U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

86–152 PDF 2014

S. HRG. 113–176 

THE FISCAL YEAR BUDGET REQUEST FOR THE 

SMALL BUSINESS ADMINISTRATION 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS AND 

ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

APRIL 17, 2013 

Printed for the Committee on Small Business and Entrepreneurship 

( 

Available via the World Wide Web: http://www.fdsys.gov 
(II) 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED THIRTEENTH CONGRESS 

MARY L. LANDRIEU, Louisiana, Chair 

JAMES E. RISCH, Idaho, Ranking Member 

CARL LEVIN, Michigan 

TOM HARKIN, Iowa 

MARIA CANTWELL, Washington 

MARK L. PRYOR, Arkansas 

BENJAMIN L. CARDIN, Maryland 

JEANNE SHAHEEN, New Hampshire 

KAY R. HAGAN, North Carolina 

HEIDI HEITKAMP, North Dakota 

WILLIAM M. COWAN, Massachusetts 

DAVID VITTER, Louisiana 

MARCO RUBIO, Florida 

RAND PAUL, Kentucky 

TIM SCOTT, South Caarolina 

DEB FISCHER, Nebraska 

MICHAEL B. ENZI, Wyoming 

RON JOHNSON, Wisconsin 

JANE CAMPBELL, Democratic Staff Director 

SKIFFINGTON HOLDERNESS, Republican Staff Director 
(III) 

C O N T E N T S 

OPENING STATEMENTS

Page 

Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana .................. 1 

Risch, Hon. James E., a U.S. Senator from Idaho ................................................ 6 

WITNESSES

Mills, Hon. Karen, Administrator, U.S. Small Business Administration ........... 7 

Gustafson, Hon. Peggy E., Inspector General, U.S. Small Business Administration ................................................................................................................... 24 

Sargeant, Hon. Winslow, Chief Counsel for Advocacy, U.S. Small Business 

Administration ..................................................................................................... 39 

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Gustafson, Hon. Peggy E. 

Testimony .......................................................................................................... 24 

Prepared statement .......................................................................................... 27 

Response to post-hearing questions from Senator Risch ............................... 72 

Landrieu, Hon. Mary L. 

Opening statement ........................................................................................... 1 

Levin, Hon. Carl 

Questions for the record ................................................................................... 78 

Mills, Hon. Karen 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 9 

Response to post-hearing questions from: ......................................................

Chair Landrieu .......................................................................................... 58 

Senator Risch ............................................................................................. 61 

Senator Cantwell ....................................................................................... 82 

Senator Pryor ............................................................................................. 85 

Risch, Hon. James E. 

Opening statement ........................................................................................... 6 

Sargeant, Hon. Winslow 

Testimony .......................................................................................................... 39 

Prepared statement .......................................................................................... 40 

Response to post-hearing questions from Senator Risch ............................... 65 

Small Business Administration Office of Advocacy 

Report on the Regulatory Flexibility Act FY 2012 ........................................ 87 

(1) 

THE FISCAL YEAR BUDGET REQUEST FOR 

THE SMALL BUSINESS ADMINISTRATION 

TUESDAY, APRIL 17, 2013 

UNITED STATES SENATE, 

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:07 a.m., in Room 

428–A, Russell Senate Office Building, Hon. Mary L. Landrieu, 

Chair of the Committee, presiding. 

Present: Senators Landrieu, Cardin, Shaheen, Cowan, and Risch. 

OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, 

AND A U.S. SENATOR FROM LOUISIANA 

Chair LANDRIEU. Good morning, everyone. Thank you all for joining us this morning. 

Administrator, please have a seat wherever you are comfortable. 

I thank all the members of the Small Business Administration that 

work so hard and are so committed to our country and to our economy. 

Before we begin, I want to acknowledge that this is Administrator Mills’s last budget hearing, unfortunately. She has served as 

a steady hand of this ship now for several years, and it has been 

my real honor, Administrator, and pleasure to work so closely with 

you as did our former ranking member of Olympia Snow, who was 

a dear friend and a wonderful colleague and a great partner on this 

Committee. 

I thank you for strengthening this agency under your watch and 

focusing its resources on entrepreneurship and job creation. When 

you stepped into this job, you took over an agency that had atrophied due to lack of resources and, to some degree, leadership; but 

under your guidance, SBA transformed into a more effective federal 

champion for small businesses. 

Your efforts were recognized last year when President Obama 

recommended that the SBA have a seat in the cabinet room. That 

is something that Senator Snow, Senator Kerry, and others of us 

that have served on this Committee for some time have advocated; 

and I think because of your outstanding performance and leadership, the President said yes to that long-standing request. 

So now, small businesses have a seat where they belong in the 

cabinet room of the President of the United States when many 

issues of importance are being discussed about the economic future 

of the country. Congress is losing a talented and effective partner 
2 

and American’s small businesses are losing a tireless advocate in 

Administrator Mills. 

The next Administrator, which we hope will be equally amazing, 

will soon have some big shoes to fill, and I am hoping that the 

President will make his choice public so this Committee can get to 

its task of oversight on that appointment. 

As I have said many times, there is nothing small about small 

business in America. According to the SBA, small businesses are 

responsible for employing roughly half of all working Americans. 

These entrepreneurs pump almost $1 trillion into the economy and 

have most interesting generated 60 to 80 percent of the new net 

jobs annually over the last decade as well as produce 14 times 

more patents than large businesses and universities. 

Many of these small business owners rely on the SBA’s 3 Cs. As 

you and I have made many speeches around the country, they need 

capital, counseling, and contracting programs to succeed to develop 

a business plan and get their businesses off the ground, meet their 

payrolls, buy equipment, or building to expand or compete in an increasingly competitive global marketplace. 

In this year’s fiscal year 2014 request for the SBA, the President 

has once again signaled his commitment to our Nation’s nearly 28 

million small businesses, submitting a strong and fiscally responsible budget of $810 million in funding for the agency plus another 

$192 million for disaster loans for the ongoing and multiple disasters that are still open. 

While this represents a seven percent increase over the SBA’s 

CR funding level, a significant portion, I am sorry, decrease, while 

this represents a seven percent decrease over the SBA’s CR funding level, a significant portion of that decrease is happily because 

the 7(a) program no longer needs a subsidy. It is working well 

which is good news, and I will talk a little bit more about that in 

a minute. 

Overall, I think this is a solid budget in a very tough budgetary 

times. We all wish we had more, but we have got to live within the 

constraints that have been set. 

It makes investments in key SBA programs but there are other 

crucial programs that I would like to highlight that I believe deserve a bit more focus. 

First of all, the sequestration. The importance of thoughtful and 

strategic budgeting is more apparent today as the agency continues 

to operate at those sequester funding levels. While we will not receive the final breakout of the SBA’s spending plan under sequester until next week, if the full amount of the agency’s five percent 

cut is applied equally across their programs, it will severely limit 

the ability to deliver services to small businesses at a time when 

we can ill afford to retreat. 

The SBA has stated that the cuts in business loan subsidy programs will prevent more than 1900 loans to small businesses, and 

over 33,000 fewer clients will receive counseling from our Women’s 

Business Centers, our Small Business Development Centers, and 

our volunteer 350 SCORE chapters that operate on a voluntary 

basis throughout the country. 
3 

It will also impact the resources the SBA has to combat fraud, 

waste, and abuse through its reviews of our important 7(a) and 

HUBZone programs. 

The small business impacts from sequester are certainly not limited to the SBA. They can be felt across the government. Several 

weeks ago I sent a letter to more than 30 agencies requesting that 

they share with our Committee how their small business contracting goals will be affect by the budget cuts they have received. 

I am eager to receive those responses and work with federal agencies to mitigate the impact of these cuts. 

As we know, much of government spending is not spent actually 

in-house. It is contracted out to many businesses that conduct the 

important work of the government and we want to make sure that 

the sequester cuts are not falling disproportionately on the smallto medium-sized businesses that are contracting with agencies of 

the Federal Government. 

With that in mind, I am just going to walk through briefly the 

Committee’s funding request for the three Cs—capital, contracting, 

and counseling; and then we will hear from our Administrator and 

the Chief Counsel of Advocacy. 

My hope is that today’s hearing will be a constructive discussion 

about making smart choices to fund programs that enable this 

agency to be successful in its core mission. This is a budget hearing. We are going to focus on the SBA budget. The SBA has requested $107 million of credit subsidies for the business loan program for fiscal year 2014 to support $17.5 billion 

in lending for 7(a) and $7.5 billion for 504. 

The biggest news in this budget for the capital access program 

is that there is no subsidy required. The program is operating on 

a self-sustained basis thanks to your administration and the recovery of the economy. 

The subsidy request in the budget is exclusively for the 504 pro- gram. It is a program I strongly support. This request for $107 million is down slightly from $113 million but it leverages up to $7.5 

billion in loans that are otherwise unavailable in the commercial 

market and have been a lifesaver to many businesses that are able 

to refinance and get their own equity out of the buildings that they 

are in, not government money, their own money, to advance the 

goals of their business. I strongly support this modest subsidy and 

I would urge my members to support as well. 

I want to remind you of two exciting examples of this. One, something that you know very well if you shop like I do in the local 

market, Chobani yogurt. 

The original founders of Chobani yogurt were immigrants to this 

country. They were in the feta cheese business. They saw a closeddown Kraft plant in a boarded-up town, not the whole town but 

boarded-up plant in Emerson, New York, which is in upstate New 

York which suffered terribly, I understand, in the recession. 

They wanted to start a feta cheese factory. In the middle of it, 

decided to change it to yogurt and use their official, you know, oldfashioned, traditional yogurt recipe. The rest is history. 

I mean Chobani yogurt is up and running. They literally took the 

entire supply of milk in New York, every dairy in New York could 

not, at a hundred percent, produce the milk necessary to produce 
4 

this yogurt. That is how successful this business is, and I am proud 

to say it was one of the recipients of one of those small business 

loans. 

The business became so successful they ran through the dairy 

supply. The brothers were not able to obtain a loan from their conventional lender because the bank was not comfortable assuming 

all the risk on their own for a food production company. 

Another success story is one from the now expired 504 refinancing program. It happened in Richmond, Virginia. Richmond 

Piano Rebuilders purchased their facility in 2006 with a loan. Their 

monthly payments became difficult to afford. 

