FINANCIAL SERVICES AND GENERAL 

GOVERNMENT APPROPRIATIONS FOR 2011 

HEARINGS 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 

APPROPRIATIONS 

JOSE ́ E. SERRANO, New York, Chairman 

DEBBIE WASSERMAN SCHULTZ, Florida 

ROSA L. DELAURO, Connecticut 

CHAKA FATTAH, Pennsylvania 

BARBARA LEE, California 

ADAM SCHIFF, California 

STEVE ISRAEL, New York 

TIM RYAN, Ohio 

JO ANN EMERSON, Missouri 

JOHN ABNEY CULBERSON, Texas 

MARK STEVEN KIRK, Illinois 

ANDER CRENSHAW, Florida 

NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full Committee, and Mr. Lewis, as Ranking 

Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. 

LEE PRICE, BOB BONNER, ANGELA OHM, and ARIANA SARAR

Subcommittee Staff 

PART 8 

Page 

Small Business Administration ............................................ 1 

Securities and Exchange Commission ............................... 61 

District of Columbia ............................................................... 101 

Public Witness Testimony ..................................................... 183 

( 

Printed for the use of the Committee on Appropriations 


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Part 8—FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2011 


smartinez on DSKB9S0YB1PROD with HEARING-P1
FINANCIAL SERVICES AND GENERAL 

GOVERNMENT APPROPRIATIONS FOR 2011 

HEARINGS 

BEFORE A 

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 

APPROPRIATIONS 

JOSE ́ E. SERRANO, New York, Chairman 

DEBBIE WASSERMAN SCHULTZ, Florida 

ROSA L. DELAURO, Connecticut 

CHAKA FATTAH, Pennsylvania 

BARBARA LEE, California 

ADAM SCHIFF, California 

STEVE ISRAEL, New York 

TIM RYAN, Ohio 

JO ANN EMERSON, Missouri 

JOHN ABNEY CULBERSON, Texas 

MARK STEVEN KIRK, Illinois 

ANDER CRENSHAW, Florida 

NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full Committee, and Mr. Lewis, as Ranking 

Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. 

LEE PRICE, BOB BONNER, ANGELA OHM, and ARIANA SARAR

Subcommittee Staff 

PART 8 

Page 

Small Business Administration ............................................ 1 

Securities and Exchange Commission ............................... 61 

District of Columbia ............................................................... 101 

Public Witness Testimony ..................................................... 183 

( 

U.S. GOVERNMENT PRINTING OFFICE 

62–790 WASHINGTON : 2010 


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COMMITTEE ON APPROPRIATIONS 

DAVID R. OBEY, Wisconsin, Chairman 

NORMAN D. DICKS, Washington 

ALAN B. MOLLOHAN, West Virginia 

MARCY KAPTUR, Ohio 

PETER J. VISCLOSKY, Indiana 

NITA M. LOWEY, New York 

JOSE ́ E. SERRANO, New York 

ROSA L. DELAURO, Connecticut 

JAMES P. MORAN, Virginia 

JOHN W. OLVER, Massachusetts 

ED PASTOR, Arizona 

DAVID E. PRICE, North Carolina 

CHET EDWARDS, Texas 

PATRICK J. KENNEDY, Rhode Island 

MAURICE D. HINCHEY, New York 

LUCILLE ROYBAL-ALLARD, California 

SAM FARR, California 

JESSE L. JACKSON, JR., Illinois 

CAROLYN C. KILPATRICK, Michigan 

ALLEN BOYD, Florida 

CHAKA FATTAH, Pennsylvania 

STEVEN R. ROTHMAN, New Jersey 

SANFORD D. BISHOP, JR., Georgia 

MARION BERRY, Arkansas 

BARBARA LEE, California 

ADAM SCHIFF, California 

MICHAEL HONDA, California 

BETTY MCCOLLUM, Minnesota 

STEVE ISRAEL, New York 

TIM RYAN, Ohio 

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland 

BEN CHANDLER, Kentucky 

DEBBIE WASSERMAN SCHULTZ, Florida 

CIRO RODRIGUEZ, Texas 

LINCOLN DAVIS, Tennessee 

JOHN T. SALAZAR, Colorado 

PATRICK J. MURPHY, Pennsylvania 

JERRY LEWIS, California 

C. W. BILL YOUNG, Florida 

HAROLD ROGERS, Kentucky 

FRANK R. WOLF, Virginia 

JACK KINGSTON, Georgia 

RODNEY P. FRELINGHUYSEN, New 

Jersey 

TODD TIAHRT, Kansas 

ZACH WAMP, Tennessee 

TOM LATHAM, Iowa 

ROBERT B. ADERHOLT, Alabama 

JO ANN EMERSON, Missouri 

KAY GRANGER, Texas 

MICHAEL K. SIMPSON, Idaho 

JOHN ABNEY CULBERSON, Texas 

MARK STEVEN KIRK, Illinois 

ANDER CRENSHAW, Florida 

DENNIS R. REHBERG, Montana 

JOHN R. CARTER, Texas 

RODNEY ALEXANDER, Louisiana 

KEN CALVERT, California 

JO BONNER, Alabama 

STEVEN C. LATOURETTE, Ohio 

TOM COLE, Oklahoma 

BEVERLY PHETO, Clerk and Staff Director 

(II)


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FINANCIAL SERVICES AND GENERAL 

GOVERNMENT APPROPRIATIONS FOR 2011 

THURSDAY, MARCH 25, 2010. 

FY 2011 BUDGET FOR THE SMALL BUSINESS 

ADMINISTRATION 

WITNESS 

KAREN G. MILLS, ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION 

Mr. SERRANO. Good morning. The subcommittee will come to 

order. 

I welcome you to this hearing of the Financial Services and General Government Subcommittee. Today, the subcommittee will hear 

testimony from the administrator of the Small Business Administration, the Honorable Karen Mills. 

Administrator Mills was sworn in on April 6, 2009, as the agency’s 23rd administrator. Scheduling issues prevented us from having a hearing last year, so we are doubly glad to welcome you 

today. 

Small businesses play a crucial role in the national economy, especially so with job creation being the most important economic 

goal we have as a Nation. Firms employing fewer than 500 employees comprise about 99.7 percent of all businesses in the Nation, 

and they employ roughly half of all private-sector employees. 

The SBA promotes small business development and entrepreneurship through lending guaranties, training and counseling programs, government contracting programs, and advocacy. The agency also helps businesses and homeowners affected by disasters 

through its Disaster Loan Program. The agency’s budget request for fiscal year 2011 is $994 million, 

a $170 million, or approximately 20 percent, increase over 2010. 

This includes an $85.4 million increase in the 7(a) lending subsidy, 

which we will, no doubt, be discussing in great detail during this 

hearing, and a $126 million increase in administration for the disaster loans account, which I understand that you have requested 

because money provided to the account from the previous supplemental has run out. 

This subcommittee certainly wants to ensure that you have adequate resources to respond to disasters, both in routine years as 

well as those years when we are extremely unfortunate and have 

large disasters, be they natural or manmade. 

However, the budget request is not so generous to certain small 

business assistance programs administered by the SBA. There are 

cuts that concern me. For example, Microloan Technical Assistance 


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will be cut by $12 million from the current level. As the name implies, that is a program that assists the smallest entrepreneurs. 

Additionally, funding for the Program For Investment in MicroEntrepreneurs, or PRIME, will be reduced by $4.5 million. This 

program provides grants and help with training and technical assistance for disadvantaged entrepreneurs, particularly those in 

very low-income areas. I am very troubled when programs that 

help low-income populations are targeted for cuts. 

The SBA has an important mission, and this subcommittee 

wants to help you accomplish this mission. I look forward to working with you this year as our appropriations bill moves forward. 

Mrs. Emerson is not here yet, but pinch-hitting in the most professional and profound way, Mr. Crenshaw. 

Mr. CRENSHAW. Thank you. Thank you for those kinds words, 

Mr. Chairman. 

Let me add my words of welcome, Ms. Mills. I know you have 

been involved in the business community, so we thank you for your 

service and for being part of this. 

I think you probably know firsthand that small businesses really 

do generate an awful lot of new jobs, and at a time when we are 

just kind of emerging from this recession, then small business 

ought to lead the way in creating those new jobs. The bad side of 

that is, when there is a recession, I think small businesses kind of 

get a disproportionate hit in terms of loss of jobs. So I just want 

to welcome you here. 

I have got some questions regarding a little bit of concern in 

some of the things that the administration is doing which, I hope, 

are not going to kind of stifle the new job growth that I know you 

want to see happen. So I am just looking forward to hearing your 

testimony and the ideas you have about how we can keep the economy moving as it kind of begins to turn around. 

So thank you for being here. 

Mr. SERRANO. Thank you, Mr. Crenshaw. 

As you know, we will ask you to keep your testimony to 5 minutes or so. Your full statement will go into the record so that we 

can have our rounds of asking you questions. 

Please proceed. 

Ms. MILLS. Well, thank you very much, Chairman Serrano. 

And thank you, Congressman Crenshaw, for being here today. 

I really appreciate this opportunity to talk to you about our fiscal 

2011 budget at the Small Business Administration. This is a budget of $994 million, and it reflects our commitment to growing businesses, creating jobs and to fiscal responsibility. 

Access to capital remains a top priority for us. Already, we have 

had success with our raised guaranties and our reduced fees. We 

have been able to bring over 1,200 lenders back to SBA lending 

who had not made loans since the beginning of the recovery in the 

last year, and $23 billion has been put into the hands of small 

business owners. 

The good news is that these Recovery Act provisions work. The 

bad news is that we are running out of funds, yet again, on March 

28, and I really want to thank all of you who are working so hard 

to pass first a temporary and then a long-term extension. 


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The 2011 budget that we have before us supports more than $28 

billion in lending through our 7(a) and 504 small business investment companies and our very important microloan programs. It 

also incorporates an increase in the loan sizes in 7(a) and 504 to 

$5 million. I should also mention that we have set a goal of increasing the number of access points, meaning the number of active lenders, by 15% by the end of fiscal year 2011, to make sure 

even more people can get these loans. 

A second priority is our government contracting for small businesses. We are committed to working with all of the agencies to 

meet our goal of 23 percent of all government contracting going to 

small businesses with particular goals for service-disabled veterans, disadvantaged businesses and HUBzone firms. We have requested $2 million to help reach these goals while removing ineligible firms and rooting out fraud, waste and abuse. We also look 

forward to implementing the Women’s Contracting Rule, which was 

put out for comment on March 8. 

The third priority in this budget is counseling. We have over 

14,000 SBA-affiliated counselors that are critical to meeting small 

business needs. This budget includes $134 million for over 900 

Small Business Development Centers, 110 women’s business centers—the 110th opened here in Washington, D.C., this week—and 

350 chapters of SCORE, our mentoring program. These partners 

serve all 50 States plus Puerto Rico and other U.S. territories. 

We also request $3 million for Emerging Leaders, an intensive 

classroom program which builds an entrepreneurship education. It 

is a pilot this year, and we want to expand it. It is for distressed 

areas. It is focused on creating jobs, increasing revenues for these 

companies and helping them find financing and get contracts. In 

2010, we were actually reaching out to Native American-owned 

firms in an additional 12 cities. 

The budget supports the Disaster Loan Program that is in a constant state of readiness. This budget is designed to help us keep 

our loan turnaround times short in disaster loans and support us 

at a consistent level of $1.1 billion in loans for homeowners and 

businesses. 

This 2011 budget also advances another critical priority, and 

that is supporting the high-growth small businesses that drive 

American innovation and that help our competitiveness. We request $2 million to better develop metrics, oversight and to manage 

the Small Business Innovation Research Program, SBIR. From 

2000 to 2006, about 25 percent of R&D Magazine’s top 25 annual 

innovations came from firms that received SBIR awards, and other 

studies have shown that a first-time award of an SBIR can signal 

that this is a promising firm to investors. 

The budget also includes $11 million for Regional Innovation 

Clusters. Clusters help small businesses in an area and in an industry to join forces and gain access to university research, workforce training, international markets, and more. The SBA has already served as the lead agency for the robotics cluster in Michigan’s hard-hit auto supplier area. We are also a collaborating agency nationwide for an energy efficiency cluster. 


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In addition to our external goals, we are going to continue with 

an internal focus to build the SBA into a more high-performing organization by investing in people, technology and oversight. 

For people, we are increasing our efforts in management training, mentoring, and succession planning. In technology, we are 

modernizing our core loan management system, which currently 

runs on Cobol. We are going to upgrade our Web presence. In oversight, we request $2 million for more lender oversight and on-site 

reviews, and $1 million for stronger program assessments. 

In closing, we know that small businesses have created, as you 

said, 65 percent of the net new jobs over the past 15 years. This 

budget will help us give small businesses the tools they need to create more jobs and to lead us out of this recession and to provide 

a stronger economic base for America. 

I would be happy to answer any questions. Thank you very 

much. 

Mr. SERRANO. Thank you so much for your testimony. 

Before we discuss the 2011 funding needs, I would like to get a 

status report on how implementation of the additional funding you 

have received to extend the American Recovery and Reinvestment 

Act provisions for the 7(a) and 504 loan programs is proceeding. 

Most recently, the SBA received $60 million to extend the fee reductions to March 28. The Senate has passed a bill that provides 

$560 million that is to last through this December. 

So, first, please explain what the Recovery Act provisions do and if you will have exhausted the additional $60 million by the end 

of this month. Also, how much money do you need to continue this 

program through the end of the year? Lastly, what will be the effect if you do not receive funding to continue these fee reductions? 

Ms. MILLS. In the Recovery Act—I want to thank Congress for 

giving us a program that turned out to be very powerful and effective—You allowed us to increase our guaranties on our 7(a) program to 90 percent and to reduce or to eliminate most of our fees 

on our 504 and 7(a) programs, and the results were almost immediate. 

When credit froze in October 2008, most small businesses went 

to their banks, and they couldn’t even get an answer. When we put 

forward this Recovery Act provision, really a year ago this month, 

we immediately took that decline and turned it up into what I call 

the ‘‘hockey stick’’ that did occur. 

We have been able to put $21 billion out in the last year for a 

cost of about $500 million. The good news is that it worked. The 

bad news is that we ran out of money once in November, and you 

gave us more. Thank you. We ran out again, and you gave us some 

more. Thank you. The last tranche was $60 million, which is set 

to expire at the end of March, actually on March 28. In fact, we, 

in our current projections, as of this morning, will use almost all 

of that money. Our processing centers are working through the 

weekend because demand is very, very high for this loan volume, 

and we are currently on track to probably use most of it. So we 

thank you very much for putting forward another month, I believe, 

of $40 million. That is a bit short of what we might use in a month, 

that number, but we will use it until it runs out. Then we very 

much hope to be able to extend this program through the end of 


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the year. The figures on that, I believe, are about $550 million, but 

I can get you the exact amount. 

Mr. SERRANO. Right. What would be the effect, do you think, if 

you weren’t to get the funding? I mean, how many loans would you 

think would then be outstanding or rejected? 

Ms. MILLS. We know because—and I have sort of a graph of our 

monthly volume. 

Every time we run out of money and, you know, we stop, the volume goes down. Now, we don’t know for sure what will happen because we will revert to our traditional program levels, and so we 

will have an offering; but what we have found is that, in the year 

that we have been able to offer the 90 percent guaranty, our volume has gone up 90 percent from the period before. We know, in 

this time where small businesses are suffering because they can’t 

get access to credit, that we have doubled our volume. So we know 

the demand is there, and we are gravely concerned that, without 

further measures, the gap will widen in terms of access to credit 

for small businesses. 

Mr. SERRANO. Is there a way of letting Congress know the difference between those loan requests that were coming in as a result of the economic crisis versus the ones coming in as a result of 

all the disasters we have had recently, all the snow and the floods 

and so on? Is there a way to determine that? 

Ms. MILLS. We have two separate loan programs. We account for 

them separately. We actually had quite a big year in disasters, 

even though there were no big Katrina, Rita, Wilma kinds of disasters—thank goodness—but we were at $1.1 billion in this past year 

for disasters, which is up from $800 million the year before, and 

that is because a lot of these smaller ones that you described actually caused us to play an important role. 

These two things are tracked separately, and we can get you separate figures for them. 

Mr. SERRANO. It is interesting you say ‘‘smaller ones.’’ I am not 

holding you to that, but talk to some of the folks in northern Virginia. They didn’t think it was a smaller one. It was a big one. 

Ms. MILLS. That is exactly right. That is exactly right. 

Mr. SERRANO. Let me ask you a question now. 

What are you seeing in terms of lending to small businesses? 

Has the Recovery Act and the extension of its funding been effective in unfreezing the credit market for small businesses as much 

as you would have hoped? 

What do you think has been more helpful, the fee reductions or 

the guaranty increases? 

Ms. MILLS. Well, thank you for that question, because it is one 

that we ask ourselves quite a bit. 

There is currently no specific data tracking on credit to small 

business. This is something that we very much are having a discussion about because we would like to have a metric where we can 

really understand what is happening in the market. But we have 

done some analysis, and we believe that there is a credit gap. It 

is hard to size it, but $100 billion gap might be possible. We know 

that we have probably doubled our share of the gap. 

Our job is to provide credit when the market won’t. It is the credit elsewhere. If the market is going to give us small business credit, 


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then why should the taxpayer pay for subsidizing that credit? But 

when a good business for various reasons can’t get access to credit, 

which happened quite a bit in this last year, then we step into 

play, and we know because we have doubled our volumes and because other metrics say that other banks have not done that same 

set of increases that we are taking and fulfilling a much bigger 

share of that gap. 

Mr. SERRANO. By the way, before I turn to Mr. Crenshaw, my 

question before about the two types of loan programs was based on 

the fact that I know that some Members favor one over the other. 

It is important at times to tell them what the balance is, of one 

from the other. 

Ms. MILLS. Right. We believe that both are very, very important. 

They are very different, and we actually manage them in two separate budgets. 

Mr. SERRANO. Okay. 

Mr. Crenshaw. 

Mr. CRENSHAW. Thank you, Mr. Chairman. 

Just to follow up on that line of thought, that 85 to 90 percent 

in the reduction of the fees, my sense is that, you know, if you increase the guaranty, it would be more stimulative than just lowering the fees; but since you really don’t have a lot of information 

so far, can you kind of give us your speculation as to what will happen when they go back to 85 percent and the fees come back? Is 

that going to curtail applications? 

On the one hand, you have done a great job of freeing up the capital markets into larger loans, more loans, but all that has been 

part of this kind of stimulus package. What do you think is going 

to happen? Is it going to impact the banks’ willingness to lend 

going back to 85? 

Talk about that a little bit. 

Ms. MILLS. When we travel—and I go out and travel quite a 

bit—we hold often lender roundtables and I have met with lenders 

all over the country. I always ask them this question: Which is 

more important, the fees or the 90 percent guaranty? We get both 

answers, and so I think the anecdotal evidence is that both are important for different reasons. 

We know that there is a gap in lending right now. We have tried 

to figure out why the banks aren’t lending, and they are not lending for two reasons: Either they don’t have the capital, or they have 

the capital, but they just don’t want to take the risk. The 90 percent guaranty has been very effective in dealing with that second 

question. 

We say to them, this is a good small business. You would have 

lent to them before. We will take the risk. In fact, our data show 

that the credit scores that we have done under the 90 percent guaranty are actually higher than the ones that we did in the past 

years. 

So we are making good loans, you know, not bad loans with that, 

and still the banks were uncomfortable making them until we 

stepped up and helped them manage the risk. So we know that 90 

percent is quite important for them. 

For the borrower—the borrower who today is just wondering 

‘‘Should I expand?’’—it is a tough time. Should I take out that 


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loan? Should I hire the next person? They have told us that they 

take the fee reduction in cash. They make the loan, but the amount 

that would have been the fee reduction, they take back as working 

capital, and that allows them the liquidity to go forward. We know 

that some of them like to get a bargain. Small business owners 

know when there is something good out there, and so I think it has 

encouraged some of them to get back on track. 

Mr. CRENSHAW. Well, when you restore the fees, do you think 

that is going to impede small business? Is demand going to go 

down? By the same token, having the guaranty go back down, is 

that going to make banks less willing to lend? 

Ms. MILLS. Yes, we believe that will be the case on both fronts. 

Mr. CRENSHAW. So the demand, from your standpoint, might see 

it go down? 

Ms. MILLS. Yes, that is our concern. 

Mr. CRENSHAW. I have got you. 

You mentioned you have got kind of a conflicting—on the one 

hand, you have got the regulators, and they are critical to the 

banks, you know. Then, on the other hand, the administration is 

critical of the banks for not making loans. What are you all trying 

to do to encourage the banks to increase lending? Because you get 

a mixed message out of the administration, it seems to me, so 

maybe you are the middleman who can kind of send the message 

out to really encourage the banks. 

Are you working on that? 

Ms. MILLS. Well, the President and the SBA have been very clear 

about what we expect from the banks. We expect the banks to be 

back, lending to viable small businesses, and we will be there in 

every way we can to support them, but they need to step up and 

help these small businesses, which can’t thrive without access to 

credit, and they help us get back on track in the economy. 

The banks are also hearing from the regulators, particularly at 

their local level, a different story, and they are getting caught in 

this squeeze. They say to us, ‘‘You want us to lend, but we are 

afraid because we are getting another message.’’ 

So we have, within the proper bounds of what is appropriate between the administration and the regulators, encouraged the regulators to realize that the message that some of the regulators have 

sent about particular guidance, which loosens those credit issues 

for banks. We need to help them make sure that that gets down 

to the regulators in the field, and we are speaking at every possible 

opportunity to get these messages out. 

Mr. CRENSHAW. The last question is, you know, we have talked 

about larger loans, more loans, and that is all good to create jobs, 

I think, and more employment opportunities, but some of the critics 

of your agency have kind of said, Well, you have got $90 billion in 

total loans—and that is like a 70 percent increase from 2001—and 

because of all of this increased lending, the SBA system of lending 

has not really kept up with all the industry studies. 

For instance, I read a report that your loans, at least in 2008, 

talked about their corresponding to a Moody’s rating of a double B. 

This report said that it was below that of a typical private loan/ 

government subsidized loan. 


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And then, I want to read you what the Government Accountability Office said in 2009: The SBA does not follow sound validation practices or use its own data to independently assess the risk 

rating. The effectiveness of its lender risk-rating system may deteriorate as economic conditions and industry trends change over 

time. 

I mean, are you aware of that? Do you all keep a close eye on 

all of these standards? Is that true? Are you working on that? Is 

that a problem, or is that just a perception? 

Ms. MILLS. Yes. There are two points. 

First of all, our job is to take a certain amount of risk in the 

‘‘credit elsewhere’’ box. We are supposed to take a risk for someone 

who is a good business but that a bank cannot lend to without our 

guaranty. That said, lender oversight is a critical focus for us. 

In fact, in this budget, we have requested an additional $2 million for our oversight. We need to be working with best practices. 

We need to be able to make sure that we have a very robust and 

active set of activities around lender oversight, but we are focused 

on this as one of the areas for which we need a budget and that 

we are going to spend time focused on, because we do have an extensive portfolio. We delegate authority to a number of banks, and 

we have to make sure that we can know how those banks are lending and that we have the adequate, appropriate oversight of them. 

Mr. CRENSHAW. Thank you. 

Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you. 

Mr. Fattah. 

Mr. FATTAH. Thank you. It is good to see you again. 

I got a chance to hear your address to the Hispanic Chamber of 

Commerce on Tuesday. You were talking then—and I am going to 

come back to it—about the health care bill, and how it will impact 

small businesses. 

I want to just first thank you for taking on this task. You have 

had an extensive career in working in innovation and in working 

in a variety of different fields related to business development. I 

am not sure we have had an administrator of SBA with such an 

extensive background in the country. I am sure our small business 

community will benefit, and I think that the Hispanic Chamber address was very anecdotal in that respect because I think that the 

focus on the real challenges facing small businesses and Hispanic 

businesses are the largest growing segment the agency, but over 

your leadership, in terms of African American businesses, womenowned businesses and Hispanic businesses, has been really working very hard. There is room for improvement in some of the regulatory and statutory guidelines. 

In terms of the new health care law, how is SBA going to be 

interacting with the small business community to make sure they 

take full advantage of the benefits? 

Secondly, the President’s goal, in terms of export, doubling the 

amount of exports, one of the things that we have worked on in 

Philadelphia with SBA and the Export-Import Bank is to make 

sure that our business community is aware of those export opportunities. 


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So I would be interested in your comments on both of those 

things. 

Ms. MILLS. Thank you. It is nice to see you, Congressman. 

First, to your point about minority-owned businesses, womenowned businesses and veteran-owned businesses, the SBA has had 

a particular and special role with underserved markets and underserved communities. One of the things that we are known for is 

that we are three to five times more likely, according to the Urban 

Institute, to make a loan to a minority-owned business or to a 

woman-owned business than is a conventional lender. So we consider that part of the core to our mission and have in some businesses, particularly in government contracting, special goals—in 

our 8(a) and other programs—which we work very hard to bring 

into communities so that we are actively counseling, giving loans, 

and giving access to government contracts. 

To your question on health care, health care has been the number one concern of small business in the NFIB survey since 1986. 

Since 1986, access to affordable health care has been the number 

one concern for small business. So we know that, in businesses between three and nine people, half of them don’t provide health 

care. It is not because they don’t want to. Now they are going to 

have the opportunity to be able to get access to health care in an 

affordable market with the exchanges. 

One of the interesting things is that small businesses, I think, 

have not understood the benefits that are coming to them, particularly in the near term, so we are developing plans to make sure 

that small businesses know about the tax credits that are going to 

be available in 2010. For the 4 million of the 6 million small businesses that have employees, two-thirds of them are eligible for tax 

credits, and we actually know in every region and in every congressional district where they are and how many there are, and we 

plan to do as much as we can on a broad basis to make sure, as 

part of our responsibility, that they get every dime of tax credit so 

they can reinvest it in their businesses and can go on and grow. 

You had a question on exports. 

Mr. FATTAH. Because, in Philadelphia, we have done some work 

on this, and we have a great candy maker who makes peanut 

chews, and now they are selling them in 45 different countries. We 

have got a saltwater fishing reel company that is selling fishing 

reels around the world. We have an auto parts maker, Cardone Industries, which is doing very well. They are probably 10 percent of 

our manufacturing workforce in the city, but they have only one 

other competitor in the world. So there is a lot of room for export 

growth. 

All of the exports businesses have said this is a doable achievement for the administration, and it has not been the focus of previous administrations. I just want to know how SBA is going to 

make sure that the small business community participates in this 

opportunity to grow exports. 

Ms. MILLS. As you know, I am part of the President’s National 

Export Initiative, where we have pledged to double exports over 5 

years, a great part of this coming from small business. Only 

250,000 of the 6 million small businesses export—only 250,000. So 

we have worked with the Department of Commerce, the U.S. Trade 


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Representative, the Export-Import Bank, and the Department of 

State. 

We have formed a working group with a plan for small businesses—to identify them, to prepare them to export, to connect 

them to opportunities that the Department of Commerce has in 

other countries, and then to support them with loans. We have our 

own loan programs, and we actually counseled last year 17,000 

small businesses specifically in how to export. So we have online 

courses. We have in-person courses. 

We see this as an important impetus to the economy because, if 

small businesses produce here goods and services and if they sell 

there, that is jobs. 

Mr. FATTAH. Thank you very much. 

Ms. MILLS. Thank you. 

Mr. SERRANO. The Chair would like to remind the gentleman 

from Philadelphia that, under my understanding of the House 

Rules, any item produced in one State can be handed out to other 

Members, and this committee loves peanut chews. 

Mr. FATTAH. Say no more, Mr. Chairman. 

Mr. SERRANO. Just for the record. 

Ms. WASSERMAN SCHULTZ. Mr. Chairman, I would just amend 

your admonition to include Philly cheese steaks. 

