in the 8(a) program. While the 
assistance is useful for participants, the Committee believes 
that these services can be provided, in part, by other 
entrepreneurial development partners and personnel at the 
agency. Given the current fiscal condition of the United 
States, the Committee recommends reducing that the budget for 
this program remain at the FY 2014 enacted level of $2.79 
million rather than the requested $2.8 million.

          Microloan Technical Assistance

    The keystone of the Microloan Program is not the lending 
that is done by intermediaries but rather than training that 
they provide to their borrowers so that the borrowers can 
operate their business without defaulting on loans. The 
Committee believes that this is a valuable and irreplaceable 
component of the microloan program--assisting a new class of 
entrepreneurs. However, testimony before the Committee reveals 
that a majority of training provided by microloan 
intermediaries is not to borrowers but to prospective 
borrowers, many of whom do not become borrowers. This function 
can be provided by other programs at the SBA and elsewhere. As 
a result, the Committee recommends that microloan technical 
assistance be reduced to the level appropriated in FY 2013 of 
$19.985 million.

          National Women's Business Council

    The National Women's Business Council is a bipartisan 
federal advisory council created to serve as an independent 
source of advice and counsel to the President, Congress, and 
the SBA on economic issues of importance to women business 
owners. By interacting with women throughout the country, the 
Council develops and promotes policies and programs to help 
women entrepreneurs, the largest growing class of small 
business owners in the country. The Committee concurs that this 
mission is valuable but is at a loss to understand the 
necessity for an increase in its budget from the enacted in FY 
2013. As a result, the Committee recommends that the budget be 
reduced to $736,000 from the FY 2014 appropriated budget of $1 
million.

          Women's Business Centers

    Women's Business Centers (WBCs) provide training, 
counseling, and mentoring to women entrepreneurs. WBCs are 
public/private partnerships in which the federal government 
provides funds that were to be matched by private donors. 
However, over time, the centers became more reliant on federal 
funds thereby undermining the original intent of Congress in 
creating the WBCs. Furthermore, many of the clients are not 
women but men. The services provided by WBCs fundamentally are 
indistinguishable from that provided by SCORE and SBDCs. Given 
the duplication in mission and the fact that WBCs were not 
created to obtain permanent federal funding, the program should 
be terminated. If funds are provided, a significant portion of 
the FY 2015 request of $14 million should be allocated to new 
centers rather than funding existing centers that should have 
obtained funds from the private sector.\15\
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    \15\ The original argument for creating the sustainability aspect 
of the WBC Program was that the centers were having difficulty raising 
private sector funds when the Internet bubble burst. However, given the 
recent gains in the stock market (the Dow Jones average has more than 
doubled since March of 2009), http://research.stlouisfed.org/fred2/
series/DJIA, existing WBCs should have less difficulty in raising money 
from the private sector. This would ensure that the program operates as 
Congress originally intended when it created the WBCs.

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          Veterans Business Outreach Centers

    Veterans Business Outreach Centers (VBOCs) are modeled on 
SBDCs and WBCs. The SBA already provides significant assistance 
to veterans who are seeking to start or already operate small 
businesses through SBDCs, SCORE, and WBCs. The VBOCs, are 
according to the SBA, underfunded. Given the fact that the 
resources available to the Department of Veterans Affairs far 
exceeds those available to the SBA,\16\ it makes sense that the 
VBOCs be transferred to that Department. Should the VBOCs 
remain with the SBA, they should receive an increase in funding 
coming out of the funds for the SBA-created Boots-to-Business 
Program.
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    \16\ The Department of Veterans Affairs entrepreneurial outreach 
activities are funded through fees obtained from the Department's 
operation of multiple award contracts utilized by other agencies. Those 
fees bring in an estimated $2 billion annually, see OMB, Budget of the 
U.S. Government FY 2015 Appendix 1130 (2014), or more than 2.5 times 
the size of the entire SBA budget. It cannot be gainsaid that the 
Department has significantly greater resources to reach entrepreneurs 
than the SBA.

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          Prime Technical Assistance

    Under the Program for Investment in Microentrepreneurs 
(PRIME), the SBA provides federal funds to community-based, 
regional, and national organizations that in turn will offer 
training and technical assistance to low-income and very low-
income entrepreneurs with small businesses of five employees or 
less. The major focus of PRIME is to provide assistance to very 
small businesses that typically, because of their lack of 
experience and education, are unable to gain access to banks 
and other providers of capital. The services provided by PRIME 
duplicate other services and the Committee concurs with the SBA 
FY 2015 budget request to eliminate funding.

