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78–735 2002

DISASTER LOAN SIZE STANDARDS

HEARING

BEFORE THE

COMMITTEE ON 

SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

WASHINGTON, DC

February 27, 2002

Serial No. 107–45

Printed for the use of the Committee on Small Business

(
(II)

COMMITTEE ON SMALL BUSINESS 

DONALD MANZULLO, Illinois, Chairman 

LARRY COMBEST, Texas 

JOEL HEFLEY, Colorado 

ROSCOE G. BARTLETT, Maryland 

FRANK A. LOBIONDO, New Jersey 

SUE W. KELLY, New York 

STEVE CHABOT, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JIM DEMINT, South Carolina 

JOHN R. THUNE, South Dakota 

MICHAEL PENCE, Indiana 

MIKE FERGUSON, New Jersey 

DARRELL E. ISSA, California 

SAM GRAVES, Missouri 

EDWARD L. SCHROCK, Virginia 

FELIX J. GRUCCI, JR., New York 

TODD W. AKIN, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

BILL SHUSTER, Pennsylvania 

NYDIA M. VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

DANNY K. DAVIS, Illinois 

BILL PASCRELL, JR., New Jersey 

DONNA M. CHRISTENSEN, Virgin Islands 

ROBERT A. BRADY, Pennsylvania 

TOM UDALL, New Mexico 

STEPHANIE TUBBS JONES, Ohio 

CHARLES A. GONZALEZ, Texas 

DAVID D. PHELPS, Illinois 

GRACE F. NAPOLITANO, California 

BRIAN BAIRD, Washington 

MARK UDALL, Colorado 

JAMES R. LANGEVIN, Rhode Island 

MIKE ROSS, Arkansas 

BRAD CARSON, Oklahoma 

ANIBAL ACEVEDO-VILA ́ , Puerto Rico 

DOUG THOMAS, Staff Director 

PHIL ESKELAND, Deputy Staff Director 

MICHAEL DAY, Minority Staff Director 
(III)

C O N T E N T S 

Page 

Hearing held on February 27, 2002 ....................................................................... 1

WITNESSES

Barreto, Hon. Hector, Administrator, U.S. Small Business Administration ...... 5

Graham, John, Administrator, Office of Information and Regulatory Affairs .... 7

Klassovity, Rodney, CEO, Albany Travel Unlimited, Inc ..................................... 10

Alton, Jacquelyn, Owner, CWT/Almeda Travel, Inc ............................................. 13

APPENDIX

Opening statements: 

Manzullo, Hon. Donald .................................................................................... 36

Sweeney, Hon. John ......................................................................................... 41

Jones, Hon. Stephanie Tubbs .......................................................................... 43

Prepared statements: 

Barreto, Hon. Hector ........................................................................................ 46

Graham, John ................................................................................................... 50

Klassovity, Rodney ........................................................................................... 54

Alton, Jacquelyn ............................................................................................... 63

(1)

HEARING ON DISASTER LOAN SIZE 

STANDARDS 

WEDNESDAY, FEBRUARY 27, 2002 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS

Washington, DC. 

The Committee met, pursuant to call, at 2:07 p.m. in Room 2360, 

Rayburn House Office Building, Hon. Donald Manzullo presiding. 

Chairman MANZULLO. Today’s hearing is about small businesses 

that are suffering and officials of the administration in Washington, DC, whose method of helping many small businesses has 

caused untold confusion and suffering. The Small Business Administration operates a disaster loan program to assist businesses that 

have been victimized by the terrorist attacks. 

One of these programs, the economic injury disaster loan program, was expanded to allow relief outside areas immediately surrounding New York and the Washington, DC metropolitan areas. 

However, even after repeated attempts by elected officials in Congress, including myself, the SBA has refused to discuss any 

changes or allow any input from Congress. Thus, many businesses 

are unable to take advantage of the financial assistance because of 

arbitrary size classifications used by the Small Business Administration in the operation of the disaster loan program. 

We will hear today from the officials and affected small business 

owners. The president declared New York City and Northern Virginia disaster areas on September 11th and the 12th of 2001. On 

September 13th, the SBA declared the availability of disaster assistance to small businesses located in New York City. A similar 

declaration was made by the SBA for Northern Virginia on September 24th. We applaud the SBA for moving quickly on the president’s request. 

During the month of September, Congress appropriated a supplemental $20 billion to provide assistance, of which some has been 

going to small businesses. In addition, members of the Senate and 

House introduced a number of bills designed to assist small businesses recover from these attacks. 

The first effort at helping small businesses beyond those located 

in the disaster area came with the expanded economic injury disaster loan [EIDL] program. As chairman of the Small Business 

Committee, I talked with the chief of staff of the SBA on several 

occasions in September and October about changing the size standards. I was aware of the problem that many small businesses 

would not be able to meet the existing standards. The chief of staff 

repeatedly told me that he was waiting on ‘‘OMB to move.’’ When 
2

I learned of the actual change in the EIDL program and its omission of size standard changes, I got into a very heated discussion 

with the SBA chief of staff, stating that the SBA would be misleading small businesses because the size standards had not been 

addressed. 

I asked the chief of staff for a one-day delay in issuing the regulations so that Congress could have input, and he refused. After repeated questioning by me, he said that he was the one who had 

written the new regulation and was responsible for its content, notwithstanding his protestations that to me that it was OMB that 

was writing the regulations. 

I also asked Administrator Barreto for Congress to be able to 

provide input into the interim emergency regulations. All I asked 

for was just one day, one day, for Congress to have input in these 

regulations. Despite my warning to him that the new regulations 

would give false hope to many small businesses, one of whom is 

testifying today. 

Mr. Barreto signed off on those regulations on October 16, 2001. 

I got a notice that there was going to be a press release issued with 

the new regulations. His office called and sent a press release. The 

press release was misleading because it gave false hope to many 

businesses. Six days later, the expanded EIDL program was published in the Federal Register. 

Members of my staff met with SBA staff prior to October 16th 

to discuss new interim regulations; however, my staff was repeatedly told that this was an administrative matter, and they were 

not prepared to discuss this with Congress because they had to 

submit the issue to OMB. It was apparent that the SBA was not 

and still is not interested in Congress’ input into size standards. 

As a member of Congress, I was aware of the size standard problem while the SBA was making up the emergency regulations, and 

each step of the way SBA has refused any input by Congress. Thus, 

SBA has to bear the responsibility for many disappointed businesses, included the ones seated at the table with Administrators 

Barreto and Dr. Graham. 

The expanded program did not help alleviate the problems many 

small businesses were facing. Business owners that were enticed 

into applying and publicizing the disaster loan program, like Mr. 

Klassovity, were then denied loans because they did not meet the 

‘‘arbitrary’’ size standards used by the SBA. 

I have heard from enough members of Congress about businesses 

that were turned down many times on the phone, never even got 

an application, because of the arbitrary size classification. For example, one of Mr. Ferguson’s constituents, Liberty Helicopter, was 

denied a loan because they were classified as air tour operator. If 

they had 51 percent of their revenue from air charter service, they 

would have met the size standard for air charter service of 1,500 

employees and would have been eligible for a loan. Similarly, a 

McDonald’s franchisee with three units in the New York City area, 

including one that is a block from Ground Zero, was deemed not 

small by the SBA. I challenge anyone to demonstrate to me that 

a three-unit franchisee is dominant in the restaurant business. 

Then I called for a hearing on December 6 because it was apparent there was a serious flaw with the SBA EIDL programs and size 
3

standards. As a follow-up to that hearing, I met with the associate 

administrator for disaster assistance, Herb Mitchell, and SBA staff 

on December 11, 2001. At that meeting, Herb Mitchell, who has 

done a fantastic job in using what resources were available to help 

small businesses, agreed with us that the size standards could be 

changed administratively. That meeting prompted another meeting 

the next day with Barry Pineles, our staff attorney who specializes 

in administrative law, and staff from the SBA. SBA staff agreed to 

change the size standards because of the problem. Committee staff 

then regularly contacted the SBA about the progress but were continually told that the regulations are being worked on and are at 

the highest priority. 

Finally, after five weeks, the regulations were sent from the SBA 

to the Office of Information and Regulatory Affairs [OIRA] for review on January 18, 2002. The SBA has never fully explained why 

this regulation took five weeks from point of inception to submission to OIRA while the regulation expanding the EIDL program 

took the same amount of time to get published in the Federal Register. The SBA, hopefully, will have their opportunity to explain 

the delay.

On January 23, 2002, I called Administrator Graham and explained the importance of this regulation and the need for expedition in review and approval. That has been over a month now. 

Three weeks after receiving the regulation, OIRA returned the regulation to the SBA. OIRA’s primary conclusion was that the regulation would not serve the interests of small businesses. Now, why 

an administrative agency knows what serves the interests of small 

business as opposed to the Small Business Committee and small 

businessmen is beyond the pale of comprehension. Administrator 

Graham will have the opportunity to explain to the small businesses sitting at this table how the proposed regulation does not 

serve small businesses. 

After three months of trying to resolve the issue and six months 

after the terrorist attacks, I was appalled by OIRA’s response that 

the changes would not help small businesses. Since that time, all 

we have heard, after Committee staff initiated contact, was that 

discussions were ongoing in trying to resolve the issue. Well, the 

relevant parties are here today. You can carry on the necessary discussions. If necessary, I hope you brought your sleeping bags and 

your tooth brushes because the two of you are not leaving this 

room until this issue is determined. If it is not determined today, 

I will issue a subpoena and bring you back next week, and you will 

stay in this room until it is completed. 

I would like to add that the Committee rules require testimony 

be submitted 48 hours prior to the hearing. A small business owner 

like Mr. Klassovity can meet that deadline, but neither Administrator Barreto nor Administrator Graham were able to meet that 

deadline. The people in charge of the regulations cannot follow the 

simple rules themselves. Their testimony was delivered to the 

Committee at eleven-thirty this morning. It appears that this deadline is emblematic of indifference shown to this Committee. 

I have got the testimony here of Tom Sullivan, who is the new 

Chief Counsel of Advocacy at the U.S. Small Business Administration, a great choice. Do you know what his complaint is? Red tape 
4

and bureaucracies not moving and hurting small businesses. Well, 

the red tape now and the organization for hurting small businesses 

is the Small Business Administration. Today is the day of accountability. 

Mr. Sweeney is going to be joining us here shortly. He is a member of the Appropriations Committee. He has a distinct interest in 

the budget of the SBA in making sure money is not used to pay 

bureaucrats who fiddle in Washington while small businesses are 

hurt across the nation. 

I now recognize the ranking member, the gentlelady from New 

York, Ms. Vela ́zquez, for her opening statement. After that, as soon 

as Mr. Sweeney comes, we will recognize him. 

[Chairman Manzullo’s statement may be found in appendix.] 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. I guess that today 

we have an exchange of roles here. I will be the nice lady today, 

not the nice guy. Mr. Chairman, I guess that we will stay here, as 

you said. I wish you were willing to stay here two weeks ago for 

two hours to discuss the administration budget, the SBA budget, 

but we were not able to do so. 

In the aftermath of September 11th, small businesses across the 

country have borne a heavy burden in responding to this national 

tragedy and working to rebuild their community. In Chinatown, 

which is in my district on the lower East Side in Manhattan, commerce dropped by as much as 80 percent for some businesses. Businesses across New York could not help but feel effects like that, 

when 100,000 jobs and 20 percent of Manhattan’s office space evaporated in two instants. 

Thousands of businesses have sought disaster recovery assistance from SBA. Unfortunately, we know that many of these companies have been turned away because they are, according to current 

SBA size standards, too big. We do not know how many small businesses never bothered because they thought they were too big, but 

the number could be considerable. 

