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33–331 PDF 2007

FULL COMMITTEE HEARING ON THE

SMALL BUSINESS ADMINISTRATION’S

BUDGET FOR FISCAL YEAR 2008

HOUSE COMMITTEE ON SMALL 

BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

February 8, 2007

Serial Number 110-2

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

JUANITA MILLENDER-McDONALD, 

California 

WILLIAM JEFFERSON, Louisiana 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

WILLIAM JEFFERSON, Louisiana 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

WILLIAM JEFFERSON, Louisiana 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

JUANITA MILLENDER-McDONALD, 

California 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

STATEMENT BY COMMITTEE MEMBERS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

OTHER STATEMENTS 

Statement by the The Honorable Steven Preston, Administrator, U.S. Small 

Business Administration ..................................................................................... 3

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 41

Chabot, Hon. Steve .................................................................................................. 43

Altmire, Hon. Jason ................................................................................................. 45

Preston, Hon. Administrator Steven C. ................................................................. 46

(V) 

(1)

FULL COMMITTEE HEARING ON 

THE SMALL BUSINESS 

ADMINISTRATION’S BUDGET FOR 

FISCAL YEAR 2008

Thursday, February 8, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

2360 Rayburn House Office Building, Hon. Nydia M. Vela ́zquez 

[Chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Jefferson, Shuler, Gonza ́lez, 

Larsen, Bean, Cuellar, Moore, Altmire, Braley, Clarke, Ellsworth, 

Johnson, Sestak, Chabot, Graves, Musgrave, Fortenberry, 

Gohmert, Heller, Davis, Fallin, Buchanan, Jordan. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

Chairwoman VELA ́ ZQUEZ. Good morning. I call this hearing to 

order. I want to thank Administrator Preston for being here today. 

While this is only his first appearing before this Committee, it is 

clear that with his almost 25 years of experience in financial and 

operational leadership positions he is dedicated to serving the 

small business community. I appreciate Administrator Preston’s 

openness and thoughtfulness and I look forward to work with him 

on behalf of entrepreneurs in this country. 

Today we will review the FY 08 budget for the Small Business 

Administration. This request continues a trend that has seen a systematic decline in this critical program that helps entrepreneurs. 

Over the past six years the Bush Administration has continually 

made cuts to the agency. This year the cuts might be different but 

the results are the same. 

We hear time and time again how small businesses are the drivers of the economy and create the majority of jobs. However, under 

this budget no program receives a substantial increase leaving 

small businesses without the resources they need to succeed. 

What I am so pleased to see the enthusiasm Administrator Preston has for working on behalf of our nation’s entrepreneurs it also 

takes adequate funding to run these programs. Of SBA’s core programs 75 percent of these are cut, terminated, or flat-funded. One 

example of this is the Women’s Business Center. The Administration plans to eliminate funding for at least seven Women’s Business Centers. With the face of business changing cutting the one 

2

program whose sole goal is to help the fastest growing sector of the 

small business community makes no sense. 

In addition, Microloan, one of the only programs that provides 

small loans to low-income communities will now be self financed 

forcing start-up businesses to pay thousands of dollars more. These 

changes are completely contrary to fostering a successful business 

model for these entrepreneurs. At a time when we need to be showing small businesses that we are committed to their growth and expansion, the Administration continues to treat small businesses as 

an afterthought. 

Year after year we see more and more programs for entrepreneurs getting cut and under-funded. This budget request is no 

different. When you compare SBA’s core budget request to overall 

federal spending, it is the lowest it has ever been during the Bush 

Administration. These are all valuable programs that have contributed to some of the greatest entrepreneurial success stories in the 

country. They have opened the door for so many small business 

owners to pursue and achieve their dream of running a business. 

What is most concerning is that the Administration is acutely 

aware of the problems and yet still proposes insufficient funding. 

The reality is that if you do not supply more resources you simply 

cannot effectively run these programs. This is why we have seen 

9/11 loans used for the wrong purpose, the problems during 

Katrina, and an agency unable to detect fraud in the loan programs. 

To correct this only one percent of the budget is dedicated to address these challenges. That is short-sighted and would allow this 

problem to persist. It is clear that since 2001 there has been a failure to provide the resources needed at the SBA. For that reason 

it has been frustrating to continue to hear how things are getting 

better for entrepreneurs. 

What we have before us does nothing to reverse the shortcomings 

of previous year’s budgets and is just more of the same. We need 

to provide proper funding for SBA core programs so they not only 

run efficiently but expand and help even more small business owners. This nation’s 26 million entrepreneurs cannot succeed in this 

economy alone. 

I look forward to working with Mr. Preston and Mr. Chabot to 

ensure that the SBA has the funding it needs in the future. If we 

want to invest in small businesses and boost our economy, then we 

have to do more than what is being proposed today. 

Now I would recognize the ranking Republican Mr. Chabot for 

his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr. CHABOT. Thank you, Madam Chairwoman. Thank you for 

holding this important hearing today. I want to welcome SBA Administrator Steve Preston to our hearing. While he is not brand 

new to the job this is his first time appearing before this Committee so we welcome you, Mr. Administrator. 

At the heart of the President’s spending plan is the goal of balancing the budget in five years, I would hope in less than five 

years. This is an ambitious and necessary goal that will require 

Congress to make some tough spending decisions and to act in a 

3

more fiscally responsible way than it has been acting sometimes 

over the years. 

I believe such spending discipline is long overdue. Keeping that 

in mind, it is important to ensure that the Small Business Administration has the tools it needs to fulfill it’s mission to help small 

businesses, the backbone of our nation’s economy to prosper. Small 

businesses are the primary job creators in our economy creating 60 

to 80 percent of America’s new jobs annually over the last decade. 

They need access to capital to succeed. 

They also need to have a seat at the table when Government is 

handing out contracts and they deserve to be given just consideration when a federal agency proposes rules and regulations that 

could adverse affect them. I look forward to working with Chairwoman Vela ́zquez on these critical issues. 

This hearing is about the SBA’s budget request for Fiscal Year 

2008 but it is important to point out that the President’s budget 

request for small business is more than just the SBA. The President has proposed making the 2001 tax cuts permanent including 

the repeal of the estate or death tax which its small businesses 

transitioning their business from one generation to the next particularly hard. 

The President’s individual rate reduction is also very important 

to small business because over 85 percent of small businesses pay 

their taxes on an individual basis as opposed to filing corporate tax 

returns. These tax cuts returned on average $3,641 to the typical 

small business owner in 2006 last year. The President’s budget request proposes realistic funding levels and it would strengthen 

budget authority levels for the primary SBA financing programs. 

The budget request proposes to cut fees, hire more procurement 

center representatives to help more small businesses obtain federal 

contracts and increase services to veterans. It is also important to 

highlight what the budget does not do. The request does not repeat 

many of the mistakes of previous budget requests. It does not call 

for elimination of the Microloan Program. 

It does not call for higher interest rates charged to disaster loan 

borrowers. It does not call for charging higher fees in SBA’s financing program to cover administrative expenses. It does not call for 

charging small business development center clients counseling fees. 

With that said, not everything in the SBA fiscal year ’08 budget 

request is perfect. I believe that many of the entrepreneurial development programs at the SBA should have received at least an inflationary increase. If the SBA can receive more than an inflationary increase to pay for higher staff salary cost and rent, I believe that small business development centers and women business 

centers also deserve a similar increase because they face identical 

pressures. 

I know we all look for ward to working with the Administrator, 

the Chairwoman, and the Budget Committee and the Appropriations Committee to see what can be done in these areas and I yield 

back the balance of my time. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Chabot. 

Mr. Preston, you are welcome to start your testimony. 

4

STATEMENT OF STEVEN C. PRESTON, ADMINISTRATOR OF 

THE U.S. SMALL BUSINESS ADMINISTRATION 

Mr. PRESTON. Thank you, Chairwoman Vela ́zquez. Thank you for 

your openness with me and my staff, for your commitment to small 

business, and to the agency. I really do appreciate your support 

and look forward to working closely with you and your team. 

Ranking Member Chabot, thank you also for your support. We 

have spent less time together given your newness here in the role 

but we value that time. We appreciate your support and thank you 

for your comments. 

Chairwoman Vela ́zquez, Ranking Member Chabot, members of 

the Committee, thank you also for inviting me here today to discuss the Small Business Administration Fiscal Year 2008 Budget 

Request. For those who I have not had the pleasure of meeting, I 

am Steve Preston. I have been on the job almost seven months. I 

along with our new Deputy Administrator Jovita Carranza who is 

behind me here who joined in December, we both look forward to 

working closely with this Committee on issues that support the 

backbone of America’s economy, small businesses. 

The importance of small business to our country is clear. There 

have been more than seven million new jobs created in this country 

over the past three years, just over the past three years, more than 

all other industrialized nations combined helping to reduce our unemployment rate to 4.5 percent which is below the average rates 

of the last four decades. 

Two-thirds of those new jobs were created by small business. 

Small businesses drive innovation. That keeps our country competitive. They provide opportunity to millions of Americans who may 

not find it elsewhere, and they enable transformation in communities in our country that desperately need economic revitalization. 

The SBA’s 2008 budget request reflects the continued commitment we have to America’s small businesses and the vital role they 

play in our economy and in our society. Enactment of this request 

will enable us to continue serving the small business community 

while being a good steward of taxpayer dollars. 

Since joining the SBA I have spent a significant amount of time 

listening to employees, partners, and, most importantly, customers. 

I have reviewed many of the agency’s programs in order to identify 

how to build on our success and to address the areas that need improvement. 

When I came to the agency many of our critical positions were 

vacant. I continued to work to build a team of competent leaders 

and managers which will be essential in addressing our challenges 

going forward. One area of great progress the agency faces right 

now is the Disaster Assistance Program. 

I think we will be talking to this Committee about that next 

week in a separate hearing and I look forward to sharing some of 

the great successes we have had there which have been very much 

based in operational initiatives that we have undertaken in that. 

It has significantly increased the amount of money in people’s 

hands in the Gulf, significantly improved our responsiveness to the 

customers. 

We are applying the same kind of operational reforms that we 

had in that business to other areas of the agency. That is grounded 

5

in the belief that we can improve the effectiveness and the impact 

of SBA’s programs and activities markedly and, therefore, our impact on small business by employing important management principles, by focusing on the needs of our customers, by driving outcomes that are important to our country, and by running a compliant, efficient, and transparent organization. 

In addition, it is critical that we understand any service organization’s success is based on the quality and motivation of its work 

force. These are principles that we have used to guide us in our 

plans for the future and in this budget request. It reflects both a 

vision for the agency’s new leadership team and the dedication to 

the fiscal responsibility the agency has demonstrated over the past 

five years. 

It will also allow us to build the agency’s success and provide us 

resources to make much needed improvements. We are requesting 

$464 million in new budget authority. This is a 5 percent increase 

above the enacted 2006 level excluding disaster and Congressional 

initiatives. We also request $329 million in carryover balances to 

fund disaster assistance, funds SBA has on hand already from the 

$1.7 billion in supplemental funding we received in 2006. Finally, it includes $21 million in reimbursements for e-gov, business gateway, STB certification, as well as lender oversight. This 

totals $814 million in overall budget authority. This budget will enable SBA to carry out its core functions and begin a number of reforms and improvements. These resources will support a total of $28 billion in small business financing through the 7(a)/504 and SBIC debenture programs. 

For 7(a) SBA request $17.5 billion in lending authority. We also request $7.5 for the 504 program. Furthermore, SBA request an 

SBIC venture capital debenture program level of $3 billion. 

Because of the strength of our loan portfolios I am also pleased 

to request fee decreases for 7(a)/504 loans and SBIC debentures. In 

this budget 7(a) annual fees go down 5.6 basis points from 55 to 

49.4. The 50 basis point up-front fee in our 504 program would be 

completely eliminated and the annual fee would increase very, very 

slightly, .3 basis points, which is really pennies a day on a typical 

loan. The SBIC debenture annual fee would decrease 18.9 basis 

points.In addition, the budget support to disaster volume of $1.064 

billion dollars is supported once again by carryover from our current disaster funds. 

For counseling and training to small business through SBA’s network of resource partners we request $87.1 billion for SBDCs, 

$11.8 for Women’s Business Centers, and $4.9 for SCORE. In terms 

of our work force our budget request will support and increase 

2,123 FTEs. That is 86 new positions which would be added in ’07 

and ’08. 

These additional resources are in part replacements for attrition 

at the agency in recent years, but they will also support a number 

of initiatives. Among other things, stronger loan processing, lender 

oversight, greater support of small businesses in our Government 

contracting operations, better employee training and career support, and a much greater focus on automation and outreach. 