          HUBZone Program

    The basic purpose of the HUBZone Program is to direct 
federal contracts to small businesses in distressed urban and 
rural areas to promote economic development of these areas. 
Contracting officers are authorized to set aside contracts for 
competition among eligible HUBZone small businesses, sole 
source, or use bid preferences when large firms and HUBZone 
small businesses are in competition. HUBZones are distressed 
urban and rural areas characterized by chronic high 
unemployment or low household income or a combination of both.

    Investigations by GAO revealed vulnerabilities in the 
program, especially related to self-certification. Funds 
related to correcting these problems and improving the 
operation of the HUBZone program are discussed elsewhere in 
this document. The FY 2015 budget requests $2 million for the 
HUBZone program but does not explain how those funds will be 
utilized. To the extent they are used to certify firm 
eligibility, the Committee believes that it represents a sound 
use of taxpayer resources. However, to the extent such funds 
are used to perform outreach (however poorly defined that 
effort is in the SBA budget), then all such funds should be 
eliminated or transferred to oversight of the HUBZone Program 
including use in certification of firms.

          Office of Native American Affairs

    The Office of Native American Affairs assists American 
Indians, Alaska Natives, and Native Hawaiians seeking to 
create, develop and expand small businesses. The SBA is 
requesting $2 million for FY 2015 (the sane as in FY 2014). The 
services provided by this Office can be provided by other SBA 
programs. More significantly, there is an entire subagency at 
the Department of Interior--the Bureau of Indian Affairs--that 
has far greater resources to perform outreach to Native 
American small businesses.\17\ As a result, the Committee urges 
that the funds for this Office at the SBA be terminated.
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    \17\ The Bureau of Indian Affairs has 5,900 employees and a budget 
of approximately $2.7 billion. Id. at 692-93. This dwarfs the size and 
financial resources of the SBA.

---------------------------------------------------------------------------
          Office of International Trade

    According to the SBA, the Office of International Trade 
enhances the ability of small businesses to compete in the 
global marketplace. The Small Business Jobs Act of 2010 
overhauled the operation of this office by, among other things: 
1) appropriating $30 million for a state trade and export 
promotion pilot program (STEP Program); 2) increasing SBA 
employees located at the Department of Commerce Export 
Assistance Centers; and 3) adding 10 regional export 
development officers in the SBA's regional offices.

    Although the SBA requested no further funds or authorities 
for the STEP program, the Congress reauthorized the program for 
one more year and appropriated $8 million for the program. The 
Committee has never supported the program and concurs with the 
budget request to eliminate the funding that was provided in 
the appropriations bill for FY 2014.

    The rationale for increasing SBA personnel at these Export 
Assistance Centers also is wanting. Essentially, the argument 
goes that Commerce Department personnel would be incapable of 
helping small businesses or explaining various financing 
programs to these small businesses. The Committee rejects that 
contention. Commerce Department personnel, with some minor 
additional training, should be able to handle advice to small 
businesses. As a result, the government would save about $12 
million which is the administrative cost of operating the 
Office of International Trade.\18\
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    \18\ The SBA's FY 2015 Budget Justification does not provide a 
budget request specifically for the Office of International Trade as 
its budget is subsumed in other accounts (such as salaries and 
expenses). Nevertheless, the SBA estimates that the administrative 
costs of providing assistance to small business importers and exporters 
is roughly $12 million. See SBA, FY 2015 Congressional Budget 
Justification 56 (2014).

    No rationale exists to assign regional trade finance 
specialists to SBA regional offices. Small businesses access 
SBA services through direct offices. Placing personnel in 
regional offices ensures that they are unlikely to come in 
close contact with small businesses. Furthermore, appropriate 
training should provide existing district office personnel with 
sufficient expertise to understand the various options for 
international trade finance. As a result, the Committee 
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recommends that funding for these individuals be eliminated.

    The Committee certainly understands the importance of 
international trade to small businesses. However, the taxpayer 
would save about $20 million by the elimination of the STEP 
Program and Office of International Trade without undermining 
their ability to obtain necessary information to enter the 
import or export markets.