How the SBA determines what business is small and not small 

is a critical distinction. It often means the difference between survival and collapse is divided by a very thin line. The current size 

standards are like a lottery, picking winners and losers based on 

often arbitrary distinctions which we must now change. We have 

known for a long time that SBA size standards need to be updated. 

September 11th has only forced this issue. This unprecedented 

event has flooded the disaster loan program with applicants seeking recovery aid. 

In December, we included in the Defense Department appropriations bill a provision asking SBA to update its size standards. SBA 

did so, but the Office of Management and Budget refused to accept 

those changes. While OMB obstinately ignores our wishes, countless businesses are suffering without assistance or remain caught 

in an arbitrary bureaucracy. 

OMB has complained that adjusting new size standards would be 

burdensome and complex. It is difficult, they say, to determine 

what is small and what is not small. Well, this administration had 

no difficulty determining what constituted an airline or an insurance company to qualify for disaster assistance after September 

11th. They made that decision in a matter of weeks. We have 
5

known for years that our size standards need to be revised, and we 

have given OMB at least the past two months to come up with a 

plan. 

We need to adjust the size standards to make more small businesses like those in New York City eligible for recovery aid. It follows the good choice made by Administrator Barreto to open up the 

economic injury disaster loan program to any small business affected by September 11th while expanding these services to nonprofits and financial institutions. Whether we adjust the standards 

for inflation or region or to respond to a disaster like September 

11, the goal is the same. The disaster loans are designed to help 

small businesses survive and rebuild after a calamity. 

By sweeping aside the various existing size standards, this proposal would go further to accomplishing the core mission of the 

SBA: aiding and assisting small businesses. It goes without saying 

that what constitutes a small restaurant in midtown Manhattan is 

not the same thing for a small restaurant in Wyoming. But right 

now they are treated as if they were the same thing. As a result, 

one may benefit from disaster assistance while the other does not. 

That needs to change. Working together with OMB, I am confident 

we can change those arbitrary distinctions that keep more small 

businesses from receiving needed disaster recovery assistance. 

Thank you very much, Mr. Chairman. 

Chairman MANZULLO. Okay. The first witness will be Administrator Barreto. We look forward to your testimony. The complete 

statements of all of the witnesses will be a part of the record. 

STATEMENT OF HECTOR V. BARRETO, ADMINISTRATOR, 

SMALL BUSINESS ADMINISTRATION 

Mr. BARRETO. Thank you very much. Mr. Chairman, Ranking 

Member Velazquez, and members of the Committee, thank you for 

inviting me here today to discuss the size standard policy of the 

U.S. Small Business Administration and the procedures the SBA 

uses to establish those standards. 

The statutory mandate set forth in Section 3(a) of the Small 

Business Act guides the SBA’s policy. The SBA has used this basic 

statutory guidance with great success for nearly 50 years. The SBA 

size classifications currently encompass over 98 percent of all businesses in the United States. Size standards have always played an 

integral role in the agency’s services and programs. The SBA understands that its determinations affect the operations of programs 

in every agency of the federal government, from procurement and 

financial assistance programs to regulatory regimes and enforcement matters. These determinations, in turn, have a significant impact on the life of a small business. The events of September 11th 

have raised their importance even greater still. 

It is in this spirit that the administration, our legislative partners, the agency and OMB, took the following actions to assist 

small businesses. We expanded EIDL nationally, effective October 

22, 2001. We increased the monetary size standards to reflect inflation by 15.8 percent, effective as of January 23, 2002. We allocated 

through February 25th $306 million to New York and Virginia and 

retroactively applied inflation-based size standards. We allocated 

$217 million nationally. We extended the EIDL recovery applica-
6

tion deadline to April 22, 2002. And finally, we expanded disaster 

recovery through the business loan program, effective January 31, 

2002. 

The SBA continues to work to assist small businesses injured by 

the September 11th disaster. Like you, Mr. Chairman, the SBA 

wants to make sure that it is assisting those small businesses that 

are on the bubble with respect to size standards but still possess 

the attributes of a small business. We also want to review industry 

standards that may be out of date or too narrowly defined to accurately reflect the small business market. In fact, Mr. Chairman, 

you asked the SBA to look at the travel agency industry, and we 

have. The SBA is in the process of completing its internal legal review of the regulation to address the size standard in this industry. 

Chairman MANZULLO. I would like to interrupt at this point. 

When will that be ready? 

Mr. BARRETO. It is imminent. 

Chairman MANZULLO. When will it be ready? I want an answer. 

Mr. BARRETO. I do not know when it will be ready. 

Chairman MANZULLO. Mr. Barreto. 

Mr. BARRETO. Yes, sir. 

Chairman MANZULLO. Mr. Barreto, I want a date when that will 

be submitted, then I want a date when OIRA is going to act on it; 

otherwise, you are going to be back here again. 

Mr. BARRETO. I have just been instructed that it will be ready 

by the end of next week. 

Chairman MANZULLO. What date is that? The end of next week, 

March 8th? Would you send a letter to that effect? Have it signed 

by the administrator. Go ahead, please. 

Mr. BARRETO. Thank you. The SBA is in the process of completing its internal legal review of the regulation to address the 

size standard in this industry. We hope to send the regulation to 

OMB shortly for its review. 

Chairman MANZULLO. That will be sent on the same date also? 

Could I interrupt you, please? Dr. Graham, how long will OIRA act 

on that? 

Mr. GRAHAM. If you give me a phone call, Mr. Chairman, like you 

did on the last one, it will be as quickly as the last time. 

Chairman MANZULLO. That is not sufficient. That is not sufficient. I want a date when you are going to act on it. 

Mr. GRAHAM. I would say we will do our best within two weeks, 

sir. 

Chairman MANZULLO. Two weeks from when you get it? What 

date is that? Two weeks from the 8th, the 22nd, would you send 

a letter that will be ready by then, signed by you, faxed to our office? 

Mr. GRAHAM. Yes, sir. 

Chairman MANZULLO. Thank you. Please continue.

Mr. BARRETO. Serving small business is the agency’s mission. 

Therefore, during this process of reviewing size standards, the SBA 

has taken care to assist small business while ensuring that neither 

the expansion of the size regulation nor the method of expansion 

renders the size standards themselves meaningless. The loss of a 

meaningful size standard would be a detriment to all small businesses. 
7

In order to avoid such a problem historically, the SBA has reviewed and imposed size standards on an industry-by-industry 

basis. The SBA size standards vary by industry and can be based 

either on revenue or the number of employees. Under EIDL, a business must be small relative to the size standard established for its 

primary industry. Common size standards include $6 million for 

service and retail trade firms, $12 million for special trade contractors, $28.5 million for general and heavy construction contractors, 

100 employees for wholesale trade firms, and 500 employees for 

manufacturers. 

Furthermore, different size standards exist for certain industries 

within more general industry categories. Varying size standards 

are designed to reflect differing characteristics of small business 

within different industries. 

The SBA recognizes that some of its industry size standards may 

not capture all businesses that possess small business characteristics. In order to address this concern, the SBA considered an expedited review of a large number of industries but realized that the 

need to prepare and adopt revised size standards quickly made this 

course of action impractical. 

The SBA also sought to establish a single, employee-based, size 

standard for applicants applying for EIDL assistance in the aftermath of September 11th. The SBA chose this standard for several 

reasons. First, firms with 500 employees or less account for half of 

all of the economic activity. Additionally, 500 employees is the size 

standard the SBA already uses for most manufacturing industries, 

and many research studies on small businesses also use 500 employees as a general definition of small business. Finally, the alternative net worth and net income size standards used for the SBA’s 

Small Business Investment Company and the Certified Development Company programs can include firms up to 500 employees. 

OMB promptly reviewed the proposed uniform EIDL size standard and indicated that it had several concerns with the single-sizestandard approach. Dr. John Graham, the administrator of OMB’s 

Office of Information and Regulatory Affairs, will discuss these concerns in more detail with the Committee. The SBA greatly appreciates Dr. Graham’s and OMB’s cooperation in considering alternatives to the 500-employee size standard and will continue to 

work them to find an approach that will ensure that small businesses harmed by the events of September 11th have access to 

SBA’s programs. Thank you very much. 

[Mr. Barreto’s statement may be found in appendix.] 

Chairman MANZULLO. Thank you. Dr. Graham. 

STATEMENT OF JOHN D. GRAHAM 

Mr. GRAHAM. Thank you, Mr. Chairman, and members of the 

Committee. I am pleased to have the opportunity to explain OMB’s 

position on the role of business size definitions in defining the 

scope of SBA programs. 

Under Executive Order 12866, OMB reviews all significant regulatory actions to ensure consistency with the principle of good regulatory analysis and policy. There are ultimately three possible outcomes of OMB review: clearance of the rule, withdrawal by the 

agency, or return by OMB for further consideration. 
8

When a rule is returned to the agency, it is the practice of this 

administration to prepare a formal return letter that is made available to the public as well as to the agency. Since I was confirmed 

by the Senate in July of last year, I have signed 17 return letters 

about various draft regulations. In most cases the reason for the 

return was an inadequate regulatory analysis to support the proposal. In five of those cases to date, the agency ultimately improved 

the regulatory analysis and the package, resubmitted it to OMB, 

and it was cleared for publication in the Federal Register. 

Moving to the specific issue at hand, OMB is acutely aware of 

the devastating impact that the events of September 11th have had 

on the business community, including large, medium-sized, and 

small businesses. We support the special commitment that Congress has made to assist small businesses through the EIDL program. Since September 11th, we have worked with SBA to, one, extend the coverage of this program to small businesses outside of 

the immediately affected geographical areas, and, two, we have accelerated a long overdue modernization of the SBA definition of 

small business that accounts for inflation since 1994. These expansions have resulted in $209 million in obligation for the EIDL program. We are also open to considering additional ways that SBA 

could cushion the economic impacts of September 11th and protect 

the viability of small businesses. 

We returned to SBA for reconsideration a recent proposal to expand the definition of a small business under the EIDL program 

to any firm with less than 500 employees or less than the industryspecific standard. 

Our central concern is that SBA has proposed, in the context of 

this draft rule, a rather fundamental shift in the definition of a 

small business, a shift whose implications were not adequately explored in the package that was sent to us. Obviously, OMB is concerned that a change in the size standards made for this program 

could readily be argued as a precedent for changing the size definitions governing other SBA subsidy programs. 

If the change to the 500-employee standard were made across 

SBA’s programs, the consequences could be quite controversial. For 

example, for any fixed amount of SBA funding, the proposed 

change would cause a shift in the mix of support from the manufacturing sector to the nonmanufacturing sector, where many more 

service-oriented firms would be considered small. It does not seem 

plausible to suggest that service-oriented firms with several hundred employees are small in the sense that Congress and SBA have 

previously intended in the context of SBA’s assistance programs. 

Chairman MANZULLO. Can I interrupt you at that point? 

Mr. GRAHAM. Yes, sir. 

Chairman MANZULLO. How would you make that statement 

when Congress was never asked for any input? You have absolutely 

no basis on which to make that statement. 

Mr. GRAHAM. Yes. I was referring to the historical decision-making of both Congress and the SBA. 

Chairman MANZULLO. Well, there is no historical decision-making because decisions are not made; arbitrary things are made. Did 

you ever contact the travel industry? 

Mr. GRAHAM. No, sir. 
9

Chairman MANZULLO. Did you ever contact any industries? 

Mr. GRAHAM. No, sir. 

Chairman MANZULLO. Please proceed. 

Mr. GRAHAM. Speaking for manufacturing firms, On the other 

hand, the 100-employee definition, is specifically in there because 

of the nature of that specific type of industry.

In short, OMB is not convinced that the principle that underlies 

the new size definitions, taking a manufacturing definition and applying it to all other sectors of the economy, we are not convinced 

that that represents sound economic policy. 

