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FULL COMMITTEE HEARING ON

THE SMALL BUSINESS

ADMINISTRATION’S BUDGET FOR

FISCAL YEAR 2009

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

FEBRUARY 7, 2008

Serial Number 110-69

Printed for the use of the Committee on Small Business

(

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

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

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

Chabot, Hon. Steve .................................................................................................. 3

WITNESSES

PANEL I: 

Preston, Honorable Steven C., Administrator, U.S. Small Business Administration ................................................................................................................... 4

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 32

Chabot, Hon. Steve .................................................................................................. 34

Altmire, Hon. Jason ................................................................................................. 35

Preston, Steven C. ................................................................................................... 36

(V) 

(1)

FULL COMMITTEE HEARING ON THE SMALL 

BUSINESS ADMINISTRATION’S BUDGET 

FOR FISCAL YEAR 2009

Thursday, February 7, 2008

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

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

2360 Rayburn House Office Building, Hon. Nydia Vela ́zquez [chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Clarke, Ellsworth, Johnson, 

Sestak, Hirono and Chabot. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

Chairwoman VELA ́ ZQUEZ. Good morning, this hearing will come 

to order. Today the Committee will review the fiscal year 2009 

budget to the Small Business Administration. 

The request comes before us as the prospect of the recession 

looms over the U.S. economy, following from the subprime mortgage crisis that continues to impact every community. And foreclosures are way up. 

Consumers are spending less on goods and services as credit 

tightens. Just last week, the Department of Labor announced the 

economy had lost 17,000 jobs in January alone. And this week the 

service sector, the leading driver of new employment opportunities, 

began showing alarming signs of weakness, slipping to its lowest 

level since 9-11. 

These economic realities demand a budget that invests in small 

businesses, which have always been at the core of the nation’s economic growth. Unfortunately, the President’s request does the opposite. It cuts SBA funding by 15 percent and further erodes programs aimed at serving small firms. The timing could not be worse. 

One of the most immediate steps we need to stem economic loss 

is an infusion of capital. That fact is especially clear given a recent 

survey that shows 80 percent of banks are tightening lending 

standards. But under the President’s proposal, loans will be more 

costly and interest rates higher. 

This is a startling move, considering that during a weak economy 

is precisely when banks and lenders are most likely to turn to federal loan guarantees. The budget also recommends increasing fees 

for the 7(a) loan program to the maximum level, saddling small 

businesses with additional expenses when they can least afford it. 

2

One of the unique dynamics of an economic downturn is a general rise in entrepreneurial activity. That was the case in the early 

1990s, when newly formed small businesses helped bring about a 

wave of American prosperity. 

No single initiative has had a greater role in fostering this sort 

of innovation and commercial activity than the microloan program. 

Here, too, by terminating funding and sharply increasing interest 

rates, the President’s budget comes up short. Whereas, entrepreneurs of the past, including women and minorities in low-income areas, could look to SBA microloans for capital, this budget 

turns them away. The result is that, instead of a surge in small 

business activity to strengthen the economy, job creation will continue to lag. In the area of entrepreneurial development, the administration has taken a similarly wrongheaded approach. 

While small businesses can weather a tough economy, doing so 

requires planning and targeted support. In fact, entrepreneurs receiving this type of assistance are twice as likely to succeed. This 

is why the small business development centers and the women’s 

business centers were created. 

In an economic downturn, having their services readily available 

is more important than ever. Yet, the President cuts funding for 

these programs and provides another example of an inadequate 

budget, resulting in poor policy decisions. 

Finally, while many parts of the economy are scaling back their 

purchasing, the federal marketplace continues to grow. Last year 

more than $400 billion were spent on contracts for goods and services. That is an increase of six percent over FY 2006 levels. Despite 

that, the administration has yet to meet a single one of its small 

business goals, costing entrepreneurs billions in lost contracting opportunities. 

We have already seen that this President refuses to implement 

initiatives, such as the women’s procurement program, but his 

budget also fails to provide funding to correct other problems. For 

instance, his FY 2009 request does not allow for an adequate number of procurement representatives to protest against fraud and to 

help small businesses access the federal marketplace. All of this 

runs counter to responsible use of taxpayer funds and to what our 

nation’s entrepreneurs deserve. 

During his recent state of the SBA address, Mr. Preston repeated 

the President’s mantra of doing more with less. This Committee 

and small businesses across America are tired of the administration promises and of its unmet expectation. 

The only thing this budget brings is more cuts to necessary programs. And the only thing it achieves is less with less. Small firms 

are as resilient as they are innovative. And they are working hard 

to restore our economy to its full strength. They should not have 

to do it alone. 

After all, investing in entrepreneurs is ultimately about fostering 

our nation’s economic strength. Regrettably, those notions appear 

lost on this administration and in this budget. 

I want to thank administrator Preston for his testimony today. 

And I recognize ranking member Chabot for his opening statement. 

3

OPENING STATEMENT OF MR. CHABOT 

Mr. CHABOT. Thank you very much and good morning. I would 

like to thank the Chairwoman for holding this hearing on the 

Small Business Administration’s budget submittal for fiscal year 

2009. I also want to welcome back Administrator Preston for his 

last, I believe, appearance to present the SBA budget. 

As members of this Committee recognize, there is a sense of financial anxiety in the country, despite the fact that the fundamentals of the American economy remain strong. One key element in 

the underlying strength of the American economy is the continued 

growth of small businesses. Today the Committee is considering 

whether the SBA will have the necessary resources to provide assistance to small businesses in these uncertain times. 

Before addressing the specifics of today’s hearing, it is important 

to note that the small business agenda is significantly broader than 

the SBA budget itself. The stimulus package, for example, passed 

in a bipartisan manner by the House included provisions to increase expensing and deduct equipment depreciation for small businesses. 

While these incentives are valuable, Congress also must adopt 

long-term policies to help small businesses, such as making the tax 

cuts that expire in 2011 permanent. In addition, we need to make 

health insurance and retirement more affordable for small business 

owners. These policies have the most impact on economic health of 

America’s entrepreneurs. 

As the economy continues to undergo structural changes, it will 

be important to ensure that individuals with appropriate skills 

have the necessary access to capital and technical assistance to 

start their own businesses. Here, the budget of the SBA can play 

a vital role in maintaining the forward momentum of the American 

economy. 

The SBA enables small businesses to obtain capital when normal 

commercial financing is not available. This situation may be exacerbated by the current turmoil in the private credit markets. I will 

be interested in hearing the Administrator’s opinion on how the 

credit situation is affecting the SBA loan portfolio and whether the 

fiscal year 2009 budget provides sufficient financing authority to 

handle unforeseen changes in private credit markets. 

The SBA also must be prepared to offer technical assistance to 

entrepreneurs. Individuals who are reorienting their careers may 

not have the knowledge necessary to start and maintain their businesses. Other small businesses may be interested in expanding due 

to the availability of skilled workers. I would expect sufficient resources will be available to help these entrepreneurs. 

It also is important to note that federal purchase of goods and 

services can play a vital role in maintaining the health of small 

businesses in many areas of the country. The Administrator must 

be prepared to be a strong advocate of small business utilization 

within the Executive Branch. 

In addition, the SBA needs to have sufficient personnel to help 

small businesses through the complexity of the federal government 

contracting process. I will be very interested to hear from the Administrator about the resources that will be allocated to the Office 

of Government Contracting at the agency. 

4

Before yielding back, I must note that simply increasing the 

funds available to an agency is not the only way to improve its performance. Sometimes original thinking and reallocating existing resources will solve problems while staying within budgetary constraints. Administrator Preston should be thanked for his service, 

taking on the problems at the SBA, tackling them, improving the 

operations of the agency, and ultimately helping America’s entrepreneurs. 

And we welcome you here again, Mr. Preston. And I yield back 

the balance of my time. 

Chairwoman VELA ́ ZQUEZ. Thank you Mr. Chabot. 

Now it is my pleasure to welcome Mr. Preston, the Administrator 

of the United States Small Business Administration. He has served 

in this capacity since July of 2006 and has testified several times 

before this Committee. This is the second time Mr. Preston will be 

testifying regarding the agency’s budget request. 

Welcome. 

Mr. PRESTON. Great. Thank you. 

STATEMENT OF MR. STEVEN PRESTON, ADMINISTRATOR, U.S. 

SMALL BUSINESS ADMINISTRATION 

Mr. PRESTON. Chairwoman Vela ́zquez, Ranking Member Chabot, 

other members of the Committee, thank you for inviting me to discuss the fiscal year 2009 budget request. 

Two thousand seven was a year of very significant growth and 

accomplishment at the SBA. This budget reflects our vision for the 

agency’s future to take forward many of the reforms, many of the 

advances that were the result of our work in ’07 and going into ’08. 

In 2009, the SBA will focus on a reform agenda driven by very 

clear outcomes, effective customer service, highly trained employees, and accountability. In 2007, the number of loans that the 

agency approved increased to a record level. SBA’s disaster assistance program reengineered its loan-processing operation. We dramatically shortened our response times and dramatically improved 

service and support for American disaster victims. 

SBA worked with federal agencies to improve the accuracy of 

contracting data and to begin to hold them more accountable for 

achieving their results. A total of $78 billion in prime contract dollars went to small business. 

Over a million small businesses utilize SBA’s resource partners: 

SBDCs, women business centers, and SCORE. I am particularly 

pleased that after a number of years, as the lowest rated agency 

in morale in the federal government, we saw a very significant improvement in employee morale in a number of areas, specifically 

those areas where employees felt their ability to be trained to do 

their jobs effectively; to be supported in that; and, most significantly, their confidence in the senior leadership team. 