          SBA-created Entrepreneurial Outreach Initiatives

    The SBA requested $39 million dollars for five outreach 
programs that it created under its general powers to help small 
businesses: Boots to Business; Entrepreneurship Education; 
Growth Accelerators; Regional Innovation Clusters; and 
contributions to BusinessUSA.gov.\19\ The Committee does not 
believe that a detailed explication of these initiatives are 
necessary as they have amorphous goals and duplicate already 
extant outreach efforts that are known throughout the small 
business community. Therefore, the Committee endorses 
eliminating all funding for these efforts and reallocating $3 
million to the SBA government contracting programs and 
increased oversight by the Inspector General.
---------------------------------------------------------------------------
    \19\ Technically, BusinessUSA.gov is not a program of the SBA but 
rather a collaborative effort of all federal agencies to provide 
information of use to small businesses. The information provided by 
that website is inaccurate and duplicates website efforts at other 
federal agencies, including that of the SBA's (which itself is not a 
picture of clarity and intuitive use).

---------------------------------------------------------------------------
    Government Contracting Programs

    One of the primary missions of the SBA is to ensure that 
small businesses receive a ``fair proportion of the total 
purchases and contracts for property and services for the 
Government in each industry category....'' 15 U.S.C. 
Sec. 644(a). To achieve this objective, Congress created a 
number of programs designed to increase opportunities for small 
businesses. The SBA does not make a specific request for funds 
to operate to the government contracting program; rather those 
expenses are subsumed in the overall salaries and expenses for 
the agency. Nevertheless, the agency provides an estimate of 
the total cost for operating these programs at $102 million or 
roughly a $1 million increase from FY 2014.\20\ The Committee 
believes that the SBA undervalues the importance of its mission 
to ensure that small businesses have a fair shot at winning 
government contracts and resources should be reallocated to 
help small businesses enter and succeed in the federal 
government marketplace.
---------------------------------------------------------------------------
    \20\ SBA, FY 2015 Congressional Budget Justification 26, Table 10 
(2014).

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          PCRs and CMRs

    The SBA has two types of individuals devoted to ensuring 
that small businesses have maximum opportunities to provide 
goods and services to the federal government. They are 
procurement center representatives (PCRs) and commercial 
marketing representatives (CMRs).\21\
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    \21\ The Federal Acquisition Regulation actually describes three 
types of SBA personnel--PCRs, CMRs, and breakout PCRs. That last 
category was eliminated from the Small Business Act but the Federal 
Acquisition Regulation has not yet been updated.

    PCRs generally are assigned to contracting activities and 
work under the supervision of the contracting activity 
personnel (but report to the Office of Government Contracting 
at the SBA). They are supposed to: (1) review proposed 
acquisitions to recommend procurements for setting aside to 
small businesses or specific categories of small businesses; 
(2) advise contracting officers whether the acquisition 
strategy will prevent small businesses from competing; (3) 
suggest alternative contracting methodologies designed to 
increase the probability that small businesses will be able to 
compete for various procurements; (4) recommend small 
businesses that should be contracted about procurement 
solicitations; (5) appeal a contracting officer's failure to 
solicit from small businesses after identification of 
responsible small business bidders PCR or other sources; (6) 
review contracting activity compliance with small business 
contracting requirements of federal laws and federal 
regulations; (7) participate in conferences designed to 
increase small business utilization in federal procurement; (8) 
advocate for the use of full and open competition when that 
strategy will benefit small businesses; and (9) determine 
whether a contract is improperly bundled, i.e., some or all of 
the contracted goods or services could be provided by small 
---------------------------------------------------------------------------
businesses if the contract was not bundled.

    CMRs promote the use of small businesses by prime federal 
contractors required to submit subcontracting plans, i.e., 
businesses other than small. They review compliance with 
federal subcontracting plans. In addition, they perform market 
outreach to match small businesses and large prime federal 
contractors. Frequently, CMRs often perform other functions in 
addition to their efforts to find subcontracting opportunities.

    PCRs and CMRs play a vital role in helping small businesses 
obtain federal procurement opportunities. The number of such 
individuals at the SBA is well short of their need. PCRs 
require significant procurement knowledge. The functions of a 
CMR require also a solid foundation in the federal procurement 
process and is clearly a full, not part-time, position.