Mr. SERRANO. I got those when the Yankees beat the Phillies in 

the World Series. 

Mr. FATTAH. I thank the gentlelady from Florida also. 

Mr. SERRANO. Bagels anyone? 

Mrs. Emerson. 

Mrs. EMERSON. Thank you, Administrator Mills. 

I apologize for being late. I am so sorry, but thank you so much 

for being here today. 

Let me get down to something serious here instead of Philly 

cheese steaks. I am hungry now. 

Ms. MILLS. We believe all of these small businesses that produce 

food are very important and that more demand would be very good 

for small business. 

Mrs. EMERSON. As I told you months ago in my office, I just want 

somebody in Cape Girardeau, Missouri, to open a cupcake store. If 

not them, me, then, at some point in time, because I do love cupcakes. 

In response to the small business credit crisis, the administration 

has proposed a new program that will provide capital to small 

banks using surplus TARP funds to offset the program’s costs. I am 

generally not in favor of using TARP funds for anything other than 

deficit reduction, but it is unclear to me—and maybe you can convince me otherwise—it is unclear to me that providing another 

round of capital to banks will stimulate lending when the TARP 

programs didn’t stimulate it as much as we wanted it to. 

So I am not going to ask you to make a comment about the administration’s plan, because every time we try to get people to do 

that, they get fired, so we don’t want you to be fired. 

Can you tell us if you think providing capital to small banks will 

increase small business lending? Wouldn’t increasing the amount of 

SBA loan guaranties and perhaps increasing the amount that SBA 

can lend also be helpful, if not more so? 


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Ms. MILLS. We believe that there is still a lending gap for small 

business, and we have proposed a sort of five point plan that would 

be part of a jobs package to help more of that capital get out to 

small businesses. One piece of that plan deals with the problem, 

and I said there are two basic reasons why banks are not lending. 

One is they don’t have the capital. The second is they don’t want 

to take the risk. For those banks which don’t have enough capital, 

it would be very helpful to have additional capital available, and 

the program that has been proposed has an incentive where the 

cost of that capital goes down to a very attractive rate if you increase your small business lending. So, if you increase your small 

business lending up to 10 percent, you can get a 1 percent cost for 

that capital. We do believe that there will be small banks that go 

in and get that capital and lend it out to get the lowest rate. 

We also believe that it is very important to take care of the other 

issue, which is helping banks deal with their concerns about risk. 

That is where the 90 percent guaranty comes in. That is where the 

increased loan limits come in. That is where the increased limits 

for SBA express to deal with the problems of all the folks, who 

have had their lines of credit cut, and we also have a program to 

help owner-occupied businesses deal with this commercial real estate crisis that has caused banks to say, even if you are in good 

standing and you are the dentist who owns the dentist’s office, they 

don’t want to renew your mortgage. And we have a proposal in the 

jobs package that we believe, at zero subsidy, can address this in 

a very large way. 

Mrs. EMERSON. I hope that is true with regard to commercial because I keep thinking that might be the shoe that drops here pretty—or at least intensifies pretty soon. 

Let me switch over to another subject. 

One of the offices within SBA is the Office of Advocacy, whose 

mission is to represent the small businesses within the Federal 

Government’s legislative and rulemaking processes. I know that 

that office tries its best to help reduce the burdens that some of 

our policies impose on small firms and also to maximize benefits 

small businesses receive from the government. 

According to their Web site—and I will quote—Advocacy research 

shows that firms with fewer than 20 employees annually spend 45 

percent more per employee than larger firms do to comply with 

Federal regulations, end quote. 

So, with that being said and knowing that the administration is 

proposing a fairly hefty amount of new regulatory policies that will 

come as a result of health care, greenhouse gasses, financial reforms of financial institutions, are you concerned about how those 

policies could impact small businesses if enacted? 

Ms. MILLS. One of the roles at the SBA, both at the Office of Advocacy and all through the SBA, is to watch out for unintended 

consequences to small businesses, particularly of government regulation. It is part of our mandate, and it is true that, very often, 

small businesses have a much higher cost because they are small, 

and they don’t have the capacity. They have to add capacity in 

order to comply. We have very much a seat at the table to raise 

those issues in this administration, and we have been actively 

doing so. This is part of our responsibility to small business. It is 


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actually one of their key concerns, and it is a very constructive 

process at this time. 

Mrs. EMERSON. So how does it work? 

For example, the Office of Advocacy identifies, you know, this set 

of new rulemakings that are underway or what have you; do they 

then have direct access, or is it you, really, who then has to get 

with each of the agencies writing the rules to pretty well explain 

how this could have a negative impact? Do you feel that your voice 

is heard? 

Ms. MILLS. It works in many ways. 

The Office of Advocacy operates as an independent entity inside 

the SBA on these matters. So the Office of Advocacy has a very robust and well-trained staff that operates both at the Federal and 

at the regional and State levels on issues, broad issues and particular issues, that might have an adverse consequence to small 

businesses. It raises those issues, researches those issues and helps 

get changes, regulatory changes, that help small businesses. 

We also in the SBA, as a whole, have other activities. We have 

an ombudsman activity where our sole mission is on a case-by-case 

basis to help small businesses navigate between Federal agencies 

where there may be a regulation issue, and we do that as a matter 

of course. In addition, I and my entire team are aware in every activity that we do and in every discussion that we bring the small 

business voice to that table, and we are always thinking with our 

sort of small business owner hat on: Would there be an unintended 

consequence? Then that information and that perspective gets put 

into the discussion from the earliest stages. 

Mrs. EMERSON. You feel it works well? 

Ms. MILLS. Yes, I feel it works well. 

Mrs. EMERSON. Thank you. 

Mr. SERRANO. Thank you. 

Ms. Wasserman Schultz. 

Ms. WASSERMAN SCHULTZ. Thank you, Mr. Chairman. 

First of all, Mr. Chairman, I have some questions that are fairly 

detailed which are related to small businesses and to the Department of Defense and to the Department of Energy in how they allocate their contracts to small businesses. I am not sure if it is—I 

don’t think you would have the answer today if I asked you, so I 

will submit them for the record. But I would like to sit down with 

you because I have some fairly detailed questions dealing with 

frustrations that small businesses in South Florida have had and 

about the disadvantage that they are in when it comes to competing for Department of Defense and Department of Energy contracts. It is a pretty frustrating experience that has been described 

to me, and I would love to spend some time with your staff on that. 

Ms. MILLS. Yes, we will be very happy to do that. 

Ms. WASSERMAN SCHULTZ. That would be great. 

Mr. SERRANO. It will be submitted. 

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Ms. WASSERMAN SCHULTZ. Thank you very much. 

The other issue I wanted to focus on related to some—excuse me. 

I was not on the right page, Mr. Chairman, so I want to turn back 

to the page that I should be on so that I can know where I am supposed to be. Thank you. Okay. 

I want to ask you about how you educate small business owners 

who are making presentations to potential lenders. You know, we 

want to support people who are making a transition from unemployment to self employment, create entrepreneurial opportunities 

for unemployed Americans who want to, instead of going back to 

some large employer environment maybe, you know, take that opportunity to transition to a new business. 

So how does the SBA do that in a proactive way? 

Ms. MILLS. The SBA has 14,000 active counselors who are doing 

exactly what you just described. We have 900 Small Business Development Centers. They say there is probably one 45 minutes to 

an hour from most small businesses. They don’t just have one conversation—they have long-term conversations—and we know from 

our data that small businesses that are in a long-term counseling 

relationship have better sales, better profits, more longevity. So we 

encourage that, and then I always say to the small businesses, 

‘‘and it is free.’’ 

Ms. WASSERMAN SCHULTZ. Free is good. 

Ms. MILLS. We also have 110 women’s business centers, and they 

operate as well in the community. We have over 100 microloan 

intermediaries, providing technical assistance. Very often, in the 

microloan intermediaries, in our women’s centers and also throughout, really, the whole counseling network, we are, in this time, very 

often helping somebody with a business plan that might have been 

in their drawer for a while. They were thinking about starting that 

business. Maybe they had started it on the side, but it had never 

really grown, and they had taken out that business plan, dusted it 

off, brought it in to one of our counselors, and we are actively helping them create that future and walk down and see what financing 

might be available. So this is part of the core of what we do. 

Ms. WASSERMAN SCHULTZ. Great. 

I want to commend you for releasing a rule that would expand 

Federal contracting opportunities for women-owned small businesses. I know the goal of the administration is that 5 percent of 

Federal contracting dollars would be directed to women-owned 

small businesses, but I know we are not there yet in terms of 

achieving that goal. 

So can you talk about how the new rule would help us get there? 

Ms. MILLS. Yes. This is a rule that was actually introduced in 

the year 2000, and we are very proud that, on March 8, we were 

able to put it out for public comment. 

Ms. WASSERMAN SCHULTZ. Actually, let me clarify my question. 

You are right. So I know that that is a goal. I know it is one that 

the administration before this one really didn’t spend a lot of time 

trying to achieve. 

So, if you can, share with us what this administration is doing 

to try to get us there. That is a better way to ask the question. 

Ms. MILLS. Yes. 


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We are very committed to this goal. In fact, we are committed 

to all of our government contracting goals, but we put a very high 

priority on getting this goal moving and out for public comment, 

and we anticipate that we will work on it, bring it into reality, and 

it will allow women in about 80 industries to compete in government contracts under those regulations, and we believe that that 

will help. 

In the Recovery Act, we are just under the 5 percent now, and 

we are going to do everything we can—we are actually exceeding 

our other goals in the Recovery Act by a lot, so we would like to 

exceed all of our goals by a lot. 

Ms. WASSERMAN SCHULTZ. Do you have a time frame for reaching the 5 percent? 

Ms. MILLS. Yes. 

Well, first, we want to get the rule out, and the time frame for 

that is—you know, there is a period of public comment, and then 

there is a period of—— 

Ms. WASSERMAN SCHULTZ. So you are revising the rule from 

2000? 

Ms. MILLS. Yes. The rule from 2000 never was actually put into 

place. 

Ms. WASSERMAN SCHULTZ. Okay. 

Ms. MILLS. So this is going to be the first time the rule actually 

makes it into reality, so we have been operating without a rule but 

still with a goal. 

Ms. WASSERMAN SCHULTZ. Gotcha. Okay. 

Just lastly, Mr. Chairman and Administrator Mills, I have to tell 

you that it would be hard for me to describe just how fantastic your 

SBA staff is in South Florida. They are the hardest-working, most 

well-prepared, the most responsive agency that I deal with in 

South Florida. My staff wanted me to make sure that you knew 

just how much we rely upon them and how much they are there 

for my constituents. 

Last fall, I had a small business symposium that SBA was an integral part of. One thousand people came to that small business 

symposium. There were 1,000. It was phenomenal. I got tremendous feedback, not just on that, but on roundtables. Any time that 

we ask for assistance in getting information out to my constituents, 

the South Florida staff is there, and you should know that they are 

doing a great job. 

Ms. MILLS. Thank you very much. We have a terrific team. We 

have a really terrific team at the SBA. 

Ms. WASSERMAN SCHULTZ. I yield back. 

Mr. SERRANO. Thank you. You said you had a hard time describing, but you did a great job. Any time you want to describe me that 

way, it will be fine. 

Ms. WASSERMAN SCHULTZ. What I meant was, by comparison, I 

would have a hard time saying just how good their job is. 

Mr. SERRANO. Let me follow up on your question on the whole 

issue of minority-owned and women-owned businesses. 

How satisfied are you that we are reaching the goals we want 

to reach? I mean some of us get asked a lot, if not pressured, about, 

what are we doing in government agencies to make sure that this 

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sity’’ is always thrown around, but then, at the end of the day, we 

find a lot of people in a lot of agencies who don’t pay attention to 

the need to balance things often to make up for some improper behavior in the past. 

How satisfied are you that, in all of those areas, we are moving 

in the right direction and that we can meet our goals? 

Ms. MILLS. We see serving minority-owned businesses, womenowned businesses, veteran-owned businesses—a whole group of underserved businesses—as core to our mission, and we see it also as 

essential to the underpinning of the American economy. So we have 

particular goals in government contracting. We are determined to 

meet those goals, and we have, in the Recovery Act, actually exceeded the goal. 

We have almost doubled the goal on minority-owned businesses, 

and we did that intentionally. We had about 300 matchmaking 

events, in particular in minority-owned business areas, so that we 

could introduce them to the Recovery Act contracting opportunities, 

and that worked. 

So we are going to take that practice and continue it so that we 

can keep that momentum, but it is not just in government contracting that we think this is important. We think it is important 

in terms of access to capital where, very often, these are communities where there isn’t as much access, where the market isn’t 

working as well, and then it is more our job to step in and to provide credit support to good businesses. We particularly see that in 

microloans, where we have a very strong penetration in underserved communities and a very good effect and in our counseling 

operations. 

Mr. SERRANO. Let me throw in something now that you mentioned. 

You were very careful or, once again, very smart to mention 

Puerto Rico and the Territories in your presentation, which, you 

know, does very well with this subcommittee, especially with the 

chairman, but one of the problems we find in all Federal agencies 

under any administration is that the good news is that they are career people who are there and who do a great job; the bad news 

is some of the career people have been operating, in the case of the 

Territories, under this belief that they are far apart, that they are 

not only physically far away, although Puerto Rico and the Virgin 

Islands are very close, but that they are not in the plan to be treated fairly or, certainly, equally. 

Once you say to me, We are going to make sure that we include 

Puerto Rico and the Territories, how do you go about making that 

happen when so much has to be delegated in agencies to folks who 

traditionally don’t know how to do that? I will give you an example 

so that it is not an accusation. 

One of the reasons we have a hard time in the health care bill 

and in any other bill including the Territories is, when we go to 

staff, central staff, and I have gone to them and have said, I want 

this done, they say, We don’t know how to do that because it has 

not been done before. I say, Well, invent it; I am sure you can invent it. Make sure tomorrow—and here is the way I approach 

this—and I know I am going all over the place. I tell people, Make 

believe that we wake up tomorrow morning, and instead of having 


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50 States and the District of Columbia, we have 55 States and the 

District of Columbia. You could not say, I can’t do it. You would 

have to do it equally across the board under a formula, so why not 

do it now? When the Speaker says, Do it; when Harry Reid says, 

Do it, then staff says, We don’t know how to do that. So we are 

still, even in the health care bill, which does wonders for the Territories, it is still far from where it should be. 

Ms. MILLS. Well, we operate in the mode that Puerto Rico and 

the Territories are part of the fabric of what we do every day, and 

I actually was able to sit down with the Governor of Puerto Rico. 

We have a very important small business community in Puerto 

Rico. It is mostly small business. We have a very active SBA presence there. So our programs go throughout that area. They are on 

all of our measurements, and they participate in every activity that 

we do. We just did a women’s business center here in the District. 

In American Samoa, when they had the tsunami, we had 40 people 

there within less than 10 days, helping. 

So we are prepared to go anywhere it takes in our entire United 

States and Territories, to deliver help to small businesses, because 

they are all part of the community that we serve. 

Mr. SERRANO. Yes. 

Let me just make a statement. In many cases, folks like you 

have to lead on this because, unfortunately, so many Members of 

Congress are totally oblivious to what the relationship is to the 

Territories. I can’t pass up the opportunity to always remind people 

that, on a couple of occasions, I have been asked by sitting Members of Congress to get them currency from Puerto Rico for their 

collection. All I did was take a dollar out of my pocket and give it 

to them, to their embarrassment. We had a colleague, when the 

stimulus checks went out and, through our efforts, included the 

Territories, who said, I don’t know why we are sending checks to 

foreign citizens. So at least they were called ‘‘citizens.’’ ‘‘Foreign’’ is 

up for discussion later. 

So, in many cases, the agencies have to lead because what may 

come out of Congress is not exactly what it should be since there 

is still a lack of information as to what the relationship is. I hope 

you do that. 

Mrs. Emerson. 

Mrs. EMERSON. Thank you, Mr. Chairman. 

I want to ask you a few questions about innovation clusters. 

You all received $10 million in 2010 to develop Regional Innova- tion Clusters, and the fiscal year 2011 request includes $11 million 

for this initiative. I understand the idea behind a cluster is to establish partnerships between entrepreneurial education programs, 

industry and training programs to all work collaboratively on a 

common roadmap to improve a region’s economy. Of course, I want 

to apply for one of these myself for my region, but anyway, let me 

ask: How will you decide what regions will receive the assistance? 

Will rural areas be included as well as urban areas? Do you really 

think that the communities need the Federal Government to give 

them money in order to collaborate? 

Ms. MILLS. The core of clusters are the small businesses, and the 

reason clusters work is that small businesses are too small sometimes to get the economies that scale provide. So, when you cluster 


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them together, you have an easier time in bringing access to the 

kinds of innovation, research and development and workforce training and bank lending that they need to have to grow. So I will give 

you a ‘‘for instance’’ about a rural cluster, and this is the reason 

I actually got involved in clusters and government service. 

In Maine, where I live, the naval air station went on the base 

closure list, and I was asked to help find some small businesses to 

go on that piece of property, and we made a cluster of Maine’s boat 

builders, because there is new technology at the University of 

Maine in composites, and we were making boats out of the fastest 

and lightest materials of the world. 

Well, there are very few small businesses less likely to cluster 

than the independent Maine boat builders, but it showed me, when 

they came together, what a powerful thing it was to promote this 

kind of collaboration and how much more bang for the buck we got 

out of all the other activities that both the Federal and the State 

governments were doing to promote economic development. So this 

has now become a hot bed of activity in regions across the country, 

and the question that you asked is: What is the Federal Government’s role in this? Can’t States just take care of it? 

Well, it turns out—and I am on record because I wrote about this 

for Brookings—that the Federal Government spends about $77 billion in aid that goes down to the local level where these clusters 

are occurring, but it is not very well linked, leveraged, and aligned. 

So we find that we, the SBA, being on the ground in these communities, can play an important role. 

A quick other example: In Michigan, one of the 2010 budget 

items will go to a robotics cluster, the first of which we already 

started in Michigan with automotive suppliers. These automotive 

suppliers produce sensors so that when your car goes close to something it beeps. Well, it turns out that the Department of Defense 

is very interested in robotics developed by these automotive suppliers because they might help them detect things like roadside 

bombs and other unmanned activities that they are interested in 

doing. So we have formed a set of small businesses in Michigan 

into a robotics cluster, connected to the university there, which has 

a robotic specialty, and that will help a very distressed region in 

need of transformation. 

So these clusters work in rural Maine. They work in centers like 

Silicon Valley and high-tech places, and they work in distressed 

areas for the automotive suppliers of Michigan. 

Mrs. EMERSON. That was a good article in the Washington Post 

this morning about you in talking about this. Because I was fascinated in having read it, I wanted to ask you about it. 

Now, I know that the Economic Development Administration also 

has in its budget $75 million for Regional Innovation Clusters. How 

do you all work together? 

Ms. MILLS. We are working very closely with EDA, John 

Fernandez there, and also with the collaborative effort that is coming out of the White House that has seven agencies included in it 

for cluster development. We are one of the participating agencies 

in the new E–RIC, Energy Regional Innovation Cluster. Energy 

has put up $125 million to have a new innovation hub, and this 

is for energy-efficient homes. We are going to provide funding for 


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small businesses to get a piece of that activity, and we are going 

to run it through our local small business document centers. So we 

can do clusters that we initiate, and we can do clusters where we 

collaborate and participate. 

Mrs. EMERSON. So, if I am a community or a group of communities in a rural area, would I want to go to my small business, 

SBIC or—I mean where would I even start if I had an idea? How 

would I start, and then what happens? 

Ms. MILLS. We plan to create, with part of the 2010 money and 

continue in 2011, a series of competitive activities, contracts, where 

we will have regions compete. So there will be a request for proposals, and we will publicize that in communities. We are likely to 

do some in conjunction with other agencies and some independently. We hope to do them with criteria that will allow both rural 

and inner city clusters to be validated, because we know there is 

cluster opportunity in all kinds of regions. So this is at the beginning stages of activity, and we are very, very excited about the 

prospect of moving it forward. 

Mrs. EMERSON. It sounds very exciting and a very, very interesting and positive way to change the economic climate in certain 

areas in the country. 

So thank you. 

Mr. SERRANO. Thank you. 

Mr. Boyd. 

Mr. BOYD. Thank you, Mr. Chairman. 

Ms. Mills, welcome. I really only have one question. 

I know that the SBA has been in the process of trying to reengineer the HUBzone program. 

Can you discuss the status of that initiative for reengineering 

and also how this process has affected the HUBzones? 

Ms. MILLS. Well, thank you. 

We ask for in this budget, actually, more money for oversight 

and compliance in order to root out issues of noncompliance and 

fraud, waste and abuse in programs including the HUBzone. 

As I have said in other testimony, we need to make sure that our 

programs, including HUBzone, have oversight in three areas; upfront, eligibility. In the middle, we want to review with on-site visits. You might know, in HUBzone, in the 6 months before I got 

there, we had made seven on-site visits, and in the next 6 months, 

we did 800. So we are clamping down in that area. The third is 

to pursue and have consequences for those who break the rules and 

who are in the program inappropriately, and we are going to go 

after them, because we have people who need to be in that program. 

In the reengineering of that program, we are getting a handle on 

these three things, and it has taken an enormous lift in this past 

year. We have tightened down in the front end, and that has created a backlog. We are well into working through that backlog but 

not completely through it. Therefore, if anyone has experienced 

delays in HUBzone certification, that is due to this sort of tightening down process that we did to make sure that we don’t have 

ineligible firms in the program. So we are in the process of working 

through the backlog, and we expect to be through it in a matter 

of months—a few months, not longer. 


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Mr. BOYD. So you have increased, you said, oversight, exponentially and just making sure that the program is doing what the current rules say it is supposed to do. So there is nothing really that 

we need to do or anything we can help you with? Those HUBzones 

are an important tool that we have used for a number of years in 

the rural areas, and obviously, they are probably more important 

now than ever. 

Ms. MILLS. This budget request does include a small amount of 

additional funding to help us with these ongoing efforts because 

they take personnel and attention. 

Mr. BOYD. Thank you very much. 

Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you. 

I would now like to recognize Mr. Culberson under the 5-minute 

rule. 

Mr. CULBERSON. Thank you, Mr. Chairman. Excuse me for running late. I have got so much going on at the same time. 

Thank you for your service. 

I wanted to ask, if I could: $2.3 billion has been appropriated to 

the Small Business Administration since October 1. How many jobs 

have been created with those funds? How do you measure that 

number? 

Ms. MILLS. Well, our budget is usually under $1 billion. 

Mr. CULBERSON. I am counting the stimulus money you received 

and the appropriation from last year. It looks like there was $125 

million in DOD. It is a lot of money. You have gotten a tremendous 

shot in the arm. 

Ms. MILLS. Yes. I really want to thank you for that. 

So let me explain the main amount of activity that we have spent 

on over the past year. 

As I said earlier, you allowed us in the Recovery Act to increase 

our loan guaranties to 90 percent and to reduce or eliminate most 

of the fees. In October 2008, lending just froze, and we had small 

businesses in this credit crunch that couldn’t get the capital they 

needed. When you passed that, which was a year ago now this 

March we put it into place, immediately we were able to get lending flowing again, so we were able to put $22 billion into the hands 

of small businesses for a cost to taxpayers of $500 million. So that 

is about $500 million of that activity that you described. 

I don’t know if I have exactly the numbers. We do track it on our 

dashboard—the loans saved and approved. I don’t have the full 

year, but I can get that for you because, when a business owner 

comes in and gets a loan, they have to tell us how many jobs they 

are going to save or retain. Now, to be honest with you, we don’t 

go back and audit that, but we know it is pretty consistent over 

time, so we track it, and we make sure that we report that. That 

does not, by the way, go into the Recovery Act totals, because it 

doesn’t meet the particular criteria, but it is in a footnote, so we 

are happy to be at least recognized, and it is quite substantial. I 

would be happy to get you those exact numbers. 

Mr. CULBERSON. I see also on this year’s budget you have asked 

for increased funds to overhaul the loan monitoring system, and it, 

apparently, has been a longstanding problem at the agency. 


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Can you talk to us—and forgive me if someone has asked you 

about the loan monitoring system problem already. What assurance can you give us that additional funding is actually going to 

work? What are you doing administratively to assure that this can 

operate more efficiently? 

Ms. MILLS. It is a very important question because we have $90 

billion of loans and loan guaranties, and it is really sort of a core 

engine. We deal with 5,000 of the 8,000 banks, so we are focused 

on our loan oversight activities. We have a number of pieces of it. 

We have a loan system that gives us certain rankings, and we have 

an on-site visit activity where we actually go out and audit lenders. 

We are currently doing a complete overview, and one of the 

things that we have requested funding for, as you mentioned, is a 

focus on lender oversight, lender oversight and rooting out fraud, 

waste and abuse in government contracting programs. Those are 

our two sort of critical oversight fiscal responsibility themes this 

year. 

We are looking at all of our systems. There are a lot of best practices throughout the industry now on credit oversight, and we have 

reached out to experts in order to make sure that our choices and 

our activities and our systems rise to those levels, and we are going 

to be focusing on that for this year but also, really, on an ongoing 

basis. This is just an area where we have to do continuous improvement. 

Mr. CULBERSON. From your experience and in doing as much as 

you do and knowing the importance of ensuring that small businesses have access to credit and can borrow money, what impact 

have you seen so far of the tremendous amount of borrowing that 

the Federal Government has done? 

Particularly this new administration and this new Congress have 

created more debt in less time than any Congress in history and 

have spent more money in less time than any Congress in history. 

Last year, the Federal Government borrowed and rolled over about 

$7 trillion worth of debt and the mother of all open-ended entitlements, which was created on Sunday, and that will even accelerate, 

I think, the bankruptcy of the United States, or it will be Greece 

in no time. What effect is all that borrowing going to have, do you 

think, on the access of small businesses to credit? 

Ms. MILLS. Right now, the access of small businesses to credit 

really revolves around two issues. 

It revolves around banks which are concerned about their capital 

levels and banks that are concerned about risk. So it is really very 

focused, particularly in community banks, on a much more local 

level. Banks are still sorting themselves out from the credit crisis, 

and our job in this new jobs plan is to make sure that those two 

issues get addressed. 

Mr. CULBERSON. What effect, though, is all that borrowing of the 

Federal Government having on the availability of money to small 

businesses? 

I even noticed the other day Bloomberg reported that, for the 

first time, the U.S. Treasury’s people would rather buy bonds 

issued by Warren Buffett than by the U.S. Treasury. Moody’s said 

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ing. That was before they created the mother of all entitlements on 

Sunday. 

What effect will the borrowing of the Federal Government have 

on the access of small businesses to credit? 

Ms. MILLS. At this time, the two issues that I have described 

which are the main causes of concern for banks to be able to lend 

to small businesses, are not related to that. They are much more 

focused on this access to capital issue and on the risk taking. So 

they are really more of a local focus. 

Mr. CULBERSON. I know the regulators are encouraging banks to 

get out of real estate or to reduce the amount of real estate in their 

portfolios. I know that a lot of the restrictions and access to credit, 

of course, is direct—that the most immediate problem all of the 

banks have is the pressure that the regulators are putting on them 

to get real estate out of their portfolios. 

Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you. 

Ms. Lee. 

Ms. LEE. Thank you, Mr. Chairman. 

Good morning. 

Ms. MILLS. Good morning. 

Ms. LEE. Let me first thank all of the employees and the people 

at the SBA for your hard work, especially during these very extraordinary, challenging times. But these challenges really do 

present many opportunities for SBA, and I think you are doing, you 

know, a phenomenal job. 

Mr. Chairman, let me just say, before I came to Congress, I was 

a small business owner, an 8(a) contractor. It was a nightmare. I 

employed between 400 and 500 people. I was in business for 11 

years, but as a woman and as an African American, it was horrible 

to be able to survive that long based on the hoops I had to jump 

through and the discrimination that I was faced with and the lack 

of assistance by most of the Federal agencies. I mean, this was 

really very difficult, but we made it, and we did it. 