In fiscal year 2009, our budget represents a 15.5 percent increase 

over the 2008 enacted level. It includes a six percent increase in 

our operating budget. This budget will support a continuation of 

the broad-based operational reforms that we are making at the 

agency that is making us more effective and more responsive to our 

customers, many of which involve extensive process reengineering 

and technology improvements, under-served market initiatives to 

5

support small business formation and growth in areas of our country with higher levels of poverty and unemployment in order to 

make sure that we’re doing everything we can to energize those 

local economies, create jobs, and bring sustained investment. 

Disaster loan funding is based on a normalized year. And our 

ability to ensure readiness initiatives continue to make sure that 

we’re prepared to handle any kind of disaster; and, finally, noncredit programs consistent with our prior request, although they do 

reflect a decline in certain areas based on the ’08 enacted levels. 

As many of you know, we believe that by dramatically improving 

levels of service to our partners, like the banks, to our customers, 

by sharpening our product mix, by depending our penetration in 

under-served markets, and by tightening our oversight, SBA will 

expand its impact on small businesses in our country. 

I also think it’s very important for this Committee to consider 

the most critical issues to small business’ growth and prosperity on 

a macro level. This is especially important now as our economy undergoes a significant housing market correction combined with high 

energy prices and market volatility, which has caused a slowing of 

the economic growth we see in our country. 

While we believe our underlying economy continues to be resilient, we believe it will continue to grow. The economic growth package the Congress is considering must be enacted quickly. It must 

be robust, temporary, and broad-based. 

And I want to commend all of you and your colleagues in the 

House for your prompt consideration of the growth package. And 

I hope that the Senate will complete its consideration soon so that 

the rebate payments for individuals and the investment incentives 

for businesses will help create jobs and stimulate growth in our 

economy. 

In addition to an economic growth plan, I join the President in 

pushing for long-term economic policies that are in our country’s 

best interest, particularly pro-growth tax system. We need to encourage investment by keeping taxes low. The President’s tax cuts 

have provided very important capital to small business to support 

economic expansion, job creation, and innovation. 

Small businesses face a tax increase of 17 percent, or $4,000, per 

year on average if the President’s tax relief is not made permanent. 

So I urge you not to ignore this important small business issue as 

you consider the 2009 fiscal year. 

In the future, small businesses in America who represent almost 

30 percent of our exports also need and deserve the opportunity to 

sell their products abroad. And your support for free trade policies 

will open those markets to U.S. goods and services. 

Depending agreements will level the playing field for U.S. exporters by breaking down tariffs and addressing many other important 

issues, such as intellectual property protections, excessive licensing 

and inspection requirements, burdensome paperwork, and inconsistent Customs procedures. 

International trade means real dollars and real opportunities for 

small business. With Colombia, in particular, 85 percent of U.S. 

companies exporting to that company were small and medium-sized 

with fewer than 500 employees. A lot of U.S. small businesses acVerDate 0ct 09 2002 14:48 Mar 11, 2008 Jkt 033615 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\02-07-08 SBA BUDGET.TXT LEANN
6

count for 30 percent of all of our exports oversees. They account for 

35 percent of our exports to Colombia. 

The potential for growth under the free trade agreements is very 

important for small business. According to the U.S. International 

Trade Commission, U.S. exports to Colombia could be over a billion 

dollars higher once the U.S.-Colombia TPA is fully implemented. 

So by leveling the playing field and providing duty-free access for 

American products, we will help small businesses to expand and 

compete globally. 

I appreciate the cooperation and bipartisan spirit that has 

brought the administration and Congress together to support our 

economy. I look forward to continued bipartisanship as we work together to help America’s small businesses succeed and grow. 

Thank you for inviting me today. I look forward to answering 

your questions. 

[The prepared statement of Mr. Preston may be found in the Appendix on page 36.]

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Preston. 

Mr. Preston, the economy—and you briefly discussed it in your 

testimony—is facing some real challenges. GDP growth is flat. Payrolls are declining. The housing correction that you mentioned—I 

will say the housing mortgage foreclosure mess that we are witnessing—continues to slide. And banks are pulling back on their 

lending. 

In response to this, the SBA’s budget proposes cuts in the 

SBDCs, women’s business center and, thus, does nothing to increase capital for entrepreneurs. How are the SBA budget decisions 

reflective of the economic realities facing our nation? 

Mr. PRESTON. Well, I think when you look at the broader economic realities, I think you very appropriately discussed access to 

capital and it is very important I think to understand that it’s not 

only an issue of banks tightening credit, which we are seeing, although I have not seen your statistic of 80 percent, I’ve seen something in the 30-35 percent range. We do significant outreach to the 

banks to talk to them directly about their policies. 

So I think as you look forward, I think a couple of things are important to know. 

Chairwoman VELA ́ ZQUEZ. Mr. Preston, let me just say that 80 

percent number, it’s a result of the Fed’s survey, not my numbers. 

Mr. PRESTON. Okay. 

Chairwoman VELA ́ ZQUEZ. It’s the Fed’s number. 

Mr. PRESTON. I would be happy to share my thoughts with you 

afterwards. 

Chairwoman VELA ́ ZQUEZ. Okay. 

Mr. PRESTON. What I would tell you is we are undergoing, first 

of all, very significant outreach efforts to expand the usage of our 

products in the banks. I’m not confident that the banking community has adopted our products as extensively as they can. 

We have rolled out a nationwide calling effort. I’m personally involved at the highest levels of many banks. We’re holding bank 

roundtables to begin to broaden that penetration. The other thing 

we’re beginning to do is to go out with an active recruitment effort 

to bring in banks that do not use our products today. You in the 

7

past have appropriately noted that many banks left our network 

following the elimination of low doc, many community banks did. 

We launched a pilot last month for a product called Rural Lender 

Advantage, which is an effort to begin bringing back in the community banks in our country so we can reach that market effectively. 

I think the stimulus package that you all have passed in cooperation with the White House is going to be an important driver of investment back into the businesses. 

One of the things I want to mention is it’s not only banks pulling 

back on credit. It is banks also seeing a significant decline in requests for credit. In other words, small businesses are showing less 

of a propensity to invest by having those investment incentives in 

place, which is what has happened in previous stimulus packages. 

We believe those companies will begin coming forward requesting 

credit. 

Chairwoman VELA ́ ZQUEZ. I hear you, Mr. Preston, but my question is, at a time when we need to provide additional resources to 

help people who may lay off and lose their jobs, start up their businesses, why is it that you are cutting the budget for the women’s 

business center and the small business development centers? 

Mr. PRESTON. That’s right. First of all, we have kept our requests 

in that area consistent. Obviously the appropriation passed last 

year increased those budgets after we submitted our budget. But 

it’s the same request we made in ’07. It’s the same request we 

made in ’08. 

The other thing I think that is important to note is both of those 

networks have extensive fund-raising efforts outside of the federal 

government. What we provide for them is a significant level of base 

funding, which they go out and match through other state governments, other private sources. 

Chairwoman VELA ́ ZQUEZ. Well, I need for you to help me with 

the math here. SBDC program is cut by 10 percent, from 97 million 

to 87 million. It also reduces the women’s business program by 

nearly 10 percent, from 13 million to 11.8. The prime program, 

which was funded in FY 2008 at 3 million has been zeroed out. 

So a cut is a cut. So we are cutting all of these—

Mr. PRESTON. That’s right. We’re reducing the budget in those 

programs once again. Those people have significant fund-raising efforts outside of the federal government. We provide a significant 

base level of funding for them. And many of them have expanded. 

Chairwoman VELA ́ ZQUEZ. Okay. So we agree that in this budget, 

all of these programs have been cut? 

Mr. PRESTON. In fact, I mentioned that in my opening statement. 

So I do agree with you there. 

Chairwoman VELA ́ ZQUEZ. In response to the economic downturn, 

we have seen the Federal Reserve lower rates by one and a quarter 

points in an eight-day period this January. This was the Fed’s most 

aggressive effort in years to head off a recession. 

The point of these cuts is to spur economic activity. We all know 

that. That was the response of the Feds to the recession that we 

are witnessing. 

The SBA’s response to the exact same net of economic circumstances is to increase interest rates for low-income borrowers. 

8

So why are your actions running counter to what the Federal Reserve is doing? 

Mr. PRESTON. Well, I would ask for clarification because we guarantee loans that banks make. We don’t set the interest rate on 

those guarantee bonds. 

Chairwoman VELA ́ ZQUEZ. Well, the microloan program—

Mr. PRESTON. Well, the microloan program, what we are trying 

to do there is bring that to a zero subsidy level, which would allow 

us to expand the program and actually get more capital out there. 

Now, there is no doubt that part of doing that is increasing the 

interest rate, but, as it stands today, it’s a relatively limited program with a relatively limited reach. 

Chairwoman VELA ́ ZQUEZ. Administrator Preston, the mission of 

the Small Business Administration is to provide economic tools for 

businesses to really expand in growth. My question to you is, how 

can you explain the actions taken by the Small Business Administration regarding the aggressive action taken by the Feds in reducing interest rates? You go and you increase the cost for the 

microloan borrowers. 

Mr. PRESTON. Well, I think the answer to that is we fund a portion of a little over 2,000 loans a year through the microloan program. Last year we made over 100,000 loans through our other 

programs. Those programs are effected by the Fed. Those interest 

rates are all floating. We have seen those rates come down 225 

basis points. Our overall portfolio is saving over a billion dollars a 

year from those Fed cuts. 

So I think what you have appropriately noted is broader interest 

rate changes in the economy have a much broader impact on our 

programs than fees or small adjustments that we can make. 

You are focusing on a very small program with a very limited 

reach. 

Chairwoman VELA ́ ZQUEZ. That is very important in low-income 

communities. 

Mr. PRESTON. It is important in low-income communities. 

Chairwoman VELA ́ ZQUEZ. It is a program that is used by 67 percent of women, low-income women, in this country. 

