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79–621 2013

MEETING TO CONSIDER THE COMMITTEE’S VIEWS 

AND ESTIMATES ON THE SMALL BUSINESS 

ADMINISTRATION FISCAL YEAR 2014 BUDGET 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

FEBRUARY 27, 2013 

Small Business Committee Document Number 113–003 

Available via the GPO Website: www.fdsys.gov 

SBREP-219 with DISTILLER


Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

BLAINE LUETKEMER, Missouri 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JAIME HERRERA BEUTLER, Washington 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

DAVID SCHWEIKERT, Arizona 

KERRY BENTIVOLIO, Michigan 

CHRIS COLLINS, New York 

TOM RICE, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

YVETTE CLARKE, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRAD SCHNEIDER, Illinois 

RON BARBER, Arizona 

ANN McLANE KUSTER, New Hampshire 

PATRICK MURPHY, Florida 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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C O N T E N T S 

OPENING STATEMENTS 

Page 

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

Hon. Nydia Vela ́zquez ............................................................................................. 2 

APPENDIX 

Additional Material for the Record: 

Views and Estimates of the Committee on Small Business on Matters 

to be set forth in the Concurrent Resolution on the Budget for Fiscal 

Year 2014 ....................................................................................................... 5 

SBREP-219 with DISTILLER

SBREP-219 with DISTILLER

(1) 

MEETING TO CONSIDER THE COMMITTEE’S 

VIEWS AND ESTIMATES ON THE SMALL 

BUSINESS ADMINISTRATION FISCAL YEAR 

2014 BUDGET 

Wednesday, February 27, 2013 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 1 p.m., in Room 2360, 

Rayburn House Office Building, Hon. Sam Graves [Chairman of 

the Committee] presiding. 

Present: Representatives Graves, Luetkemeyer, Tipton, Herrera 

Beutler, Hanna, Bentivolio, Collins, Rice, Vela ́zquez, Schrader, 

Hahn, Schneider, Barber and Murphy. 

Chairman GRAVES. Good afternoon, and we will call the meeting 

to order. 

Today we are going to undertake our responsibility to provide 

views and estimates on the Small Business Administration’s budget for Fiscal Year 2014. This job is made significantly more difficult 

because the President has not complied with his statutory responsibility to deliver a budget by the first week of February. 

Given the absence of budgetary data from the President or the 

Administrator of the SBA, the views and estimates suggest methods by which the Budget Committee can allocate resources to improve the overall efficiency of the SBA programs. This entails allocating more funds to critical core programs, while eliminating 

funds for unproven and unauthorized SBA initiative efforts. 

The approach offered in the Committee’s views and estimates is 

confirmed by Administrator Mills’ recent letter to the chair of the 

Senate Appropriations Committee on the potential effect of sequestration on SBA programs. Rather than use funds for statutorilymandated initiatives that create jobs, things such as the 7(a) and 

504 programs, or to prevent fraud in small business government 

contracting programs, the Administrator wrote that she would continue to fund an unproven and unauthorized regional innovation 

cluster training program. 

The regional innovation cluster concept has never been explained 

to this Committee or demonstrated to create a single job at a small 

business, but the example of the regional innovation cluster simply 

is symbolic of an agency that believes that it, rather than Congress, 

is the best determiner of what will help small businesses. 

The SBA frequently creates pilot programs without any input 

from the public, so the agency is unable to determine what the benefits will be or whether they will even work. This lack of transparency is not just bad for its own sake—it empowers the SBA to 

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take risks with the taxpayer funds, and the public finds out only 

after the pilot program goes bad. One such program has cost the 

SBA $8 million that it is still trying to recoup. 

Similarly the agency created a special type of small business investment company without public input, yet the SBA still lacks 

regulations or standard operating procedures that specify the rules 

governing the issuance of licenses for someone seeking to operate 

a small business investment company. 

The views and estimates letter calls for a reallocation of the 

SBA’s budget to focus on it core programs, the ones authorized by 

Congress. By necessity such a budget requires hard choices, choices 

that neither the President nor the Administrator have provided to 

this Committee. 