Now, being on this committee, Mr. Chairman, I want to focus on 

that 8(a) program, and I want it to be a little bit more supportive 

of minority-owned firms than what it was during the time when I 

was in business. 

A couple of things I would like to ask you. 

First of all, I never can find how you break down 8(a) contracts 

and contractors based on the background of those individuals in 

terms of the dollar amounts that would go to African American 

companies, to Latino companies, to Native American companies or 

to Asian Pacific American companies. So we need to disaggregate 

that data. I think we talked a little bit about that before. We absolutely have to see that because some small businesses, you know, 

from what I remember, had better access than other small businesses to the Federal contracting arena, so I would like to get that 

information. 

Secondly, I want to find out about the ARRA funding and the 

contracts that were let to minority-owned companies, because there 

is some information data that we have that show that about 1.1 

percent went to African American companies and 1.4 percent to 

Latino companies. We met with the President, and we received a 


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subsequent report clarifying that it was about 16 percent overall to 

minority-owned companies, but we still need that information, you 

know, put forth and disaggregated in terms of who got that money 

and where, because we can’t find it in our communities. 

I share this because—and I ask these questions, because minority-owned companies in areas of high unemployment create jobs, 

and during this economic recession, they have to have the support 

of the ARRA funding, the Federal contracting arena, access to capital, the TARP funding. You know, the banks that lend to many of 

our companies just won’t lend anymore because—I mean, I have no 

clue. We bailed them out, and they still don’t lend. So it is madness 

out there, and I would like to get some understanding of what is 

happening with the 8(a) program. 

Finally, you know, this bundling of contracts that really has prevented minority-owned companies from accessing the Federal contracts, how are you debundling some of these now or are you? Do 

you have the staff capacity to do that? Because that is a real problem for small- and minority-owned companies to go after these contracts which, if not bundled, would have access to smaller contracting opportunities to help them create jobs and build stronger 

and more viable businesses. 

Thank you again. 

Ms. MILLS. Thank you. 

I want to just say one thing about how much I appreciate the 

comments about the 11-year history that you had in your company 

and about how difficult it was to build and maintain, and this is 

a pretty robust company that you are talking about. 

Our mission at the SBA, is to make sure small businesses, and 

owners like you, have the help that they need, have the tools they 

need, have us at their backs in helping them get access to credit, 

to get access to counseling and to get access to government contracts, which in many cases can be that boost they need to get to 

that next level of volume. That is why we have the 8(a) program. 

It is actually a business development program, and it is not just 

the access to the contracts but access to mentoring, access to help 

and access to our other resources, which can be bank introductions, 

because, as you grow, you need more capital. 

Ms. LEE. Which I had none of. 

Ms. MILLS. That is right. 

It is extremely difficult to grow a business, so we need to help, 

particularly in communities that don’t have as much access. That 

is our job. We are very focused on meeting the contracting goals 

across all of our constituency—veterans, women-owned businesses, 

minority-owned businesses, and socially and economically disadvantaged businesses. 

In the Recovery Act, we do track them. We have the numbers on 

the sub-constituencies of African American-owned businesses, Hispanic-owned businesses, and Asian-American owned businesses. I 

only have the total here. We have a goal of 5 percent. We are at 

11.6. So we are doing quite well in the Recovery Act. 

As I mentioned earlier, we actually had a targeted series of activities which worked quite well. With the Vice President and Commerce and other agencies, we actually did matchmaking events— 

300 of them—particularly focused on minority-owned businesses 


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because you needed to help them find out what the Federal contracts were that were going to come up in the Recovery Act and 

make sure that they were put together. This is a win-win. It is 

good for the Federal Government. It is good for the taxpayer. It is 

good for the agencies to get the brightest and the best and the most 

innovative small businesses and CEOs connected with them so they 

can get the best bang for their buck. 

Ms. LEE. May we get a copy of that report, please? 

Ms. MILLS. Absolutely. 

Ms. LEE. Mr. Chairman, I don’t know. At some point, I would 

like to focus on the 8(a) program as a subject of this hearing, 

maybe, and see what we can do at the approps level to help make 

sure you are able to accomplish the goals that the 8(a) program has 

set forth, because I know the 8(a) program has been, in the past, 

severely underfunded in terms of staff capacity and in terms of, 

you know, what you need to make that program a success. I am 

not sure if it is reflected in your budget request or not, but I would 

hope that, during the next year, we can look at that and see if we 

can kind of make sure that happens. 

Mr. SERRANO. Thank you. 

Ms. LEE. Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you. 

Your legislative proposals increase disaster loan terms from 3 to 7 years; increase the maximum 7(a) loan size from $2 million to $5 

million; increase the maximum 504 loan size from $2 million to $5 

million for regular projects and from $4 million to $5.5 million for 

manufacturing projects; and increases the size of microloans from 

$35,000 to $50,000. The subsidy rates presented in your budget justification assume enactment of these proposals. 

So the question from appropriators is: How are you doing with 

the authorizers? Are they supportive? How likely do you think they 

are to successfully act on these proposals before the end of the fiscal year? 

Also, should these changes not be enacted, how much additional 

money will Congress be required to appropriate? A scary word. 

Why is this the case when you are making fewer of the smaller 

loans that do not perform as well? 

Lastly, why would you put forth a budget with what are most 

likely false assumptions in place? After all, if the 7(a) provision 

doesn’t become law, this creates a need for an additional $41 million to be appropriated. That is a mouthful. 

Ms. MILLS. Thank you. 

This question deals with our request to increase loan size. The 

President has asked that we raise the loan sizes from $2 million 

to $5 million. 

The rationale for this is there is a market gap. We have been 

doing a pretty good job in filling it so far, but there is more to be 

done. We believe that one of the tenets is to use the programs that 

we already have and that we can execute quickly and efficiently 

with taxpayer dollars to reach more small businesses. There is a 

gap in businesses that need $3 million, $4 million and $5 million 

loans. 

The Franchise Association has asked us—and they have asked 

Congress to help them—because they used to get most of their 


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funding from places like CIT, which has undergone its own troubles, and from other players who are no longer providing capital in 

those larger loan sizes. 

So we need to step up to do that. That will not be at the expense 

of small businesses. We are not going to crowd out the smaller 

loans by the bigger ones. We have capacity under our caps to increase our numbers for larger loans and to not crowd out the smaller loans. It is true that larger loans perform better. So the way the 

math works, when you do raise your loan size, you are assuming 

in the modeling a better mix of activity because the larger loans 

reduce the subsidy that you need. 

That amounts to approximately the following differences: You mentioned $41 million. If the loan sizes are not increased and they 

remain at $2 million, this budget subsidy would be short $41 million. If they are raised to $3 million, however, they are only going 

to be short—I think it is—$6 million or $7 million. If they are 

raised to $4 million, that amount goes down as well. So the biggest 

leap is between two and three. 

We are working very hard with the appropriators to find a way 

to address their concerns. I think the appropriators are very concerned about the crowding-out issue, and we are looking at ways 

to, we can limit the amount of the jumbo loans we can do. We are 

willing to talk about any fixes that would make sure that we don’t 

crowd out the smaller loans. We are going to be there for those 

folks, but we do believe we need to serve the $3 million, $4 million 

and $5 million market as well because there is a market gap there 

at the moment. 

Mr. SERRANO. All that to say you are hopeful the authorizers will 

come through? 

Ms. MILLS. We are looking forward to working with Congress 

and in making these recommendations come to pass. We have done 

a lot of homework to understand the need for these, and we believe 

they are the right mix of activities to go forward with. 

Mr. SERRANO. And the discussions are taking place in both 

Houses? 

Ms. MILLS. Yes, they are. 

Mr. SERRANO. Let me ask you a question about the PRIME and 

microloans. 

The President’s budget proposes to reduce funding for the Program for Investment in Micro-Entrepreneurs, or the PRIME program, which helps low-income folks with training and technical assistance, such as management effectiveness, financial literacy, marketing, customer service, and bookkeeping. It proposes reducing 

microloan technical assistance. 

The question is: Why reduce money for these programs now 

when only last year they began receiving a healthy funding level? 

I mean, just when you were doing good. 

Ms. MILLS. Despite the way the budget looks, we actually are 

funding these at a ‘‘level’’ level, and here is the missing piece: In 

the Recovery Act, we got an additional $24 million in microloan assistance that does not appear in the 2010 budget or in the 2011 

budget. We are going to be awarding that in this next several 

months. Microloan technical assistance is delivered on a quarterly 

basis, so it will actually be delivered over much of 2011. This budgVerDate Mar 15 2010 04:09 Dec 16, 2010 Jkt 062790 PO 00000 Frm 00027 Fmt 6633 Sfmt 6602 E:\HR\OC\A790P2.XXX A790P2

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et was constructed to keep the funding for microloan technical assistance actually at a higher level amount, and the additional $10 

million sort of picks up in the back half of 2011. We agree it is a 

terrific program. 

Mr. SERRANO. Well, it is, and we were very supportive of it. So 

I hope, as we move forward, you keep in mind that there is support 

on this subcommittee for those programs. 

Mrs. Emerson. 

Mrs. EMERSON. Thank you, Mr. Chairman. 

Back when the President made his State of the Union Address, 

he made a big pitch to double the exports from the United States 

all across the world. 

Number one, tell us a little bit about how your Office of International Trade and network of export assistance centers work to 

help achieve that goal. 

Number two, what more can you do, if there is more that you can 

do, to help small businesses compete globally and market their 

goods overseas? 

Ms. MILLS. We are part of the President’s National Export Initiative, which commits us to double our exports over the next 5 years. 

Only 250,000 small businesses actually export now, and so there is 

a lot of room for growth. Growth is occurring at a quite strong rate, 

and small businesses account for about 30 percent of exports. We 

are working very closely with a cross-agency effort, including the 

Department of Commerce, including the Trade and Development 

Agency, including the Export-Import Bank, and actually including 

the Department of State as well and the U.S. Trade Representative. We are extremely active, as an export cabinet, in driving to 

these goals, and we have kind of a four-step program. 

The first step is to identify more small businesses that are ready. 

Companies that have the potential to export. We, the SBA, play a 

very big role in that because we know where the small businesses 

are, so our Small Business Development Centers, our export offices 

and our banks will be very important in that activity. 

The second thing is to help prepare them to export. We have a 

series of training activities that we do, both online and in person. 

Last year, we trained about 17,000 small businesses in how to export. We also collaborate with the Department of Commerce on 

this. 

The third is to provide them with export opportunities. Here, we 

are going to work with Commerce and the State Department. 

These departments are making commitments to share with our 

small businesses all of their resources. These government staffs 

plan trade missions and will include our small businesses. Our ambassadors are going to be going to their local areas when they are 

home, and are going to be talking about their countries and making 

connections for our small businesses. Everybody has understood 

that small businesses need to be a big part of the growth. 

The last piece is to provide these small businesses with tools. 

That means our financing program, which we run through our 7(a), 

but we have special subcategories for export support and the Export-Import Bank as well. 

Mrs. EMERSON. So, if I am a small business, do I come to you, 

or are the regional SBA representatives always on the lookout? Is 


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it kind of, you know, we meet up at a Chamber meeting one day 

where I am the SBA guy, and I hear this great story about this 

company in Cape Girardeau, Missouri, and then, you know, he 

makes that or she makes that pitch that, you know, ‘‘If you are 

doing this, we can help you do that’’? I mean, I am curious as to 

how it works. 

Ms. MILLS. Well, it is all of the above. 

We are actively soliciting in our districts and local offices and are 

training our Small Business Development Centers in the tools. We 

have collaborated on sort of a road show with Export-Import Bank, 

and we have gone to nine cities, and have done export live training, 

and we are going to do more of that. We are partnering with the 

Department of Commerce which has a 1 (800) number on trade, so 

that is going to become the answer call center. There is a Web site 

as well where we have crosslinks to make sure there is kind of one 

focused place where small businesses can navigate all of the aid 

that they need. They do need help understanding how to fill out 

the forms, understanding what the export restrictions are and what 

you can and can’t do, and providing them with introductions and 

opportunities to take their exports overseas. 

These are not all high-tech. My favorite one is a hydraulic press 

manufacturer in New Hampshire, and he is a third-generation 

owner. He has done such a great job innovating that he is exporting to six European countries. 

Mrs. EMERSON. Thank you. 

Do I have any more time? 

Mr. SERRANO. Go ahead. 

Mrs. EMERSON. I just wanted to ask you a little bit about the 

Disaster Loan Program because, pre you, the SBA was severely, severely criticized for its slow disaster loan approval, you know, right 

after Katrina and Ike, for example. I know that you all have been, 

in the meantime, working very, very hard to streamline your disaster loan processes. It seems, since I have flooding or tornadoes 

or ice storms myself, we face similar circumstances in my congressional district. 

So, number one, do you feel comfortable where SBA is now or at 

least feel that you all are better prepared for any kind of major disaster on the scale of Katrina? If you do, what are you all doing or 

how have you developed the process to ensure that eligible victims 

actually get their loans quickly while at the same time making 

sure that there is not any fraud involved? 

Ms. MILLS. We are prepared in a way that we never were in the 

past. Let me give you some of the data. 

Before Katrina, we had about 880 trained staff. We now have 

2,400. Before Katrina, we had about 366 workstations that people 

could go to. We now have 2,100 ready. Before Katrina, we had 

about 400 people who could be on our information system at the 

same time. We can now have 12,000. We also have reengineered 

our process. For Katrina, our process was about 85 days. Now our 

goal is 14 days for homes and 18 for business, but we are running 

at 7 days for homes and 10 days for business. 

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tems, and we are now ready to address a catastrophic disaster we 

hope will never occur. 

I will also say one other thing. We are now ready to mobilize our 

entire SBA network. That means district offices in the affected 

area. That means Small Business Development Centers and 

SCORE representatives have all been trained in preparedness so 

we can bring all of our resources, not just our disaster folks, to bear 

in the case of extreme disaster. 

Mrs. EMERSON. What happens if the communications are down? 

I live on an earthquake fault, and we are getting ready to do a real 

exercise to not only deal with an earthquake but also with the Mississippi River’s flooding extremely. I mean, it will flood in that circumstance, but we are not ready at the State level at all. I have 

some communities which are kind of ready, but, obviously, we 

would probably bust your budget, quite frankly, if we had an earthquake the magnitude of that which we had back in 1811 and 1812. 

Be all that as it may, what about that whole communications 

network? Do you all have that put into place given the fact that 

most people will not have it? 

Ms. MILLS. Preparedness is a place that we have been very focused and on two levels. 

The first is our own preparedness where we are coordinating 

across the agency and with FEMA for how we will communicate, 

and we do do exercises and plan for communications issues. 

The second thing is that we do public service announcements on 

preparedness to small business. What we tell small business is, 

‘‘you need to have a plan.’’ They need to actually write down a disaster plan, and we give them the template on our Web site. They 

need to have copies of their records somewhere else in case they 

get lost, and there are a series of things you need to do. They need 

to know what is going to happen because their employees need to 

be communicated with, and they have to have a plan, if there is 

a flood or is a problem, for what is to be done. 

So we are spending a lot of time and attention on that. I will say 

now, in terms of funding, we have reserves. We spend about $1.1 

billion, and I believe we have reserves to cover about $8 billion. So 

we could take on a pretty big task right now. 

Mrs. EMERSON. Thank you. 

Mr. SERRANO. Mr. Culberson. 

Mr. CULBERSON. No further questions. Thank you, sir. 

Mr. SERRANO. We all need to be somewhere at noon, including 

yourself. So I want to do something in wrapping up a little different than we usually do. 

Since we didn’t have a hearing last year, let’s go back and make 

believe we are there, and I am going to give you my last 5 minutes, 

basically, to tell us where you want to take the SBA and where you 

are. 

Ms. MILLS. Well, as you will see in the front of your budget book, 

we have spent a lot of time thinking about what our goals and priorities are for this 2011 budget, and it reflects on the base that we 

are building this year. We call them the three Cs, the D and the 

I. 

We want to be able to provide access to capital. We want to be 

able to meet our contracting goals. We want to be able to help 


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small businesses with counseling, which is extremely valuable to 

them. We want to stay in a constant state of preparedness for our 

disaster operation. The last one, the ‘‘I,’’ is we want to help our 

high-growth/high-impact small businesses be able to innovate and 

to create opportunity for this country to be able to compete in the 

future. 

Those are our five external goals. 

Our internal goals are to continue to improve the SBA to become 

a high-performing organization. There we want to invest in people. 

You have heard about some of the training, but we have training 

activities now for about 500 of our people going on this year, 500 

of our 2,000 people. We hope to get up to more like 800. Training 

is investing in your people, which is a critical tenet for us. 

Investing in information technology across all activities, includ- ing our main loan system where we have got about $7 million in 

here for our LMAS main loan system which as I said, runs on Cobalt. We have kept that in good shape moving forward. 

The last thing is investing in oversight and fiscal responsibility. 

There are two pieces to that: lender oversight and rooting out 

issues of fraud, waste and abuse in all of our activities, including 

our contracting programs. 

Lastly, we believe that it is our job to act as the voice of small 

business across the administration. That includes worrying about 

unintended consequences of regulations and burdens on small businesses, but it also includes underserved communities, and we have 

a special point in there that this is core to our mission. We believe, 

with the assets and the tools that we have put forward here, we 

can make a real impact. So we need in 2010 and in 2011 to help 

this economy by growing small businesses, by creating jobs, by providing the foundation stone that brings us into recovery and that 

allows America to compete in the global market going forward. 

Mr. SERRANO. Well, we thank you for that statement. 

We stand ready to assist you in accomplishing your goals, because they are goals that are good for this country and that are, 

therefore, good for our future. We thank you for appearing before 

us today and for your testimony. Like I said, as time goes on during this process, we will be supportive. 

All members can submit for the record all questions that we have 

not asked. 

Ms. MILLS. Thank you very much for the support. 

Mr. SERRANO. Thank you. 

The meeting is adjourned. 


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WEDNESDAY, MARCH 17, 2010. 

FY2011 BUDGET FOR THE SECURITIES AND EXCHANGE 

COMMISSION 

WITNESS 

MARY SCHAPIRO, CHAIRMAN, UNITED STATES SECURITIES AND EXCHANGE COMMISSION 

Mr. SERRANO. The subcommittee will come to order. 

Welcome to this hearing of the Financial Services and General 

Government Subcommittee. Today, the subcommittee will hear testimony from the chairman of the Securities and Exchange Commission, the Honorable Mary Schapiro. 

We welcome you. We are trying to turn up the heat—I mean actually the heat, not ‘‘the heat,’’ but the heat. 

At our SEC hearing a year ago today, Chairman Schapiro was 

new to the job, and was being bombarded with the emerging story 

about the gigantic Madoff Ponzi scheme and the SEC’s repeated 

failure to detect it. Fortunately, we have not had any comparable 

investment scandals emerge since then, but we have seen the scandal of 10 percent unemployment that is rooted in the meltdown of 

the securities market. I hope that this year’s hearing can focus on 

two issues: 

First, how is the SEC reforming its internal operations, especially in light of the substantial increase in funds that have been 

provided? 

Second, how does the SEC propose to reform the securities markets to better serve the American people? The meltdown in our securities markets in 2008 and 2009 was the driving force in the financial crisis that has brought the worst economic downturn in almost 80 years. Although the unemployment rate has stopped rising, we still find almost 1 in 10 people in our labor force without 

work, and 1 in 6 are either unemployed or underemployed. Clearly, 

there is more work to be done. 

The Securities and Exchange Commission must be nimble to adjust to rapid changes in the securities markets. To effectively enforce the current rules, the SEC must run even faster to keep up 

with the sophistication of the clever criminals like Madoff, Stanford 

and Hegelian Hedge Fund. In the last 2 years, this committee has 

boosted SEC funding by more than 20 percent, in part, to strengthen the size, skills and technology of its enforcement and analytical 

staff. This hearing will examine how effectively the Commission is 

using those funds and how it proposes to use additional funds next 

year. 

In addition to better enforcing its own rules, the SEC has an obligation to address the economic problems caused by the securities 

markets. Too often, discussion of SEC’s responsibilities focuses narVerDate Mar 15 2010 04:09 Dec 16, 2010 Jkt 062790 PO 00000 Frm 00061 Fmt 6601 Sfmt 6601 E:\HR\OC\A790P2.XXX A790P2

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rowly on investor protection. From the beginning, however, the 

SEC has also had more profound responsibilities. Remember that 

the SEC was created in the wake of the Great Depression that had 

also been triggered by a meltdown in securities markets. The Securities Exchange Act of 1934 set out the purposes of the SEC in very 

broad terms ‘‘to protect interstate commerce, the national credit, 

the Federal taxing power to protect and make more effective the 

national banking system and Federal Reserve system and to ensure 

the maintenance of fair and honest markets in such transactions.’’ 

If events in the securities markets over the last year and a half 

have taught us anything, it should be that what happens in securities markets can have major consequences for commerce, credit, tax 

revenues, the banking system, as well as investors. We count on 

the SEC and the agencies most closely tied to the securities markets to take a broad view of its responsibilities concerning the 

health of the economy and not merely investor protection. Those infamous toxic assets that caused our financial system to seize up in 

2008 were securities, after all. 

How did so many assets become so toxic? Could proper regulation 

have avoided this crisis? 

The Commission must thoroughly examine what went wrong in 

the securities markets to allow the meltdown in 2008 and 2009 to 

occur. It must change its rules and advise Congress of changes in 

the law needed to prevent anything like this from happening again. 

In other words, we are looking to you for answers, and this country 

is looking to you and to the Commission for protection. 

Speaking of protection, I yield to the person who protects me 

every time we have a hearing, the ranking member, Mrs. Emerson. 

Mrs. EMERSON. Thank you, Mr. Chairman. 

Chairman Schapiro, thanks so much for coming back to the committee today. I will tell you it is a very challenging time, and you 

are doing a good job leading the SEC, and we are grateful for your 

efforts and for the efforts of your entire staff at the SEC. 

You know, while the markets are performing better than they 

were at this time last year, I think all of us must admit that we 

have a long way to go before we can fully restore consumer confidence or investor confidence, because I think of investors not just 

as Wall Street executives but as, really, the men and women whom 

I represent in my congressional district who are saving money to 

send their children to school, who are saving money to buy new 

homes, and who are trying to save for retirement. The task of trying to improve transparency in our securities markets is a great 

one, and it is a challenging one, as well as uncovering fraud and 

deception while not overregulating our markets and hindering economic recovery. 

So millions of Americans are looking to you to improve the integrity of the markets, and I will look forward to working with you 

and with my pal Joe Serrano to ensure that you have all of the 

tools and resources you need to ensure that our investors are protected and that the markets are properly functioning. 

However, I have to point out that, since the failure of companies 

such as Enron or Global Crossing or Arthur Andersen, Congress 

has provided the SEC with additional regulatory tools with the enactment of the Sarbanes-Oxley legislation, and it has more than 


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doubled the annual appropriation for the SEC. Last year alone, the 

SEC received an almost 15 percent funding increase. I want to continue to be helpful to you and to provide your agency with the tools 

and resources that you believe are needed, but I also want some 

assurances that your resources are being effectively utilized. 

So, once again, welcome back. I look forward to your testimony. 

Thanks, Mr. Chairman. 

Mr. SERRANO. Thank you. 

Chairman Schapiro, you know the drill. You have 5 minutes. 

Your whole testimony will be put in the record. We will have plenty of time to speak to you. 

I must note—and this is not a reflection on the hearing—the attendance here today. It is just that there are many hearings taking 

place at the same time, and I would suspect there are a few hearings taking place in the leadership office, at the White House and 

in other parts of this country right now having to do with a little 

bill we have floating around, and I know you understand that. 

Ms. SCHAPIRO. I understand. 

Mr. SERRANO. Please proceed. 

Ms. SCHAPIRO. Thank you very much. 

Chairman Serrano, Ranking Member Emerson and members of 

the subcommittee, thank you for the opportunity to describe how 

the President’s fiscal year 2011 budget request of $1.258 billion 

would allow the SEC to better pursue our mission of protecting investors, regulating markets and facilitating capital formation. 

When I testified before the subcommittee a year ago, we were 

just emerging from an economic crisis that threatened our financial 

system and the entire American economy. The markets were still 

trying to regain a firm footing, and confidence in the institutions 

of government generally, and the SEC specifically, was badly shaken. Thanks to the strong support this subcommittee has provided 

to the Commission over the past year, we have been able to take 

significant steps to make the SEC more vigilant, sharp and responsive. 

We have brought in new leaders across the agency. We have 

streamlined our procedures and have reformed our operations. We 

began modernizing our technology and training our people. We set 

out to regulate more effectively. We fully engaged in the debate on 

regulatory reform, and we initiated one of the most significant investor-focused rulemaking agendas in decades. 

In the last year as well, we have created a new division of Risk, 

Strategy, and Financial Innovation to get ahead of the next financial challenge we may need to confront. Our Enforcement Division 

undertook a top-to-bottom review that resulted in a restructuring 

effort that is breaking down silos and has eliminated a layer of 

management to free up professionals for frontline duty. In addition, 

through the creation of specialized units, the restructuring is enabling us to have a deeper focus in critical areas, such as market 

abuse, structured and new products, and foreign corrupt practices. 

A similar review is being conducted by the new management of our 

Office of Compliance Inspections and Examinations as a prelude to 

necessary restructuring there. 

These efforts are already paying dividends. For example, in my 

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cantly. We brought more than twice as many temporary restraining 

orders and asset freezes in 2009 as in 2008. We issued well over 

twice as many formal orders of investigation. We won $540 million 

more in disgorgement orders. Penalty orders more than doubled, 

and we filed nearly 10 percent more actions overall, including nearly twice as many involving Ponzi schemes. 

We have made real progress, but restoring investor confidence 

and rebuilding the trustworthiness of financial institutions and 

markets will require a sustained regulatory commitment. 

The challenge we face grows larger every day. The dollar value 

of the average daily trading volume in stocks, exchange-traded options and security futures has reached $245 billion. Since 2003, the 

number of registered investment advisers has increased by 50 percent, and their assets under management have grown by almost 

$19 trillion. Yet we still rely on fewer than 4,000 dedicated individuals to monitor more than 35,000 regulated entities. 

With the ability to hire more staff, we will deepen our pool of institutional expertise—hiring experts in financial services and related areas and bringing on economists, academics and market professionals with significant experience with today’s markets and 

products. It also will allow us to conduct more investigations and 

trials, to reduce the gap between the number of examiners and the 

firms we oversee and to increase our capacity to monitor and respond to emerging trends and practices; and the proposed $12 million increase in information technology investments will allow us to 

not just do more work but better work. 

We have completed the first phase of creating a single, searchable database for tips and complaints, and we are working to add 

risk analytics to help us quickly and efficiently identify high-value 

tips and to search for trends and patterns across the data. We are 

enhancing collection, internal analysis and subsequent distribution 

of disclosure documents filed with the SEC. This will allow us to 

aggregate data across firms and, over time, to monitor macro 

trends, to search for hidden risks and to track systemic changes. 

We also plan to complete improvements to the case and exam 

management tools available to our enforcement and examination 

programs. While we will never reach or match the e-discovery technology available to the big law firms we face, the ability to search 

and use the vast amounts of data we access and collect will make 

our team more competitive in court. 

While putting state-of-the-art technology in the hands of SEC 

staff, we are giving them the training they need as well to keep up 

with and to constantly monitor the evolving financial environment. 

In the year ahead, we will also continue to pursue an energetic 

rulemaking agenda, looking after the interests of investors and responding to changes in the American financial marketplace. 