Mr. PRESTON. I totally appreciate that those microlenders out 

there are doing a good job. They’re working hard. But it is a very 

expensive program for the federal government. For every dollar 

that they lend, we pay 88 cents in subsidy and technical assistance. 

Chairwoman VELA ́ ZQUEZ. It’s very expensive, a $2 million program. And a default rate of what? Two percent? Four percent? 

Mr. PRESTON. It’s a $17 million program, or 2,200 loans. The default rate on the loans in that program is over ten percent. 

Chairwoman VELA ́ ZQUEZ. It sounds to me like there is a disconnect between the response and the action taken by the Federal 

Reserve and the action taken by Small Business Administration. 

Mr. PRESTON. Let me make one comment. Our loans to microlenders have an extremely low default rate. That is very, very 

small. You know, what I am referring to is their loans to the borrowers. 

Chairwoman VELA ́ ZQUEZ. Mr. Preston, you spent a lot of time in 

your written testimony lauding free trade; in particular, the Colombia agreement. In your FY 2009 budget, cuts U.S. Export AssistVerDate 0ct 09 2002 14:48 Mar 11, 2008 Jkt 033615 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\02-07-08 SBA BUDGET.TXT LEANN
9

ance Center for $2.4 million. Since 2002, funding for this center 

has been cut by 20 percent. And SBA staff has dropped by almost 

30 percent. They’re not trade specialists budgeted for the major 

port cities of New York City? 

Mr. PRESTON. I think that’s a transfer from one account to another, but I’ll have to double check that. I apologize. 

We’re actually expanding our efforts in export. Next month we 

will be doing a very large trade symposium in Miami. We’re going 

around the country to begin bringing in small businesses in coordination with our other federal partners to make sure that they are 

using these targets. 

Chairwoman VELA ́ ZQUEZ. Then your staff should be taking notes 

because the major two port cities, New Orleans and New York City, 

we have not trade specialists there. 

Mr. PRESTON. Yes, we do. We have a trade specialist in New Orleans. 

Chairwoman VELA ́ ZQUEZ. What about New York? 

Mr. PRESTON. I don’t know about New York. 

Chairwoman VELA ́ ZQUEZ. So you will check on that and get back 

to us? 

Mr. PRESTON. Yes, I will check on that as well. 

Chairwoman VELA ́ ZQUEZ. In your testimony, you touted an internal poll that you characterized as showing that employees are 15 

percent happier. I am glad to hear that. 

Mr. PRESTON. I don’t think I mentioned a number. 

Chairwoman VELA ́ ZQUEZ. With regard to the poll, it is possible 

that this increase was due to overall satisfaction in the federal government going up because your poll doesn’t compare SBA with any 

other agencies, like the OPM survey does. 

Mr. PRESTON. Our poll is the OPM survey. The federal government has not published the results for the other agencies. We expect to get comparisons in April from them. So that data is not 

available to us right now. 

What we have done is compared our polls to the federal government polls from last year. 

Chairwoman VELA ́ ZQUEZ. Okay. So let me ask you, why, then, 

these questions were not included. Whether the organization is a 

good place to work; whether the organization’s leaders maintain 

high standards of integrity and honesty; whether arbitrary action, 

personal favoritism, and coercion for political purposes is tolerated, 

why didn’t you include those questions in your question? 

Mr. PRESTON. Our survey is the same—

Chairwoman VELA ́ ZQUEZ. Those questions are included on the 

OPM survey. 

Mr. PRESTON. Well, what happens, ma’am, is every two years, 

OPM does an expansive survey with about 80 questions. In the interim years, they do a survey with 40 questions. We just use the 

survey that they put out. 

The two senior leadership scores, to give you the two things that 

actually were scored, respectfully, senior leadership in our agency 

went up almost 22 percent. Motivation from senior leadership went 

up almost 18 percent. Those scores are enormously high changes 

in one year and I believe reflects the improvements that we have 

made at the agency, much of which—respect doesn’t go up if people 

10

think you’re not ethical or honest. Those are the two things that 

came up. We did not manipulate that survey or change it in any 

way. 

Chairwoman VELA ́ ZQUEZ. It just surprises me that OPM includes 

this type of question to measure how people feel on morale and you 

didn’t include it in your survey. 

Mr. PRESTON. It’s their survey. 

Chairwoman VELA ́ ZQUEZ. Let’s move on to the next question. 

Mr. PRESTON. It’s their survey. It’s not our survey. So I’m not 

sure why there’s confusion there. 

Chairwoman VELA ́ ZQUEZ. Okay. Mr. Preston, Congress enacted 

an energy bill last year requiring enhanced assistance for small 

businesses, energy efficiency, and innovation. So I would like to 

know whether the agency has implemented these required provisions. In particular, has the agency developed an Energy Star program for small businesses? 

Mr. PRESTON. Yes. You’re talking about the ’07 Act enacted toward the end of last year? Right. 

Chairwoman VELA ́ ZQUEZ. Yes. 

Mr. PRESTON. Yes, we have made a lot of progress on that. A couple of things I think we were already doing. The express lunch for 

renewable energy is already available to us. Larger 504 loan limits 

is going right now. We’re drafting the regulation on that. 

Chairwoman VELA ́ ZQUEZ. Energy saving debentures? 

Mr. PRESTON. Energy saving debenture, we’re drafting the regs 

on that as well, and we have already modeled the cost of that program. Investment in energy saving small business we are drafting 

the regs on. And there are two provisions in that bill which have 

not been funded, one of which is the pilot program to reduce 7(a) 

fees. 

Chairwoman VELA ́ ZQUEZ. You mean the renewable fuel capital 

investment pilot program? 

Mr. PRESTON. That is one of them. There is a grant component 

to that that hasn’t been funded. And then also 7(a) fees for a particular kind of energy investment were supposed to be partially 

waived. And that was not funded. So those are the two challenges 

we have. 

Chairwoman VELA ́ ZQUEZ. The 7(a), those need to be funded, sir. 

Are you going to need regulation for that? 

Mr. PRESTON. My understanding is that the interpretation we 

have gotten from our legal people is because it’s a separate risk 

category, it would need an appropriation. But we would be happy 

to talk to your staff to see if you have a different interpretation of 

it. 

So I think we are making progress in all of the areas that require program structuring, drafting regulations, that type of thing. 

We have a couple of issues on funding. 

Chairwoman VELA ́ ZQUEZ. I will come back to you, Mr. Preston, 

with more questions. Now I recognize Mr. Chabot. 

Mr. CHABOT. Thank you very much, Madam Chair. 

I would just note for the record, first of all, that there are consequences when one’s party is in the minority. And we generally 

have our conferences and you have your caucuses. They’re the 

same basic entity. We have ours on Wednesdays or Thursdays, genVerDate 0ct 09 2002 14:48 Mar 11, 2008 Jkt 033615 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\02-07-08 SBA BUDGET.TXT LEANN
11

erally at 9:00, but apparently I was told that we were unable to 

locate one room on the entire Capitol complex at 9:00 o’clock. So 

it had to be at 10:00. 

So that is one of the reasons that we don’t see any Republicans 

here. So I apologize we don’t have more bodies up here, but they’re 

at conference. But small business is important to me. So I am here. 

Chairwoman VELA ́ ZQUEZ. Yes. 

Mr. CHABOT. But, in any event, there has been some criticism already this morning about the number of export assistance centers. 

Could you tell us how many businesses actually use the export assistance centers versus the number of small businesses around the 

country that actually export? 

Mr. PRESTON. I don’t have that statistic for you, but we do have, 

I believe it is, 16 export assistance centers. Then the Department 

of Commerce has well over a hundred of them, which also support 

small businesses. 

I don’t have that statistic. I do think it is a very important service we offer, particularly in a time when we see an increase in, continuing increase in, export by small businesses. 

Mr. CHABOT. Thank you. 

What benefits would small businesses receive from a free trade 

agreement with Colombia? 

Mr. PRESTON. Very significant. First of all, as I mentioned before, 

over a third of our exports to Colombia are small business. Right 

now about 92 percent of the imports coming into our country from 

Colombia come in duty-free. Most of our exports to Colombia have 

duties, many of them very high, generally in the 5 to 15 percent 

range. Some go up to 35 percent. So the playing field is not level 

right now. Goods going that way get charged more money. 

We also think over time that we will be able to see higher intellectual property protections. That is very important for our small 

innovators. You know, if they ship their high intellectual property 

products overseas without the right kind of protections, it is a significant risk to them. 

The other thing I think that is important is when you think of 

all of the administrative requirements of shipping goods overseas, 

all of the things that any business has to deal with in a border, 

it is a significant cost of doing business overseas just handling all 

of that stuff. And to the extent that those become clearer, more efficient, and that the activities that the border connects but the goods 

flow more easily, those are very big factors for small business. 

We have seen in other situations when we have entered free 

trade agreements that the percentage of exports from small business actually goes up because a lot more of them find those markets are open for business in a way that’s affordable to them. 

Mr. CHABOT. Thank you. 

Could you explain how your Emerging 200 Program would help 

inner city urban areas? 

Mr. PRESTON. Yes. One of the things we wanted to do was figure 

out a way to be more targeted in certain urban areas of the country 

in a way that would really energize not only all small businesses 

but particularly small businesses that have a high growth profile. 

And we heard this by doing roundtables in various cities around 

the country. 

12

A lot of these people have a challenge if they have maybe five 

people, a great product getting through that growth curve. So what 

we are trying to do is start out in ten cities, although we will go 

to more if it makes sense or shrink it if we don’t think we have 

the support, go to those cities, find a group of inner city entrepreneurs with a strong growth profile, effectively put them in the 

same kind of class so that they would have their own network with 

each other in sort of a group. 