Although OMB has returned SBA’s particular proposal for reconsideration, we remain open to alternative proposals from SBA that 

can address the financially ruinous impacts of the events of September 11th. We have encouraged SBA to formulate proposals that 

maintain the current industry-specific approaches to defining small 

businesses. 

Chairman Manzullo, you called me about a month ago, you mentioned, and you requested an expedited review of this matter. That 

phone call was my first awareness of the issue that this hearing 

is about. I did, in fact, respond quite promptly to your phone call, 

and we have, in fact, provided the OMB response to SBA. Thank 

you very much for the opportunity to be here today. 

[Mr. Graham’s statement may be found in appendix.] 

Chairman MANZULLO. Thank you, Dr. Graham. Congressman 

John Sweeney is going to be here both as an ex-officio member of 

the Committee, and, Mr. Sweeney, I am going to give you the opportunity to make a statement and then also to introduce your constituent. 

Mr. SWEENEY. Thank you, Mr. Chairman, and I want to thank 

you and Ranking Member Velazquez and members of the Committee for welcoming me back home to this Committee that I miss 

greatly. 

Chairman MANZULLO. You are on appropriations now. 

Mr. SWEENEY. Regrettably, I have two Appropriation Subcommittee hearings going on concurrently, so I will not be able to 

stay, but it is always good to be back at this Committee because 

I know and respect and really appreciate the good work you do. So 

let me begin by applauding your efforts on behalf of small businesses and the commitment to small business and, in particular, 

especially I want to commend your holding this hearing on the 

hardships that have been incurred as a result of the events of September 11th. 

I, a member of the New York delegation, have been very active 

with the ranking member and other members of the delegation at 

trying to clarify and get the word out, the message out, and ensure 

that the appropriate federal responses were in place to all of those 

who have been affected. In fact, my office has been addressing this 

critical issue for months to no avail. 

Here testifying before the Committee today is a constituent of 

mine, Mr. Rod Klassovity, CEO and part owner of the Albany Travel Unlimited, Incorporated. Mr. Klassovity and his commercial financing consultant, Nathan Schecter, after repeatedly being encouraged by local SBA offices to apply for a disaster assistance 

loan, were ultimately rejected due to a size-standard issue. Regret-
10

tably, even after the president signed into law H.R. 3338 with an 

amendment enhancing the disaster assistance loan program, Mr. 

Klassovity and Mr. Schecter are still without a loan and are now 

faced with the possibility of even further staff reductions. I will let 

Mr. Klassovity tell you his story and tell you of the plight. 

But the SBA continues to stymie the very same small business 

owners it was established to help, it seems to this member. This 

issue must be rectified immediately. I want to thank Mr. 

Klassovity and his commercial financing consultant for traveling to 

Washington. I will tell you that there was some apprehension on 

their parts in participating in this testimony, so I recognize the 

courage that you bring to the table. His testimony, I think, will 

shed light on an issue that is crucial to so many small businesses 

suffering throughout the affected areas, and it is my hope that this 

hearing will begin to rectify the problem. 

And I will say, Mr. Chairman, that as a member of the Appropriations Committee and to our colleagues from the Small Business 

Administration, I am going to be watching. I am interested in the 

results of the testimonies here and the impact on the SBA and its 

adjustments to that as decisions are made over in that austere 

Committee on what direction and what priorities we are going to 

establish here in Congress. 

So with that, I would like to introduce Rod Klassovity. 

[Mr. Sweeney’s statement may be found in appendix.] 

STATEMENT OF RODNEY R. KLASSOVITY 

Mr. KLASSOVITY. Thank you. Chairman Manzullo, Ranking Member Velazquez, members of the Committee, thank you for inviting 

me to appear before you to describe the hardships that we have incurred as a result of the events of September 11th and the indifference in and mishandling of our disaster loan application by the 

SBA and subsequently by OMB. 

Before I get into the subject matter, I would like to thank Congressman John Sweeney and his staff, Congressman Michael 

McNulty and his staff, as well as Chairman Manzullo and the 

Small Business Committee staff for their responsiveness in hearing 

our calls for help. With their help and the help of you as Committee members, hopefully we can together overcome the bureaucratic road block that has denied us much needed disaster relief. 

I am the CEO and 50 percent owner of Albany Travel Unlimited. 

We are a privately owned travel agency located in Clifton Park, 

New York, right outside of Albany. We were founded in 1955 and 

have grown prudently over the years. Prior to September 11th, we 

had average annual commission revenue of approximately $2.5 million and employed 50 people, with a payroll averaging $1.3 million 

a year. Our business composition is 70 percent corporate business 

and 30 percent leisure vacation business. We book, among other 

notable accounts, the travel for 125 agencies of the State of New 

York. The majority of our business is in the affected north-south 

New York-Boston-Washington, D.C. corridor. 

As a direct result of September 11th, my business and the livelihood of 50 families changed dramatically. In the 21 weeks from 

September 11th through the end of January 2002, we have lost 

$340,000 in revenue. As a result, and over the holiday season, no 
11

less, I had to lay off 10 people, or 20 percent of my staff, representing $123,400 in annual wages. Also over the holidays, my remaining employees, including myself and my partner, endured 14 

weeks of partial pay, resulting in $51,400 in lost wages. Additionally, whereas I used to employ 50 people, of whom 39 were full 

time and 11 part time, I now only employ 40 people: 30 full timers 

and 10 part timers. 

I could have, and probably should have, cut more staff; however, 

I have tried to do the patriotic thing by sustaining my employees 

and their families during these difficult times. Also, in a service 

business like mine, my skilled employees are key to our continued 

viability. However, with travel still down 23 percent over comparable period last year, revenue continues to be depressed, and 

our losses continue to mount. With my personal and business resources depleted, I am now faced with the real prospect of further 

job cuts. 

None of this would have happened if the SBA had honored their 

word to provide timely disaster relief. In fact, the irony is that, 

after we contacted the SBA in October 2001 to inquire about possible disaster relief and whether, as a travel agency with annual 

commission revenue exceeding the $1 million size standard, we 

even qualified. The SBA not only encouraged us to apply but asked 

us to participate in a press conference announcing the expansion 

of the economic disaster loan program. 

We were hesitant to publicize our need because we did not want 

to scare our employees or customers; however, we agreed to assist 

the SBA in publicizing the program so as to help the SBA and 

other hurt businesses. To date, 170 days since September 11th and 

130 days since the SBA publicized our application, the SBA and 

OMB still have not provided us with disaster assistance. 

In my written testimony on pages two and three I have a chronology of events, and I just want to go over some of the highlights. 

On October 16, 2001, my commercial financing consultant, Nathan 

Schecter, called the SBA office in Albany to inquire about available 

disaster relief. Nathan was advised that the economic injury disaster relief loan program had just been expanded to include Upstate New York. 

Familiar with SBA financing, Nathan explicitly asked if, in general, size standards applied to disaster loans and if, in particular, 

our three-year average of $2.5 million in revenue, which exceeds 

the artificially low $1 million size standards for travel agents, 

would pose a problem. The Small Business Administration representative called back, stating that size standards did not apply 

and that the Zone 1 disaster office in Niagara Falls told him to 

send in the application. The very next day, my partner and I, still 

uneasy about the size-standard issue, called the Niagara Falls disaster office and were told ‘‘this program is designed for you; send 

it in.’’ On October 19th, we participated in the SBA’s press release 

regarding expansion of disaster loan program and our application. 

The attached article appears in my testimony. 

Approximately two weeks later, on December 3, 2001, Niagara 

Falls called to inform me that my application had been turned 

down because my firm exceeded the size standard. The next day, 

Nathan Schecter, my financial consultant, called Niagara Falls and 
12

was told but for the size standard, my firm would qualify for the 

requested loan. He was also told that 45 percent of disaster loans, 

or over 400 applications, having declined due to size standards. 

And then on that day we contacted Congressman Sweeney’s office 

and asked for his help. 

We were encouraged with Congressman Manzullo’s amendment, 

H.R. 3338, and at that point we thought we were going to be recognized, but to this date that has not happened, and, of course, here 

I am testifying before you. 

I would like to say a couple of things about the size standard. 

Per the SBA’s size-standard table, there are 1,152 size standards. 

Of the 1,152 size standards, 602 are employee based. Those employee-based size standards have a range of 100 to 1,500 employees, with an average of 561 employees and a median of 500 employees. By comparison, I now employ only 40 people, which is less 

than one-tenth of the overall employee-based size standard. 

Of the 1,152 size standards, 538 are revenue based. Those revenue-based standards have a range of $750,000 to $29,000,000, 

with an average of $8,100,000 and a median of $6,000,000. Within 

these revenue-based size standards no retail or service category 

has a lower size standard than travel agencies. In fact, there are 

only 46 categories with lower size standards, and those are all agricultural. My current three-year average revenue is $2.4 million, 

and I currently employ 40 people. By any measure, I am a small 

business. 

Within the travel industry, 70 to 75 percent of travel and lodging 

is booked by travel agencies. The travel and lodging providers operate the physical assets, and travel agencies book the sales. However, inexplicably, within the travel industry, travel agents who 

book the sales for the travel and lodging providers, have the lowest 

revenue-based standard. Beyond the obvious air, rail, and cruise 

providers, other examples I have inserted into my written testimony to show you some of the other business types in our business 

that have a $6 million size standard. Tour operators, hotels, motels, bed and breakfast, all other travel arrangement and reservation services, of course, which is a function we provide—all our $6 

million. Travel agents are $1 million.

What is the rationale behind having a lower standard for those 

that book the sales, that is, travel agents, than those for whom the 

sales are booked, that is, the travel and lodging providers? The 11-

county Capital District where we live and work, consisting primarily of the Albany-Schenectady-Troy area, contains 1.1 million 

people. We are a second-tier market served by one airport. In our 

market my firm books 26 percent of travel and employs 24 percent 

of the total travel distribution employment base. We handle travel 

for 125 agencies of the State of New York and many of the area’s 

other large employers. And as you know, the State of New York 

has instituted an austerity budget. 

If we are left to wither on the vine and possibly even go out of 

business, no other firm in our market possesses the physical or financial resources to fill the sales or employment void that we 

would leave. The result would be travel disruption and increased 

unemployment in our already affected marketplace. 
13

Travel has not returned to pre-9/11 levels. At the current trend, 

and assuming no further terrorist attacks or negative publicity, 

travel probably will not return to normal levels until at least thirdquarter 2002 and more likely not until 2003. Therefore, we anticipate total revenue losses at our company of $600,000. Our request 

for a $600,000 economic injury disaster loan was right on target. 

We now need your help. Please use your influence to get the SBA to raise the size standards for travel agencies to at least $2.5 million, or in the alternate, grant us immediate special dispensation 

so that we can get our much needed loan and retain our employees. 

Please understand, I am not asking for a grant like the airlines received. I am asking for a loan, which, adding insult to injury, I will 

have to pay back with interest. When those three planes hit on 

September 11th, I lost $600,000 that I will never recapture. I am 

not asking for a handout; I am only asking for equitable treatment 

and a little assistance. In the end it is me that will be borrowing 

so that I can continue to make my $25,000-a-week payroll, and it 

will be me that has to repay the loan. Please help me stay in business and to weather the storm. Thank you for your time and assistance. 

[Mr. Klassovity’s statement may be found in appendix.] 

Chairman MANZULLO. Thank you. We are going to take a recess 

to go and vote, and then we will be back, hopefully within 15 minutes, and resume the testimony. 

[Whereupon, at 2:47 p.m., a brief recess was taken.] 

Chairman MANZULLO. I am going to call the Committee to order. 

We have got about another 15 minutes before we have a motion to 

recommit and some other votes that will take about a half an hour 

total, so we will have the testimony of our next witness, Jacquelyn 

Alton, who is with the American Society of Travel Agents. I look 

forward to your testimony. If you could pull the mike closer to you. 

