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43–235 PDF 2008

S. HRG. 110–642

HEARING ON THE PRESIDENT’S FISCAL YEAR

2009 BUDGET REQUEST FOR THE SMALL

BUSINESS ADMINISTRATION

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

AND ENTREPRENEURSHIP

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

February 27, 2008

Printed for the use of the Committee on Small Business and Entrepreneurship

(

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

(II)

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

JOHN F. KERRY, Massachusetts, Chairman 

CARL LEVIN, Michigan 

TOM HARKIN, Iowa 

JOSEPH I. LIEBERMAN, Connecticut 

MARY LANDRIEU, Louisiana 

MARIA CANTWELL, Washington 

EVAN BAYH, Indiana 

MARK PRYOR, Arkansas 

BENJAMIN L. CARDIN, Maryland 

JON TESTER, Montana 

OLYMPIA J. SNOWE, Maine 

CHRISTOPHER S. BOND, Missouri 

NORMAN COLEMAN, Minnesota 

DAVID VITTER, Louisiana 

ELIZABETH DOLE, North Carolina 

JOHN THUNE, South Dakota 

BOB CORKER, Tennessee 

MICHAEL B. ENZI, Wyoming 

JOHNNY ISAKSON, Georgia

NAOMI BAUM, Democratic Staff Director 

WALLACE HSUEH, Republican Staff Director 

(III)

C O N T E N T S 

Page

OPENING STATEMENTS

Kerry, The Honorable John F., Chairman, Committee on Small Business 

and Entrepreneurship, and a United States Senator from Massachusetts .... 1

Snowe, The Honorable Olympia J., Ranking Member, a United States Senator 

from Maine ........................................................................................................... 4

Dole, The Honorable Elizabeth, a United States Senator from North Carolina 7

WITNESS TESTIMONY

Preston, The Honorable Steven C., Administrator, U.S. Small Business Administration, Washington, DC ............................................................................ 8

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Dole, The Honorable Elizabeth 

Opening statement ........................................................................................... 7

Kerry, The Honorable John F. 

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

Questions for the record for Administrator Preston and subsequent

responses ....................................................................................................... 50

Preston, The Honorable Steven C. 

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 11

Responses to questions from: 

Senator Kerry ............................................................................................ 50

Senator Snowe ........................................................................................... 57

Letters from NAGGL dated: 

12/17/07 ...................................................................................................... 68

2/25/08 ........................................................................................................ 71

Snowe, The Honorable Olympia J. 

Opening statement ........................................................................................... 4

Chart, ‘‘SBA Budget Not Keeping Up With Rising Costs’’ ............................ 27

Questions for the record for Administrator Preston and subsequent

responses ....................................................................................................... 57

(1)

HEARING ON THE PRESIDENT’S FISCAL YEAR 

2009 BUDGET REQUEST FOR THE SMALL 

BUSINESS ADMINISTRATION 

WEDNESDAY, FEBRUARY 27, 2008

UNITED STATES SENATE, 

COMMITTEE ON SMALL BUSINESS AND

ENTREPRENEURSHIP, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:04 a.m., in room 

428–A, Russell Senate Office Building, the Honorable John F. 

Kerry (chairman of the committee) presiding. 

Present: Senators Kerry, Cardin, Snowe, Dole, and Thune. 

OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY, 

CHAIRMAN, SENATE COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, AND A UNITED STATES SENATOR

FROM MASSACHUSETTS 

Chairman KERRY. The hearing will come to order. 

Good morning, Mr. Administrator. Thanks for being here with 

us. 

Senator Snowe, I understand, is on her way so I thought we 

would just get going. 

I appreciate your coming up here to testify on the President’s 

budget for fiscal year 2009. Obviously this is the last budget to be 

presented by the Bush Administration. And just from a personal 

point of view, I regret that it really seems to be at odds with the 

realities of what is happening in the marketplace and the purpose 

of the SBA, in my judgment, and I know, Administrator Preston, 

you have to come here and defend it. You do not make all these 

choices. I understand that. It is not an enviable position to be in. 

The OMB probably gives you a set of figures and you are stuck 

with them, and I understand the dynamics. But the problem is 

that, you know, every day you pick up newspapers. Here is today’s 

New York Times: ‘‘Small to mid-sized banks beginning to struggle 

in credit crisis.’’

The economy, Greenspan has said that it is growing at about 

zero percent. It may take longer than normal to grow out of this. 

Some 60 percent of economists are talking about a major slowdown, 

40 percent a recession. 

This is a time for the SBA to be helping folks. And I know what 

your testimony says and the argument will be made, or at least the 

spin will, that the President’s request is about a 15 percent increase. 

2

But when you exclude the disaster assistance money and really 

do an apples to apples comparison of budgets, this budget really 

continues the President’s policy of cutting funding for critical small 

business programs. 

If you take the disaster money out and we all understand disaster is disaster is disaster. The SBA is supposed to be there for 

that purpose and it does, but it is also supposed to be there to assist small businesses to grow, to create new jobs, to help provide 

credit where it is not there normally, not just obviously in a disaster. 

If you exclude the disaster money and congressional earmarks, 

the budget represents a 28 percent cut in funding since President 

Bush took office. If you take inflation into account, the budget represents a cut of 41 percent since 2001. 

One of the most unreasonable proposals that I expect Congress 

to reject again, as we have, is President Bush’s recycled recommendation to make the microloan program self-financing by 

raising the interest rate that intermediaries pay and to eliminate 

completely the Microloan Technical Assistance Program that supports it. 

Now, you know, what this does is shift the counseling to the 

Small Business Development Centers and the Women’s Business 

Centers, programs that are already being starved for resources. 

I mean, we have heard from these folks. And if we are listening 

to them, they have come up here again and again and said that 

they can barely keep up with what they are trying to keep up with 

now. So instead, we are going to dump more on them. Since 2005, the Administration has sought more than $400 million for international microcredit programs. The question looms 

large for all of us. You know, if we can spend hundreds of millions 

of dollars to help small businesses in Iraq—I just came back from 

Afghanistan and Pakistan where, incidentally, we need to be doing 

economic development because it is in our national security interests. But if we can do that in other countries, surely we can support microloan programs here at home. 

And it is really contradictory to hear the Secretary of Defense 

and/or, you know, the National Security folks, come in here and tell 

us how wonderful these programs are, how effectively they work, 

what a terrific impact they are having on creating jobs and business and creating stability in these other countries, and yet there 

is a resistance here. 

During the month of January, our economy actually lost 17,000 

jobs. In times of economic growth, we need to be adding 150,000 

to 200,000 jobs a month just to keep pace with population growth. 

At the end of January, the number of claims for initial unemployment benefits rose to 375,000 compared with 317,000 at the same 

time last year. That is a huge increase. Yet the Administration now 

wants to pull back its support for the programs which actually help 

the creators of new jobs. 

The President’s budget cuts Small Business Development Centers 10 percent. It cuts Women’s Business Centers 9 percent, and 

level funds SCORE. And again the timing, when you compare it to 

these headlines, is confounding. At a time of economic uncertainty 

when many small firms across the country need support and guidVerDate 0ct 09 2002 16:09 Dec 16, 2008 Jkt 045038 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\43235.TXT CELINA PsN: BACKUP
3

ance, the Administration is reducing funding for these important 

counseling programs which, in effect, says we do not really believe 

that the SBA is there for the purpose that it is there for or it is 

not that important or it somehow does not make that much difference. You put your budget money where you think your priorities are. 

In addition to the key program cuts, the Administration’s 2009 

Budget continues to underfund a number of vital programs, including the New Markets Venture Capital Program and the 7(j) Technical Assistance Program that are designed to help small firms locate in a high unemployment area and provide technical assistance 

to disadvantaged firms. 

There is no new funding for Procurement Center Representatives. The training budgets for the HUBZone and the Native American Outreach programs continue to be underfunded. And there 

seems to be some question of accountability still based on the fact 

that the contract for the 7(j) Program was given to a former Administration appointee who has absolutely no business counseling 

experience whatsoever. 

The President’s request for the SBA’s Office of Veterans’ Business Development is also inadequate in light of the anticipated 

troop draw down in Iraq. With the number of returning service 

members expected to rise significantly in 2009, this office requires 

full funding support to accomplish its mission of helping America’s 

veterans complete their transition back into civil life. 

More funding is also important to carry out the provisions of the 

Military Reservist and Veterans’ Small Business Reauthorization 

and Opportunity Act of 2008, which was signed into law February 

14. 

It is hard, Mr. Administrator, to understand why the Administration requests no funding or insufficient funding for many programs that currently exist but then turns around and proposes to 

create new projects such as the Emerging 200 and the Rural Lender Advantage Initiatives which are ideas that have merit but, 

frankly, overlap or duplicate or remake existing or former programs. 

And finally, the budget does nothing to address the concerns 

being raised about the impact of the looming credit crunch on the 

Nation’s small businesses, which is what this headline here is all 

about. 

A number of banks may now fail. I will read from the heart of 

this story: 

‘‘Losses amounting so rapidly at some of these banks that a small 

number of them, perhaps 50 out of 7,500 nationwide, could fail over 

the next 12 to 18 months.’’

‘‘But the breadth and depth of the current troubles have caught 

bank executives by surprise. Federal regulators are particularly 

concerned about the exposure of smaller banks to the commercial 

real estate market which has begun to soften in some parts of the 

country.’’

And it goes on to talk about the problems of credit and how this 

tightens up downstream for the very companies that we want to be 

here for. It seems to me this is a moment for the SBA to be 

present, not to retreat. 

4

So far this fiscal year the number of loans made through the 

SBA’s largest lending program, the 7(a) loan guarantee program, 

has dropped dramatically, reflecting some of this credit problem 

but other things also. And instead of making these funds more 

available to people facing a credit crunch, the President’s budget 

makes matters worse by raising the lender fee to the maximum 

amount allowed. 

Boy, there is a deterrent to people’s ability, in a credit crunch 

time, to be able to make ends meet. 

So, you know, Mr. Administrator, it is a struggle here to understand, through the years, this process. I think you have made bona 

fide efforts, as I have said here before, and we have enjoyed working with you on it. It is hard for you to come here and defend this, 

I know. 

But your prepared testimony tries to assert a 15 percent increase 

from 2008 funding levels. I understand the congressional levels. I 

understand the timing differential between your request and when 

the Omnibus went through and I understand what Congress did in 

the Omnibus. 

But in the end, the President’s request is actually a 3.4 percent 

reduction from the 2008 enacted level and a 28 percent reduction 

from the 2001 level when you really compare the apples to apples, 

which is what is important here. 

So we are going to try to change it. I hope you will work with 

us to try to change it. We, unfortunately, too often find that even 

when we do change it and we do things in favor of the SBA, we 

wind up with holds on the floor or back door resistance to them, 

and my hope is, obviously, that we can avoid that. 

Senator Snowe. 

OPENING STATEMENT OF THE HONORABLE OLYMPIA J. 

