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| <title> - LEARNING FROM HISTORY: IDEAS TO STRENGTHEN AND MODERNIZE THE HUBZONE PROGRAM</title> | |
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| [House Hearing, 115 Congress] | |
| [From the U.S. Government Publishing Office] | |
| LEARNING FROM HISTORY: IDEAS TO | |
| STRENGTHEN AND MODERNIZE THE HUBZONE PROGRAM | |
| ======================================================================= | |
| HEARING | |
| BEFORE THE | |
| SUBCOMMITTEE ON CONTRACTING AND WORKFORCE | |
| OF THE | |
| COMMITTEE ON SMALL BUSINESS | |
| UNITED STATES | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED FIFTEENTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| HEARING HELD | |
| MARCH 2, 2017 | |
| __________ | |
| [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] | |
| Small Business Committee Document Number 115-006 | |
| Available via the GPO Website: www.fdsys.gov | |
| _________ | |
| U.S. GOVERNMENT PUBLISHING OFFICE | |
| 24-330 WASHINGTON : 2017 | |
| _______________________________________________________________________________________ | |
| For sale by the Superintendent of Documents, U.S. Government Publishing Office, | |
| http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, | |
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| HOUSE COMMITTEE ON SMALL BUSINESS | |
| STEVE CHABOT, Ohio, Chairman | |
| STEVE KING, Iowa | |
| BLAINE LUETKEMEYER, Missouri | |
| DAVE BRAT, Virginia | |
| AUMUA AMATA COLEMAN RADEWAGEN, American Samoa | |
| STEVE KNIGHT, California | |
| TRENT KELLY, Mississippi | |
| ROD BLUM, Iowa | |
| JAMES COMER, Kentucky | |
| JENNIFFER GONZALEZ-COLON, Puerto Rico | |
| DON BACON, Nebraska | |
| BRIAN FITZPATRICK, Pennsylvania | |
| ROGER MARSHALL, Kansas | |
| VACANT | |
| NYDIA VELAZQUEZ, New York, Ranking Member | |
| DWIGHT EVANS, Pennsylvania | |
| STEPHANIE MURPHY, Florida | |
| AL LAWSON, JR., Florida | |
| YVETTE CLARK, New York | |
| JUDY CHU, California | |
| ALMA ADAMS, North Carolina | |
| ADRIANO ESPAILLAT, New York | |
| BRAD SCHNEIDER, Illinois | |
| VACANT | |
| Kevin Fitzpatrick, Staff Director | |
| Jan Oliver, Chief Counsel | |
| Adam Minehardt, Minority Staff Director | |
| C O N T E N T S | |
| OPENING STATEMENTS | |
| Page | |
| Hon. Steve Knight................................................ 1 | |
| Hon. Stephanie Murphy............................................ 2 | |
| WITNESSES | |
| Mr. William B. Shear, Director, Financial Markets and Community | |
| Investment, United States Government Accountability Office, | |
| Washington, DC................................................. 4 | |
| Mr. Hannibal ``Mike'' Ware, Acting Inspector General, United | |
| States Small Business Administration, Washington, DC........... 6 | |
| Ms. Shirley Bailey, Co-Owner-Executive Vice President and Chief | |
| Operating Officer, GCC Technologies, LLC, Oakland, MD, | |
| testifying on behalf of the HUBZone Contractors National | |
| Council........................................................ 7 | |
| Mansooreh Mollaghasemi, Ph.D., President & CEO, Atria | |
| Technologies LLC, Orlando, FL.................................. 9 | |
| APPENDIX | |
| Prepared Statements: | |
| Mr. William B. Shear, Director, Financial Markets and | |
| Community Investment, United States Government | |
| Accountability Office, Washington, DC...................... 20 | |
| Mr. Hannibal ``Mike'' Ware, Acting Inspector General, United | |
| States Small Business Administration, Washington, DC....... 40 | |
| Ms. Shirley Bailey, Co-Owner-Executive Vice President and | |
| Chief Operating Officer, GCC Technologies, LLC, testifying | |
| on behalf of the HUBZone Contractors National Council...... 48 | |
| Mansooreh Mollaghasemi, Ph.D., President & CEO, Atria | |
| Technologies LLC, Orlando, FL.............................. 59 | |
| Questions for the Record: | |
| None. | |
| Answers for the Record: | |
| None. | |
| Additional Material for the Record: | |
| None. | |
| LEARNING FROM HISTORY: IDEAS TO STRENGTHEN AND MODERNIZE THE HUBZONE | |
| PROGRAM | |
| ---------- | |
| THURSDAY, MARCH 2, 2017 | |
| House of Representatives, | |
| Committee on Small Business, | |
| Subcommittee on Contracting and Workforce, | |
| Washington, DC. | |
| The Subcommittee met, pursuant to call, at 10:01 a.m., in | |
| Room 2360, Rayburn House Office Building, Hon. Steve Knight, | |
| [chairman of the Subcommittee] presiding. | |
| Present: Representatives Knight, Chabot, Gonzalez-Colon, | |
| Evans, and Murphy. | |
| Chairman KNIGHT. Good morning. It has been an interesting | |
| morning already, but we are ready to go. | |
| Welcome to the first hearing of the Subcommittee on | |
| Contracting and Workforce for the 115th Congress. | |
| This hearing will come to order. Before we begin, I would | |
| like to take a moment to thank the returning members for their | |
| continued service and welcome our new members, particularly | |
| Ranking Member Stephanie Murphy. This Subcommittee has enjoyed | |
| a long history of bipartisanship, and I look forward to working | |
| with Ms. Murphy and all of our members as we begin this new | |