    While in other years, the SBA has called for the hiring of 
additional PCRs, the FY 2015 budget is silent on this matter. 
The Committee has had significant bipartisan support for the 
hiring of additional PCRs and CMRs. Of the $3 million in 
savings from the SBA's contribution to BusinessUSA.gov, about 
$1 million should be allocated to hiring new PCRs and CMRs. 
This reallocation will provide a significant benefit to small 
businesses and the taxpayer as it will help ensure robust small 
business competition when the government buys goods and 
services.

          Completion of Congressionally-Mandated SBA 
        Contracting Regulatory Changes

    In the last two years, Congress has made a number of 
changes to the government contracting programs overseen by the 
SBA. These changes require the agency to take the following 
actions: issue new guidelines for agency small business 
contracting; file a report on why agencies have not met their 
contracting goals (an annual requirement); promulgate 
regulations to improve the mentor-proteegee program;\22\ issue 
rules to permit more teaming arrangements through modification 
of subcontracting limitations; adjust its databases to identify 
large businesses misclassified as small; establish a website 
for large businesses to post subcontracting opportunities for 
small businesses; promulgate regulations creating a safe harbor 
for small businesses who make a good faith effort to comply 
with the complex agency size-standard rules; publish a plain 
English guide for small businesses on how to comply with the 
agency's size standard rules; issue regulations on its 
authority to suspend or debar (temporarily or permanently 
prohibit a business from obtaining government contracts); and 
issue a SOP on how the agency will conduct suspension and 
debarment proceedings. The SBA has not completed any of these 
enumerated tasks and some are more than a year overdue. Despite 
this, the SBA makes no mention of these items in its budget 
justification or requests additional sums to complete these 
changes to their contracting programs.
---------------------------------------------------------------------------
    \22\ Under mentor-proteegg program, small businesses may team with 
a large business mentor in order to obtain a specific government 
contract without running afoul of affiliation rules that would 
otherwise deem the small business as large in the absence of a mentor-
proteegee relationship. 13 C.F.R. Sec. Sec. 121.103(h)(3)(iii), 
124.520.

    In contradistinction, the SBA determined that it was 
necessary to create new entrepreneurial programs (not 
specifically required by Congress) spending $36 million of 
taxpayers' money. The SBA simply gets it wrong and its first 
priorities should be those created by Congress not duplicative 
initiatives created out of whole cloth by SBA employees. As a 
result, the Committee strongly recommends that no funds be 
allocated to the SBA-created entrepreneurial development 
initiatives. Further, of the $3 million dollars eliminated from 
contributions to the BusinessUSA.gov website, $1 million should 
be allocated to the implementation of changes to SBA's 
---------------------------------------------------------------------------
government contracting programs as mandated by Congress.

          Vulnerabilities in SBA Contracting Programs

    There are five major programs developed by Congress to 
promote small business contracting opportunities. The Small 
Business Reserve Program requires that contracts of value 
between $3,000 and $150,000 be set aside only for competition 
among small businesses if at least two small businesses can 
perform the contract at a fair market price. The other programs 
are targeted at specific classes of small businesses are: 89a) 
businesses; HUBZone businesses; service-disabled veteran-owned 
businesses; and women-owned businesses. The programs also 
enable contracting officers to limit competition to businesses 
within a specific category and in all cases, except small 
businesses owned by women, to award contracts on a sole source 
basis, i.e., without competition at all. If a contract is 
awarded through one of these programs, the small business 
awardee is required to perform the majority of the work.\23\
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    \23\ This prohibits small firms from acting as fronts for large 
businesses. The first line of defense against this type of fraud is the 
agency's contracting officer and the contracting officer technical 
representative (the individuals who handle post-contract award) not the 
SBA.

    These contracting programs present a number of 
vulnerabilities: (1) small businesses might misrepresent their 
size (and not actually be small); (2) small businesses may 
misrepresent their status for purposes of eligibility such as 
not being a woman-owned and controlled business; or (3) small 
businesses do not perform the necessary quantum of work on the 
contract. Given these vulnerabilities, there are key defenses--
adequate personnel to check the small businesses and updated 
databases for use by contractors and federal contracting 
officers. The Committee believes that the SBA has sufficient 
resources, as reflected in the FY 2015 budget request, for 
operation of the specific small business programs.\24\
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    \24\ Reductions in spending on this program could be 
counterproductive because it could lead to an increase in fraud or 
other abuse of these contracting programs thereby denying legitimate 
small businesses of valuable opportunities.