We have become a growing manager of financial resources. Our 

portfolio has increased 56 percent over the past five years and we 

6

now have over $78 billion to oversee. To meet that responsibility 

our budget request includes funding for human capital and information technology. 

We have already made important advances in this area, specifically in the risk management area. We have expanded loan and 

lender monitoring systems. We have instituted lender monitoring 

system that incorporates credit performance metrics for our portfolio. Credit information combined with the SBA lender’s current 

historic performance allows us to assign risk ratings to lenders and 

play quantitative risk-based methods to evaluation. It dramatically 

improves our sophistication as an oversight agency. 

Through our lender portal lenders now have access to the risk 

ratings and performance metrics through that portal. That makes 

it transparent to them to see how they are rated, how they compare to their peers, and how they can get on with the job of improving if they need to. 

We have also initiated and planned specific funding requests regarding the loan portfolio and investment portfolio which include 

a $4.1 million investment in the loan operation system upgrade. 

That would allow us to proceed with implementation of a system 

to replace our current loan information system for both regular 

loans and disaster loans. It is a very significant undertaking and 

it would take us along a path to get that completed by 2012. We have also asked for $1.5 million to support our SBIC operation to support evaluation contracts, liquidation planning, and examination of those contracts. As many of you realize, that program 

historically is sitting on a large portfolio of investments that need 

to be liquidated and that would help us extract the greatest value 

out of those. 

Government contracting, federal contract dollars are projected to 

increase by 64 percent over 2001 to small business. As I mentioned 

before, the small business share is expected to increase to a total 

of $84 billion. Our responsibility is to ensure that small businesses 

have fair access to procurement opportunities. 

As I have told people before, it is not just an issue of fairness. 

It is a matter of competitiveness and good business. Small businesses perform well as suppliers of goods and services. Their size 

makes them flexible, makes them innovative, and often cheaper 

than large companies. It does, however, take a bit more effort to 

find the right small business to fit the bill so we are asking for an 

additional $500,000 to look at how best to serve 8(a), Hub Zones, 

small disadvantaged business communities, as well as women and 

veterans. 

The agency must improve the management of these programs, 

particularly the 8(a) program, and these resources will allow us to 

assess what business process re-engineering needs to be done either through staff alignment or training or technology improvements. We want to make it easier for small businesses to find contracts so they can bid on them successfully. We want to make it 

easier for federal contracting officers to find the right small business for their contracts. 

We are also proposing adding nine new procurement center representatives in ’07 and ’08 that would expand the base by 16 percent. These new PCRs would help build our presence in the federal 

7

marketplace. In addition, we are looking at how they spend their 

time and working with them to spend more of their time specifically with contracting officers to make them more effective. 

Finally, we are also working to reform contracting goaling and 

reporting. We recognize that there have been errors in the FPDSNG system. Congresswoman Vela ́zquez, your staff has been very focused on these issues. We appreciate that focus and thank you for 

your support. We in corporation with the Office of Federal Procurement Policy are redoubling our efforts to ensure that federal agencies provide accurate data on small business procurements and we 

have developed a score card for rating their agency compliance in 

corporation with their mandates. We are also looking for $500,000 to expand our veterans outreach. With the nation’s current engagement in Iraq and its presence in Afghanistan the number of vets returning from active duty 

will continue to increase. Our Office of Veteran’s Business Development plans to increase its efforts to educate, to provide programs 

and services to veterans and active duty personnel in three main 

areas, access to capital, management and technical assistance, and 

procurement programs. 

Even though we have made tremendous progress in disaster, we 

are committed to lasting reforms that are geared toward future disasters. We continue to refine our progress in doing so. In order to 

compliment the re-engineered process that we have already completed we have implemented a number of productivity and other 

metrics to track application status and the performance of our employees. It also provides management with critical information to 

identify problem areas and implement timely corrective actions. 

We are developing organizational planning measures to improve 

SBA’s disaster response and these include the development of models to rapidly forecast loan volume, resource requirements to better 

position the agency to respond to larger scale disasters. We are also 

nearly the completion of a protocol to leverage our field network as 

well to improve local coordination. 

We expect to implement an Internet based electronic loan application that would allow our borrowers to submit required information quickly and accurately. That would accelerate SBA’s ability to 

determine loan eligibility. It also compliments our investment in 

the computer system already which has increased our capacity four 

fold over the last year. 

We have also been evaluating options to access the private sector 

either through specific products or resources to help us handle catastrophic disasters. 

Finally, one of my highest priorities as an administrator is to improve the work being done to reach under-served markets in our 

country. In areas where we see high unemployment and lower 

wage rates like many of the rural and inter-city areas of our country providing effective support to new and growing small businesses can provide much needed jobs, economic activity and rejuvenation to places in our country that need it most. 

In order to reach these markets SBA has included the following 

proposals in our budget: broadening lender and counselor participation in the community express pilot so we can expand this program 

which reaches into many of our under-served markets and provides 

8

borrowers with a double benefit of capital and training; expanding 

the urban entrepreneur partnership to additional cities so aspiring 

urban small business owners have better access to capital and services that make them successful; establishing seven more alternative work sites which will allow the agency to make itself more 

accessible to rural small businesses; and expanding the reach of 

our Microloan Program by moving the program to zero subsidy. 

In 2006 it cost 85 cents for each dollar loaned to a Microloan 

intermediary. In 2006 $13 million was spent to provide technical 

assistance to somewhat over 2,500 micro borrowers. At the same 

time there are approximately 13,000 counselors we already have 

through our various ED partners. We also have 68 district offices. 

Together they provide services to a million and a half small businesses a year. 

Our aim is to meet more micro borrowers through expanded capital and support them with our extensive training and development 

network on a zero subsidy basis. 

As I said before, I believe this is a sound budget. It gives the 

SBA the funds necessary to operate and oversee our core financial 

programs more effectively, to re-engineer and improve our Government contracting programs, and to continue our work with our 

counseling and our training partners. It will enable us to provide 

more effective outreach, be easier for our customers and partners 

to work with through better automation, and fill key staff positions 

in areas where we are clearly lacking the necessary manpower. 

Thank you for your consideration and I look forward to answering any questions you might have. 

[The statement of Mr. Preston may be found on page 46 of the 

Appendix.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Administrator. 

Mr. CHABOT. Madam Chair, can I ask unanimous consent if the 

members on both sides want to present written opening statements 

they could do so. 

Chairwoman VELA ́ ZQUEZ. Without objection. 

Mr. CHABOT. Thank you very much. 

Chairwoman VELA ́ ZQUEZ. And I would like to announce that 

members will have five minutes to ask their questions. We are 

going to try to keep this to the limit since we want to give participation to every member who is here. But I will give latitude since 

we have only one witness here. 

Mr. Preston, thank you so much for your testimony. My first 

question is you stated that this is a very different budget than 

what you have seen in recent years, but you are proposing a budget 

for SBA that constitutes the smallest percentage of the overall federal budget under President Bush. The SBA budget proposed to cut 

or flat-fund 17 or 25 core programs. This is exactly the type of 

budget submission we have come to expect. How is this budget different from previous budgets? 

Mr. PRESTON. I think from a number of perspectives. I think, 

first of all, we are asking for a very important expansion of people 

in our agency and this would add 86 people from ’06 through the 

end of ’08. Those people will be focused on very important activities 

to the agency. Specifically better staffing in our loan processing 

centers and for lender oversight. This is very important given the 

9

$78 billion portfolio we have in place. It will allow us from now 

until the end of ’08 to expand our PCRs—I know that is an area 

we have certainly heard from you on, Chairwoman Vela ́zquez—by 

16 percent. That would add another nine PCRs. And then in a 

number of core areas in our field where we just think we need better staffing for outreach. 

Chairwoman VELA ́ ZQUEZ. Well, let us talk about one of the programs, the Microloan Program. In your testimony you mentioned 

the focus of your team will be to help low-income areas, especially 

women entrepreneurs. The Microloan Program is a very important 

program for low-income communities. Yet, it is going to be basically 

flat-funded, eliminated, and it is going to be brought into a subsidy 

rate, zero subsidy rate. 

Take one aspect of the Microloan Program, another aspect of the 

Microloan Program, and that is the TA, technical assistance. This 

is a very important part of the Microloan Program. One of the reasons why since the inception of the program only two loans have 

defaulted. The SBA budget proposal will terminate the TA grant 

and shift that responsibility to the SBDCs and the Women’s Business Centers. 

But seven Women’s Business Centers will be eliminated so this 

change comes at a time when they are struggling with their own 

budget challenges. SBDCs which have been flat-funded for the last 

six years are seeing counseling. As you can see in that chart, hours 

dropped not because of a lack of demand but because of a lack of 

resources. The SBA budget proposes to terminate seven Women’s 

Business Centers, as I mentioned before. 

Mr. Preston, I have consistently stressed the need to be realistic 

when we talk about resources and this is just another example of 

the agency spreading itself too thin. What generally happens next 

is what we saw after 9/11, Katrina, contract miscoding and loan 

fraud. How at a time when the SBA is flat-funding programs and 

cutting centers can the SBA expect the same level of service as the 

current TA program provides? 

Mr. PRESTON. There are a lot of questions in there so let me start 

off with Microloans. Obviously those are all very important and 

valid concerns. First of all on the microlending side. I just want to 

say that I believe microlending is a very important tier capital in 

our country. Microlenders perform an important service. I hope you 

all know that this is the first time in, I think, four years that the 

agency has even come forward with any kind of Microlend program. We have moved from recommending the elimination of the 

program to embracing the concept but trying to do so in a way that 

is on a zero subsidy basis. 

What I would say is the amount of money that we spend in TA 

on that program relative to the scale of that program is very significant. We have made, I think, just over 2,500 microloans last 

year and spent $13 million in TA. We had this vast network of TA 

providers already in place. This is 2,500 loans relative to a million 

and a half people that they counsel so we are looking to leverage 

that network. Some of these microlenders already do leverage that. 

Chairwoman VELA ́ ZQUEZ. They are not for profit, Mr. Preston. 

Now they are going to be faced with increasing fees and these are 

the people and the organizations that provide technical assistance. 

10

As I mentioned to you before, the fact is that in order to help 

lower-income communities and those who want to start up their 

businesses in areas where they don’t have the skills, technical assistance is an important component. This is why only two loans 

have defaulted since that program started. 

Mr. PRESTON. I agree that technical assistance is essential and 

we are hoping to support that technical assistance through our resource partners, through our district offices which already handle 

a dramatically higher volume already. 

I also do want to point out that isn’t the only program we have. 

In fact, most of our other programs that reach into these communities are dramatically larger so 7(a) loans, Community Express, 

these are all much bigger and have much greater volume. I do 

agree that these microlenders do reach people in many cases that 

the banks don’t. But I think we also have very important services 

into those communities. 

Chairwoman VELA ́ ZQUEZ. Small Business Centers, SBDCs, they 

are funding has been flat-funded. Already they do not have the resources to be able to provide the counseling for the people that 

come into their centers. Now they are going to also provide counseling and provide technical assistance for microborrowers? 

Mr. PRESTON. Let me comment on that because that was also inherent in your previous questions. The SBDC program, Women’s 

Business Centers and SCORE are all the cornerstone of our training and educational programs. They are critical partners for the 

SBA to provide a terrific service and we couldn’t do what we do 

without them. 

I also want to state, I think, we are developing an increasingly 

good relationship with those people in acknowledging that. The 

funds we provide those organizations provide a foundation for them 

to hire and maintain staff and operating class. They do leverage 

what we do and do most of their fund raising outside of what we 

give them. It is important for them to develop that funding base 

outside of the agency. 

We are also working with them. In fact, we have got a series of 

meetings set up with people from the Women’s Business Centers 

to see if we as an agency can help them be more effective in bringing best practices and fund raising to the agencies or do the 

SBDCs. 

Chairwoman VELA ́ ZQUEZ. Mr. Preston, I hear what you are saying. They are great partners but your budget submission doesn’t reflect that. 

Let us move now to one of the proposals in your budget, to reduce the 7(a) lender’s fee. Given your remarks from last week’s 

State of the SBA Address you indicated that lenders are not particularly concerned with higher fees so explain to me why did your 

agency choose to reduce the fees for lenders instead of for small 

business borrowers? This is, in fact, the Small Business Administration. I would have thought if you have a chance to reduce program costs, that we would start by reducing the fees for business 

owners. Why did you choose not to do that? 

Mr. PRESTON. First of all, I do think that these matter to lenders. 

I think what I probably implied in that statement, and this is 

something that we’ve learned time and again, it is not only fees 

11

that matter to people. It is all of the other challenges they face in 

doing business with us so being simpler to do business, automating 

processes, that type of thing is very important. 