Then what we would bring in is a very heavy dose of training, 

technical assistance, classroom training, working with them to 

solve real life issues, and also support their connection with providers of capital. 

What we are hoping to do if we are in a city like Cincinnati and 

you’ve got 20 small businesses in the city of the core that are good 

growth businesses and they’re working together and we’re working 

with them and helping them get capital and training and assistance, those are the people that are going to create the jobs, that 

are going to create economic activity, and that hopefully will bring 

investment into those cities. And as we continue with this program 

to bring in more businesses each year, we’re hoping that it is going 

to have a significant impact in those urban centers. 

Mr. CHABOT. Thank you. 

You had mentioned in your opening statement and I mentioned 

in mine as well the importance of making the tax cuts that were 

passed in 2001 and 2003 permanent and how important that is to 

Americans in general but to small businesses in particular. Would 

you explain why that is, what impact that really has, and what 

having them essentially go out of existence in 2010-2011, what adverse impact that could potentially bring? 

Mr. PRESTON. Yes. As I mentioned, on average, I think the calculation is $4,000 per small business. And I think to some people 

that might not sound like a lot of money. But, as I try to remind 

people, small businesses aren’t rich people. Small businesses are 

living off of those businesses for the most part. 

So what we’re seeing is a number of things happen. And I think 

it falls into a couple of different categories, but primarily we think 

that incentives on investment may be impacted or will be impacted, 

which could deter investment activity. Clearly the marginal tax 

rates are going to go up significantly. 

And I think it is very important to understand that many small 

businesses are not incorporated. They’re Subchapter S corporations, they’re partnerships, or it just runs through their personal 

income statement. 

So those marginal tax rates have a direct impact on the small 

businesses of our country and have a direct impact on their ability, 

then, to take that money and pay for health care, pay for investment, pay for new employees. 

You know, I think we have got terrific programs at the SBA. I 

think they make a great impact on our country. But when you look 

at these broad macroeconomic impacts, they I will say have an 

even greater impact on the ability of small businesses to start to 

grow, to flourish, and to pay for the growth in their companies. 

Mr. CHABOT. Thank you. 

13

Would you discuss the low scores that the SBA received on their 

customer service surveys in the past, what changes that you have 

made since you have become the administrator, and the results in 

those changes, and what the recent surveys have shown as a result 

of those changes? 

Mr. PRESTON. You’re talking about the employee satisfaction surveys? 

Mr. CHABOT. Yes. 

Mr. PRESTON. What we found, you know, we didn’t really need 

a survey. I’ve gone around the country and spoken with literally 

thousands of employees. They all have my e-mail address. And, believe me, they use it. And I read every one of those e-mails. 

What I consistently found was the agency needed a few things. 

The agency needed to understand the vision of where it was going 

and how all that we were doing supported that mission. They needed to see that we were committed to making its programs work. A 

lot of our programs have not worked effectively. They needed to see 

that we were committed to them, to their development, their training, and to their career path. And in all of those areas, we have 

put in place programs to help take the agency forward. 

Great example. I know a lot of people on this panel care deeply 

about the 8(a) program. We had horrible backlogs in our 8(a) certifications. We did not have a process to make sure we were doing 

annual 8(a) reviews in compliance. 

We spent a lot of time cleaning those things up to tell people 

‘‘You’ve got to do this on time. You have to be responsive to these 

people. And you have to be a compliant organization.’’ We began 

tracking it. 

We made it visible to people. And that’s what happened in the 

disaster business when we cleaned that up. That is what is happening right now in our guaranteed purchasing centers. And employees are very excited to see that we are beginning to get after 

these big issues. 

The other thing we have done is we have done extensive training. I mentioned before the scores around job skills, questions like, 

do you have the skills to do your jobs? Do you see an opportunity 

to improve your skills? Do you think we provide the opportunity for 

skill development? 

Those scores went up generally 11 to 15 percent in one year. And 

we haven’t even gotten a good part of the agency through the training programs yet. And in the areas that did the training and are 

getting this kind of training, it’s going up even more. 

Every employee is getting a personal development plan so that 

they know we can help them do career pathing. And the other 

thing we are doing a lot more is we are communicating with them. 

And people understand their roles, understand how their job is connected to the mission of the agency. They hear a lot more from me. 

So, you know, sir, it’s on any number of fronts, but it has been 

a very significant step forward. And I will tell you I am very confident that when the survey gets done next year, it will be even 

more. 

Let me make one more quick point. In ’06, the disaster business 

was not surveyed. Obviously I think we could all agree that was 

probably one of the agency’s biggest challenges post-Katrina. 

14

We surveyed them separately from this group because we wanted 

to see what they looked like. Their scores are dramatically higher 

now than the rest of the agency. And that is where the most dramatic reengineering and training occurred. 

I think it really has given us confidence that we are on the right 

track. 

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

Chairwoman VELA ́ ZQUEZ. Ms. Hirono? 

Ms. HIRONO. Thank you, Madam Chair. 

Just a couple of questions. Your 7(a) loan program is the largest. 

And I note that over the last number of years, in the past five 

years, the size of these loans has gone down every year since 2001. 

Is this trend a cause of concern to you? 

I mean, one of the things that occurs to me is that if the loans 

are getting smaller, then perhaps we are decreasing the chances of 

the business succeeding over time. So is this trend a cause of concern to you? 

Mr. PRESTON. Yes. 

Ms. HIRONO. And if so, what do you propose to do about it? 

Mr. PRESTON. Let me give you some insights into the reason for 

that trend. And it’s also a reason for a trend right now, which is 

our loan volume is down this year. And it is specifically in those 

loans. 

A number of years ago the agency introduced a product called 

SBA Express. It was a much more simplified way for banks to 

make loans, which is a great idea. Many banks adopted this program in a way to automate their loan-making or to simplify it, 

doing a lot more credit scoring, doing a lot more outreach. And it 

became a bit of—I don’t mean this term to sound negatively. I don’t 

mean it negatively. But it is much more of a churn program; 

whereas, the other programs I think require a lot more consultation with the borrower. 

Because those programs were easy to use, quick to get out the 

door, easy to reach small businesses, that program went up like 

crazy. It is generally a small loan program. Most of the lenders use 

it for in some cases under 50,000, in some cases under 35 depending on the institution. 

What we are seeing right now is because of what is happening 

in the credit marketplace a lot of the kinds of loans that are creditscored, banks are pulling back on. That’s one of the things they’re 

doing. They’re increasing their credit score requirements. That is 

beginning to reduce those small loans. 

So what you are probably going to see this year is our loan size 

creep up. So in some ways I am more concerned about the loan size 

creeping up because it is more indicative of a pull-back in a particular tier of credit. 

So what we are trying to do right now or what we are doing is 

going to banks all across the country to look at the products that 

they are using in our portfolio and saying, if you have used these 

simplified products in the past, let’s work with you to redesign how 

you’re using them to make sure that you are reaching small businesses that you may not be reaching today. It’s a little bit of a 

longer explanation, but you have to look a couple of levels deeper 

to understand what is going on. 

15

Ms. HIRONO. Okay. So you are tracking what is going on, I take 

it? 

Mr. PRESTON. We track it all in detail. Absolutely. 

Ms. HIRONO. These loans are very popular, I take it? The SBA 

Express loans are easier? Although they may be smaller, they’re 

meeting a very specific need of the small business community? 

Mr. PRESTON. They do. In a lot of cases, they set up almost like 

a credit line, an available credit line with the bank, that’s simple 

for them to use if they need it. It tends to be more small working 

capital-type needs. 

Ms. HIRONO. One more question. I think you noted that there are 

about 800,000 loans last year through all of your SBA programs. 

And I realize that you do a survey of employee satisfaction. I’m 

wondering whether you do a survey of these people who have these 

800,000 loans to see what their satisfaction level is with SBA and 

whether they have any constructive suggestions for how we can improve SBA and its programs. 

Mr. PRESTON. Yes. There’s a challenge there. The banks actually 

make the loans. 

Ms. HIRONO. Okay. Yes. 

Mr. PRESTON. Then we guarantee the loans, so we actually don’t 

have that direct relationship with the customer. We have the relationship with the banks. We do have some limitations on our ability to survey those borrowers directly. 

What we have done very extensively throughout the country—

and I do it personally; my people in the field do it consistently—

is have lender roundtables to understand what the bank challenges 

are, where their concerns are because if we can fix the banks’ concerns with our programs, they will adopt our programs and then 

lend the capital to the borrower. 

So we need to make sure that interface with the bank is going 

well. And many of the initiatives we have in place are directly addressing some of the concerns and very significant challenges in 

some cases that banks have had in using SBA programs. 

Ms. HIRONO. Don’t you think that since SBA’s purpose is to help 

small businesses, that some kind of a more direct access to the 

small business community, where you can get the feedback directly 

from the community that you are seeking to help,—

Mr. PRESTON. Yes. 

Ms. HIRONO. —that that would also be good? And do you have 

any such programs? 

Mr. PRESTON. I think that probably would be helpful. We have 

a lot of hurdles to get through to do that, but the other thing I 

would tell you is that a lot of the banks that have SBA loans don’t 

even realize they are SBA loans. They’re bank ABC. And then attached to that is a guarantee from the SBA. So they don’t necessarily always even understand that we are in the middle of the 

credit picture. 

Ms. HIRONO. The reason I asked this series of questions is because when I talk with small businesses, you’re right that, one, 

they really don’t know the availability and the extensiveness of 

SBA programs or if they do know, then often it’s critical of SBA’s 

role in helping them. 

16

Mr. PRESTON. I do think,—and I think it’s premature to get into 

a lot of detail, but we are looking at ways that lenders could come 

directly, borrowers could come directly to us in ways that we could 

almost be an advocate for them in the lending picture. We are looking at a number of structures to do that. I would hope that later 

in the year I would be able to talk in more detail. 