While the SEC is a relatively small agency, as you have noted, 

we are charged with protecting millions of investors every day, including the nearly one-half of all American households that own securities. I am pleased with the progress we have made to date, but 

we recognize that much work remains to be done to continue to restore investor confidence in our markets. The funding level in the 

President’s budget request is critical for us if we are to succeed in 


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these efforts and are to continue to improve our performance in an 

increasingly complex financial world. 

Thank you both very much for the support you have shown me, 

and I would be happy to answer your questions. 

Mr. SERRANO. Thank you so much for your testimony. 

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Mr. SERRANO. Now, you went a long way in answering the first 

two questions that I have. 

Could you be more specific in terms of how new resources will be used? You know, the $200 million increase in the SEC appropriation over the last 2 years has already funded a 12 percent increase in staff. You estimate that the President’s budget request for 

another $140 million would bring about a 21 percent staff increase 

over the 3 years. 

So how is the restructuring going to specifically take place? If 

you could, go more in-depth than what you said in your opening 

statement? 

Ms. SCHAPIRO. I would be happy to. 

First of all, the technology of the agency is really inadequate to 

the task that we are faced with on a daily basis. So we will use 

significant resources to bring our technology into this century, at 

a minimum, through efforts, for example, to take all of those hundreds of thousands of tips and complaints we receive every year 

and put them into a central database, have a capacity to triage 

those complaints, and work on the ones that have real value for us 

in shutting down potential Ponzi schemes or other frauds. 

We will also address the difficulties that our enforcement and examination staff face with the ability to manage their volumes of 

caseloads and exams in order to ensure that we are devoting our 

resources appropriately to the highest risk areas. 

As I mentioned in my remarks, there is the ability to conduct ediscovery. We have about 90 FTEs or so that are responsible right 

now, mostly contractors, for helping us deal with the three 

terabytes of data that our enforcement program receives on a 

monthly basis in the conducting of its investigations and cases. If 

we had a better electronic system, we could reduce those FTEs, and 

we would be far more efficient in being able to search that data 

and bring our cases. 

As important are the people resources that we need. As I mentioned, we have fewer than 4,000 employees and 35,000 regulated 

entities. We need to bolster our programs in a number of areas: 

Within enforcement, a significant amount of our resources would 

go to adding trial attorneys and support for the investigations program. We believe that that will enable us to bring many more cases 

on an annual basis. 

In the examination program, we are severely outmatched by the 

industry. For example, we have about 400 examiners who are responsible for 11,000 investment advisers and 8,000 mutual funds, 

and mutual funds are the places where most Americans have their 

securities investments. We need to get better ratios there so we 

have better coverage of those industries, and we would use a significant portion of our human resources for that purpose. 

In addition, we have created a new division of Risk, Strategy, 

and Financial Innovation. We are trying to bring very different 

skillsets into the agency throughout the organization but also to reside a group of them in one place to support all of the other functions of the agency with different sorts of skillsets—financial analysts, people who understand trading strategies, people who understand new product development, people who understand the inner 

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cient number of slots to dedicate to this area, we think we can bolster broadly across the agency our risk assessment capabilities, 

which is, frankly, what should drive all of our programs. We will 

never have enough people to do everything, so we have to have the 

capability to understand where the risks are and where we will 

apply our resources. 

I am sorry. It is a very long answer. 

Mr. SERRANO. No. No. I understand. It is a complicated issue. 

You know, as I hear you speak, I am thinking now, when we 

think of the market, we think of my city of New York, but there 

are actually people investing and brokers all over the country, both 

in the mortgage market and in other markets. 

Do you concentrate on the larger areas? Does the SEC look at everything? I mean, while you are looking at Wall Street again to 

make sure what happened doesn’t happen again, could there be 

somebody in Dallas or in Illinois doing something improper and 

how do you keep on top of that? I always pick on Waukegan, Illinois. That is because it is Jack Benny’s hometown and, you know, 

I am old enough to remember Jack Benny, so I apologize to the 

people of Waukegan. I always do that. 

Ms. SCHAPIRO. And I remember Jack Benny as well. 

Absolutely, the problems—and the problems we have confronted 

over the last 2 years in particular have been focused on large Wall 

Street firms, and they have created—and they have the potential 

to create great risks to our system by the very nature of their 

size—the number of business lines that they are in, the esoteric 

products that they deal in and their interconnectedness with insured depository institutions and others. 

So we have had a lot of focus, I think, all of us in Congress and 

in the regulatory agencies and the bank agencies on Wall Street. 

But we also have to worry very much about what is happening on 

Main Street because there are 11,000 investment advisers regulated at the Federal level, and another 14,000 regulated at the 

State level. There are 5,500 brokerage firms spread all across the 

country interacting on a daily basis with retail investors and with 

municipalities and State governments as well. 

We try to get the right balance, and I wouldn’t suggest we always do, between our focus on the large systemically important institutions and the local brokers, dealers and investment advisers 

and mutual funds. 

One way we do that is through the presence of our regional offices. We don’t have one in Waukegan, but we do have one in Chicago and around the country, and those regional offices are very 

close to the local financial community, and so they are able to have 

a great deal of focus on what is happening in their local communities, and that is an important part of the balance for us. 

So a number of the new resources that we have been able to gain 

over the last year, and as I say, for which we are very grateful— 

will go out to our regional offices where they can be deployed in 

Main Street investor protection. 

Mr. SERRANO. Let me ask you one more question before I turn 

it over to Mrs. Emerson. 

Economists have put partial blame in many places—mortgage 

brokers, credit rating agencies, securities firms, packaging, 


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overrated asset backed securities, hedge funds, investment advisers, et cetera. Tricky question: Whom do you hold most responsible? Does the SEC have a role in either holding individual actors 

responsible or preventing such behavior in the future? 

Ms. SCHAPIRO. Well, there are lots of people who share responsibility for what we have been through, and so I would agree with 

the list that you really just read us, whether it is credit rating 

agencies, Wall Street firms, regulators, to an extent as well. 

With respect to how we hold people responsible or will we hold 

people responsible, the answer is absolutely. Within the financial 

services community, and looking at the conduct that arises out of 

the financial crisis, we have many investigations going on, and we 

have brought many cases already against mortgage originators for 

failure to disclose declining portfolio values or decreasing delinquencies for poor accounting practices against money market fund 

that engaged in conduct that caused it to break the buck and cause 

essentially the potential for a run on money market funds during 

2008. 

We have brought cases against insider traders taking advantage 

of information they knew arising out of the credit default swap 

market, for example. So we have held many institutions and individuals responsible in the past year, and we will continue to very 

vigorously investigate all of the conduct that we think violated the 

securities laws and gave rise to many of the related problems that 

we have seen, whether it was with respect to accounting and disclosure, the conduct of rating agencies, the conduct of individuals selling toxic assets without adequate disclosure to the full extent of 

our capabilities. 

Mr. SERRANO. Elected officials are always very careful never to 

blame the public or to put any blame on the public, except if they 

are immigrants, then you can beat them up, you know. But that 

is my comment, you know, not that you should but some people do, 

much to my dismay. But during that whole bubble that we had 

where everything was going so great, was it a lack of information 

on the public’s part or did the public bear a little responsibility in 

saying some of these deals are too good to be true? I mean, buy a 

house now. We will make the first mortgage payment for you. You 

know, no interest. Your first mortgage payment will be next year 

and we will throw in season tickets to the hockey team or whatever. You know, is it that I am too cynical or too suspicious? Because I would have said what is going on here? 

Ms. SCHAPIRO. I do think there are certainly instances where 

members of the public were not sufficiently skeptical of the products that were being offered to them and sold to them. I think 

there were also many instances where very complex products were 

sold to people who simply did not understand and relied on the advice and the guidance they were getting from somebody who was 

offering to sell them a mortgage. So again, I think there is plenty 

of responsibility to go around. 

Mr. SERRANO. Okay. Thank you. 

Mrs. Emerson. 

Mrs. EMERSON. You know, I will say, just in comment to what 

you were saying, Mr. Chairman, you know, after my dad passed 

away and my mom decided that perhaps she didn’t want to live all 


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by herself in our house, so she sold the house and then put the 

money that she made from it into—with an investor, and because 

my mother was not very well educated as far as investments went, 

they lost all of it. She lost all of that money, and it was really— 

you know, just absolutely heartbreaking and, you know, she—in 

some ways, I think blamed herself, but at the end of the day, she 

got—she was sold a bill of goods and, you know, the whole firm in 

which she had put her money went down and the head of it went 

to prison and that sort of thing, but it is really very, very sad. 

I wanted to ask you a few questions, if I could, about Lehman 

Brothers in regard to the report that was released last week, accusing the Lehman Brothers execs of manipulating their balance 

sheet, malpractice by the auditor, Ernst & Young, and inaction by 

regulators, obviously in the wake of the Enron bankruptcy and enactment of accounting industry reforms in Sarbanes-Oxley it is disappointing to see that companies and accounting firms are still 

willing to misrepresent their financial positions. So I have three 

questions, and I will just go ahead an ask them in order and then 

let you respond. 

To the extent it is appropriate to comment, can you tell us what 

you are doing to investigate Lehman and Ernst & Young? Two, 

what is the state of the accounting industry? Are you concerned 

that there is, perhaps, some more widespread use of malpractice? 

And three, the SEC supervises the public company accounting oversight board that was created by Sarbanes-Oxley, and I just want 

your thoughts on how well you believe it is performing. Thank you. 

Ms. SCHAPIRO. Thank you. 

I have to obviously be careful in the context of talking about 

what it is we are doing. Although, it would be safe to assume that 

we are looking very carefully at the conduct of a number of firms 

during this period of time, and I think the examiners’ report, which 

is really a superb recitation of events, so far as I can certainly tell, 

really focuses on a couple of the issues that you have really raised 

very squarely. The use of these REPO 105 to temporarily reduce 

the leverage and potentially resulting in misleading financial results, the potential overvaluation of certain reality assets. And finally, the conduct of individuals within the firm and the conduct 

of auditors, and we think that the examiner’s report is going to be 

enormously helpful to us in our efforts. 

And I do think it also raises important questions about Sarbanes-Oxley and the—many of the protections that were put in 

place post-Enron. The reforms that one would hope would have 

prevented this kind of conduct. So I think there are serious questions about whether the reforms under Sarbanes-Oxley relating to 

accounting and disclosure were fully complied with here. Again, 

that is an issue raised in the report and something worthy of our 

looking at. 

I do think that the state of the accounting industry—it is hard 

for me to judge broadly. I will say that I think SOX has had very 

positive impact on the industry. Financial reporting is clearly more 

transparent and more reliable than it was and recent studies have 

showed that the number of restatements and such have declined. 

I do think that there is greater corporate accountability about financial results as a result of Sarbanes-Oxley and the requirement 


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for CEO and CFO certification and a number of other protections. 

And I think that the PCAOB’s program has improved audit quality 

through their oversight. 

As a result of Sarbanes-Oxley, in addition because of the new 

tools the SEC was given, we have brought about 66 cases against 

accounting firms since Sarbanes-Oxley, and close to 200 individuals. So we have a very robust enforcement program around the accounting profession. 

Mrs. EMERSON. I appreciate your answer. 

Let me ask you about Bank of America now if I could because 

you all have been criticized for the handling of the Bank of America case where the SEC charged that the company failed to properly disclose employee bonuses and financial losses at Merrill 

Lynch before shareholders approved the merger of the two companies. In fact, the judge threw out the first proposed settlement of 

the case—well, the SEC’s second attempt to settle the case was 

successful. Judge Rakoff stated that the settlement is ‘‘inadequate 

and misguided’’ because the penalties are ‘‘very modest.’’ 

In addition, Attorney General Andrew Cuomo still going forward 

with a case against Bank of America in New York State courts. So 

what can you tell us about your approach to enforcement, and do 

you believe that the Bank of America settlement is too modest? 

How can you satisfy our needs to know that the interests of the investors are for most as opposed to the interest of Wall Street? 

Ms. SCHAPIRO. Sure. Well as I mentioned in my opening comments our enforcement program has really done an extraordinary 

job, I believe, in the last year, and I talked about, you know—we 

have doubled the amount of disgorgement. We have 50 percent 

higher penalties. We have opened many more investigations. We 

have concluded more actions, and so I think that record, while it 

doesn’t tell the whole story by any means, suggests that aggressive, 

robust enforcement is back at the SEC in a very meaningful way. 

We have a new enforcement director who is a former prosecutor 

from the southern district of New York. We have new leadership 

in some of our major offices where enforcement cases are generated—New York, Atlanta and Miami, and I think there is a very 

great commitment across the agency to fair but robust enforcement 

of the securities laws. 

With respect to Bank of America specifically, I guess I would 

have a couple of comments. The original settlement was very clearly rejected by Judge Rakoff. As a result of that, we went back. We 

negotiated a waiver of attorney-client privilege with Bank of America so we could explore directly with their outside counsel what role 

they may have played with respect to the failure to disclose the 

original allegations, which were related to the bonuses that were 

being paid to Merrill Lynch employees, but we also were able to 

amend our complaint in a second set of allegations, that is, losses 

mounted at Merrill Lynch during the pendency of the proxy vote; 

those losses should also have been disclosed to shareholders. 

So we made it a tougher and bigger case. The penalty went from, 

I think, $33 million to $150 million, which is actually being returned to shareholders as opposed to going to the United States 

Treasury, which I think was an important concern that Judge 


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Rakoff had in the initial settlement, that we were penalizing the 

shareholders a second time. 

And it provides for some very significant undertakings in the corporate governance world that I think will make this a better run 

company so that there will be better care taken the next time, and 

there will undoubtedly be a next time when they have to distribute 

a proxy statement for their annual meeting or for a major transaction, and I think that is important as well. 

Finally, the second settlement, which the judge did approve, admittedly with some mixed feelings, I believe, has a full factual recitation of all of the facts that underlie the conduct we believe violated the Federal securities laws. I think that is very important for 

the public to have access to. 

So the last point I would want to make is that Attorney General 

Cuomo did arrive at a different conclusion with respect to the culpability of individuals. He has a different law to administer, the 

Martin Act, and we have the Federal securities laws. But we took 

testimony from dozens of people. We took—we built a very strong 

evidentiary record, and we have to go at the end of the day where 

that evidence leads us, and we did not believe that we could prove 

in court a case against the individuals and even though we settled, 

our standard must always be can we prove our case in court. 

Mrs. EMERSON. I appreciate that. Thanks very much. I do get so 

worried with these big firms that, perhaps, could be characterized 

as too big to fail and wish we did not have firms that were too big 

to fail, but that is—— 

Ms. SCHAPIRO. I agree completely. 

Mrs. EMERSON. That is another discussion. So thank you, Mr. 

Chairman. 

Mr. SERRANO. Thank you. Too big to fail sometimes is a matter 

of opinion, right? 

Ms. SCHAPIRO. Yes, very much so. 

Mr. SERRANO. Only the U.S. Congress is too big to fail. 

Before I turn to my dear friend, dear friend, Mr. Culberson, let 

me just follow up on your initial question on Lehman Brothers. 

We read in The New York Times that the SEC had a person stationed at Lehman, monitoring what was going on—or certainly 

monitoring some of the actions—and it was reported that that person didn’t think anything was going wrong, was terribly wrong. I 

think the quote was that nothing signaled to him or to her that 

something was terribly wrong. 

Did SEC examiners have knowledge of the REPO 105 transactions and do you agree that nothing terribly wrong with using 

REPO 105 transactions to reduce debt by $15 million to make the 

ends of quota books look better. In other words, what was going on 

and what role do you think the SEC should have played, did play 

and should play in the future? 

Ms. SCHAPIRO. The examiners report I think makes clear that 

the SEC was not aware, that staff was not aware of the REPO 105 

transactions, but if I could take a step back, I have testified at 

great length in front of the Financial Crisis Inquiry Commission 

about the issues that the SEC had with the program under which 

it regulated Lehman Brothers, called the Consolidated Supervised 

Entities Program, which was really developed to bring holding comVerDate Mar 15 2010 04:09 Dec 16, 2010 Jkt 062790 PO 00000 Frm 00085 Fmt 6601 Sfmt 6602 E:\HR\OC\A790P2.XXX A790P2

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panies of large investment banks that didn’t have a bank, and 

therefore weren’t subject to Fed regulation, under the umbrella of 

some kind of a regulatory structure. 

It suffered, quite honestly, from a number of very significant 

flaws. First of all, it was a voluntary program; if a firm like Lehman Brothers came into the CSE program, they did not have to 

stay. They could have elected a European regulator as their consolidated supervised regulator in lieu of the SEC. It was inadequately staffed and resourced almost from the very beginning. 

There were not enough people with the appropriate skillsets to 

really be responsible for five of the largest financial institutions 

frankly in the world. 

It was a bit insular and stovepiped. I think that is one of the 

things we see referenced within the examiners report. And there 

was an aspect to it that the Consolidated Supervised Entities Program required a sort of regulation, a prudential form of regulation. 

It was really quite different than the regulation the SEC normally 

engages in. We are a very disclosure and enforcement-focused 

agency. This program really required more of the banking regulator 

sort of approach to regulation where we figure out the problems 

and we resolve them and we move on. We do not have a lot of 

transparency around that in a lot of enforcement, and I think we 

were ill-suited because of our disclosure and enforcement mentality 

to really convert to being a prudential regulator in this sort of a 

setting. 

So I think the report confirms some of these shortcomings, which 

again, we have spoken about at length and we are trying to address those through new leadership across the agency, bringing in 

new skillsets. The use of cross agency task forces and other mechanisms to try to break down the stovepipes that exist. 

Mr. SERRANO. How do you intend to do that? I mean when you 

say that you are looking at it and you are trying to make the 

changes, what changes can we expect? Because you see what I am 

trying to help you prevent, if there is such a thing as us helping 

you prevent, is that we want to create greater confidence in your 

agency from the public, and then we read something like this and 

we say, oops, we took a step back. That is what I am trying to get 

at. So can you be more specific as to how you will attack this? 

Ms. SCHAPIRO. Absolutely. And I should mention that this program was shut down by my predecessor about a year and a half 

ago, so it doesn’t exist, and these major institutions are now, either 

don’t exist or they are subject to regulation by the Fed; the SEC 

still focuses on the broker-dealer and works closely with the Fed. 

But it is not just what we want to do. There are a number of 

things we have already done. We have replaced the leadership 

across the agency. We are bringing in—we have brought in a number of very sophisticated financial analysts and people with different perspectives and much more current Wall Street expertise to 

help us understand the risks that are growing in the financial system even if they are not narrowly in our world of broker-dealer regulation. 

The additional slots that this committee has made possible are 

going to enable us to have a more hands-on approach with respect 

to the entities that we regulate. 


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The culture of the agency is changing. It doesn’t happen overnight, but that is why, from my perspective, bringing in new leadership was so critically important. We have brought in people who 

are absolutely committed to one SEC, not a division of this or a division of that or an office of this, but one SEC that shares information that collaborates and cooperates so that at the end of the day, 

the SEC gets its job done, and investors can ultimately have confidence that this agency is on the job again. 

Mr. SERRANO. Thank you. 

Mr. Culberson. 

Mr. CULBERSON. Thank you, Mr. Chairman. 

The chairman raises a really important question that I know all 

of us are concerned about—the $50 billion that Lehman Brothers 

hid in debt and that they succeeded in doing so at a critically important time. 

Which Federal agency, Chairman Schapiro, would have been responsible? You say your agency. You were not aware of their hiding 

the $50 billion. Who is responsible then for spotting that? 

Ms. SCHAPIRO. The SEC was the consolidated regulator of Lehman Brothers during that period of time. 

Mr. CULBERSON. I’m sorry. This was, I thought, the $50 billion 

they hid before they were—— 

Ms. SCHAPIRO. No. It was during the period of time that the SEC 

was the consolidated supervisor of Lehman Brothers. 

Mr. CULBERSON. Okay. 

Ms. SCHAPIRO. It ramped up. I think, in 2007, it particularly 

ramped up. The CSE program had been created a number of years 

before really to provide these large investment banks with a consolidated supervisor so that they could continue to operate in Europe where a director was requiring them to have consolidated supervision. 

The SEC, to that point, had only ever regulated broker-dealers, 

and it is quite a different perspective to regulate the broker-dealers 

than it is the affiliates and subsidiaries and the holding company, 

which may include many other businesses and face many different 

risks than the broker-dealer itself. 

Mr. CULBERSON. In your statutory authority, as you described, it 

is a voluntary program for which you rely a lot on disclosure, and 

you have to rely on the entity to disclose information before you are 

in a position to enforce it. 

Is that under the limitations of the statutory authority of the 

SEC? 

Ms. SCHAPIRO. Well, the program no longer exists. Chairman Cox 

closed it down over a year ago, maybe 6 months or so before he left 

the SEC. 

It is a voluntary program in this sense: If they wanted the SEC 

to be their consolidated supervisor, they then had to consent to regulation by the SEC and to provide us the information that we believed was necessary, not just for the broker-dealer but for the 

holding company affiliates and subsidiaries as well. It was voluntary in the sense that they could leave the program, but once 

they were in the program, they were obligated to provide the SEC 

with the appropriate information. 


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Mr. CULBERSON. So, really, if not the SEC, wouldn’t the Federal 

Reserve then have the responsibility for ensuring that—I mean to 

flesh out this $50 billion of debt that was hidden? Wouldn’t that 

be the responsibility of the Federal Reserve? 

Ms. SCHAPIRO. Well, it was the SEC’s responsibility. We were the 

consolidated supervisor of Lehman Brothers. Towards the end, both 

the Fed and the SEC had staff much more actively engaged. According to the examiner’s report, they were much more actively engaged in the oversight on a daily basis of Lehman Brothers. 

Mr. CULBERSON. But the Federal Reserve also had responsibility, 

didn’t they? 

Ms. SCHAPIRO. Well, they didn’t have direct regulatory responsible, but there was clearly cooperation. They were clearly involved 

as well with Lehman Brothers. 

Mr. CULBERSON. But the Federal Reserve is responsible for ensuring the integrity of the banking system in the United States, so 

the Federal Reserve had responsibility for ensuring the integrity of 

Lehman Brothers as well, right? 

Ms. SCHAPIRO. Well, I guess we probably more appropriately 

would ask them this question; but because Lehman Brothers was 

not a bank holding company, but rather a securities firm subject 

to consolidated supervision at the SEC, I believe, according to the 

examiner’s report, the Fed viewed the SEC as the primary regulator; but clearly—and I know you have seen the examiner’s report—there is discussion of the role the Fed played in overseeing 

Lehman Brothers. 

Mr. CULBERSON. Right. You have got primary responsibility, but 

the Fed also has responsibility, right? 

Ms. SCHAPIRO. Well, yes, I think that is correct. 

Mr. CULBERSON. One of the problems that has been brought to 

my attention by people I respect in Houston, which I was unaware 

of, is that, apparently, it is possible for a regulator who works at 

the SEC—when they leave the SEC, they can turn around and go 

work for one of the firms that they regulated. 

Ms. SCHAPIRO. That is true. 

Mr. CULBERSON. Like next week. They could leave today, and 

next week, I could be drawing a paycheck from one of the firms I 

was regulating. 

Ms. SCHAPIRO. We do have employees, obviously, who leave our 

employ, as they are entitled to do, and they can go work for law 

firms that represent regulated entities, and they can go work for 

regulated entities. In that case, we try to guard very carefully 

against the conflicts that may be created by their being present in 

a regulated entity; but it is true what you say, and I have looked 

at what other regulators do in this regard. We have this difficult 

balance here because we want to bring in the best and the brightest to the SEC, and we want to bring in people from Wall Street 

who understand products, who understand practices, who can help 

us find the problems, and at the same time, if we tell people you 

cannot go work for 5 years in this industry, we are going to have 

a very hard time bringing in the talent we need to bring in. 

Mr. CULBERSON. But you can see the conflict, and I wanted to 

be sure to bring it to Mrs. Emerson’s and the chairman’s attention 

that it is astonishing at the SEC—that I could work at the SEC 


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as a regulator and then, next week, go work for one of these big 

firms and be pulling down a huge salary. I mean, the conflict is 

just blatant. I think, in every other Federal agency that I am 

aware of—and we do the same thing here—there is a period of time 

in which, I think at any Federal agency, you can’t, for example, I 

know, if you leave the Pentagon, immediately go work for Boeing 

or go work for Lockheed. The conflict is just incredible. It is incredible. 

I mean that, to me, is one of the fundamental problems here. You 

have got the authority, I think, internally—don’t you?—to issue a 

regulation that would prohibit your employees from going to work, 

within a period of time, for the entities that you regulate? You 

have got that authority under the statute, don’t you, to do it yourself? 

Ms. SCHAPIRO. I don’t know the answer to that, but we can certainly look into that, and I would be happy to come back and talk 

with you about it. I do know that people do leave other regulatory 

agencies and go into the industries for which they have had regulatory responsibility. The SEC is not alone in that. 

Mrs. EMERSON. I think the FDA does it, too. 

Mr. CULBERSON. It is a bad idea. I mean, it is just a terrible idea. 

I think the statute is broad enough, Mr. Chairman and Mrs. 

Emerson, to give you authority, and if it is not, it is something we 

should talk to our friends about on the authorizing committee, and 

if they get too wrapped around the axle, we may think about getting a waiver. That is something that ought to be in law, Mr. 

Chairman. This is just a blatant violation of just common sense. It 

is a terrible problem. 

I understand you are trying to attract top people, but that is just 

not acceptable, particularly in light of what has happened to the 

country and the failures we have seen. 

In the brief time I know I have got—and I know I get a second 

round—I wanted to ask about Stanford Financial. They were in 

Houston. This guy Allen Stanford fooled a lot of people, and his 

company employed—in fact, Stanford was an SEC and FINRA regulated broker-dealer. 

The certificates of deposit that Stanford sold people were sold to 

investors by SEC-regulated, FINRA-licensed and SIPC-member financial advisers. You know, they were all licensed regulators. 

There was even an SIPC logo on all of the correspondence that 

Stanford sent out. They had to do that—of course, they had to have 

the authority to do so. 

My question would be, Mr. Chairman—and I appreciate the 

time—is that the victims of Stanford were defrauded in this same 

kind of Ponzi scheme as the Madoff investors were defrauded. Yet 

the SEC has extended SIPC coverage to the Madoff investors, and 

it is the same situation. You have got people who lost everything, 

who were destroyed by this fraud. I wanted to ask you to please 

reconsider extending SIPC coverage to the Stanford investors who 

were defrauded in the same way as the Madoff investors. 

Ms. SCHAPIRO. I appreciate that. 

This is really a tremendous tragedy. I know—and I know you 

know as well—that SIPC has determined that the SIPA Act doesn’t 

apply, with respect to the customers who held the CDs of Stanford 


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Bank, because they were not held at the broker-dealer. They were 

issued by a bank, and they were considered to be a banking product. 

My staff has met on multiple occasions with the Stanford victims 

group. In fact, I will be meeting with them in the very near future, 

and I assure you we will continue to look at any information they 

bring to us or that comes to light in the consideration of our litigation that would suggest a different result. 

Mr. CULBERSON. If I could just very quickly follow up, Mr. Chairman—and thank you for the time—the SEC designated Stanford’s 

business entities as a single commercial enterprise. They were all 

one commercial enterprise, so they weren’t simply a bank. These 

weren’t banking certificates. Your agency had designated them as 

a single commercial enterprise. So, therefore, it is logical that they 

would then be extended coverage under the SIPC program. 

Ms. SCHAPIRO. Well, we can certainly continue to have conversations with SIPC about this. I understand the concern that you are 

raising. 

Mr. CULBERSON. Would you revisit it, please? Would you please 

go back and look at it again? These folks have lost everything. 

Ms. SCHAPIRO. Absolutely. I would be happy to. 

Mr. CULBERSON. I know I will have another round. 

Thank you, Mr. Chairman. 