SNOWE, RANKING MEMBER, A UNITED STATES SENATOR 

FROM MAINE 

Senator SNOWE. Thank you, Mr. Chairman. I appreciate your 

comments as well as your leadership and long standing advocacy 

for small businesses in this country, particularly at this difficult 

and challenging time in our Nation and the economy as it stands 

today. We have to do much more for small businesses and we certainly can do that through the Small Business Administration. I 

appreciate the historical bipartisan approach that has been adopted 

by this Committee and I know that will be the case in some of the 

issues coming before this Committee during this consequential economic time in our country. 

I want to welcome you, Administrator Preston, and thank you for 

your contributions over the last 18 months during your tenure. You 

have certainly moved the agency forward in many aspects including disaster preparation, customer service, streamlining procedures 

as well as employee morale. 

I share the Chairman’s concern about the Administration’s budget that has been proposed for the Small Business Administration. 

Again, it is another pattern, unfortunately, of short-changing the 

very agency that we need to be bolstering during this lagging economy. 

5

In its final year, the Administration certainly could make an imprint on the impact and its commitment to small businesses, but 

this is the 8th consecutive year in which we have seen a decline 

in the budget for the Small Business Administration. In fact, it is 

a net decrease from fiscal year 2001 of 27 percent. That is the largest decrease of any Federal agency in its core programs since fiscal 

year 2001. 

When you consider that the SBA budget represents 2/100th of a 

percent of the total Federal budget, yet at the same time small 

businesses create three-fourths of all the net new jobs in America, 

can there be any question that adequately funding small business 

programs is an investment in America’s economic future? 

We are holding this crucial hearing at a key moment, as I have 

said and the Chairman has said, when our economy is losing jobs 

rather than creating. We saw that in January 17,000 jobs were 

shed in that month alone, the first time in four years that employment has shrunk. 

When 80 percent of Americans believe the economy is in bad 

shape, the highest percentage since 1993, when there are approximately $460 billion worth of adjustable rate mortgages that will be 

reset scheduled for this spring, while new homes sales suffered the 

largest drop since the U.S. Department of Commerce has been 

keeping records in 1963 and when the price of a barrel of oil recently spiked to more than $100, as we saw for the first time this 

week, there is no question that we need to be doing much more. 

In my home State of Maine, things are just as bleak. Announced 

layoffs for February and March are already up 75 percent over the 

layoffs that occurred in December and January. The number of people exhausting their unemployment benefits increased 7.6 percent 

in 2007 as compared to 2006. 

Given the sluggish state of our economy, it is all the more imperative that we equip small businesses, our true job generators, with 

the tools not just to mitigate and stem this crisis but to be a catalyst for helping to address and ultimately solve it. 

Given that SBA is the only agency within the Federal government with the responsibility to foster small businesses, I am truly 

disappointed by the overall funding which fails to maximize the opportunities that the SBA could provide to our Nation’s entrepreneurs to right this economy. 

The SBA’s fiscal year 2009 proposed budget contains $657 million in new budget authority. While the Administration touts this 

number as a budget increase, it includes $174 million in disaster 

funding. Disaster funding varies tremendously from year to year 

with none needed in 2008 because of sufficient funds that were left 

over from the previous years. 

Furthermore, let us be clear that disaster funding is limited, as 

it should be, to disaster response and not for the SBA’s core programs. When subtracting disaster funding, this budget would only 

provide $483 million for the SBA’s core programs, a 3.5 percent decrease from the fiscal year 2008 funding for the SBA’s core programs. 

This request erodes financial support for small businesses when 

they need it most, and in addition, in fiscal year 2008 the Congress 

added $69 million in earmarks to the Small Business AdministraVerDate 0ct 09 2002 16:09 Dec 16, 2008 Jkt 045038 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\43235.TXT CELINA PsN: BACKUP
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tion. That did not go to the core programs, but that was another 

$69 million that was part of the overall budget. 

Furthermore, I am deeply disappointed with the same old recycled funding proposals. Long before you arrived, we were dealing 

with the same recycled funding proposals for Small Business Development Centers, SCORE, Veterans’ Business Outreach Centers and 

government contracting, to name just a few. 

These initiatives provide invaluable technical assistance to more 

than one million entrepreneurs every year. If there is ever a time 

to increase funding for these programs, as the Chairman and I 

have requested in a letter to the Office of Management and Budget 

last month, this moment would be now. 

I must point out that Women’s Business Centers will be funded at $1.2 million less than in fiscal year 2008, preventing the opening 

of any new centers in fiscal year 2009 and requiring all the existing 

centers to receive significant cuts to their grant allocations. Small 

Business Development Centers would see a $10 million decrease 

from 2008 funding despite the program’s documented success. 

Also consider the issue of funding for Veterans’ Business Out- reach Centers which has only risen by $128,000 since fiscal year 

2000, which is a zero percent increase when factoring for inflation. 

With nearly 1.7 million U.S. personnel deployed since 2001 in support of Operation Enduring Freedom and Iraqi Freedom, how can 

funding for these centers simply be static? 

Given that these entrepreneurial programs have exceeded expectations, it defies logic that they would be shortchanged, especially 

at a time when our Nation will rely heavily upon small businesses 

to bolster our economy. 

Regrettably, the Administration again is proposing to eliminate 

the subsidy for microloans and to transfer the microloan technical 

assistance duties to the entrepreneurial development programs. 

This program is a proven way to assist underserved entrepreneurs 

to start and grow their businesses in a way that regular 7(a) lending cannot. 

The Administration’s fiscal year 2009 budget proposal undermines the program’s purpose and defies stated congressional intent. Every year in Maine I see how effective microlending has 

been in spurring economic development. Now the proposal will increase interest rates and remove critical technical assistance which 

would raise barriers to use this critical program. 

Congress sent a clear message last year that the budget request 

had been wholly inadequate by enacting a $40 million funding increase over the President’s request for the SBA. 

It is clear that we are again going to have to go back to the 

drawing board on this budget. I know it is not the budget that you 

would have preferred or wanted, but we are faced in the same situation we have been over the last seven to eight years. It just really 

does defy my comprehension in terms of why. SBA is the one agency that could single-handedly create jobs in a most cost-effective 

manner, and we are not bolstering its programs at a time when our 

economy is desperately in need of that kind of reinforcement. 

This would be a win-win and so easily done for these programs 

that have demonstrated their effectiveness and their success. I am 

disappointed. I am sure that you share that disappointment in 

7

many ways, but we are where we are and we are going to have to 

go back to the drawing board on many of these issues. 

Thank you, Mr. Chairman. 

Chairman KERRY. Thank you, Senator Snowe. 

You know, I was struck that Senator Snowe and I did not converse before this, and did not share a strategy or approach to our 

opening statements at all, but we each could have given the other’s 

statement, which is an interesting comment, Mr. Administrator, 

and I know these opinions are shared by other members of this 

Committee. 

I must say to you, my conclusion after all the years I have been 

on this Committee, and now as Chair, is obviously that this is just 

ideologically driven. It is a sad statement, but basically the Administration does not believe in the SBA. 

It has been starving it on a steady rate since it has been here 

partly because, as we learned during the Reagan years, when you 

cannot exactly get rid of it altogether, you marginalize it. And I 

think it is really sad that an agency that does as much good and 

has the potential to do as much good, gets put in those shoes. And 

I think it is unfortunate for you. You do not have to comment on 

that if you do not want to, but it is my take on where we are that 

this is driven by folks who just do not believe the Federal government ought to be involved in helping businesses except in emergencies for disaster assistance. It ignores the reality of the Intels 

and Callaway Golfs and FedExes and a bunch of other companies 

that got where they are today because of SBA’s programs. And 

there could be so many more created. But instead we are moving 

in the opposite direction, particularly at the time of greatest need. 

So we look forward to your testimony. I did mean to quote Chairman Greenspan, who is still referred to as such, because that was 

his speech that he gave the other day about the zero growth, and 

I would like to invite your testimony. 

I apologize, Senator Dole, I am very sorry. 

Senator DOLE. No problem. That is perfectly all right. 

Chairman KERRY. You are wearing that black. You are blending 

into the chair. 

Senator DOLE. I am blending in too much. 

[Laughter.] 

OPENING STATEMENT OF THE HONORABLE ELIZABETH DOLE, 

A UNITED STATES SENATOR FROM NORTH CAROLINA 

Senator DOLE. Thank you, Mr. Chairman, Ranking Member 

Snowe. I am delighted you are holding this hearing this morning 

and, Administrator Preston, thank you for being here to testify. 

Some of what I am going to say is going to be repetitive but it 

will just underscore that we are all certainly of the same mind 

here. 

Small businesses have been the key components to the engine 

that ran the booming economy for so many years and they will be 

integral certainly in reviving the slower economy that we are experiencing today. 

As banks continue to tighten their belts and credit remains 

scarce in open market lending, the 7(a) guaranteed loan program 

8

remains an essential outlet for qualified small businesses to obtain 

capital. 

I hope that the Administration’s suggestion of a 29 percent increase in guaranteed loan levels can become a reality. 

North Carolina, in North Carolina we often find ourselves in the 

paths of a hurricane. We have had lot of hurricane problems and, 

while we have not experienced a direct storm in recent years, a 

couple of years, we are in the midst of another type of disaster, a 

natural disaster which is an ongoing drought that is one of the 

worst in the Nation. 

In fact, I had a group of farmers in just recently and we were 

talking about H–2I and H–2B and H–1B, and one of them said, an 

H2O, and I said, well, you are going to have to look somewhere else 

for that one. I cannot help you on that. I will be glad to try to help 

on the others. But it has been a severe drought problem in North 

Carolina. 

Following many catastrophes, SBA disaster loans have helped 

North Carolinians and their businesses recover and I truly applaud 

your work to improve the disaster recovery plan. I look forward to 

working with my colleagues to ensure that adequate funding is 

available to implement this initiative. 

In addition, the availability of electronic applications and a more 

streamlined loan approval process will improve folk’s ability to receive the funds they desperately need after a disaster. 

With regard to women-owned businesses, I have long been an advocate for these firms and I am proud of the significant impact that 

they have had on the overall economy. In fact, it has truly been 

phenomenal. 

I was unable to attend the hearing that you had a few weeks 

ago, Mr. Chairman, but let me say that I am very concerned about 

the SBA’s proposed rule for the Women’s Procurement Program. 

I have joined Senator Snowe in introducing legislation that 

would provide a fix for this misguided rule. 

Furthermore, I am troubled by the Administration’s proposed 3.5 

percent cut to core SBA programs which includes funding Women’s 

Business Centers. These centers along with others that are a part 

of the Entrepreneurial Development Program provide critical services and should receive adequate funding. 

Again, Mr. Chairman, I want to thank you for holding this hearing and just say to Administrator Preston that I was with one of 

his predecessors, Erskine Bowles, last night and he sends his 

warmest to you. 

Thank you. 

Chairman KERRY. Thank you very much, Senator Dole. 

Mr. Administrator. 