When we looked at making an adjustment in this fee, as you 

know, the up-front fee to borrowers is a very complex tiering of fees 

going from 2 percent to, I believe, 3.5. We thought this was the 

simplest most effective way to convey a fee benefit and also as an 

incentive to bring more lenders into the system. 

Chairwoman VELA ́ ZQUEZ. But this program already is too costly 

for borrowers. My question to you is why do you choose to reduce 

the fee to the lenders and not to the borrowers? 

Mr. PRESTON. As I said, we wanted to provide an incentive for 

new borrowers to come in. What we have found is there are many 

borrowers out there who don’t participate in many of our programs 

and we want to—Madam Chairwoman, one of the observations I 

have had in the agency is when you look at our programs and who 

is lending the money. There are pockets of banks in each one of 

these product areas. 

Chairwoman VELA ́ ZQUEZ. I understand. 

Mr. PRESTON. We need to get better engagement in the distribution for us to reach more small businesses. 

Chairwoman VELA ́ ZQUEZ. Mr. Preston, how could by imposing 

higher fees represent an incentive for borrowers? Explain. 

Mr. PRESTON. This is reducing the fees to the borrowers. I am 

sorry. I may be misunderstanding your question. 

Chairwoman VELA ́ ZQUEZ. Well, you are reducing the fees to the 

lenders. 

Mr. PRESTON. I am sorry, to the lenders. I misspoke. I am sorry. 

Chairwoman VELA ́ ZQUEZ. Now I will yield to Mr. Chabot for his 

questions. 

Mr. CHABOT. Thank you, Madam Chairman. 

A few questions. Would discuss, Mr. Administrator, the relationship between the tax cuts and especially making them permanent 

and the effect on the small business community and the economy 

overall? 

Mr. PRESTON. I think, you know, one of the wonderful things 

about this job is getting out there and meeting hundreds of small 

businesses. I have had many town hall forums for small businesses 

just to come and tell me their concern because I don’t think I can 

tap into it any other way. 

This is a huge issue for them. They cannot pass on their businesses to their heirs effectively if the tax cuts in place don’t survive. They are typically people who are running businesses on a 

shoestring often. Every dollar of tax money takes away from dollars 

that they can invest in their business. Taxes are right on the top. 

The other thing, I will tell you, that is right on the top is 

healthcare. 

These come out of the pockets of these people and they impair 

their ability to invest in growth in providing services and providing 

healthcare to their employees. It is felt very robustly by all small 

businesses. How significantly would it affect the small business 

community do you think if we failed to make the tax cuts permanent? I don’t have statistics for you, Congressman, but I would certainly be happy to get back to you on that. Our advocacy group 

12

does terrific work in evaluating these types of issues. I think it 

would be unrealistic to say that we would have as many small 

businesses in business if the tax burden on them increased. 

Mr. CHABOT. And a significant number of the jobs that are created nowadays in the small business community. 

Mr. PRESTON. Absolutely. 

Mr. CHABOT. Thank you. Next, what are you ideas for increasing 

lending in under-served areas both in cities and in rural areas and 

what ideas do you have to increase capital access for small businesses? 

Mr. PRESTON. I think it really has to do with two primary things. 

It is the product that we offer to make it attractive to the borrower 

and it is the distribution of that product and that is engaging the 

bank network. What I started to say before I got a little tonguetied is when you look at each one of our products they are attractive to different people and they are used by different banks. 

If we have a rural product we need to make sure that rural lenders engage with it and then reach rural customers. We need to do 

two things. We need to do some work on the product development 

side. We are looking hard at a veteran’s product that would be 

within the structure we have right now a better rural outreach opportunity as well as what we have in the inter-city. 

Then we are also talking to our banks about adopting or beginning to market those products more effectively and determining 

which banks go to rural areas, go to urban areas, and making sure 

that they are either providing the right distribution for those products. 

Mr. CHABOT. Thank you. What can you and what do you intend 

to do to reduce the opportunity for fraud in the SBA’s lending programs? 

Mr. PRESTON. Well, you know, you are probably referring to a recent fraud that came up that was detected a few weeks ago. I want 

to make a few comments on that. First of all, this was a fraud that 

the loans associated with those frauds happened a number of years 

ago. Since that time the agency has moved very far along in establishing an Office of Lender Oversight. That was done a few years 

ago. Expanding that office and bringing more sophisticated mechanisms to review all of our lenders. 

The other thing I would say is, that having been said, we are 

working closely in light of this recent fraud to see if there are 

things we should be doing that we aren’t. We are bringing outside 

help into the agency to make sure they are looking at our analytical techniques, are we referring the right kinds of things to our 

IGs, do we have the right systems in place to support that. 

Mr. CHABOT. Thank you. My final question, because I want to 

make sure I am not taking up too much time so all colleagues will 

have an opportunity to speak as well. Could you comment briefly 

on the value and the involvement of small businesses and exports? 

You probably don’t have access to these at this point but if you 

could provide to the Committee dollar and percentage values of exports by small businesses, both agriculture and nonagricultural exports. 

Mr. PRESTON. We do have those numbers. I don’t have them 

handy. What I would tell you is export is increasingly important. 

13

We provide support for that and we can give you some very good 

information there. 

Mr. CHABOT. Thank you very much. I yield back. 

Chairwoman VELA ́ ZQUEZ. I recognize Mr. Jefferson. 

Mr. JEFFERSON. Thank you, Madam Chairlady. Every year when 

agencies are preparing budgets and making submissions to OMB 

and the rest, they put together their own numbers and have a vision for what they want to see the agency accomplish. Does the 

budget that we have here today reflect the recommendations that 

your agency made originally in the budgeting process? 

Mr. PRESTON. Obviously that is a fairly interactive process. What 

I would tell you is I think this budget reflects what we believe is 

necessary to take the agency forward. 

Mr. JEFFERSON. So this budget reflects your recommendations? 

Mr. PRESTON. This budget reflects my recommendations. 

Mr. JEFFERSON. You had no higher ones in no area at all? Everything you wanted got done here? 

Mr. PRESTON. I wouldn’t say that. 

Mr. JEFFERSON. Where did they miss taking care of what you 

wanted? 

Mr. PRESTON. What I would tell you, Congressman, is we worked 

within the Administration to bring forward a budget that we 

thought provided us what we need to take the agency forward in 

the context of the overall federal budget which obviously has got 

fairly significant spending needs for military, for your area of the 

country. 

Mr. JEFFERSON. I understand. I am sorry to cut you off. I only 

have a little time. It is fair to say that you had recommendations 

that were different from what we see now in some areas. We will 

find out what those are maybe a little bit later on. Has there been 

less demand for the services provided by your agency in the most 

recent years and now in this current one and the ones you see coming up or has the demand grown for the agency services? 

Mr. PRESTON. I think demand has continued to grow for agency 

services. 

Mr. JEFFERSON. So if demand is continuing to grow, how can we 

justify a budget that cuts back in so many different areas? Let me 

just tell you what is happening back home with us. Seven years 

ago we had 27 employees in our office back home. Now we have 

nine. I think four of these are clerical people, too, who are just filing and trying to keep up with things. 

The demand is certainly growing down there. With the new challenges we have with the disaster there they are even more significant. 

How can you expect this budget to work when the demand is 

growing not only in our area but all over the country and they are 

operating with a third of the staff they had seven years ago? 

Mr. PRESTON. The agency overall is not operating with a third 

of the staff but the field has become smaller. We are operating in 

a fundamentally different operating model than we did several 

years ago. We used to do loan processing in branches. We used to 

do all sorts of things in branches that we don’t do today. I think 

going forward, sir, what we need to do is make sure that our 

branches—our district offices, excuse me, are focused on effective 

14

outreach and effective counseling for people in the field. They are 

doing a lot of things today that they shouldn’t be doing and we 

want to make them better at spending all their time serving small 

business. 

Mr. JEFFERSON. The top three positions that are unfilled in our 

office back home are the Deputy District Director to the Loan Officer, the Head of Government Contracting. You can’t hire these people because there isn’t any money there. I don’t know how efficient 

he can be if he’s doing all four jobs and getting this done. I think 

it is happening not just in my area but across the board but I do 

know our area best. 

Let me ask another thing if I have anymore time here. There is 

a carryover of $329 million, I think, for the disaster loan program. 

How much of that and does any of it represent loans that are already in process there may be some obligation on? Do you know? 

Mr. PRESTON. What it does is any loans that have already been—

there are two pieces to that, Congressman. There is a portion of 

that which pays for a subsidy on the loan itself and there is a portion of it that pays for administrative cost to service that loan over 

time. Any loans that have already been obligated would not be in 

that number. To the extent, for example, that we have loans from 

hurricane Katrina disaster that are serviced along the way, the administrative portion of that would support the ongoing service of 

those funds. 

Mr. JEFFERSON. Do you think the amount of $329 is sufficient to 

meet the disaster loan needs that you see coming up in the next 

year? 

Mr. PRESTON. We estimate it is sufficient to meet the need for 

just over a billion dollars worth of disaster loans. Now, if there is 

a very significant catastrophe, and obviously this isn’t the kind of 

thing we can project, what has happened historically is Congress 

has provided supplemental funding specifically to meet the needs 

of that disaster. But this is a very obviously somewhat of an intermittent process based on the need. 

Mr. JEFFERSON. My concern is that this may be just an illusionary number because there is such a demand in this program 

and we still have many loans out there pending. I suspect the 

pending looking at this money already from last year and for 

maybe even years before that and we are acting as if it is totally 

free and unobligated. 

Mr. PRESTON. Any dollars that are already committed in the Gulf 

are included in the prior budget. It just helps us service those 

going forward. 

Mr. JEFFERSON. Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Mr. Jefferson, next week Mr. Preston 

will be back here and we will be discussing the disaster loan program in detail. 

I would like to recognize Congressman Buchanan. 

Mr. BUCHANAN. Thank you, Madam Chair. 

Mr. Preston, I want to go back to Madam Chair’s question on 

fees. The fees that we are talking about with banks, how much 

does that cost us by reduction of all those fees? Do you have any 

sense of that? What do you think it’s going to cost? 

15

Mr. PRESTON. I don’t have the dollar number off the top of my head but it is on a portfolio of just over $40 billion so it would be 

5.5 basis points on $40 billion over time. I don’t have that calculation for you. 

Mr. BUCHANAN. Okay. Well, you say 5.5 basis points. I thought 

you said 55 basis points. 

Mr. PRESTON. I’m sorry, on 17.5. It is on new loans only. 

Mr. BUCHANAN. Okay. You are talking about three different 

sources of fees. It says 55 basis points you brought up and a 50 

basis point fee that was going to go out of sight. 

Mr. PRESTON. I was talking about two separate programs. We 

have something called the 7(a) program which is our primary small 

business lending program. There is an up-front fee and then there 

are annual fees in that program. That program we are having a 5.5 

basis point reduction of the annual fee. In the 504 program which 

is primarily a real estate financing program we are seeing a reduction in the up-front free which is very dramatic. The reason for 

that is it reflects the credit experience in those two different portfolios. 

Mr. BUCHANAN. But when I look at banks and talking to banks 

in our region, it seems like there is very little effort or marketing 

on behalf of the organization calling on banks. What do you do 

about that? How do you track banks? The second question is what 

size banks participate in the program? Are these small $100 million asset banks? Are you dealing with large banks or what size 

banks? 

Mr. PRESTON. It is really the entire spectrum. What happens is 

we have different products and then we also have different processing methodologies with the banks that are adaptable for the 

kind of bank. For example, if it is a very large bank with a lot of 

IT capacity, they will tend to use a more automated process. If it 

is a small regional bank that might make three or four loans a 

year, they don’t want to invest in an automated process so they will 

do a lot more of it kind of by hand. We do have an entire network 

of thousands of banks that work with us and we would be happy 

to show you kind of who they are and where they lend and that 

type of thing. 

Mr. BUCHANAN. Being on bank boards it doesn’t seem to me that 

banks that participate in SBAs usually are not motivated as much 

by a little bit of reduction in fees, especially if we are looking for 

additional revenues. Either they want to do it or they don’t. That 

is my sense of it. Obviously I am new to this process but it is something I want to kind of look into. 

Mr. PRESTON. You are on to a very important issue and let me 

just take two seconds on it. I think as much or more than the fee 

is the ease of distributing the product and the ease of doing business with us. A lot of what we are focusing on is that relationship 

and we have begun to engage banks to help us understand how to 

simplify it for them. 

Mr. BUCHANAN. I think if you get a minute I would like to know 

what collectively all these fees that we are discounting to banks 

what is that costing us or costing the program because I don’t 

think it is as much the reduction of fees, I might be wrong, as it 

is just the marketing and working with the banks. 

16

Mr. PRESTON. I think you are right. I think you are right. These 

fees all keep the program at zero subsidy so basically we look at 

the portfolio going forward based on what our experience has been 

and we need to make the fees fit the zero subsidy in the program 

and that is why these fee reductions are occurring. 