Thank you. 

STATEMENT OF JACQUELYN ALTON 

Ms. ALTON. Mr. Chairman, Ranking Member Velazquez, and 

members of the Committee, my name is Jackie Alton. I am owner 

of CWT/Alameda Travel in Houston, Texas. I thank you for this opportunity to speak to you today regarding the Small Business Administration’s size standard, especially as it pertains to the travel 

agency industry. As a member of the American Society of Travel 

Agents, the InterAmerican Travel Agents Society, and the Society 

of Government Travel Professionals, I am honored to present this 

joint statement on their behalf. 

ASTA, established in 1931, is the world’s largest and most influential travel trade association, with over 26,000 members in more 

than 170 countries. ITAS, established in 1953, is the largest and 

oldest association of African-American owned and operated travel 

agencies in the world. SGTP is the national, nonprofit education 

forum for all components of the $20 billion government travel market. 

Mr. Chairman, I also have a letter from ATI Travel of Kirkland, 

Washington, that I would like to have entered in today’s——

Chairman MANZULLO. That will be made part of the record without objection. 
14

Ms. ALTON. Okay. And furthermore, this agency was also denied 

the loan. 

The travel agency community is very grateful to you, Mr. Chairman, and this Committee for the time and effort spent to assist 

small businesses in dealing with the aftermath of September 11th. 

Mr. Chairman, we deeply appreciate you having keynoted SGTP’s 

travel management conference earlier this month. We also applaud 

the Small Business Administration for opening nationwide the SBA 

economic injury disaster loan program that has helped many small 

businesses with much needed financial assistance. Although there 

are some positive signs of improvement in the travel and tourism 

industry, much will depend on the U.S. economy and consumer 

confidence to travel in the months ahead. 

During the heart-breaking days immediately following the September 11th attack, America’s travel agencies were there for their 

clients, and they were there for others as well. Across the country, 

travel agents were in their offices trying to help the many thousands of people stranded by the nationwide airport closure. Many 

of them provided free assistance to people who had bought their 

tickets on the Internet and had no one else to go to for help. The 

travel agents performed these services because they were the only 

people who could. At the same time, they watched their businesses 

collapse. Many agencies reported gross earnings for the week including September 11th of less than $50. 

It is a fact that in this unprecedented situation there was no substitute for travel agents for tens of thousands of people who needed 

help. Travel agents served as the only one-stop, neutral source of 

comprehensive information and counseling about an incredibly 

complex, constantly changing array of fares and services that confront the general public. 

Ninety-five percent of all travel industry firms are small businesses that are local and family owned. Eighty-five percent of travel agency jobs are held by women, many of whom are flex-time 

mothers and single. The vast majority of travel agencies are independently owned. Seventy percent of owners and managers are 

women. 

Long before the events of September 11th——

Chairman MANZULLO. Jacquelyn, excuse me. Could you go down 

to the issue of size standards? 

Ms. ALTON. Yes. 

Chairman MANZULLO. Thank you. 

Ms. ALTON. The current SBA size standard for travel agencies 

was established in 1995 at $1 million, as measured by agency income. ASTA, ITAS, and SGTP support increasing the SBA travel 

agency size standard from $1 million to $3 million of income. Increasing the size standard will restore the competitive viability of 

locally owned, family businesses. It will also make future SBA loan 

programs available to additional agencies that are now considered 

too big to qualify under the current size standards. 

We respectfully request congressional support of the SBA initiative. By increasing the size standard, more agencies currently considered too large will be eligible for small business government contracts and set-asides as well. Transaction-based contracting has established itself as the basic practice of corporate America, including 
15

federal government programs. Current government regulations, 

contractor procedures, including an emphasis on past performance, 

and the cutting-edge way corporate America now does business 

with technology resources is taking away from the smaller travel 

agency the opportunities to compete successfully in an open marketplace unless we are able to grow. 

A few firms dominate the air travel generated by travel agencies 

that are business-travel oriented. Sixty-nine percent of total air 

travel comes from just six agency organizations. Ninety-eight percent comes from the top 62 agencies, according to the current Business Travel News. Increasing the size standard to $3 million of income still keeps competition with a market area among locally 

owned, family businesses. 

Some specialists in the small travel agency bidding process have 

observed that levels of competition among travel agencies have 

dropped dramatically. One federal agency that attracted 51 responses to RFPs received only five responses the next bidding cycle. 

Currently, of $9 billion of official government travel, about 50 agencies nationally hold GSA contract task orders, and about 30 travel 

agencies service the DoD, some of them servicing GSA as well. 

Government set-asides attract fewer respondents at the current $1 

million level. Increasing the size standard to $3 million would 

produce more interest, provide an incentive for incumbents to rebid 

on their accounts, and yield better value for the U.S. Government 

and its taxpayers. 

Thank you, Mr. Chairman, for the opportunity to present ASTA, 

ITAS, and SGTP views. I would be delighted to answer Committee 

questions. 

[Ms. Alton’s statement may be found in appendix.] 

Chairman MANZULLO. Thank you very much. There evidently is 

a problem with travel agencies grossing over a million dollars, and 

I would like to know, either from Dr. Graham or Mr. Barreto, what 

the problem is with travel agencies and why there is a reluctance 

to increase. My understanding is that the 15 percent increase did 

not even apply to travel agencies. 

Mr. BARRETO. I think there is a number of factors that goes into 

developing size standards, but obviously that is one of the things 

that we are looking into in this proposed rule that we are sending 

up to OMB. We think that there is some room to expand that, and 

that will be reflected in the rule that OMB receives from us. 

Chairman MANZULLO. Is there a dollar amount that you are 

going to put in there for travel agencies? 

Mr. BARRETO. I do not have a dollar amount in front of me right 

now, but we think it is going to be a significant——

Chairman MANZULLO. Does anybody here with you know what 

the dollar amount is going to be? You have got a staff here. 

Mr. BARRETO. I do not think that we have that information with 

us. That will be reflected in the information——

Chairman MANZULLO. Who has the information? 

Mr. BARRETO. I believe that the folks, our, is working at the 

SBA——

Chairman MANZULLO. Who is in charge of the team? 
16

Mr. BARRETO. Well, there is a number of individuals in charge 

of the size standards and others that are communicating with our 

executive team. 

Chairman MANZULLO. Has anybody ever contacted the travel 

agency for input on this? 

Mr. BARRETO. Absolutely. One of the things—— Chairman MANZULLO. Have you been contacted by the SBA for 

input on size standards? 

Ms. ALTON. We requested and had a meeting with the SBA.

Chairman MANZULLO. Do you want to use the mike? When was 

that? 

Ms. ALTON. July of 2001. 

Chairman MANZULLO. And you had the meeting then? 

Ms. ALTON. Yes, we did. 

Chairman MANZULLO. July of 2001? 

Ms. ALTON. Yes. 

Chairman MANZULLO. Mr. Barreto. 

Mr. BARRETO. I think that there has been a host of contacts that 

have been made. We have received some feedback from the government travel agents group. We have also received some feedback 

from some of the smaller travel agencies. We have requests in right 

now from some of the larger operators as well, so we are taking all 

of that feedback into consideration. 

Chairman MANZULLO. She gave you that in July. This is now almost March. This is almost nine months later. 

Mr. BARRETO. I think this has been an ongoing dialogue that we 

have had, but obviously in the last couple of months there has been 

a tremendous amount of activity. I have no less than 15 contacts 

and 15 actions that have taken place since December 11th. 

Chairman MANZULLO. Mr. Barreto, are you aware of the fact that lawyers that have $5 million in gross revenue and CPAs that have 

$6 million in gross revenues could always get disaster loans? Are 

you aware of that? 

Mr. BARRETO. I am aware that one size does not fit all. 

Chairman MANZULLO. You did not answer my question. 

Mr. BARRETO. We have, as has been mentioned before, many, 

many size classifications, depending on the industry. 

Chairman MANZULLO. Mr. Barreto, you are aware that lawyers can gross up to $5 million gross revenue and CPAs up to $6 million. 

Mr. BARRETO. I am aware of that. 

Chairman MANZULLO. Are you aware of that also, Dr. Graham? 

Mr. GRAHAM. No. I was not aware of that. 

Chairman MANZULLO. The SBA would give you that information. 

If you had been aware of that, Dr. Graham, would you have considered increasing the travel industry standard? 

Mr. GRAHAM. We at OMB have never had a proposal from 

SBA——

Chairman MANZULLO. That is correct. 

Mr. GRAHAM [continuing]. On the travel. I did want to make a 

comment, if I could—— Chairman MANZULLO. Of course. 

Mr. GRAHAM [continuing]. To our two witnesses from the private 

sector who are here today. I listened carefully to both of their testi-
17

monies, and I actually think that they do present, I think, a reasonably strong case for consideration of the specific rationale for 

the current size standard in the travel agent industry and whether 

it should be changed. I just want them to know that we at OMB 

are listening to those concerns. This is the first time I have heard 

it in the kind of vivid way that we are hearing it today, and I want 

you to know that we will take it seriously. 

Chairman MANZULLO. This is what is wrong with the entire process because, Mr. Barreto, you will not even take my input. 

Mr. BARRETO. I am happy to take your input at any time, Chairman. 

Chairman MANZULLO. You are not. I am sorry. I got into a big 

fight with your chief of staff. I knew this was going to happen, and 

I begged him for one day’s notice, one day opportunity, for the 

chairman of the Small Business Committee to review the size 

standards. Do you know what he said? OMB is in a hurry on this. 

And then you called, and I asked you for a day, and you said, OMB 

is in a hurry on this, and you put out that press release that 

turned out to be nothing but a fraud because it induced people like 

Mr. Klassovity. 

What you did to him, your agency in baiting him to make the application, inviting him to take part in a press conference, resulted 

in all kinds of favorable publicity for the SBA. A major article appeared in his newspaper. This man went forward, and then to come 

to find out that the agency charged with the responsibility was so 

totally incompetent that they do not know anything about the size 

standards. And do you know what he has gotten out of it? Absolutely nothing, but he has to pay for his own trip here to Washington. 

Are you aware of the fact that in the defense appropriations bill 

the following can get disaster loans: banks with $100 million in assets; nonbank lenders such as mortgage bankers, $5 million in 

gross revenues; stockbrokers with $5 million in gross revenues? Are 

you aware of those standards? 

Mr. BARRETO. Yes, sir. 

Chairman MANZULLO. And still you balked at helping out the 

people in the travel agency or the helicopter people. 

Mr. BARRETO. We try to help every business that we possibly can 

based on the standards that we are held to. We are always willing 

to consider and reconsider. Obviously, we are working with this 

Committee. 

Chairman MANZULLO. But Mr. Barreto, why do you say that 

when you would not even let me have any input on it? I knew the 

problems coming up, and I had called your chief of staff, and I had 

called you and said there is a problem with the size standards. 

Then you took those emergency regulations, you ran them over to 

OIRA, and they approved of them within what, two days? Within 

two days. That was an emergency because you determined it to be 

an emergency. If something comes from Congress, and we ask for 

consideration, it takes four weeks. Do you think we are here just 

to rubber stamp your agency? 

Mr. BARRETO. Absolutely not. 

Chairman MANZULLO. Well, that is the way you are treating us. 
18

Mr. BARRETO. I am sorry that you feel that way. That would 

never be our intention. 

Chairman MANZULLO. Well, the best intentions is not working 

because you are not going to leave this room today until there is 

a determination made as to the travel industry. I want you to understand that. I am not going to excuse you to leave. 

Mr. BARRETO. I completely understand, Mr. Chairman. 