Mr. SERRANO. I am going to just make a brief statement, and I 

believe that this statement is true, which is that, while in the past 

administration and in the past in general, there might have been 

some Members of Congress who thought we shouldn’t overregulate 

and that therefore it was okay for the SEC to look the other way, 

I think that we are at a point now where I can honestly say there 

are certainly members of this subcommittee and members of the 

full committee who would want the kind of things that happened 

in the last couple of years not to happen again. 

It is in no party’s interests. The Democrats and the Republicans 

don’t score points if our economy takes another hit, as it did before, 

partially based on Ponzi schemes and other things that have hurt 

so many people. 

So, when we are asking you questions, especially on this Lehman 

issue, if they seem tough and although you haven’t complained, it 

is because there is a bipartisan desire for this never to happen 

again. 

When we hear, right at the point when we are beginning to say 

we are turning a new leaf, that there was somebody from the SEC 

sitting there, basically saying this didn’t seem to be a problem— 

granted that it was some time ago in 2008—still we are here. You 

are telling us things have changed. We are saying we want them 

to change. 

I repeat that it is in no one’s interest here. I mean Mr. Culberson 

and I disagree on many issues, but we agree that the economy has 

to be sound and that we have to recover from this. We all do. 

So, if we press you, it is because this can’t happen again. I mean, 

this may be—this Lehman situation, in the opinions of some folks, 

may be more of a tragedy than the Madoff situation because the 

Madoff situation cost some investors, sadly, money. This one may 

have cost jobs and a lot of other things that that will have ramiVerDate Mar 15 2010 04:09 Dec 16, 2010 Jkt 062790 PO 00000 Frm 00090 Fmt 6601 Sfmt 6602 E:\HR\OC\A790P2.XXX A790P2

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fications throughout the economy. So understand that our continuous pushing and prodding on this issue is because this cannot be 

tolerated again. 

Ms. SCHAPIRO. Mr. Chairman, I agree with you completely, and 

that is the role of Congress—to push and prod us on exactly issues 

like this. 

I will say that, as to the comments, I think, you were referring 

to, that person no longer is at the SEC, and as I said, that program 

was shut down about 18 months ago because it was so terribly 

flawed, frankly, in design and execution. 

But I also want to say we are working very hard at the SEC 

across the board—the leadership, the staff, at all levels—to rebuild 

the agency’s credibility so that investors can have confidence that 

there is an agency out there solely focused on protecting their interests, which are, as you said in the beginning, both their retail 

interests and also their broader interests in the safety and soundness of the financial system. Across, you know, all of the things we 

do, that is really what is driving us and why we have people working so hard. My experience in the last year and in my first year 

as chairman is that there is a tremendous commitment in trying 

to get it right. 

Mr. SERRANO. Let me move you on to another section. 

As we speak now—and I am not being cynical here, but as we 

speak now there might be somebody on Wall Street trying to figure 

out the next scheme, or someone somewhere in this country, trying 

to figure out the next painful scheme. Some have questioned 

whether the Wall Street firms and their lawyers may have information technology resources that allow them to outgun the SEC. 

Does each of the major divisions at the SEC have the right type 

of and quantity of information technology resources necessary for 

them to do their jobs? Does the SEC have a strategic, long-term information technology plan for investing in the type of IT resources 

it needs, including hardware, software and personnel? 

Ms. SCHAPIRO. The short answer to your question is, no, our divisions don’t have the technology resources that they need, and I 

guess I would say a couple of things about that. 

First of all, the resources this committee gave us last year have 

made a big difference. So, on one of our big areas where we needed 

to jump very quickly to build a mechanism to take all of these tips 

and complaints—hundreds of thousands—bring them in, triage 

them, all of those things that I spoke about, we were able to get 

that project well underway, and we have completed the first phase 

of it because of that. 

Now that we have some resources to spend on technology, I am 

very committed to making sure we do that wisely, and I have seen 

technology projects in other places grow wildly out of hand, exceed 

budgets by enormous amounts and not deliver the results that are 

important and were the purpose of the projects in the first place. 

So we are bringing in a consultant to help us do, on a pretty 

rapid basis, a top-to-bottom review of our technology capabilities, 

our ability to manage projects. About 70 percent of our technology 

resources are outsourced, so we are managing a lot of contracts. We 

don’t have many internal people. We have got to get a better mix 

of those things. 


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I would say, if you look at 2008, for example, which is the last year I have numbers, we spent $108 million on technology at the 

SEC. JPMorgan spent $4.1 billion on technology and communications. Morgan Stanley spent $1.2 billion, and Goldman Sachs spent 

over $750 million. 

So we are outgunned by any measure. We will never approximate those numbers. We understand that, but we need to get to 

a better level than we are right now, whether it is exam management, enforcement case load management, capability to utilize ediscovery tools that will make us better and faster in our investigations and in court. 

It is our financial management systems that have lots of manual 

work-arounds but need to be integrated and consolidated, so we are 

doing a better job with our own financial management. 

It is really across the board that we need to devote technology 

resources. I want to make sure we do it well and do it right, so we 

are going to take these 60 or 90 days to really do a top-to-bottom 

review and make sure we are capable of delivering these major 

projects that we have on the decks. 

Mr. SERRANO. Well, thank you. 

The committee would appreciate, when you get to the point of 

understanding what your needs are and what you have accomplished in reshaping that whole area, that you inform us. I am not 

asking you to report in a formal way, but just let us know what 

changes are taking place. 

Ms. SCHAPIRO. Absolutely. 

Mr. SERRANO. I don’t want you to be outgunned. 

Ms. SCHAPIRO. Thank you. 

Mr. SERRANO. Mrs. Emerson. 

Mrs. EMERSON. Thank you, Mr. Chairman. 

I have got two things—two separate issues I want to ask you. 

Well, actually, they are not two separate, but they go down two different paths. 

The first one has to do with the remarks that CFTC Chair 

Gensler recently made somewhere in Europe, I believe, to the EU, 

to toughen over-the-counter rules. I think he cited AIG’s derivatives operation in London as an example of the results of ineffective 

regulation. Number one, do you share his view that weak EU derivatives regulations are a risk to our financial system? That is the 

first question. 

Then, secondly, in my district, derivatives, in the form of commodity futures, are followed closely by our family farms, which 

really depend on them to reduce risk. So, if we move more overthe-counter derivatives onto exchanges or through clearinghouses, 

making it more transparent and regulated, will we be able to balance the interests or the derivatives needs of the large banks 

versus my small family farmers? 

Ms. SCHAPIRO. Right. Well, a couple of comments. 

First of all, I want to be very clear. It is absolutely imperative 

that we bring credit default swaps and other over-the-counter derivatives under comprehensive regulation. So, while the EU issues 

are very real, the United States of America issues are also very 

real with respect to the regulation of over-the-counter derivatives. 

As a result, as you all know, of the Commodity Futures ModernizaVerDate Mar 15 2010 04:09 Dec 16, 2010 Jkt 062790 PO 00000 Frm 00092 Fmt 6601 Sfmt 6602 E:\HR\OC\A790P2.XXX A790P2

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tion Act of 2000, these products were all exempted from any regulation except antifraud authority. 

So there is a lot in both the House and the Senate bills that is 

very good, and it advances the ball in regulating in this area. There 

is some work to do to make sure we are not creating new loopholes 

or allowing exemptions over time to become loopholes, but I think 

there is a lot of goodwill to work through those particular issues. 

You know, the commodity futures—and I spent the first half of 

my career in the derivatives area of the CFTC specifically. The 

commodity futures markets that are relied upon by farmers are 

well-regulated markets. They are exchange traded. There is a central clearinghouse. There is marking-to-market daily. There is margin posted. There are all the protections that one gets from a fully 

regulated marketplace, so I don’t believe that moving unregulated 

products onto exchanges will in any way diminish the capability of 

exchanges or the accessibility of family farmers to the products 

that they need to manage. 

Mrs. EMERSON. I appreciate that. 

It is interesting. There was an article, I guess, from the March 

10 Washington Post that, you know, was just in the specific area 

of credit default swaps. It was talking about the fact that, I guess, 

they are saying that Europe moved ahead of the United States in 

advocating new measures to totally ban certain types of financial 

speculation, primarily because there is the suspicion that that is 

what, in fact, led Greece into the very, very tough economic situation they are in now. 

Would you agree with that? 

Ms. SCHAPIRO. Well, I think there has been discussion, particularly as a result of the issues with Greece, as to whether what they 

call ‘‘naked credit’’—it feels funny to say that in a congressional 

committee—credit default swaps, should be banned or where there 

is not a clearly identical, insurable or hedgeable interest, it should 

be banned; but I think that is just discussion at this point, and 

there are lots of issues surrounding that that need to be worked 

through. The problem is we have no transparency into this marketplace now, so whether banning is the right thing to do or not I am 

not sure is at all clear. 

Mrs. EMERSON. We would first have to know what we are talking 

about. 

Ms. SCHAPIRO. Right. Exactly. The information just doesn’t exist. 

Mrs. EMERSON. I appreciate that. Thank you so much. 

Mr. SERRANO. Before I turn to Mr. Culberson, there are three 

votes coming, and we are going to make an effort to try to wrap 

it up because I suspect that, while there are three votes, they 

might be longer than usual because there is discussion on the floor 

about another issue as we all know. 

Mr. CULBERSON. One or two other issues, yes. 

Mr. SERRANO. Mr. Culberson. 

Mr. CULBERSON. Thank you very much, Mr. Chairman. 

I wonder if I could follow up. 

Would you look into your ability within your own rules and the 

statutory authority to enact regulations that would prohibit SEC 

employees from going out to work for the entities that you regulate? 


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Ms. SCHAPIRO. Yes, I will do that. 

Mr. CULBERSON. Thank you very much. 

Let me also ask if anyone has been fired at the SEC. Has anyone 

been held accountable or has anyone been fired as a result of their 

negligence in the Madoff case? 

Ms. SCHAPIRO. Well, I can tell you, with respect to the enforcement employees involved, 15 out of 20 have left the agency already. 

The inspector general’s report, which revealed all of the detail 

about the Madoff investigations and failures, recommended that 

the Commission consider disciplinary action with respect to those 

who are still employed by the agency. We have a process under the 

Federal rules that would apply to any Federal employee in this 

context, and we are following that process. 

Mr. CULBERSON. The ones who left. They just left free as birds, 

and probably went to go work, drawing big paychecks from some 

of the folks you regulate? I hope not. 

Ms. SCHAPIRO. I am not sure that I know the answer with respect to each and every one of the people. 

Mr. CULBERSON. Has anybody been disciplined yet? 

It is like 9/11, you know. No one ever got fired. It still drives me 

insane. 

Ms. SCHAPIRO. When the inspector general’s report came out, to 

the extent that people were still at the SEC, I ensured that they 

were subject to additional supervision during the period of the 

pendency of considering whether any disciplinary action is appropriate. We have to follow the process that is laid out in Federal 

law. 

Mr. CULBERSON. Has anyone been fired as a result of their negligence over Lehman Brothers? 

Ms. SCHAPIRO. Not to my knowledge. Although, a number of people, including the one, I think, who is being quoted here, have left. 

Mr. CULBERSON. Right. Do you know how maddening that is? I 

mean that is just not acceptable. 

Now, in the private sector—I was a civil defense attorney. I defended businesses and individuals. You know, the trial lawyers 

have never darkened my door. I don’t think I have ever taken a 

dime from the trial lawyers; but lawyers have a role just like, you 

know, yellow jackets and, you know, spiders have a role. That is 

why we have padded dashboards and safety glass. I understand 

that. 

I mean, I think what we really need to do, Mr. Chairman, and 

all of us on the committee, is to find some way to hold government 

employees accountable in some form or fashion for gross negligence. I haven’t read the gentleman’s book about Madoff, but I 

saw the guy on the Today Show—my wife taped it—where he 

brought it to your predecessor on a silver platter, and nothing happened. 

I am going to save time for my friend Mr. Kirk, who is so capable 

and knowledgeable, but I wanted to bring to your attention very 

quickly, Mr. Chairman and members, about a problem brought to 

my attention. Apparently, these firms can set up computer servers 

on the floor of The New York Stock Exchange. The big firms can 

set up co-located servers on top of the light pipe and get right next 

to the fiber optic transmission cables coming into the floor of The 


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New York Stock Exchange, and they are able in nanoseconds to 

execute trades. If they spot that one of the big pension funds is 

selling or buying GE stock, for example, they are able, within nanoseconds, to execute a trade because they have co-located servers on 

the floor of the stock exchange. That is the new scheme, Mr. Chairman. 

Is that correct? I mean, that is a blatant loophole. 

Ms. SCHAPIRO. Given the popularity of high frequency trading 

now, which has become common parlance because of such interest 

to so many people, co-location is a big issue because it does get you 

that nanosecond of advantage in timing. We have put out for comment a request for information on the whole phenomenon of high 

frequency trading and what would be a regulatory response that 

would be appropriate for that, and dealing with co-location is a critical element. 

Mr. CULBERSON. Thank you very much. 

I yield my time and whatever time he wishes, which is apparently mine, to Mr. Kirk. 

Mr. SERRANO. Mr. Kirk will be recognized for his own time. He 

is a full member of the committee. 

Thank you, Mr. Culberson, for your concern of Mr. Kirk. 

Mr. KIRK. I want to raise two longer range issues with you. 

One is we now have an emerging problem with what the IMF 

would call the GIPS countries—Greece, Italy, Portugal, Spain. The 

problem is publicly traded financial institutions in the United 

States have been providing off-books loans, especially to the government of Greece, that have dramatically increased the systemic 

risk in the system, and to publicly traded SEC-regulated financial 

stocks in the United States. 

Could I get a commitment out of you to look into this because 

of the increased exposure and systemic risk that this poses to publicly traded financial institutions in the United States? 

Ms. SCHAPIRO. Absolutely. 

Mr. KIRK. I would like to follow up on that. 

Secondly, my understanding is that the Spanish situation is five 

times worse than the Greek situation, and we have been surprised 

by what some U.S. financial institutions have lent to Greece that 

was not publicly disclosed, and this is creating a new systemic risk. 

Thirdly, I am also worried about what was a fairly important decision by Moody’s to issue a warning with regard to a U.K. debt— 

well, American even later—but I think there is a general rule that 

when your debt service is exceeding 10 percent of your income, you 

cannot have AAA status. The question is: 

If gilts, which is what British debt is called, are downgraded, 

what does that do to the financial position of publicly traded companies in the United States? 

Ms. SCHAPIRO. I am not sure I am really qualified to answer that 

question. I believe it could have a very substantial impact, obviously. 

Mr. KIRK. Right. 

Ms. SCHAPIRO. One of the issues, I think, really comes down to 

what are the disclosure requirements for sovereign debt, because 

even when a sovereign registers their securities to sell to U.S. investors in the United States and when they register under the 


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1933 Act and when they fill out a registration form—and it is quite 

a different registration form than we are used to seeing for a public 

company as it might not even have GAAP financials attached to 

it—and while 10(b)(5) fraud prohibitions apply, what we don’t get 

is continuous reporting under the existing law for sovereign debt. 

So, for example, there is no duty to notify the marketplace if the 

risk of failure to repay the debt is increasing. Those are issues that 

are provided for, and that protection is provided in statute, but it 

is something that we should potentially look at. 

Mr. KIRK. It is, because my understanding is, last January, the 

British Government failed in a debt auction, which is a fairly substantial thing. 

I met with the IMF director of European Operations, who say 

that he has no good transparency at all. 

Ms. SCHAPIRO. Nor do we. 

Mr. KIRK. Right. 

Ms. SCHAPIRO. Before you arrived, we talked a little bit about the 

Commodity Futures Modernization Act, which really shielded instruments, particularly like credit default swaps from any transparency and from any real oversight in the U.S. markets. We have 

a very limited view, too, essentially only what is publicly available 

through the trade information warehouse at the DTCC. Absent 

issuing a subpoena, we don’t even have routine access to the other 

information that is not publicly available. 

Mr. KIRK. So my hope is, as chairman, A, you might be able to 

issue a letter, asking large publicly traded U.S. financial institutions to describe their exposure to sovereign debt by Greece, Italy, 

Portugal, and Spain; B, any contingency for a downgrade of the 

gilt, which does now appear distinctly possible; C, sort of Armageddon. 

The United States is now distinctly heading in the direction of 

exceeding the 10 percent limit on—that 10 percent of our tax revenue would now go to service debt, which would make us ineligible 

for AAA bond ratings. I think there should be the exercise of looking at the off-book transactions first just so that we understand our 

exposure. 

Secondly, force these publicly traded companies to describe their 

exposure to the Greece, Italy, Spain, Portugal problem and to do 

a run-up on what happens to the gilt, which would cause treasuries 

in these publicly traded companies to begin to—because they got a 

letter from you—dramatically reassess their risk, which would help 

reduce the systemic danger that we could find ourselves in. 

Ms. SCHAPIRO. We could certainly look at that. Their current obligations under the law are to disclose material risk to their business and operations. We have already covered this, but we would 

be happy to take a sampling and see what kind of disclosure we 

are, in fact, getting. 

Mr. KIRK. I think, right now, we are in violation of that—and 

this is a lawyer’s point. The off-books lending to the Greek Government has exposed a systemic risk that is now spreading a contagion throughout the southern European economies, and the danger to Spain is particularly acute. 

Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you. 


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At a recent hearing with the head of Goldman Sachs, before the 

Financial Crisis Inquiry Commission, Chairman Angelides pointed 

out that Goldman Sachs was packaging and selling some mortgagebacked securities even as its proprietary trading arm was making 

investment bets that those securities would fall in value. Angelides 

said that this sounded like a salesman who was buying insurance 

on the life of the car buyer when he sold a car with faulty brakes. 

We have since learned that they did the same thing with Greece. 

So do you think that an investment bank or dealer selling securities should have an obligation to tell potential buyers when it is 

making investments with the expectation that the securities being 

sold will fall in value? 

Ms. SCHAPIRO. I do think we need to—yes, I think we need to 

relook at these disclosure issues very carefully in light of recent 

events. 

Mr. SERRANO. Is anything underway to do that? Have we started 

yet? 

Ms. SCHAPIRO. We have created a special unit within our corporation finance department to give heightened scrutiny to the financial statements, for example, of the largest financial institutions on a continuous basis rather than, as required under Sarbanes-Oxley, a more sporadic review. So I think that we definitely 

have an ongoing focus here. 

Mr. SERRANO. All right. I just have two more questions. 

The performance of both management and boards of directors 

would improve with a more open process for elections to the boardroom. For that reason, I want to commend you on your commitment to enacting changes to the proxy rules that would require 

companies to include in their proxy materials information on candidates supported by significant long-term investors. 

Can you tell me your plans for completing the final proxy rule? 

Ms. SCHAPIRO. Yes, I would be happy to. 

We proposed the proxy access, or rules, last year. We received 

lots and lots of comments, and the staff is working through those 

comments because there are a number of issues that go to the level 

of holdings, for example, that an investor must have or must accumulate with other investors in order to be eligible to put a nominee 

directly on the company’s proxy. How long should they have had 

to hold those securities is another question. So, as we work through 

the details of it, I am hopeful that still within the first half of this 

year, the Commission will vote on proxy access. 

Mr. SERRANO. Within the first half? 

Ms. SCHAPIRO. Yes. 

Mr. SERRANO. Okay. Your performance data show planned inspection rates for investment advisers going from 14 percent in 

2008 to 9 percent in 2011 and the rate for investment companies 

going from 23 percent to 17 percent. 

Why would inspection rates go down so much despite the large 

increase in resources that we have provided? Has the quality or 

depth of the inspections changed? 

Ms. SCHAPIRO. We are not really comparing apples to apples, and 

perhaps we should have been more clear about that. 

The reason we actually were able to inspect 14 percent of investment advisers last year is they tended to be narrowly scoped invesVerDate Mar 15 2010 04:09 Dec 16, 2010 Jkt 062790 PO 00000 Frm 00097 Fmt 6601 Sfmt 6602 E:\HR\OC\A790P2.XXX A790P2

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tigations into a particular issue, what the British would call a thematic review, where the examiners didn’t go in and look at all of 

the activities of that adviser, but they might have gone in just to 

check compliance in one particular area, and so we had a higher 

number in the prior year. 

This 9 percent assumes a more robust review of all aspects of the 

adviser’s business, including something we have started postMadoff, which is careful verification of assets to ensure that customer assets are appropriately custodied with an independent custodian. 

Mr. SERRANO. Thank you. 

Mrs. Emerson. 

Mrs. EMERSON. Thank you. 

Just one question. I just want to ask one final question, and then 

I will submit the rest of mine for the record, Mr. Chairman, and 

I want to thank Chairman Schapiro for being here again. 

Since 2006, you all have had statutory authority to regulate credit rating agencies. I guess, last September, you all approved new 

proposals to strengthen the oversight of them. Number one, are you 

satisfied that the ratings agencies have improved the way they do 

business? If not in some cases, then have you actually taken action 

against some of the rating agencies for inappropriate conflicts of interest and the like? 

I don’t know. This is an issue that worries me a lot, and it keeps 

creeping back into every discussion we have about some new company that is exhibiting problems. Certainly, it was definitely a part 

of and was mentioned frequently, even though I have not really 

gotten through much of the book, in the new ‘‘The Big Short,’’ by 

Michael Lewis. 

So I would appreciate your comments. 

Ms. SCHAPIRO. Yes. Clearly, flawed ratings were an enormous 

contributor to the financial crisis and an overreliance by investors 

on ratings. They didn’t necessarily understand exactly what ratings 

do and don’t do. 

As you point out, we have engaged in multiple rulemakings, 

many before I arrived at the Commission and then one last year, 

to try to give investors a better context about ratings—better disclosure and prohibitions against the conflicts of interest that exist 

in the rating agencies, information about the performance of ratings over time—does everything always AAA, but the security 

doesn’t perform well?—and walls between raters and the people 

who negotiate the fees. 

I think all of these things are very positive, and I think they will 

have a very important impact on the quality of credit ratings, but 

we still have basically a model for credit rating agencies that is 

flawed in that the interests of those doing the ratings is not aligned 

with the interests of the investors who are relying on the ratings. 

Rather, the raters’ interests are aligned with the companies who 

are paying them. 

Since you and I have talked about this, there are a couple different models that, I think, are interesting for us to explore, and 

we are very open to approving as a recognized rating agency some 

different ways of looking at it; but even the investor pays model 

has its own conflicts of interest because, if I have rated a security 


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and you have now gone out as an investor and paid me for that 

and bought a lot of that security, my reluctance to downgrade that 

security creates an issue for me and a conflict of interest. 

So I think what we need is a model that really aligns the interests of the credit rating agency with the interests of those who are 

going to rely on that rating, whether that is some kind of a consortium of institutional investors that creates a new model for a rating agency and they are controlling the ratings as well as their use 

of them, whether it is a true public utility model that has been 

voiced—I think that would be interesting, but it creates a lot of 

other kinds of issues—or whether it is a model where the ratings 

are actually paid for through some other mechanism. 

An exchange-collected fee that pools a fund from which the ratings are then paid for by that, not by the issuer of the securities, 

is another interesting model to look at. We are very encouraging 

to people to try something different. 

Mrs. EMERSON. Well, I hope we can come up with something because I just have an inherent problem, and I find there to be ethical issues involved any time somebody is rating somebody who has 

been paying them. The same would be true for even for example, 

the Food and Drug Administration, where the pharmaceutical companies pay fees in order to get their products approved. I mean, to 

me, it just doesn’t pass the smell test. 

Thank you. 

Mr. SERRANO. Thank you. 

As we say, we have three votes, which possibly will take quite 

a while, so we are going to end the hearing now. We want to thank 

you for your testimony. 

I just want to close—and I think that Mrs. Emerson will agree 

with this statement—by telling you that this committee and this 

Congress and this country expect a lot from the SEC and expect 

a lot, therefore, from you and your staff, and we stand ready to 

support you in your efforts to make this work. 

You see, the American people, in my opinion, understand unemployment because they feel it, and they see it in their communities. 

They understand, therefore, the lack of jobs. They understand losing their homes, having them foreclosed. They may not totally understand how that ties into what you do. They may not fully understand that, unfortunately, some of the bad guys have to be kept 

afloat so that some of the folks at the bottom can stay alive. This 

is a very difficult message to bring to people, and so we will continue to support you as you try to make this thing work better and 

make sure that rip-off artists disappear or are lessened in numbers 

so that we can get things going again. There is such a direct tie 

into what you are charged with doing and with what the American 

people are suffering every day. 

While you do admit that it is a small agency—and it is seen that 

way, and most Americans don’t even know that it exists—it has a 

direct impact on the future of our economy and on the future of our 

country. So, again, we stand ready to help you, but we ask a lot 

of you, and we hope to get that kind of leadership. 

Ms. SCHAPIRO. Thank you. I can assure you we feel that burden 

every single day. Thank you. 

Mr. SERRANO. Thank you so much. 


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(101) 

WEDNESDAY, APRIL 21, 2010. 

FY 2011 BUDGET REQUEST FOR THE DISTRICT OF 

COLUMBIA 

WITNESSES 

ADRIAN M. FENTY, MAYOR, DISTRICT OF COLUMBIA 

VINCENT C. GRAY, CHAIRMAN, THE COUNCIL OF THE DISTRICT OF 

COLUMBIA 

NATWAR M. GANDHI, PH.D., CHIEF FINANCIAL OFFICER, GOVERNMENT OF THE DISTRICT OF COLUMBIA 

Mr. SERRANO. Good morning. The subcommittee will come to 

order. I guess the first important question is, What is with the 

Nats? I mean, is it time to break them up or something? 

Mr. GRAY. It is all part of the plan, Mr. Chairman. 

Mr. SERRANO. I told you to get Pudge Rodriguez. 

Good morning to all of you. Today the subcommittee will hear 

testimony on the fiscal year 2011 budget request for the District of 

Columbia. I would like to welcome back Mayor Adrian Fenty, 

Council Chairman Vincent Gray, and the District Chief Financial 

Officer Dr. Natwar Gandhi. I am honored to have the opportunity 

to work with all of you in the D.C. Government, and I truly appreciate all of your commitment to ensuring that Washington, D.C. is 

the world-class city that it is already, I believe, but also worthy of 

its status as our Nation’s Capital. 

As I have said before, I have a special affection for the people of 

the District of Columbia. As someone who was born in the American colony—some would call it a territory—of Puerto Rico, I identify with the District’s situation. The citizens of D.C. have been 

subject to the whims of Congress for too long. Too often they have 

watched helplessly as Congress imposed measures on them that 

would be imposed on no other city in the Nation. Frequently the 

vehicle for these measures was the bill that this subcommittee authors. 

Since I became chairman, however, one of my highest priorities 

has been to reduce the prohibitions and restrictions imposed by our 

bill on the operations of the District of Columbia and give D.C. 

more autonomy in managing its fiscal affairs, particularly in deciding how local funds are spent. In fact, I have told the press that 

I may be the only chairman in the history of the Congress who 

wants to give up power rather than take more. If I have nothing 

to do with D.C. in the future, I would have accomplished my goal. 

We have removed numerous restrictions and untied D.C.’s hands 

on a variety of issues. I believe that we have reached a fairly stable 

bipartisan consensus that the people of D.C. should not have Congress interfering in their local affairs. Of course, we wrote that part 

right before the gun bill/voting issue came into view, so we still 

have a long way to go. 


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A good portion of the credit for this new consensus on D.C.’s status is due to the recent leadership of the city government. From an 

outsider’s perspective, it is clear that the city is being well managed and is headed in a positive direction. For that, we applaud the 

three of you as representatives of that leadership. Together, we 

have made significant progress in the past several years on ensuring District matters are left to the District, and I look forward to 

working with as you continue to increase the city’s legislative and 

budget autonomy. 

This chair is falling apart, Mr. Mayor. I just got much shorter. 

Mayor FENTY. You look good. 

Mr. SERRANO. Thanks a lot. Are you running in that race next 

Wednesday? It is not smart to beat the chairman of the committee. 