STATEMENT OF THE HONORABLE STEVEN C. PRESTON, ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION, 

WASHINGTON, D.C. 

Administrator PRESTON. Thank you, Chairman Kerry, Ranking 

Member Snowe, Senator Dole, for the opportunity here to present 

the President’s 2009 budget. 

If you look back at the year we are just coming off of, I think, 

has been a year of very significant accomplishment for us. And 

9

what I would like to say about the 2009 budget, as we look forward, is I think it is going to help us continue to make a lot of 

progress with respect to our ability to drive clear outcomes for 

small businesses, to provide effective service to small businesses 

and disaster victims, and to continue to prepare our work force to 

be accountable to the small business community. 

In 2007, we saw the number of loans go up. We saw our Disaster 

Assistance Program dramatically re-engineered to shorten response 

times, to improve the operation, improve service for the people that 

need those services. We worked with Federal agencies to improve 

the accuracy of contracting data and bring greater transparency to 

that process. A total of $78 billion in prime contracts went to small 

businesses and over a million small businesses used SBA Entrepreneurial Development Programs provided through our resource partners. 

I appreciate you mentioning it, Senator Snowe. I am particularly 

pleased that the employee morale at the agency has rebounded dramatically and we continue to be very focused on that issue, especially as a service organization. 

You highlighted that, technically the budget shows that it is a 

15.5 percent increase. There are a lot of moving parts to that. 

What I would say is, when you look at the core operating budget 

at the agency, the ability for us to run those programs, to serve the 

needs of the people through the agency, our core budget is up 6 

percent. 

That reflects a continuation of a lot of the operational reforms 

that we are making at the agency to help us be more effective and 

more responsive to customers. Many reforms of which involve extensive process re-engineering and technology improvements, the 

under-served marketing initiatives to support small business formation and growth in areas of our country with higher levels of 

poverty and unemployment which I think is so important to energize local economies and create jobs, bringing sustained investment. 

And also that is sort of a core piece. As you noted, disaster funding is a different kind of funding request and reflects carry-over 

funding and special needs. 

The other third piece, I think, is really where we are seeing the 

impact is the non-credit programs. We have asked for funding for 

the primary non-credit programs which are consistent with historical requests. 

Obviously the enacted funding levels for 2008 were increased at 

the end of the year and so as a result we would see some decline 

for the SBDC and Women’s Business Centers as a result. 

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

service to our partners and our customers, by sharpening our product mix, deepening our penetration in key markets where we think 

we need to be present and by developing more sophisticated oversight, we believe we will continue to expand our impact on the 

small businesses of America. And I would like to get into, in the 

Q and A, a little more detail on how we think we can do that. 

I also want to say how much I do appreciate all of your support 

for our programs, and for the reforms that we have been trying to 

drive at the agency. It has been very encouraging to me. 

10

I would also like to say how thankful we are that you continue 

to focus on the broader economic issues that support small businesses. Specifically the stimulus package that was passed earlier 

this year we think is going to be a real booster shot. 

We think it is very important for small businesses and we know 

that your leadership will mean rebate payments for individuals, 

married couples as well as investment incentives for small businesses as they look to create jobs and stimulate the economy. 

In addition to the stimulus package, I join the President in pushing for strong longer term economic policies that we think will be 

very important for small businesses in the future, Specifically making tax cuts permanent and right now specifically taking a hard 

look at a lot of these free trade agreements that are before us and 

truly understanding what they mean for small business. 

Right now, small businesses represent almost 30 percent of our 

exports. We believe it is very important that we continue to provide 

a platform and enabling agreements to allow them to reach those 

foreign markets and expand more broadly. 

The pending agreements before us will level the playing field for 

U.S. exporters not only by equalizing the tariffs, but also addressing other issues which I think have a particularly strong impact on 

small businesses who want to export. 

Intellectual property protections. Obviously small businesses are 

terrific innovators and it is very important that they are protected 

there. Other issues like addressing excessive licensing and inspection requirements, burdensome paperwork and inconsistent customs procedures tend to weigh more heavily on small businesses 

that do not have staffs to take care of these things. 

I think Colombia is a great example. 85 percent of the exporting 

companies to Colombia from the U.S. are small businesses, and 

whereas small business represents about 29 percent of our overall 

exports, they are 35 percent to Colombia and we think the FTA 

will continue to expand opportunities there. 

So once again, I appreciate the cooperation and the bipartisan 

spirit that has brought us together on a lot of critical issues. I very 

much appreciate your support for our program, and I look forward 

to working together on a lot of these issues. 

As a final note, let me comment on two bills that I know are important to the Committee, the Energy Independence and Security 

Act of 2007 and the Military Reservists and Veterans’ Small Businesses Reauthorization Opportunity Act of 2008. 

Obviously those bills came in a little bit late for us to acknowledge them in the budget, but we are moving forward on implementing all the provisions in those two Acts that do not require a 

specific appropriation. 

We would look forward to working with your staffs to keep them 

updated on how we are progressing. We appreciate your support on 

those. 

Once again, thank you for inviting me today and I look forward 

to answering any questions you have. 

[The prepared statement of Administrator Preston follows:]

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Chairman KERRY. Thank you, Mr. Administrator. 

Let me begin by asking you about lending. For the sixth year the 

President has proposed zero funding for the 7(a) loan program and 

is raising the lender fee by about five basis points. 

Lenders have been really trying to communicate to you very directly. They have written to us on the Committee. Let me just 

share with you what National Association of Government Guaranteed Lender letter says. You may recall it. 

‘‘Dear Administrator Preston. NAGGL is concerned about the deterioration in the financial markets and its impact on the economy 

and small business. We believe that a nationwide credit crunch is 

underway as lenders tighten lending criteria and reduce credit 

availability. 

‘‘This situation has been precipitated by the subprime lending 

crisis, an infection that is spreading to SBA’s 7(a) loan program, 

and I would like to ask your assistance in assuring the continued 

availability of the 7(a) program so critical to the U.S. economy 

overall. 

‘‘As you know, year to date, 7(a) loan volume is down 11 percent 

in numbers and 2 percent in volume. In these uncertain economic 

times, the SBA and its active lending partners are in a position to 

help alleviate the credit crunch and provide economic stimulus and 

assistance to small business. 

‘‘Based on SBA and FDIC data, SBA’s 7(a) loan portfolio is performing as well as bank conventional small business loan portfolios. But senior management decisions at lending institutions to 

cut operating costs and curtail credit available in response to the 

subprime situation have impacted the 7(a) program.’’

So, Mr. Administrator, this letter was written to ask for relief 

from the newly imposed lender oversight fees but it also applies to 

the cost of the 7(a) program overall. So why raise the lender fees 

on the very partners that we need and work with so effectively to 

provide capital and keep credit out there? 

Administrator PRESTON. Well, the fee increase proposed in the 

year 2009 budget is just over five basis points. So, I mean, truly 

on a typical loan, it is pennies a day, and when we look at that, 

.05 percent that compares with 2.25 percent in Fed easing benefits. 

Chairman KERRY. So you do not think their plea of impact is 

legit? 

Administrator PRESTON. I think on the margin any time you reduce costs there is going to be some benefit. I think our fee increases going into 2009 are a very insignificant impact. 

Chairman KERRY. But they do not believe that. You are at odds 

there with——

Administrator PRESTON. The primary issue I think he is addressing in that letter is a lender oversight fee so that we have the ability to go in and provide the kind of oversight we discussed not long 

ago in our lender oversight hearing. 

Now, what I said at that time, Senator, was I think for most 

banks—the vast majority of the banks in our programs are not getting charged for this. We are really focusing on banks that have 10 

million or more in SBA guarantees. And the majority of the funding from those banks, it is a relatively insignificant cost. 

23

I do acknowledge, and we are working on this issue right now, 

there is a tier of banks that are big enough to fall into our heavier 

oversight category but small enough to still be relatively small 

where I think it is a cost issue. Right now I think it is about 12 

basis points a year on their portfolio. So I have a team looking at 

how to address that tier of capital. 

The much bigger issue which is a very different kind of situation, 

let me tell you. I have spoken to hundreds of banks and I speak 

with all the big banks and my people do too. 

The bigger issue has to do with fundamental credit policies in the 

banks right now. Right now, if you look at the dollar volume in our 

programs, and actually the numbers are updated. Our numbers are 

down more than are actually indicated in that letter as of last 

week. 

The dollar volume is down just over 7 percent. Five banks make 

up 100 percent of the decline we are seeing in the program. Two 

of them have made very significant credit pullbacks, a couple of the 

banks are going through mergers and pulling back from our programs, and then there is a fifth. 

So what we are seeing is, in some of these bigger institutions, 

very significant changes in how they view credit right now and 

they are going through a period of time where they are trying to 

decide what their approach to small business lending is. 

We are in the middle of a very active nationwide campaign to 

meet with senior members of the larger banks centrally. All of our 

district offices have literally hundreds of touch points that they are 

in the process of making with different banks locally to say, make 

sure you understand how our programs can help you cover loans 

that you would not do conventionally any more. Let us make sure 

that, if you are using one product, you look at all three or four 

products that we offer. And at the same time we are in the middle 

of an active outreach campaign to bring more banks into the program. 

But I think to look at this as an issue of SBA fees is to understate the broader issue which is a much bigger credit philosophy 

that is being determined among many of our Nation’s largest 

banks. 

The other thing I would say is they are not all in the same place. 

Some of our banks are pushing forward and expanding credit, but 

a handful of them are really driving the biggest issue for us and 

we are tying very hard to roll up our sleeves, sit with them and 

work through with them how best to address these issues. 

Chairman KERRY. You do not think that there is a cumulative 

impact in the sense that you have a fee problem here, you have a 

credit problem here, a whole issue of the economy and then it sort 

of——

Administrator PRESTON. I think there is a cumulative impact in 

some ways. The biggest impact I think is that we had an appetite 

for credit in our economy which I think was probably most heavily 

exemplified in the subprime situation but was reflective of a risk 

profile in other markets that led to lenders reaching too far and too 

hard. Now they are beginning to see their delinquencies rise and 

many of them are pulling back dramatically. That is not fee driven. 

24

At the same time, however, we are increasing our fees on some 

lenders to improve oversight. But what I would say is, if there is 

any time we want good oversight in the market place, it is right 

now because of what we are seeing in delinquencies. 

Chairman KERRY. We had that argument last year about the 

whole who should pay for oversight issue. Obviously you resolved 

it in favor of the government. 

Administrator PRESTON. Well, we pay for most of our oversight. 

But there is a portion, the onsite, specific onsite work that we do, 

where we send people to the banks to do work, they pay for some 

of that. 

Chairman KERRY. What is the difference on this fee? How much 

money would the SBA need to keep from raising the 7(a) lender’s 

fee on a lending level of about $17.5 billion? 

Administrator PRESTON. I would have to get back to you. Excuse 

me. 

We are collecting about a total of $8 million in fees. 

Chairman KERRY. $8 million? 