The sentiment that you are bringing forward, I think it’s not only 

understanding their problems with SBA. It’s also understanding 

their problems in getting credit more broadly and understanding if 

we can help them find the right bank. And there are all sorts of 

challenges in our having that intermediary role, which we are trying to understand. 

Often when these people come into a bank, they will go into one 

bank that they know well when there is a whole competitive group 

out there that they should be addressing. And we are trying to understand if there are ways that we can help them more in that picture as well. 

Ms. HIRONO. Well, I look forward to your further testimony on 

those kinds of programs—

Mr. PRESTON. Thank you. 

Ms. HIRONO. —because I really support SBA’s advocacy role on 

behalf of small businesses. 

Mr. PRESTON. Thank you. 

Ms. HIRONO. Thank you, Madam Chair. I yield back my time. 

Chairwoman VELA ́ ZQUEZ. Mr. Ellsworth? 

Mr. ELLSWORTH. Thank you, Madam Chair. Thank you, Mr. 

Preston, for coming today. 

Mr. PRESTON. Thank you. 

Mr. ELLSWORTH. I think it was a year ago today that you were 

here before us. I am a little concerned. I know the Ranking Member Chabot said this might be your last budget proposal. Wouldn’t, 

in fact, if the circumstances were in November that you might actually be here again if—

Mr. PRESTON. I know that the Chairwoman will be lobbying for 

that heavily. 

[Laughter.] 

Mr. ELLSWORTH. Well, I believe if I remember correctly, my staff 

jogged my memory. My question last year was that if you had the 

magic wand and could plus up or add money to three different 

areas, what would you do? And you told me that you believed in 

investing operational effectiveness. 

In your short tenure, which I know seems like a lifetime probably, what are the three things now, your accomplishments you are 

most proud of, the biggest improvements you have made since last 

year on this day? 

Mr. PRESTON. Yes. I think, you know, a lot of people diminish the 

idea of operational improvements because it sounds like kind of the 

guts of the operation. But what is important to understand it to the 

extent that we are an expective service organization that is good 

to do business with. 

The banks will adopt our products. Small businesses will adopt 

our products, and it will actually be an important vehicle for expanding what we do. 

17

So excellence in service means reaching more small businesses. 

It’s the same reason why you know, an Amazon.com ten years ago 

was nothing and now they dominate an industry. 

The other thing which I think has taken more time, which I actually think we’re beginning to see some interesting models and I 

think throughout the year we’ll have some other things, too, which 

I’m very hopeful that my successor, whoever that may be, will continue, are more innovative ways to get capital into under-served 

markets more cheaply. 

Obviously we’re here talking about cuts that we’re proposing, financial cuts in a microloan program. We’re proposing pullbacks in 

some areas that actually do reach people that have need for that 

money. And I think these service providers are very passionate and 

fill an important role. But they are limited programs, and they are 

costly. 

What we’re trying to do is understand and roll out programs that 

we think will leverage the private sector more, things where the 

government doesn’t have to pay as much money but maybe 

leverages other people or leverages other programs in the federal 

government more effectively. 

Even though, like I said, I think my successor is going to have 

to take the ball forward on some of these things, I would love to 

leave this Committee with a longer-term, bigger impact of our program in areas of our country that need it the most. And I know 

many people on this Committee are very passionate about that. 

So I think those are the two areas that I would speak to. 

Mr. ELLSWORTH. Have you had any instances—and I know we 

talk about more with less and—

Mr. PRESTON. I’ve never used that phrase. I want to remind you 

of that. 

Mr. ELLSWORTH. Okay. I stand corrected. 

Have you found yourself in the last year in your tenure where 

in your analysis you found a program—and I’m talking about people—where you said, ‘‘We just don’t need that’’ and actually wiped 

it out, got rid of it, and actually sent people packing, employees? 

Have we still got the same—

Mr. PRESTON. No. You know what we’ve done? We can take that 

analogy and adjust it a little bit. What we’ve done is—

Mr. ELLSWORTH. What was wrong with my analogy? 

Mr. PRESTON. Your analogy. I’ll use the sentiment of your analogy and give you what we have done—

Mr. ELLSWORTH. Okay. 

Mr. PRESTON. —because I don’t think I have a great example of 

that. What we have done is we have said, just sort of making up 

numbers, ‘‘We have 20 people doing this. We’re falling behind. 

Backlogs are building. Should we throw more bodies at this somehow?’’

And then we’ve dug into it and said, ‘‘You know what? We’re not 

doing this in a smart way. We’re not doing it efficiently. We’re not 

using technology well. We’re not monitoring the process so that we 

can stay on top of how effective it is.’’

And so what we have done in a lot of places is said those 20 people can not only be more productive. They can actually be better 

service providers. And we can do things more logically. And we can 

18

bring in technology to make it more efficient. And we can simplify 

our activity to the outside. We’re to take away paper and go electronic in a lot of cases. 

So what we have seen is a lot of opportunity to be both more efficient and more effective in what we do with the same people we 

have by redesigning processes, by leveraging technologies, and by 

working more effectively with our partners externally. 

That has been very exciting. And I think we will continue to 

make good progress in that area this year. 

Mr. ELLSWORTH. On the tax cuts, we hear a lot about that. I 

know at that same table, we have had people in here who have represented some of the very smallest, guys working on the internet 

telling t-shirts, the stock was out in their garage or actually in the 

spare bedroom. Those tax cuts made permanent will assist even 

the very smallest of those, the garage businesses and the—

Mr. PRESTON. Absolutely. Absolutely. 

Mr. ELLSWORTH. What about the trade agreements? We talked 

about that some. And I voted for Peru. So I guess I’m allowed to 

bring this up. 

What I hear a lot of is that the enforcement is really important. 

These trade agreements aren’t bad, but they’re not adequately enforced. In your opinion, are the trade agreements that we’ve agreed 

to have been adequate enforced to put American jobs and American 

businesses in the best light, give us maybe not the advantage? 

You’re saying equal playing field, level playing field. 

Mr. PRESTON. Yes. 

Mr. ELLSWORTH. Are we adequately enforcing these trade agreements to put America on the level plaything ground? 

Mr. PRESTON. Well, I think they have to be enforced. And I think 

the enforcement comes in some of the softer issues that I mentioned in terms of actually IP protections and things like that. 

The one thing I would mention in Colombia, though, is, in addition to some of these soft things, there’s just a clear financial issue, 

which sounds like this. Our goods going over there have heavy tariffs on them. Their goods coming over here do not. It is today just 

pure financially an unequal playing field. And if those tariffs come 

down, most of them are coming down immediately. Some of them 

will have a phase-in period. 

That, in and of itself, which I think entails less enforcement 

issues, will have a big impact on our people. 

Mr. ELLSWORTH. I don’t have any further questions, Madam 

Chair. 

Thank you, Mr. Preston. 

Mr. PRESTON. Thank you. 

Chairwoman VELA ́ ZQUEZ. Mr. Johnson? 

Mr. JOHNSON. Thank you, Madam Chairwoman. 

Mr. Preston, I appreciate the professionalism that you have displayed as you have presented this information to us this morning. 

Mr. PRESTON. Thank you. 

Mr. JOHNSON. Can you give me an update on the overhaul of the 

size standards methodology that the SBA has been working on for 

the past few years? 

Mr. PRESTON. Well, the size standard initiative that we have 

kicked off at the SBA recently has just been kicked off in the last 

19

few months. What has happened over the past several years is occasionally—or I shouldn’t say occasionally but periodically the 

agency will consider a size category that needs to be updated, for 

whatever reason, and then address it. 

What we are trying to do right now is go through in a much more 

systematic way all the size standards in the agency. And we are 

trying to kind of do it in bite-sized chunks. We’re not trying to take 

everything out at one time but every quarter look at a handful of 

industries to ensure that we have something that reflects the current economy. 

And so what I would hope is that the first set of size standards 

that we are going to recommend be updated would be out there in 

the next two to three months. But we are working right now on an 

interagency basis to make sure that we’re vetting those appropriately and getting the right work done there. It requires a lot of 

economic analysis, and regulatory processes, as you can appreciate, 

take some time. 

What then you should expect to see is every three to four months 

another group of recommended updates and size standards coming 

in so that we’re taking them in phases and ensuring that we can 

get through most of the size standards within the next 18 months 

or so. 

Mr. JOHNSON. Given the fact that federal contract procurement 

for small businesses relies heavily on these size standards, is it fair 

to conclude that we have been kind of spinning our wheels, then, 

for the last few years? 

Mr. PRESTON. We haven’t been spinning our wheels on this 

project. 

Mr. JOHNSON. Not for the last few months but over the last few 

years. 

Mr. PRESTON. Yes. Well, what I think may happen,—and I can’t 

tell you because I just don’t know. And I think, in fact, many of 

you have been dealing with these issues for many, many years. 

What I am concerned about is that there are pent-up issues that 

we haven’t addressed on the size standards. And so what I hope 

to do throughout this process is then bring those size standards up 

to the appropriate level in today’s economy. 

I really don’t think the agency—

Mr. JOHNSON. It has been languishing over the—

Mr. PRESTON. Yes. I don’t think there’s been a systematic effort 

to look at the whole group. 

Mr. JOHNSON. And you consider that to be very important to the 

small business community? 

Mr. PRESTON. I think it is very important to the small business 

community. I get concerned that, you know, when a small business 

is a dollar over that ceiling, they’re no longer a small business. 

They no longer qualify as a small business contractor when, in fact, 

in the context of that industry, they may really be a small business. 

Mr. JOHNSON. Yes. But, I mean, the fact that we want to identify 

or we want to have some size standards and ways of identifying 

small businesses, it is important for the small businesses so that 

they don’t crowded out by the—

Mr. PRESTON. I think you’re right, yes. 