Turning to the District’s budget request, I am aware that the fiscal year 2011 request is currently under review by the city council 

and will not be transmitted to Congress until June. The request as 

presented to the council totals $10.4 billion, including $5.3 billion 

in local source general funds, a $306 million increase over fiscal 

year 2010. For fiscal year 2011, the President’s budget recommends 

Federal payments to the District totaling $168 million, a net decrease of $17 million. The request includes $7 million for two new 

initiatives, including $5 million to support an HIV/AIDS initiative 

and $2 million designated for redevelopment in connection with St. 

Elizabeths’ east campus. I look forward to hearing more about 

these initiatives in your testimony. The request also includes $63 million to improve the District’s public and charter schools and $9 million for the school voucher 

program to support the children currently in the program. Let me 

be clear on the issue of school vouchers. I continue to support the 

President’s approach to this issue which pays for the children currently in the program until their graduation. This seems a reasonable approach to me, and I will continue to support it. 

In closing, I would like to thank the Mayor, Chairman Gray, and 

the council, as well as Dr. Gandhi and the Office of the Chief Financial Officer for their leadership in producing a fiscally responsible budget for 2011. We thank you for your diligent and continuous attention to the fiscal health of the District. I look forward to 

working with each of you as we move forward through this fiscal 

2011 budget process. We are, on this committee—and we reiterate 

this—totally committed to helping you in any way that we can. 

And I repeat once again, more and more—and I know that I speak 

for Mrs. Emerson and she will speak for herself—to give you more 

and more of that autonomy that you should have had a long time 

ago. 

Some of the issues that we removed, some of the riders that we 

removed may come back to haunt us at election time, you know, 

when we do these budgets. But I think for the most part that, 

while there are still stumbling blocks, most Members of Congress 

are beginning to understand more and more the need of the District to govern itself. 

Now, with that, I would like to recognize my sister and our ranking member, Mrs. Jo Ann Emerson. 

Mrs. EMERSON. Thank you very much, Mr. Chairman. Welcome 

to all three of you. And thanks for the good job you have been 


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doing in a very challenging time with the economy as it is, with 

declining tax revenues. It is not easy, and in spite of that, y’all 

have been able to put together a fiscally responsible budget, and 

we acknowledge that. I know that you will have a lot of serious 

budget issues with which to deal as the process moves forward. But 

I think you have done a good job in really making tough funding 

decisions in the past and I think that you are going to continue to 

do that. It is very, very important and it sets a good example. It 

should set a good example for us in the Congress as well. 

With the Federal Government’s fiscal year 2010 deficit estimated to be about $1.6 trillion, really, it is encouraging to see that you 

all can make those tough decisions. 

Mayor Fenty and Chairman Gray, I also want to congratulate 

you in your efforts to reform education in the city. I am supportive 

of your efforts to consolidate schools, improve gifted and talented, 

music, art, and special education programs. 

I am also supportive of your efforts to improve the compensation, 

training and performance of the city’s teachers. I would love for my 

daughter to make more money. 

Thank you very much. She will be mad at me that I mentioned 

it. But nonetheless, I encourage each of you all to continue your 

school reform efforts. The city’s children deserve it, and certainly 

the entire region will benefit from it. 

I am pleased that the President’s budget request proposes the 

continuation of the Federal Government’s three-sector commitment 

to education in the District by funding for public schools, public 

charter schools, and Opportunity Scholarships. However, and as 

you might expect, I am very disappointed that the proposed budget 

continues to prohibit additional low-income students from receiving 

an Opportunity Scholarship. We all know that despite all of the reform efforts being implemented, that many children attending D.C. 

Public Schools aren’t getting a quality education. I know this in 

part, as I mentioned, because my daughter is a first-grade teacher 

in the D.C. Public Schools, and she tells me every day about the 

challenges she faces. And it is tough. It is tough out there. And I 

will acknowledge that your office has been very, very helpful, 

Mayor, in dealing with some of the ancillary issues. 

Regarding the Opportunity Scholarship Program, Patrick Wolf, 

the principal investigator for the Department of Education’s study 

of the program, stated that—and I will quote—The D.C. voucher 

program has proven to be the most effective education policy evaluated by the Federal Government’s official education research arm 

so far, end quote. 

He went on to say—and I quote again—In my opinion, the bottom line is that the OSP lottery paid off for those students who 

won it. On average, participating low-income students are performing better in reading because the Federal Government decided 

to launch an experimental school choice program in the Nation’s 

Capital, end quote. 

So if the public schools aren’t performing up to national standards, and parents want their children to have other options, I believe that we should expand participation in the Opportunity Scholarship Program and not limit participation to only those who are 

enrolled in the program today. 


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Once again, welcome to you all. I do recognize how challenging 

it is to run a city in tough economic times, and I am grateful for 

your efforts. I look forward to hearing your testimony. Thanks, 

Chairman. 

Mr. SERRANO. Thank you. Thank you so much. You know the 

drill. We ask you to stay within 5 minutes. Your full text will be 

included in the record. And if you keep it to 5 minutes, that gives 

us time to grill you to the point of exhaustion. 

Mrs. EMERSON. We are going to be the final debate people here. 

We are running a debate. 

Mr. SERRANO. We are? 

Mrs. EMERSON. Yeah. Why do you think the TV camera came? 

Mr. SERRANO. Well, we agree on just about everything. 

I will now recognize Mayor Fenty, followed by Chairman Gray, 

and then Dr. Gandhi. I ask you to keep it to 5 minutes, please. And 

for the record, your statements will be included in the record. 

Please proceed. 

Mayor FENTY. Thank you very much. Chairman Serrano, Ranking Member Emerson, distinguished committee members, it is my 

pleasure to be here today to discuss the District’s fiscal year 2011 

budget and financial plan and the Federal payments proposed for 

the District in the President’s fiscal year 2012 budget. 

First, a brief overview of the fiscal condition of the city and specifics of the President’s budget request. Despite the recent economic 

challenges that you all noted, the budget and financial plan submitted to the Council of the District of Columbia are the fourth 

consecutive balanced budget that I submitted and the 15th consecutive balanced budget since the days of the Control Board. 

The budget has required tough decisions, but it represents the 

fiscally responsible approach to governing the residents of the District of Columbia that we have become used to in recent years. It 

also solves a $523 million budget gap for the next fiscal year by 

streamlining agency operations, controlling spending, and sustaining growth, eliminating vacant and redundant positions, while 

staying focused on the core mission of transforming public schools, 

keeping our neighborhoods safe and our families healthy. 

This year, as in years past, my administration has worked very 

closely with the Office of the Chief Financial Officer and the Council of the District of Columbia to develop a budget and spending 

plan that accounts for the anticipated continued decline in total tax 

revenue. Again, out of $11 billion, we include $5.27 billion in local 

funds and $2.7 billion in Federal funds. 

Now, last year, the District benefited tremendously from the 

American Recovery and Reinvestment Act and the one-time infusion of more than $700 million, allowing us to, for example, put 50 

new police officers on the streets, provide assistance to 188 small 

businesses and other important programs. Without the infusion of 

Federal stimulus dollars this year, however, the District will still 

maintain its commitment to core services. 

We would also add that this year’s budget and financial plan 

maintains the District’s strong financial position and sustains the 

progress we have made in recent years to make our tax structure 

more competitive with neighboring jurisdictions. 


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When I was elected in 2006, we swiftly moved to become just the 

fourth jurisdiction to go into mayoral control of the school system. 

Michelle Rhee, the schools’ chancellor, has aggressively reformed 

our public schools. There has been tremendous progress. You read 

about the test scores that are going up in record amounts. Enrollments are also up, so is graduation, and District residents are excited about the improvements they are seeing in the schools for the 

first time in many years. 

The President’s budget includes $43 million to directly support 

our efforts to create the highest performing urban school district in 

the country. This year’s budget will allow us to continue our investment in such things as early childhood education and expand our 

portfolio of STEM schools, for example. 

The President’s budget also provides $20 million to support charter schools and $35 million to continue the Tuition Assistance 

Grant Program for District residents pursuing higher education. 

Also, as you have noted, the funding of Opportunity Scholarships 

for students who currently receive them. And we are working with 

the Department of Education to craft an approach that will sustain 

the program for years to come. 

There are other key Federal funding priorities. We are very glad 

to see money for the combined sewer system to protect the Chesapeake Bay, Potomac, and Anacostia Rivers from pollution, the 

funding of the Criminal Justice Coordinating Council, and funding 

for operations for the D.C. National Guard. 

Last year the President proposed and Congress funded a Federal 

payment to support the District’s efforts to develop solutions to end 

chronic homelessness. With the support of this subcommittee, by 

the end of this year, fiscal year 2011, we will have housed nearly 

1,000 individuals and more than 230 families in permanent supportive housing. 

One of the two new Federal payments included in the President’s 

budget will allow the District to continue its work to combat the 

spread of HIV and AIDS. Our HIV and AIDS Administration recently released an update which shows for the first time a decrease 

in new AIDS cases in the District of Columbia. We know that we 

still are in the midst of an epidemic, and the new dollars will help 

us to combat them. 

The second new initiative included in the President’s budget reflects the extraordinary possibilities that exist when the District 

and Federal partners work together. Everyone knows that the 

money to redevelop the St. Elizabeths campus in southeast Washington, the $2 million will support the first phase of planning necessary to create a vibrant mixed-use, and sustainable community. 

In conclusion, Mr. Chairman, the U.S. Census Bureau reported 

earlier this year that the District’s population grew by an estimated 10,000 residents, the largest 1-year gain since World War II. 

The attraction of new residents and the retention of those who 

have called Washington home for decades is one of the great indicators that Washington, D.C. is moving in the right direction. And, 

of course, we view this committee as a critical partner in that effort. I look forward to continuing to work with you toward our mutual goal of making Washington, D.C. even more of a world-class 


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capital city. This concludes my prepared remarks, and I am glad 

to answer any questions. 

Mr. SERRANO. Thank you. 

[The information follows:] 


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Mr. SERRANO. Chairman Gray. 

Mr. GRAY. Thank you very much, Mr. Chairman and Mrs. Emerson. I am delighted to be here today to testify before the committee 

about the District’s appropriations and other operational items. 

This year the Council along with the Mayor, as has already been 

pointed out, has had the difficult task of determining how it is 

going to continue to provide the services our citizens deserve in an 

environment of reduced revenue projections. The District is proposing a slightly increased local budget of $5.3 billion for fiscal 

year 2011 as compared to the revised 2010 budget of $5.2 billion, 

a 1.2 percent increase. The proposed overall budget for 2011, as 

has been pointed out, is about $10.4 billion. 

The Council continues to support efforts to improve and restructure our traditional public school system. This is reflected in a proposed increase in the per-pupil funding of $175 per student. This 

budget also continues to recognize the importance of early childhood education by expanding the number of prekindergarten classrooms by 15, which will serve an additional 260 students, and we 

are well on our way to becoming the first jurisdiction in America 

that can say that we have universal prekindergarten services serving all of our 3- and 4-year-olds. 

The proposed budget also invests in the education of our youth 

by including funding for six new branch libraries and improvements to 14 parks and recreation centers. The Council supports 

continuation of the Federal payment for school improvement which 

has been an important source of funds that have enhanced curriculum, educational systems, and training. 

In support of the District’s continuing efforts to improve its edu- cation system, the President has proposed $72.4 million for the 

three-sector funding for fiscal year 2011. 

The Tuition Assistance Grant Program has been very successful 

since its inception 9 years ago. Students in the program have attended over 300 schools in 47 different States. I thank the President for again including funding of $35.1 million for the program 

in the fiscal year 2011 budget. 

Last year Congress approved the President’s budget proposal for 

funding our homeless community in permanent housing. The program provides a holistic approach to homelessness by offering intensive case management along with permanent housing. To continue this very successful program, the District is requesting a Federal appropriation of $10 million to include a site for homeless veterans. The city is working with the Veterans Administration on 

this initiative. 

The District of Columbia, as I think many know—if not everyone 

knows—is experiencing an HIV epidemic. The city government is 

working on responding to the epidemic by increasing its outreach 

and services to those affected by the disease. Federal funding will 

assist the District in having a robust program that provides valuable support services to an additional 75,000 District residents. I 

ask the committee’s support for the $5 million appropriation. 

As you know, GSA plans a facility on the west campus on St. 

Elizabeths to consolidate the Department of Homeland Security’s 

offices in one location. In addition, the District plans to redevelop 

the east campus. This development will include residential, small 


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business, government offices, retail, and other commercial development. 

To maximize these collaborative opportunities, the District is asking for $2 million to assist the Office of Planning in its redevelopment efforts for the east campus. 

The District Government has the unique and important responsibility of protecting the property and personnel of the Federal Government. Therefore, the city’s police, fire, emergency management, 

and other services must expend time and manpower to provide the 

required protection. I ask this committee to fully fund the $15 million in planning and security costs associated with the Federal 

presence. 

I request support for two bills currently pending in the House 

that were introduced by Congresswoman Norton, H.R. 1045, the 

District of Columbia Budget Autonomy Act of 2009, and H.R. 830, 

960, District of Columbia Legislative Autonomy Act of 2009. The 

ability to implement our local budget without the current congressional review can prevent delays in service delivery. The District 

Government should have the ability to develop and implement our 

budget based on locally earned revenues. The legislative autonomy 

bill would remove the requirement for a 30- and 60-day review for 

civil and criminal legislative acts of the District Government. 

Currently the review period causes several months of delay in 

implementing laws and requires the Council of the District of Columbia to operate using a cumbersome and complicated process of 

emergency temporary and permanent legislation so that there will 

be no gaps in our laws. 

In closing, I ask that you pass this year’s budget request in time 

for the start of the new fiscal year and that no riders be placed on 

the bill. I want to thank you, Chairman Serrano and Congresswoman Emerson, for this opportunity to share my thoughts on the 

District’s budget and other issues important to the city. I look forward to working with you on the city’s appropriation legislation. 

And, of course, I am available for any questions you may have. 

Thank you very much. 

Mr. SERRANO. Thank you. 

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Mr. SERRANO. Dr. Gandhi. 

Mr. GANDHI. Thank you, sir. Good morning, Chairman Serrano, 

Ranking Member Emerson, and Mr. Crenshaw. I am Natwar Gandhi, Chief Financial Officer of the District, and I am pleased to testify today that after a careful review, I have certified the proposed 

Budget Request Act of 2011 through 2014 budget and financial 

year plan, and they are balanced. However, the revenue outlook for 

2011 and the years immediately following is grim. Due to the sunset on stimulus funds and a projected decline in revenues before 

they slowly recover, the District like many other jurisdictions must 

make difficult choices and take aggressive action to lower the costs. 

In order to remain balanced for the duration of the 4-year plan, in 

the absence of a new stream of revenue, nearly all policy-driven 

costs must remain flat from year to year and a strict expenditure 

control regime should be in place. 

The budget has been prepared at a time when the most serious 

U.S. recession since the 1930s appears to have entered a sustained, 

although somewhat muted, period of recovery. Still, at the national 

level, there is a considerable amount of uncertainty as unemployment remains high and income gains are still weak. Despite some 

negative effects, the District avoided some of the worst problems of 

the national recession because of the presence of the Federal Government. 

The chart in front of you shows a history of the District’s general 

fund balance and budgetary surplus. As you can see, we have come 

a long way since the mid-nineties when the fund balance hit a low 

of negative $518 million. By the time the control period ended in 

2001, the fund balance had grown to over $500 million. By 2005, 

it peaked at $1.6 billion. However, by 2009, we have only $920 million. Still a respectable number, but a drop of some $664 million 

from the peak. 

I am concerned that this erosion of the fund balance will raise 

concerns on Wall Street and could lead to higher borrowing costs. 

Therefore, I have urged the Mayor and the Council to take steps 

to augment, or, at minimum, replenish the general fund balance 

that has been depleted during the current year. 

But there is a larger problem. The District, as the urban center 

of the large metropolitan area, houses a disproportionately large 

share of very poor and needy people. The District’s overall poverty 

rate of 19 percent and child poverty rate of 33 percent are among 

the highest in the Nation and more than three times the comparable rates across the neighboring counties. Unlike the other 

urban jurisdictions, the District cannot pool resources across the 

wealthiest suburban areas from the same State to serve its urban 

poor. If the District were to offer a basket of public services similar 

to what is offered across the Nation for each of its residents, it 

would have had to spend 130 percent more than what others would 

spend on the same average. In this environment of high expenditure needs, revenue challenge is equally great. 

Now, here is where the Congress plays an important role. Can 

you permit me to briefly note two areas that merit continuous attention which both go to the unfunded mandates of the District’s 

own taxing power: one, the prohibition on taxing the income earned 

by the nonresidents, including those who commute into the city on 


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a daily basis. That 66 percent of the income is earned by nonresidents, that makes a simple point. The District has an especially 

high concentration of nontaxable real property, much of it after tax 

rolls due to the presence of the Federal establishment. The value 

of property here by the Federal Government is about 32 percent of 

nonresidential property values. Because of these unfunded congressional mandates, residents must shoulder a disproportionate share 

of the cost of the public services, while the benefits generated by 

the city are shared by a much larger community. 

Our sustained trend in balanced budgets attests to the fact that 

we have not allowed these mandates to become an excuse for fiscal 

irresponsibility. The great credit goes for that to our Mayor, Mr. 

Fenty, and Chairman Gray and the rest of the Council. The leadership provided by them has allowed us to work together to produce 

a balanced budget. I will work diligently with the Mayor and the 

Council during the upcoming budget deliberations to ensure that 

we continue to have a sound fiscal position. 

This concludes my remarks. I will be pleased to answer any 

questions you may have, sir. Thank you. 

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Mr. SERRANO. Thank you to the three of you. You know, I was 

thinking as you were speaking, Doctor, of a question I didn’t have 

in my preparation. But do we know how many Federal employees— 

how many Members of the Federal workforce live within the District? Because we always have numbers about the area, you know, 

southern Maryland, northern Virginia, D.C. Do we have any idea? 

Mr. GANDHI. I do not have the precise number with us. But I 

think the most important thing to keep in mind here is that every 

$100 that is earned in the city, $66 get taxed in Virginia and Maryland. We get to tax only $34. It is like going to a restaurant and 

saying, of all the people who are eating here, two-thirds will not 

pay, one-third will pay, and everyone will complain about the bad 

food and bad service. It is as simple as that. This is the only city, 

sir, where income is not taxed at the source, and that is the fundamental problem. 

Mr. SERRANO. Right. Mayor Fenty, since you became Mayor in 

2007, you have made school reform your administration’s signature 

initiative. The President’s fiscal year 2011 budget includes $63 million in Federal payments to improve the District’s public and charter schools, $20 million of which is to continue the Public School 

Reform Initiative. This request comes on top of the $62 million this 

subcommittee provided in fiscal year 2010 for the same purpose. 

How do you propose to use these Federal payments to produce 

measurable improvements in the District’s public school and charter schools? Can you tell us about any new initiatives you have undertaken in the public school reform program since last year? Also 

in your view, how are these reforms working? How have these reforms impacted standardized test scores, graduation rates, and enrollment? And what other measures are you using to gauge the 

program’s success? 

Mayor FENTY. Well, the Chancellor is using the dollars in several 

ways. A lot of it is going, as you would expect, directly to the classroom. Over the past couple of years, by redirecting essential administration dollars and redirecting Federal dollars to programs, we 

have been able to do a number of different things. One, test scores 

have gone up at local levels by 17 percentage points. That is about 

double where we thought we would have been at just 21⁄2 years. 

We looked at New York when we first took over the system, and 

they had raised their scores by about 10 percentage points in 5 

years. So we were able to do about double that in half the amount 

of time. 

Two, we have improved graduation rates. Dropout rates have 

gone down. More kids are taking AP classes, and, as you know, the 

NAPE test, which is pretty much the gold standard for testing, for 

the first time ever the District of Columbia led the Nation in our 

fourth graders’ tests for both math and reading. 

Mr. SERRANO. Which test was this, the last one you mentioned? 

Mayor FENTY. The NAPE test. It is a test that every State gives 

to their fourth and eighth graders for reading. In math and reading 

we led the country for both fourth graders and for eighth graders 

we were actually one of only five jurisdictions where the test scores 

increased for both math and reading. 

Mr. SERRANO. Chairman Gray, would you like to comment on 

this issue? Sorry. We promise to get more mikes in the future. 


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Mr. GRAY. Actually, we share mikes at the Council, too, so we 

understand. 

I think we have made progress. Certainly some of the observations that were made by the Mayor I concur with. One of the things 

that has plagued us, however, is the continued persistent problems 

with the achievement gap, especially between our white students 

and our African American students, and our Hispanic students. 

The achievement gap over the 3 years of our reform efforts has actually remained essentially the same in the school system, even 

though we have seen some gains in both populations. So we have 

got a lot of work to do. 

We just had a very detailed analysis that was presented to us at 

a hearing that we had last week, and then a couple weeks before 

that, that looked at 15 areas in the NAPE test and showed that 

in all but one of those, the achievement gap had been resistant to 

change. 

One of the things that I am really excited about, and the Council 

played a hugely important role in, that I mentioned in my testimony, and that is creating universality in pre-K programs, serving 

all 3- and 4-year-olds. Our enrollment in the traditional public 

schools has stabilized for the first time in many years, and as we 

analyze the data, we recognize that on the one hand, high school 

enrollment has continued to decline, but the infusion of young children, 3- and 4-year-olds, into our school system has really helped 

to stabilize our enrollment. Again, we expected to have 2,000 new 

seats by 2014. That was our goal. 

By this April, a year and a half into this, we already achieved 

1,500 of those 2,000, and, as I indicated in my testimony, another 

260 will be added in FY 2011. So we will probably be at universality in pre-K programs within 12 months, and that is conservative. We will be the first jurisdiction in America to be able to do 

that, and we know it will give our young people an opportunity to 

get a couple of years advanced formal education, and, frankly, fundamentally redefining our public education. 

Somewhere along the way we defined public education as beginning at 5. This will redefine it as beginning at 3 years of age, and 

I am absolutely certain that it will improve outcomes for our children and, frankly, give families a reason to move here and to stay 

here. 

Mr. SERRANO. You know, to both of you, in fairness to the District of Columbia, the achievement gap is an issue that is a national issue. Everywhere you go, there is that problem. Very few 

communities, I think, can claim that they have taken care of that 

problem. 

And it brings me back to one of my—I may be one of the few people in New York City who is still not totally clear on the future or 

what the future of charter schools should be. Because I see charter 

schools at times as a possibility to take some students out of the 

system and create achievement over here—which is fine—and then 

leave another group behind. 

So, one, what is your take on what charter schools accomplish 

when they do achieve? And secondly, how do we make sure that 

since it looks like charter schools are here to stay, that their 


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achievement, while good in itself, is not achieved by compounding 

problems for other folks who are, quote-unquote, left behind? 

Mayor FENTY. Well, the District’s law provides that as we add 

dollars to the traditional public school system, we will add dollars, 

in most cases, to the public charter schools. And we support that 

policy. And we believe—and the Chancellor has said this on numerous occasions—that there are very good charter schools and there 

are very good traditional public schools. But there are charter 

schools that are underperforming and ones in our traditional public 

schools that are still underperforming. What we need is honesty, 

candor, and tough decision-making around those schools. 

In essence, you know, if a school is not working, then we need 

to either find a way to make it work fast, or, in some cases, reconstitute the school as the Federal law provides, and start all over 

and rehire all of the teachers and rehire and redo the building and 

start fresh. And that is not just for the charter schools. That is for 

the public schools. 

The one thing the Chancellor adds, of course, is that charter 

schools are given an additional amount of independence and autonomy. For that exchange of independence and autonomy, we do have 

to demand the highest-level results. And we will continue to model 

our traditional public school system after that as well. We want all 

of our schools to be more independent, autonomous. That is what 

this new collective bargaining is all about, and we will also demand 

higher results from our schools as well. 

Mr. GRAY. We have one of the most robust charter systems, I 

think, in the Nation. We have almost 40 percent of our students 

now in public education or enrolled in charter schools. Ten, 12 

years ago, we had a couple thousand students who were enrolled 

in charters. Today we have 28,000 of our students enrolled in charter schools. We have 57 schools located on 99 campuses. The uniform per-student funding formula guarantees that the same 

amount of money—at least for the services anyway that goes to the 

traditional public schools, will go to the charter schools. We will 

spend about $435 million next year on charters. 

One of the things I think we benefit from, frankly, is having created a competitive environment in which the charters provide a set 

of educational services, and of course the traditional public schools, 

which historically have had a monopoly on public education, provide educational services as well. So I think having that kind of 

competitive environment is valuable to our children. 

One of the things also that is unique about charters, and that is 

if they have a persistently low level of performance, those charters 

can be lifted, and they have been lifted, and those schools are out 

of business and those children then go to other schools that have 

a track record for being higher performing. So I think both play an 

important role at this stage. 

The question that I asked, I asked some of the leaders in both 

the charter movement and traditional public education is, How do 

you not wind up with a proliferation of schools? They are not regulated in a sense that we have a cap on the number that are created, so we have to be mindful of that. 

The other thing I think we have got to do more aggressively, 

frankly, is as we stop using some of these school buildings that 


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have been traditional public schools, that we make them available 

for charters, because it just makes good human sense and, frankly, 

it makes good financial sense as well, rather than have them go 

out and borrow money, build new schools, and then create more 

debt that ultimately the taxpayers of the city have to cover. 

Mr. SERRANO. Right. I have exceeded my time here, but I want 

to tell you something. For the first time ever since the charter 

school issue started, last week in the South Bronx district that I 

represent, parents were showing a concern to our office that too 

many charter schools were coming into their school buildings, because they seemed to have more support from the city government 

at times, it seems, than the traditional public school system. So it 

seems that this cooperation that puts together charter schools was 

coming into every building in the neighborhood. 

And now, from a situation 6 months ago where we want charter 

schools to—wait a minute, they are coming into my building now, 

and it is too many at the same time, so we have to try to balance 

it. Mrs. Emerson. 

Mrs. EMERSON. Thanks, Mr. Chairman. This question is directed 

to the Mayor and to the chairman. Chancellor Rhee is quoted as 

saying, quote: I would never, as long as I am in this role, do anything to limit another parent’s ability to make a choice for their 

child ever, end quote. Do you all agree with the Chancellor? 

Mayor FENTY. Yes. 

Mr. GRAY. Well, I think we have lots of choices. I think we have 

lots of traditional public schools in the city and we have—as I indicated, 57 charter schools. So I think they have lots of choices. So 

in that regard, I would agree with the Chancellor also. 

Mrs. EMERSON. So are you comfortable—okay. Given that you all 

believe that they have lots of choices, are you all comfortable limiting the Opportunity Scholarship Program to all those students 

who are only currently enrolled, when you have to know that there 

are a lot of low-income students in schools today who will not receive the education that they deserve? 

Mayor FENTY. Well, you started out with the Chancellor’s quote, 

which I think was made in the context of the three-sector approach. And you know the Chancellor—you know, even though she 

received some criticism for this—really did try to follow where our 

predecessors were on this. Our predecessor being the Williams administration, the Cafritz-led school board, and the former chair of 

the Council’s education committee when they established the threesector model, that there would be an equal amount of funding for 

public—charter schools, traditional public schools, and the Opportunity Scholarships. 

Ultimately, because it is Federal money, we do have to defer to 

the Federal Government, both legislative and executive branch. 

But the Chancellor’s position was that as long as those funding levels stayed equal and constant, that she saw the continuation of the 

program as something that was healthy for the District of Columbia. 

Mr. GRAY. I think the proposal to continue to fund the program 

for the kids who are in it is something that I support. I believe we 

have an obligation to create the best possible traditional public 

school system we can. We clearly have invested very large sums of 


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money in charter schools. As I indicated, we are north of $400 million. I think we are beginning to see improvements in both areas. 