Administrator PRESTON. For all of our lender oversight activities. 

Chairman KERRY. What about the 504——

Administrator PRESTON. One of your staff members is shaking 

her head so we will connect with you afterwards to make sure that 

we connect the dot on whatever those numbers are. 

I am sorry. 

Chairman KERRY. No, I was just going to say, on the 504 program, why are you going to operate that program at a negative 

subsidy? 

Administrator PRESTON. Well, the 504 fees, as you know, are 

coming down this year and that is primarily based on the fact—

the annual fee goes from like 2.1 basis points down to zero. So that 

is actually improving in fees in 2009 and they are not currently 

being charged for lender oversight. 

Chairman KERRY. I do not want to take too much time here because we have got a number of Senators. But on the microloans, 

help us understand how the SBDCs that have been cut 10 percent 

and the WBCs which have been cut 9 percent and then SCORE 

which is level funded, how do they take on the extra micro borrower clients—there were more than 2000 of them last year? 

Administrator PRESTON. That is correct. I think there are twoand-a-half thousand loans we did last year but that is two-and-ahalf thousand going into a network between SCORE, SBDCs and 

Women’s Business Centers of over a million a year. So it is a tiny 

fraction of what they do overall. Two and a half thousand going 

into over a million. 

So we do not view that as being, by any means, a significant increase in what they are doing. We do acknowledge, however, as you 

all have acknowledged in your opening comments, that we are proposing flat funding to our prior proposal which is a decline off the 

appropriated level. 

Historically our stance on SBDCs and Women’s Business Centers 

and SCORE has been we provide a significant base level of funding 

which then they go match through state and local sources or other 

nonprofit sources. Many of those organizations have been successful in expanding their funding by taking our base grant and going 

25

and matching or exceeding that match. And, you know, our hope 

would be that they continue to do that. 

Chairman KERRY. When you say your hope is that they continue 

to do that, I mean, is there not just a per se additional burden with 

less resource in a situation where they are already——

Administrator PRESTON. I think there is a burden on that. 

Chairman KERRY. What is the rationale? Help us to understand. 

Why do you say we are going to cut you but do more? 

Administrator PRESTON. Well, first of all, our budget was submitted when we had an expectation of it being flat rather than a 

cut, obviously, because 2008 was enacted subsequent to our submitting our budget. And our philosophy behind the flat funding is——

Chairman KERRY. But it is a cut, am I not right, 10 percent for 

the SBDC and 9 percent for the——

Administrator PRESTON. Right. Yes. It is cut. 

Chairman KERRY. What is the rationale? 

Administrator PRESTON. The rationale is, we will provide you 

with a very significant level of base funding, but as you expand 

your network, become more relevant to your community, we would 

like you to continue to expand your funding base outside of what 

the Federal government provides you and we will continue to give 

you that base level of funding, but you need to look for other 

sources to expand. 

Chairman KERRY. Senator Snowe. 

Senator SNOWE. Thank you, Mr. Chairman. 

Mr. Administrator, the fiscal and philosophical underpinnings of 

this budget truly is troubling because we see this long-term pattern 

of underfunding of the Small Business Administration. 

It troubles me for the future of these programs and for the agency because it is basically the eighth consecutive year that does not 

account for inflation in funding for the very agency that does create 

jobs. I asked my staff to list exactly what the agency accomplishes. 

I am sure you are well aware of it. Obviously there are others who 

are not, and that is troubling at a time in which we desperately 

need to have job creation, the activity where small business is on 

the front line. 

Going through those jobs created and retained by not all the SBA 

programs, but some of the core programs, we note that for small 

business federal prime contracts in fiscal year 2006, we have the 

latest year for which numbers are available: 578,760 jobs were created or retained; in fiscal year 2007 for the 7(a) loan programs, 

605,600; 504 loans, 242,400; microloans, 62,000; and Small Business Development Centers, 144,000. 

Those are substantive numbers for job creation and retaining our 

jobs rather than losing them. We are moving in the wrong direction. I do not quite understand what is the problem. 

My staff also put a chart together. I thought it was interesting 

to make the point. We understand that every agency cannot have 

inflation built into its budget every year. We understand that, and 

especially now with the debt that has been compounded by longterm cost, but comparing milk and eggs just look at the inflation 

factor. That just gives you an illustration of how dramatic the inflation has been since 2001. 

26

The SBA budget is minus 27 percent. The cost of eggs is up 39 

percent, from about $2.87 to $3.87. The cost of milk is up 118 percent. 

[See chart attached:]

27


43235.012
28

We are talking about dramatic numbers here and yet the Small 

Business Administration has seen a decline of 27 percent. It is having to do more with less, and certainly, each of these programs 

have worked to be mightily efficient and they have been. But there 

comes a point in time that it becomes counterproductive and it does 

erode the basis for the program. 

When we have a budget that is ostensibly presented by the Administration that suggests that it is an increase when, in fact, it 

is not, I want to get a better understanding exactly what is the 

problem. Is there not a recognition, for example, within the Office 

of Management and Budget that these are job creators? We get 

more bang for the buck in the small business programs. There is 

no other agency that creates these jobs like the Small Business Administration. It is demonstrated time and again. 

Administrator PRESTON. Yes. Let me break that down a little bit 

and give you my view on what that means. 

I think this agency has had a tremendous opportunity to figure 

out how to deliver what we do better, more efficiently, and it is not 

just about efficiency. It is about effectiveness. 

I was thinking about this the other day, you know, moving from 

writing checks in a checkbook every day to going to online banking. 

Online banking is not only a lot more efficient, but any time I need 

information about my account historically, graphs or charts, whatever, I can push a couple of buttons and it is all there. 

So there is an ability in an analogous way, there has been and 

there will continue to be an ability for us to improve the service 

we provide small business, do better outreach, take a lot of the administrative burden and streamline it and automate it so that we 

do better outreach. And that is why I am focused heavily, in part, 

on the core budget of the agency to be able to run and that is the 

piece that is increasing 6 percent. You know, with your support, it 

increased last year and the year before. And that is very, very important for us to be able to deliver what we do. 

Then there is another group of programs which I know a lot of 

you care a lot about which, you know, our view is for what they 

deliver they are very expensive. That is not to say they do not 

reach important people or they do not do good work but specifically 

microloans and, Senator, you mentioned New Markets Venture 

Cap. There is a lot of additional funding that goes into those programs for every dollar that they invest. 

And what we are trying to do with those is think about much 

more efficient ways to deliver capital much more broadly than 

those programs can reach. The microloan program right now only 

does about two-and-a-half thousand loans a year, but it cost us $18 

million. New Market Venture Cap is a very small program but it 

is very expensive. 

So those are programs, even though they reach important people, 

we are trying to pull back and say, how do we reach those communities a lot more efficiently through our network? 

The third piece is the philosophical issue we just discussed which 

is what is the best way to provide support to our resource partners? 

Should we expect them to be able to expand the support they get 

outside the Federal government? 

29

So, Senator, I am less concerned about our ability to operate the 

agency well because I think you all have provided us with funding 

to continue to improve what we do. And let me also mention. Over 

2 years I think from 2007 to this 2009 budget we are adding over 

100 people which we will put to good work, based on the expansion 

of the agency. 

That is kind of how I look at it. I think we can run the place 

very well and improve our service. I think there are some key 

issues with the programs we have to determine philosophically 

where we should be on them. 

Senator SNOWE. Would you not admit, though, that these programs are going to suffer accordingly? The net effect would be that 

we will create less jobs and preserve less jobs at a time in which 

we need and require them. 

Administrator PRESTON. I think that our resource partners do a 

great job. They touch over a million entrepreneurs a year and I 

hope they can expand their funding base. I know it is not coming 

from us. 

I also have to acknowledge, you know, when it comes to discretionary funding this year, the overall non-defense-related discretionary spending, that the budget is flat overall and so we are operating in a tight cost environment with respect to non-defense discretionary spending. 

Senator SNOWE. But even in years when we had surpluses, we 

received budgets, prior to your tenure, from the Administration 

that proposed reductions. That is the problem. It is a compounding 

effect that ultimately is going to have negative consequences, because it is going to create less jobs and retain less jobs in a challenging economic environment that we find ourselves in and it is 

going to be the small businesses and the small lenders, as Chairman Kerry indicated with the stories that were in today’s papers. 

That is the problem we are facing. 

As credit tightens, it is going to be much more difficult. Once you 

reduce the amount of money available, when you increase the costs 

of providing it to small businesses in terms of loan assistance, 

when you eliminate technical assistance as you do in the microloan 

program, obviously it is going to have a negative impact. 

Administrator PRESTON. Yes. What I would say is for the 7(a) 

and the 504 program, I really do not see constraints on our ability 

to expand based on what is happening in the agency. 

I think economy-wide with a lot of the credit decisions we are in 

a whole different situation, but I do not think from a budgetary 

perspective, that is putting constraints on us. 

And we would be happy to spend time with your staff to talk 

about specifically how these oversight fees impact different tiers of 

lenders and what they mean to us. 

I appreciate your comment on the microloan program. 

Senator SNOWE. For every job that we create by a microloan it 

costs $3,608. It really does provide a tremendous return. I know 

that has been true in my state. You have not recommended eliminating the program this time but now we are in a position where 

you are going to eliminate the subsidy and you are going to remove 

the technical assistance. 

30

Obviously we are going to have to work on these issues on a bipartisan basis as we have in the past. Regrettably, that is what we 

had to do last year in order to restore it. But it is beyond that, and 

it bothers me because it is clear that it is shortsighted not to provide the kind of support for these programs when men and women 

in small businesses throughout our country could use these programs to the maximum and help to alleviate some of the economic 

downturn that we are now experiencing. 

Thank you, Mr. Chairman. 

Chairman KERRY. Thank you very much, Senator Snowe. 

Senator Cardin. 

Senator CARDIN. Thank you, Mr. Chairman. 

Let me follow up on Senator Kerry and Senator Snowe’s point 

and I agree with the points that have been made here. Over the 

last 7 years, we have seen a significant reduction in effective resources that the SBA has had to deal with helping small business. 

In my State and this Nation, small businesses is the economic 

engine. That is when the new jobs are being created, but it also offers opportunity particularly for minority communities and for 

women-owned businesses to grow in our economy. 

My concern is, as I have listened to your testimony, Mr. Preston, 

I can tell you that on the ground the services are needed at a higher level than are currently being supplied by SBA. 

On the loan and venture capital programs, I have met with many 

small business owners in my State and they are in need of greater 

help on the capital programs, on the venture capital programs and 

the loan programs. And it is just very obvious to me, as we are 

going through this economic downturn, the businesses that are 

going to be most effective are those that do not have the large capacity to withstand change in the economy, our small businesses. 

And I just do not quite understand your testimony as it relates 

to the availability of resources to help small businesses as far as 

capital is concerned. I think we should be increasing the availability, making it less expensive, not making it more expensive in 

reducing the capacity to respond to those issues. 