The views and estimates letter recommends that the inefficient 

and duplicative outreach and training programs either be terminated or transferred to agencies that have greater resources to operate them. Termination would include the regional clusters initiative, a program whose only mention is in a conference report, and 

not in any public law signed by the President. 

Furthermore, the views and estimates letter recommends the allocation of funds only for the agency programs specifically enacted 

by Congress. This will ensure that the SBA focuses its scarce financial resources on programs that Congress has considered to be effective. Allocating funds to the SBA’s capital access programs has 

proven to create jobs according to the agency’s own recently released research. 

Devoting resources to small business contracting will open markets and prevent abuse of those programs. Limiting SBA’s entrepreneurial development efforts to the largest and best-funded programs will allow entrepreneurs to obtain the necessary education 

necessary to operate their businesses. 

Another way for the agency to save federal dollars is to reduce 

appropriated funds that cover the costs of the capital access programs. Appropriated dollars are needed because the fees and recoveries on defaulted loans did not cover the cost of the programs. One 

solution to this problem is increasing recoveries on defaulted loans; 

yet the SBA has never broached the subject with this Committee, 

even during a time when the agency claims that its ability to deliver services to small businesses will be significantly curtailed. 

The views and estimates letter highlights this issue, and the Committee will investigate legislative changes needed to increase recoveries on defaulted loans. 

Despite the hard choices set forth in the views and estimates letter, the SBA still will be able to make capital available, provide advice, increase utilization of small businesses as federal government 

contractors. Ultimately these selective reductions in the SBA’s 

budget will reduce federal spending without undermining assistance to America’s job creators—the small businesses. 

Now I recognize Ranking Member Vela ́zquez for her opening remarks. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. As we sit here, we are hours away from $85 billion in across-theboard budget cuts. In that light I will suggest the SBA budget offers a stark example of how reducing successful programs, some of 

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3 

which actually generate $2 of tax revenue for every $1 we invest, 

is penny wise and pound foolish. 

Consideration of this year’s views and estimates certainly comes 

at an odd time, before we have a proposed budget to examine. 

While submission of this document to the Budget Committee is an 

important aspect of the committee’s work, doing so without an actual budget to critique seems like a questionable exercise. 

Some parts of the majority’s views and estimates do make sense. 

For example, eliminating many unauthorized initiatives or socalled pilot programs is a wise move, especially given current fiscal 

constraints. Time and again these initiatives have been found to be 

ineffective and costly. They divert valuable resources away from 

proven programs authorized by Congress. Pilot programs are simply a luxury the SBA can no longer afford. 

However, there are several areas of concerns with the views and 

estimates. First and foremost, eliminating funding for most entrepreneurial development programs is absolutely the wrong direction. 

Doing so would leave start-ups without support to succeed when we 

need those enterprises to grow and create jobs. Make no mistake, 

the ED programs need reforms. However, drastic across-the-board 

cuts without a legislative fix is as ill conceived as the sequester. 

If the views went too far in terms of the ED program, they fall 

short in terms of small business contracting. For yet another year 

the government failed to meet its 23 percent small business goal, 

depriving small firms of $3.1 billion in contracting dollars. The solution proposed in the draft views is to reallocate funds and rely 

on the existing structure of PCRs and OSDBUs. This has not 

worked in a decade, and there is no evidence suggesting it will 

work now. We should begin exploring innovative ways to meet contracting goals, not maintaining the current broken system that 

fails small businesses. 

Taken in its entirety, these views are a mixed bag. However, I 

think we all agree more must be done at SBA in terms of setting 

priorities. I look forward to working with the chairman and all my 

colleagues to achieve this goal. 

The success of the American economy depends on small businesses accessing capital, receiving technical support, and securing 

federal contracting opportunities. We should continue supporting 

the SBA in delivering these services. However, accomplishing more 

with less requires the SBA to make changes like recommitting 

itself to existing programs that actually work. Doing so will bring 

tangible benefits to small businesses and make sure taxpayers see 

a positive return on their investment. 