| Congress. | |
| I would also like to sincerely thank everybody for being | |
| with us today, with a special thanks to each of our witnesses. | |
| I appreciate your willingness to take time out of your schedule | |
| and appear before this Subcommittee to share your expertise and | |
| insight. | |
| As we approach the 20th anniversary this year, today we | |
| will examine the Small Business Administration's Historically | |
| Underutilized Business Zones, more commonly known as HUBZone | |
| Program. | |
| When the HUBZone Program was first established, its goal | |
| was to create hope for hundreds of thousands of underemployed | |
| or unemployed who long ago thought our country had given up on | |
| them. I can think of no more important goal than bringing | |
| economic hope, independence, jobs, and businesses to neglected | |
| areas marked by high unemployment and poverty. To achieve this | |
| objective, the HUBZone Program must be run efficiently and | |
| effectively. That requires us to take a hard look backwards and | |
| learn from the past. | |
| Over the past 20 years, the Government Accountability | |
| Office and the Small Business Administration's Office of | |
| Inspector General have conducted several audits and | |
| investigations identifying shortfalls in the program that have | |
| invited fraud and abuse. A number of recommendations were made, | |
| and many were adopted by SBA. However, some have not. | |
| The program was improved significantly throughout the | |
| years, but there is still room to improve. We are very | |
| fortunate to have a panel of experts with us this morning who | |
| have either studied or participated in the HUBZone Program. The | |
| testimony we hear today will provide us with a launching point | |
| from which we can further examine the intricacies of the | |
| program and determine whether adjustments are needed to ensure | |
| that the program performs as intended and benefits the small | |
| businesses and communities most in need. | |
| Again, I want to thank each of our witnesses for taking the | |
| time to be with us today. I look forward to hearing your | |
| testimony, and now I yield to the Ranking Member Murphy for her | |
| opening statement. | |
| Mrs. MURPHY. Thank you, Mr. Chairman. I look forward to | |
| working with you and the rest of our colleagues to craft | |
| bipartisan legislation that will help our small businesses | |
| succeed and our economy grow. | |
| Each year the Federal Government procures more than 400 | |
| billion in goods and services from businesses around the | |
| country through the vehicle of government contracts. | |
| Recognizing the benefit that these contracts bring to our local | |
| communities in terms of economic development and job creation, | |
| Congress created a small business contracting program in 1997 | |
| aimed directly at helping underserved regions with low | |
| employment and high poverty. | |
| The Historically Underutilized Business Zone Program, or | |
| HUBZone Program, provides Federal assistance to firms located | |
| in economically distressed areas by lowering barriers to entry | |
| into the Federal marketplace for these firms. Ideally this | |
| would not only provide an incentive for selling goods and | |
| services to the government, but it would also create jobs and | |
| bring revenue to these struggling areas. | |
| However, since its implementation, the HUBZone Program has | |
| not quite filled its potential. From ensuring that only | |
| certified businesses enter the program and maintain their | |
| eligibility, to informing businesses of their HUBZone status in | |
| a timely manner, to even being able to present evidence that | |
| the program is meeting its mission, SBA has lagged behind in | |
| meeting these basic tasks. | |
| In fact, at one point in time oversight of the | |
| certification process was so poor that the GAO investigators | |
| were able to certify fake businesses that they created where | |
| the principal office locations were in ineligible locations, | |
| including the Alamo landmark in Texas and a Starbucks down the | |
| street from the White House. Additionally the SBA Office of | |
| Inspector General found three firms that were certified under | |
| the reengineered certification process that did not meet all of | |
| the program eligibility criteria. | |
| In addition, for many years the program's portfolio | |
| consisted of businesses that were eligible only because of a | |
| grandfathering clause. Once this expired and other areas lost | |
| their HUBZone designation, close to 6,000 businesses were | |
| decertified. While GAO's most recent report shows that there | |
| have been improvements in the certification process, these | |
| improvements are not far enough along to ensure that the | |
| businesses are adhering to the program's requirements. The | |
| recertification process has for the most part become a self- | |
| certification with little outreach or follow-up from SBA. | |
| I look forward to hearing from our witnesses today about | |