In 2012, despite the property retaining its value and threatening 

the company’s ability to keep the facility, thanks to a 504 refinance 

loan of $863,000 which cost the taxpayers absolutely nothing, the 

company was able to reduce their payments by $50,000 a year. 

I mean, these programs might seem small and inconsequential but $50,000 to a small business owner annually is a lot of money. 

These programs, when the leadership is right, as yours is, can really work to be helpful in partnership with our local lenders, banks 

and non-bank lenders. 

Let me mention contracting real quickly, and it is appropriate 

that Senator Cardin has come in. He has been a champion of this 

effort. In 2011, the Federal Government awarded $91.5 billion or 

21.65 percent of prime contracting dollars to small businesses. 

To ensure infrastructures in place to reach our 23 percent goal— 

we were close but did not hit our goal—this budget smartly requests $4 million in additional funding to increase to increase the 

number of procurement centers which are called PCRs and Commercial Marketing Representative, CMRs in the field by adding 32 

personnel. 

I think this is a strategic, important move to help small businesses have an opportunity to contract with the Federal Government. In addition, there will be other requests associated with this 

and I will have the Administrator speak more specifically to that 

in her remarks. 

Let me mention just a word about counseling which I feel very 

strongly about. The SBA has requested $198 million for its entrepreneurial development programs which provide critical technical 

assistance, counseling, training, and mentoring to entrepreneurs 

across the country. 

Included in this request, the agency is seeking $40 million for entrepreneurship education which will support programs such as the 

very successful emerging leaders e200 Program, a popular and successful federal training initiative that specifically focuses on executives of businesses poised for growth. These are not startups, businesses that are poised for growth in traditionally challenged communities. 

I support this initiative broadly, conceptually. I am very interested, Administrator, in hearing some more of your detail about 

how this would be rolled out, and I know that the Committee will 

be too. But I do applaud you for the partnerships that you have developed with private for-profit, not-for-profit, university-based, and 

community-based programs that are really pushing out, and some 

large companies like Google, Goldman Sachs, and others that are 
5 

really pushing out the training of entrepreneurs in America because that is, I think, a very wise investment in time, energy, and 

resources. 

The SBA has also requested $700,000 to conduct an evaluation 

of the businesses in their technical assistance programs, and I 

want to underscore this for our members. We partner with over 

1000 delivery service points to our small business programs all 

around the country. I want to make sure that we really are getting 

the most for our dollar. 

Senator Shaheen, you were governor of your State. You understand that you can have a center, you can have several. We want 

to know if they are really working well and if there is something 

that we can do to enhance their performance. And, we cannot do 

that unless we can measure their performance initially. So, I have 

been really pushing you all for performance measures. So, I am 

happy to see that $700,000 in the budget to do just that. 

While I support some of the funding for the administrative initiatives, I am concerned about some of these decreases. I just want 

to mention quickly. Small Business Development Centers are being 

reduced. Women’s Business Centers are being reduced. And according to the SBA budget justification, with modest federal investment 

of $112 million, the SBDCs helped out 13,600 entrepreneurs start 

new businesses last year. So, we are going to go over these numbers very carefully. 

SCORE which comprises over 13,000 volunteers, I want to underscore this, in approximately 350 chapters across the country I think 

represents the best possible investment for the $7 or 8 million that 

we get a SCORE they take that like the loaves and fishes and they 

distribute it around the country very modestly. 

But for the bang for that buck by getting volunteers to mentor 

small businesses whether it is in Idaho or New Hampshire or Louisiana or Maryland, I think and I find the SCORE chapters very 

enthusiastic around the country and find by businesses that have 

been helped by them very grateful for their volunteer support. So, 

we are going to focus on that. 

Finally, when it comes to trade and export promotion, Senator 

Shaheen has been a great leader on this Committee for understanding that because one percent of all American businesses export or one percent of small businesses export, what a great potential there is, Senator, for 99 percent of our other small businesses 

who now can tell about their products and export their products because of the Internet, because of technology, this was never possible before. 

But with new technologies, you know, people in Idaho or Louisiana who just normally sold in their own little communities can 

now sell their products all over the world. But that expertise as to 

how to navigate some of those difficult rules and regulations or 

challenging rules and regulations is important. 

So, the STEP program was not something that the Federal Government did. They were grants that we gave out to states and the 

feedback that we have gotten from governors and economic development departments have been, you know, just very enthusiastic. 

I am sorry to see that the President in his budget zeroed out this 

program. So, I am going to be calling a meeting with some of the 
6 

governors, Republicans and Democrats, economic development initiatives to see or economic development leaders to see what we 

could do to restore a portion of this if, in fact, it is as effective as 

I have been told. 

So, in closing, looking at this request, I am glad to see the Administration has once again made small business a top priority, not 

just with words but with actions reflected in his budget by adequately funding the SBA’s successful programs, eliminating some 

that they did not think work as well, and we are going to have a 

little argument about that STEP program. 

But we have two panels today that are going to give us a little 

bit more information on the budget that is before us and this is a 

budget hearing. 

Let me close by turning to my Ranking Member for opening remarks. We will submit your statements for the record and go to the 

opening statement for the Administrator. 

OPENING STATEMENT OF HON. JAMES E. RISCH, A U.S. 

SENATOR FROM IDAHO 

Senator RISCH. Thank you very much, Madam Chairman. It is 

unfortunate that we are having a hearing on a budget that we all 

know will never become law; and if we are going to do things like 

this, it really ought to be pragmatic and dealing with something 

that actually is going to become law. 

I want to be brief, and I am interested in hearing from the Administrator. I had a chance yesterday to review your comments on 

the Joe Scarborough program (MSNBC) last November where you 

indicated that you were not hearing from small businesses that 

Obamacare was devastating. I have got to tell you that I do not 

know who you talk to but it is entirely different than the businesses that I talk to. 

So, one of the things that I am going to be focused on here, as 

we talk about the budget, is what the agency is going to do to help 

small businesses get out from underneath this healthcare burden. 

This is not the bill [referencing large stack of regulations placed 

behind him]. These are the regulations that have resulted from 

Obamacare. The bill was only two feet tall. This, I understand, is 

over seven feet tall. 

Small businesses all over the country are trying to find a way to 

get out from under this, just as all big businesses and mediumsized businesses are. The difference, of course, is that big- and medium-sized businesses have a gaggle of lawyers, accountants, and 

human resource officers who can help them to get out from under 

this. 

The small businesspeople, of course, have less options. If they get 

people to work under 30 hours, they can get out from under this. 

If they trim their payroll to under 50 employees, they can get out 

from under this. I hear all the time from businesses who are doing 

just that. 

So, you all know the SBA wants to help small businesses. Have 

you created something at the Agency to help the small businesses 

get out from underneath this, to get around it like big businesses 

and medium businesses are doing? 

Thank you very much, Madam Chairman. 
7 

Chair LANDRIEU. Thank you. You all can submit statements for 

the record. 

Administrator Mills, thank you so much for being here and we 

are ready to hear about your budget that I think is going to be before the Appropriations Committee, not this Committee for approval. 

STATEMENT OF HON. KAREN MILLS, ADMINISTRATOR, U.S. 

SMALL BUSINESS ADMINISTRATION 

Ms. MILLS. That is correct. 

Thank you very much, Chair Landrieu, and Ranking Member 

Risch and members of the Committee. I am very pleased to be testifying before you today. 

I want to first start by thanking this Committee for its ongoing 

support of the SBA and its support of America’s 28 million small 

businesses and entrepreneurs. 

The President’s Fiscal Year 2014 budget is focused on job creation and accelerating our economic growth. We know where American jobs come from. Half of all the people who work in American 

either own or work for a small business. And these businesses create two out of every three net new private sector jobs in the United 

States. 

The Fiscal Year 2014 budget makes strategic investments in 

America’s small businesses. It fills the gaps in the market, particularly for small dollar loans, while supporting proven programs that 

fuel job creation, new business formation and American innovation. 

These are critical to a full and robust economic recovery. 

It is important to note that due to the decreased subsidy costs 

for our 7(a) loan program, the SBA’s 2014 budget reflects a savings 

$109 million from our 2012 budget. 

Four years ago when I first appeared before this Committee, 

small businesses were struggling in the face of one of the worst 

economic environments since the Great Depression, and at the 

SBA, we rolled up our sleeves and we went to work. We eliminated 

fees, we streamlined programs, and in some cases, we took a hundred pages of paperwork out the loan products. 

The results have been significant, including two record years in 

2011 and 2012 of delivering over $30 billion in loans supported by 

our guarantees. 

Our 2014 budget builds on these efforts. Three key initiatives are 

the elimination of fees for borrowers and lenders for all 7(a) loans 

under $150,000, an extension of the 504 refinance program, and a 

new program called SBA ONE, which creates a single platform for 

all 7(a) loans and allows borrowers to more easily complete lending 

forms. 

The 2014 budget also invests the SBA’s powerful counseling and 

mentoring network. These investments focus on the types of small 

businesses that are in the best position for job creation. 

Expanding firms and startups. Expanding firms created 8.7 million jobs between March 2011 and March 2012. Our budget request 

$40 million for an intensive business leadership program that provides the skills training to help more of these established businesses to successfully scale of their operations and create more 
8 

jobs. This program is built on a public-private partnership that will 

allow us to maximize its reach. 

The other poised for growth is startups. These businesses punch 

above their weight when it comes to job creation. At the SBA, we 

have had our third consecutive record-breaking year for the small 

business investment company program, and the 2014 budget allows 

us to further support startups through targeted tools such as the 

growth accelerators and clusters. 

We also know that for both established firms and startups the 

opportunity to sell to the Federal Government can be a game 

changer. As a result of our efforts, in the last three years of reporting, small businesses have accessed $32 billion more in federal contracts than in the previous three years, even as overall contract 

spending decreased during those years. 

We continue to take a zero tolerance stand on fraud, waste, and 

abuse in federal contracting to make sure that small businesses are 

the ones getting the contracts, and we have instituted programs 

like QuickPay to make sure they get paid more quickly. 

Our 2014 budget will continue this emphasis on contracting by 

putting more resources, known as Procurement Center Representatives, in the field. Our research shows that the 32 new Procurement Center Representatives proposed in the budget can influence 

approximately $7 billion in small business contracting. 