Chairman MANZULLO. And Dr. Graham also. The two of you can 

talk here. You are not going to leave this room. By the time we end 

here, at midnight tonight, if necessary, this is going to be determined because I am not going to have small businesses in this 

country suffer while you guys cannot make up your mind what to 

do. Lawyers can get $5 million, and a travel agency cannot get two 

and a half million. Is that fair? Mr. Barreto? 

Mr. BARRETO. We try to do everything we can——

Chairman MANZULLO. Is it fair? 

Mr. BARRETO. Is it fair? I am sorry. Could you——

Chairman MANZULLO. Is it fair to the travel agents? 

Mr. BARRETO. We are working with the travel agents right now. 

In fact, we have received letters of support——

Chairman MANZULLO. If you had said it is unfair, I would be 

really impressed. If you had said it is unfair and the standard 

stinks and you want to change it, that would be the proper answer.

Mr. BARRETO. Chairman, our size standards right now fit 98.5 

percent of all businesses in the United States, and as I have said 

before, one size does not fit all. 

Chairman MANZULLO. That is not what we are asking. We are 

asking for some common sense and some input. Members of Congress are elected; you are not. You are not responsible to anybody. 

You are accountable to no one. We are. Our constituents call us. 

As the chairman of the Small Business Committee, we got calls 

from all over the place. Do you know what we heard? We could not 

even get past the SBA people on the phone. They told us our size 

standards—that we were too big for the size standards. And, in 

fact, one of the testimonies from Mr. Klassovity, how many people 

were turned down? Four hundred is what you were told, just in the 

Albany office alone. 

Mr. KLASSOVITY. No. It was out of the Niagara Falls office. 

Chairman MANZULLO. Oh, the Niagara Falls office on it. 

Mr. KLASSOVITY. It was 45 percent of disaster loans and over 400 

applications. 

Chairman MANZULLO. And you never quantified the number of 

people that never made an application, that never got through the 

person that answered the telephone. What is it going to take to 

make SBA come up with some half-decent standards starting with 

the travel industry? What do you want? What more input do you 

need? Do you want him to get on his knees? 

Mr. BARRETO. We would never ask for that. 

Ms. VELA ́ ZQUEZ. Mr. Chairman, would you yield? 

Chairman MANZULLO. Of course, I would yield. 

Ms. VELA ́ ZQUEZ. Mr. Barreto, the situation of the travel agents 

could be resolved if OMB accepted and authorized proposed 

changes in the size standard. Isn’t that the case? 
19

Mr. BARRETO. We are working with OMB on that right now, Congresswoman. 

Ms. VELA ́ ZQUEZ. The problem is that you sent changes to them, 

and they sent you this letter rejecting it. So I would invite the 

chairman, and I echo your frustration and your observations, but 

I also feel that it should be directed to OMB. 

Mr. GRAHAM. Congresswoman, I think it is a fair question. The 

proposal that was sent to us was not specifically on the travel industry. It was on applying the 500–employee standard all across 

the American economy. And we felt that there were some larger 

policy issues that concerned us with that type of proposal. However, what I was commenting on was the case we heard from the 

private sector witnesses today about a specific industry size standard. Recently, there have been updates in the health care industry 

size standard by FDA, the petroleum industry size standards by 

SBA. They have worked constructively to make those changes, and 

I think we are seeing a reasonable case here for a change in that 

particular industry. 

But I want to be a little bit supportive of my administration colleague, Chairman Manzullo, and indicate that obviously your disagreement on the broader proposal that was sent is not with SBA. 

SBA sent that to us. 

Chairman MANZULLO. Well, they sat on it for five weeks. 

Mr. GRAHAM. Right, but I think the substantive disagreement 

is——

Chairman MANZULLO. Do you know what the problem is? 

Mr. GRAHAM [continuing]. Is with OMB, and it is not with my 

colleagues at SBA. 

Chairman MANZULLO. Do you know what the problem is? You get 

a proposal. Congress does not know about it. No opportunity for 

any input, none, zero. You get a proposal. You look at it. The affected industries, no opportunity for anything. You are just there 

making these decisions yourselves. What are we here for? Why do 

you have these people out here? They are here to help. Who knows 

it better than they do? 

Mr. Barreto, what do you think should be the size standards for 

travel agencies? 

Mr. BARRETO. We have not made the final determination. 

Chairman MANZULLO. You have not even come to a conclusion 

yet? 

Mr. BARRETO. I think we are pretty close to making a conclusion. 

Chairman MANZULLO. That is not enough. In your opinion, is 2.5, 

$3 million, is that reasonable? 

Mr. BARRETO. It all depends on the situation. 

Chairman MANZULLO. It all depends on the situation. What is 

the situation? Travel agents; they are now limited at $1 million. 

What dollar figure do you think would be fair and reasonable? 

Mr. BARRETO. I do not know. 

Chairman MANZULLO. You do not know. Do you have an opinion? 

Mr. BARRETO. That is being formulated at this time. 

Chairman MANZULLO. By whom? You are the administrator. 

Mr. BARRETO. We are working together with our team—— Chairman MANZULLO. Mr. Barreto, you are the administrator. 

All right? You could tell Dr. Graham right now what figure you 
20

want, and he would probably approve $3 million. Why don’t you 

just get a piece of stationery? Anybody back there with a piece of 

SBA stationery—I am not kidding—that Mr. Barreto could take 

and submit to Dr. Graham, saying please change the size standards to $3 million or something reasonable? I am waiting. I am prepared to wait all day and all night until it is done; otherwise, you 

will not act. 

Who has got stationery back there from the SBA? Who is here 

from the SBA? Would you get some stationery, please? I hate to do 

this. It is embarrassing. It is humiliating, but I represent them and 

these people that have been hurt, caught up by an administrative 

agency that cannot act and will not take any comment from Congress. Could you get some stationery from the agency, have it faxed 

over? Mr. Barreto, I am going to ask you to write a letter to Dr. 

Graham right now with your recommendation. I do not need your 

team; I need you. What figure are you prepared? 

Mr. BARRETO. I do not know. 

Chairman MANZULLO. You have no idea. 

Mr. BARRETO. No. 

Chairman MANZULLO. Dr. Graham, do you have an idea? 

Mr. GRAHAM. No, sir. This is early in our—— Chairman MANZULLO. It is. 

Mr. GRAHAM [continuing]. Consideration of this matter, but I am 

learning quickly, Mr. Chairman. 

Chairman MANZULLO. It is. It is, and I appreciate that. Who at 

the SBA agency is part of the team? I want the names of the individuals. Who are they? 

Mr. BARRETO. We will be glad to provide that to you. 

Chairman MANZULLO. No, no. I want them right now. Who back 

there knows who these people are? 

[No response.] 

Chairman MANZULLO. Who is here from the SBA? 

[Hands raised.] 

Chairman MANZULLO. How many representatives do we have? 

One, two. Who are these people? Does anybody know who these 

people are that are working on the size standards? We do not 

know? Who is leading the team?

Mr. BARRETO. I am leading the team, sir. 

Chairman MANZULLO. Well, who is on your team? 

Mr. BARRETO. Well, it is all of the individuals that are in our office of size standards. We would be glad to provide you with those 

names and my senior team. 

Chairman MANZULLO. Who are they? Who is in charge of it? 

Mr. BARRETO. I would be glad to provide you the names——

Chairman MANZULLO. You do not know who is in charge of it? 

Mr. BARRETO. We are meeting with them on a regular basis. 

Chairman MANZULLO. But you do not know their names. I want 

to know their names. I want to subpoena them in here. I want to 

get this thing done. She gave the input in July. I want it done. If 

I have to do it in open Committee, I am going to have it done. I 

want it done. Who is on your team? 

Mr. BARRETO. We will be glad to write those names down—— Chairman MANZULLO. No. I want to know. Tell me now. 

Mr. BARRETO. We are preparing that list for you as we speak. 
21

Chairman MANZULLO. Ms. Vela ́zquez, do you have some questions? 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. Mr. Barreto, I want 

to thank you because I requested that you extend the comment period on the proposed regulation on the 8(a) HUBZone, and you did. 

I hope that we could work together and extend the comment period 

for 30 more days. 

Dr. Graham, in your letter of February 11th to the SBA, it appears clear that OMB is concerned with multiple expansions of a 

program. Is this true? 

Mr. GRAHAM. No. I think what we tried to say is we have already 

approved two expansions of the program previously, one for small 

businesses outside of the immediately affected areas of the September 11th events, and the second one, the acceleration in the expansion of the size standards because they were outdated in terms 

of the inflationary adjustment. So we have already made two expansions in this program, and we did have a concern, sort of a 

basic policy concern with the approach that was in the proposal 

that was sent to us. 

Ms. VELA ́ ZQUEZ. So you are not concerned about expansion. 

Mr. GRAHAM. Yes. Indeed, one of the concerns we had was that 

if the rationale was applied to other types of programs, there would 

be an expansion issue. 

Ms. VELA ́ ZQUEZ. So let me ask you, if you are concerned about 

the expansion, I just would like to ask you why you are not concerned about the fact that they expanded the HubZones regulation? 

Mr. GRAHAM. I am sorry. I do not know the specifics on 

HubZones. 

Ms. VELA ́ ZQUEZ. OMB, SBA recently proposed expansion of the 

SBA HubZone program. Aren’t you concerned about that expansion? 

Mr. GRAHAM. I see the thrust of your question now. Our concern 

was with expanding the size definition of a small business. We 

have supported a variety of expansions in support for the small 

business community. That is not where the objection is. It is with 

the particular proposal to say if you have less than 500 employees, 

you are automatically a small business for the purposes of loan assistance or financial assistance. 

Ms. VELA ́ ZQUEZ. Dr. Graham, by virtue of locating in Manhattan 

and other urban areas with high rents as well as other increased 

costs of doing business, a business must have a higher revenue 

stream in order to survive. However, such a business is penalized 

as not a small business when it comes to the EIDL program. Will 

OMB consider approving regional size standards? 

Mr. GRAHAM. I have not given that matter previous consideration, but I have to confess that the way you have framed it in that 

question has a little bit of merit behind it. 

Ms. VELA ́ ZQUEZ. Would OMB consider approving regional size 

standards for disaster loan programs? 

Mr. GRAHAM. I think the same principle should apply to both at 

first blush. 

Ms. VELA ́ ZQUEZ. Would OMB consider approving a regional size 

standard for all size standards? 

Mr. GRAHAM. Certainly would consider it. 
22

Ms. VELA ́ ZQUEZ. Dr. Graham, it appears that OMB’s primary objection to changing the size standard for the purpose of EIDL to 

500 employees is that some businesses with less than 500 employees may be dominant in their industry. Is this your primary objection? 

Mr. GRAHAM. That is certainly, I would say, the major one. 

Ms. VELA ́ ZQUEZ. Okay. If SBA resubmitted the proposed rule and 

added the caveat that businesses will be eligible as long as they are 

independently owned and operated and not dominant in their field, 

would you approve the change to a 500-employee size standard? 

Mr. GRAHAM. I do not believe so. In fact, I think the phrase you 

just referred to is the current statutory provision, and it is the second part of that phrase that we have concerns about because we 

think the thrust of that is to insist that SBA look at whether a 

business is small within the industry that is being evaluated, 

whether or not it is small or whether or not it is dominant within 

that specific industry. 

Ms. VELA ́ ZQUEZ. Can you provide us with any example where an 

industry with 500 employees is dominant? 

Mr. GRAHAM. Well, I think it would be very interesting to ask the 

private sector witnesses at this table right now whether they would 

consider every travel agency a small business because—— Ms. VELA ́ ZQUEZ. How could you then object to the regulations. 

Mr. GRAHAM [continuing]. The 500-employee standard, Congresswoman, would be tantamount to saying that every travel agency, 

with maybe 50 or 60 exceptions, is a small business. 

Ms. VELA ́ ZQUEZ. It should be. 