Mr. BUCHANAN. Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Thank you. I will recognize Congressman Shuler. 

Mr. SHULER. Thank you, Madam Chair. 

Mr. Preston, thank you for your presence today. I would just like 

to reiterate as my colleague, Mr. Buchanan, I would agree. It is not 

so much the loan as the percentage that the banks will be losing, 

It really gets to more of an educational process with the banks and 

with the small businesses that they are actually available living in 

a rural district that those funds could be available for them so I 

think it goes far and beyond just cutting the fees. We have to do 

a much better job of educating the public and educating the smaller banks. Not necessarily the large institutions but the smaller 

more community private banks that are in the District. 

I would also like to follow up. We have certainly talked about 

this and Madam Chair has done a great job of showing her passion 

with the Women’s Business Center Program. I understand there is 

re-evaluations or evaluations going with the funding and how those 

programs would be funded. I have a center obviously in a rural district, a micro-center. 

I would just like to make sure that there is going to be adequate 

funding after the first five years and in looking at that to make 

sure that after the five years that the SBA is developing a funding 

formula that will be factoring in these unique challenges in the 

rural districts for these private fund raising programs. Are you seeing that as part of the re-evaluation or evaluation of the funding? 

Mr. PRESTON. I do. I really think we have to crack this issue. We 

have had 17 centers graduate from the program after 10 years. Sixteen are continuing operation, many of them doing well. I believe 

one of them did not continue to operate without the SBA funding. 

As we have engaged with people in the industry, what we are 

trying to do is work with them to see given that there is a lot of 

experience for success how can we help them be more effective in 

transitioning from full Government funding to partial Government 

funding to being sustained all by their own. 

In fact, we will have a number of representatives from the Women’s Business Centers in town next week to work through some of 

these issues with us but we would be happy to spend time with you 

in your office or anybody else on the Committee because I do understand the issue. These are terrific people who serve a terrific 

need. 

Mr. SHULER. I would like to follow-up with one other question. 

Yesterday the Office of Veteran’s Affairs was supposed to be working with the Veteran’s Corporation. Are you aware of any coordination between the two groups? 

Mr. PRESTON. Between which two groups? 

Mr. SHULER. The Veteran’s Affairs Office and Veteran’s— 

Mr. PRESTON. We are working right now on how to coordinate 

with the VA to reach veterans more effectively. There are a lot of 

17

small business owners in the veteran’s community with so many of 

them coming back in the near future, we all hope so we really need 

to make sure we have not only the right programs in place but the 

right outreach and we think through the VA and also through DOD 

we may be able to reach them more effectively so we are working 

with them. 

Mr. SHULER. Thank you. 

Chairwoman VELA ́ ZQUEZ. I recognize Mr. Gohmert. 

Mr. GOHMERT. Thank you, Madam Chairwoman. 

I appreciate you being here today and testifying. I am delighted 

that I am going to be able to bring up a matter that both Mr. Buchanan and Mr. Shuler did and that is bring up rural lending so 

you get three of those in a row. That is an area close to my heart. 

What are your ideas for increasing lending in under-served areas 

specifically in rural America? 

Especially some of us have areas in which there are agricultural 

entities, state and federal that are moving in different places, consolidating their offices, and leaving for the first time some areas 

even more under-served which might be a good opportunity for an 

SBA office. I am curious about if you have looked at that aspect. 

Mr. PRESTON. I joke with people but I was the Treasurer of the 

Future Farmers of America in Janesville, Wisconsin area. My high 

school is surrounded by farms on three sides so this is something 

that is sort of in my blood. First of all, our lending to rural has 

gone up dramatically and continues to go up dramatically. It is 

being driven by some of the larger banks who are pushing hard 

into those areas. It appears to be driven less by community banks. 

The Chairwoman has often reminded us that we used to have a 

product called Low Doc that was very effective in reaching rural 

areas. We, unfortunately, had very high delinquency rates in that 

particular product. What we are trying to do is look at why people 

like the product and how we can work with the concepts that 

worked in that product but do it in a more effective way. 

I think we need to look at do we have a product that serves the 

needs of that community, both for the borrower and for those community banks. For the community banks it is going to be easy to 

do business with so we have to simplify the process for them. 

The other thing we are doing is we are asking for more funding 

for seven more alternative work sites. I was just out a few months 

ago. These are sort of one woman/one man offices where people can 

come in, get introduced to the agency, often get introduced to other 

agencies, state, local, or federal through our SBA people to help 

them understand how to get support they can leverage the power 

of the whole agency if they have bank relationships. 

So a little bit onsite presence, a better product, and better outreach to those community banks. Our district network is very excited about moving forward more aggressively in rural markets so 

I think when we get something they are going to really grab onto 

it. 

Mr. GOHMERT. Has there been any coordination, not that I want 

to propose something that is just an anathema in Federal Government but coordination between departments? Has there been any 

coordination between the SBA and the Department of Agriculture 

in that regard to work for opportunities? 

18

Mr. PRESTON. What you find is our local offices do a very good 

job of coordinating with other federal agencies in those local areas 

and they do trade off when they understand, for example, if there 

is somebody from EDA in Commerce in an area where we have an 

office. Sometimes we are even co-located but what I would not say 

is there is sort of a coordinated initiative with the Department of 

Agriculture to design a product right now. Certainly if you have 

ideas in that regard or would like to talk more about it, we would 

be happy to engage with you on that. 

Mr. GOHMERT. Just one final suggestion. Something that I ran 

into is there is such a hunger in rural America to take advantage 

and work and grow. We see so many Government entities, both 

state and federal that say, ‘‘Gee, I have an opportunity for an office 

there. Let’s go build a building. Let’s go rent the nicest thing we 

can get,’’ when you have courthouses and city halls that are ready 

to give you space for free if you will just set up an office there. 

Mr. PRESTON. Sir, we are a scrappy little organization and we 

take advantage of that already. 

Mr. GOHMERT. I would encourage even more of that because I see 

great opportunity. 

Mr. PRESTON. We really do. I appreciate that. 

Mr. GOHMERT. Thank you, Madam Chairman. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Now I recognize Mr. Ellsworth. 

Mr. ELLSWORTH. Thank you, Madam Chairman. 

Mr. Preston, thank you. When I came to Congress I didn’t think 

I was going to do this but after reading the New York Times this 

morning I ask my questions based on newspaper articles. 

Mr. PRESTON. That makes them easier. 

Mr. ELLSWORTH. I didn’t want it to be that way. There was something that caught my eye this morning in one of the articles and 

it was talking about some of your quotes and Mr. Stamler. I don’t 

guess he is here but it was talking about the downsizing in your 

budget. One particular paragraph says, ‘‘Mr. Stamler also said that 

although the budget documents show the agency’s budget dropping 

from $533 down to $460 million in 2008 almost $90 million of the 

2006 funds were what is known as earmarks.’’ Earmarks always 

make my hair stand up on the back of my neck. 

My question is that of that $90 million that he is talking about, 

and I don’t know if you read the article or not because you have 

only been there seven months, is that money that came out of the 

SBA budget that could have gone to other things? Do you have any 

knowledge if that $90 million in earmarks was related to benefiting 

small businesses? Is that enough to go on? 

Mr. PRESTON. Oh, it is more than enough. First of all, I could not 

get on the list of that earmark with you intelligently right now so 

I apologize. We could easily provide that to your office and let you 

know kind of what the purposes of those were and how we used 

those. 

It is very important to understand that there are three components to our budget and each one of them is slightly different. No. 

1, core operating needs to run the place. No. 2, core needs to run 

the disaster program. No. 3, congressional initiatives. As we have 

19

these discussions about running the agency we typically focus on 

the first and the second one. 

Now, what I can’t tell you is back in that budget what the give 

and pull was in proposing a budget without congressional initiatives and then how much it affected our programs. I just don’t have 

that number for you. But certainly when we bring forward this 

budget, which does not include any type of initiative like that, we 

are very strongly requesting that we have the core funding we need 

to run the agency and to the extent that we are asked to administer any other initiatives that they not jeopardize what we need 

to run the place. 

Mr. ELLSWORTH. For the record, the people that sent me here 

don’t like it when earmarks are tagged. If it is a small business 

earmark and it helps the small business of this country and we put 

it in there in a transparent manner, I think they would be fine 

with that. Throwing something in just because they have some dollars there, that hurts our Committee and I think we need to work 

to clean that up. 

My second question would be if you had the magic wand and you 

found a pot of gold in the budget process or all of a sudden you 

found a drawer with a lot of money in it, where would you put your 

dollars? We are cutting and we know we have to be tight. We know 

we are going to make sacrifices here. Pick me three areas that you 

say need to be increased, you know, FY ’07 loans, microloans. 

Mr. PRESTON. You know what? There is a message I have given 

consistently and I am not sure that people always appreciate it. 

Part of it is all we come with our own biases and our own backgrounds. After spending 25 years in the business world in financial 

and operational roles I see a lot of opportunity to be more effective 

just by operating better by making sure we have funding to support outreach, by making sure we have funding to automate processes. 

We still have a lot of things where we see stacks of paper like 

this in our warehouses with loan forms. Now, we have come a long 

way but we have a long way to go. In that process I think we become much more responsive to customers, much easier to do business with the banks, and it just enables the flow of our advice, our 

capital, and our support much better. I would continue to invest in 

the operational effectiveness of the agency because I think that is 

where we can really become much more effective. 

Mr. ELLSWORTH. I just hope we are doing that and that we are 

being efficient. If the money is type that we look in our houses first 

for places we can—I am not saying you don’t. I would bet that this 

Committee if we find examples that we are not we will call attention to it as I expect them to do that to me, too. I appreciate your 

time and I would yield any time I have left. 

Chairwoman VELA ́ ZQUEZ. Thank you. Now I recognize Mr. 

Fortenberry. 

Mr. FORTENBERRY. Thank you, Madam Chair. I appreciate your 

leadership in holding this Committee hearing today. 

Mr. Preston, welcome. Nice to see you. 

Mr. PRESTON. Thank you. 

Mr. FORTENBERRY. One of the responsibilities of this Committee 

obviously is to have oversight of your agency. It is very quick to 

20

get immersed in the details and I want to do that myself but I 

want to back out for a moment and say I think you have one of 

the best jobs in the Federal Government. You call yourself a scrappy little organization. That is perhaps true but you can be a scrappy big cheerleader for one of the most important aspects of life in 

society. 

I mean, small business is where most people are working hard 

to try to get a little bit ahead in life to provide for their families. 

For us to think together as to how we overcome the barriers to 

entry and help more people perhaps engage in the opportunity for 

ownership or expansion, particularly those that are vulnerable is 

an extraordinary privilege. 

I just learned that you have only been here seven months but, 

again, I think you have a tremendous opportunity to cheerlead on 

behalf of what really is a new frontier and that is an entrepreneurial vision in society that allows particularly younger people 

who are rethinking the whole work model to have a chance to use 

their gifts, apply themselves, to take risks when it is possible to 

bring a good product to society and to in turn receive the full fruits 

of their labor. As we discuss all of the nuances of policy and the 

frameworks that have been set up by other people who have come 

before us, I just hope we keep a vision that upholds those ideals 

but I appreciate you being here. 

In that regard, let me ask you something specific. Basically the 

budget is flat but at the same time you point out that your loan 

portfolio has expanded by 56 percent in the last five or six years. 

I think that is a good indication that you are leveraging limited resources in a more efficient manner and I think that is a positive 

trend. If you want to comment on that you can, but I do have something specific I would like to ask you in regards to the new market 

tax credit pilot. 

Mr. PRESTON. Yes. 

Mr. FORTENBERRY. There is a sentence here that summarizes the 

program and I would like you to translate it for me and unpack it 

a little bit and then show examples of how this is currently working or how you envision this to work. The sentence says that, ‘‘The 

pilot program allows certain community development entities to 

purchase up to 90 percent of the gross loan amount of SBA express 

or community express 7(a) loans up to $150,000 made to NMTCqualified businesses in low-income communities.’’ 

Help me out here. Let’s translate that a little bit better. Let’s unpack that and how you envision that to be one of the new methodologies in which you further leverage your resources to help people in particularly vulnerable areas. The other thing is define economically distressed. 

Mr. PRESTON. Okay. Great. Economically distressed we are talking primarily about rural markets and inner city markets where 

we see higher unemployment and lower wage rates. There are a 

number of different federal designations like LMI, Hub Zone, New 

Markets. We are doing a lot of analysis right now to understand 

how those designations map to where the greatest need is and how 

much of the population they cover, etc., etc., etc. 