Administrator PRESTON. Sir, I think the one program where we 

are talking about pulling back funding significantly is the 

microloan program which makes two and a half thousand loans a 

year, two-and-a-half thousand very small loans a year. Once again, 

I think those people do good work. I think those are important 

businesses. But when you look at that more broadly, what we are 

to the economy or what we provide, there is nothing about our 

budget that would pull back funding. It is a zero subsidy program 

and until 2007——

Senator CARDIN. Well, my understanding, even on the 7(a) program, the economics of it is difficult for small businesses. We 

should be looking at ways of liberalizing that, it seems to me. 

Administrator PRESTON. Are you addressing the fees on the program? 

Senator CARDIN. Fees, yes. 

Administrator PRESTON. OK. It is a zero subsidy program right 

now and let me just kind of throw a benchmark out there. 

I think various people have proposed subsidizing the program, subsidizing the up-front fees. If we subsidize these programs, $150 

31

million, I was doing the math yesterday, it would be 40 to 50 cents 

a day on our average loan for a borrower. The amount of money 

that, you know, if we look at a fairly sizable subsidy, the impact 

on those loans I just do not think moves the needle to the same 

degree that a lot of other people think they do. 

Senator CARDIN. The facts are that the amount of loans being 

made available to minority businesses are not reflective of their 

number in our community. They are not getting, in my view, their 

fair share and I think cost is one issue. 

Administrator PRESTON. Sir, our portfolio has five times the representation of women and the minority loans than the non-SBA 

economy. So we have very extensive minority outreach. We have 

very expansive penetration in the minority community, and frankly, the one category right now, one of the few categories that is 

growing in our portfolio right now is African-American loans in 

terms of their percentage of the portfolio. 

Senator CARDIN. I would like to see those numbers. 

Administrator PRESTON. We will go through all the numbers. I 

talked to one of your staff members a couple of weeks ago to say, 

I know this is a concern of yours based on the last hearing. We 

would love to go through all those numbers with you and through 

a recent study that was done. 

Senator CARDIN. I really appreciate that. 

Administrator PRESTON. Because I think this is where we have 

a very good story. 

Senator CARDIN. Let me bring up my second point before my 

time expires and that is on government procurement, which I think 

is the second area where SBA can really help. 

And the numbers that we have seen have been disturbing. We 

know that on the women procurement issues we were anticipating 

many years ago that we were going to improve there and then we 

come back with only four categories of Federal procurement that 

are going to be subject to these new rules out of 140 I think there 

was. That raises major concern for us as to whether we really have 

a good faith effort to help women-owned small businesses in government procurement. 

And then second, an issue that has been a major concern for us 

for many years and that is bundling, which has a major impact on 

small businesses being able to obtain government procurement contracts. 

Last year we did increase by a few the number of people and the 

PCRs that are helping, that their services are vitally needed. When 

those numbers were released, we could have used two or three in 

our State alone. I was hopeful that the budget would continue that 

by recommending additional support because that is critical to getting small companies into government procurement and monitoring 

the bundling problems within the agencies but it looks like your resources to deal with that will not be keeping up with the need. 

Administrator PRESTON. Can I address those two points? 

I feel very strongly that we need to separate, to some degree, the 

rulemaking process on the women’s procurement rule which is the 

establishment of a set-aside program with the Federal government’s performance on women-owned small business contracting. 

And although the Federal government does not hit its mandated 5 

32

percent, I think we are somewhat over 3. Women’s businesses grew 

a billion-and-a-half last year. They were the highest growth of any 

of the targeted small business groups. They hit a record level and 

they grew faster than any of the other areas that actually have setsides. We have very extensive outreach in the women’s community 

and we are expanding that this year. 

We are in the middle of a Federal rulemaking process. I understand some people do not agree with the direction we are going, but 

that is not the only thing that is driving opportunities for women 

in the Federal government. It is only one component and we are 

doing a lot of work and we are seeing a lot of success in advancing 

the ball. 

We would be happy to spend time with you and go through those 

numbers. 

The issue with the procurement center representatives. We are 

now, by April——

Chairman KERRY. Why would you not create the rule in a way 

that sort of incorporates that good effort? 

Administrator PRESTON. Because the way the rule is designed is 

very specifically based on, and you all lived with the history of this 

rule well before I came to SBA, but I think the issues, if you will 

recall, the National Academy of Science set up a methodology for 

determining how to do this rule. 

Chairman KERRY. We went through this sort of variation on your 

options, and you are doing that good job and you are reaching out 

the way you say you are to Senator Cardin which is very positive, 

I mean it is great to hear. Why not have the rule embrace that so 

that you are sort of in a sense codifying this pro-activity? 

Administrator PRESTON. Because the rule is design to clearly 

capture those categories where women-owned small businesses are 

under-represented based on a methodology that was laid out by 

NAS. 

Chairman KERRY. So, in effect, you are reaching out and expanding women-owned businesses that are not under-represented. 

Wouldn’t it make more sense to target industries that are underrepresented? 

Administrator PRESTON. Actually it makes them more represented in categories where RAND would say they are currently 

fully represented. But I do not think——

Chairman KERRY. That is what I am saying. It makes them more 

represented where they are already represented. 

Administrator PRESTON. Exactly. 

Chairman KERRY. But the people you want to reach are the 

under-represented? 

Administrator PRESTON. Well, first of all, we want to reach all 

people and we want to reach all people in our targeted categories. 

I think the comment, and I do not want to put words in his 

mouth, but I think the issue we face on this, Senator Levin brought 

it up last time, which is, you guys have gone on a path where you 

really try to comply with the letter of the law. Those are my words, 

not his. And that is true. We looked very specifically at what NAS 

recommended. We took their recommendations and we implemented it based on that. Senator Levin’s comment was, why would 

you not look at the policy objective and try to achieve that. 

33

I want to remind everybody that the reason we got into this long 

timeline is because the original study that the SBA did in 2002 was 

basically thrown out for being methodologically indefensible. And a 

lot of those elements of indefensibility were the things that we 

tried to address in getting to that final rule. 

So we put in place a proposed rule with significant discussions 

with other people in the Federal government or what we thought 

was a defensible rule that complied with the recommendations of 

the NAS. 

Chairman KERRY. I yield back to Senator Cardin. 

Senator CARDIN. I want to get to bundling. I do not want my silence to say that I agree with that. I think it somewhat defies logic 

that it is limited to four categories, but I will let you go on to the 

bundling issue. I do not think we are going to resolve it here. 

Administrator PRESTON. Yes, the bundling issue is as follows, 

and by April we will be through a hiring process whereby we will 

have more procurement center representatives than we have had 

since 2000 and we have got another four in process to get hired. 

So we will be at the highest level than we will have been for many 

years. 

But what I want to say is those are people that we put at the 

buying activities with other Federal agencies to review contracts. 

On the other hand, we have hired about 50 people on our field network and we also filled many open positions and hired many more 

to bring more people into the district offices, like your Baltimore 

office, that actually work with the small business. So those PCRs 

work with the Army Corps of Engineers or DOD or whoever. 

We have expanded the number of people that are available to do 

small business training and outreach. We have significantly retrained them. And we are beginning to roll out tools and technologies that take away their administrative burden to free up 

more time so they can sit and counsel small businesses. 

So we are addressing the procurement opportunity in a lot more 

ways than just the 66 PCRs out there. This involves hundreds of 

people through our field network. 

I really want everybody to understand that because I think this 

is going to be an important part of our outreach to bring in more 

small businesses and women-owned small businesses and these 

other people into the contracting picture. 

Senator CARDIN. And I want to agree with you. I think they are 

very valuable services, both parts of it, working with the agency 

and working with the small businesses so you get less bundling 

and we get better information to the small businesses of opportunity. I think both are critically important. 

I would just question whether the numbers are right. I think you 

could use—just from the services that are available in Maryland, 

I can tell you we could use more help in our State and I do not 

think it is isolated to Maryland. 

Thank you. 

Administrator PRESTON. Thank you. 

Chairman KERRY. Thank you, Senator Cardin. I would agree 

with that. 

Senator Dole. 

34

Senator DOLE. Thank you, Mr. Chairman. And, Administrator 

Preston, let me say again to you, I applaud your efforts——

Administrator PRESTON. Thank you very much. 

Senator DOLE [continuing]. Toward trying to ensure that the 

SBA and its programs remain as effective as possible while perennially you are getting fewer funds with which to work. 

And I just find it hard to understand, and this has been mentioned often this morning, why the President has either recommended flat funding or reduced funding year after year after 

year for the SBA since he has been in office. 

Minus disaster relief funding, with the budget what the President has proposed for fiscal year 2009 amounts to another budget 

cut and one would think that at this particular point the SBA 

should have a funding increase, especially during the current economic downturn. 

But I was particularly disappointed in the proposed cut with regard to the Women’s Business Center Program and I am interested 

in what your plan is to adequately fund the existing centers and 

ensuring that money is available for graduated centers that would 

be eligible again for grants. And, in addition, do you plan on expanding the program to areas that are not currently served? 

Administrator PRESTON. The program was effectively expanded 

when the recent legislation allowed graduating centers to come 

back into the program. So I think with that, we are up to 111 centers from, I think it was 98 or 99 before that. And we would anticipate continuing to fund those right now. Based on the current 

budget request, we do not see a lot of room to expand that in the 

current budget request. 

Senator DOLE. Would you say that just a little louder? 

Administrator PRESTON. We do not have the ability to expand 

that because, I believe, the legislation specifically states that existing centers get priority over new centers. Previously the way we 

were working this was a certain group of centers would graduate 

ultimately over a period of 5 or 10 years. Depending on their funding period, they would work to develop their own funding base. 

They would graduate and we would bring in new programs. Recent 

legislation has redefined that to say existing centers get priority for 

funding. So we would expect to continue to stay around 111 centers 

right now at the current level of funding. 

Now, one of the things we had done is we have brought a number of the leaders of the Women’s Businesses Centers into Washington and begun to talk to them about whether there is a way 

that we could begin working with them to share best practices, to 

do non-Federal fund raising, and how can we support them in their 

efforts to do so. So we have begun to collaborate with them on 

those issues. But for right now, for our funding, we are not looking 

for an expanded level. 

Senator DOLE. Now, not only will they not be able to expand, but 

the current centers will receive less. So why did you not request 

more dollars? 

Administrator PRESTON. I think we did admittedly get into some 

timeline issues with the timing of various pieces of legislation, the 

passage of the 2008 appropriation and our submission of the 2009 

request. So a lot of those things kind of happened at the same time. 

35

We were not operating in full clarity when we did submit our budget for 2009 on what was going to happen on a lot of these other 

elements. 

Senator DOLE. One more question. I am very encouraged by the 

SBA’s new disaster recovery plan. 

Administrator PRESTON. Thank you. 

Senator DOLE. How can we ensure that there are enough funds 

and other assistance available to carry it out in the event of a catastrophe? 

Administrator PRESTON. Yes. One of the things I have really appreciated about the work on this Committee is the support of the 

disaster program. I know there are a number of elements that address our disaster program in the current farm bill. 