Today, thanks to Agency-wide efforts—and the support of Congress—small businesses are interacting with a different SBA. One 

that is more customer-focused, more data driven, and more transparent. 

On a personal note, this is likely the last time I will be testifying 

before this Committee. It has been an honor and a privilege to 

work with you over the last four years. And, once again, I want to 

say thank you. 

[The prepared statement of Ms. Mills follows:] 
9 
10 
11 

Chair LANDRIEU. Thank you, Administrator. 

Let me jump right into ask you to give a bit more detail, if you will, about the $40 million request for growth accelerators and the 

emerging leaders program which, I think, is the big new and different part of this budget that I want to get a little bit more comfortable and I know the members are going to want to as well. 

I understand that we do not have a specific authorization. You 

have a general authorization to conduct this program and I would 

like to be supportive if I can, but I want to understand a little bit 

more about how it is going to be designed. So, could you spend a 

minute please or two explaining that in some detail? 

Ms. MILLS. Let me start by explaining a little bit the economic 

underpinnings of these programs. We know that most of the job 

creation in this country actually comes from two segments of small 

businesses, startups and existing businesses expanding. 

So, right now we are looking at investment in the small businesses that are expanding and creating many jobs. We call this 

program sometimes within the SBA a kind of mini-MBA. 

Small businesses, unlike four years ago, are seeing opportunities. 

They can export as you described earlier. They can get a government contract. They can get in the supply chain of a larger company. 

But sometimes they are being held by lack of access and opportunity to two things—access to capital and access to the skills they 

need to grow their business. 

Entrepreneurship skills are a very important part of the skills 

component and what we have done in our budget proposal is built 

on the terrific network of resource partners that are out there—our 

Small Business Development Centers and our SCORE representatives are counseling small businesses all the time. 

But a small segment of these businesses who create most of the 

job growth by expanding need an even more intense entrepreneurial education experience. 

We are building this program on a number of proven programs 

that are out there where we collected a lot of data about how much 

these business owners can improve their business, and I had the 

great pleasure of visiting several of them. 

One in West Memphis, Tennessee, called Western Tennessee Ornamental Doors. To hear a business owner described the skills that 

they gain in this nine-month, intensive program, delivered in large 

part by our resource partners—we are not creating any new bricks 

and mortar; we are using our resources on the ground—and to 

watch how they gain new sales, how they took on that business expansion, and how they successfully grew their business to the next 

level as a result of this program has been the impetus to make this 

request for a substantial expansion the program we now run and 

other partners run. 

Chair LANDRIEU. Yes, and I just want to underscore that because 

I have been following closely the Goldman Sachs initiatives, the 

Google initiatives, with a lot of excitement; and I am hoping that 

we are not reinventing the wheel because there are models out 

there where I think Google went into 30 cities—New Orleans was 

one which is what got my attention but I was interested even before they came into New Orleans, working with the local commu-
12 

nity colleges to give an opportunity for 30 or 40 businesses that already existed but wanted to expand but just did not happen either 

the confidence, the marketing skills, or the ability to take their 

business to the next step. 

I am very interested in having a hearing at some point, a roundtable, to get some information back about the success or lack thereof of those programs. I have heard they are very successful but I 

would like to get it officially on the record. 

Are you modeling this program in some ways after that or other 

programs that you just want to mentions as touchstones or models 

that you have in mind? 

Ms. MILLS. Yes, Senator. We are collaborating with Goldman 

Sachs, 10,000 Small Businesses, with the Kauffman Foundation, 

FastTrac, and with community colleges. The curriculum is the 

same model, and it is the same nine-month intensive. 

But we have the capacity to expand this beyond where Goldman 

Sachs and others have taken it for a very good bang for the taxpayer buck because we have such a strong existing network of 

Small Business Development Centers and SCORE partners out 

there to help us deliver the curriculum. 

Chair LANDRIEU. My last question before returning it to the 

Ranking Member and then to others here, give us a few minutes 

on the 504 refinance program and why this is so important. 

Our real estate markets have not yet recovered fully, there are 

some markets that are stronger than others. And I know this is 

really under the jurisdiction of the Finance Committee and us as 

well as a finance issue. But give us a bit about the 504 loan program, why it is important. 

And Johnny Isakson and I have introduced a bill to reinstate it 

as you know for one year. I would actually like to see a five-year 

extension because by the time you do it and people know about it, 

half the year is over and then they cannot get their applications 

through. I would like a three- or a five-year extension. 

If we decide it works, then we should make it work, not decide 

it works and give them one year. So, give us, you know, your best 

thoughts about the 504 program? And is it has effective as I believe 

that it is? 

Ms. MILLS. Yes. 504 refi program has been very effective. The 

program ended September 30 when the Small Business Jobs Act 

expired, and it was extremely successful. We had 2700 loans that 

were made for over $2 and a half billion and we had 200 lending 

partners making those loans with us. 

Demand still exists in the marketplace because commercial real 

estate prices are still depressed. In the last day of the program in 

2012, we had over 400 projects pending work and about 500 million 

that did not get funded. So, we have requested an extension of the 

program. 

I want to make the point that this program has zero cost to taxpayers. It operates at zero cost because we have as adjusted fee 

flexibility to cover the projected costs. 

What it does, as you described in your opening remarks, is it allows a small business owner to unlock the equity value in their 

real estate and use it for working capital financing and to take ad-
13 

vantage of low mortgage rates that exist today and move their 

business to the next level. 

So, we think this is an very important and effective program and 

once again zero budget impact. 

Chair LANDRIEU. Senator. 

Senator RISCH. Thank you very much, Madam Chairman. 

You heard my opening statements, Ms. Mills, that the thing I get 

all the time from small businesses is ‘‘you have got to help me on 

this Obamacare.’’ What happens if a small business owner walks 

into an SBA office and says: ‘‘Look, Obamacare is killing me; help 

me get out from underneath this. I do not have a gaggle of lawyers 

or accountants to help me. What can I do? Help me get around 

this?’’ What do you tell them? 

Ms. MILLS. Well, let me assure you—— 

Senator RISCH. Toughen up? 

Ms. MILLS. Senator, no—that we are very, very active with small 

businesses and the Affordable Care Act because access to affordable health care is the number one concern, as you know, of small 

businesses all over the country. Their major concern is that they 

pay 18 percent more than big companies just because they are 

small. 

With the Affordable Care Act, over 96 percent of small businesses will be exempt from any of the employer responsibility requirements. But there is an opportunity with the marketplaces 

that are opening this summer for many small businesses to get access to more affordable health care because there are going to be 

insurance companies bidding on their business in an open and competitive environment. 

Right now if you are a small businessman and you want to provide health care, you can barely get a quote. Now, if you have an 

Affordable Care Act marketplace which will exist in every state, by 

next fall there will be enrollment; and by next January, small businesses will have the opportunity, not the requirement, but the opportunity to participate and buy their health care on those exchanges. 

Senator RISCH. We are not communicating. 

Your statement that you said, ‘‘Senator, you know that the access 

to quality health care is the number one concern of small businesses in America,’’ did I hear you right on that? 

Ms. MILLS. That is correct, according to NFIB since 1987. 

Senator RISCH. Thank you. 

Well, let me tell you what they tell me is their number one concern—staying in business because they cannot compete when the 

government tells them they have to spend money on something 

they do not want to spend money on, or they want to spend the 

money they want to spend it; not the way Washington, D.C., and 

the people who work here, tell them they have to do business. 

I guess that is what I am looking for. You know that businesses 

all over America are trying to get out from under this. They are 

trying to get away from it. They are trying to get around it. They 

are not embracing this. You do not see anybody coming up and 

hugging this stack of documents and say ‘‘Look, this is what I want 

to do.’’ They want to get away from this. 
14 

So, how do you counsel them? How do you tell them, ‘‘Look, do 

not give me this stuff about standing in line to get another health 

care policy or I am going to apply for this.’’ They say, ‘‘Look, I do 

not want to do it. I do not want anything to do with the Federal 

Government telling me what I have got to do.’’ Help me out here, 

because I get this all the time. 

You know, of course, my defense is real easy. I say I did not vote 

for this. No Republican in this institution voted for this. But, you 

know, it is not as easy for you since you are part of the Administration. 

What do you tell them? 

Ms. MILLS. Well, let us be clear. For over 95 percent of small 

businesses, there will be no change. They will not have to provide 

any different health care or provide health care at all under the Affordable Care Act. 

One of the issues that we have is that many small businesses do 

not have good information. At the SBA, we are aggressively providing information to small businesses both in person and on our 

website. So, at SBA.gov and at healthcare.gov, we have very clear 

and detailed explanations that a small business can walk through 

to see what the effect might be and the opportunity might be for 

them. 

One of the things that we have seen is that many small businesses do not know that they are eligible for a health care tax credit. One of our jobs is to walk them through their eligibility and see 

if they are. 

Any small business that you come to who has these concerns, 

please send them to our office. We are educated and equipped to 

walk them through, to provide any kind of service that they need 

to understand what access and opportunity they might as a result 

of this Affordable Care Act. 

Senator RISCH. Well, I appreciate that, and you tell me that you 

will provide them with any kind of services that they want to help 

them in this area? 

Ms. MILLS. Yes, we have an outreach on information. We are prepared throughout our network, we are educating our entire network because, as you have described, small businesses do not have 

a lot of capacity to work through and understand things. We will 

be there for them 

Senator RISCH. So, to be clear, you will help them and counsel 

them as to how to get around this so they do not have to comply 

with the requirements from the Federal Government? You will help 

them do that? 

Ms. MILLS. Let me be clear, that is not what I said. 

Senator RISCH. Okay. I am done here. 

Thank you, Madam Chair. 

Chair LANDRIEU. Thank you. 

Senator Shaheen. 

Senator SHAHEEN. Thank you very much, Chair Landrieu. 

I want to begin by recognizing Administrator Mills for all of the 

great work that you have done at SBA since you have taken on 

that task. As you said, this is probably the last time that you will 

come before this Committee, and I have very much enjoyed working with you and the willingness you have had to get out to come 
15 

to New Hampshire, to hear from our small businesses about what 

their concerns are. So, we will miss you. 

New Hampshire is very much a small business state, as you 

know. 96 percent of our employers are small businesses, and so, we 

are very concerned about what is in SBA’s budget for the upcoming 

year. 