Mr. GRAHAM. It should. Well, that runs contrary to the historical 

practice in the program of saying ‘‘small’’ is defined within the context of a specific industry. There always have to be some large ones 

as well as small ones. That is the whole structure and history of 

the program. 

Ms. VELA ́ ZQUEZ. So, Dr. Graham, 97 percent of all businesses are 

small businesses in this country. 

Mr. GRAHAM. Okay. Was it 98, Hector said? It is a lot. Right. 

Ms. VELA ́ ZQUEZ. In your February 11th letter to the SBA, you 

also expressed concern with the SBA proposal to determine a business small based upon the date of the EIDL application. Can you 

expand on your concerns with this proposal? 

Mr. GRAHAM. No. I think the way you have summarized it is accurate. The small business determination should be at the time at 

which the event occurred, not a subsequent period. Otherwise, you 

have the possibility that general economic trends are causing the 

problem, if I am referring to the right paragraph, Congresswoman. 

Ms. VELA ́ ZQUEZ. What I understand is that you are concerned 

that businesses will use the EIDL process to request assistance as 

a result of the recent economic downturn. However—

Mr. GRAHAM. Rather than the events of September 11th——

Ms. VELA ́ ZQUEZ. Right.

Mr. GRAHAM [continuing]. Right, which is a pretty central issue 

in the design of the program. 

Ms. VELA ́ ZQUEZ. Yes. And that is a concern for you. 

Mr. GRAHAM. Yes. My understanding is that is what the program 

is designed for. 
23

Ms. VELA ́ ZQUEZ. So are you aware that the EIDL application specifically requires businesses to show how they having directly impacted by the 9/11 disaster? 

Mr. GRAHAM. I probably should be, but you have done a good job 

of reminding me of it. 

Ms. VELA ́ ZQUEZ. Sir, I do not have to remind you of that. I am 

just asking you are you aware of that. 

Mr. GRAHAM. I am now. 

Ms. VELA ́ ZQUEZ. You are now. So you know that if they cannot 

prove and show that they are suffering economic injury as a result 

of the disaster, 11th, then they cannot apply, and that application 

would be rejected, would be denied. 

Mr. GRAHAM. A fair point. 

Ms. VELA ́ ZQUEZ. Mr. Barreto, did the SBA perform the inflationary adjustment to most monetary-based standards for the purpose of expanding the EIDL program? 

Mr. BARRETO. I know that that was taken into consideration. 

When you say did it take it into account in every situation, I would 

have to check on that, but I know that that is one of the considerations when looking at that analysis. 

Ms. VELA ́ ZQUEZ. So let me ask you, what was your reaction when 

you saw that OMB’s letter of February 11th referred to the inflationary adjustment as a second expansion of EIDL? 

Mr. BARRETO. I think, as we have discussed, revising these size 

standards is not as easy as it sounds. It can be a very complicated 

matter, and a lot of factors is taken into consideration when we are 

looking at these size standards, that being one of them. One of the 

things that we knew is that OMB, stood ready and open to continuing the dialogue and continuing the negotiation, if you will, 

with regard to whether or not this would take place. We continue 

those negotiations, and as I have committed to today, by the end 

of next week we will be sending them over some new language and 

a new regulation that we hope that they will duly consider. 

Ms. VELA ́ ZQUEZ. Mr. Barreto, can you please explain the whole 

chain of events that led to the mess with Mr. Rodney Klassovity? 

Mr. BARRETO. I did have a conversation with Rodney at the 

break, and obviously it is something that we are looking back into. 

Let me just start off by saying, I am very proud of the disaster 

team, and I know that you and I have worked on that. They have 

done an incredible job. I do not mind being criticized myself, and 

I duly accept it; that is part of my job. But I need to say a word 

for them. They have done an incredible job under some very trying 

circumstances. I think they have done an A-plus job. Can we do 

better? I think we can. 

Ms. VELA ́ ZQUEZ. Mr. Barreto, I have been there. I have been 

there. I have witnessed the work that all of these people have been 

doing in New York City. I understand that, but can you please explain? 

Mr. BARRETO. Sure. The main thing that happens obviously is 

that we outreach to people all the time. We are sending information out. We work through our district offices, and we want to get 

them in. We try to do a loan every chance that we can. Obviously, 

once we receive all of the information, if it exceeds a standard, then 

we have to turn down that application. 
24

In this case it did exceed the standard. Even with the increasing 

standard of $1.25 million, the current level of sales of $2.4 million 

with Albany almost doubled the current standard that we have, 

and that is really what the issue is. It is not that we do not want 

to make the loan. Right now we are constricted by——

Chairman MANZULLO. Would you yield a second? 

Ms. VELA ́ ZQUEZ. Sure, sir. 

Chairman MANZULLO. The inflationary did not apply to travel 

agencies. The 15 percent did not apply to the travel agencies. Are 

you aware of that? 

Mr. BARRETO. What I have in front of me here is that we adjusted the size standard upward by 25 percent to account for the 

labor surplus market—that is what it was—bringing it up to 1.25. 

That is what we did when we wrote this. 

Ms. VELA ́ ZQUEZ. Mr. Barreto, I have not seen a copy of what the 

SBA proposed as far as the size standard change or changes, although I have heard some of what has been proposed. Can we get 

a copy of the SBA proposal? 

Mr. BARRETO. Absolutely. I will make sure that you receive it 

right away, Congresswoman. 

Ms. VELA ́ ZQUEZ. The one that was sent to OMB. Thank you, Mr. 

Chairman. 

Ms. CHRISTENSEN. I am usually brief. I want to thank the panelists for coming. Thank you, Mr. Chairman. 

I think we have spent a lot of time on the 500-employee size, but 

I want to ask just one question of Mr. Barreto on that. Do you have 

any concerns in retrospect about that request? 

Mr. BARRETO. I do not have any concerns about it. I think that 

we are continuing to work on it. I want to also let you know that 

we received 269 applications that we rejected from September 11. 

Only five have been rejected because they exceeded the size standard in over 500 employees. Sixty-nine were rejected because they 

had a size standard of over 100 employees, depending on the industry. 

So the actuality is very few companies that have been rejected 

for exceeding the size standards. And again, we try to do everything that we can to approve the loan, and we sometimes will take 

a second and third look at it. We are never opposed to do that. For 

us, it is not absolutely not under any circumstances. 

Ms. CHRISTENSEN. Do you have any flexibility or authority to 

allow a waiver if a business is sort of on the borderline? 

Mr. BARRETO. On the bubble. Exactly. We have looked into that. 

Our folks have told us that we do not have any independent authority to waive those standards by ourselves, and that is why it 

is important that we work in collaboration with you and also with 

OMB to make sure that when a size standard change is necessary 

and required, that we are able to do that. 

Ms. CHRISTENSEN. I probably will come back. I want to go to the 

travel agents for just a minute because I know that, Ms. Alton, and 

I am not sure if you got a chance to talk about this in your testimony because I know you had to jump over, about this issue of 

total sales versus gross revenue. When you talk about going up to 

$3 million, are you then allowing the travel agents to use total 
25

sales still, and also for you, Mr. Klassovity, when you talked about 

$2.4 million, were you talking about gross revenue or total sales? 

Mr. KLASSOVITY. We are talking about gross revenue. Well, it is 

tough for all the commission cuts, but they are commissions. We 

are judged by commissions. It is revenue, commission revenue. 

Ms. CHRISTENSEN. So you are not counting the money you are 

holding to pay to the—— Mr. KLASSOVITY. No. 

Ms. CHRISTENSEN. Okay. 

Mr. KLASSOVITY. Right. 

Ms. CHRISTENSEN. So the $3 million would be gross revenue. 

Ms. ALTON [continuing]. Gross revenue.

Ms. CHRISTENSEN. Were you saying that because some travel 

agents do not use total sales, they are rejected because they give 

the appearance that their gross revenue is larger? No. That does 

not happen. 

Mr. KLASSOVITY. No, because the SBA recognizes the revenue, 

not the sales. 

Ms. CHRISTENSEN. Okay. Help me, Mr. Barreto and Dr. Graham. Can you help me with what it takes to get from the $1 million to 

the $3 million because I am concerned that even though SBA is 

going through a process now of looking at revising the size standard for travel agencies, that it is going to come too late? It is already too late to help them. Many of them are having problems like 

Mr. Klassovity told us about. 

Did you consider doing anything as an immediate stopgap? How 

long is this going to take, and what is the process that you have 

to go through because why can’t you just request the increase? You 

are disposed to looking at it favorably because of what you have 

heard here today. 

Mr. BARRETO. There is a process that we go through, and I will 

let Dr. Graham speak about his, but things that we look at are average firm size, the distribution of firms by size, the startup cost, 

industry competition, the impact of a size standard revision on 

SBA’s programs. So there is a number of things that we have to 

go through and look at before we are able to make that recommendation. 

You know, I have spent my whole life in the private sector. I understand very clearly that the pace of change is much different in 

the private sector than the public sector. We are moving this as 

quickly as we can. As I said, I think that we are going to have 

something expedited by next week, and I know that Dr. Graham 

will be taking a look at that. We go through a number of things, 

and we have to collect this information before we are ready to submit what I think is a comprehensive recommendation into OMB. 

Ms. CHRISTENSEN. When you first came to us—I think it was 

after September 11th—and we talked about being flexible because 

this was a very unique set of circumstances, there is nothing that 

could be done between then and now? 

Mr. BARRETO. I mentioned some of the things that we already 

have done. 

Ms. CHRISTENSEN. For travel agents. 

Mr. BARRETO. Well, no, not travel agents. I am talking about all 

businesses that were affected by September 11th. 
26

Ms. CHRISTENSEN. Yes. I understand that. These were airplanes. 

People were afraid to travel. I come from a travel destination, and 

I am amazed at how hard it was and still is to get any attention 

for the travel industry, not only from SBA. 

Mr. BARRETO. We are very, very focused on it. I will tell you that 

the state right now that we are getting the most requests for EIDL 

is Florida, outside of New York, and simply because that state is 

so dominated by tourism. And I also want to state for the record 

that we have done loans in the travel agency industry already. We 

have received letters of support and recommendation from the travel industry thanking us for the efforts. So I do not want there to 

be this impression that we are not helping travel agents because 

we are. 

Ms. CHRISTENSEN. It is not just SBA. It is Ways and Means. 

Ms. VELA ́ ZQUEZ. Would the gentlewoman yield? Mr. Barreto, 

given the fact that you are still working on these changes on the 

size standard, and the national EIDL deadline expires on April 

22nd, would you consider to expand or to extend the deadline? 

Mr. BARRETO. Yes, ma’am. We have had those conversations. Obviously, we will work together with our folks in our disaster office. 

We will work together with OMB. But we do that on a periodic 

basis anyway. As you know, we have already extended it, and my 

understanding is that FEMA is extending some deadlines in New 

York themselves. So this is something that is a normal part of our 

ongoing process, and absolutely if need be, we will consider that 

and make the appropriate decision. 

Ms. CHRISTENSEN. I would like to ask the travel agents. How 

much does extending the deadline help you right now? People will 

be going to other travel agencies if you cannot provide the business. 

Can I get an answer from either one of you or both? 

Ms. ALTON. What I wanted to ask him, if it is extended, will people be grandfathered in if the size standard changes, because as it 

stands now——

Mr. BARRETO. What I would like to do is get you a very formal 

answer to that. My understanding is that we have made changes 

retroactive to businesses that were impacted. We have already 

done that. In this particular case, obviously, that would be one of 

the things that we would consider doing as well. 

Ms. CHRISTENSEN. Because that is what the intention was in 

some of the other changes that you proposed or did, was it not? Mr. 

Klassovity? 

Mr. KLASSOVITY. You know, from our end there are two issues. 