We have created programs now within our public education sector 

for 3- and 4-year-olds. 

So my emphasis is on trying to create the best possible public 

education programs that we can, while allowing those children who 

are already receiving Opportunity Scholarships to be able to move 

through the schools that they are in. 

Mrs. EMERSON. Okay. I guess the budget request includes—we said, what, $9 million for the final payment for the Opportunity 

Scholarships. And the justification for that states that it is based 

on historical rates of attrition and graduation; and because of that, 

that should be sufficient. However, should it not be sufficient, and 

it was necessary in order to allow each of the children who are currently enrolled in the program, would you all be willing to agree 

to an additional amount of money should that not be enough, at 

least for the current children to graduate? 

Mayor FENTY. If you are talking about from the current funding 

source, yes. Yes. 

Mrs. EMERSON. I am. 

Mr. GRAY. My question, too. You mean accept additional money 

from the Federal Government to—— 

Mrs. EMERSON. Yes. In other words, what happens if for some reason the $9 million isn’t enough? Would you be willing to—you 

don’t want to kick the kids out. 

Mr. GRAY. Absolutely not. 

Mrs. EMERSON. So that was it. Thank you. 

Dr. Gandhi, let me ask you a question. Recently, Chancellor Rhee announced that the D.C. Public Schools discovered a $34 million 

surplus from the previous year. And you wrote to the Chancellor, 

wherever your letter is here, I read it last night—anyway, you 

wrote to the Chancellor that that funding is not available. So can 

you tell us, or do you know—I assume you do—does your Office 

and the D.C. Public Schools know how much money is available, 

number one, and how it is being spent? And can you assure all of 

us on the committee that the city is appropriately accounting for 

both its local and its Federal funds? 

Mr. GANDHI. Yeah. The answer to that is yes, we are appropriately accounting for it. What the Chancellor has realized is that 

the $34 million was simply an underspending in one part of the 

school budget while, you know, there are other areas where there 

was overspending. So we have sorted it out. 

I had an excellent meeting with the Chancellor last week. Our 

staffs are working together, and currently we are examining what 

impact the contract that she has negotiated would have on the 

budget itself; how much money is in the budget to make sure that 

the traditional salaries that would be paid can be accommodated 

within the budget. 

Mrs. EMERSON. Are these for the teachers that were let go because—— 

Mr. GANDHI. No, no, no, no. This is about the teachers that currently are in the program and also—in other words, you know, 

what are the financial implications of the contract on the budget 

on 2010 as well as the 5-year plan that we usually have. So we are 


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right on the target, meeting with the Chancellor and her staff, and 

we hope that by next week we will have our analysis completed. 

And we will brief the Mayor and the Council, along with the Chancellor, about the financial implication of the contract. 

Mrs. EMERSON. So if there is—let me just get it straight. Can you 

move around the money in the pots a little bit? In other words, if 

you have got—in the teachers’ salary pot and then the operations 

of the school—— 

Mr. GANDHI. That is the prerogative. Yes, ma’am. That is the 

prerogative of the Chancellor, Mayor and the Council. They can 

shift money around. So my primary obligation here would be to tell 

the Mayor and the Council and the Chancellor, here are the annual 

implications of the contract. Either we have money in the current 

budget at the schools or not. And then we can shift the money from 

elsewhere if that is what the Mayor and the Council would like to 

do. 

Mrs. EMERSON. Okay. I just didn’t know if there was some statutory reason why you couldn’t. 

Mr. GANDHI. No, no, no, no, no. 

Mrs. EMERSON. It is just based on what you all can decide. Okay, 

thanks, Mr. Chairman. 

Mr. SERRANO. Thank you. Just on that question you asked, as 

you well know, Doctor, when you figure out these things, sometimes you think it is $5 and it turns out it might be $7 or $4, or 

$4.50. It is our intent to cover that final payment. If some adjustments have to be made, we are open to discuss that. But we just 

want to make sure that that is clear for everyone. 

Under the 5-minute rule, we recognize the distinguished Mr. 

Crenshaw. 

Mr. CRENSHAW. Thank you, Mr. Chairman. Just on the scholarship program, we are talking about continuing it on for the people 

that are in there. And as I understand it, there have been—I think 

there are 1,700 people in the program now. It has probably helped 

twice that many people. And I guess the obvious question is: Whose 

decision was it to end it altogether once these students are out? 

What was the reason for that, and who made that decision? 

Mayor FENTY. From everything I can understand, Congressman, 

it is a decision made at the Federal level. I don’t know where between the legislative and executive branch the position of the local 

administration has been that we would support the program continuing as it was originated, again, before our administration. 

Mr. CRENSHAW. So I mean if it was the administration that decided to end it—and I don’t know whether it was Congress or the 

administration. But if somebody said, that is a pretty good program, it has helped a lot of low-income students, we think at the 

Federal level it ought to continue on, not just for the students that 

are there now but for any prospective students, would that fly in 

the face of anything that you believe? You would support whatever 

comes down from Washington, so to speak? 

Mayor FENTY. We would. I mean, I think our administration sees 

strength in the three-sector approach; but we also, you know, inherited it which, you know, you don’t always agree with 100 percent of everything in these jobs. I mean, that happens every day. 

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lished and what was working for kids that the Chancellor came out 

very early and said that she would support continuing it as we inherited it. 

Mr. CRENSHAW. Because I don’t know whether it was Congress 

or whether it was the new administration, but it seems like with 

all the programs that we put in place up here, they don’t always 

create jobs or always help in terms of educational reform. And so 

if this is a program that has enabled a lot of low-income families 

to access a private school with a scholarship, it seems like that 

might be money well spent. 

Mr. Chairman, I know you had said in your opening statement 

that you would kind of support the continuation and an ultimate 

phaseout of this. It is something we ought to think about. So I appreciate that. 

Let me ask one other question. It is kind of an interesting question. I go home a lot of weekends, and I come up here and I stop 

by my local grocery store and I get some cereal and some milk and 

some orange juice to get me through my breakfast for the week. 

And when I came back this year in 2010, I noticed when I got my 

standard order they said, Would you like a plastic bag? And I said, 

well, I always got one before, I would love a plastic bag. They said, 

Well it costs a nickel. And then actually I went back a week later, 

and I had to get two bags. So now I try to confine my purchases 

to one plastic bag. 

But I wanted to ask you about that because—and I went back 

and kind of checked and I understand that this is one of the first 

cities in the Nation to have a tax on disposable plastic bags. And 

it has worked, evidently. I saw the statistics that from 22 million 

bags a month being disposed of to only 3 million. So that is positive. 

The other interesting point I read is that it raises $150,000 and 

that was going to be used to help clean up the Anacostia River. We 

have got a river in Jacksonville, Florida, where I am from, and everybody loves the river and everybody wants to help clean it up. 

So you have got a tax that deals with trash and disposal, and then 

it helps clean up the river. But then I was told that this year, they 

are going to switch the money from the Department of the Environment to the Department of Public Works. So that money will now 

be used to clean the streets and do the general things that cities 

do, and those are all good things. 

But I guess my question is: What would you say to the critics 

that would say, You have kind of used a bait-and-switch, that you 

said we are going to use the money to clean up the river; now we 

are going to clean up just kind of the general Public Works programs. What do you say to them? 

Mayor FENTY. Well, you know, this is the same question that 

was asked of me when I testified before the Council by the lead 

sponsor of the bill, Council Member Wells. The essence is, is that 

the cleaning up of streets, which takes not only trash and pollution 

but oil and contaminants that make their way into the sewer system and which, because of the fact we haven’t invested yet in our 

antiquated sewer system, all of the rainwater and sewer system becomes combined, makes its way into the Anacostia. 


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When I do the press conference every year where I say it is 

street sweeping season again, which happens in March—behind me 

is a prop. I don’t know how big this is, but it may be 30, 40, 50 

gallons of oil, which is what we take off of District streets every 

week, I think, by the street sweeping program. 

So the answer to the question is, I acknowledge that to use those 

funds for the street sweeping program is, without any question, a 

broad interpretation of the legislation. But we do believe that the 

legislation was written in a way that we will be able to use it for 

anything that could have a potential impact. There are only a couple of things that you could do—that would be directly on the river. 

They are pulling trash out, drudging it, cutting back invasive species, et cetera. But there are lots of other things from litter education to street sweeping to things that we can put a list together 

that will impact and help clean up the Anacostia. 

And lastly, I would be negligent if I didn’t just point out that one 

of the things we have to do going forward is look at fixing that 

combined sewer problem. It is going to be millions and billions of 

dollars, but that is what ultimately will clean up the Anacostia and 

make it a great river like the one you referenced in your home 

State. 

Mr. CRENSHAW. Thank you. Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you. Just for the record, because I know it 

is an issue that keeps coming back and it will probably be around 

for a while. Mr. Crenshaw, and because of my respect for you personally—and I mean that sincerely—part of the issue with the 

school voucher program hasn’t been only the school voucher program itself. It may be that the school voucher program was one of 

those instances where Congress, in a bad way, telling D.C. what to 

do, came up with a program that had some merit to it. The jury 

is still out as to how much merit. But it was all part of a behavior, 

historically, of Congress taking issues that were politically good for 

Congress, and instead of imposing them back in their own home 

districts, they impose them on the District of Columbia—on abortion, on medical marijuana, on needle exchange programs, on domestic partner issues, and on and on and on, even telling the District you can’t use your local funds for these programs. 

This issue has supporters, strong supporters, but it is part of 

that package of telling the District what to do, and the belief by 

some of us that if the District wants to do these things, it should 

be able to do them, and Congress should not tell them what to do. 

Mr. CRENSHAW. Thank you. 

Mr. SERRANO. Thank you. Mr. Culberson, under the 5-minute 

rule. 

Mr. CULBERSON. Thank you, Mr. Chairman. You have always 

been very gracious about it. And I would agree with you, Mr. 

Chairman. You just said that it is—Congress should allow the District to make these decisions, and particularly on the D.C. Opportunity Scholarship Program. If you had the ability, Mr. Mayor, and 

the Council had the ability to make the decision entirely on your 

own, would you and the Council vote to continue and even expand 

the D.C. Opportunity Scholarship Program? 


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Mayor FENTY. Well, what we have tried to do is put a very consistent position forward. We understand that it is Federal dollars 

so, you know, we—— 

Mr. CULBERSON. Hypothetically. 

Mayor FENTY. Hypothetically, what we have said is that we support the program as we inherited it, which means that there was 

an equal amount of money for the public charter schools and traditional public schools and the public school system, although the administration had increased the number for certain programs in its 

traditional public school system, and that would then allow for the 

same number of kids—— 

Mr. CULBERSON. But you are in charge. Let’s say we passed a 

bill, and there is going to be a new majority in January and there 

is going to be a lot of support for that concept. Let’s say the legislation—because Congress under the Constitution, we designed the 

legislation that Congress passed that designs how D.C. operates. So 

let’s say hypothetically, Congress passed a bill that gave you full 

discretion to create, expand, fund the D.C. Opportunity Scholarship 

Program. It is your program. What would you do? 

Mayor FENTY. The short answer, Congressman, is that we support it in its existing size, better yet the size we inherited it at, 

with Federal funds for all three sectors. 

Mr. CULBERSON. What I have seen and heard from news reports 

in the city, the citizens of the city of Washington support the program pretty strongly, don’t they, people that have kids in the public schools? I mean, they vote with their feet. You have more applicants than you have slots, don’t you? 

Mayor FENTY. Yes. I think really the best answer on this is the 

full answer that the Chancellor has given. Congresswoman Emerson gave the part about not limiting people’s choices. What the 

Chancellor said is our mission is to make our school system the 

best in the country. But she is a very honest person. She said we 

are not there yet. We have a long way to go. 

Until we are at that point, I think she even referenced a 5-year 

period in her statement, we are not going to limit anybody’s ability 

to choose. She referenced the Opportunity Scholarship Program as 

part of the three-sector approach, as the Congresswoman noted, as 

important to making sure people had a choice where they could be 

able to give their kids a great education. 

But it is within the context of the three sectors, because all three 

are important and, of course, we are in charge of the school system 

and we will make it excellent. But it is not there yet. 

Mr. CULBERSON. You would support, then, to the extent we could 

do so in Congress, passing legislation giving you and the Council 

complete control over the operation and design of the school system. Would you support that? 

Mayor FENTY. We haven’t examined that, Congressman. We need 

to look at it a little bit further and see exactly what you are referring to. 

Mr. CULBERSON. I am a big believer in letting Texans run Texas, 

D.C. run D.C., New York run New York, and that sort of thing. 

Mayor FENTY. I can tell you we support it in the current fund 

with the funding level that we inherited. Anything else we would 

be glad to look at. 


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Mr. CULBERSON. Forgive me, I had a came in a little bit late, I 

had two meetings on top of one another. In talking about the 

schools, because it is the more important thing we all do, is making 

sure that these little kids have a good opportunity, a good education, and it is particularly tragic when you see these little kids 

suffering. And Mrs. Emerson’s daughter, I understand, teaches in 

the D.C. schools. 

To what extent, what is D.C. doing to try to help keep families 

together? We were in Houston, mortified with the number of people 

that were evacuated from New Orleans. Katrina, the hurricane 

itself was a catastrophe, but we in Houston had not realized how 

many—there just were no fathers. We got all these desperate people from New Orleans. There were mothers and grandmothers and 

these little kids from these desperately poor families, and there 

were no fathers. So the family structure is key to success in any 

public school system. 

I know we are blessed in the district that I represent in West 

Houston, whenever there is a PTA meeting, a PTO meeting, you 

can’t drive down the streets. The parents are just jammed into the 

schools. They are on top of it. Every parent is watching their child 

and their teacher and the principal, and the school like a hawk. 

And it is the family structure, it seems to me, isn’t it, that is really 

key to what makes a successful school system? 

I haven’t heard you all discuss that. What is D.C. doing to try 

to help preserve families and keep families together and make sure 

they are healthy and whole? 

Mayor FENTY. Well, in an urban city, as you can imagine, it pretty much runs the gambit. There is housing for homeless families 

and homeless individuals. There is strengthening the kids in the 

child welfare system, who may be in neglected and abused situations, giving strength to the families or putting kids in a safer environment. 

Probably one of the biggest things in a city like this is actually 

job opportunities and job placement, because if you can employ people, then it solidifies the family, reduces crime, et cetera. 

Mr. CULBERSON. Sure. No question. 

Mayor FENTY. So a lot of the money that has come through this 

committee through the ERA bill and through other programs has 

really helped us employ people in D.C., all the economic development. We are embarking on more job training. Almost all of the 

DOES dollars we get come out of the Department of Labor and the 

committee that funds that. 

So keep making those dollars available. I think that is one of the 

biggest ways we can strengthen the family and give them support. 

Mr. CULBERSON. And tax cuts. Don’t forget tax cuts. They are always important. It always creates jobs. 

Finally, now that there are no restrictions on the District’s use 

of dollars to fund abortions, what type of abortions and how late 

in pregnancy will you be authorizing the use of District dollars? 

Mayor FENTY. I don’t have the Department of Health report in 

front of me. We could get that to you. But I think the District—— 

Mr. CULBERSON. Your best estimate? 


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Mayor FENTY. Again, I would have to get that to you on exactly 

where we allow abortions. I can’t even remember the exact terminology. We will get it to you by the end of the day. 

Mr. CULBERSON. Thank you very much. Thank you, Mr. Chairman. 

Mr. SERRANO. Thank you so much. 

Let me see if I can make a final comment on the issue that won’t 

go away. To my understanding, if the government, the administration, the City Council, of the District of Columbia, decides that 

with their own local funds they want to establish a voucher program, there is nothing that prevents you from doing that. It is just 

a local decision. Am I correct? 

Mayor FENTY. Absolutely. That is correct. 

Mr. SERRANO. All we are saying is that Congress should not tell 

you you must have that program, but that nothing prevents you 

from having that program. 

Mayor FENTY. Correct. 

Mr. CULBERSON. With local dollars. 

Mr. SERRANO. With local dollars. Absolutely. It won’t go away. I 

will be 95 years old and it will still be there. There will be my picture on ads on the side of buses. 

While the overall request for Federal payment is down $17 million in the 2011 request, the President’s budget includes a request 

for $7 million in Federal payments for two new initiatives; $5 million total support of a HIV/AIDS initiative; and $2 million designated for redevelopment in connection with the Saint Elizabeths 

east campus. 

Mayor Fenty, could you briefly describe—I know you have 

touched on them before—but could you briefly describe each of 

these initiatives? Could you tell us what the local investment in 

each of these initiatives is? And I am particularly interested in 

your HIV-AIDS initiative. What gains has the District made in improving the future situation for young people by addressing their 

sexual health, STD and HIV needs now? What innovative strategies have been important for reaching young people. 

Chairman Gray, I would also like you to comment on that, 

please. 

Mayor FENTY. Let me just talk about the budget first. The funding that would come through your committee, Mr. Chairman, would 

allow for us to serve an additional 75,000 District residents. The 

HIV and AIDS Administration would use that for planning and 

stakeholder engagement, for service expansion, for outreach and 

linkage. 

What we have been doing over the past couple of years is to really focus a lot more on testing, knowing your status, doing something about it. 

We have produced two unbelievable reports, one on heterosexuals 

in D.C., and then the other is on same-sex couples. Both show that 

there is a high amount of sexual activity that just almost is reckless when you look at how little people know their status and how 

they continue to engage in sex with multiple partners, despite the 

fact they don’t know their status. So we are really trying to let people know their status, get tested, and then do something about it. 

Mr. SERRANO. Chairman Gray. 


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Mr. GRAY. I think, Mr. Chairman, one of the advancements—and 

we thank the Congress for this—is to have lifted the prohibition on 

the needle exchange program in the District of Columbia, to take 

that rider off of our budget. There are probably about 250 cities in 

the Nation that use a needle exchange program, and we were prohibited from doing that except to the extent we could generate private dollars to be able to do that. We know that those programs 

work, and we now can invest dollars in a needle exchange program 

from our budget. 

The reality is that as you look at the spread of the virus over the 

last 20 to 25 years, we have moved substantially away from it 

being predominantly men having sex with men. When you look at 

IV drug use, for example, its prevalence as a reason for contracting 

the virus is almost as high as what started this condition many, 

many years ago. So the ability to make needles available, frankly, 

clean needles available to people, will be a major advancement in 

our ability to prevent the transmission of this virus in the first 

place. 

Also the ability, frankly, to be able to invest dollars in education, 

testing and counseling, and educating people around the importance of understanding this condition and then getting counseled 

and getting tested themselves. We have done more to integrate 

those services into larger health services as well. 

Let’s face it. There has been such a stigma associated with this 

condition over the years that people were afraid to even go get tested or to be tested or to associate themselves in any way with the 

condition. Now, as we integrate these services more into multiservice systems and health-care systems, I think we will see more 

people taking advantage of them. 

Frankly, one of the things I discovered when I became a Council 

member in Ward 7, which is an east-of-the-river community, while 

the condition itself was growing more rapidly in those communities, 

we found that there were fewer dollars being invested in those 

communities. It was an inverse relationship between investment 

and incidence and prevalence. 

We have begun to level the playing field now so that those communities where we have 140,000 people living now have more dollars being invested in the education, testing, and counseling program. So I think all three of those things are going to make an important contribution to our ability to combat this dread disease. 

Mr. SERRANO. Thank you. Where are we in terms of setting up 

the services as a result of lifting the ban on needle exchange? 

Mayor FENTY. Well, of course, as the Chairman noted, we already had some programs that were in existence. Immediately after 

lifting the ban, I think it was in 2008, late 2008, we were able to 

write a check to Prevention Works, and they immediately started 

putting those dollars to work. 

I think the Chairman is exactly right. To date, it has already 

saved countless lives. And we could get you an updated report on 

how much money we have spent since then. But that initial check 

was in the $300,000 to $500,000 range, if I remember correctly. 

Mr. SERRANO. The reaction from the community has been supportive, I imagine? 


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Mr. GRAY. It has. I have heard no adverse reaction at all to this. 

In the early days when this was proposed, there were people who 

thought we were actually promoting the use of illicit drugs. But I 

think we have long since passed that. I think people recognize that 

the opportunity to save a life far transcends in importance the concern about whether somebody is a drug user. 

Obviously we want them to stop using drugs and we want more 

treatment programs to be able to do that. But at the same time, 

we have to recognize that those who are using drugs, if we constrain their ability to access it—which we would love that they 

stop—but if we constrain their ability to using dirty needles, we 

are simply proliferating a public health problem. So this really has 

opened the door, I think, to avenues that heretofore were not available to us. 

Mayor FENTY. My notes show we have removed over 380,000 

dirty needles from the city since the congressional ban was lifted. 

Mrs. EMERSON. Three hundred eighty thousand dollars? 

Mayor FENTY. Three hundred eighty thousand dollars. 

Mr. SERRANO. Well, let’s turn now to the fiscal health of the city. 

By the way, again sort of breaking my rule of not telling you what 

to do, but I would like to be kept informed, because that was a special interest to this committee, the whole needle exchange ban. It 

became national news. Just keep us informed as to how it is working. Not, again, because I am telling you what to do, but because 

I would appreciate it. It continues to make the argument at other 

levels. 

Mayor FENTY. Thank you. 

Mr. SERRANO. I would like to turn to a discussion of the District’s 

fiscal health. Like many cities and counties around the country, the 

District of Columbia is seeing a steep decline in tax revenues due 

to higher unemployment and declining property values. In fact, as 

you know, Dr. Gandhi, back in my city of New York, this Thursday 

we are going to have a heated argument when the President goes 

there to talk about Wall Street. And you are going to have people 

saying, Well, the flip side to all of that, and no one has paid attention to—and I don’t agree with these folks but they say those large 

bonuses, those people were paying taxes in New York City, and 

they are no longer paying taxes because of large bonuses. 

You now have the pro-large bonus lobby, and I am not talking 

about recipients. You are talking about people saying, My God, because you got a $50 million bonus, that is a big tax chunk. 

Mrs. EMERSON. It would be nice to have a $2,000 bonus. 

Mr. GANDHI. We don’t have any bonuses. 

Mr. SERRANO. My bonus is that you are my ranking member. 

Mrs. EMERSON. That is mine too, that you are my chairman. And 

we aren’t arguing about baseball today yet. 

Mr. SERRANO. Because the Yankees keep winning, that is why. 

Mrs. EMERSON. The Cardinals are still ahead. 

Mayor FENTY. And the Nationals are doing extremely well. 

Mr. SERRANO. I remember Carlos Paula from Cuba playing for 

the Senators. You know, the Senators were like the first team that 

in a way had this special deal going with Cuba. It was incredible. 

Mr. GRAY. Do you remember Camilo Pascual? 


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Mr. SERRANO. Of course I remember Camilo Pascual. The only 

guy with a last-place team winning 17 games. 

Mr. GRAY. Pedro Ramos? 

Mr. SERRANO. Pedro Ramos. Yes. Sure. 

Mr. CULBERSON. Where are all the Cuban ball players now? 

Mrs. EMERSON. We just got a a new one on the Kansas City 

Royals. 

Mr. SERRANO. Excuse me. 

Mrs. EMERSON. We are saving them from having to talk about 

the finances. 

Mr. SERRANO. I am sorry. With me it is baseball, but we have 

to get back. 

Dr. Gandhi, what is the current status of the District’s tax shortfall and what impact has declining tax revenues had on the District 

of Columbia? Based on your current projection, when do you anticipate revenues will reverse course and begin to increase? Of course, 

that is a question being asked throughout the country. 

Mr. GANDHI. Mr. Chairman, you are exactly right. We have suffered, like others, substantial losses in revenue. In 2010, we have 

removed roughly $1 billion from our projected revenues; in 2011, 

$1.2 billion; 2012, about $1.3 billion. We have lost anywhere between 16 to 21 percent of what we had projected in terms of the 

revenues. To that, my expectation is it will be another 2 years before there will be a substantial recovery underway. 

Mr. SERRANO. How many? Two years you said? 

Mr. GANDHI. That is right, to go back to some respectable level 

of revenues. 

And, three, while most of the other taxes are recovering gradually, our fundamental problem is commercial real property. Commercial real property, sir, is about $1 billion-plus. That is the engine that drives our revenue machine, and we see substantial problems primarily because of the real property market which is still 

very sluggish. We see a lot of vacancies rising, and I think it will 

be quite a while before it gets rejuvenated, the kind of revenues we 

used to get. 

When I joined the city some 10 years ago, the deed recordation 

and transfer taxes used to be around $40 million. In the height of 

2006–7, it was around $400 million. We had to cut that in half 

now, because the deals are not happening. The deals are not happening. So my expectation is it will be another 2 years that it will 

come back to a level that we would like to have. 

But I am quite confident the fiscal condition of the city, with the 

Mayor here and Chairman, I have no doubt that we will have a 

balanced budget, that we will have a 5-year balanced budget plan. 

I am immensely impressed with the fiscal prudence that the elected leadership have shown. In that respect, we have still $900-plus 

million in a fund balance, $350-plus million dollars in rainy day 

funds, so in that respect we are doing far better than practically 

any other city in the country. 

Mr. SERRANO. Really. That is good to know. 

Mr. GANDHI. Great kudos go, as I say, to the Mayor sitting next 

to me and the Chairman. 

Mr. SERRANO. You realize that right now in the White House, 

people are saying that Dr. Gandhi just said things will turn around 


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in 2 years. There are big charts up saying okay, we are in good 

shape; 2012 falls after the 2 years; we just gave them great news. 

But it is good news, and the number projections do indicate that 

that is what is going to happen. 

Mr. GANDHI. That 2 years, basically I am talking about Washington, D.C. 

Mr. SERRANO. I understand. But as Washington goes, right, so 

does the rest of the Nation. 

Mayor Fenty, what policy initiatives are you proposing—by the 

way, Ms. Emerson will be back in a few minutes. She won’t be 

upset if I read this: ‘‘I have to say hello to my dairy farmers.’’ The 

difference between the Bronx and Ms. Emerson, the closest I get 

to it is a plastic gallon of milk in the supermarket. 

Mr. CULBERSON. Me too. 

Mr. SERRANO. So we learn so much about each other, it is wonderful. It is the greatest experience ever. 

What are the initiatives to increase revenues, what have you had 

to cut, and is there a particular program area that is absorbing the 

bulk of staffing and program cuts? I know that is a tough question, 

because, you know, if there was ever a reason why I never wanted 

to be mayor of New York, besides the fact I probably couldn’t have 

gotten elected, is how do you face 5,000, 10,000, 30,000 workers, 

and tell them you are not here next January? That is tough stuff 

for you. It is tough for the Council. So if you could just talk about 

that for a second. 

Mayor FENTY. I appreciate it. I mean, the biggest thing in terms 

of having a real recovery going through the coming years will just 

be the economy, a recovery. What we are doing in this 4-year 

cycle—hopefully that is all it ends up being—is scaling back waste 

and excess, streamlining some programs, doing some consolidation, 

so that residents don’t see an interruption in service delivery. 

We are managing the government as you would expect. There 

hasn’t been a particular part of the government where we have 

said, We can completely eliminate that. We have spread it pretty 

well amongst all the agencies. You will find some reductions in everything from, say, public works to the police department. 

But what we do is we do it very surgically. So in the Public 

Works Department, I think there is a proposal to cut some inspectors, which is contrasted with, say, cutting people who pick up the 

trash. These are people that help to monitor it, so there will have 

to be better management from the top, and we are cutting out middle management. 

At the police department, we would never cut police officers. We 

need our 4,070 officers for everything they do, and they do a fantastic job. But there were some positions which were civilian positions that the Chief was able to identify which were excess. 

In total, I think it was about 500 positions in the 2011 budget, 

which is the one that is at the Council now. Added to the last year 

and a half, I think that takes us over 2,000 positions that were 

eliminated from the government. So we are approaching 10 percent, somewhere probably between 5 and 10 percent right now, and 

I think that is what you would have expected us to do. Because the 

budget grew in healthier times, it is only right we reduce it. 