Like Senator Landrieu, I was pleased to see that the budget calls 

for reauthorizing the 504 refinancing program. I am a cosponsor 

with Senators Landrieu and Isakson of that legislation. I think it 

is very important. 

There were some things in the budget proposal, however, that I 

was very concerned about. Like Senator Landrieu, I was concerned 

that the STEP program to help small businesses with exporting 

was not funded again. As she said so well, one percent of small and 

medium-sized businesses do business outside of the United States 

but 95 percent of the markets are outside of the United States. So, 

the more we can do to help our small businesses with getting into 

those international markets the better they are going to do. 

I was also, frankly, very concerned to see that there was a new 

program being funded around entrepreneurship. I think that is 

very important. But I think it comes at a cost to the programs 

within SBA that are already working very well. 

The Small Business Development Centers, I was disappointed to 

see the cut there that SCORE and the Women’s Business Centers 

were cut because in New Hampshire we are seeing that our SBDC 

is going to have to lay off people. 

I just think it does not make sense for us to start a new program 

when we have got these programs that are working very well and 

we are short funding them to start a new program. I think we 

ought to be looking at doing everything we can to ensure that our 

SBDCs and our SCORE program, our Women’s Business Centers 

are funded at the level that allows them to support as many businesses as we can. 

So, I wonder if you could give me some insights into the thinking 

behind the Administration in reducing funding for what is working 

to start a new program. 

Ms. MILLS. I think it is important that we clarify exactly what 

we are doing here. Number one, this is not a new bricks and mortar program. This is a new initiative that is actually executed by 

the resource partners that you describe. 

So, I do not think it would be correct to characterize it as taking 

away from our terrific resource partners that are out there. In fact, 

what we did when we came into the SBA is remove silos and encourage collaboration because we need to make sure every dollar 

gets used many different ways and we have fabulous resource partners but they were not working together. Now, they are. 

The next step after that collaboration was really solidified on the 

ground is to use what I call our bone structure to build new capacity collaboratively, not just one silo by itself, in a way that will 

really drive the needs of small business in job creation. That is 

what you see here with our educational initiative program. 

It will be done by a collaborative group of SCORE, Small Business Development Centers, and our community colleges that are in 
16 

the area, and we will be able to measure it and share best practices 

in a much more efficient way in the way that we proposed here. 

And I want to say, we have the same levels of proposal for our 

resources partners in this budget that we have had in past budgets. So, we are not trying to in any way diminish the importance 

or the strength of their role. 

Senator SHAHEEN. That is actually not my understanding. As we 

looked at the budget, we saw that the Small Business Development 

Centers would be funded with a $9.8 million decrease from fiscal 

year 2012 and that the Women’s Business Centers and SCORE 

would receive similar cuts which is about eight percent. 

I certainly applaud the effort to reduce the silos. I think we all 

agree that that is very important and that is a better way to help 

the folks who come to the SBA. 

But the fact is, if the SBDCs have to lay off people or if SCORE 

cannot function, then they are not going to be able to help with this 

new program even though I appreciate it is not bricks and mortar 

but the people are not there to do the current work under the layoffs required by sequestration. 

And so, I would urge the Administration to take another look at 

whether funding something new while we are decreasing funding 

for our programs that we know work makes sense. 

Thank you very much. 

Chair LANDRIEU. Senator Cardin. 

Senator CARDIN. Thank you, Chair Landrieu. 

Administrator Mills, I also want to add my congratulations for 

your extraordinary leadership at SBA and your public service. 

You point out in your testimony that you are proud that small 

businesses are interacting with a different SBA, one that is customer focused, more data driven and more transparent. 

I want to add that the SBA has become an effective advocate for 

small business and that advocacy is not only in the public. It is 

also within the Administration. 

The $32 billion of additional procurement is a testimony to your 

leadership in the transformation of the SBA. So, I congratulate you 

for that. I am proud also the way you have worked with this Committee. Senator Landrieu and your leadership, together we have 

made a huge difference in helping small business and we are proud 

of that record. 

We strengthened the tools that you have. The borrowing tools absolutely have been more effective. The numbers show that the direct participation by SBA has made a huge difference in those programs. 

I am proud of the surety bond increase. We have gone now up 

to 6.5 million from 2 million and the role that that has played in 

providing more opportunities for small businesses, and, yes, the 

passage of the Affordable Care Act, which has provided an opportunity for small businesses today who have been shut out of the 

competitive market to be able to get into a competitive market to 

provide health benefits for their employees and to do it in an affordable way with a credit and a more accurate premiums. 

Senator Risch is right. Small businesses principal objective is to 

stay in business, to expand, and do what they do; and you are cor-
17 

rect that historically the number one challenge has been affordable 

health care. 

I think, though, in recent years that has taken second place to 

access to capital, and I just want to talk about that for a moment 

because as much progress as SBA has made in its direct programs, 

assisted by Congress changing the laws, giving you stronger tools 

and the more resources, it is still the number one issue I hear 

prompts all businesses. 

I had two or three small business forums over the last week in 

Maryland in all parts of our state, and the number one issue I hear 

is that it is so difficult in the private sector to get access to capital 

as a small business even though the money is there. 

The community banks are still not loaning the way that they 

should be loaning. I know that the Obama Administration has had 

an initiative to try to change that. I do not think it has been effective. 

What I would like to learn from you is what can we do to make 

it easier for small businesses to get access to capital. I know some 

of this is not within the jurisdiction of the Small Business Administration. A lot of this has to do with the banking issues. 

I had suggested in the last Congress to give you the authority 

for direct loans. Now, you were not exactly excited about this or let 

me say the Administration was not exactly excited about it. 

I think the money would have been better focused and would 

have done a better job quite frankly if you had any control over it 

rather than the way the Administration went forward with it. 

But it is still a problem and we have got to do a better job if we 

are going to be able to unleash those startup companies to create 

the jobs and, and the innovation that keeps America competitive. 

And if we want to see the expansion of small businesses and job 

growth in this country, they have to get access, more access to the 

private sector markets that are still being denied. 

Any advice on how we can try to do a better job in that area. 

Ms. MILLS. Thank you, Senator. We have actually two pieces of 

the budget that speak directly to access to capital and to opening 

up more loans for more banks. 

The first is that we are eliminating fees on the loans under 

$150,000. When, as you know, four years ago the credit markets 

froze, we came in with a program and reduced or eliminated fees 

on almost all our loans, and that was very, very successful in the 

Recovery Act. 

We are now coming off two record years of SBA lending, but one 

segment has not responded. There is a gap in loans under 

$250,000. In fact, they were reduced by about two-thirds in 2009 

and they have remained at that level. 

So, we are going to take a proven method which is to eliminate 

fees, and we know that that will drive more activity of small business to the banks, and we are going to be able to, we hope, fill the 

gap for loans under $250,000—under 150,000. 

In addition, the second program is called SBA ONE, and that is 

to make a more seamless front end of the loan process, one single 

application for all the different kinds of SBA loans. What will that 

do? 
18 

That will allow more banks to do more SBA loans, particularly 

the smaller loans, in more areas of the country because it will be 

simpler and cheaper to process without taking on additional risk. 

Senator CARDIN. Would you make sure that we are kept informed as to how well this is working so that we can be your partner. We want you to succeed in these programs, believe me we do. 

I saw the letter that you wrote to Chairman Mikulski on the effects of sequestration. 

I am deeply concerned, Madam Chair, as to how sequestration is 

going to affect the availability of credit to small businesses because 

it is going to contract your capacity. I still believe this is an area 

that this Committee needs to weigh in. 

You have been extremely effective, when other Committees have 

moved legislation, to sensitize it to small business. I would hope we 

will find some opportunities in this Congress to do exactly that, 

and I believe access to capital is still one area we need to focus on. 

Chair LANDRIEU. Thank you, Senator Cardin. 

Senator Cowan. 

Senator COWAN. Thank you, Madam Chair. 

Administrator Mills. Madam Chair, with your indulgence, before 

I begin my questioning of the Administrator, I just want to take 

this opportunity, my first, to thank everyone on this Committee 

and in the Senate and the Congress, frankly in the Nation for their 

outpouring of concern and support for the people of Boston and 

Massachusetts in the wake of the bombing incidents on Monday. 

I know you all follow the news. You see the latest updates. It 

was a tragedy in the sense that we lost lives. People lost limbs, and 

we still have people in critical condition. 

But it is worth saying here because it needs to be said and will 

be said many times over, the people of Boston and Massachusetts 

are resilient. We will bounce back. 

This appears to be an act of terror, but we will not be terrorized. 

We will move forward. I thank you all for your support. 

Chair LANDRIEU. Thank you. And, Senator, let me just say, I was 

remiss in not mentioning or noting that in my opening remarks. 

You know, our thoughts and prayers are with those who have been 

injured. It was such a tragic day on such a happy and celebratory 

day in Boston. 

I was literally, as you know, just there last week with the Administrator celebrating, I think it was the 50th anniversary of 

women being allowed into Harvard Law School and the celebration 

of some extraordinary entrepreneurship that your State and your 

city and your area are leading. 

So, it was particularly heart-felt to have literally just left the 

community last week. But our support will be there and if there 

is anything we can do to assist you and your delegation, please let 

us know 

Senator COWAN. Thank you, Madam Chair. 

Administrator, sort of brings up an issue around disaster relief, 

small business, SBA disaster relief funding. It remains to be seen 

what people scope of the damages will be in greater Boston as a 

result of this incident on Monday, and I am wondering if you might 

be able to comment on your thoughts about whether the budget 

proposal as it relates to disaster relief funding is sufficient gen-
19 

erally speaking for the anticipated needs but frankly may be sufficient for these unexpected circumstances. 

And if you also comment, as you know, you and I have spoken 

before about availability of disaster relief funding for an important 

industry in Massachusetts, the fishing industry, and I would love 

your thoughts on both of those issues please. 

Ms. MILLS. Well, thank you, Senator, and thank you for mentioning the difficult days in Boston. I grew up in Boston and my 

son, all my children are in Boston, and my son was at the marathon and had left, and my sister lives a block and a half away. 

So, it has been a difficult time, and the outpouring of support 

and the spirit of Boston I think shown through in a positive way. 

In terms of disaster operations, as you know, we have just come 

into the last stages of the support for a very dramatic disaster in 

Hurricane Sandy. I am very pleased to say that we were able to 

perform very, very strongly in this disaster particularly by comparison to the way we were able to perform five years ago. 