On the new markets tax credit, in fact, Congresswoman Moore 

was with us in Milwaukee when we announced that pilot. What 

21

happens is the Treasury has this new market tax credit program 

which provides community development and the investors in those 

entities with tax credits for investments that entity makes. Typically it is more heavily focused on real estate right now and some 

other investment types. 

What the pilot does is it enables those community development 

entities to buy SBA loans from banks so they now buy the loans. 

They get a tax credit for the purchase of those loans. It does two 

things. It frees up capital at the bank so they can make more loans 

to small businesses and it allows them to purchase it in a way that 

provides a financial incentive. Hopefully through that whole chain 

of events we would see value accrue to the ultimate borrower. 

Now, there are some very complicated technical aspects to how 

loans are structured, how these tax credits are structured, and how 

these CDEs are structured that we are working through. What I 

would say is I don’t expect that pilot to be a home run. I expect 

it to provide some incremental benefit and I expect it to be a very 

important learning experience for us in how we can convey tax benefits to get more capital to people who need it the most. 

We are working right now with banks to understand how we can 

make that more effective. Does that make sense? I appreciate that 

it is a very complicated set of concepts. 

Mr. FORTENBERRY. We will have to spend a little more time 

working our way through that. Fair enough. Perhaps we can work 

more directly with you in understanding that. Just because you are 

from Janesville I hope there is not a bias toward having new pilot 

projects just in Milwaukee. Nebraska has a need, too. 

Mr. PRESTON. The Packers are on the television in both cities. 

Chairwoman VELA ́ ZQUEZ. Time has expired. 

Mr. FORTENBERRY. Thank you. 

Chairwoman VELA ́ ZQUEZ. I recognize Ms. Clarke. 

Ms. CLARKE. Thank you very much, Madam Chair. Mr. Administrator. I just wanted to ask two questions. One in the line of what 

our Chairwoman, Nydia Vela ́zquez, has spoken to you about and 

that has to do with the Microloan Program. For many communities, 

particularly urban communities like mine in central Brooklyn we 

see that as the ground floor of the escalator that really stimulates 

the economy for distressed communities. 

And you state that you are planning on raising the interest that 

the Microloan subsidies pay SBA to offset the cost of the Microloan 

Program but you are zeroing out the funding for Microloan technical assistance. Can you detail for us how you expect to really be 

effective with the program if the technical assistance component is 

not married to real effective on-the-ground assistance to folks, one. 

Then, secondly, there is a position that has been vacant since the 

beginning of your tenure which is the Associate Administrator for 

Government Contracting. This goes to the heart of women in minority owned business enterprises and their ability to really access 

over 24 different federal agencies. I would like to know the status 

of that position because that goes a very long way in really stimulating economies in communities like mine. 

Thank you, Madam Chair. 

Mr. PRESTON. Okay. Let me start with your last question first. 

There are a number of vacancies in that area which we are workVerDate 0ct 09 2002 11:32 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\02-08-07.000 LEANN
22

ing hard to fill. It concerns me because we have a very big job to 

do. It is an absolutely critical function that we undertake and those 

jobs have been posted. We are looking at candidates and there are 

a few critical jobs there. 

One of my colleagues just reminds me that they are actually reviewing candidates on a panel next week for this specific job. I appreciate your concern. If we don’t move quickly on it, you can continue to push us and you will be back and I thank you for that and 

that is your job and I appreciate it because we need to fill those 

jobs. 

The Microloan Program what we are proposing to do is move the 

technical assistance from the microlender to our network of thousands of counselors that are already in place that already meet a 

million and a half small businesses a year. We make a little over 

2.5 thousand loans a year in microlending and we have thousands 

of counselors in our preexisting network so we are asking for support from those people. 

It is a minuscule addition to their volume. We are actually asking for more money to lend to microlenders. We have put out between $18 and $19 million to microlenders last year. We are asking 

for authority to be able to lend $25 million which would allow us 

to put more capital out there. 

I will say the capital would be somewhat more expensive because 

today we lose money on every dollar we put out. We are asking to 

break even on every dollar we put out and that is the difference 

in the loan amount. It is not always an issue of cost. It is also an 

issue of access to capital so we would like to expand our reach. 

Chairwoman VELA ́ ZQUEZ. Will the gentlelady yield? 

Ms. CLARKE. Yes. 

Chairwoman VELA ́ ZQUEZ. Yes, Mr. Preston, it is a matter of cost. 

Microloans for low-income people by bringing this microlending out 

to a zero subsidy it means that some people might have to pay as 

much as $4,000 for the life of their loan. If this is the way we are 

going to help borrowers from rural America and urban centers in 

low-income communities? 

Mr. PRESTON. I think it is important to recognize that this is one 

product of many products that reach into those markets. I think 

there are also a number of microlenders out there that lend that 

money much more efficiently who cover their cost structure more 

effectively and for whom having more capital would allow them to 

lend those dollars cheaply. 

Madam Chairwoman, I do recognize it is entirely possible that 

there are going to be situations out there where the cost would go 

up. For the borrowers who are probably the least credit worthy, 

that is going to be a burden for them and would have an impact 

on their ability to repay that. 

Chairwoman VELA ́ ZQUEZ. How are we going to fix it? 

Mr. PRESTON. I think what we continue to do is expand capital 

out there and expand opportunity, expand resources through all of 

our lending program to continue to try to reach these markets, but 

this one for the amount of money we are lending comes at a very, 

very expensive price to the taxpayer. 

Chairwoman VELA ́ ZQUEZ. Before I move to Mr. Davis, let me remind you that year after year of budget submissions coming from 

23

SBA you try to cut the Microloan Program and year after year we 

put it back and we will. 

Now I recognize Mr. Davis. 

Mr. DAVIS. Thank you, Madam Chairlady. I appreciate the opportunity. 

Thank you, Mr. Preston, for being here. My question goes about 

understanding that most of the jobs that are created in the American economy today are coming from small business. I am really 

more concerned about the small business owners and the jobs they 

create back in my district and across America than I really am the 

Government infrastructure and the amount of federal employees 

that we have and the amount of regulation and burden that puts 

on small business owners. 

I know you have worked in the private industry as well as the 

public sector. Thank you for your leadership in both. My question 

comes to the point the small businesses across America do you 

think they are more concerned with spending at the federal level 

in bigger Government or do you think they are more concerned 

with lower taxes and less regulation? Which helps them the most? 

Mr. PRESTON. I think it is clearly the latter. I think we are talking a lot obviously about our programs very importantly because 

we are talking about a budget but these macro issues are critical 

to them. I think we all understand small business owners are often 

the CEO, the head of marketing, the head of finance, and the person that is filling out all those regulatory forms. More regulation 

is a very significant burden I hear consistently in the field. The tax 

dollars come out of their pockets, it comes out of their ability to reinvest in their business which creates jobs which enables growth 

and allows them to be competitive. I appreciate your concerns and 

I think it is as you implied by your question. 

Mr. DAVIS. I think the small business owners I talked to are not 

as interested about how many employees we have in Washington. 

They are more concerned about how many employees they can hire 

in their local community to help our economy. Thank you for your 

comments. 

Mr. PRESTON. Thank you. 

Chairwoman VELA ́ ZQUEZ. Now I recognize Mr. Sestak. 

Mr. SESTAK. Thank you. Thank you, sir, for your time. I appreciate your comments on the tax cuts. The fact is in my Delaware 

County, 85 percent of which is my district, we have lost 607 small 

businesses in the last three years. 

As I kind of looked at the administration over the last four years 

and saw 200 percent increase in the cuts of programs that affect 

small businesses across all the Government over the last three 

years and watched one out of five small manufacturing establishments disappear from Delaware County, 85 percent of my district 

in the last three years, I sit back and hear you talk about all the 

increase of jobs that have been done. I guess it was 3.5 million. 

At least in Pennsylvania, and I believe it is the same state wide, 

when you compare the jobs that were lost the first couple years of 

the administration and the median income of those and those that 

have come back, the median income of the jobs that have come 

back is below that of median incomes that were lost. 

24

When I sit back and ask what the Government is doing for small 

businesses as far as access to capital and to entrepreneurial assistance in the sense of technical advice and all, I guess my question 

is first for small SBDCs. There is only, I think, 18 in Pennsylvania 

and I just established one not in my district nearby in January. I 

met with the president of Widener University last weekend. 

I guess my question comes as I watch the decrease that has occurred and the monies that come to Pennsylvania SBDCs. Have 

you given up on believing in the demand for entrepreneur developmental services, particularly with the viewpoint of a wonderful district that has lost 607 small businesses and with an administration 

that has a 200 increase in those same years and cuts of small business programs across the administration? 

Mr. PRESTON. Specifically with the SBDC program we think 

those people do very important work. I think the comment I made 

before— 

Mr. SESTAK. I know they do good work but the amount of money 

coming in has decreased and we have kind of flat-funded it. 

Mr. PRESTON. If we have flat-funded it, we are not their primary 

source of funding. We provide a base level of funding and then all 

those SBDCs then go outside and raise funding from any number 

of other sources. That is where they get their funding growth from. 

What I mentioned before is we are beginning to do this with Women’s Business Centers. We would welcome the opportunity for 

SBDCs as well to work with them on bringing best practices to how 

they can be better fund raisers and more effective in getting funds 

from sources other than the Federal Government. 

Mr. SESTAK. Could I ask then another question on USEACs. 

Again, there isn’t one nearby but there is one inside Philadelphia 

so I met with him about three weekends ago and my view has always been particularly in a globalized world that you would think 

that improving market opportunities in such a globalized world 

would be something. 

When I met with him I asked what are the opportunities and are 

they being missed. The Director said, ‘‘Yes, they are.’’ He is putting 

together an economic summit now for us in a few weeks to bring 

people together. 

I guess my thing is that it appears as though the FY ’08 budget 

anticipates that the cost for the international trade or assistance 

programs are actually going to decline. Again, my question is why 

aren’t we boosting the SBAs or USEACs or for the 504 CDCs or 

the 7(a) loans that are zero subsidies if it really is a globalized effort, particular knowing that 607 businesses have gone away? 

Mr. PRESTON. We would expect the 7(a) and 504 programs to continue to expand. Those are zero subsidy programs so they are free 

to continue to grow and we are hoping continue to grow. There is 

better outreach, better products and we are beginning to work with 

our banks on any number of initiatives to do that. 

With respect to the export assistance, frankly, this is an area we 

have to get into deeper in the agency. It is an area that is an important area. I am not convinced we are doing enough for America’s small businesses on the export side. Frankly, I don’t have a 

great answer for you right now. It is something that is going to require some time and effort. 

25

Mr. SESTAK. Do I have time for one more question? In fiscal year 

’08 the SBA proposed a loan level for its primary business loan levels basically the same as last year. Does that indicate you believe 

that the demand for these loans for small businesses will not increase? 

Mr. PRESTON. The request for last year there is a significant 

cushion in that amount. We would expect to have an ability to 

grow quite dramatically and still be within that with the authorization request that we are asking for. Last year we had the same authorization request but there is still a whole lot of cushion within 

that for continued growth. 

Mr. SESTAK. Thank you for your time. 

Chairwoman VELA ́ ZQUEZ. Since we don’t have anymore members 

from the other side here, I will recognize Mr. Chabot for any other 

questions. 

Mr. CHABOT. Thank you, Madam Chair. I won’t do it after every 

one of your people. I’ll take some now if I can. I’ll try not to be too 

long. 

Mr. Administrator, has the SBA considered whether there is 

some duplication with respect to the entrepreneurial development 

partners and programs? For example, is there some overlap among 

the SBDCs and the WBCs, SCORE, veteran’s programs, and the 

Office of Native American Affairs? Are there some efficiencies that 

could be implemented that might benefit all of those various programs? 

Mr. PRESTON. We are digging into efficiency opportunities there 

right now and I don’t have a great answer for you in terms of how 

those will look. What I would say is those three networks provide 

similar services in many cases. They do, however, often serve different populations. The Women’s Business Centers often go into 

more urban areas and will deal with a group of people that might 

not be comfortable going into a small business development center 

which is in a university. 

My view is there is probably some overlap there but, for the most 

part, I think the three programs expand their reach by their 

uniqueness. We also see typically businesses in different levels of 

their life stage in each one of those groups as well. 

Mr. CHABOT. Thank you. I said three questions. The second one 

is should the faith-based initiative, the President’s proposal that he 

has been pushing for some years now, should it focus on greater 

coordination with microlenders and microloan borrowers? 

Mr. PRESTON. I think that is a very interesting concept and, I 

mean, there are faith-based organizations out there. What I would 

say is I am not informed enough to be able to give you a good response but I think that would be a thoughtful area of investigation. 

We would be happy to talk to you about it. 

