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88–997 2015

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 

Small Business Committee Document Number 113–062 

Available via the GPO Website: www.fdsys.gov 

SBREP-219 with DISTILLER


Congress.#13
(II) 

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 VELA ́ ZQUEZ, 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 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Sam Graves ..................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 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 

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SBREP-219 with DISTILLER

(1) 

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, 

Vela ́zquez, 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 

SBREP-219 with DISTILLER

2 

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 Vela ́zquez for her opening 

statement. 

Ms. VELA ́ ZQUEZ. 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 

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3 

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 

Vela ́zquez for a motion. 

Ms. VELA ́ ZQUEZ. 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.] 

SBREP-219 with DISTILLER

4 

1The salaries and expenses is subdivided further into three subaccounts: 1) general agency 

operations; 2) business loan administrative costs and 3) disaster loan administrative costs. 

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 

§ 301(d) of the Congressional Budget Act of 1974, 2 U.S.C. § 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. 

In the Committee’s view, most of the funds for these new SBAcreated 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 

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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. 3For 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 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. 

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 § 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 

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4Most 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. 5OMB, FY 2015 FEDERAL CREDIT SUPPLEMENT, BUDGET OF THE U.S. GOVERNMENT 73 (2014) 

[hereinafter FY 2015 Credit Supplement]. 

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. 

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. 

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-subSBREP-219 with DISTILLER

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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. 7FY 2015 Credit Supplement, supra note 4, at 51. 8The 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. 

sidy 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. 

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. 

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 

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9Without 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. 

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. 

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. 

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 startup 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 

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10The 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. 11The 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. 

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

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

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12The 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. 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. 

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

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. 

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 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 agencySBREP-219 with DISTILLER

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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 

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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 alSBREP-219 with DISTILLER

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15The 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. 16The 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. 

located to new centers rather than funding existing centers that 

should have obtained funds from the private sector.15

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. 

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 

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17The 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. 18The 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). 

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. 

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

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 

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19Technically, 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). 20SBA, FY 2015 CONGRESSIONAL BUDGET JUSTIFICATION 26, Table 10 (2014). 

office personnel with sufficient expertise to understand the various 

options for international trade finance. As a result, the Committee 

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. 

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. § 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. 

PCRs and CMRs 

The SBA has two types of individuals devoted to ensuring that 

small businesses have maximum opportunities to provide goods 

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21The 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. 

ter representatives (PCRs) and commercial marketing representatives (CMRs).21

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 

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22 Under mentor-prote ́g ́ 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-prote ́ge ́ relationship. 13 C.F.R. §§ 121.103(h)(3)(iii), 124.520. 

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 mentorprote ́ge ́ 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. 

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 

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23This 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. 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. 25For example, the Sacramento Loan Processing Center is managed by the Office of Capital 

Access at SBA’s Washington, DC headquarters. 

awarded through one of these programs, the small business awardee is required to perform the majority of the work.23

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

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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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. 

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26Secretary 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). 28The 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). 

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

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 

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29The 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. 

$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. 

Æ 

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