Mr. Chairman, thank you, and I yield back. 

Chairman GRAVES. Are there any other Members that wish to be 

recognized for a statement on views and estimates? 

Seeing none, the Committee now moves to consideration of the 

views and estimates. The clerk will please read the title of the document. 

The CLERK. Views and Estimates of the Committee on Small 

Business on Matters To Be Set Forth in the Concurrent Resolution 

on the Budget for Fiscal Year 2014. 

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4 

Chairman GRAVES. Thank you. I would ask unanimous consent 

that the views and estimates be considered as read and open for 

amendment in its entirety. 

Does any Member seek recognition for the purpose of offering an 

amendment? 

Seeing no amendments, the question is adopting the views and 

estimates. All those in favor, say aye. 

All opposed, no. 

In the opinion of the chair, the ayes have it, and the views and 

estimates is adopted. 

And I now recognize our Ranking Member Vela ́zquez for a motion. 

Ms. VELA ́ ZQUEZ. Yes, Mr. Chairman, I want to provide the committee notice that the Democratic members will be filing separate 

and dissenting views with the Budget Committee. 

Chairman GRAVES. Without objection, it is so ordered, and I ask 

unanimous consent that the Committee be authorized to correct 

punctuation and make other necessary grammatical and technical 

corrections on the document considered today. 

And without objection, that is so ordered. 

And the Committee is now adjourned. Thank you. 

[Whereupon, at 1:12 p.m., the Committee was adjourned.] 

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1The SBA disaster loan program provides funds to homeowners and small businesses after 

the President has declared a major disaster as that term is defined in the Robert T. Stafford 

Disaster Relief and Emergency Assistance Act, 42 U.S.C. §§ 5121–5208. Funding for the Disaster 

Loan Program was addressed in the Disaster Relief Appropriations Act, 2013, Pub. L. No. 113– 

2. That legislation provides sufficient funds for the SBA to meet expected needs for disaster relief in the coming year. However, those funds will not be adequate if there is another major 

event such as Hurricane Katrina or Superstorm Sandy. In those instances, it is likely that the 

President would seek a supplemental appropriation. 

A P P E N D I X 

Views and Estimates of the Committee on Small Business on 

Matters to be set forth in the Concurrent Resolution on the Budget for Fiscal Year 2014 

Pursuant to clause 4(f) of Rule X of the Rules of the House and 

§ 301(d) of the Congressional Budget Act of 1974, 2 U.S.C. § 632(d), 

the Committee on Small Business is transmitting herein: (1) its 

views and estimates on all matters within its jurisdiction or functions to be set forth in the concurrent resolution on the budget for 

Fiscal Year 2014; and (2) recommendations for improved governmental performance. 

Unlike in previous years, the views and estimates set forth herein provide no comments on the President’s budget since none has 

been submitted for consideration by the Committee; nor has the 

Committee received any testimony from the Administrator of the 

Small Business Administration (SBA) concerning its budget request for FY 2014. Given the paucity of information forthcoming 

from the President and the SBA, the views and estimates contained herein provide the Committee’s recommendations on ways to 

improve performance of the SBA. These views and estimates also 

incorporate by reference the views and estimates provided by the 

Committee on Small Business during the 112th Congress. 

The Administrator has noted on multiple occasions before the 

Committee that the SBA provides entrepreneurs with the three 

Cs—capital, contract assistance, and counseling. The views and estimates will consider these seriatim. 

Capital Access Programs 1

Unlike large enterprises that can seek out funds from commercial debt and equity markets, small businesses must rely on their 

own personal assets, retained earnings, and commercial bank funds 

for needed capital. For 60 years (since the 1953 creation of the SBA 

during the Eisenhower Administration), the SBA has sought to fill 

gaps in the commercial debt and equity markets. 