Mr. CHABOT. Thank you. Finally, some believe that the common 

redesign, kind of a continual process is my understanding, of the 

SBA web site sometimes makes it difficult to find items. For example, public information on activities by bank lending partners cannot be found by a link on the SBA homepage. Another example is 

it is difficult, if not impossible, to find out who is the acting general 

counsel on the web site and there is no link to the general counsel’s 

office. Can the SBA design a homepage with intuitive links to all 

26

those items that are available on the web site? In other words, can 

you improve the web site? 

Mr. PRESTON. We have, in fact, probably two months ago 

launched an entire redesign of that web site. It is dramatically 

more user friendly. It is much easier to get where you need to go. 

I get on it and look for stuff myself to see. Interestingly enough I 

was looking for lending partners recently and had a hard time finding it so it is going to take an evolution. But it is an improving 

process and it is dramatically better than it was just a few months 

ago. Any issues or suggestions that you all have, or anyone on this 

committee, we would love to hear them because I think it is going 

to give us the ability to continue to improve it. 

Mr. CHABOT. Thank you. 

Thank you, Madam Chair. I yield back. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

I recognize Mr. Altmire. 

Mr. ALTMIRE. Thank you for coming for us, Mr. Preston. This 

Committee has taken a look at the matchmaker program for which 

you provide $6.6 million in funding for 2008. Over the last four 

years SBA has allocated in excess of $20 million for this program 

to generate $34 million in small business contracts. Less than 5 

percent of the participants even get contracts. 

With funding for the agency so scare, and I believe that chart 

will show a 60 percent reduction in funding since President Bush 

took office, wouldn’t it make more sense to redirect this funding to 

one or more of the programs that have been cut or flat-funded for 

2008 such as Prime, the Microloan Program, Women’s Small Business Centers, or the Small Business Development Centers? 

Mr. PRESTON. I think it is a very fair question. I don’t know that 

we do—in fact, I don’t think we do a great job of capturing the 

whole benefit of that program. That is an enormously popular program with small businesses, with large businesses, and with people 

in the districts where we have had them. A lot of those small businesses walk away with contracts from other big businesses that 

never show up. I think the program has a much broader impact 

that is implied by those numbers but I appreciate the question and 

I would look forward to talking with you more about that. 

Mr. ALTMIRE. Okay. Different subject. It is our understanding 

that SBA approves nearly 2,000 companies into the Hub Zone Program each year but only 600 program examinations actually occur 

each year. At this rate how is the agency going to keep up ensuring 

that all companies receive examinations? 

Mr. PRESTON. Well, we continue to cycle through those examinations. The intent of that program isn’t that every single business 

gets reviewed in a short period of time. it is more of a structure 

where you dip in periodically to ensure that there is compliance 

there. There are other programs where we have annual reviews for 

every company. It is very expensive. I’m not sure in the Hub Zone 

Program you would see the benefit of that additional workload. 

Mr. ALTMIRE. Okay. I am sure you understand that SBA Zone IG 

has raised concerns about the program. Nearly 60 percent of companies are not eligible after their program examination. Eighty percent aren’t eligible even three years after approval. When this happens companies like those in my district lose contracts to program 

27

participants who aren’t even eligible so I would suggest that some 

more oversight is needed. Given that only $2 million is requested 

for the program while the cost have averaged more than $7 million, 

doesn’t this just exacerbate the fraud that the IG has already 

pointed out? 

Mr. PRESTON. I think that the numbers you are referring to have 

to do with line items. I think the investment net program is a bigger number and you see that, I think, in table 8. There is an allocated cost number that will give you the full view of the program. 

Historically we have had a line item for Hub Zone which didn’t reflect all the money we were spending in Hub Zone. 

Mr. ALTMIRE. Thank you. 

Chairwoman VELA ́ ZQUEZ. I recognize Mr. Gonza ́lez. 

Mr. GONZA ́LEZ. Thank you very much, Madam Chair. 

Welcome, Administrator Preston. A couple of questions I had but 

actually as a result of questions posed by my colleagues, there was 

a remark you made that said regarding making the President’s tax 

proposals permanent that small businesses cannot pass on business 

to their heirs. I think that is what you said and I just wanted to 

make sure that is what you meant. 

Mr. PRESTON. I don’t remember my exact words but to the extent 

there is a significant estate tax on small business owners, it is very 

expensive for them to pass on business to their children. 

Mr. GONZA ́LEZ. Do you have specific examples of a small business, small farm, small ranch rendered incapable of passing on to 

their heirs? 

Mr. PRESTON. I don’t have any today but I think all you have to 

do is think about the cost, the value those businesses, apply a tax 

rate, and you will get a pretty clear picture of what the cost will 

be. 

Mr. GONZA ́LEZ. I understand theoretically but we have had this 

debate over a number of years and I guarantee you that my colleagues on the other side of the isle every time we have an estate 

tax debate and they are talking about the small business, the small 

farmer, the small ranchers, they can’t seem to come up with an example. Let me put it this way. 

On our side of the isle we have always wanted to extend, expand, 

increase the cap on which an estate would be exempt which I think 

is the reasonable approach rather than eliminating it totally. When 

I have administrators come from the Administration and tell me 

and represent and continue to represent that it is hurting small 

businesses, all I am asking is for the proof. If you can give me specific examples, show me Farmer Brown, show me Mrs. Jones’ small 

business, and we will have a good faith discussion. I am just really 

concerned when we have representatives from the Administration 

coming in on that particular issue. 

The other question I have is when I have met with my lenders 

in San Antonio that participate in Small Business Administration 

sponsored programs, and I understand they have to basically protect their investments and such, but what they tell me is if you 

make it less attractive for them, it is possible that you will have 

fewer lenders participating in the programs. 

As you contemplate changing the whole scheme to the lenders as 

to what their profit margin may be and so on, are you also anticiVerDate 0ct 09 2002 11:32 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\02-08-07.000 LEANN
28

pating that it may cause as a consequence fewer lenders participating in a SBA loan program? 

Mr. PRESTON. I don’t think we are changing the cost margin. I 

probably don’t understand your question but we are not doing anything to change the margins. 

Mr. GONZA ́LEZ. In the past on 7(a), and this is what the lenders 

were telling me, that as you approach them that there were repercussions to any change in the program. My understanding is that 

there are monies being made available, that it is a subsidy and so 

on. I am just saying that may not be the only program. It may not 

be the only product that these lenders are engaged in. There are 

consequences to everything we do. That is my only observation that 

I wanted to make. 

Mr. PRESTON. We are, in fact, reusing those fees this year to the 

lender in the 7(a) program. I appreciate the concern. Certainly if 

you have any examples, specific examples, Congressman, we would 

love to understand those because we learn from those. 

Mr. GONZA ́LEZ. Now I just want you to try to reconcile something 

for me. I will show you the newspaper article in a minute. What 

is the difference in the budget request for SBA in 2008 from 2007? 

Is it an increase? Is it a decrease? I have got newspapers reporting 

that, ‘‘The next SBA budget calls for a 30 percent cut in funding.’’ 

Then I have got, ‘‘SBA’s fiscal year 2008 budget request reflects 

the President’s commitment to American small businesses and the 

role they play in our economy,’’ which is your statement that, in 

fact, is this Administration and in this budget and is the SBA actually reducing budget requests? How do you reconcile that this represents a commitment by the Administration to small business? 

Mr. PRESTON. We are asking for an increase in the budget for the 

operations of the agency which is what we use to administer our 

programs, our 1,000 person field network, the 2,000 plus people at 

the agency to do the good work of the SBA every day. That represents 86 more people from ’06 to the end of ’08. For that portion 

of the budget we are asking for an increase. For the disaster budget we are asking for funds based on an average experience of disasters in this country. 

That money does not show up as a line item in the budget because it has already been appropriated by Congress but it is in a 

different bucket. We are asking for it to be moved so we can use 

it for administrative expenses. That is how those two components 

work. When I think about what we have to run this agency, I think 

of it as an increase which is after years of reductions at the agency. 

Mr. GONZA ́LEZ. My time is running out. Regarding administrative cost and personnel and such, we do have a situation in San 

Antonio that is, in my opinion, reaching a crisis level. I know this 

is parochial in nature but I have heard other members of the Committee actually refer to it. ‘‘Chambers upset with SBA delay.’’ I 

have my Chambers of Commerce, I have got my mayor all upset 

because we don’t have a Director in SBA in the office there for 

some time. 

I know you are going through all sorts of gyrations attempting 

to find someone but I would really suggest that you check with the 

business community and business leaders, elected officials at the 

29

city level to see where the talent really lies within your offices 

when you are looking for the search. 

Madam Chair, am I out of time? Thank you very much. 

Chairwoman VELA ́ ZQUEZ. Mr. Gonza ́lez, the Administrator forgot 

to mention that 17 out of the 25 core programs have been either 

cut or flat-funded or eliminated from 7(a), 7(j), Business Link, Hub 

Zone, Microloan, Microloan Technical Assistance, New Markets, 

Prime, SBDC, SBDIC Debentures, and so on. 

Now I would recognize Mr. Jordan. 

Mr. JORDAN. Madam Chair, I am fine, Thank you. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Ms. Moore. 

Ms. MOORE. Well, thank you, Madam Chair. 

Thank you, Administrator Preston, for giving this time. The list 

of programs that have been cut or flat-funded that the Chairwoman 

just articulated really feeds right into my question. My question is 

as I reflect upon your testimony, I was very excited to see on page 

2 where you said the agency has a renewed focus on insuring that 

its products and services are accessible to entrepreneurs in the nation and most under-served markets and those with higher rates 

of unemployment and poverty, lower rates of economic progress, 

and that the budget reflects that renewed focus on these populations. 

Then as I look through all the programs that have been cut or 

flat-funded, and you have heard other members talk about the zero 

subsidy program and intermediaries who have a higher interest 

rate just aren’t going to be able to do these programs. They are 

simply not going to be able to use this product. No technical assistance. The exchange you had with Mr. Gonza ́lez, in fact, the SBA 

has cut its work force by a third. The New Market Venture Capital 

Program no funding. Program for Entrepreneurs, no funds requested. SBIC totally on fees. The 8(a) not having been modernized 

since 1988. 

Then further in your testimony you talk about SBA implementing a rigorous state of the art risk management program 

based on industry standards which to me means you are more conservative, not taking risks, not really being able to help that category of businesses that can’t get capital on the industry standards. 

7(a) Program mentioned here, your largest guaranteed program 

with no budget authority, zero subsidy, fee increases for both lenders and borrowers. 

Then when you say you are consolidating all of your guaranteed 

programs, that tells me that there are fewer dollars per program 

to mitigate that risk. I don’t understand what the tie-out is between this renewed commitment to low-income communities and 

entrepreneurs and the very, very conservative approach that the 

budget takes. Thank you for your patience in listening to my question, Mr. President. 

Mr. PRESTON. I think we are doing a lot of things that are going 

to be very important for those communities. Obviously, Congressman, you are close to the UEP. You were instrumental in getting 

it launched in Milwaukee and thank you for that. This is a terrific 

outreach opportunity for the agency and for related support groups. 

30

We are looking right now at a broad role out of that and how we 

can do that very cost effectively. 

Ms. MOORE. The SBA is not putting one dime into the UEP. 

None. My earmark for UEP got wiped out but that is another story 

for another hearing. The SBA is not putting a dime into the UEP. 

Mr. PRESTON. What I would say in a lot of these areas like when 

we talk about having a product that will work better for communities in the cities, when we talk about having more effective outreach in our district offices, our SBICs actually do a lot of investing 

in under-served markets. A lot of this has to do with a couple of 

things, making sure we have the right products, the right outreach. 

We have over 1,000 people in the field that we direct on the most 

important activities every day. We can expand, I believe, that UEP 

by helping local areas use the same technology backbone that some 

of the UEPs are using to have a good network in place, by working 

toward district offices to coalesce business partners, to enable 

urban entrepreneurs to get the support. 

I think there are a lot of things that we are doing and can do 

that don’t always translate into dollars in the budget. That is the 

focus which we are looking at, doing the best we can as creatively 

as possible by operating the place more effectively and renewing 

our focus on those opportunities. 

Ms. MOORE. Are you saying you are just relying on the private 

sector to generate economic activity in our communities? I mean, 

I will yield to the Chairwoman. 

Chairwoman VELA ́ ZQUEZ. Time has expired. 

Ms. MOORE. I thought you were motioning for time. 

Chairwoman VELA ́ ZQUEZ. We will do a second round. 

Ms. MOORE. Okay. 

Chairwoman VELA ́ ZQUEZ. We will come back to you. 

Now I would like to recognize Mr. Braley. 

Mr. BRALEY. Thank you, Madam Chairwoman. 