We have transformed our disaster operations since Hurricane 

Katrina. We now have 2000 ready reserve staff versus about 880 

during Katrina. We have a facility that we filled up during this disaster of 2100 seats when we only five years ago had 366 seats 

available. 

Back in Katrina it took us 72 days on average to process a loan. 

Now, in general, it takes us on average eight days; and going 

Sandy it was 29 days. So, we are working continuously to be ready 

particularly for a very difficult and encompassing disaster like 

Sandy. 

There is a chart in the materials I gave that shows that this is 

the third largest disaster in the history of our disaster operations 

and we have already put forward over $2.2 billion in loans and 

loan guarantees. 

We have asked in our budget request for the ability to continue 

in the post-Sandy environment. It is now flood season. It is tornado 

season. It will soon be hurricane season, and we will stand ready 

to perform again. 

With respect to the fisheries, I believe our staff and your staff 

and the staff from NOAA met yesterday and I am happy to get 

back to you with the results of those meetings and what we can 

do about the fisheries. 

Senator COWAN. Thank you. If I could pick up on the exchange 

that you had with Senator Shaheen about Small Business Development Centers. Looking at the budget as I understand it, there is 

a proposed reduction, and as it would impact Massachusetts, that 

reduction would be enough to close one of our centers. 

I am wondering. As you look ahead and doing your planning, 

your thinking about your budget, how might we who are going to 

be impacted in this way working with SBA mitigate the costs of 

those reductions as they impact those centers? 

Ms. MILLS. Thank you for the opportunity to again clarify what 

is requested in this budget. 

Number one, what I said was that we continue to ask each year 

in our requests for a similar level for our resource partners; and 

one of the reasons why we have done the budget this way is that 
20 

that will not be all the money that are going to our resource partners. 

We fully expect our resource partners and their collaborators to come forward and be the recipients of the $40 million and other 

funding, perhaps even the accelerator funding, depending on the 

proposal, as they stay the leaders in their community on entrepreneurship, education delivery. 

The reason that we can be so effective in delivering a program 

like this is that we will do it through our existing bone structure. 

This is not a new bricks and mortar program. 

So, we will work with all of the Small Business Development 

Centers to make sure that they understand how to access resources 

to deliver the best bang for the buck in terms of entrepreneurial 

education that will help particularly this segment of existing businesses that have expansion opportunities grow, and succeed, and 

create jobs. 

Senator COWAN. Thank you for the further clarification. 

Chair LANDRIEU. Let me just follow up with you, and thank you, 

Senator, for raising disasters. I will get to that in a minute but one 

more question on accelerators. 

Is it the concept of this program to direct your bone structure to 

develop specific partners in each community to deliver high-quality 

entrepreneurship education? Is that how you are going to structure 

this program? 

In other words, they are partners, community colleges. They are 

offices of the mayors. They are economic development offices funded by the state. They are other large corporations that would have 

some interest whether through their foundations or otherwise to be 

engaged in such an activity. 

Could you try to drill down a little bit more about how exactly this $40 million is going to be spent, taking one segment or one 

area of the country? 

Ms. MILLS. Senator, first let me clarify. I will talk about accelera- tors separately in a second. But on the $40 million entrepreneurship education, we are planning to leverage our resource partner 

network, and the way this program would operate is, based on the 

fundamental proven models that we have from Goldman Sachs, 

10,000 Small Businesses, from the e200 curriculum that has been 

proven successful with metrics and from the Kauffman FastTrac 

program and others like Google, we will ask our resource partners 

to align together to develop locally the best delivery mechanism. 

That may well vary by region, but most often we anticipate that 

our resources will be those best equipped to deliver this mini-MBA, 

this intensive entrepreneurship education. 

And where we are doing it now, I was just in Ithaca and I asked 

a gentleman who had just completed the program who was there, 

you know, and I turned to the Small Business Development Center 

person, were you involved, the answer was yes. 

So, they are already involved and engaged in this, in the program where it exists as e200. We know that, I want to emphasize, 

this is not an either/or. It is a both/and. 

Chair LANDRIEU. Okay. The Economic Development Administration in the Department of Commerce also does some granting and 

program development for entrepreneurs. 
21 

The President has been commented, in fact, in several of speeches before the Congress about streamlining and not duplicating. 

So, can you just comment for a minute about what your knowledge is of what the Department of Commerce does for entrepreneurs, how the SBA programs are little different, if they are, so 

that we can respond to these claims or these challenges? [chart] 

Ms. MILLS. Just like we have worked on no silos within the SBA, 

we have actually worked on no silos across the administration. We 

are partnered very, very closely with the Department of Commerce 

on manufacturing, on our clusters, on a whole series of activities 

on the ground, particularly with the Economic Development Authority, EDA. 

For example, we actually do joint solicitations for proposals with 

many other agencies, sometimes including Labor or EPA or others 

or the Defense Department for our cluster program. That is a 

model that we plan to continue and to move forward. 

We also are very, very closely tied to the Department of Commerce in our integrated export activity. We are on the ground. Our 

USEACs in the Department of Commerce export people and Import-Export Bank have joint products, joint activities, joint objectives to deliver more. 

Chair LANDRIEU. Thank you. Let me get another question in and 

we are going to move to our second panel in just a moment. If the 

Senator from Massachusetts has additional questions, I will acknowledge him in just a moment. 

But, let me go back to disasters because after I believe Isaac it 

might have been, yes, it was before Sandy, several of the members, 

leaders from the House and the Senate, passed some additional authorizations giving you authority to set up quick loans, small loans. 

And, I understand that that program has not yet been established. It has been over five years and I do not believe, I do not 

believe that those programs have been put in place. 

In fact, it was the 2008 Farm Bill provided a provision for a 

$150,000 bridge loan to recovery-related businesses. Could you 

please comment about why it is taking your administration so long 

to get these quick disaster loans in place, or is our information incorrect? 

Ms. MILLS. I am happy to arrange a detailed update for you. We 

have, in fact, made progress on this; and I think the objective has 

been to implement it in a way that does not duplicate or add cost 

to existing programs and to figure out the right public-private partnerships. These would be public-private partnerships with banks 

that would implement this. 

I do know, and we will give you further updates, that this is further along in progress and was part of the discussions, if not the 

actions, during the recent Sandy activity. 

Chair LANDRIEU. Because I think the Senator from Massachusetts will agree with me that, you know, after a disaster, businesses are really struggling to make a decision whether to come 

back or not. 

And until the businesses come back, home owners do not feel 

comfortable coming back because there is no signal that their community will rebound. 
22 

So, why would you invest which is what—most families, their entire net worth or a large part of it is wrapped up in the equity in 

their home. So, why would you risk your entire net worth or a 

large part of it to come back to a community that is no longer going 

to exist? And the signs of a community existing again are when the 

barber shop opens and the restaurant opens and the gas station 

opens and, you know, the beauty salon opens again. 

And if they do not open, it gives a very negative signal to homeowners that are trying to say should I take my $500,000 insurance 

or $250,000 insurance and rebuild here or on behalf of my children 

and grandchildren this is their money as well as mine, most parents feel that way, should I take it somewhere else? 

So, I have become a passionate advocate, Senator Cowan, as you 

can imagine having gone through what we went through to get low 

interest loans or grants, a combination of loans and grants into the 

hands of businesses that, in my mind, are part of the recovery. It 

is part of the investment to recover in the community, of course, 

that we want to recover which is 99.9 percent. 

Maybe you are out on an island somewhere out in the middle of 

the ocean where you should not have built anyway and that is a 

whole different matter. But when you are in downtown, you know, 

Brooklyn or you are in downtown Boston or you are in downtown 

New Orleans, most certainly you want to come back. 

So, I am going to ask you the staff to really press this issue for 

quick, smart, outlays to pioneering businesses, and I hope that you 

will work with us on that. 

Thank you. 

Ms. MILLS. Senator, I did just want, on a personal note, thank 

you for your leadership in all of our disaster recovery thinking and 

operations. You and I traveled very early on in my tenure down to 

some severely affected areas and you talked about recovery, really 

took note of many of the things that we discussed on that trip; and 

even in recent times as we put forward the recovery task force on 

Sandy, those words were resonating with me. 

So, thank you for your leadership. 

Chair LANDRIEU. Well, thank you. I am going to continue to push 

this because of the horrors that I witnessed personally. 

And again following up on the Senator from Massachusetts, if 

your staff could provide us with some of your best thinking about 

fisheries, I think it is an industry that gets lost between agriculture of which it is a part of what but it is not really their core 

and it is such a unique business but a business that is very important to the economies of many of our coastal communities, Senator, 

but more than the economy, the culture of our communities. 

So, I am going to ask your staff to submit some additional information to this Committee about your best thinking about what 

could be done after a storm. And, Senator, do you want to add anything to this, based on your experience with some of your, you 

know, fisheries, the importance of getting loans to them when their 

boats are wrecked, their nets are destroyed, their customers are 

gone. 

How in the heck do they walk into a bank and say I would like 

a $200,000 loan. They say, well, who are you going to sell your fish 
23 

to, where is your boat, and what happened to your nets? And it is 

a sad story from there. 

Senator COWAN. Thank you for that, Madam Chair, and I thank 

you for those comments and your concern, heartfelt and genuine, 

for the fishing industry. And I know that Administrator Mills 

knows that industry well from her time in Massachusetts and we 

spent a lot of time talking about it. 

And you are right. It can get lost sometimes between Committees. But I manage to find a way no matter where I am and no 

matter what the Committee to raise it, and I will continue to as 

long as I am here as I am sure my colleagues from Massachusetts 

will. 

The only thing I would add in addition to your powerful comments, Madam Chair, is that, you know, the fishing industry are 

not just the men and women, the families who own the boat and 

the nets, and they are very important. 

But there is a corollary industry, the seaside industry, the shoreside industry. Those small businesses who are impacted as much 

as the boats and others, and I know that Administrator Mills is 

very mindful of that and I look forward to continuing dialogue and 

the additional information you might be able to offer us there. 

Ms. MILLS. Thank you. Being now a resident of the great State 

of Maine, I share your concern about the fisheries. 

Chair LANDRIEU. Okay. Thank you very much, Administrator. 