There is the size standard issue and the disaster relief loan. We 

applied for a disaster relief loan. We were not trying to change the 

size standard. 

Ms. CHRISTENSEN. Right. 

Mr. KLASSOVITY. And our application that we made was well over 

150 pages with everything that they would need, and it zeroed in 

on all the requirements due to 9/11. I was not looking to change 

the size standards. I was told size standards did not apply due to 

9/11. So in our particular case we were looking for——

Ms. CHRISTENSEN. I am sorry. Maybe they thought we had 

passed a democratic backed bill that we had proposed last year. 
27

Mr. KLASSOVITY. Well, you know, when you wake up, and you 

have zero business for three months, which we all ran into, and 

you are trying to save your business, and then when you are told 

to apply, and we are definitely a perfect candidate for it, that does 

not quite wash. And that is why I believe I am here. I am talking 

about we were told to apply for a disaster relief loan, and we were 

a candidate. I agree with the size standards, but we were not questioning or even trying to change size standards. We viewed it as 

the 9/11 incident. 

Ms. CHRISTENSEN. You know, I do not understand why some special provision could not have been made. There were other provisions that were made. The disaster, for example, was not limited 

to New York, Virginia, New Jersey. It was expanded. That was 

something that was out of the ordinary, so I still do not understand 

why something could not be done. 

Chairman MANZULLO. Would the gentlelady yield on that? 

Ms. CHRISTENSEN. Yes. 

Chairman MANZULLO. That is why I wanted one day for congressional input. I was going to suggest that, but you were close to it, 

Mr. Barreto, and so was your chief of staff. And when our staff 

tried to meet with yours, you said, well, this is administrative, that 

we do not have to discuss this issue with you; OMB is working on 

it. All you had to do was take our suggestions from the duly elected 

representatives of the United States Congress who work with people like this and who are responsible to them. But you were not 

open. You were closed like a book. Why? Why wouldn’t you take 

any input from me? 

Mr. BARRETO. Chairman, I am always happy to take input from 

you. 

Chairman MANZULLO. Answer the question. You did not. You refused. I am sorry. It is your time.

Ms. VELA ́ ZQUEZ. Would the gentlelady yield? Thank you. Dr. 

Graham, I would like to know if SBA extends beyond April 22nd, 

would OMB approve it? 

Mr. GRAHAM. To be quite honest with you, Congresswoman, I do 

not even know whether a change of that magnitude would require 

OMB approval. My colleague from SBA may know the answer to 

that. I do not. 

Mr. BARRETO. I would defer to our disaster director, who is here 

right now—— Ms. VELA ́ ZQUEZ. I believe that it does require approval from 

OMB. 

Mr. GRAHAM. Well, we would certainly give it prompt consideration. 

Ms. CHRISTENSEN. I just still have that concern with what do we 

do until that time because these businesses are likely to go out of 

business. Even extending the deadline is not——

Mr. BARRETO. Whenever we have a situation where a loan is declined and I made this commitment to Rodney—we will be following up with him after this, not because we are doing this hearing, but we do that as a matter of course anyway. The SBA provides a lot of different services and resources. You know, oftentimes 

individuals that do not qualify for a disaster loan for whatever reason—they may not have the right credit history or whatever—we 
28

will look at other ways that we can help them, either through our 

regular loan programs or one of our resource partners, or refer 

them to organizations or agencies that are doing grants. There is 

a whole host of ways that businesses can be served. This is not the 

only tool that the SBA offers; it is a very important tool, and we 

are not closing the door to this opportunity. We are going to work 

together and make sure that if it is possible to change this, that 

we are able to change it. 

But even if that was not available, and we have talked about this 

before, not every business that applies for a disaster loan gets disaster assistance, but they can get assistance from the SBA in other 

ways. 

Ms. CHRISTENSEN. But there is something else that could be provided these businesses now that—— Mr. BARRETO. Absolutely, absolutely. Sometimes what we find 

out is that a business will say, I did not know that you had this 

program. Now that I am talking to you, I did not realize that you 

had programs that did this type of assistance, this type of technical 

assistance. I did note that you guys could help me get more business or a contract. So there are other things that we do as well as 

a variety of other capital access programs. 

Ms. CHRISTENSEN. I guess we are going to be here until midnight, then, because we still have not resolved this. 

Chairman MANZULLO. We may be here a long time. Would you 

yield a second? 

Are you aware that the 7(a) program still would not apply to the 

travel agents because of the size standard? What is available for 

them? What is available for the travel agent people from the SBA 

for help? Could you tell me? 

Mr. BARRETO. And again, depending on the size of that business—— Chairman MANZULLO. What is available for Mr. Klassovity? 

Mr. BARRETO. I do not have all of the particulars with regard to 

Mr. Klassovity. 

Chairman MANZULLO. What SBA programs are available for 

him? 

Mr. BARRETO. He could get available technical assistance, for example, and there may be a situation where—— Chairman MANZULLO. He does not need technical assistance. He 

knows how to operate his business. What else is available? 

Mr. BARRETO. We may be able to refer him to a grant program 

that is available in his area. 

Chairman MANZULLO. There were not any grant programs available. The airlines got all the money on that. 

Mr. BARRETO. We actually have a list of about 20 grant programs 

in and around the New York area that are currently doing grants 

to small businesses. 

Chairman MANZULLO. We have got three votes that we are going 

to take. I am going to when we get back ask Gary Jackson, who 

is here—evidently he is in charge of the office of size standards—

is that correct? Are you here, Mr. Jackson? If you could have a seat 

up here on the panel, we will come back, and we can continue our 

questioning with you. So we should go vote at this point, and we 

will be back. It is going to be probably about 45 minutes. You 
29

might want to take that time to bring the team together. Perhaps 

you can come up with a resolution to this in a hurry. 

[Whereupon, at 3:54 p.m., a recess was taken.] 

Chairman MANZULLO. Okay. We will call this Committee back to 

order. 

My understanding is that the Small Business Administration has 

agreed to submit EIDL rules on size standards for the travel industry by close of business tomorrow. 

Mr. BARRETO. That is correct, sir. 

Chairman MANZULLO. And, Dr. Graham, that OIRA will examine 

that and complete its process by a week from Thursday at 9 a.m. 

Is that correct? 

Mr. GRAHAM. One week is fine. 

Chairman MANZULLO. Within one week. I have just a couple of 

questions I would like to ask Mr. Jackson. I do not think we have 

any further questions of the folks from the travel agency. If you 

would not mind giving up your seats there. Mr. Blanchard, did you 

want to sit next to Mr. Jackson? Okay. You probably wondered why 

you came today, huh? 

Mr. JACKSON. It has been an interesting day. 

Chairman MANZULLO. It has. Mr. Jackson, could you pull the 

mike up? Thank you, sir. I just have a few questions, and this will 

not take that long. Could you please state your name for the 

record? 

Mr. JACKSON. Gary M. Jackson. 

Chairman MANZULLO. And could you spell the last name, please? 

Mr. JACKSON. J-A-C-K-S-O-N. 

Chairman MANZULLO. And, Mr. Jackson, what is your official position at the Small Business Administration? 

Mr. JACKSON. I am the Assistant Administrator for Size Standards. 

Chairman MANZULLO. And briefly could you just tell us what the 

size standards office does? 

Mr. JACKSON. My primary responsibility is to review existing size 

standards and also review requests from the public or requests 

from within the agency and to advise the administrator on whether 

changes to size standards should be made or not. 

Chairman MANZULLO. How many people work within your unit? 

Mr. JACKSON. I have a very small staff. It is just me and three 

other people, so a total of four. 

Chairman MANZULLO. And then is there a procedure whereby 

you elicit comment from interested groups, and how do you go 

about doing that? 

Mr. JACKSON. Within any size standard change we must follow 

the rule-making process of the Administrative Procedure Act. 

Chairman MANZULLO. Okay. 

Mr. JACKSON. So once we propose a change, we do get comment 

from the public at that time. We do consider comments before we 

make a final decision on a number of rule-making actions, and it 

varies with the industry, Mr. Chairman. We may talk with people, 

companies in the industry, federal agencies, trade associations. We 

have done that recently with the forestry industry. We have met 

with companies and associations in the travel agency industry already. So we do talk with others during our formulation, but I have 
30

to say that that varies depending on the nature of the issue that 

we are looking at. 

Chairman MANZULLO. So at times before you formulate the proposed regulations you do get input from the outside community. 

Mr. JACKSON. At times, yes. 

Chairman MANZULLO. There is nothing that prohibits that. 

Mr. JACKSON. Correct. 

Chairman MANZULLO. And there is nothing that prohibits getting 

input from members of Congress either. Would that be correct? 

Mr. JACKSON. Certainly not, no. 

Chairman MANZULLO. And how long have you been at the SBA, 

Mr. Jackson? 

Mr. JACKSON. Almost 14 years. 

Chairman MANZULLO. Okay. And how long have you been in the 

present position? 

Mr. JACKSON. Almost 14 years. I have had a couple of details in 

other offices, but for the most time in that position. 

Chairman MANZULLO. Okay. The statutory definition of a small 

business is ‘‘independently owned and operated and not dominant 

in their field.’’ You would agree with that? 

Mr. JACKSON. Yes. 

Chairman MANZULLO. We scratch our heads as to how lawyers have $5 million, CPAs $6 million, I think architects $4 million, and 

manufacturing facilities 500 employees regardless of the amount of 

money that you take in. 

Mr. JACKSON. Let me just give you the general answer, and I 

would like to talk about the travel agencies specifically. 

Chairman MANZULLO. Sure. Go ahead. 

Mr. JACKSON. As Administrator Barreto had mentioned, our size 

standards vary by industry. Those differences for the most part reflect differences in industries. A company with a few hundred employees in manufacturing is relatively small, where in many service 

industries, dry cleaners, lawyer offices that is a very substantial, 

very competitive, very strong business. So we do try to reflect those 

differences. 

And the Small Business Act does also require that if we establish 

definitions by industry that we are to take into consideration differences among industries. Within the travel agency industry one 

reason that standard is at the level it is now is because it has been 

a somewhat sensitive industry over the years. At one time back in 

the nineties we proposed $5 million for that industry, and the trade 

association that spoke before you today commented on that, and 

they were not supportive of that as were many other travel agencies. 

So in that particular industry there are two sides to the story, 

and during the process that we last changed the standard back in 

1994, a million dollars was an acceptable size standard at that 

point. I cannot go into the details, but I will say we do not believe 

that that is currently the most appropriate standard, and we are 

looking into that. 

Chairman MANZULLO. Now, there was an increase of 15.6 percent made that applied to most industries, but that did not apply 

to the travel industry. 

Mr. JACKSON. Right. Correct.
31

Chairman MANZULLO. Why were they singled out? 

Mr. JACKSON. The main reason is because we did have the separate ongoing action that we thought would be more substantial and 

more effective to help those businesses. I wish we could have done 

both at the same time, but we were not able to get that through. 

Chairman MANZULLO. As it stands now, it is the $1 million plus 

that 25 percent for the labor surplus. 

Mr. JACKSON. Correct. 

Chairman MANZULLO. So it is $1,250,000. 

Mr. JACKSON. Correct. 

Mr. BLANCHARD. If I may help, Mr. Chairman. 

Chairman MANZULLO. Yes, yes. Of course. 

Mr. BLANCHARD. I think the point is the regulation that we are 

considering on the travel agencies is leaning much more forward 

than the 15 percent inflationary increase. 

Chairman MANZULLO. It is, except that it is now five months 

after September 11th. 

Mr. BLANCHARD. This is something that we have committed to 

you in settling very quickly. 

Chairman MANZULLO. But it is possible, is it not, that at the 

time that these emergency regulations were being drawn by the 

chief of staff of the SBA that there could have been congressional 

input? 