And if you look at what is in a number of those provisions, I 

think many of them would provide us with a foundation to be able 

to sustain what we have built, there are a lot of things that we do 

today that are not in statute anywhere and this codifies those 

things, regular report-outs to Congress on how we are doing and 

a number of other things. So we are hopeful that we will be able 

to work with you on those elements of the farm bill. We think that 

will provide a real good underpinning to our programs going forward. So I think that is probably one of the best ways we can do 

that. 

Senator DOLE. Thank you. 

Administrator PRESTON. Thank you for your interest in this. 

Senator DOLE. Thank you, Mr. Chairman. 

Chairman KERRY. Thank you very much, Senator Dole. 

Mr. Administrator, we will do another round here in a little bit 

and see if we can get through this. 

In February we enacted a veterans’ small business bill. Obviously you are up to speed on the 7(a) pilot program for the Veterans’ Energy Efficient Technologies? 

Administrator PRESTON. Yes. 

Chairman KERRY. And I know in the hearing with the House, 

you were asked why those pilot projects have not been implemented and you remarked that it was lack of funding. 

Administrator PRESTON. That may have been somebody else’s 

testimony. I do not recall having said that in the House. 

I am sorry. Wait, Senator. There is a 7(a) subsidy piece that is 

right now not appropriated. I apologize. 

Chairman KERRY. Well, on February 8 you were asked about the 

pilot loan programs to increase loans to veterans’ businesses and 

those trying to invest in energy efficient technologies. And we believe that we drafted that language in a way that the SBA did not 

need funding to implement the program. 

So can you share with us why you think you need funding to implement those programs? 

Administrator PRESTON. Right. I think the veterans’ program 

and energy efficiency bill both provided, I believe, a 50 percent subsidy on 7(a) loans. And those, based on our analysis, are deemed 

to be separate risk categories which would require a separate appropriation and would not come in under our current zero subsidy 

program. 

36

Chairman KERRY. Do you have a judgment as to how much you 

need to be able to implement those pilots? 

Administrator PRESTON. I do not off the top of my head, but we 

could certainly provide that to you based on anticipated volume. 

Chairman KERRY. Do you have a program volume that you can 

use to estimate for the Committee, based on the amount of loans 

made to veterans in the past? 

Administrator PRESTON. I do not have that for you today, but we 

could work with you to get that. 

Chairman KERRY. Could you get that to us? 

Administrator PRESTON. Yes. 

Chairman KERRY. In other words, the bottom line is we would 

like to know how much money—if, in fact, it is an issue of not having money, we want to know how much it is because that is a priority program for the Committee and, you know, it is kind of an 

unfortunate charade if veterans are being told that Congress 

passed a bill to help them to get into business and then they try 

to do it and we say, well, there is no money. 

Administrator PRESTON. Right. 

Chairman KERRY. We did not intend for that. We thought the 

current fees were supposed to be able to pay for that. 

Administrator PRESTON. Well, my colleague just gave me the number that we have in the veterans’ piece. Assuming a $1 billion 

program, the cost would be about $42 million, and I think last year 

we had about just over $900 million in veterans’ loans so that 

should be a good indicator. 

Chairman KERRY. Do you know what the demand was for that 

specific category? 

Administrator PRESTON. I think you are talking about two separate bills. So one of them, I think, provided subsidy for all——

Chairman KERRY. Right. One was for energy efficient technologies and one was for the veterans. 

Administrator PRESTON. Right. There would not have been a category of energy efficient technology loans because, even though 

they can do them under the 7(a) program, we would not have anything that would code them as such. That would be a totally new 

concept. 

On the veterans’ side, we do have numbers that show annual volumes in veterans’ loans. There were between $900 million to a billion last year. Assuming a billion dollar program, the cost would 

be $42 million. 

Chairman KERRY. And where do you stand now with respect to 

funding that? 

Administrator PRESTON. Both pieces we would need a separate 

appropriation. So what we would need to do, I think the veterans’ 

numbers are a lot easier to size. What we would need to do on the 

energy efficiency side is to somehow gauge either through internal 

conversations or external, how big that program might be and give 

you a sense of what the funding would be. 

Chairman KERRY. Is the veterans’ component contained within 

your budget request now? 

Administrator PRESTON. No, it is not. 

Chairman KERRY. Is there a reason why not? Would that not be 

a major priority for this Administration? 

37

Administrator PRESTON. Well, the veterans’ bill was just passed 

and so it is not something we have been able to reflect in our budget and I know we have been having conversations with your staff. 

Chairman KERRY. How do we get at it now? Will they ask for it 

in the supplemental? 

Administrator PRESTON. What we would need to do is work with 

you in the appropriation process to get these funds appropriated. 

Chairman KERRY. Will the Administration support funding for 

that program? 

Administrator PRESTON. I do not know at this point. I need to 

work with my colleagues in the Administration and bring back an 

answer to you. 

Chairman KERRY. So you do not know at this point whether or 

not you are willing to fund the veterans’ program that was signed 

into law by the President? He would sign it into law and not fund 

it? 

Administrator PRESTON. I do not have an answer for you on specifically subsidizing a veterans’ 7(a) program. 

Chairman KERRY. Will you get that for us? 

Administrator PRESTON. Yes. 

Chairman KERRY. How long will it take you to get that? 

Administrator PRESTON. I do not know, but we will be in touch 

with your staff right after the hearing. 

Chairman KERRY. Thank you. 

Now, with respect to the Small Business Loan Reauthorization 

Bill, Senate 1256. This is a bill that had previously been passed 

when Senator Snowe was Chair and it is an identical bill that the 

Administration supported at that point in time. 

You have stated publicly that instead of fee reductions or suspension of lender oversight fees, what the SBA really needs to do is 

encourage lending to reduce red tape and streamline its processes. 

That is exactly what Senate 1256 does. However, SBA issued a 

statement of Administration policy against the bill. I am having a 

really hard time understanding that. You support it when it is proposed by Senator Snowe. The Committee passes it out now and we 

have a statement of opposition. 

Can you clarify for us? 

Administrator PRESTON. I will have to go through the specific 

provisions in that bill and work with you on that. I do not recall 

specifically what elements of the bill the statement of Administration policy took issue with, so I apologize for that. But we will certainly provide you any clarity that we have. 

Chairman KERRY. I would appreciate your trying to get that. We 

need to get this bill through the Senate. It has passed the Committee. It is in the Senate, sort of sitting there languishing. We just 

cannot seem to get even a precise articulation of why it cannot 

move forward and I would like to see us try to do that. 

Senator Snowe? 

Can we get your commitment, Mr. Administrator, to work with 

us to get that through? 

Administrator PRESTON. What I will do, Senator, is I will confer 

with my colleagues in the Administration to get you a clear understanding of what specific provisions in the bill were an issue and 

make sure that we are communicating well in specific ways. 

38

Chairman KERRY. Can we get that in writing? 

Administrator PRESTON. Yes. 

Chairman KERRY. Thank you. 

Senator Snowe. 

Senator SNOWE. Thank you, Mr. Chairman. 

I wanted to discuss HUBZones, which is a critically important 

program because it helps to create jobs in areas that are impoverished, have significant under-employment, and a loss of manufacturing jobs. That has certainly been true in my State as it has been 

in some of the other parts of the country. 

Why is it that we are still seeing under-funding for the HUBZone 

program, when the goals have not been met? Since the 10 years of 

its inception, it still has not realized the goal of 3 percent. 

With the billions of dollars that are contracted by the Federal 

government why can we not direct these moneys to areas that desperately need it? 

Administrator PRESTON. First of all, I appreciate your support of 

the program. I think it is a very important program for us specifically in markets where we need to see job creation and growth in 

income levels, and we did see a very significant increase last year 

although obviously we are not hitting the numbers. 

If I recall off the top of my head, Senator, it was about $1 billion 

increase in the amount. I think what we need to do is continue to 

work more specifically with the procuring agencies to look hard at 

the HUBZone firms as an opportunity. 

One of the things we did this past year is we rolled out a tool 

that helps contracting officers find HUBZone firms in the geography they are looking for, in the industry they are looking for, and 

also other firms. But they can stick in HUBZone if that is what 

they want to do. 

And so I think we need to continue to get very focused on bringing that opportunity to Federal contracting officers. 

Interestingly—this is sort of a side line—much of what we are 

seeing come through the HUBZone contracting is not even done 

with HUBZone set-asides. In other words, most of these are either 

being competed or coming through 8(a) set-asides. 

So my concern is, which I think is also an opportunity for us, is 

that people are not looking at this in as focused a way as they 

might be looking at our other programs. I think the onus is on us 

to get out there and work with the Federal agencies who are doing 

the purchasing, to look at the HUBZone companies as a viable 

source of support. 

Senator SNOWE. It seems like it makes so much fiscal sense, 

given the fact that the Federal government spends hundreds of billions of dollars in Federal contracts and Federal procurement, and 

you can direct it to established HUBZone firms in HUBZone areas 

that require infusion in funds to help rebuild these rural economies 

because many of them are in rural economies. 

It would be a natural connection between the Federal government, with what they are already going to spend, to help direct 

those funds to areas that logically need it and can use it to build 

their infrastructure. 

39

I just do not simply understand it. I also notice that it is not a 

line item in the budget. Where is it? Under general operating expenses for HUBZone? Why is that? 

Administrator PRESTON. Historically it has been a line item because the line item significantly understates the amount of money 

we spend. I know one of the things that I think all of the agencies 

have been trying to do is take——

Senator SNOWE. Are you requesting more than $8 million? 

Administrator PRESTON. No. The line item is smaller than a—the 

line item historically has been smaller than the amount that we 

have spent on it. So I think what we did is zeroed out the line item 

and moved that into the overall operating budget because the operating budget had a portion of HUBZone. The line item had a portion of HUBZone and we are bringing them together in the operating budget. 

Senator SNOWE. It is a matter of priorities. 

Administrator PRESTON. We are not reducing the budget in 

HUBZone and we continue to——

Senator SNOWE. It is a matter of priorities. I would like to see 

$10 million as a minimum for HUBZones given the purpose and 

the goal of the program which is what we need at this point in 

time. 

It is all a matter of priorities and there are certain programs 

that have priority. There are programs within your agency that are 

of the highest priority and should be regarded in that respect. 

Administrator PRESTON. Yes. 

Senator SNOWE. Here is a good example as at this time we are 

seeing an extraordinary deterioration in rural economies, let alone 

the overall economy, because of the loss of manufacturing jobs. 

This is a time to help, to assist in rebuilding. 