Mr. Preston, as someone who has been a small business owner 

and who has represented a number of small businesses I look forward to working with your agency to improve opportunities for 

small business. My question is very specific. In fiscal year 2005, 

which is the most recent year for which data is available, Iowa 

ranks number 49 of all states for the total dollar value of Government contract dollars awarded to small businesses in a particular 

state. 

Yet, Iowa has one of the highest percentages of small business 

and this is particularly dire for women-owned businesses which receive only 1.1 percent of federal contracting dollars awarded to 

Iowa companies despite the fact that they represent 25 percent of 

the small businesses in Iowa. You testified previously that the SBA 

wants to fill these nine procurement center representatives who are 

responsible for helping small businesses get contracts. There aren’t 

any in Iowa. Is the SBA going to place one there? 

Mr. PRESTON. We don’t have all of the locations planned yet, 

Congressman, and we would be happy to talk with you in your office about that possibility and where would it best be located if it 

were in Iowa. 

Mr. BRALEY. I will look forward to that opportunity. Along that 

same line, can you identify three initiatives that the SBA has 

31

taken or plans to undertake to increase Government contracting 

opportunities for small businesses in my state? 

Mr. PRESTON. I can address the issue more broadly. Frankly, I 

think we are doing a lot. We have just announced a couple of 

months ago tighter recertification rules which diminish the number 

of larger businesses that are getting small business contracts. We 

are instituting score cards for all the federal agencies which we will 

be rolling out shortly which provide much greater transparency 

into the performance of all the federal agencies in meeting your 

procurement targets. 

We are working hard with all the federal agencies to scrub their 

data to make sure that truly small businesses are coded as small 

businesses in the federal procurement system to ensure that small 

businesses are getting those contracts. We are working on a number of projects right now to simplify the process of putting small 

businesses and federal contractors together in addition to hiring 

the new PCRs. I believe all these things will be very beneficial to 

small businesses trying to get Government contracts. 

Mr. BRALEY. Going back to your first point about re-certification 

and the point you made in follow-up about greater transparency, 

is that re-certification process going to result in increased transparency or the public to become aware that there is no abuse of 

that system by large businesses who are certifying as small businesses? 

Mr. PRESTON. The re-certification will tighten up the rules so 

that, for example, small business that is acquired by a large company can no longer be a small business in a contract that it already 

has. What I believe will provide more transparency is getting the 

data from the federal agencies cleaned up and we intend to make 

that data public. 

In addition what I think will increase transparency is by scoring 

every one of the federal agencies on their performance on small 

business contracting and making that data public. Transparency, I 

think, will be very important in moving forward in this whole area. 

Mr. BRALEY. As the Chair of the Subcommittee— 

Chairwoman VELA ́ ZQUEZ. Will the gentleman yield? 

Mr. BRALEY. Yes. 

Chairwoman VELA ́ ZQUEZ. Mr. Preston, when is the data going to 

be made public? 

Mr. PRESTON. The data will be made public as soon as we get it 

clean. We have gotten it from a number of federal agencies. As you 

can appreciate, Madam Chairwoman, there are millions of entries 

into this system and I don’t have all the clean data at this point. 

OMB and I jointly sent this letter to all the agencies. We are working actively with the small business procurement people in those 

agencies. 

Chairwoman VELA ́ ZQUEZ. Mr. Preston, we did this. We did it 

with a staff of 10 people. Why is it that you can’t do it? 

Mr. PRESTON. I think what your team did is you took a look at 

what was in there and you highlighted businesses that were obviously large. We are asking the agencies to go back to all of their 

procurements, many of which I think probably wouldn’t be on the 

radar screen if you just looked at them so we are really looking for 

clean data there. 

32

Mr. BRALEY. Thank you. Mr. Preston, as the Chair of the Contracting and Technology Subcommittee I have got concerns about 

the Office of Technology because I think it is so critical to the success of small business owners, especially in rural parts of this country and in areas that are under-served by access to technology. One 

of my concerns relates to the fact that the separate S&E line item 

for the Office of Technology was not included in the 2008 budget 

request. 

There is a lot of support on this Committee for the small business innovation research program but some of us have concern that 

the Office of Technology does not have the resources it needs to 

adequately direct that program and to reach out to small firms 

throughout the country. This is based on these factors. The SBA 

has not altered the size of the SBIR grants to reflect economic adjustments and programmatic consideration since it was directed to 

do so by the SBIR Enactment Act of 1992. 

The Committee staff was not able to confirm the completion on 

a searchable database that Congress directed the SBA to develop 

specifically for the Government’s work use. We believe that more 

work needs to be done to encourage small businesses in this country to apply for SBIR grants. In light of those factors, do you believe that the SBA has enough resources devoted to the Office of 

Technology? 

Mr. PRESTON. First of all, I think the SBIR Program is something that is very important to us. It gets important dollars, I 

think, both for the benefit of the Federal Government and for the 

small businesses it supports. I would be happy to take up those 

specific concerns with you to determine whether or not we should 

be doing something. I would like to leave it at that. 

Mr. BRALEY. Would you be willing to return for a Subcommittee 

hearing where we talk about the Office of Technology and these 

technology related issues? 

Mr. PRESTON. Sure. Absolutely. 

Mr. BRALEY. I would very much appreciate that. 

Chairwoman VELA ́ ZQUEZ. I recognize Mr. Johnson. 

Mr. JOHNSON. Thank you, Madam Chair. 

Mr. Preston, I am a brand new member of the Congress and this 

is my first Committee meeting of the Small Business Committee. 

The other day I had the occasion to attend a meeting of this Committee where we were kind of putting together our Subcommittee 

assignments and that kind of thing. In my being naive I asked a 

question and the question was what is a small business so there 

was some discussion about that. 

I find that question begs for an answer. I understand that since 

2004 your SBA Office of Science Standards has been undertaking 

an overhauling of the size standards methodology. This with an eye 

towards establishing some ground rules as to what is a small business because if you don’t have that, then, of course, large businesses can come in and get small business contracts. Can you tell 

me when will your office complete this overhaul? 

Mr. PRESTON. I think coming into this role I shared your confusion over what a small business is. 

Mr. JOHNSON. I don’t have a lot of time. I just want to ask you 

to give us a date as to when that will be completed. 

33

Mr. PRESTON. We continually look at the size standards and we 

have some size standards that we are looking at right now. I have 

a meeting, I know, with my staff next week on particular industries right now that are under review. 

Mr. JOHNSON. Because you realize that with no size standards 

then it is like a big loop hole the size of the Grand Canyon that 

allows for businesses other than small businesses to feed at the 

trough, if you will. 

Mr. PRESTON. There are size standards in place for all industries 

in federal contracting. The issue is, is it the right size given the 

industry it is in and that is the work that we continue to do. We 

continue to refine that. 

Mr. JOHNSON. So you are saying that is just a continuing process? 

Mr. PRESTON. Because you have so many different industries. 

Some of them might be fine and some of them might be a little off. 

Mr. JOHNSON. I will tell you, another concern of mine has been 

the fact that there have been surveys conducted of small business 

owners who are not satisfied. They have a low level of satisfaction 

with the Small Business Administration and their ability to get relief. While large businesses have continued to move employees off 

shore and small business has been the economic mainstay of our 

employment base here in America and in the 4th District of Georgia, which is what I represent, the SBA has continued to since 

2001 cut its employees. In 2001 there were 3,017 employees nationwide in this vast country of ours but 2008 projection is just 2,000. 

Does this reduced work force reduce the productivity of your agency? 

Mr. PRESTON. I think the 2,123 people we are asking for for 2008 

is an 86 person increase over ’06 so we are looking to go back up 

in the number of people we have. It is lower than where the agency 

was a few years ago. I think that is primarily attributed to the centralization of a lot of activities that were heavily processing based. 

Mr. JOHNSON. Has this diminution in your employee base cut 

your productivity as far as delivering services to small business? 

Mr. PRESTON. Our services have all gone up. I mean, our loan 

volume has gone up, the counseling sessions throughout the network, the number of Government contracts we support. 

Mr. JOHNSON. That is great news. It will be surprising to many. 

Let me ask one last question. Your procurement center representatives who examine bundled contracts for opportunities for small 

businesses, do we have enough of those? 

Mr. PRESTON. We are asking to add nine which we think will 

provide us with a 16 percent increase in the number of PCRs out 

there. We are looking forward to getting those people on board and 

having them be productive because they perform a very important 

service and they will help us get after many of the issues that you 

are focusing on. 

Mr. JOHNSON. Thank you. 

Chairwoman VELA ́ ZQUEZ. Now I recognize Mr. Larsen. 

Mr. LARSEN. Thank you, Madam Chair. 

Administrator Preston, thanks for taking some time with us this 

morning. I wasn’t here earlier to hear testimony but I will review 

it at some point in the future. Hopefully I am not repeating some 

34

questions that were asked. I just have really two sets of questions, 

questions on two separate topics. The first is regarding the SBDCs. 

Certainly in Washington State I would argue they have a very successful track record. Not only in the state but in my district a great 

track record in helping small businesses. 

I think in response to Mr. Sestak’s question, I think you answered part of my question that I have. The question was why are 

you cutting funding for SBDCs. What I heard you say essentially, 

that kind of question, was that the federal dollars are not the primary source for the small business development centers. Is that 

correct? 

Mr. PRESTON. Well, yeah. First of all, the funding would be flat 

and it is not the primary source of funding. 

Mr. LARSEN. The idea would be that they continue to raise additional dollars to support other activities outside the dollar allocation they receive from the SBA? 

Mr. PRESTON. That is correct. 

Mr. LARSEN. And then you wanted to help increase their capacity 

to do that? Did you say that as well? 

Mr. PRESTON. We are specifically working right now and we are 

at the front end of this with Women’s Business Centers on how to 

bring best practices to bear. That may be a model that we can then 

take to SBDCs. The SBDC network is much more developed and 

has resources and that type of thing so it may not be necessary 

but, yes. 

Mr. LARSEN. It begs the question what is the appropriate split 

between raising outside funds and providing services to entrepreneurs? As you go through this consider that because spending 

some of your time on trying to raise outside money you are not 

spending that time on providing services to small businesses and 

entrepreneurs. 

The argument I can understand you are making. I can understand your argument. All the dollars are from the Federal Government, SBA. I appreciate that you need to get outside funds but 

there is a balance for these folks because they are busy trying to 

do their work to help people create work and create wealth for others. I hope you take that into consideration as you are analyzing 

the outreach. 

Mr. PRESTON. Thank you. 

Mr. LARSEN. I am full of great advice. You are going to get lots 

more. Don’t worry about that. It is also unclear to me what the 

funding request is for SBA’s Office of International Trade. I think 

you discussed again in response to Mr. Sestak’s questions some 

things about expert assistance centers but can you give me an overview of all OIT will be funded? Is there a cut or programmatic 

changes? 

Mr. PRESTON. I think the number for ’06 is $4.3 million. The 

number for ’08 is $5.2 million so that is about a $900,000 increase 

in that office. 

Mr. LARSEN. Okay. That is good to hear. Last year I introduced 

a bipartisan bill, a friend of mine from Illinois, Mr. Kirk, the USChina Engagement Act. One of the things that we are asking for 

is some additional help for small and median-sized businesses to 

encourage export promotions, specifically to China. There is obviVerDate 0ct 09 2002 11:32 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\02-08-07.000 LEANN
35

ously a lot of talk around about China and China and trade. Certainly there are a lot of concerns about that. 

Also being from the most trade-dependent state in the country, 

Washington State, I want to take another view on that a little bit 

and try to promote and find ways to get our products out of the 

country into the hands of the Chinese for their consumption, not 

so they can steal intellectual property associated with it. Part of 

that, I think, is export promotion for small and medium-sized businesses in this country. As we move forward on reintroducing that 

bill this year, I hope to touch base with you and see what we can 

do to improve a section on that as well. 

Mr. PRESTON. We look forward to talking to you. We just signed 

a MOU with China to work with them to open up their borders for 

small business export to China so we look forward to engaging with 

you on that. 

Mr. LARSEN. Excellent. Thank you very much. 

Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Well, how we are going to go into the 

second round of questions. If members wish to stay, then you will 

be able to ask more questions. Mr. Chabot. 

Mr. CHABOT. Thank you very much, Madam Chair. I will be 

brief. First, Mr. Administrator, what happens if an office in the 

SBA doesn’t meet its performance goals? What do you generally do 

in that circumstance? 

Mr. PRESTON. Well, what we typically do, we are in the process 

right now, first of all, of looking forward to what those performance 

standards are in all these program offices. The answer is a little 

premature because we are beginning to look more at what they 

need to be doing. 

To the extent that we don’t meet those objectives, what we need 

to do is dig down and understand why? Are there operational processes? Is it a funding issue? Is it because we don’t have the right 

relationships with our bankers or other people outside the agency 

that we work with and get on with the business of rectifying those 

issues. 