Program Costs 

The four major programs overseen by the SBA are the: 7(a) 

Guaranteed Loan Program (7(a)); Certified Development Company 

(CDC) Loan Program; Small Business Investment Company (SBIC) 

Program; and Microloan Program. In none of these programs does 

the SBA directly provide funds to small businesses; instead, the 

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2The textual explanation constitutes an oversimplification of these four programs but suffices 

for the purposes of these views and estimates. 3Of course, the SBA is required to operate these lending programs according to the strictures 

established by Congress in the Small Business and Small Business Investment Acts. 4When stripped to its bare essentials, the definition of cost in the FCRA simply means the 

dollar value t of loans year made minus (the dollar value of the loans repaid plus the amount 

of monies recovered from defaulted loans). A net present value of this calculation is made to 

obtain the amounts that must be set aside in a current account to cover the costs of each lending 

program. 5This represents an increase in the program level from FY 2013 of $1 billion. Given the zero 

subsidy nature of the program, the increase will have no effect on the program cost or the deficit. 

SBA provides funds by guaranteeing the repayment of issuance of 

credit and equity by private-sector partners.2

The SBA must operate these programs within the parameters established by the Federal Credit Reform Act, 2 U.S.C. §§ 661–61f 

(FCRA).3 The statute requires that all federal agencies calculate 

the current cost 4 of their credit programs. Id. at §§ 661(a), 661a(5). 

The FCRA, in essence, requires that sufficient funds are deposited 

in those accounts to cover the cost of the loans made in any given 

year. Funds may be obtained from fees charged to borrowers, the 

private sector partners that provide the credit, monies appropriated 

by Congress, or some combination of the three. If the programs do 

not require any appropriated dollars, they are considered to be operating at zero-subsidy. 

Two of the programs—7(a) and CDC Loan Programs—were redesigned by Congress during the 1990s and the early 2000s to operate, to the extent possible, with a zero subsidy. However, recent 

economic conditions required Congress to appropriate funds for use 

by the 7(a) and CDC Loan Programs because the fees charged to 

borrowers and lenders did not cover the cost of the programs. To 

the extent that the President’s budget reveals the need for appropriations to cover the costs of the loan programs as the term cost 

is defined in the FCRA, the Committee believes that the budget 

resolution should provide sufficient funds to do so. 

When this issue has arisen in the past, the Committee has considered and rejected increasing the fees charged by borrowers and 

lenders. Given the economic data that small businesses generate 

most of the new jobs in the United States, it would be counterproductive at this time to increase the cost of credit to small businesses and thereby restrict their capacity to create new jobs. 

The Microloan Program operates with a small subsidy due to the 

interest rate charged to microloan intermediaries (the entities that 

actually provide credit to small businesses). However, no microloan 

intermediary has ever defaulted on its loans and the minimal historic costs given the benefits of job creation strongly militate in 

favor of providing appropriated funds to cover the interest rate differential. 

The primary issue related to the SBIC program is not whether 

it can still operate at zero-subsidy. Given historical data, the Committee would expect that the SBIC program will continue to operate without any need for appropriations to cover the cost of the program as that term is used in the FCRA. Rather, the issue with the 

SBIC program is whether the program level will be sufficient to enable it to meet the demand of small businesses seeking equity capital. The Committee believes that a program level of $4 billion will 

be sufficient to meet the needs of small businesses seeking capital.5

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6 Historically, recoveries in the CDC loan program have been between 20 and 25 cents on the 

dollar. The Committee is unaware of any reason that recoveries would be outside this range for 

FY 2014. 

Recoveries on Defaults 

As already noted, one of the key components of the FCRA cost 

calculation is the amount of monies obtained in recoveries on defaulted loans. In previous views and estimates, the Committee has 

noted that the SBA is ill-equipped to handle recoveries in its capital access programs. This is true whether the recoveries involve 

defaults in the 7(a) or CDC loan programs or through receiverships 

in the SBIC program. 