| ways in which the program can be improved to provide sufficient | |
| oversight for initial certification, recertification, and | |
| business development. | |
| Additionally SBA's outreach efforts have been unsuccessful | |
| in getting new businesses to enter the program. Nearly 90 | |
| percent of the HUBZone areas still do not have a business | |
| participating in the program. This low participation rate has | |
| resulted in the failure to meet the 3 percent prime and 3 | |
| percent subcontracting goals. | |
| The dollars and actions awarded through this program have | |
| continually decreased since fiscal year 2008 with only 71,000 | |
| actions worth $6.4 billion, or 1.82 percent of prime | |
| contracting dollars awarded to these firms in fiscal year 2015. | |
| Even then the program was vastly underutilized since only 25 | |
| percent of these actions were awarded through a HUBZone set- | |
| aside or a sole source contract. | |
| I know that last year the full committee held a hearing on | |
| HUBZones that shed light on the inadequacies of the program and | |
| made clear that reforms are necessary to get the program on | |
| track. Today's hearing will provide the background and ideas | |
| needed to guide the committee as we draft legislation to | |
| address these deficiencies. | |
| I thank the witnesses for being here and look forward to | |
| gaining more insight as to how we can make the HUBZone Program | |
| more effective in meeting its mission. Thank you, and I yield | |
| back. | |
| Chairman KNIGHT. Thank you very much. I would like to now | |
| introduce our witnesses, and I think what we will do is we will | |
| introduce all four, and then we will start and go down. | |
| Our first witness today is Mr. William Shear, Director of | |
| the Financial Markets and Community Investment Team at the | |
| Government Accountability Office. That is an acronym. Mr. Shear | |
| is a familiar face, appearing before the Small Business | |
| Committee on a number of occasions, most recently at our | |
| September 7th full committee hearing last year. GAO has issued | |
| several reports on the HUBZone Program. We welcome Mr. Shear | |
| back today to discuss the themes GAO has identified in its body | |
| of work. | |
| Our second witness today is Mr. Hannibal ``Mike'' Ware. Mr. | |
| Ware serves as an acting inspector general for the U.S. Small | |
| Business Administration Office of the Inspector General. The | |
| OIG is responsible for independent oversight of SBA's programs | |
| and operations. Mr. Ware has served as the SBA Director Deputy | |
| Inspector General since last April. Prior to joining SBA OIG, | |
| Mr. Ware served for 26 years for the Department of Interior | |
| OIG, most recently as the Deputy Assistant Inspector General | |
| For Management. Similar to GAO, the SBA OIG has also conducted | |
| several reviews of the HUBZone Program. We look forward to | |
| hearing Mr. Ware's testimony on that body of work. | |
| Our third witness is Ms. Shirley Bailey. Ms. Bailey is | |
| testifying today in her capacity as board chair of the HUBZone | |
| Contractors National Council. The HUBZone Council is a | |
| nonprofit trade association providing information and support | |
| for HUBZone-certified and other small businesses, prime | |
| contractors, professionals, agencies, and organizations | |
| interested in the HUBZone Program. Ms. Bailey has been deeply | |
| involved in the HUBZone Program for many years, both in her | |
| service as HUBZone Council board member, and in her personal | |
| experience as a small business owner. Ms. Bailey is the co- | |
| owner, Executive Vice President, and Chief Operating Officer of | |
| GCC Technologies, LLC, a successful HUBZone-certified small | |
| business located in Garrett County, Maryland. We are pleased to | |
| welcome Ms. Bailey before the committee today. | |
| I would like to now yield to the ranking member to | |
| introduce our fourth witness. | |
| Mrs. MURPHY. Thank you, Chairman Knight. It is my pleasure | |
| to introduce Dr. Mansooreh Mollaghasemi. She is the founder of | |
| Atria Technologies, LLC, a small business located in my | |
| district in Orlando and one of 17 firms in Central Florida that | |
| are HUBZone certified. Atria Technologies provides professional | |
| services in engineering, program management, and technology and | |
| system integration to government agencies and prime | |
| contractors. She is also the founder and CEO of Productivity | |
| Apex, an engineering company that focuses on using technology | |
| to improve the productivity of public and private | |
| organizations. Additionally she is an Associate Professor in | |
| the College of Engineering at the University of Central Florida | |
| where she has been teaching and conducting research for more | |
| than 25 years. | |
| And, Chairman Knight, if you will allow me just a moment of | |
| personal privilege, I should note that Orlando has just been | |
| recognized by the American City Business Journal as the twelfth | |
| best metro area in the country for small business vitality, and | |
| I know entrepreneurs like Dr. Mollaghasemi helped Orlando | |