    The issue is not the availability of resources but proper 
management and oversight within the agency; no amount of funds 
can ensure that agency leadership will place a proper focus on 
these government contracting programs. However, the elimination 
of duplicative entrepreneurial development efforts could free 
up agency management to focus on its government contracting 
---------------------------------------------------------------------------
programs.

    Agency Structure

    The SBA, unlike most federal agencies, provides services in 
a variety of locations rather than through its headquarters 
operations or through one of ten regional offices. The SBA has 
68 district offices at which small business owners obtain 
advice, seek information, and work with SBA employees to obtain 
government contracts. In addition, district offices also 
provide office space for the outreach efforts conducted by 
SCORE counselors. In addition to these district offices, the 
SBA has a loan processing center outside of Sacramento, CA, a 
national office that oversees the purchase of loan guarantees 
and the liquidation of defaulted loans in Herndon, VA, six 
area-wide offices to handle disputes about a business size in 
the government contracting realm, two offices (in Buffalo, NY 
and Forth Worth, TX) for disaster response, and a national 
finance office in Denver, CO which also hosts much of the SBA's 
internal contracting function. Given this decentralized 
structure, it is relevant to consider whether the agency has 
properly allocated resources among its various offices.

          Personnel in the 10 Federal Regions

    As already noted, the SBA delivers services to small 
business owners through a panoply of offices. While some 
functions are overseen by program offices,\25\ most of these 
operations are managed by an Office of Field Operations at 
SBA's Washington, DC headquarters.
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    \25\ For example, the Sacramento Loan Processing Center is managed 
by the Office of Capital Access at SBA's Washington, DC headquarters.

    In addition to the district offices and services provided 
at various locations throughout the country, the SBA also has 
employees in each of the ten federal regions. These federal 
regions have regional administrators, regional communication 
officials, and concomitant support staff. Despite this robust 
presence in the federal regional offices, most of the SBA's 
functions carried out in the field are managed, not in these 
regional offices, but rather at SBA headquarters. As a result, 
the Committee believes that regional offices of the SBA can be 
eliminated without any diminution of effective agency 
management. The Committee recommends that no funds be allocated 
for the operation of its ten regional offices and those funds 
can be reallocated to more vital needs such as improvements in 
the agency's information technology and hiring additional PCRs 
---------------------------------------------------------------------------
and CMRs.

    Another office at the SBA with ten regional representatives 
is the Office of the Chief Counsel for Advocacy. The primary 
responsibility of that office is to monitor agency compliance 
with the Regulatory Flexibility Act, a statute mandating 
agencies examine the impact of their proposed and final rules 
on small businesses. While input from small businesses is quite 
useful in performing that role, the office does not need 
regional representatives to obtain that input. As a result, the 
Committee believes that the Office of the Chief Counsel's 
regional personnel should be eliminated. However, rather than 
simply eliminate all ten positions from the Office of the Chief 
Counsel for Advocacy, the Committee recommends that five 
additional positions be created to review federal agency 
compliance with the Regulatory Flexibility Act. This would 
result in a net savings of five individuals in the office while 
boosting its capability to fight burdensome regulations 
inhibiting the ability of small businesses to create jobs.

          District Personnel

    As already noted, the SBA's primary contact with small 
businesses is through its district offices. The district 
offices are, logically enough, headed by a district director. 
However, in about 75 percent of the offices, there also is a 
deputy district director. The Committee is of the opinion that 
district offices do not need a separate, dedicated individual 
to be the deputy. If the district director is unavailable (due 
to vacation or illness), that person simply can appoint someone 
to act temporarily as the district director. The Committee 
strongly recommends that no monies be allocated to pay for 
individuals whose sole job is to act as a deputy district 
director. Instead, deputy district directors should be 
reassigned to other functions at the agencies that provide 
direct assistance to small businesses.

          Executive Direction

    The budget for executive director, a conglomeration of 
various offices at the SBA that is not clearly defined has 
steadily increased since FY 2009. Although there has been a 
leveling out of the increase, the FY 2015 budget request is for 
$19.5 million--a reduction of a mere $25,000. The agency's 
inability to control its spiraling top-heavy management 
structure demonstrates a failure to understand its priorities 
and mission.