The inability to manage the recoveries on defaults increases the 

costs of these programs on lenders, borrowers, and taxpayers. For 

example, the SBA frequently fails to sell portfolio companies of 

SBICs placed into receivership even when there are sound offers 

for such companies. In a more glaring example, the credit supplement to the FY 2013 budget revealed that returns on defaulted 

CDC loans were approximately 23 cents on the dollar (and only 

about half of what was received in the 7(a) loan program).6 Simply 

put, SBA personnel do not have the industry expertise (in managing portfolio companies of SBICs in receivership) or, in the case 

of commercial real estate, sufficient local knowledge to effectively 

manage distressed properties and businesses. Simply appropriating 

more funds for the SBA will not solve an underlying management 

issue; the Committee will continue to assess legislative changes 

that ensure experts with solid local and industry knowledge are 

placed in charge of conducting recoveries and workouts in the SBA 

capital access programs. In turn, this will ensure that the subsidy 

costs (and the need for appropriated monies) will decrease. 

Information Technology and Capital Access Programs 

The information technology needed to manage the SBA guaranteed loan portfolio is outdated and poses a significant risk to the 

federal fisc. The loan accounting system, first developed by the 

SBA in the 1970s, utilizes COBOL in a mainframe environment. 

The efforts at modernizing this system (even a scaled-back version) 

are behind schedule, lack an overall enterprise technology management plan, and suffer from cost overruns. This is unacceptable because a modern loan accounting system would enable the SBA to 

manage its loan portfolio in a manner that protects the taxpayer, 

mainly by improving returns on recoveries of defaulted loans. Until 

the SBA completes the tasks already established for modernizing 

its loan management accounting system, no additional funds 

should be provided for the agency’s information technology. 

Lender Oversight and Credit Risk Management 

The problems associated with the development of a modern loan 

management accounting system also undermine the ability of the 

SBA to perform proper lender oversight. If the SBA is unable to obtain timely and accurate data on the loans made by its private sector partners, the agency will not have the information needed to assess the credit risk of its loan portfolio or the underwriting standards of its lending partners. For a $90 billion loan portfolio, that 

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7 Although the SBA has a separate credit risk database, the accuracy of that system is based, 

in part, on the data obtained from the loan management accounting system. Therefore, absent 

an accurate and modern loan management accounting system, the SBA’s credit risk database 

remains flawed. 8The Committee is unaware of any instance in which the SBA has revoked the authority (for 

mismanagement or credit riskiness) of a lender in the 7(a) Program. Many lenders have lost 

their authority due to the failure to make sufficient loans but none have had their authority 

revoked for mismanagement even when their upper level managers committed fraud. 9 An adjunct to the government contracting programs is the SBA Surety Bond program that 

enables small businesses access to surety bonds when they otherwise would be unable to obtain 

such bonds. The program operates as zero-subsidy and the Committee expects that it will operate without the need for appropriations in FY 2014. 10The statistic was derived from the Federal Procurement Data System on February 9, 2013 

at 4:30 pm. While some may quibble with the accuracy of this figure, it is certainly more accurate than is available on the SBA’s loan management accounting system. 

is simply unacceptable, and the SBA must refocus its efforts to ensure its loan management accounting system can provide the needed data to perform credit risk assessment 7 and lender oversight. 

Information technology is not the only problem facing the SBA 

in performing adequate lender oversight. The agency resources are 

not allocated properly to ensure such lender oversight or to take action against a risky lender. As an example, the SBA, for the first 

time in its existence, revoked the authority of a CDC to operate in 

December 2012.8 That process took nearly two years and a not insignificant portion of that time involved the SBA arranging for 

services to take over the loan portfolio of the shuttered CDC. It remains an open question whether the SBA has allocated sufficient 

resources to undertake the necessary actions should it revoke the 

authority of other lending partners. 

Federal Contracting Programs 9

One of the primary missions of the SBA is to ensure that small 

businesses receive a ‘‘fair proportion of the total purchases and contracts for property and services for the Government in each industry category....’’ 15 U.S.C. § 644(a). To achieve this objective, Congress created a number of programs designed to increase opportunities for small businesses in a federal market for goods and services that reaches $515,697,897,218.85.10 SBA utilizes personnel to 

expand opportunities for small businesses; other resources are devoted to managing the contracting programs targeted at specific 

subsets of small businesses. 