You have been very generous with your time. 

I think we have a second panel. 

[Pause.] 

Let us just stand at ease for just a minute. My staff is going to 

go check this message. We may take a recess but let us just sit 

calmly for a one second. Would the staff go check this please? 

Thank you all for coming is morning. 

Let us go ahead and take a seat. As announced, there is a package that is being investigated on the third floor of Russell, but we 

have been advised to continue on. If that changes, I will let you all 

know and we will take a brief break. 

Before we start with our second panel, let me just put into the 

record some interesting information about the small business lending fund. This program has been highly criticized and it was the 

first time we attempted to do it. 

It is a program that no longer exists. But I want to put into the 

record the details that we have recently received about the increase 

in lending that was generated by this program. 

Although it did not meet the $30 billion lending target, I think 

we ended up through this program lending only for $4 to 5 billion, 

and some of the banks used this money to pay their TARP loans 

back. 

It is interesting to see, as the data comes in, that the increase 

in funding for small business went up significantly relative to peer 

banks that did not receive or participate in the SBA program, significantly in every part of the country. 

So, it is not the subject of this hearing but I wanted to get into 

the record. [charts] 

Our second panel is Peggy Gustafson, our Inspector General. Ms. 

Gustafson previously served as General Counsel in the Missouri 
24 

State Auditor’s Office and was Chair of the Insurance Fraud Task 

Force. 

I think, Ms. Gustafson, you have done an outstanding job in the 

current position that you are in. You have given us a lot of good 

information and data about how to eliminate programs that do not 

work, identifying fraud and abuse where it exists and streamlining 

our operations. 

That is the role of the Inspector General, and I thank you very 

much for your professional help. 

Next we are joined by Dr. Winslow Sargeant from the Small 

Business Administrator Office of Advocacy. Of course, your office 

was created to be an advocate for small business when they have 

trouble with the Federal Government and rules and regulations 

that you can help them to navigate because we want to be a more, 

I do at least, want to be a more friendly government to small businesses and be a help and not a hindrance. 

There have been some issues raised that I know you are going 

to want to comment on but let us start with you, Ms. Gustafson, 

for your response to our Committee based on the budget that has 

been submitted by the agency. 

What do you think its strengths are? What do you think its 

weaknesses are? And are there any areas that this Committee 

should be focused on in terms of rooting out any fraud or corruption or waste? 

STATEMENT OF HON. PEGGY E. GUSTAFSON, INSPECTOR 

GENERAL, U.S. SMALL BUSINESS ADMINISTRATION 

Ms. GUSTAFSON. Thank you, Chair Landrieu, Ranking Member 

Risch and distinguished members of the Committee. Thank you for 

the opportunity to be here today and for your continued support of 

the work of the Office of the Inspector General. 

I am very proud to represent the dedicated men and women of 

the SBA OIG. As you know, our office is an independent office 

within the Small Business Administration. We conduct and supervise audits, inspections, and investigations relating to SBA programs and supporting operations. 

We seek to detect and to prevent waste, fraud, and abuse, and 

promote economy, efficiency, and effectiveness in the administration and management of the SBA’s programs. 

I believe that our investigations and reports, recommendations 

are having a very positive impact on the integrity of SBA programs 

and that the results from our work are measurable. 

During fiscal year 2012, the Office of Inspector General issued 22 

reports containing 126 recommendations for improving SBA operations, reducing fraud and unnecessary losses, and recovering 

funds. In addition, OIG investigations have led to 59 indictments 

and 59 convictions of subjects who defrauded the Federal Government. 

In all, the Office of the Inspector General efforts resulted in more 

than $90 million in office-wide dollar accomplishments during fiscal 

year 2012. 

Our fiscal year 2012 operating budget was $17.3 million which 

included a $1 million transfer from the agency’s disaster loan program account which means that the total office-wide dollar accom-
25 

plishments represent a more than fivefold return on investment in 

the Office of the Inspector General to the taxpayers. 

Though these figures are reassuring that our work is focused on 

the areas of high risk within the agency, I remain concerned about 

the continued financial and operational risks facing the agency. 

For example, in the 7(a) and 504 lending programs, the max- imum allowable guarantee per loan has grown from $2 million to 

$5 million and for manufacturers in the 504 loan program up to $5 

and a half million, which, of course, means that there has been a 

dramatic expansion of the potential exposure to the taxpayer 

should these loans default. 

This exposure, combined with a swollen portfolio and limited 

agency oversight, increased the possibility of future losses. 

SBA’s payments of guarantees on defaulted loans are significantly higher than a baseline of fiscal year 2007 when there was 

$1 billion in guarantees paid, up to a high of $5 billion in 2010, 

$3.4 billion in fiscal year 2011, and $2.6 billion in fiscal year 2012. 

It is noted that these figures are moving in the right direction 

though. 

In addition, SBA contracting programs continue to be subject to 

fraud and weak federal oversight. And finally, shortcomings in the 

agencies IT systems might hinder SBA’s ability to effectively manage their programs. 

I appreciate the opportunity to discuss how the OIG proposes to 

address the noted and persisting risks. As with last year’s fiscal 

year 2013 budget request, the President has requested a $3.1 million increase in the OIG’s fiscal year 2014 budget. 

We are poised to use additional resources to effectively target 

early defaulted loans, fraud, and lender negligence and to increase 

the capacity of our existing investigative personnel. In particular, 

additional resources would allow the OIG to establish a dedicated 

early defaulted loan review group to identify problem loans, would 

enhance our investigative capacity and enhance the OIG Hotline 

operations. 

When lender negligence is found, the early defaulted loan review 

group would recommend nonpayment of the guarantee, target the 

most offending lenders to obtain corrective actions and perhaps 

most importantly identify trends for operational improvement by 

SBA. It would also allow these loans to be referred to criminal investigators for possible prosecution. 

My office handles an average of 250 criminal and civil fraud investigations per year. Annually, we attain multiple indictments 

and convictions and recoveries of tens of millions of dollars. 

However, additional investigative support would enhance our existing investigative capacity and allow more effective utilization of 

the existing investigative resources in a cost-effective manner. 

Finally, regarding our hotline operation which is very often the 

one way that citizens contact our office with allegations of waste, 

fraud, or abuse, in fiscal year 2012, 535 hotline complaints were received by OIG and they were processed by just one professional 

staff member. 

Additional staff resources are required to adequately analyze incoming complaints for possible referral, for investigation and other 

resolution. 
26 

In short, much work has been done but much more work remains 

to be done. The providing of additional resources at OIG undoubtedly would be met with a significant return on investment to the 

taxpayer and also a better SBA. 

So, I thank you again for the opportunity to speak to you and I 

look forward to your questions. 

[The prepared statement of Ms. Gustafson follows:] 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 

Chair LANDRIEU. Thank you. 

Mr. Sargeant. 

STATEMENT OF HON. WINSLOW SARGEANT, CHIEF COUNSEL 

FOR ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION 

Mr. SARGEANT. Chair Landrieu, Ranking Member Risch and 

members of the Committee, good morning. Thank you for the opportunity to appear today to discuss the Office of Advocacy’s budget 

request for fiscal year 2014. In the interest of time, I will summarize my prepared remarks and ask that my full statement be included in the record. 

On behalf of the entire Advocacy team, I would like to again 

thank the Committee for its continued support for the Office of Advocacy. Underscoring this support was the establishment of a separate account for Advocacy in addition to a requirement that SBA 

provide the operating support for our office. 

These provisions have enhanced our independence and have increased transparency for our many stakeholders on our costs and 

operations. The Office of Advocacy’s budget submission is part of 

the president’s request for SBA and the government as a whole. 

Since my testimony is not circulated for comment through OMB 

or other federal offices, my views on matters other than the official 

budget requests do not necessarily reflect the position of the Administration or SBA. 

For fiscal year 2014, the Office of Advocacy requests $8.45 million for our direct expenses. In recognition of the need for federal 

agencies to reduce their budget requests during the current economic condition, this represents a reduction $191,000 or 2.2 percent from our fiscal year 2013 enacted level. This amount includes $7.3 million for personnel costs. $700,000 

will be allocated for economic research. The balance of our requests, $395,000, covers all other direct expenses including travel, 

training, office supplies, subscriptions for legal and economic research resources and other miscellaneous expenses. 

With 95 percent of Advocacy’s total budget request concentrated 

on staffing and research, any significant reduction from the amount 

requested must come from one or both of these areas. 

Advocacy’s professional staff is our most important resource. We 

cannot accomplish our important mission without them. Therefore, 

the majority of Advocacy’s funding reduction is coming from our 

budget for economic research. 

As a result, we are expecting a modest reduction in the number 

of research reports or data products in fiscal year 2014 from 25 to 

20. 

I would like to conclude by citing a benchmark that demonstrates 

what a good investment Advocacy is for America’s taxpayers. On 

average during the most recent five years from which we have final 

data from fiscal year 2008 to fiscal year 2012, each $981 Congress 

has spent on Advocacy has yielded $1 million in regulatory cost 

savings for America’s small businesses. 

Thank you again for your support of the Office of Advocacy. I 

look forward to continuing to work with you on issues of importance to small business and would be happy to answer any questions. 
40 

[The prepared statement of Mr. Sargeant follows:] 
41 
42 
43 
44 
45 
46 
47 

Chair LANDRIEU. Thank you. I am going to take five minutes for 

questioning and then turned it over to my Ranking Member and 

then to the Senators that are here. 

Ms. Gustafson, you said that the SBA has made no progress at 

all in your testimony to modernize the SBA’s loan accounting system and migrate it off the mainframe which is noted as challenge 

number 8 in your documents. As a result, you downgraded it from 

an orange to a red. 

Can you explain significance of this downgrade and elaborate on 

this challenge that the agency seems to not be able to make too 

much progress on? 

Ms. GUSTAFSON. Absolutely. The LMAS loan management accounting system computer platform has been a source of great concern for my office for several years. It is a very large program that 

is behind the times. Since 2005, we have noted that it is, it is an 

antiquated program that is very, very difficult to upgrade. 

It uses a COBOL-based language that hardly anybody knows and 

what we have been saying since 2005 is that it needs to be moved 

off the mainframe onto a more modern web-based environment. 

Now, the agency has made several attempts, several fits and 

starts to modernize the system. The estimates to modernize the 

system are in the hundreds of millions of dollars. It is a very big 

system. 