Mr. CHABOT. Do you believe there is a gap in the market? Does 

it exist for start-up equity capital? If so, what can be done about 

that? 

Mr. PRESTON. I think there is a very robust market out there for 

start-up equity capital. That having been said, I think our SBIC 

program does expand that market. As such, I think they support 

a critical need that may not be supported if they weren’t there. 

Mr. CHABOT. Finally, I know being in your seat it sometimes 

feels like you are in a trial and you are being cross-examined. 

There have been a lot of questions. Are there any questions that 

you would like to elaborate on or anything that you wanted to 

maybe give a more complete answer than you were able to give? 

Mr. PRESTON. No. I think you all have been very kind in little 

we talk pretty fully. What I would say is there are a number of 

things we are trying to do that we don’t think are entirely budget 

dependent and there are other things that we are trying to do that 

are budget dependent. I think it is important for me to send a message that we are trying to continue to operate the agency more effectively and expand our impact in that way in addition to what 

36

we need budget for. I think that is a very important focus of the 

agency going forward. 

The other thing I would like to do is just encourage people to 

meet with us informally to see how we are advancing the agency 

because I think we have a lot of good news to report today and we 

will have a lot more good news in the future. 

Mr. CHABOT. Thank you. I yield back. 

Chairwoman VELA ́ ZQUEZ. Mr. Johnson, do you have any other 

questions? 

Mr. JOHNSON. No questions. 

Chairwoman VELA ́ ZQUEZ. Mr. Preston, I do have more questions. 

I would like to talk to you about the massive problem with small 

business contracts being awarded to large businesses in FY 2005. 

As an example, some of the entities counted as small were Microsoft, Pitney Bowes, Rolls Royce and the U.S. Air Force. To deal 

with this problem SBA proposed a regulation to require companies 

to re-certify their business size every five years and to prohibit 

agencies from taking credit for them if they were no longer small. 

This solved only 20 percent of the problem leaving 80 percent of 

the problem, most notably, large businesses. Those businesses that 

were small and grew or were acquired that represents only 20 percent. Why did SBA choose not to address the biggest problem of 

awards to large businesses? 

Mr. PRESTON. I think, first of all, we have had many conversations with the other agency about this issue. I think there is a significant amount of miscoding in those numbers. The first line is to 

get them to go back clean up their data, get the right data put together, and in the future ensure that when they submit those numbers that indicate small business contracts, they are right the first 

time. I don’t think we can tolerate that level of data inaccuracy. 

Chairwoman VELA ́ ZQUEZ. What you are saying is that you are 

giving us a commitment that you are going to be checking the contract coding data before it goes out? 

Mr. PRESTON. I am giving you a commitment that I am going to 

make it public to the extent that I can do that. It is public right 

now in FPDS-NG. 

Chairwoman VELA ́ ZQUEZ. But that you will make sure that they 

are not large corporations or ineligible to get the contracts intended 

to go to small business? 

Mr. PRESTON. I think the responsibility of that data needs to lie 

with the other federal agencies who are submitting it. They are the 

ones that are responsible for it. They are working very hard on getting it right. I would not commit to you at this point that we are 

going to go and audit all of the small business contracting data. 

Chairwoman VELA ́ ZQUEZ. Then you will say that you will qualify 

the data as estimated instead of the usual stand of stating as fact 

that small businesses receive a certain amount of contract awards 

making it clear that there might be some errors? 

Mr. PRESTON. We had not considered that route, Madam Chairwoman, but we would be happy to talk to you about that. 

Chairwoman VELA ́ ZQUEZ. Sure. I know that the SBA is not licensing any new SBIC participating security firms. However, by 

not providing existing participating security firms with the maximum leverage that the SBA had agreed to provide, many SBIC 

37

will be unable to fulfill their initial business plans. This could impair the SBICs and also adversely affect the small businesses that 

these SBICs have invested in. What is the agency doing to assist 

these SBICs that are expecting and need additional leverage? 

Mr. PRESTON. First of all, to my understanding we are meeting 

all our contractual commitments there. Any initial commitment letters we made we communicated heavily with the agency to let 

them know what that meant. Now, on future commitments for 

these participating securities SBICs we are working right now with 

the industry to see if there is a solution that would allow them to 

get additional capital that they need. 

In fact, we were on the phone with representatives of the industry yesterday. Hopefully we can support them in a way that works 

for all of us. I do want to highlight we are not breaching any contractual commitments in this and I think we communicated well 

with the industry as these agreements were expiring. 

Chairwoman VELA ́ ZQUEZ. Okay. Let us talk about the Women’s 

Procurement Program. It was created on December 21, 2000, 2,238 

days ago. As you know, the U.S. District Court for the District of 

Columbia has already found more than a year ago that the SBA 

has unreasonably delayed the Women’s Procurement Program. My 

first question is when will the study of under-represented industries be done? 

Mr. PRESTON. Okay. First of all, I appreciate the concern. It has 

taken too long. I am committed to getting the job done. We spoke 

with the RAND Corporation yesterday. They expect to have the 

final report to us in 10 weeks. 

Chairwoman VELA ́ ZQUEZ. Ten weeks? 

Mr. PRESTON. I will make that report public even if it is before 

any final rule is proposed. You will have the ability to see it as well 

as everyone else. 

Chairwoman VELA ́ ZQUEZ. When will the regulations be done? 

Mr. PRESTON. We will begin working on those regulations when 

we think that we have enough preliminary data. We have gotten 

a long way on the procedural aspects of it. We need to see the data 

to determine under-represented industries. I can’t give you a hard 

time line right now until I see that. 

Chairwoman VELA ́ ZQUEZ. How about an estimate of how long? 

Mr. PRESTON. I would expect to be in the interagency regulatory 

process prior to the publication of that report. At that point we 

would hope once it gets published we would like to make it an interim final rule so people would have the ability to see what it is 

before it goes final. 

Chairwoman VELA ́ ZQUEZ. Would it be fair to say June? 

Mr. PRESTON. June is a possibility. Maybe a little bit longer. As 

I said before, I am committed to move this along as expeditiously 

as possible and to share with you our progress along the way. 

Chairwoman VELA ́ ZQUEZ. So when will the program be up and 

running? 

Mr. PRESTON. I am hoping we will be through this regulatory 

process this summer. 

Chairwoman VELA ́ ZQUEZ. Summer? Fall? 

Mr. PRESTON. This summer I am hoping to be through the regulatory process. The only— 

38

Chairwoman VELA ́ ZQUEZ. The program up and running? 

Mr. PRESTON. What do you mean the program up and running? 

Chairwoman VELA ́ ZQUEZ. Contracts. 

Mr. PRESTON. Obviously those contracts are to the agencies to 

provide but we will have a framework in place. I As I mentioned 

starting out, it has taken me a very long time. I committed to the 

Senate when I did my hearings. I have committed to various women’s groups to put my energy behind this and get it done and do 

whatever I can to move the process along. 

Chairwoman VELA ́ ZQUEZ. It was passed into law in 2000 and 

women contractors are losing out. Mr. Preston, in November of last 

year along with the new re-certification regulation SBA and OMB 

announced the agency score card. Each agency will be graded traffic-light style by OMB and SBA. My first question is will there be 

measurable standards for evaluation or will they be subjective and 

would you please outline what those standards will be? 

Mr. PRESTON. I think there will be both. I think there will be 

measurable standards which have to do with numerical targets 

both for small business procurement over all and in each one of the 

preference groups. There will also be other targets that will require 

agencies to show progress in areas like enforcing subcontracting, 

data quality, and commitment from the top to show a strategy to 

meet small business objectives. I think it is an important merging 

of both. 

Chairwoman VELA ́ ZQUEZ. Mr. Preston, one of the biggest obstacles to small businesses in trying to do business with the federal 

market place is contract bundling. My question is why doesn’t the 

score card look at the agency’s propensity to bundle contracts? 

Mr. PRESTON. I think the score card will take into account a 

number of factors that would lead agencies to do bundling but we 

will be looking at their hitting their numbers, their taking specific 

actions to improve small business procurement. The score card is 

fairly all encompassing and my hope is that it would discourage 

bundling. I would also say with our additional PCRs and some of 

the technologies we are putting in place I hope the agency will be 

able to look at more bundles to determine whether or not they are 

going to be effective. 

Chairwoman VELA ́ ZQUEZ. I have here a copy of a score card. No 

place here do you mention contract bundling. 

Mr. PRESTON. It talks about strategies to get small business contracts, to grow small business contracts. It talks about tone at the 

top. It talks about any number of other factors that will get contracts to small business which should— 

Chairwoman VELA ́ ZQUEZ. It would be nice to recognize the number one issue facing small firms with the federal market place, contract bundling. Another element in the score card is whether or not 

the agency has implemented a strategy to increase the number of 

competitively awarded contracts to small businesses. A number of 

small business programs rely on sole source contracts. This seems 

to penalize agencies that use programs such as 8(a), Hub Zones, 

and service disabled veterans because agencies wouldn’t get credit 

for using these businesses in the score card. Why are these programs not included? 

39

Mr. PRESTON. Madam Chair, my understanding was that the 

score card encouraged the use of procurement from all small business categories so if there is some confusion in that score card or 

if I misrepresented something, I would love to talk to you about it 

and see how we can adjust it. 

I do also think it is important that this score card be something 

that evolves over time to meet the needs of the small business community. If we see that there are shortfalls in it, for example, if bundling isn’t addressed firmly enough, we should consider whether or 

not any adjustments need to be made. 

Chairwoman VELA ́ ZQUEZ. My guess is that you need to go and revisit this because you have here that the agency will look if the 

agency has implemented a strategy to increase the number of competitively awarded contracts to small businesses. It doesn’t include 

set-asides. 

Mr. PRESTON. The procurement targets would allow set-asides to 

be included, I think. Let us talk about that. I welcome your input. 

Thank you. 

Chairwoman VELA ́ ZQUEZ. We need to make it clear. 

Mr. PRESTON. Okay. Thank you. 

Chairwoman VELA ́ ZQUEZ. Lastly, the proposed score card will 

measure top-level agency commitment. Many agencies will argue 

that this will mean that if they hold a lot of small business conferences regardless of whether companies get contracts or not, that 

then they have demonstrated commitment. Can you briefly explain 

how commitment will be evaluated? 

Mr. PRESTON. I think commitment will be evaluated in a number 

of ways including actual actions they take, communications that 

they make to their contract and work force to encourage those actions, measures they are taking to get those contracts in place. 

Chairwoman VELA ́ ZQUEZ. Why not if companies are getting contracts? 

Mr. PRESTON. I think big companies are getting contracts. Data 

accuracy is in there so if big companies are getting small business 

contracts, that will be a penalty on the score card. 

Chairwoman VELA ́ ZQUEZ. Okay. Well, Mr. Preston, let me just 

bring this so that we can clear this transparency issue with the 

agency. Last July the Committee issued a report identifying $12 

billion in contracts that were misquoted and went to large businesses that were intended to go to small businesses. The first move 

of the administration after that report wasn’t the re-certification 

regulation. 

Rather, it was to conceal portions of the main database used to 

determine whether companies are large or small. We are constantly 

hearing the need for transparency in Government. In fact, the SBA 

has claimed that transparency is one of the reasons for the new 

regulation. Explain to me how concealing this type of information 

gets us closer to solving this problem? 

Mr. PRESTON. I am not sure what you are referring to in terms 

of information being concealed. 

Chairwoman VELA ́ ZQUEZ. We don’t have access anymore to the 

size of the companies. It was taken off. 

Mr. PRESTON. I will have to look into that offline. I am sorry but 

I am not familiar with the issue. 

40

Chairwoman VELA ́ ZQUEZ. We can’t do our job of oversight if we 

don’t have access to the data so we need to work with your staff 

to make sure that is available. 

Mr. PRESTON. We look forward to doing that. 

Chairwoman VELA ́ ZQUEZ. Thank you. Mr. Chabot, do you have 

any other questions? 

Mr. CHABOT. No, thank you. 

Chairwoman VELA ́ ZQUEZ. Let me thank you again. I have to say 

this has been one of the most open and honest participation of an 

Administrator defending the budget that you are submitting so 

thank you for your openness. 

Mr. PRESTON. Appreciate it. Thank you very much. 

Chairwoman VELA ́ ZQUEZ. I look forward to continuing to work 

with you in making sure that the Small Business Administration 

continues to do your job providing the assistance to small business 

so that they can continue to grow and expand. We will do our part 

here to make sure that you have the resources. 

Mr. PRESTON. Thank you very much. 

Chairwoman VELA ́ ZQUEZ. Thank you. Hearing adjourned. 

[Whereupon, at 12:17 p.m. the Committee adjourned.]

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