Budget allocations for the operation of the SBA’s government 

contracting programs are subsumed within the agency’s overall request for salaries and expenses. With respect to the contracting 

programs, it is not the overall allocation amount of salaries and expenses that is the problem; rather it is how the SBA allocates those 

resources to the government contracting programs that inhibit its 

ability to carry out the various mandates set forth in the Small 

Business Act. 

A key type of personnel at the SBA is the Procurement Center 

Representatives or PCRs. These individuals are located at contracting activities (i.e., other federal agencies) and constitute the 

SBA’s front line in promoting the use of small businesses and first 

line of defense against contract bundling. Despite their importance 

in achieving the objectives Congress set out in § 15(a) of the Small 

Business Act, less than 3 percent of the personnel at the agency 

are PCRs. Funds should be reallocated so that the SBA actually 

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11The SBA denominates these programs as entrepreneurial development but all provide counseling to small business owners and those individuals wishing to embark on entrepreneurship. 

Given the overall theme of these views and estimates, the Committee will utilize the term 

‘‘counseling’’ rather than the SBA programmatic designation. 12GAO, ECONOMIC DEVELOPMENT, EFFICIENCY AND EFFECTIVENESS OF FRAGMENTED PRO- GRAMS ARE UNCLEAR 3–4 (2011) (GAO–11–651T). 13 INSTITUTE FOR VETERANS AND MILITARY FAMILIES, SYRACUSE UNIVERSITY, A NATIONAL VET- ERANS STRATEGY: THE ECONOMIC, SOCIAL AND SECURITY IMPERATIVE 5 (2013), available at 

http://vets.syr.edu/wp-content/uploads/2013/02/National-Strategy-PublicationFINAL.pdf. 

dedicates the necessary personnel so that PCRs can perform their 

jobs in an effective manner, rather than the current situation in 

which the approximately 60 PCRs must each review about $8.6 billion dollars in government contracts. 

The SBA oversees the operations of a number of contracting programs targeted at specific segments of the small business community. These contracting programs present a number of 

vulnerabilities: (1) small businesses might misrepresent their size 

(and not actually be small); (2) small businesses may misrepresent 

their status for purposes of eligibility, such as not being a womanowned and controlled business; or (3) small businesses do not perform the necessary quantum of work on the contract. Given these 

vulnerabilities, there are key defenses—adequate personnel to 

check the small businesses and updated databases for use by contractors and federal contracting officers. While the SBA has made 

strides in correcting these vulnerabilities, greater resources need to 

be allocated to ensure that only eligible businesses obtain contracts 

in programs established pursuant to the Small Business Act. 

Counseling Programs 11

While the SBA underallocates resources in critical areas, such as 

lender oversight and government contracting programs, the agency 

overallocates funds and personnel to provide counseling for small 

business owners. No one should question the value of training for 

small business owners and those whose wish to start small businesses. However, in times of budgetary restrictions, hard choices 

must be made. This is particularly true when the counseling programs at the SBA overlap each other and often duplicate the educational services provided by other agencies. 

The Government Accountability Office (GAO) identified 54 programs at the SBA and the Departments of Commerce, Agriculture, 

and Housing and Urban Development that provide counseling services to small businesses.12 Other studies have found similar duplication in outreach efforts for veterans.13 Presumably other areas of 

entrepreneurial outreach and duplication exist between the SBA 

and other federal agencies. In addition to overseeing counseling 

programs authorized by Congress, the SBA exacerbates this overallocation of resources to entrepreneurial outreach by creating its 

own programs unauthorized by Congress, such as the development 

of regional clusters and establishment of an Emerging Leaders Program; programs which utilize scarce federal resources and have no 

proven track record of success. 