20

Mr. JOHNSON. —by the larger businesses. And you’ve said that 

you feel that that is a priority for your agency to tighten up these 

size standards. Why is there no separate expense itemized for this 

project in the budget? 

Mr. PRESTON. Because I don’t think it needs a separate expense 

line item. What we will be doing is leveraging people that we have 

on our team right now. I would expect we would be leveraging 

other people in the federal government who are experts in procurement and in size standard types of issues. 

Mr. JOHNSON. How much funding do you think it will take for 

the agency to complete this effort so that the new size standards 

can be established across the board? 

Mr. PRESTON. I don’t have a number for you. You know, what it 

requires is an economist working with a team to analyze the industries and analyze what represents small. But we would be happy 

to get back to you and do an analysis to estimate that. 

I will also say that it is important to note because I think this 

is going to take a period of time, and I don’t think it will be done 

in my time at the SBA. I hope that we have a methodology in place 

that we have a lot of things completed and in the pipeline, but I 

think it will be going into next year as well. 

Mr. JOHNSON. Well, I noticed that your budget request includes 

support for an increased number of staff positions, 24 specifically. 

Are any of those 24 positions dedicated to this issue? 

Mr. PRESTON. I don’t believe any of those are specifically dedicated to this issue. 

Mr. JOHNSON. What would those 24 additional staff be assigned 

to do? 

Mr. PRESTON. Most of the staff increases are in two areas: Number one, in our field organization. Throughout this past year and 

also going into this year, we have expanded our staffing in our district offices and in our PCRs, procurement center representatives. 

And we’re trying to get up to targeted levels to make sure that we 

can handle the volume in the field. 

So that’s a big piece of it. The second piece of it, we expect to 

add some staff in our processing centers, which work on high-volume activities, like approving loans, purchasing loans when banks 

ask us to honor guarantee, servicing loans, that kind of thing, because our volume has gone up significantly over the last number 

of years. Even though we continue to increase our volume through 

efficiencies, I think we also do need to add more people, not to the 

same degree as the growth. 

Mr. JOHNSON. Thank you, Mr. Preston. 

Mr. PRESTON. Thank you. 

Chairwoman VELA ́ ZQUEZ. Ms. Clarke? 

Ms. CLARKE. Thank you, Madam Chair, Ranking Member 

Chabot. 

Mr. Preston, I just kind of find it ironic that in this period of economic distress and the fight for stimulus, that the FY 2009 SBA 

budget requests no funding from many programs that are so essential to minority and women entrepreneurs. I think the impact of 

this kind of decision-making will compound financial hardship and 

distress and provide many obstacles to small businesses in their atVerDate 0ct 09 2002 14:48 Mar 11, 2008 Jkt 033615 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\02-07-08 SBA BUDGET.TXT LEANN
21

tempt to access affordable capital, which is important to their 

growth and, by extension, the potential for job creation. 

In addition to that, this administration continues to propose cuts 

to funding for many programs, including the HUBZone, as well as 

rolling funding into overall agency operating budget. 

Isn’t it true that this reduces the transparency and creates uncertainty as to how much funding the programs will actually receive? And then how can we be assured that you’re intended focus 

to ensure the HUBZone program will be accessible to entrepreneurs in the most under-served markets? 

Mr. PRESTON. Well, your point on the HUBZone program is welltaken. Right now there is a line item in the budget for HUBZone. 

What I would tell you is that the line item in the HUBZone budget 

is only a fraction of what we do in HUBZone. Most of that, most 

of that budget, is already in our core budget. And we continue to 

I think be committed to that program. And personally I think it’s 

one of our most important contracting programs because it gets 

contrasted businesses who are in areas of our country that need it 

the most. 

So I can assure you I am completely committed to the HUBZone 

business. And this really takes a smaller percentage of the funding 

that, for some reason, for years has been a line item on a schedule 

and brings it back with the funding of the rest of the HUBZone office. 

On your earlier comment, you know, I have to acknowledge we 

have proposed a budget where funds for certain programs that 

reach needy areas are being reduced. And what we are trying to 

do is understand or actually come up with a solution so that hopefully we could get more capital to those areas in a less costly manner. 

And one of the challenges we have in I think the program you 

are referring to is we provide a significant amount of grant money 

and we provide subsidized loans, which is very costly relative to 

the amount of capital we put out there. 

If you look at our other programs, like our community express 

loan, which also goes very heavily into minorities and women 

under-served markets and provides capital technical assistance, 

that now provides almost three times as many loans as microloans, 

very deeply penetrating those markets. 

Ms. CLARKE. I can appreciate that, Administrator Preston. My 

whole concern is that you recognize that there is a need. You’re 

working on a solution in the midst of an economic crisis. And you 

are here to advocate for a stimulus. Yet, your action with regard 

to these areas that are really impacted is that we’re working on it. 

Mr. PRESTON. Well, no. 

Ms. CLARKE. And I’m just wondering how much we make these 

things a priority within the administration, within the SBA when 

we know that this is a major part of our nation’s economic strain 

right now. 

Mr. PRESTON. Right, right. 

Ms. CLARKE. So I am just finding it a bit hard to understand why 

it is taking so long or what the challenge is. You are talking about 

leveraging of dollars and the cost for administering these programs 

versus I guess the return on the program. 

22

You know, I am sure there are a lot of talented people at the 

SBA. And I’m sure they have seen best practices as established 

through the SBDCs and other agencies that you interact with. Why 

wouldn’t there be sort of an effort made, a concerted effort, to develop the program that you believe would most effectively impact 

on these communities and just get it going? 

Mr. PRESTON. I think there is a lot going. Our community express products—

Ms. CLARKE. I’ve heard about the community express program. 

What I—

Mr. PRESTON. It’s our fastest growing product. 

Ms. CLARKE. All well and good. I’m speaking specifically to these 

communities and the programs that have been cut in the budget. 

These programs have been very effective. While they may not have 

been cost-effective in your estimation, they have been effective in 

reaching many of the businesses in urban communities that are 

struggling right now. 

And so you decide that you’re going to cut it. Is it your testimony 

today that you are replacing it with this express loan program that 

you’re talking about or is there another product that you are in the 

process of developing? 

Mr. PRESTON. It’s my testimony today that our community express product right now is already a multiple of the program you’re 

referring to and it’s our fastest growing product. 

Ms. CLARKE. And that’s what you’re replacing it with? 

Mr. PRESTON. And we are rolling out—in fact, we are testing it 

in eight states right now a new program for community lenders to 

bring them back into the program that significantly simplifies their 

ability to get capital to small businesses. 

And we are launching this spring a program to reach into ten 

inner cities of the country and dramatically expand our focus on 

high-growth inner city entrepreneurs. 

And we have partnered with the venture capital community. And 

I want to remind you that we made over $700 million in investments last year through SBICs in businesses and competitive opportunity gap areas. 

Aside from that, we just announced a partnership with a venture 

capital community to connect inner city small businesses with venture capitalists. 

So there is stuff on the drawing board, but there are a lot of 

things that are successful and are right now in the launch phase 

that I think are pretty exciting for the SBA for the people we serve. 

Ms. CLARKE. When do you see your target date of these various 

I guess permutations of what used to be in terms of venture capital 

and all of the other programs that you just described? You said 

that you were talking about spring? 

Mr. PRESTON. Well, venture capital, like I said, we put over $700 

million into competitive opportunity gap businesses last year. 

That’s real. That happens every year. It’s a massive—

Ms. CLARKE. And how is information about that getting into the 

communities? Is that through the SBDCs and the MBCs? 

Mr. PRESTON. It’s through the SBICs. 

Ms. CLARKE. Okay. And you’ve cut those, right? 

23

Mr. PRESTON. We haven’t cut SBICs. A participating securities 

program was cut a number of years ago. 

Ms. CLARKE. If you keep their funding flat and there is inflation, 

in effect, that’s a cut. 

Mr. PRESTON. SBICs is a zero subsidy program. So they can continue to grow. 

Ms. CLARKE. But you fund SBDCs, don’t you? 

Mr. PRESTON. Yes, we can. Yes, we do. 

Ms. CLARKE. Right. And the funding for them has been flat. Isn’t 

that correct? 

Mr. PRESTON. The funding for that is not limited. It’s a zero subsidy program. So the good news about that is we can expand it. 

Ms. CLARKE. And is that part of your proposal to expand it, especially in light of the venture capital program you are talking about? 

Mr. PRESTON. We are free to expand it. And the other program 

I mentioned doesn’t put us as the actual provider of the capital. It 

works with our 68 district offices across the country to find inner 

city businesses and connect them with venture capitalists who may 

be SBICs or may not be SBICs. 

Ms. CLARKE. Well, let me just say this. I’m glad to hear that 

there is a lot of I guess discussion and a lot of thinking around 

these issues. 

My concern is that we’re talking economic stimulus. And in many 

communities right now, if we’re talking targeted temporary and 

timely, the time is now. And it just doesn’t appear based on the 

budget that has been proposed and what you have presented today 

that those communities are part of what we’re looking at and those 

entrepreneurs specifically in terms of involvement in the stimulus. 

And I hope that there will be a way that you bring all of your 

forces together to come up with a real solution for the type of products that these communities really need at this time and these entrepreneurs specifically need at this time. You seem to have the 

talent and ability to do that. And I am counting on you to do so. 

Mr. PRESTON. Well, I appreciate that. 

Ms. CLARKE. Thank you very much, Madam Chair. 

Mr. PRESTON. We would love to come and brief you personally on 

what we are doing. I do want to say that somewhere between five 

and six billion dollars of capital went to businesses in high priority, 

high unemployment areas of the country last year through the 

SBA. It is a very significant part of what we do today. 