Mr. BLANCHARD. Sir, you are right. We could have done better 

seeking congressional input, and I will commit to you now—— Chairman MANZULLO. But you were not there at the time. 

Mr. BLANCHARD. Well, I was not at the time, but I worked closely 

with SBA in my previous role, as you well know. I am thrilled to 

be here at SBA and working with you and your staff, and we are 

going to do things a little differently this time around. 

Chairman MANZULLO. This is shameful that this had to take 

place in a hearing like this. Mr. Barreto, he admitted what you did 

not, that he would like to do things differently, and you just continued to say, well, we have worked with you in the past and everything. You know, you came out of the private sector. 

Mr. BARRETO. Yes, I did. 

Chairman MANZULLO. And I am sure there has been a substantial decrease in your income. What is it about Congress? Are you 

taught by OMB—excuse me, Dr. Graham—by somebody that we 

are persona non grata, that you are not supposed to talk to us? 

Mr. BARRETO. Absolutely not. 

Chairman MANZULLO. Then why didn’t you let me give you a 

comment on those regulations, the emergency regulations? I am the 

chairman. I set your budget. I was personally offended when people 

had come to us, and there could have been a very minor change 

that would have accommodated the travel industry. But you said, 

no, OMB wants it now, and that is it. You put out the press release. You were on national television. I told you it would be misleading to declare the entire nation a disaster area. And exactly 

what I told you October 17th has come to pass. Why didn’t you talk 

to me? 

Mr. BARRETO. Mr. Manzullo, we always are willing to talk anytime that we can. I have a chronology of 15 contacts and meetings 

that we have had on this issue, and we continue to have those con-
32

versations going forward. So we look forward to continue working 

with you and gaining your input. 

Chairman MANZULLO. If it is working on this basis, do not come 

in my office anymore because nothing gets done unless I embarrass 

you in front of the public, the public here. I am not going to have 

this continue with the size standards. This is not going to continue 

because one of two things is going to happen. Either we are going 

to change the way size standards are done and make life a lot easier for Dr. Graham or we are going to get Mr. Jackson into another 

position there at SBA with his three people and have Congress set 

the size standards. The telecommunications industry; do you know 

what their standard is? It is 1,500 employees. They were eligible 

for EIDL, and yet these people from the travel agency, he was not 

eligible for it. That does not make sense. There is no rhyme, there 

is no reason to that. 

You might want to be thinking of how you are going to handle 

these size standards in the future because I am not going to put 

up with this. I represent these little guys over here. I do not represent you. You are not my constituents, and unfortunately it is obvious there is a tremendous breach of communication between the 

White House, if that is what OMB is, and the United States Congress. And I will hold hearings every day as long as I am chairman 

of the Committee to make sure that these get done. 

The next thing that has to happen is the tour operators. Jim 

Santini is still here. The SBA rules exclude from the calculation of 

gross revenue monies collected by travel agents, realtors, and 

media buyers that are then passed on to other parties. Tour operators fit within this category, but when tour operators asked for a 

rule to this effect, a change, they said it would take six to 12 

months. 

Mr. BLANCHARD. Mr. Chairman. 

Chairman MANZULLO. Yes, sir. 

Mr. BLANCHARD. I have committed to your staff to reevaluate the 

impact that eliminating the pass-through monies that go from, I 

guess, hotels through tour operators that some think should not be 

considered as revenue. I have committed to your staff to reconsider 

that and take a look at that this week. 

Chairman MANZULLO. I will take your word for it. I am sure it 

will not take six to 12 months. It has got to be an oversight on 

here. 

Sometimes you have to have hearings like this, but it really was 

not necessary when I see the grief going on. We still have Mike 

Ferguson and the issue with the helicopter people. That was never 

resolved. He still has not gotten his loan. Who knew about that situation? We had a hearing on that, and that was brought up with 

the SBA here at the hearing on December 6, and we told, I think 

by you, Mr. Barreto—were you here on December 6?—that you 

would look into it. Mike Ferguson was here. This is now February 

27th. He still has not gotten his loan. I do not understand that, and 

we talked on the phone on that. I mean, these are little people that 

are falling through the cracks. Why? Why is that happening? 

The ombudsman is here, is he not? Is the ombudsman here? Here 

he is. Can you take a look at that with Mr. Ferguson on what happened to his helicopter guy? Not now. We could give you the details 
33

on it. I would like to have somebody at SBA be the point person 

to get this thing done. 

Mr. BLANCHARD. I would be happy to work with Mr. Barreto to 

work with the proprietor of the helicopter company, sir. 

Chairman MANZULLO. Okay. You know, I do not want Mr. 

Barreto to work on it personally. I do not expect that, as long as 

there is a point person on it. Would you be willing to do that? 

Mr. BLANCHARD. I would be happy to be that point person. 

Chairman MANZULLO. Okay. Could you fellows get him the information on it? Does the tour industry have any further questions 

you want to ask? Yes.

Ms. ALTON. I wanted to say that contracts are coming up. 

Chairman MANZULLO. Could you get to the mike there, please? 

Thank you. 

Ms. ALTON. Contract renewals are coming up, and new contracts 

for the Department of Defense, and if the size standard is not done 

before these contracts come out, small businesses will be locked out 

for five years for bidding on them. 

Chairman MANZULLO. Okay. When do you need the size standard, then, fixed? By what date? 

Ms. ALTON. There just was an extension of three months, so we 

need it before June 1. 

Chairman MANZULLO. Okay. And you are making a recommendation on the size standards? 

Ms. ALTON. I did earlier, three million. 

Chairman MANZULLO. Three million dollars. Okay. Tell us again the significance of the $3 million and the June 1st date. 

Ms. ALTON. The Department of Defense is redoing their whole 

operation with travel agencies, and they will go out for bid around 

June 1, and agencies like myself are just at the cusp of not being 

able to bid on that because we are at the $1 million revenue 

stream, and contracts that we are currently working on with good 

past performance, we will be ineligible to rebid those. 

Chairman MANZULLO. Okay. All right. I appreciate that. 

Let me just say that my office door is always open. We are always willing to meet, but one thing I do not ever want to hear 

again from the folks in the SBA congressional liaison—you have 

got some really nice people there—is the fact that this is administrative, and we cannot talk to you. I will not tolerate that under 

any circumstances. As long as we control your budget, and as long 

as we are responsible to the elected people, you have an obligation 

to talk to us. 

I had that problem with the last administrator. She came in the 

office with her entire team and made them all apologize in the office for the way they were treating us. They were just smoking us, 

keeping us out in the dark. And the other thing I want to bring 

up is going to the Appropriations Committee, SBA gives suggestions to OMB. OMB gives those suggestions to the Appropriations 

Committee and completely blindsides the committees of jurisdiction. I do not want that ever to happen again. I do not care whatever suggestions you have. Run them past the committee of jurisdiction. At least give us the decency of a phone call before you 

make the recommendations to OMB. Can you assure us of that, 

Mr. Barreto? 
34

Mr. BARRETO. I would be happy to continue working with you, 

Chairman. 

Chairman MANZULLO. You have not answered the question. Is it 

a yes or a no? 

Mr. BARRETO. I am happy to work with you on the process as we 

go through it, absolutely. 

Chairman MANZULLO. That does not answer the question. Before 

you submit anything to OMB where you are asking for a change 

from the Appropriations Committee, do I have your word that you 

will contact the committees of jurisdiction so that we are not—what 

is the word?—so that we are not blindsided when we get down on 

the floor? 

Mr. BARRETO. Well, we promise to never try to blindside you on 

any issue, especially our budget or any of these other rule changes. 

We take our responsibility and the relationship that we have with 

you and this Committee very seriously, and we are committed to 

it. So we know that we have some work to do, and we will continue 

doing that work and building the relationship that I think that we 

already have. 

Chairman MANZULLO. The personal relationship is fine, but professionally it is not doing too well. 

Mr. BARRETO. I get that loud and clear, Mr. Chairman. 

Chairman MANZULLO. I think you are a heck of a guy. And, Dr. 

Graham, you do not have to put up with this stuff. You came out 

of the private sector. You come over here, and you end up on this 

crazy Committee. So what you are telling me, Hector, is that any 

time that the SBA is going to request OMB to send something to 

the Appropriations Committee that you have vetted by us—— Mr. BARRETO. We will be happy to work with you, Chairman. 

Chairman MANZULLO. Is that a ‘‘yes’’? 

Mr. BARRETO. The only thing that is hard to understand is what 

every situation on every issue is going to be. We take our responsibility to you very seriously. We do not want you to be blindsided 

or surprised. 

Chairman MANZULLO. I think that has happened three times already. 

Mr. BARRETO. We know that we have some work to do to make 

sure that that is not happening. 

Chairman MANZULLO. But all you have to do is say yes, and then 

I will not be blindsided. 

Mr. BARRETO. The answer to the question is I will not do anything that I believe is going to blindside you. So the answer to that 

question is yes. I do not want to blindside you. 

Chairman MANZULLO. Hector, you can give the answer that you 

want. It does not have to be a political answer, which is what you 

gave. I am just disappointed that you cannot make the statement 

here. I know that the administration asks for things and everything, but, you know, let me tell you what happened. We were on 

the floor, and SBA had gone behind our back—this is the Authorizing Committee—and put authorizing language into the appropriations bill. First of all, you are not supposed to authorize in an appropriations bill. That is a rule down there, unless you are in the 

Senate; they can do anything. And second of all, when the committee of jurisdiction gets bypassed for that, do you know what 
35

that makes us feel like? That we are irrelevant, that you are not 

even interested in letting us know what you want to do. 

We had had a bill. You took some good provisions out of it, went 

over, tucked it into another bill, left out the rest, and we had to 

go in there and rip everything out just as a matter of principle so 

that you would come to the Authorizing Committee. I would be 

thrilled, I would be absolutely thrilled if we got a call from the SBA 

and said, ‘‘We have designed a new way to do the size standards. 

Chairman, would you consider hearing on it?’’ I would be ecstatic 

to have you come in here. 

We are having a Small Business Success Day. Small Business 

Week; when is it, in May? The first week of May. We are bringing 

in here a constituent that has a factory of 200 people in a town of 

2,000. That factory was going to move, and we were able to work 

with the USDA, got a waiver because it was a little town that was 

near a big town. They went to the AMCOR bank, which is pre-approved to get loans, and this company got a $1.2 million SBA loan 

that saved the company. And we are going to bring those people 

in here. They have got a machine that burns corn. It is 100 percent 

efficient. It is even corn that is not totally dry. There is no smoke. 

It will heat 2,000 square feet with a bushel of corn. A bushel of 

corn is now $1.89, with two cents added on top of it for the deficiency payment. 

And that is to highlight the successes of the SBA. That is 7(a)— no, it was a 504. This was a 504, which is what you want to do. 

You want to get innovative. That 504 saved that company. It saved 

a town of 2,000 from losing a major employer. These are major success stories, and we are bringing them out here, with the corn machine, the inventor is coming out. No one believed in them. And 

this company is making trailer legs, you know, when you detach 

the semi from the tractor, and they are manufacturing them in 

Byron, Illinois, and exporting them to Mexico and China. This is 

the type of small business story that we are proud of. We are really 

proud of it. This is what we want to do at the SBA. So we would 

expect a lot of reciprocity on your part to clean this thing up so 

poor Mr. Jackson does not have to show up at these hearings and 

get involved in this stuff. Please work with us on it. 

Mr. BARRETO. We will, Mr. Chairman. 

Chairman MANZULLO. And, Dr. Graham, you have got a very difficult position there, but OMB is not God around here. Not that 

you have said it is, but it really is not. And just the way the whole 

system is set up causes this type of conflict. I want to see it end. 

Thank you for sticking around, and this Committee hearing has 

ended. 

[Whereupon, at 5:28 p.m., the Committee was adjourned.]
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