Now, the progress that has been made, to be fair, is a couple of 

years ago the agency decided to undertake this process in the way 

that we had been suggesting that they do it in and in a way that 

OMB is also moving all big IT projects towards which is do it in 

stages. 

Do not try to do hundreds of millions of dollars all at once. If you 

make a mistake, then all of a sudden you find you spent hundreds 

of millions of dollars or tens of millions of dollars and you have to 

start over; and that, in fact, had happened. 

What has been happening recently is they now are taking it in 

incremental steps called incremental improvement projects, and 

there has been some progress made in the last year to begin to 

move it off the mainframe which is definitely a sign of progress. 

The moving to the red; there were three parts of the management challenge that moved to red that were of a concern to us, and 

are a concern to us, deal with the quality assurance program, the 

quality control program to make sure that all the checks are being 

done as it goes forward, independent verification and validation. 

It is crucial that those be paid very close attention to and that 

they make sure that those steps are done. I will tell you that I 

have been assured that progress will be made this year and I am 

very hopeful that that is the case. 

Chair LANDRIEU. But let me be very clear and I am going to do 

more reading on my own on this. But, is this the computer program 

that backs up the major lending programs that go through the 

banks in the country, the 7(a) and 504 and our lending partners? 

Ms. GUSTAFSON. Right. This is their management of the loans. 

Again, I believe that what they have shown is that they are beginning to move it again. It is when you think of an old mainframe 

system, you know, servers in a room, they are beginning to migrate 

to a web-based environment. 
48 

Chair LANDRIEU. Because, the reason I am pressing this, and I 

am going to really press this as an efficiency to achieve here is because technology is moving so quickly and so fast. 

And while you say that the estimates are that it will be hundreds of millions of dollars to change it, when I see businesses to 

changing technology, they might be spending a little bit more 

money but they are saving so much more money because the technology is now off the shelf. 

I cannot understand how large entities in this country, private 

entities, manage billions and trillions of dollars under management 

and have to track things just like this agency and they have been 

on a new system for over decades and we still cannot get to a new 

system. I am having a hard time figuring this out. 

I think the barrier of the estimate of the money is pushing them 

off when maybe there is a much simpler, much less expensive solution. I am going to ask my ranking member who is probably pretty 

good on this to give us some ideas about how to achieve this because, and any ideas that you have, please submit them. But I am 

going to spend a good bit of time the next couple of months on this. 

Let me just ask one more question. If you could, Mr. Sargeant, 

Dr. Sargent, give us, you know, two or three of your, real quickly, 

your best examples of regulations because that is what your office 

was created for. It was created before I got to be Chair of this Committee. It has been supported by Democrats and Republicans for 

many years. 

What have you been able to convince the Administration not to 

move forward with or several rules and regulations that you believe, and you could just mention two examples this year where you 

have been able to buffer some small businesses from regulations 

that either did not make sense or would have been too cumbersome. 

Mr. SARGEANT. Chair Landrieu, thank you for your leadership. 

Thank you for your support of small businesses. As you know, 

small businesses are the backbone of our economy. 

We are pleased that our research shows the contributions that 

small business owners make. And what we know is that small business owners seek to do what they do best which is to create jobs, 

create money, create wealth. 

And so, what we seek to do within the Office of Advocacy, which 

is what we were created to do, make sure that small businesses 

have a voice within the regulatory process. 

We believe very early on that good research, just like good research leads to sound regulation, by having more stakeholders 

within the process when the voices who are at the table are being 

regulated, we believe that—— 

Chair LANDRIEU. Can you give us two examples this year? And 

if you cannot off the top of your head, if you will submit those to 

us, two examples. 

Mr. SARGEANT. Well, two examples. One, we are pleased that the 

IRS made some changes to the home office deduction; 52 percent 

of all businesses are home-based businesses, and it was very complicated on how one would take advantage of the IRS home office 

deduction. So, we are pleased that this year alone that they came 

out, made sure—— 
49 

Chair LANDRIEU. Did you all do that administratively or did we 

do that legislatively? 

Mr. SARGEANT. Well, what we did, under Executive Order 13563, 

where the President asked for regulatory review and reform, we 

submitted what we heard from small businesses the things that 

they most thought was onerous and not clear, and so this was one 

of the rules and so we are pleased that that was repealed. 

We also were pleased, and this is near and dear to your heart 

with regard to the turtle exclusionary device. We met with NOAA. 

I went down to New Orleans, went on a shrimp boat and I saw 

that NOAA was going to move forward with the rule that would 

require this TED device to be on shrimpers and on skimmers. 

We know that the fisheries have been hard hit on a number of 

fronts, but this would have caused fishermen to lose their catch. 

And so what we did is that we had a roundtable, had NOAA on 

the phone. They were able to talk directly to the fishermen to say, 

well, this may not be the best way to move forward and we were 

pleased that they did not move forward. They are still going to collect data. So, that is two rules that we have worked on. 

Chair LANDRIEU. I am going to ask your office to submit for our 

review a list of about 20 very specific actions that you all took this 

year and I am going to review in your report how many actions 

that were taken that had the results of reducing regulations and 

I am going to turn it over to Senator Risch. 

Mr. SERGEANT. Okay. 

Senator RISCH. Thank you, Madam Chairman. 

I thank both of you for your service. These are critical services 

when the government is paying as much money as they are spending on these enterprises. We all know that money has a tendency 

to fall through the cracks and go places that people do not want 

it to go. 

So, thank you both for your service. 

I would like to help, Madam Chairman, on the computer matters 

but I would need my grandchildren here actually do give me a 

hand. 

Chair LANDRIEU. Well, maybe we should invite them because we 

need their help. 

Senator RISCH. Anyway, but we rely on experts like you for those 

kinds of things because again if somebody does not build a fire 

under them, they do not seem to get changed. 

Mr. Sargeant, how many people do you have in the Office of Advocacy? What is the total? 

Mr. SARGEANT. We have 46 full-time equivalents within the Office of Advocacy. 

Senator RISCH. 46 people. And I do not know how the chairman 

feels about this but I noted, as you pointed out, the fact that in the 

President’s proposal that your office was being cut; and at the same 

time that those cuts were being proposed, there is a proposal to 

add nine new programs in the SBA totaling just under $75 million. 

It would seem to me that your office ought to be increased; this 

thing ought to be reversed. It ought to be your office that is going 

up instead of down because obviously what I hear from businesses, 

small, medium, and large, is that the bureaucracy is killing them, 

that they are being smothered by the regulatory process. 
50 

A good example of that is Obamacare. You know, that was an almost 3000-page bill. It was given to us about 30 minutes before we 

voted on it. 

But the real atrocities have come after the bill and that is the 

regulatory process. I have brought in today, this is, they tell me, 

seven feet three inches tall, and it includes the rules and regulations for Obamacare. None of us voted on these. These were put 

into place by the bureaucracies as it attempts to make Obamacare 

work. 

Your job, as I understand it, is to see when there are proposals 

for rules and regulations, that they have as modest an impact as 

possible on small businesses. 

Is that one of your charges? 

Mr. SARGEANT. Yes, that is one of my charges. 

Senator RISCH. Have you guys looked at every one of these 

pages? 

Mr. SARGEANT. Well, we have looked at a number of rules that 

have come out under the ACA; and so, we work with DOL, we work 

with HHS, we work with the IRS, we work with SBA to make sure 

that they understand what impact the rules will have on small 

business. 

Senator RISCH. And have you had some successes in walking 

them backwards on any of these rules and regs, or do you just talk 

with them and they patronize you and pat you on the head and 

send you back to the offices? Have you had any successes? 

Mr. SARGEANT. Well, many of the rules that we have heard about 

from small businesses, mostly deal with not being sure of how to 

comply. And so, what we do is we work with agencies, not just on 

the rule itself but we make sure that small businesses will know 

how to comply, because we believe that once they know how to 

comply, then the rules will be effective. 

So, that is what we are trying to do, to make sure that the rules 

are written in plain language but also make sure that small businesses are at the table to give feedback to regulators so that they 

know how to make sure that these rules do not disproportionately 

impact small businesses. 

Senator RISCH. Perfect. Do you think you get that done with 46 

people? I mean, I look at this. I do not know how—and this is just 

one law. Obamacare. You have got to deal with the EPA. You have 

got to deal with the IRS. You have got to deal with all of the other 

regulatory agencies, and they tell me, although we pass about 

2,000 pages of law a year, that the bureaucracy produces about 

70,000 pages of rules and regulations. Do you get that done with 

46 people? 

Mr. SARGEANT. Well, we work with what we have; and right now 

with the budget, we are able to accomplish and work across agencies. We have a dedicated and a talented staff with many years of 

experience. 

We work with small businesses. We work with our regional advocates. Our charge is to make sure that we follow the Federal Register, see what is being posted. Many times the agencies will notify 

us if a rule will have a significant economic impact, under the RFA, 

as they have to contact us. 
51 

And so we make do with what we have. But, of course, the more 

responsibilities we take on, then we have to look and see how we 

can make the best use of our resources. 

Senator RISCH. Well, first of all, I cannot tell you how delighted 

I am to hear an agency say, we do the best we can with what we 

have. Believe me, that is what we ask out of every agency. I appreciate the no whining and the comment that you are doing the best 

you can. 

The difficulty I have is, if there is one agency that should whine 

a little bit, it looks like it should be you. I just cannot understand 

how 46 people can look at 70,000 pages of rules and regulations 

every year, especially when you look at something like this. I 

mean, I do not know how many Philadelphia lawyers it would take 

to go through this and look at the law of unintended consequences 

and all of the other things that flow from these kind of regulations. 

So, bless you for what you do but it just seems to me that it 

would take a lot more of an effort. Again, I want to underscore, 

Madam Chairman, and want to note for the record that this business of adding nine new programs and $75 million when these guys 

are laboring with just 46 people trying to help small businesses, I 

just think is really, really the wrong direction to be going. 

So again, my time is up even though the clock seems to be frozen. Thank you, Madam Chairman. I do not know how that happened. I do not usually get that kind of break here, but thanks so 

much and I appreciate that. 

Again, thank you for what you do and the same with you, Ms. 

Gustafson. Thank you so much. 