And I understand your concern about some of the programs we 

address, but most of what we do here is not on the drawing board. 

Most of what we do here is real money going to real people in a 

very significant amount. 

Chairwoman VELA ́ ZQUEZ. Mr. Preston, I just would like for the 

record to reflect, Mr. Preston, that Ms. Clarke was talking about 

SBDCs, you were talking about SBIC. Yes, SBIC is at a zero subsidy. SBDCs got cut under funding. 

Now I recognize Mr. Chabot. 

Mr. CHABOT. Thank you, Madam Chair. 

Just a few more questions. Has the SBA considered moving its 

headquarters into a building where there are other federal agencies? How would the cost-effectiveness of that be versus, I guess, 

24

leasing, as you are now, from a private entity that I guess is nonsecure or not terribly secure? 

Mr. PRESTON. Well, there are certain guidelines around which we 

locate our offices. And generally they’re supposed to be in business 

districts. And generally they’re supposed to be in federal office 

buildings. 

In many cases, locating in a federal office building makes us 

tough to find. You know, we may be in some kind of a high rise. 

People go through big magnetometers. They don’t know where we 

are. They can’t find us. 

So in certain cases, we have moved out of federal space into more 

accessible space, where we think we are either located closer to 

other service providers that do similar things to what we do, like 

state economic authorities, the Department of Commerce, EDA people, that type of thing, or in more central business districts, so that 

people actually, you know, see where we are and can come in and 

seek help. 

In many cases, it is more cost-effective for us to move out of federal buildings, but for the most part we continue to be located in 

federal buildings. 

Mr. CHABOT. Thank you. 

What happens if a particular office in the SBA does not meet its 

performance goals? What sort of action do you take in that circumstance? 

Mr. PRESTON. Well, what we do is we provide incentives for offices that meet their goals. For example, this past year, there were 

six core goals that these offices had. And offices that met five or 

six goals got an additional bonus for their people. 

So what I would tell you is we probably use more of a carrot than 

a stick. And we continue, actually, to work with our entire field 

network to collaborate with them on what they think are the most 

valuable programs to have in place to help them meet those goals. 

The other thing we have done historically, which we are revising 

a little bit right now, is looked at other kinds of awards that they 

can win based on whatever objective we have in place. 

Mr. CHABOT. Thank you. 

We had discussed the free trade agreement for Colombia before. 

Would you support the SBA being given a seat on the Trade Promotion Coordinating Committee? 

Mr. PRESTON. I am not sure. I would have to understand a little 

bit more. I think we have a great deal of access to people at the 

U.S. Trade Rep, to the Department of Commerce, in the White 

House. We have had a great opportunity to provide them with our 

views on many of the issues we’re facing today right now. 

I would have to get back to you—

Mr. CHABOT. Okay. 

Mr. PRESTON. —and take a look at whether or not that specific 

opportunity would move the needle or not. I just don’t have a good 

answer for you. 

Mr. CHABOT. Okay. Is there any effort to measure the quality of 

SCORE counselors and if you find any inadequate counselors to 

have them removed? 

25

Mr. PRESTON. Okay. I’ve just been informed by my staff that I 

blew the last question because we actually have a seat on the 

TPCC right now. 

Mr. CHABOT. Oh, you do now? 

Mr. PRESTON. So I apologize for that. 

Mr. CHABOT. Good. 

Mr. PRESTON. The SCORE—

Mr. CHABOT. I assume you would like to keep it? 

Mr. PRESTON. We would like to keep it. Yes, I support it. 

Mr. CHABOT. Okay. Good. 

Mr. PRESTON. SCORE runs its program. And, as best I know, 

those counselors are managed by the local SCORE offices. And so 

other than that, I’m not aware that we have specific oversight on 

any individuals that actually work for SCORE. 

Mr. CHABOT. One of the major issues that firms owned by either 

National Guard’s folks or Reserve entrepreneurs is the continuation of businesses when they’re called to active duty. Could you 

briefly tell us what programs the SBA has or has instituted to provide business continuation assistance and training when the head 

of the firm is called to active duty? 

Mr. PRESTON. Well, yes. Obviously through the resource partner 

network and through our own local offices, we can provide counseling and training. 

I think the most exciting program we have but also the most 

under-used program we have in this area is the military reservist 

economic entry loan program. Effectively what happens is an owner 

of a small business or somebody who works for a small business, 

if that person is called up for active duty and the small business 

suffers economic injury as a result of their being called up, they 

can actually qualify for an SBA disaster loan. And those are, as 

you know, very low-interest loans. They’re directly lent by the SBA. 

And it’s a program that we have worked to promote through the 

other agencies, through significant outreach initiatives. And the 

volume in that program is still low. 

So we continue to look for avenues to make people aware of it. 

But what ends up happening is they get called up for active duty. 

And then, all of a sudden, they say, ‘‘Well, you know, I heard about 

this loan. I have to get my paperwork together to apply for it.’’ And 

it’s something that they’re either not aware of or they don’t have 

time to pull their stuff together. 

So we’re looking at ways to improve the outreach but also make 

it easier for them to apply. And, frankly, I think, you know, this 

has been a real area of disappointment for me because I think it 

is a terrific program we offer that is just under-utilized. 

Mr. CHABOT. Okay. How is the SBA responding to the finding of 

the Inspector General concerning problems in the HUBZone program? 

Mr. PRESTON. We are doing a number of things, but it’s primarily 

focused around making sure we’re doing our work on reviews of the 

HUBZone program on a regular basis and ensuring we have the 

right kind of information about them to make the assessments. 

I would be happy to follow up with questions for the record to 

give you more detail on that. 

Mr. CHABOT. I yield back. Thank you very much, Madam Chair. 

26

Chairwoman VELA ́ ZQUEZ. Mr. Sestak? 

Mr. SESTAK. Thanks, Madam Chair. 

I wanted to ask a question because President Bush seems concerned, rightfully so, about why are we in a recession with an economic stimulus plan. And I wanted to ask you at this time that I 

honestly believe because you may that more and more businesses 

if this is so are going to need aid, small businesses, and not necessarily aid in more loans if the business isn’t out there or grants 

but probably more aid in the sense of reaching out to you to say, 

‘‘How can we properly structure ourselves to keep afloat during this 

troubling time that the President has indicated is coming?’’

So in view of having the disaster down in Katrina and maybe the 

SBA was not as well-prepared as it might have been to face this 

in that disaster, potentially for a lot of small businesses, this could 

be a disaster coming up. It might not be, but it could be. How are 

you marshalling your forces to prepare for small businesses with 

regard to that readiness to help them with a lot more reaching out 

potentially in this recession and then managing, given that kind of 

technical assistance? 

Mr. PRESTON. Well, clearly most of the technical assistance that 

we provide is through resource partners. And many of the kinds of 

issues that small businesses face in a recession are the very kinds 

of issues that they deal with on a regular basis. I think this is just, 

you know—

Mr. SESTAK. Probably a lot more quantity now. 

Mr. PRESTON. More quantity potentially now. 

Mr. SESTAK. So what specifically are you doing to prepare for 

this? 

Mr. PRESTON. Specifically I think the one area I think where we 

are freeing up our own resources internally to do more business development work—and, you know, this may be a little bit far afield, 

but we are putting in place a number of things in our district offices to do two things, number one, free up people’s time to do more 

outreach and counseling; for example, in our 8(a) program. Right 

now, they’re buried with compliance work. 

Mr. SESTAK. Well, we need to be doing that without regard to the 

upcoming recession. 

Mr. PRESTON. Yes. What I’m telling you is, though, that right 

now we have a number of things in place where we’re trying to 

take them away from administrative work to free them up for more 

outreach work. And that is coinciding with this. It’s not necessarily 

a specific mobilization as much as an opportunity that they should 

be doing anyway. 

That is primarily going to affect those businesses in our 8(a) program. And that is probably the primary area. I think much of the 

outreach we’re doing right now—

Mr. SESTAK. No. That’s fine. The reason I was asking, Mr. Preston, is it just seems to me we know we are going to have some challenges there. And if we do care about trying to help them keep 

afloat, we might expect that there might be more people about to 

get into a life raft, you know, so to speak, reaching out for aid. 

Then when I look at your programs, I think what Congresswoman Clarke said. And I watched that you zeroed out the 

microloan technical assistance program. And now you’re proposing 

27

that it should be, ‘‘Oh, by the way,’’ but it’s a separate issue, no 

free subsidy anymore. Let’s have them help pay for this. 

But my question is you then go on in your budget you submitted 

and said, ‘‘Okay. We’re zeroing out the technical assistance program for microloans. And, by the way, they can then rely,’’ you say 

in your footnote, ‘‘in the SBDC and WBC.’’ But, yet, you in your 

technical assistance zero-out score have a ten percent decrease in 

SBDC and WBC. 

So how are you taking those microloan people that you say right 

here in your document are going to rely upon those three more but 

you decrease them in resources, just at a time that they might be 

reaching out more as we go into a recession? 

Mr. PRESTON. Right. Point well-taken. I would make a couple of 

comments on that. First of all, the number of new micro borrowers 

featured in that program is just under 2,000. The number of people 

our network counsels in a particular year is over a million. So we 

don’t view that as being a significant burden. It is a fraction of one 

percent of the people that they already counsel. 

Mr. SESTAK. Could it be more? 

Mr. PRESTON. I do recognize,—and I mentioned this in my opening remarks,—the money we requested in the ’09 budget is consistent with what we requested in the ’07 and ’08. Now, in ’08, an 

appropriation, an increase in our appropriation, occurred subsequent to our submission in the budget. So we did have a timing 

challenge there. 