Administrator PRESTON. Yes. One of the other things we have 

done, and I should have mentioned this a little earlier, is in the 

process of some of the work we are doing that I mentioned in response to Senator Cardin’s question where we have retrained the 

network and we are bolstering our support in the field for small 

businesses. One of the things we have directed PCRs to do is, if a 

small business set-aside comes up or if there is an opportunity for 

a small business set-aside, they are not only looking to make sure 

it goes to a small business set-aside, but they are looking to see if 

there are qualified firms in our other preference categories like 

HUBZone. Because we all acknowledge that women-owned business, service-disabled veteran-owned small businesses and 

HUBZone are not meeting the goal today even though we are making progress. So we have directed PCR specifically to look at those 

categories on new contracts to see if they can be driving more of 

the volume in those directions. 

Senator SNOWE. I just want to say in addition to what Senator 

Dole said about women’s procurement again, the Federal government has failed to achieve that goal since 1994. 

Most of the governmentwide contracting goals have not been 

achieved. If you look at women, HUBZone, service-disabled veterans, overall small businesses have not yielded the goals that are 

required by law that is deeply disappointing because again it gets 

back to job creation. 

40

Essentially since the beginning of this century we have been 

dealing with the same problems, frankly, and that is regrettable. 

Look at the database, to the point that Senator Cardin raised about 

bundled contracts, the Small Business Administration since 2000, 

the beginning of this century, was required to create a database, 

and that has not happened. And I understand, according to the Inspector General’s report of 2005, the SBA did not intend to create 

a database because it could not get the Defense Department to supply the adequate information. 

Is that true? Is it never going to be the goal of the Small Business Administration to create this database that is so essential to 

unbundling these contracts and also making sure that we can 

reach these procurement goals in each and every category as required of Federal agencies? 

Administrator PRESTON. Well, I was not familiar with that IG report from 2000. 

Senator SNOWE. 2005. 

Administrator PRESTON. I am sorry, from 2005 specifically. But 

one of the things we are doing, Senator, and making it public and 

I actually think it is beginning to work, is goaling all the Federal 

agencies on these subcategories, making their performance public 

and rating them based on their performance. 

And out of 24 agencies last year, 12 of them were red and that 

has done a lot for our ability to work collaboratively with the agencies and to put in place initiatives to help them meet these goals. 

But the other thing I would say, and I would remind the Committee is, in 2005 and 2006 we underwent a significant initiative 

to clean up the data which took almost $5 billion of small business 

contracts or contracts that were coded as small business out of the 

database. Through the new certification, recertification rule, we are 

tightening up the rules on what is considered a small business. I 

think that will take at least that much out of the database. 

So we are also, at the same time, making it tougher for those 

agencies to hit their goals by ensuring that small business contracts are, in fact, going to small businesses. 

And so even though I think we have made a lot of progress historically, we are making it tougher for them to hit those numbers. 

Senator SNOWE. Thank you. 

Thank you, Mr. Chairman. 

Chairman KERRY. Thank you, Senator Snowe. 

Senator Cardin. 

Senator CARDIN. Thank you, Mr. Chairman. 

Mr. Preston, I want to return, if I might, to a couple of issues 

I talked about on my first round of questions on African-American 

opportunities under the loan programs. 

The information I had is that the African-American population is 

about 12.8 percent. The number of loans under the 7(a) programs, 

although it has grown, is now about 8 percent of the number of 

loans which does not seem to me to be an effort to try to provide 

particular priority to African-American owned small businesses. 

I also have looked at the numbers and it looks like the size of 

the loans have been reduced 53 percent between 2001 and 2006 

from 181,000 on average to 84.5 thousand on average. 

41

So it seems to me that the numbers do not add up to the priority 

that should be given to making resources available to AfricanAmerican minority-owned businesses. 

Administrator PRESTON. Right. I think it is important, Senator, 

to look at a number of factors. First of all, year to date, the numbers of loans going to African-American small businesses are actually 11 percent. And that is where I said we are beginning to see 

dramatic expansion in——

Senator CARDIN. Year to date beginning the fiscal year? 

Administrator PRESTON. No. Last year, October 1. 

Senator CARDIN. October 1. 

Administrator PRESTON. And I am looking at my statistics as of 

last week. 

Second, if you look at SBA loans, and I will get you the exact 

numbers, I am talking a little bit off the top of my head, but our 

loans are four to five times more likely to go to minority-owned 

small businesses than loans that are outside of the SBA sector, 

conventional private sector loans. 

So we have, our portfolio is dramatically higher in its concentration of minority small business loans, women small business loans 

and startups. And if you look at historical studies on populations 

that have reported a competitive opportunity gap, it shows that we 

are very heavily serving those populations and that we are also a 

very significant portion of the capital that goes to those populations. 

We would be happy to come and brief you on a recent Urban Institute study that shows the significance of our programs specifically to those groups. 

The other thing I would mention, and this is a little bit to Senator Snowe’s earlier comment on HUBZone, is when you look at 

our lending program, over a third of the loans we do go to areas 

in our country where we see higher poverty and higher unemployment, and last year I instituted goals for every single office in the 

country, not only in overall loans but two other areas, veterans’ 

loans and underserved market loans. 

Senator CARDIN. Let me just point out that the numbers that I 

have that over the last several years African-American minorityowned businesses had gotten only 2 percent of the 504 loans. 

Administrator PRESTON. I will have to get you those numbers but 

I think the important thing to understand is we do a lot of outreach with banks. We do a lot of outreach with community development companies but we are ultimately a guarantor of loans that 

are made by private lenders. We do not make the loans. 

So what we try to do through the staff in our district offices get 

out there, make presentations to groups, work with the banks to 

reach groups that we think are important that maybe are not getting the capital otherwise. 

But, believe me, the efforts we have in many of the areas that 

you are targeting are very significant and I think we are a very differentiated force in the capital markets for many of the groups that 

you are referencing. 

Senator CARDIN. I appreciate your response on that. I just would 

urge that the numbers be reflective, and I am pleased to see a significant increase so far this year. 

42

Let me just make one final comment about the circumstances in 

my State of Maryland. I have been told the 7(a) loans are down 

about 40 percent in number and 25 percent in dollar amounts in 

the last year. 

And if that is accurate and there is, I would just suggest to you 

that there is something happening out there with a credit crunch, 

and small businesses are being particularly vulnerable to this. 

I would hope that we would be on the cutting edge, not the reactive edge, to try to help soften the problems that are being confronted economically in this country, and I think we have a serious 

problem in Maryland and around the Nation with small businesses 

being able to get affordable credit, affordable capital in this market. 

Vendors are nervous. Everyone is nervous, and to me that is the 

time that the governmental agency, SBA, needs to be aggressive 

and step up and help so that these businesses are able to weather 

this unpredictable storm particularly as it relates to the credit 

market, and I am worried about what is happening in my State of 

Maryland. 

Administrator PRESTON. Sir, I am not sure if I addressed this, 

and I am not sure if you were here when I mentioned this, but one 

of the things we are finding is the biggest impact on our programs 

right now are being driven by lenders that are pulling back very 

dramatically. All of our dollar decrease this year can be defined by 

five lenders, some of which are active in your State. 

And so throughout the country we are undergoing a very extensive outreach effort with all the banks, both national banks, regional banks and local banks, to work with them to make sure that 

they understand fully how to utilize our programs. We have extensive recruiting efforts to bring more banks in and we are actually, 

and this is a little bit, under covers, but we spent a lot of time with 

banks over the last year to understand what inhibits them from 

using our programs. We are very actively focusing on what I think 

are the biggest issues to them in using our programs. 

So we are putting a lot of muscle into our relationships with the 

banks. I am meeting with many of them personally to try to bring 

them into the programs, or expand their use of the programs where 

appropriate. 

That having been said, many of the ones that we are talking, 

many of the most significant decisions are being made by banks 

that are really in the middle of some policy uncertainties and they 

are just, in many cases, not ready to move in one direction or another aggressively. We are trying to sit with them at the table as 

they go through that process to make sure that we can be as good 

a partner as we possibly can for them. 

Senator CARDIN. Thank you, Mr. Chairman. 

Chairman KERRY. Thank you very much, Senator Cardin. 

Senator Thune, welcome, sir. 

Senator THUNE. Thank you, Mr. Chairman, Senator Snowe, for 

holding this important hearing on the SBA’s 2009 budget request. 

Administrator Preston, I want to thank you for taking time to be 

here again to testify. I know that the Committee and I appreciate 

you being here in person to discuss this important subject and I 

43

also want to commend you for all the work that you have done at 

SBA since you became administrator 18 months ago. 

Administrator PRESTON. Thank you. 

Senator THUNE. We have seen a lot of progress and want to credit you with that and express our appreciation for your good work. 

As we look forward to the next year and beyond, I am particularly excited about the Administration’s commitment to better 

serve underserved markets. And as SBA moves forward with that 

goal, I would like to encourage the agency to continue to try and 

meet the needs of all underserved small businesses including those 

rural areas of the country, places like South Dakota, and on Indian 

reservations. 

The Rural Lender Advantage Program is a good first start, in my 

view, in helping rural small businesses and I look forward to working with the Committee and the SBA to continue to target these 

businesses. And I am also additionally encouraged by the work that 

the agency has done in the past to help Native American small 

businesses and I know that my constituents strongly support these 

efforts, especially the tribal 8(a) program. 

So again I want to thank you for being here today, the Committee for having the hearing as the budget process continues for 

fiscal year 2009. I look forward to working with my colleagues to 

find ways to strengthen small businesses and at the same time 

strengthen our Nation’s economy. 

And if I might, just a couple of questions. I mentioned this earlier, but SBA Region 8, of which South Dakota is a part, is going 

to be piloting the Rural Lender Advantage Program. I would be interested in a brief overview, if you could, of that project and perhaps if you could explain how it will help meet the SBA’s goal of 

serving underserved markets. 

Administrator PRESTON. Yes. One of the things we have heard 

over the years from small community banks is that our programs 

are challenging to understand and use. And if you are a big bank, 

you have a lot of people that can deal with paperwork and understand government programs. But if you are a little bank, it is 

tough. 

As you and your two colleagues know, based on the states that 

you are from, community banks serve uniquely. They know their 

communities. They are relationship lenders. I think they are an important vehicle for capital. 

So what we wanted to do was figure out how do we win back the 

community banks, especially during a time like this. So Rural 

Lender Advantage is actually a redesign of our 7(a) process with 

those three things. 

Number one, it provides a very simple application for banks that 

have fewer than 20 SBA loans a year. We want to make it simple 

for them. 

Number two, once they submit that loan, we actually approve 

them actively. Many of our loans we delegate that authority. Smaller community banks that do not have volume we do not. So we 

commit to a quick turnaround on the loan decision in a few days. 

The third thing we do which I think is very important is we want 

to make sure that if the community banks are confused by the programs, have questions, we are very responsive. So we have a fully 

44

staffed help desk that they can call and get responses to any questions. So simple application, quick turnaround time, high touch. 

The last piece I would mention which is not unique to Rural 

Lender Advantage but we will certainly support is we have done 

a very extensive amount of training for our lender specialists in our 

field offices. Many of these people have gone through 2 full weeks 

of training, so that they can sit with those rural lenders, really 

teach them how the programs work, answer all their questions, 

help them with the paperwork. 