Given tight budgetary constraints and the need for the SBA to 

reallocate resources in other critical areas, entrepreneurial outreach at the SBA should be limited to one program with a broad 

mission, the access points needed to provide assistance in the most 

locations, and capable of obtaining non-federal funds to help defray 

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14For example, the Department of Agriculture has greater resources to provide training and 

outreach to small businesses located in rural areas than the SBA. Thus, the functions and mission of the Office of Rural Affairs at the SBA can be transferred to the Department of Agriculture. 15 Congress ceded to the agency limited authority to create pilot programs in the 7(a) loan Program. 15 U.S.C. § 636(a)(25). 16For example, the SBA has yet to promulgate regulations for the establishment of the renewable fuels investment companies under the SBIC program that Congress authorized in 2007. Despite this failure, the SBA created two other initiatives within the SBIC program during the 

past two years—the Impact Investment and Early-Stage Innovation Funds. Such derogation of 

Congressional mandates is inexcusable. 17To be sure, the loan programs are specifically excluded from the requirements of notice and 

comment in the APA, 5 U.S.C. § 553(a)(2). However, the SBA codified a regulation that requires 

the agency to conduct rulemaking pursuant to the notice and comment requirements of the APA 

even though the rulemaking otherwise would be exempt. 13 C.F.R. § 101.108. It is an abecedarian tenet of administrative law that an agency must comply with its own regulations. 

Accardi v. Shaughnessy, 347 U.S. 260, 265–67 (1954); Brock v. Cathedral Bluffs Shale Oil Co. 

796 F.2d 533, 536 (D.C. Cir. 1986). Some of the SOPs create obligations on both the agency and 

small businesses, including pilot programs. As a result, these SOPs must be issued pursuant 

to notice and comment. Cf. Appalachian Power Co. v. EPA, 208 F.3d 1015, 1028 (D.C. Cir. 2000) 

(imposition of monitoring guidance for power plants must be issued through notice and comment); National Ski Areas Ass’n v. United States Forest Serv., 2012 Lexis 197335, at *24–27 (D. 

Colo.) (directives placed in Forest Service Manual constitute rules requiring notice and comment). 18One pilot program, a liquidation pilot in the CDC program, cost the agency about $8 million 

dollars, which it is trying to recoup. 

costs. Only one counseling program overseen by the SBA meets this 

standard—the Small Business Development Center (SBDC) Program. All other entrepreneurial outreach efforts at the SBA either 

overlap with the SBDC Program or duplicate efforts at other federal agencies. As a result, they either should be folded into the mission of the SBDC Program or their responsibilities should be taken 

over by other agencies.14 This consolidation should include the cessation of any entrepreneurial outreach efforts created by the SBA 

without the express authorization of Congress. Once that action 

has been taken, the SBA should work with these other agencies 

and the SBDCs to coordinate the delivery of counseling services for 

entrepreneurs. 

Pilot Programs, Lack of Transparency and Ad Hoc Decisionmaking 

The SBA also establishes its own initiatives in the capital access 

programs (colloquially denominated at ‘‘pilot programs’’). In some 

instances the agency does so under broad legislative mandate;15 at 

other times it does so without any express authorization from Congress. Frequently, these initiatives are established while programs 

specifically authorized by Congress have yet to be implemented.16

Generally, these capital access pilot programs are created 

through the issuance of standard operating procedures (SOPs). 

These SOPs are never issued pursuant to the notice and comment 

process set forth in the Administrative Procedure Act (APA).17 Absent input from the public, the SBA has no way to assess whether 

these pilot programs will meet the equity and debt needs of small 

businesses or be used by its lending partners. In certain instances, 

these initiatives place the federal taxpayer at risk.18 SBA must be 

more transparent in promulgating regulations and guidance to ensure that changes in their capital access programs provide necessary assistance to small businesses. 

The lack of transparency in the operation of the capital access 

programs goes beyond the failure to obtain public input. In some 

instances, the SBA creates new procedures, such as for licensing of 

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19Morton v. Ruiz, 415 U.S. 199, 232 (1974). 20The primary exception to this would be when an individual is applying for a disaster loan. 

In those cases, the applicant will be dealing with on-site field personnel and disaster loan call 

centers. 