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The local spending reduction, compared to last year, this year is 

about 3 percent. So we are spending less proposed dollars by 3 percent than we would have when I was sitting before you a year ago, 

local dollars. 

Mr. SERRANO. Chairman Gray. 

Mr. GRAY. You asked about revenue enhancements too, Mr. 

Chairman. The Council in its work on the fiscal year 2010 budget 

looked at some areas that we thought would generate additional 

revenue. It resulted in probably about, I don’t know, about $40 million additional. And we did that in some areas that we thought 

would least impact the residents, if you will. 

First of all, we increased by one quarter of 1 percent the sales 

tax in the District of Columbia, recognizing that there are a lot of 

people who come into the city who don’t live here, and engage in 

one or another kind of transaction in the District of Columbia. I 

guess it is the antithesis of not being able to tax income at its 

source, and that is that those who do shop in the city would pay 

slightly more. That will actually generate, projected out, $20 million-plus for the city. 

We also raised the cigarette tax, the thinking being that even if 

people cut back on cigarettes, we will probably save in health costs 

as a result. Cigarettes now cost $7.34 a pack, which is absolutely 

astounding, and we know what the health consequences are. 

Mr. SERRANO. Seven dollars and 34 cents, you say, and people 

still smoke? 

Mr. GRAY. People still smoke. I remember people saying if ciga- rettes ever go to $2.50 a pack, I will never smoke another cigarette. 

Those are the same people that are paying $7.34 a pack for cigarettes now. 

Mr. SERRANO. That is not the highest in the Nation, is it? 

Mr. GRAY. I don’t know. I really don’t know. It has got to be right 

up there, though. We achieved parity in our gasoline tax with 

Maryland. We raised that by 3.5 cents. Overall, it will generate 

about $40 million in additional revenue. 

One of the things I think, too, Mr. Chairman, that we will benefit 

from is the President’s reform plan that now, of course, has been 

approved. We have had a very aggressive program in the city of 

covering people who otherwise wouldn’t be covered. 

We have something called the Health Care Alliance which covers 

55,000 people in the city. A lot of those people now will be covered 

by the President’s health-care reform plan, which will allow us 

then to be able to use those District dollars for other purposes, 

other services in the city, because we will get additional help from 

the Federal Government because of the additional coverage that 

will be provided by the health-care reform plan. 

Mr. SERRANO. Thank you. 

Before I turn to Mr. Culberson, I just thought of a question that 

I haven’t asked for a couple of years, but it is important to ask it. 

As you know, and you know me more than a lot of people who come 

before this committee know me, I try to be very fair and balanced, 

as that network claims to be—not that network, whichever network 

that is. I want to be careful. 

Up to recently, and this changed recently, I think it might have 

changed, up to recently the highest percentage growth in the HisVerDate Mar 15 2010 04:09 Dec 16, 2010 Jkt 062790 PO 00000 Frm 00168 Fmt 6601 Sfmt 6602 E:\HR\OC\A790P2.XXX A790P2

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panic population in the Nation was in southern Maryland, Northern Virginia, D.C. area. It may now be the Carolinas. But that was 

the highest percentage. 

So what initiatives has the city taken to deal with the growth in 

that population? What special programs and anything? What is the 

reaction from the leadership? Is there established leadership in the 

D.C. Latino community the way there is in Northern Virginia and 

in Maryland and so on? 

Mayor FENTY. I think you would be proud, Mr. Chairman, of a 

number of different things. When I was on the Council, actually 

right around the time I first started on the City Council, the law 

was passed called the Language Access Act. It is still in effect. It 

monitors every agency of the government and how we do employing 

and using and responding to people who speak the most common 

different languages than English in D.C. So Vietnamese and Spanish and Korean are some of the top ones. So every report shows 

that we are continuing to do better. We still have a long way to 

go. 

On the education front, the Chancellor and some of the charter 

schools have really been good about language immersion programs. 

The Oyster Model, which was just one school at the time we took 

over, has been expanded. That now has a middle school. And we 

are putting a lot of language immersion programs into the schools. 

We have been really strong on health care. Groups like Mary’s 

Center, that serve our Latino community throughout the city, are 

strong partners with the District of Columbia and many other 

places in between, from the Latino businesses that have emerged 

in the community to other nonprofits. 

I think the strength and the growth of all of those is a great indicator that the District realizes that this is certainly our largest 

growing immigrant group, and we are welcome to keep that continuing. 

Mr. SERRANO. Chairman Gray. 

Mr. GRAY. I think the Mayor has made some excellent points in 

that regard. We probably—I think 10 to 12 percent of our population now is Hispanic. 

Mr. SERRANO. That high? 

Mr. GRAY. Yes, it is high, by comparison to what it was a few 

years ago, and it is a growing population. Certainly, if you look at 

the charter schools, for example, we are seeing more bilingual programs there as well. 

One of the things that I am especially proud of is that we have 

established now—we probably were the last jurisdiction in America 

to establish a community college. We now have a community college in the District of Columbia. It opened in August of 2009. And 

we are focusing on trying to attract, I would say, nontraditional 

students to the community college, to keep people at home in the 

city, and certainly reaching out to the Hispanic population now to 

attract the Hispanic population to our community college, so that 

as people get high school diplomas, they then have at least that option to go to. 

There is open enrollment, and for those who get a 2-year degree, 

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trict of Columbia. We are focusing in terms of our outreach on the 

Spanish population as well. 

Mr. SERRANO. I would like to assist you in any way. Like you 

say, it is a growing population. You also now begin to see, and I 

know this for a fact, a large number of children born of Latino parents in D.C. who are native to the community, if you will. 

You know, as a total aside, I mentioned to you folks last year, 

I said, you know, one of America’s best-kept secrets is that Chita 

Rivera, the superstar of Broadway and the original star of West 

Side Story and countless other shows—she is still performing—was 

born in D.C. and you should honor her. Well, the President beat 

you to it. He gave her the highest honor in the country just recently. But she was born in D.C. and is proud to tell people that. 

Ms. Emerson. 

Mrs. EMERSON. I have a cookie in my mouth. 

Mr. SERRANO. You went to see the dairy farmers. You got cookies. 

Mrs. EMERSON. I am sorry. I actually stole the cookie from in 

there. So you can go back. 

Mr. SERRANO. Let them eat cake. 

Mrs. EMERSON. Let me just get that finished. Thank you. 

I wanted to ask you all a question about homeless veterans. It 

is estimated there are about 583 homeless veterans in the city, and 

the budget request proposes $10 million to address this problem. 

I understand the funding would be divided between two projects 

and will help provide new housing units for individuals whole need 

site-based housing and support. 

I am really, really gratified that the city and administration are 

working to address the family of our homeless veterans. So I just 

have a few questions that I want to be specific—ask you specifically. 

How many veterans will this program assist each year? When do 

you anticipate the facilities will be operational? Is the Department 

of Veterans Affairs participating in this? How much do you all have 

to use your own resources? 

And then I will ask a couple more about that, please. 

Mayor FENTY. I am not sure if we have all of the budget costs 

for the building and the projections on delivering the building. We 

could certainly get that to you. 

Mrs. EMERSON. That would be terrific. 

Mayor FENTY. With respect to the question about the percentage 

of veterans, my notes show we are going to have a reservation of 

units, which I would imagine would be a minimum number of 

units, and I will either have to get that to you by the end of the 

hearing or by the close of business today through the Chairman. 

But it is a part of our entire proposal of finding permanent supportive housing to get homeless veterans off the street in the most 

humane way possible. 

Mrs. EMERSON. With 583, I don’t know how far $10 million will 

go. Certainly these are people who everything we can possibly do 

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Do you know yet, or do you all have plans to provide other things 

at these facilities like drug and mental health treatment, job training, that sort of thing? 

Mayor FENTY. Yes. The Permanent Supportive Housing Program, 

which we established in late 2008, is just that, Congresswoman. It 

gets you housing, but it also has everything from job counseling to 

mental health counseling, substance abuse counseling. The arms of 

the government are wrapped around you until you get back on your 

feet. We actually believe that this is not only more humane and 

more productive, but also, in the long run, less expensive than just 

putting people on top of each other in shelters. 

Mrs. EMERSON. Absolutely. Do you know of the number of homeless veterans you have been able to help to date, whether you see 

recidivism back to homelessness or whether you really have been 

able to measure the progress of these folks? In other words, have 

they been able to get a job? Do they have the right medications to 

help deal with any other physical or mental ailments that might 

arise? 

Mayor FENTY. I think we would have to get you that number. I 

think my notes show that through all of our services, there are 

about 548 veterans who are homeless in the District of Columbia, 

and that would probably be somewhere around 10 percent, because 

I have just over 6,000 persons who are literally homeless. So let me 

get the number on how many of those have already been put into 

the Permanent Supportive Housing Program. We will get that to 

you. 

Mrs. EMERSON. Do you know if some of them are non-veterans 

or is it just the veterans community specifically? 

Mayor FENTY. In our Permanent Supportive Housing, absolutely 

some of them are non-veterans, without any question. 

Mrs. EMERSON. I appreciate that. It is just such an important 

thing, and it is important for all of us to partner in ensuring that 

we not have that problem in the future. 

Let me ask, too, about the Residents’ Tuition Support just briefly. Am I stepping on anybody’s toes? 

Mr. SERRANO. You already asked my veterans question. Other 

than that—— 

Mrs. EMERSON. Okay. I think that it is wonderful to be able to 

provide students the opportunity to go to college, so I am very supportive of this program. And I know that it has increased the enrollment in D.C. public schools—well, it has increased college enrollment among D.C. public school grads up to—I think 60 percent 

are the latest numbers we have for 2006. 

Tell us a little about the successes of this program and whether 

or not that program has produced a better-educated workforce that 

has led to better-paid jobs. And hopefully, all of these are folks who 

are coming back and working back home. We certainly, in rural 

Missouri, have issues with you can go to St. Louis, you can go to 

Memphis, and you can get a better-paying job. But in D.C., the jobs 

are much better-paying than they would be where I live. 

Mayor FENTY. Well, you know, I think it has had a number of 

different positive impacts. In fact, the number one is the one you 

cited already, the improvement in the graduation rate; that, as you 

said, some numbers show that is up to 60 percent. But it depends 


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on what year you are looking at. The graduation rates over 2000 

to 2005 certainly grew every year, so that was exciting to see. 

We believe it has had a great impact on keeping kids in high 

school, lowering the dropout rate, getting kids around the country 

more as they look to the various different State institutions that 

offer some of these, which I think is important to everybody who 

sits where you all sit. 

Without any question, it has brought people back better trained 

for D.C. D.C. is an attractive place if you are looking for a job, because—we have got the highest unemployment rate, but we also 

have the fastest job growth. It is just one of the wild disparities 

that you hear about in the Nation’s Capital. 

The answer to why that exists, of course, centers around education. If we could place all of the people in D.C. who needed a job 

into the jobs available, our unemployment rate would be one of the 

lowest in the country. It is high because people still drop out at 

such an alarming rate, or get through school untrained for the jobs 

that are here. 

That is a really big mission here in Washington, D.C., and we 

believe that DCTAG helps that. We probably would have some people move out of the city more if you didn’t have DCTAG. I think 

it is a very attractive selling point for the city and continuing the 

growth of the city. It is particularly noteworthy, seeing it has such 

strong support from former Congressman Davis, who represented 

a suburban jurisdiction. He realized the importance of it to the city. 

Mrs. EMERSON. I think, too, the plans for the University of the 

District of Columbia are wonderful too, and we should not overlook 

that as an opportunity. 

Mayor FENTY. Absolutely. No question. No question. 

Mrs. EMERSON. Thank you. 

Mr. SERRANO. Thank you. 

Mr. Culberson. 

Mr. CULBERSON. Thank you, Mr. Chairman. 

Community colleges are indeed a great investment. It is a powerful part of the education system in Texas. We also have a program 

where a high school student can earn dual credit, both in the high 

school class, as well as if they go on to a community college or even 

in our State university. Is that something that you have in place 

in D.C.? If not, I would certainly recommend it. 

Mayor FENTY. There are different programs available. There are 

a couple of them. There certainly are the normal AP classes which 

you can take and get college credit. Then I know that there are a 

couple of partnerships with schools like GW and others. I know 

there are some programs with UDC as well. 

I want to stop short of saying I know that you can get college 

credit, because I don’t remember if that is the case. 

Mr. CULBERSON. It is worth paying attention to. 

Mayor FENTY. Without any question. 

Mr. CULBERSON. Put it on your radar as something you probably 

have authority to do, and it really, really helps make a difference. 

Mr. GRAY. We actually have begun to extend those opportunities 

through UDC. One of the things that has been done is extend UDC 

beyond its principal campus on Connecticut Avenue. We now have 

satellite locations, especially east-of-the-river communities, and we 


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are about to open two new sites, one in the former Backus School, 

which was a public middle school on South Dakota Avenue. They 

are going also into high schools. There is a presence of UDC in 

high schools, so there now is an emerging effort to try to see that 

these young people get connected with the university and also get 

credit for certain courses they will take through the university 

while they are in their own high school. 

Mr. CULBERSON. I hope you also will encourage, do what you can 

to develop programs to encourage young people to go to the military academies. That is another great opportunity that I think D.C. 

may be missing out on. 

You mentioned also that you have declining revenues in the city, 

obviously commercial property, declining property tax revenues. 

Another thing to put on your radar, I can tell you just from personal experience—and certainly we are all dealing with human nature—human nature is such that if you are, for example, running 

a business, your revenues are down, they cut prices and do an effort to try to bring people in. I know it has worked, certainly, in 

Texas and my experience elsewhere. 

Again, human nature is such that where revenues are declining, 

the response that we have had in local government and State government in Texas is to cut taxes and cut spending. It creates jobs, 

encourages people to move in. Texas has been blessed. We are sort 

of in a bubble in Houston and Texas that has protected us. We are 

still down, but not as bad as the rest of the country, because of that 

attitude. 

I would sure recommend it to you. Rather than look to raise 

taxes as a way to increase revenue, if you actually cut taxes and 

cut spending, I think you will bring in more people and create more 

economic growth. 

I also wanted to ask about how the city is addressing crime. Correct me if I am wrong, but I understood that you all have installed—there are sound detectors in certain parts of the city to triangulate gunfire, because witnesses won’t come forward; is that 

correct? 

Crime is still a serious problem in parts of the city. Do you have 

sound detectors that triangulate to help identify where it came 

from? 

Mayor FENTY. Yes, Congressman. Shot spotters are what they 

are called, and they do help the police department, as do surveillance cameras, as do other technology-related policing items. 

But I do want to say that one of the reasons Chief Lanier has 

been able to drop the homicide rate down to 1966 levels and to be 

one of the leaders in the country in homicide closure rates is because the detectives, one, they do an amazing job, they are very 

well managed; and two, because we are getting an unprecedented 

amount of support from the community in giving us tips. 

Mr. CULBERSON. I am delighted to hear it. But the whole idea 

of sound detectors is sort of grim, if you think about it, the fact you 

need it. 

Mayor FENTY. Sure. 

Mr. CULBERSON. It is a sad commentary on the state of affairs 

we are in. 

Mayor FENTY. No question. 


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Mr. CULBERSON. I am delighted you are dealing with it. I can tell 

you again, we all have come up in our personal experience. I am 

born and raised in Houston as a Texan. I knew how to shoot a gun 

by the time I was 12 years old, and it is just a natural part of life. 

And it is an important part of life in Texas, and I coauthored in 

the State legislature our Concealed Carry legislation in the nineties. 

To this day, I think that bill passed in like 1995, I am not aware 

of—and somebody may correct me—but I am not aware of even a 

fist-fight between Concealed Carry permit holders. 

I know that when you are pulled over for a traffic ticket in 

Texas, you pull out—this works, Mr. Chairman, I am telling you— 

if you have a Concealed Carry permit in Texas, if you are pulled 

over for a ticket, really you are supposed to pull out—and I am 

going to get mine soon, my brother has got his. This works every 

time. You pull out your driver’s license. You put the Concealed 

Carry permit with it, because the officer needs to know. And when 

you give that to the officer, nine times out of ten, unless you really 

fail the attitude test with the officer or done something bad, the officer will just say, Thank you very much, have a safe day, because 

police officers recognize that their best friend is a Concealed Carry 

permit holder. 

So I wanted to ask you about what the District intends to do 

about the right of all Americans to keep and bear—two parts, keep 

and bear arms. And law-abiding citizens have that absolute right 

under the Constitution; the case that just went up to the Supreme 

Court that invalidated the prohibition that D.C. had on owning a 

weapon inside your home. 

To what extent will the District of Columbia protect Americans’ 

Second Amendment rights and recognize the reality that we in 

Texas and other States where they have Concealed Carry, we have 

stopped a lot of crime, we have saved the taxpayers a lot of money, 

and really deterred a great deal of crime. Because criminals are basically cowards. They are not going to go after somebody they think 

that can protect themselves. 

So I really mean it in a very sincere way. I am telling you it 

works. If you trust your constituents, if we would just trust Americans’ good hearts and good sense to do the right thing for the right 

reason, they will do so because they are Americans. What will you 

do to encourage Americans to do the right thing that live in D.C. 

and protect their Second Amendment rights? 

Mayor FENTY. Well, you know, you are obviously up to date on 

the Supreme Court’s ruling in the Heller case. Since then, our Attorney General, the Council’s Committee on Public Safety, and everyone in between has worked to put together regulations that both 

meet what the Supreme Court decided, which is, of course, that you 

could have a handgun in the home with certain restrictions, and 

that we have a regulatory system and a licensing system that 

makes sense and is fair. I think we have struck the right balance. 

Mr. CULBERSON. What about shotguns? Can a resident keep a 

shotgun or rifle in their home? 

Mayor FENTY. Sir, there is an older law that applies to non-handguns, and I don’t have it with me. The prohibition, which goes back 

to the inception, the time of the inception of the Council, which was 


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mid-1970s, really spoke to handguns and concealed weapons. Then 

there was something that preexisted that, about non-assembled rifles and shotguns. I would have to get you the law. 

Mr. CULBERSON. So there is no prohibition against a D.C. resident keeping a shotgun in their home? 

Mayor FENTY. There are absolutely restrictions. I don’t as we sit 

here today know all of the restrictions, what you can have, what 

can be assembled, what was grandfathered in. 

Mr. CULBERSON. That is important. 

Mayor FENTY. That is very important. 

Mr. CULBERSON. Anyway, what will you do? Have you considered, is the Council considering—and the chairman has been very 

generous with his time. 

Mr. SERRANO. Especially on this issue. 

Mr. CULBERSON. It works, let me tell you. The Bronx, you 

could—— 

Mrs. EMERSON. You should talk to my new staff assistant. The 

first day she got here she got carjacked by three guys and a gun 

right up the street. 

Mr. CULBERSON. I tell you, had she been a Concealed Carrier 

permit holder in Texas, the guy would either be dead or in jail. I 

mean, you saw that. I am telling you. If you trust Americans to do 

the right thing for the right reasons, they will do it. 

Your police officer’s best friend who is going to be a trained, lawabiding citizen who is carrying a concealed weapon, has a merit. 

They are going to be a police officer’s best friend and backup. And 

those carjackings just don’t happen in Houston. If they do, they 

only happen once. 

What will you do in terms of letting people in D.C. carry a concealed weapon? Is there any debate or discussion about letting lawabiding Americans carry a concealed weapon? 

Mayor FENTY. There isn’t any further debate or discussion that 

goes beyond what the Supreme Court ruled in Heller. 

Mr. CULBERSON. Is that—— 

Mayor FENTY. Not any formal debate. Obviously, the citizens 

have varied opinions on it, as they do all over the country. But 

there isn’t any further debate at the Executive level, and I don’t 

think there has been any at the legislative level. 

Mr. CULBERSON. The Council’s position reflects that of D.C. Residents, you think. They don’t want the right to carry a concealed 

weapon? 

Mayor FENTY. I believe that the residents of D.C. in huge majorities want very strict handgun laws. 

Mr. CULBERSON. They want gun control? 

Mayor FENTY. Yes, sir. 

Mr. GRAY. I concur with that also. 

Mr. CULBERSON. It is very different from Texas. 

Mrs. EMERSON. And Missouri. 

Mr. CULBERSON. And Missouri. Thank you. 

Mr. SERRANO. We are going to wind down now. But on that 

point, I think the main issue here is that—and here I am going to 

be balanced. I think people that live in the inner city, like I do, 

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ing arms in other parts of the country. But I think folks in other 

parts of the country have had a difficult time understanding our 

reaction to guns on the streets of the South Bronx. 

I understand the hunting issue. I personally would not be a 

hunter, but I understand that. I understand the whole issue of 

bearing an arm at target shooting. I understand all that. And for 

protection of your property, I understand all that. But that is not 

the reality of people in the housing projects that I grew up in. It 

is a whole different thing. 

So when you ask these folks, when you ask people in my 16th 

Congressional District in the Bronx, they may seem as to be a antiConstitutional or anti-rights. It is not. It is dealing with their daily 

situation that the biggest threat to them are drug dealers with 

guns; that if you get rid of those guns and you get rid of the ability 

of drug dealers to shoot each other, and, in the process, to shoot 

other people, life will be much better for them. 

I am old enough and well-read enough and so on to understand 

that is a right that you have. But you need to know that these restrictions are not meant—I mean, I don’t want to stop somebody 

from hunting. I just want to stop people from shooting each other 

on the street, and, in the process, shooting innocent people. 

Or the fact that because I am law-abiding and don’t carry a gun, 

there is a guy who bought one that came up on a Saturday night, 

traveled all along the east coast and got to the Bronx, and he is 

going to use it on me or a loved one of mine to carjack me or whatever. 

That is a tough issue. I understand it will be with us forever. But 

I think that in that case, we have done a better job of trying to understand your needs than folks in your communities have done in 

your understanding our fear. 

Anyway—— 

Mr. CULBERSON. I know our focus would be—— 

Mr. SERRANO. Are you packing now? 

Mr. CULBERSON. No, not now. 

Mrs. EMERSON. I was just looking. 

Mr. SERRANO. I don’t want to carry this too far. 

Mr. CULBERSON. No, no, no. 

Mrs. EMERSON. This is being videotaped. We had better watch it. 

Mr. SERRANO. He has a permit. 

Mr. CULBERSON. We in Texas just want you as a law-abiding citizen to have the right to defend yourself. That is my point. If you 

are a good citizen and you obey the law, you should be able to defend yourselves. And it works. 

Mr. SERRANO. It is a major difference of opinion. 

My last question for the day, and I will submit the few others 

I have for the record, the President’s proposal is $17.45 million— 

I am sounding like Dr. Gandhi now—$17.45 million different than 

last year. If we were able to get you that money back, how would 

you direct it? Or do you want us to direct it into certain programs? 

I know that, Chairman Gray, you have, as the Mayor does, a special affinity for UDC. So if we could get you that back—and it is 

a big ‘‘if’’ we are facing all over, right, a big ‘‘if,’’ and these committees will get an allocation that won’t look like last year, but I am 

not ashamed to say it in public, that the District of Columbia is a 


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special part of my bill for me. So if we were able to get you back 

that money, or part of it, would you want us to direct it into a certain account? 

Mayor FENTY. I think that it would be—the responsible thing to 

do would be to get you a submission which would show you what 

we would do with $17 million. We could even work with the Chairman so that it would be kind of a joint executive-legislative thing. 

I think without question, the discussion we had around housing 

is critical. It is a very big impact that you can make as a committee, because everything else can be better managed with less resources. Even education. But housing requires a certain amount of 

dollars to build the housing and to leverage private investment. So 

I would suspect our proposal would have housing. Education is always at the top of our priority list. 

As you said, Mr. Chairman, you referenced a couple things. But 

I would be glad to have my staff work with the Council and submit 

something that would say, Okay, this is where we think an additional $17 million or so would be best used. I don’t know if the 

Chairman wants to add anything. 

Mr. GRAY. I think that is a good suggestion, Mr. Mayor, and I 

appreciate your referencing UDC. That is our State university. 

That really, I think, deserves support. There are an incredible 

number of new initiatives taking place under the leadership of Dr. 

Sessoms. The community college is now open and operating. 

I think we have an enormously wonderful opportunity to be able 

to reach a lot of students in the District of Columbia who might 

not pursue higher education or might go somewhere else to do that. 

I think the investment of dollars at this date will more than return—the ROI will be incredible, both in terms of a more educated 

populace in the District of Columbia, and, frankly, a group of residents who are better able to compete for the jobs in the District of 

Columbia. 

You heard, I think it was 66 percent Dr. Gandhi cited earlier, of 

the people who live elsewhere and work in the District of Columbia. One of the ways to resolve that problem of people living elsewhere and earning dollars in the District of Columbia is to increase 

the number of people who live in the District of Columbia who get 

the jobs in the District of Columbia, because clearly they will pay 

taxes in the city. One of the ways to do that, obviously, is to have 

a more educated workforce. 

The community college will contribute mightily to that, not only 

in terms of 2-year degrees, but workforce development. Frankly, 

one of the things we are doing is gearing the curriculum there to 

emerging jobs. Allied Health Services, for example. We have a burgeoning health-care system in the District of Columbia. Early childhood education. All of those are curricula that are on the drawing 

board or have been developed in recent months at the community 

college, at UDC, and targeted specifically to people who live in the 

city. 

Mr. SERRANO. That sounds good to me. 

Well, you have no further questions, right? 

Mrs. EMERSON. Right. 

Mr. SERRANO. I want to thank all of you. It has been a good 

hearing. We have gone a good 2 hours. We stand committed. Rarely 


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do you get a chairman and a ranking member, who, on a part of 

a bill as controversial as the D.C. budget and D.C. Provisions can 

agree 99.9 percent of the time on the issues, and agree 100 percent 

of the time to do the best we can to make things better for you and 

for the residents of D.C., and we stay committed to that. 

It doesn’t hurt that you have a wonderful baseball park. We are 

baseball fanatics, and true baseball fans. And here is where I am 

going to sound like a politician, right? True baseball fans don’t just 

root for one team. They have a special team—Cardinals, Yankees— 

but we like to see other teams succeed, except when they are playing the Yankees, and I think they will for the first time soon. I 

want the Nationals to win. 

Mrs. EMERSON. They demolished St. Louis in the preseason. My 

goodness gracious. 

Mr. SERRANO. Why do you think I am saying all these things 

about the city? It is so exciting with Strasburg coming up. There 

is rejuvenation. I mean, it is just an exciting time. You walk down 

the block and you see that opening. These are exciting times. 

I am a blessed man. I live across the street, two blocks from Yankee Stadium, and I have a 12-minute walk to Nats Stadium. Life 

is good. So for that alone, we are big fans. 

But we stay committed to helping you in every way we can. We 

can’t commit to the 17.4 million, but we will try. 

Mayor FENTY. We will get you something in writing. 

Mr. SERRANO. And we are here to do the best we can. We thank 

you, all three. I am sure some people came here today to hear some 

fireworks. I can make one comment about the two of you. With you, 

it is clear to me that D.C. comes first. Thank you so much. 

[CLERK’S NOTE:—The Committee on Appropriations submitted 

questions for the record to the Office of Mayor for the District of 

Columbia on 6/7/2010. Despite multiple requests by the Committee, 

the Office of the Mayor for the District of Columbia failed to provide answers to the QFRs when requested. As of publication in December 2010, no responses to the questions were provided to the 

Committee.] 


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W I T N E S S E S 

Page 

Fenty, Adrian M. ..................................................................................................... 101 

Gandhi, Natwar M. .................................................................................................. 101 

Gray, Vincent C. ...................................................................................................... 101 

Mills, Karen G. ........................................................................................................ 1 

Schapiro, Mary ......................................................................................................... 61 

Æ 


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