The other thing I think it’s important to understand is we are 

not the only source of funding for these small business development 

centers. They all get matched funding elsewhere. They all have 

other funding sources in a time when—

Mr. SESTAK. I guess I am questioning the priorities. I mean, 

SBDCs, they already aren’t having enough hours to match the demand. And now you’re decreasing them. ‘‘And, oh, by the way,’’ 

you’re saying, ‘‘you micro people, you move over here, too. And a 

recession is coming down the road.’’

I guess my other question kind of has to do in similarity. You 

know, 22 percent of the populace that is in Medicare causes 67 percent of the cost. They’re all the ones with all the chronic conditions. 

Yet, we treat them just like we do the less costly 80-some percent. 

So my question is you kind of dismiss, well, these are kind of 

small. And we’re really doing so much here in this community 

thing. Maybe we do need to focus some resources on them because 

those are the kinds of $25,000 loans that really can begin to make 

a difference. But that is more of a judgment. 

I guess my other question had to do with your—unless you 

talked about the emerging 200 initiative. 

Mr. PRESTON. We did, but—

Mr. SESTAK. Could I? 

Mr. PRESTON. Yes. 

Mr. SESTAK. You’re going to be 2.5 million into this. And my limited understanding of this 2.5 million is it’s going to go with a new 

set of partners kind of. You’re going to go to cities, correct? 

Mr. PRESTON. Yes. It’s 250,000 of our money. We would probably—

Mr. SESTAK. Of 2.5 million total for 10 cities, right? 

28

Mr. PRESTON. I think the entire amount is 250,000 right now,—

Mr. SESTAK. Okay. I thought it was ten cities. 

Mr. PRESTON. —which would leverage with other resources externally. 

Mr. SESTAK. So you’re only going to do among 10 cities 250,000? 

Mr. PRESTON. That will be the pilot. We would hope—

Mr. SESTAK. Now I understand. Okay. Then I’ll back off on my 

question, then. I was curious because with such a new partner and 

you put 2.5 million into it without knowing. 

I guess my only other question I had is when you looked at the 

reauthorization of the SBA, if you take out—you only put in 

$160,000 for disaster loans. 

Mr. PRESTON. A hundred and sixty million. 

Mr. SESTAK. A hundred and sixty million. I was a poli sci major. 

Mr. PRESTON. That’s okay. 

Mr. SESTAK. A hundred and sixty million. And you subtract that 

from the 657 million. Actually, your budget is less than the previous year, correct? 

Mr. PRESTON. There are two pieces. What I would say is the 

budget is more for us to be able to run the agency because we have 

expanded some people and done some things there. The budget is 

less in our grant programs, which you have all noted through the 

SBDCs and women’s business centers. So those are the two pieces. 

Mr. SESTAK. All right. I guess my question is in that 160 million, 

my understanding is you came up with that by doing a 10-year average? 

Mr. PRESTON. Yes. There’s another significant piece. So yes, we 

take a ten-year average. We take out—

Mr. SESTAK. My only question is just the ten question. We have 

a new type of loan, don’t we, the drought loan? Did you take that 

into account since we didn’t have any way to look backwards? 

Mr. PRESTON. I would have to get back to you on what the calculation included. 

Mr. SESTAK. All right. And I think that we are probably out of 

time anyway. Thank you very much. I was just most taken by, I 

guess, you know, your page 23, where all of the non-credit programs are just either flat-lined or slashes. And then in your footnote, you say, ‘‘Oh, by the way, these other ones that we slashed 

are going to pick up the load for microloans and all.’’ It just seems 

like we are disenfranchising them, what kind of is important 

around me, the City of Chester and other places, where microloans 

go a long way. 

Thank you very much. 

Chairwoman VELA ́ ZQUEZ. Mr. Preston, I do have some other 

questions. You know, this budget proposes to raises in the 7(a) program to the maximum statutory limit. After that, it cannot be 

raised any further. That means that if there are unanticipated defaults or shifts in the portfolio that occur, the costs will go up and 

you will have nowhere else to go. So you might have to shut down 

the program. 

Mr. PRESTON. This budget takes us all the way through to September of 2009. So I think somewhere in the ensuing year and a 

half, if we thought that was a risk, we would certainly address it 

with you all or in some way. 

29

Chairwoman VELA ́ ZQUEZ. But when you came before us or the 

administration in 2000, you asked us to support to take the program to a zero subsidy and that that will take care. 

Mr. PRESTON. Will take care of what? 

Chairwoman VELA ́ ZQUEZ. Of the risk of a shutdown, of the program being shut down again. 

Mr. PRESTON. Well, I think there are two different things. What 

you are referring to is when the program was subsidized and it ran 

out of money in the middle of the year and we had to call up banks 

and tell them to stop making loans. 

I would hope that as we get into the year and understand what 

is happening in the portfolio, we would have a long enough lead 

time to work with the administration, with Congress to address an 

issue should it arise. I don’t think it’s a foregone conclusion that 

it will. 

Chairwoman VELA ́ ZQUEZ. In 2004, the program was shut down. 

So my question to you is, if we are going to raise the fees to the 

maximum allowable level, then if you confront unanticipated defaults in the portfolio, where would you go? 

Mr. PRESTON. Well, ma’am, we would know almost a year ahead 

of time whether or not the forecast would take it to that point. 

There would be plenty of time to address the issue. 

Now, what I would tell you is a lot of what we are seeing in our 

portfolio right now, it’s increasingly being weighted in some cases 

toward PLP, which is a much higher performance portion of the 

portfolio. So I certainly wouldn’t want to leave you with the idea 

that it’s a foregone conclusion that we will be in that situation. 

Chairwoman VELA ́ ZQUEZ. Let me ask you this hypothetical question. Since you are unable to raise fees any higher and if you confront problems with the problem, you will have two options, either 

requesting an appropriation or shutting down the program, which 

one will you choose? 

Mr. PRESTON. Ma’am, or raising the fee limit, right? So, as I 

mentioned, that is going to be well beyond my time. This is something that is not going to be upon us for a year and a half. And 

we will understand well ahead of time what the projections show. 

Chairwoman VELA ́ ZQUEZ. Okay. So you are telling me there will 

be no problems with the program. 

Mr. PRESTON. No. I don’t think I said that. I think I said we will 

have ample time to work through the issue with you. 

Chairwoman VELA ́ ZQUEZ. In 2004, it didn’t happen. 

Mr. PRESTON. Well, that was because—

Chairwoman VELA ́ ZQUEZ. And the program was shut down. 

Mr. PRESTON. —the program was subsidized and it ran out of 

money. It’s a very different issue. 

Chairwoman VELA ́ ZQUEZ. I want to ask you about the HUBZone 

program. We held a hearing on the HUBZone program and we 

talked about the potential for fraud with the HUBZone program 

and other programs, such as the disaster program. 

I want to ask you—and I want a ‘‘Yes’’ or ‘‘No’’ answer—do you 

believe that the HUBZone program has sufficient internal controls 

to prevent fraud? 

Mr. PRESTON. Fraud in what way? 

30

Chairwoman VELA ́ ZQUEZ. The Inspector General did a study that 

showed that there were problems with the program, with the 

HUBZone program. Do you recall that—

Mr. PRESTON. Yes, I do. 

Chairwoman VELA ́ ZQUEZ. —report from the General Accounting 

Office? 

Mr. PRESTON. I think we have sufficient internal resources to address this issue. 

Chairwoman VELA ́ ZQUEZ. Businesses are participating in the program that are not eligible to be in the program. So my question to 

you is, do you feel that the program has sufficient internal control 

to prevent fraud? 

Mr. PRESTON. I think we’re addressing all of those—

Chairwoman VELA ́ ZQUEZ. Give me a ‘‘Yes’’ or ‘‘No,’’ and then you 

can clarify the question or your answer. 

Mr. PRESTON. I believe we are on the pathway of dealing with 

all of those issues. I would have to take a look at specifically the 

updates that address those IG concerns to give you a clear answer. 

Chairwoman VELA ́ ZQUEZ. Months ago we held a hearing on this 

very issue. 

Mr. PRESTON. I would be happy to take it as a question for the 

record in this hearing, but I’m prepared to talk about the budget. 

Chairwoman VELA ́ ZQUEZ. Let me ask you—okay. 

Mr. PRESTON. If you would like me to get into this, I would be 

happy to follow up with you. 

Chairwoman VELA ́ ZQUEZ. Okay. In reviewing your efforts to 

make sure money is used in the most judicious manner, the Committee examined the award made under the 7(j) management and 

technical assistance program for FY 2007. One, in particular, stood 

out. More than 90 percent of the funding went to one company. 

This business was started in February of 2006 and was approved 

for the 8(a) program in June of 2006 4 months later. 

Since there is a two-year-in-business requirement for 8(a), we 

looked a little further. It turns out that the owner of this company 

served in a political appointee capacity from 2003 until the month 

before the business was begun. 

Given these facts, I ask you, will you make a commitment to this 

Committee to have the SBA’s Inspector General review this case to 

determine whether this individual’s political connections allow 

longstanding regulations to be waived? 

Mr. PRESTON. Yes. I will. I’m not at all familiar with the situation. I wasn’t aware of that. And I would be happy to follow up on 

that from this Committee. 

Chairwoman VELA ́ ZQUEZ. Yes. But my question to you is if you 

will make a commitment to the Committee that the SBA’s Inspector General will review this. 

Mr. PRESTON. Yes. I need to make a judgment based on looking 

at it, but you can always request that from the Inspector General 

as well if you feel it’s necessary. 

Chairwoman VELA ́ ZQUEZ. You can bet that I will. 

Mr. PRESTON. I am just not familiar with the situation. 

Chairwoman VELA ́ ZQUEZ. Okay. Well, I will be submitting other 

questions for you to submit back to the Committee. And with that, 

this hearing adjourns. 

31

Mr. PRESTON. Thank you. 

[Whereupon, at 11:39 a.m., the foregoing matter was concluded.]

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