SBICs, without the concomitant changes in the SBA regulations or 

even the SOPs. For example, the extant SOP for licensing of SBICs 

was issued in 1984, has not been updated, and has not been followed by the agency for years. In other cases, the SBA will cite its 

authority to waive any of its regulations. 13 C.F.R. § 120.3, to operate the capital access programs in any manner that the agency believes is appropriate. 

This makes it quite possible for the SBA to create ad hoc unwritten determinations that treat similarly situated individuals differently—agency action that has been prohibited since the enactment of the APA in 1946.19 This lack of transparency does not represent good agency management, will not ensure that proper assistance is provided to small businesses, and may place the federal 

taxpayer at increased risk from faulty operation of the capital access programs. The Committee will consider legislative action to 

foreclose the ad hoc decisionmaking by the agency. 

SBA Management and Administration 

The views and estimates already established the case for the reallocation of resources within the SBA. One potential avenue for 

finding the needed resources is the current structure of the agency. 

Personnel in the 10 Federal Regions 

The SBA provides most of its services to small businesses 

through 84 district offices that are staffed with personnel who are 

knowledgeable on a variety of small business related topics. When 

a small business owner or entrepreneur has contact with an agency 

official, it is typically at a district office.20 Those district offices are 

overseen by an Office of Field Operations at SBA headquarters in 

Washington, DC. Despite this agency structure, the SBA also has 

ten regional administrators, regional communication officials and 

support staff. It remains unclear what management function or responsibility these regional administrators or regional offices have. 

Given that, the Committee believes that the position of regional administrator should be eliminated. Without regional administrators, 

there would be no reason to have regional offices and the Committee recommends that those offices be shuttered. 

Another office at the SBA with ten regional representatives is 

the Office of the Chief Counsel for Advocacy. The primary responsibility of that office is to monitor agency compliance with the Regulatory Flexibility Act, a statute mandating agencies examine the 

impact of their proposed and final rules on small businesses. While 

input from small businesses is quite useful in performing that role, 

the office does not need regional representatives to obtain that 

input. As a result, the Committee believes that the Office of the 

Chief Counsel’s regional personnel should be eliminated. However, 

rather than simply eliminate all ten positions from the Office of the 

Chief Counsel for Advocacy, the Committee recommends that five 

additional positions be created to review federal agency compliance 

with the Regulatory Flexibility Act. This would result in a net savSBREP-219 with DISTILLER

12 

21 Not all field personnel are located at district offices. The SBA also has major employment 

centers to process loans (thereby speeding credit to small businesses) and a disaster loan call 

center (to help those seeking to rebuild after a disaster). 22Secretary Vilsack and Secretary Panetta are able to manage much larger agencies (the Departments of Agriculture and Defense, respectively) with only 13 individuals in each of their 

personal offices. 

ings of five individuals in the office while boosting its capability to 

fight burdensome regulations inhibiting the ability of small businesses to create jobs. 

District Personnel 

As already noted, the SBA’s primary contact with small businesses is through its district offices. The district offices are, logically enough, headed by a district director. However, in about 75 

percent of the offices, there also is a deputy district director. The 

Committee is of the opinion that district offices do not need a separate, dedicated individual to be the deputy. If the district director 

is unavailable (due to vacation or illness), that person simply can 

appoint someone to act temporarily as the district director. The 

Committee strongly recommends that no monies be allocated to pay 

for individuals whose sole job is to act as a deputy district director. 

Instead, deputy district directors should be reassigned to other 

functions at the agencies that provide direct assistance to small 

businesses. 

Headquarters Structure 

According to the agency, there about 600 people at SBA headquarters leaving approximately 1,600 people to interact with small 

businesses in their field operations.21 Given the fact that there are 

about 28 million small businesses in the United States, the Committee finds that the agency structure is too concentrated at headquarters in Washington, DC. This would include an Office of Policy 

with an apparently amorphous mission and a personal office of the 

Administrator that is the same size as that of the Secretaries of 

Defense or Agriculture.22 This is unacceptable to the Committee 

and it recommends a 10 percent reduction in funds for the Office 

of the Administrator and that no funds should be provided to fund 

the Office of Policy. 

SBREP-219 with DISTILLER