Chair LANDRIEU. Thank you for your comments. But, Senator, I 

would be remiss if I did not underscore, though, that there may be 

nine new initiatives but it is being done with less money than last 

year. 

And the government is dynamic and they have got to eliminate 

things that are not working and moved to proven models, and I 

think that is what we are seeing in this budget. 

Now, I am not completely convinced of this accelerator model yet; 

but if it were nine new programs and the budget was going up 20 

percent, that would be one thing but it is nine new programs within a lower dollar amount than last year. 

So, that is what I think we need to keep our eyes on, and I know 

you will join me in that, Senator. 

Senator RISCH. I will do that, Madam Chairman, and was it the 

growth accelerators that you have questions about? 

Chair LANDRIEU. Well, yes. 

Senator RISCH. That is only $5 million out of the $75 million. 

Chair LANDRIEU. It is $40 million I think but I do not know. 

Senator RISCH. That is the entrepreneurship education program. 

Chair LANDRIEU. Correct, and there are some initiatives in the 

budget that move money around in the budget. But I think that is 

what departments should do is to figure out, when it is up to us, 

to give our green light or red light or yellow lights because we are 

not the final say. Of course, the Congress is. 

But our comments about this budget and what we think is a good 

thing or a bad thing do influence what our colleagues will say. And 

what would concern me is if they were spending 20 percent more 
52 

money and not eliminating things but they seem to be cutting back 

on certain things, shifting their focus around, and that is what this 

hearing is about, to see if that allocation has been done correctly. 

And, I have not made any final decisions until after this hearing. 

So, we will get to visit about that. 

Senator RISCH. You know, and I really appreciate that but, you 

know, when you spend $40 million on an entrepreneurship education program, look, we Americans understand entrepreneurship. 

We were born in entrepreneurship. We are the entrepreneurs of 

the world. You do not need to spend $40 million educating people 

on entrepreneurship. 

I would much rather see this money go to Mr. Sergeant’s office 

and have him go through this thing and get Administration by the 

throat and try to convince them of what they are doing, how they 

are strangling small businesses. That is my view. Thank you. 

Chair LANDRIEU. Thank you. 

Senator Cowan. 

Senator COWAN. Thank you. Thank you, Madam Chair. 

General Gustafson and Mr. Sargeant, it is good to see you again. 

Thank you for your testimony. 

First of all, I have great respect for both what you do and your 

agency’s responsibilities. I think when we are in the business of expending public dollars, and we are, for important purposes, it is always an incumbent upon us to make sure those dollars are being 

spent wisely and efficiently, and it seems like you are both in the 

business of ensuring that. So, I thank you for that. 

And, I have some experience with that from my time with the 

state level in Massachusetts working closely with the Inspector 

General there who, I used to tell him all the time, did a great job 

of keeping all of us honest about the work that we had to do. 

Mr. Sargeant, as you know from our conversation when I was the 

governor’s chief legal counsel, I, in effect, served in the role that 

you did when you came to the regulatory process of ensuring that 

when our agencies were proposing regulations, we were clear about 

the impact on small businesses and others and ensured that regulations would not have a negative impact and sought feedback from 

those who would be regulated. 

And frankly, when there was, and most recently looking at regulations that had been on the books for many, many years and deciding whether or not they still served a particular purpose in taking what some would say was the bold but seemingly reasonable 

action of actually removing some regulations from the books which 

is always interesting. 

General Gustafson, back to your issue about the loan program, 

your concern and, as the Chair has indicated, you moved, on the 

dashboard you moved it, we saw the light go from yellow to red 

which is never a good thing. 

I am curious. I would like to hear a little more about that. One 

of the most frustrating things I recall from my time in state service 

looking at some of these issues when you were dealing with agency 

officials and trying to get them to move forward or change some 

things, often the response was, well, we have always done it this 

way. 
53 

Can you elaborate a little bit more about why you think we are 

not moving forward in the way that you propose and what is the 

basis of that resistance, and what, if anything, can we do, we the 

Senate, the Congress, do to help advance the cause? 

Ms. GUSTAFSON. I think as far as the LMAS platform, the loan 

management platform, where they went from orange to red, the 

key thing that the Congress needs to continue to do, which they 

have done, is to continue to emphasize to the administration and 

to the Administrator how crucial this project is and to make sure 

that they know that, and they do know this, that we are watching 

and that you are watching. 

I mean, this is then again a subject of concern both within the 

agency and with this Committee and Congress for several years 

now. 

So, I would not say necessarily that in the last couple of years, 

I would not say that the problem has been a reticence on the agency to agree with us. 

As I said before, we had been pushing for several years for them 

to take this in stages and to try to not, you know, build an entirely 

new car from the get-go but, you know, start fixing the part of the 

car that needed to be fixed. 

And so, that has been a change, a very positive change that the 

agency has begun to do that. So, I do not think it really is a reluctance on their part. 

Part of the issues that the challenge report from last fiscal year 

showed had to do with things like getting the people on board that 

needed to be onboard timely as far as contracting and the quality 

assurance parts and on the independent verification and validation. 

Part of it was they had not yet gotten the people on board 

through contracting, or otherwise, that they needed to get on board 

and make sure there was a segregation of duties such that a lot 

of what those reds have to do with, have to do with is the process 

of them checking themselves as they go along with quality assurance part and stuff like that. 

And so, it was them following a little behind the curve on those 

aspects that resulted in those reds. And that is why, as I indicated 

to Senator Landrieu through—of course, we continue a constant 

dialogue with the agency on all of these management challenges. 

This is not something that we visit just once a year and, boom, 

now you are red, or you are orange, or something like that; and 

through the conversations that we continue to have, it seems to 

me, at least anecdotally, and of course, we go back and check this, 

we never take anybody at their word. We are the OIG. It seems 

like—it would not shock me if we did not see progress in that area, 

that that has been improved. 

Senator COWAN. Mr. Sargeant, we have a little bit of time left 

but I am just curious. Picking up where the Ranking Member expressed concern about the size of your staff and your willingness 

to do everything you can with what you have, has there any 

thought been given to ask the agencies themselves perhaps through 

some process to identify, as we did in Massachusetts at the State 

level, those regulations that the agency who should know the best 

believe are no longer useful or repetitive or outdated or do not 
54 

serve any particular purpose, to identify those for consideration either being revised or revoked or removed from the books? 

Have you thought about a process like that? 

Mr. SARGEANT. Senator Cowan, under Executive Order 13563, 

the President did call for agencies to look at the rules that were 

on their books and then to do an assessment in conjunction with 

us as to whether or not those rules were needed. 

And so, what we did is that we submitted rules that we got from 

small businesses, because it is one thing for the agency to do the 

analysis and to look at rules themselves, but it is another thing to 

get feedback from those who, you know, from the stakeholders. 

So, what we try to do is to make sure that it is not just that they 

are looking at the rules but there is a feedback loop where they are 

hearing what we are hearing in terms of how those rules will impact and to identify the rules that will get the best bang for the 

buck. 

So, we continue to work with the administration. There were 

three rules. One was the IRS rule that was mentioned that was on 

the books for a long time. There was a three percent withholding 

rule that was also on the books. That was repealed. 

And so, we will continue to work with the administration in 

terms of how to identify rules under what is called the RFA 610. 

Every 10 years if a rule has been on the books for 10 years, the 

agency is required to look at those rules to assess whether or not 

those rules are needed. 

One of my legislative priorities is to request that the agencies 

have a structured process so that the agency will not just look at 

the rule and say, well, okay, we think it is still needed. 

But to really do the analysis because now there are 10 years that 

they can look back to see what the impact of that rule is and 

whether or not it has been effective and whether it is no longer 

needed. 

And so, those are some of the things that we hope to do, and I 

would welcome the opportunity to work with you on ways that we 

could strengthen this process. 

Senator COWAN. Thank you. 

Senator RISCH. Madam Chairman, Senator Cowan, that is such 

a great idea to review those rules and regulations. In fact, it is unfortunate they do not expire and sunset and give us a chance to 

actually deal with them. 

The Executive Order you are referring to, is that the one that 

President Obama—— 

Mr. SARGEANT. Yes, that was Executive Order—— 

Senator RISCH. You know, for a long time, for a long time after 

that, we heard the only rule that was repealed as a result of that 

was EPA finally deciding that spilled milk was not a hazardous 

substance. 

Are there some other rules that were repealed under that Executive Order? 

Mr. SARGEANT. Well, there were other rules. 

Senator RISCH. Two others. 

Mr. SARGEANT. One was the three percent withholding and also 

the one on the IRS home office deduction. And, there are others. 

Well, the rules that I am talking about—— 
55 

Senator RISCH. Was not the three percent, did not we do that? 

Did not Congress do that? 

Mr. SARGEANT. Yes. 

Senator RISCH. So, it was not the administration. 

Mr. SARGEANT. It was not, yes 

Senator RISCH. So, there have been two rules repealed by the Administration as a result of his Executive Order, is that what you 

are telling us? 

Mr. SARGEANT. Well, those are rules that I look at for small business. There may be some other rules that may have impacted large 

businesses. 

Senator RISCH. Is one of them the milk rule that I referred to? 

Mr. SARGEANT. Yes, the milk rule and the rule that dealt with 

the IRS. 

Senator RISCH. I do not know of any others but perhaps there 

were, perhaps there were some others. But anyway, Senator 

Cowan, thank you for that. That is something that really needs to 

be done. I appreciate it. 

Chair LANDRIEU. Thank you, again thank you all very much and 

the meeting is adjourned. 

[Whereupon, at 11:53 a.m., the Committee was adjourned.] 

(57) 

APPENDIX MATERIAL SUBMITTED 
58 
59 
60 
61 
62 
63 
64 
65 
66 
67 
68 
69 
70 
71 
72 
73 
74 
75 
76 
77 
78 
79 
80 
81 
82 
83 
84 
85 
86 
87 
88 
89 
90 
91 
92 
93 
94 
95 
96 
97 
98 
99 
100 
101 
102 
103 
104 
105 
106 
107 
108 
109 
110 
111 
112 
113 
114 
115 
116 
117 
118 
119 
120 
121 
122 
123 
124 
125 
126 
127 
128 
129 
130 
131 
132 
133 
134 
135 
136 
137 
138 
139 
140 
141 
142 
143 
144 
145 
146 
147 
148 
149 
150 
151 
152 
153 
154 
155 
156 

Æ