    Even more troubling is the fact that no explanation exists 
for the use of these funds. According to the agency cost 
allocations, the SBA has identified roughly $8 million in funds 
specifically for executive direction--Women's Business Council, 
Ombudsman, and contributions to BusinessUSA.gov website. That 
leaves $11 million unspecified; presumably some of it is 
allocated to functions such as the Office of Legislative 
Affairs and the operation of the Administrator's office but it 
is impossible to ascertain what monies are allocated to what 
functions in the SBA budget. As a result, the Committee is 
concerned that these funds will be used for projects of the 
Administrator's interest rather than functions directed by 
Congress. The Committee strongly urges that budget submissions 
by federal agencies provide more granular detail so that the 
Committee can provide a m ore accurate assessment to the 
Committee on the Budget on the propriety of an agency's 
budgetary allocations.

          Headquarters Structure

    According to the agency, there about 600 people at SBA 
headquarters leaving approximately 1,600 people to interact 
with small businesses in their field operations. Given the fact 
that there are about 28 million small businesses in the United 
States, the Committee finds that the agency structure is too 
concentrated at headquarters in Washington, DC. This includes a 
personal office of the Administrator that is the same size as 
that of the Secretaries of Defense or Agriculture,\26\ and a 
Chief Operating Officer separate from the Deputy Administrator 
\27\ even though the Department of Energy seems to survive with 
a Deputy Secretary also functioning as the Chief Operating 
Officer.\28\
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    \26\ Secretary Vilsack and Secretary Gates are able to manage much 
larger agencies (Department of Agriculture and Defense respectively) 
with only 13 individuals in each of their personal offices.
    \27\ In testimony to the Committee on March 2, 2011, the 
Administrator claimed that the position of the Chief Operating Officer 
was terminated and the Deputy Administrator would act as the Chief 
Operating Officer. However, the SBA's FY 2015 Budget Justification 
shows an organizational chart with a Deputy Administrator, a Chief of 
Staff, and a Chief Operating Officer. SBA, FY 2015 Congressional Budget 
Justification 29 (2014).
    \28\ The Department of Energy has roughly 16,000 employees, 90,000 
contractor employees and a FY 2015 budget request of $27.9 billion. 
OMB, FY 2015 Budget of the U.S. Government 73 (2014).

    Nothing in the SBA budget suggests that the Administrator 
plans to reduce the Office of the Administrator; the 
recommended budget cuts could from employees that directly 
serve small businesses. This is unacceptable to the Committee 
and it recommends a 10 percent reduction in funds for the 
---------------------------------------------------------------------------
Office of the Administrator.

          Inspector General

    The SBA manages a loan portfolio in excess of $100 billion. 
It also deals with thousands of small business federal 
government contractors. As has already been noted in this 
document, there are significant vulnerabilities in the SBA's 
operations--vulnerabilities that place the taxpayer at risk and 
undermine the integrity of the federal procurement process. As 
the first line of defense against waste, fraud and abuse, the 
Office of the Inspector General plays a vital role in 
uncovering significant criminal, civil, and management problems 
at the SBA. The Committee strongly recommends $1 million in 
savings from the BusinessUSA.gov website contribution and $1 
million in savings elsewhere provided in this document be 
transferred to the Inspector General to ensure that office has 
sufficient resources to root out fraud, abuse, and waste.

          The Office of the Chief Counsel for Advocacy

    The Office of the Chief Counsel for Advocacy was created in 
1976. Its primary mission is to represent the interests of 
small businesses in federal agency regulatory proceedings. The 
Office accomplishes this primarily through its oversight of 
agency compliance with the Regulatory Flexibility Act 
(RFA).\29\ The primary costs of the Office of the Chief Counsel 
for Advocacy are salaries for 46 employees and funds to conduct 
economic research. As already noted, the Committee believes 
that the regional advocate positions should be eliminated and 
some of their positions transferred to the Washington, DC 
headquarters to work on oversight of agency compliance with the 
RFA. In addition, the Committee believes that the economic 
research activities of the Office should be targeted to 
analysis of agency rulemakings rather than the broader research 
currently conducted by the Office. With the aforementioned 
caveats, the Committee concurs with the FY 2015 Budget Request 
of $8.46 million.
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    \29\ The RFA requires federal agencies to consider the impacts of 
their proposed and final rules on small entities, including small 
businesses, and if those impacts are significant on a substantial 
number of such entities, develop alternatives that reduce such 
consequences without undermining the objectives sought to be achieved 
by the agency.

                                 [all]
```