We are about 6 weeks into the pilot I think right now, and yesterday we had a session in Colorado where we brought in a number 

of banks and a number on the phone. I think we had altogether 

about 70 banks and we got their feedback of the program. They are 

very encouraged by it. They gave us some suggestions on how to 

make it even more simple which we are working on and I am very 

hopeful that we will be able to roll it out beyond Region 8 within 

the next couple of months. 

Senator THUNE. I appreciate that. It seems to me like a really 

well tailored program particularly in the area of the country that 

I represent. 

Administrator PRESTON. Yes. Thank you. 

I appreciate that, yes. 

Senator THUNE. Hopefully it will be something that can be replicated elsewhere around the country as well. 

Just one other question and that has to do with the fiscal year 

2009 budget and the fact that there is not a specific line item in 

the budget this year for Native American outreach programs, and 

I guess my question would be why the SBA did include a line item 

for that program and what the agency anticipates spending on Native American outreach. 

Administrator PRESTON. Yes. I think that number for 2009 is 

$1.7 million. I am looking at—$1.6 million, which is different from 

what the historic line item would have been. This is similar to my 

response to Senator Snowe’s question on HUBZone. 

What we have are a number of areas which have specific line 

item funding but the amount of money we spend on them in SBA, 

in some cases, significantly exceeds the line item. So generally in 

an effort to simplify these budgets, we are trying to pull them into 

the overall base funding which gives us a lot more flexibility but 

it is really as simple as that. 

Senator THUNE. Thank you, Mr. Administrator. 

Mr. Chairman, thank you. 

Chairman KERRY. Thank you very much, Senator Thune. 

Just a few more quickies. Then I think we will wrap up, at least 

from my point of view, and I will pass it to Senator Snowe. 

Mr. Administrator, on the procurement center representatives, 

we have been pushing hard on the Committee for some time to try 

to increase those. My understanding is that not all of the PCRs 

that were budgeted for this year have been hired. I have heard that 

as few as 51, maybe as many as 57, are on staff. 

But whether it is 51 or 57, it is way below the 200 plus that we 

had in the 1990s to review a much smaller budget. So can you help 

us get a sense of whether you intend to hire them? Is this just sort 

45

of a, you know, resistance to the concept? What are we looking at 

here? 

Administrator PRESTON. No. In fact, you know, I am the one who 

put forward expanding the number. As I mentioned, I think——

Chairman KERRY. Why would they not have been hired to date? 

I mean, why are we looking at such an incredibly low number compared to——

Administrator PRESTON. Yes. We should be at about 62 in about 

6 weeks based on hiring actions and we are working on the paperwork to get to 66 which is our 2008 number. 

Senator, by the end of this year over 20 percent of our PCRs will 

be retirement eligible, which presents us with a real challenge. 

Bringing PCRs in is a challenge because we generally need them 

to be heavily trained in Federal procurement. So I do not like to 

give you a bureaucratic sounding answer. Frankly, it has been 

tough for us to stay ahead of the curve in getting these people in, 

based on retirements, based on finding the right people and getting 

their paperwork done to bring them in. But like I said, I think in 

about 6 weeks we will be at 62 which is where we had hoped to 

be——

Chairman KERRY. What is the difficulty in finding the right people? I would think in today’s job market this would be pretty easy. 

Administrator PRESTON. No. It is the expertise in Federal procurement. What you have are these people that are sitting generally in another agency looking at all of what they are doing and 

trying to work within that network to understand within procurement law and regulation which of those contracts can be going to 

companies that we feel should be represented, small businesses or 

small businesses in our preference categories. 

So we cannot sort of take a novice, train them quickly and throw 

them in this situation with a lot of oversight. It is the kind of person that generally comes to the table with some deep skills already 

or we can find them somewhere else in our network. 

And very frankly, generally when we have had positions, not only 

PCRs but even in headquarters where we need deep procurement 

expertise, those have been places where we have the hardest time 

finding people that are qualified to do the jobs. 

But we are committed to getting the number up. I am very hopeful we will be at the 66 level in a few months which is what our 

2008 target was. 

The last thing I would say is we are undergoing a full staffing 

review at the agency right now to understand where our greatest 

needs are, where our greatest opportunities are. And certainly if we 

determine that we need to reallocate our head count in that direction, to expand it further, we are going to be looking at it very seriously. 

Chairman KERRY. You have no judgment at this time whether or 

not those staffing levels are adequate? 

Administrator PRESTON. I do not have a judgment at this time. 

Chairman KERRY. The current number or the current goal? 

Administrator PRESTON. I think overall our staffing levels are 

solid and I think historically they have not always been in the 

right places and I am very thankful for the support that you all 

have given us in expanding the head account. I think right now 

46

where we are going to have the most immediate need are going to 

be, will be in our high volume processing centers that cover our 

lending programs and we do have some needs there. But beyond 

that, we will be focusing heavily on the field network whether it 

be PCRs or district offices. 

Chairman KERRY. Fair enough. Let me ask you if I may about 

the 7(j) Technical Assistance Program. As you know full well, this 

is the way that the minority businesses get their training in the 

8(a) program. We have heard a number of complaints about this. 

The lack of assistance coming out of it and/or the way it is being 

run. 

There are two concerns I want to raise with you. One, originally the program was funded at about $3.6 million. The SBA operating 

budget includes only $1.53 million for technical assistance for 2009 

which is a difference of a little bit over $2 million. This program 

has consistently been underfunded. According to the last report to 

Congress, there were 9,667 8(a) firms in the program. So if you take the request that you have put forward, the $1.5 million, that is about $158 per firm. Can you share with us what 

kind of training people are getting for $158 per firm? 

Administrator PRESTON. That is really only a small piece of the 

support that the 8(a) programs gets on the technical assistance 

side. We have business development specialists, hundreds of them 

in our field network. Many of the 8(a) firms get technical assistance from our resource partner network. This is really, as I understand it, a grant program to provide funding in targeted ways but 

is not, by any means, the lion’s share of the technical support that 

those firms get. 

Chairman KERRY. Well, even if it is on a targeted basis, can you 

tell us how many firms get targeted assistance? 

Administrator PRESTON. I do not know specifically how many 

firms get support 7(a), 7(j) funds. 

Chairman KERRY. How would we find out? What is the accountability for this technical assistance program which is pretty critical? 

Administrator PRESTON. I will have to get back to you to understand how many firms get that assistance, but thousands of them 

get it through our district network and through our resource development partner network. 

Chairman KERRY. Well, the second part of the question obviously 

and the second part of the inquiry here concerns a New York Times 

article that exposes that a contractor with no business consulting 

experience was given the 7(i) technical assistance contract. The IG 

is now looking at this and it raises the question: ‘‘Why would someone who has no qualifications to run a technical assistance program be put in charge of it?’’

Administrator PRESTON. Well, let me make a couple of comments 

on that. First of all, I asked the IG to look at it. So I just want 

you to know——

Chairman KERRY. I know you did. I acknowledge that. 

Administrator PRESTON. I just want you to understand that. 

Chairman KERRY. Absolutely. 

Administrator PRESTON. And the second thing is I really cannot 

comment specifically on it because there is an IG investigation 

47

going on. It is something that I became aware of a couple of weeks 

ago and I would be happy to, you know, obviously keep your staff 

up to speed as we know anything on the ongoing investigation. But 

I do not want to make any prejudgments at this point on the quality of that vendor or the process under which that vendor received 

the contract because I just do not know and we have specifically 

pulled back and allowed the IG now to come in and take a look at 

it. 

Chairman KERRY. That is obviously one concern. I have a series 

of questions about the overall oversight. I would like to, perhaps, 

have you follow up in writing if you can. I will submit them in 

writing. 

But I would like to know what the oversight is, what has been 

done to ensure companies are receiving the training they are supposed to, have they been surveyed with respect to their judgments 

about the quality of the training they received. 

Some of our 8(a) participants are actually asserting or claiming 

that the training is really nonexistent. And so we would like to 

really take a look at this. And I am inclined even to perhaps ask 

the GAO to help us take a look at it. I think we ought to get a handle on what is happening in terms of that training program. 

Administrator PRESTON. Yes. I think that is a fair request. One 

of the things I will tell you is there is a compliance requirement 

that we have to do an annual review of all of our 8(a) firms every 

year. And last year we put in place a tracking mechanism, an accountability that every district office had to have 100 percent compliance. It is part of their scorecard now. They get tracked on it. 

It is part of what they get compensated on. And so we are doing 

whatever we can to make sure that—and then the other thing I 

mentioned a little earlier is we are taking a lot of the paperwork 

burden away from our business development specialists so that 

they can spend more time doing business development and outreach with 8(a) firms. 

I am not convinced that it is where it should be and we would 

be happy to work with you all to get a better understanding of 

where it is and where it needs to go. 

Chairman KERRY. Fair enough. 

I have asked you on the veterans’ thing. I am going to leave the 

record open and submit some of these additional questions in writing. They are not that complicated. I do not think we need to eat 

up our time with them now. 

Administrator PRESTON. Right. 

Senator Snowe. 

Senator SNOWE. I have no further questions although I will submit some questions for the record. 

Administrator PRESTON. OK. 

Senator SNOWE. Thank you, Mr. Administrator, for being here 

today, and obviously we have got some work to do in trying to repair many of these issues as we have done in the past. Hopefully 

we can have a cooperative working relationship. I know we will 

with you and the Administration with respect to coming back and 

revising the President’s proposal. Thank you. 

Administrator PRESTON. Thank you. 

48

Chairman KERRY. Mr. Administrator, I want to thank you also. 

I think you have been direct and articulate about rationales here 

for what you have done even though we may disagree with some 

of the choices made, obviously, but we appreciate your directness 

and taking the time to be here with us. It is helpful. 

I hope we can work through some of these things. They should 

not be that complicated. There ought to be a way to find an agreeable path on a couple of the funding issues and certainly some of 

these mechanisms. 

I think that you will find you will have a unanimous Committee 

and there ought to be broad-based bipartisan support for doing 

some of these things. So we look forward to working with you in 

the next days. 

Maybe we can make some progress with OMB and a few folks 

over there to bend a little on a couple of these things particularly, 

for instance, like the veterans’ funding piece which is so critical. I 

think the oversight component on 8(a) that we just talked about, 

procurement reps, a few of these are not that complicated. 

When you look at this overall budget measured against, I mean, 

the bang for the buck here is so quantifiable and significant to a 

community, but so small compared to some of the other expenditures and requests, that this should not be an area of great contention frankly. 

Administrator PRESTON. Thank you. Thank you both for your 

support and, you know, at any time if we can come up and brief 

you on some of the more detailed issues that came up here today—

I know we are working with a number of your staff members—we 

would be happy to do that as well. 

Chairman KERRY. Well, we appreciate it, and with that, this 

hearing on the budget will stand adjourned. 

Thank you. 

[Whereupon, at 11:58 a.m., the Committee was adjourned.]

(49)

APPENDIX MATERIAL SUBMITTED

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