| achieve that recognition. | |
| Thank you for joining us today, and we look forward to | |
| hearing your testimony. | |
| Chairman KNIGHT. Thank you, Ms. Murphy. | |
| Okay. If committee members have an opening statement | |
| prepared, I ask that they be submitted for the record. | |
| I would like to take a moment to explain how the lights | |
| work. You will each have 5 minutes. It will go yellow, and then | |
| it will go red. If it goes red, I will give you a little time, | |
| but just kind of be aware that it is going red, and we will get | |
| through this. | |
| Five minutes is a pretty good time, and we will start off | |
| with Mr. Shear, and the floor is yours, sir. | |
| STATEMENTS OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS AND | |
| COMMUNITY INVESTMENT, UNITED STATES GOVERNMENT ACCOUNTABILITY | |
| OFFICE, WASHINGTON, D.C.; HANNIBAL ``MIKE'' WARE, ACTING | |
| INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS ADMINISTRATION, | |
| WASHINGTON, D.C.; SHIRLEY BAILEY, CO-OWNER-EXECUTIVE VICE | |
| PRESIDENT AND CHIEF OPERATING OFFICER GCC TECHNOLOGIES, LLC, | |
| OAKLAND MD, TESTIFYING ON BEHALF OF THE HUBZONE CONTRACTORS | |
| NATIONAL COUNCIL; AND MANSOOREH MOLLAGHESAMI, PH.D., PRESIDENT | |
| & CEO, ATRIA TECHNOLOGIES LLC, ORLANDO, FL | |
| STATEMENT OF WILLIAM B. SHEAR | |
| Mr. SHEAR. Thank you. | |
| Chairman Knight, Ranking Member Murphy, and members of the | |
| committee, I am pleased to be here today to discuss our work on | |
| the SBA's Historically Underutilized Business Zone Program. | |
| Congress established the HUBZone Program to stimulate | |
| economic development in economically distressed communities. | |
| The program provides Federal contracting preferences to small | |
| businesses located in HUBZone-designated areas that also employ | |
| residents of the areas. | |
| In this statement I will discuss the evolution of the | |
| HUBZone Program based on our body of work issued between June | |
| 2008 and September 2016. In addition, we met with SBA officials | |
| one week ago to discuss the status of open recommendations. | |
| Among other things, I will discuss areas of weaknesses that we | |
| have previously identified in performance audits and fraud | |
| investigations, related recommendations, and SBA's actions to | |
| address them. | |
| While weaknesses remain, SBA has taken some steps to | |
| enhance program processes to varying extents. I will refer to | |
| the following examples. First, the certification process. In | |
| response to a recommendation in our June 2008 report based on | |
| the limited verification of the information firms reported, | |
| since 2009 SBA has required firms to provide supporting | |
| documentation for applications. | |
| Second, susceptibility to fraud and abuse. In response to | |
| recommendations made in a series of investigations in 2008, | |
| 2009, and 2010, SBA officials told us the agency began | |
| conducting site visits to 10 percent of certified firms. | |
| Third, recertification process. In 2015, we found that SBA | |
| had not required firms seeking recertification to submit any | |
| information to verify continued eligibility and instead simply | |
| relied on their attestations of continued eligibility. As of | |
| February 2017, SBA has not yet implemented our recommendation | |
| to reassess its recertification process and add additional | |
| controls. SBA officials told us that the agency continues to | |
| develop a technology solution to help address our | |
| recommendation. | |
| Fourth, communications with firms about designations. In | |
| 2015, we found that SBA's communications to firms about | |
| programmatic changes, including redesignation, generally were | |
| not specific to affected firms, and thus some firms might not | |
| have been informed they would lose eligibility. SBA revised its | |
| letters to newly certified firms, and as of February 2017, SBA | |
| was implementing additional steps to ensure that all currently | |
| certified firms would be notified of changes that could affect | |
| their program eligibility. For this recommendation as well, SBA | |
| officials told us that the agency continued to develop a | |
| technology solution to help address our recommendation. We will | |
| continue to monitor SBA's implementation of this activity. | |
| Finally, in our 2008 and 2015 reports, we presented | |
| statistics on economic conditions in HUBZone qualified and | |
| redesignated HUBZone Census tracts, and in nonmetropolitan | |
| areas. And in this statement we have updated statistics on | |
| economic conditions. We continue to find that economic distress | |
| has been more severe in designated HUBZone areas than in | |
| redesignated areas. | |
| Chairman Knight and Ranking Member Murphy, this concludes | |
| my prepared statement. I would be happy to answer any | |
| questions. | |
| Chairman KNIGHT. Thank you very much, Mr. Shear. We will go | |
| on to Mr. Ware. | |
| STATEMENT OF HANNIBAL ``MIKE'' WARE | |
| Mr. WARE. Chairman Knight, Ranking Member Murphy, and | |
| distinguished members of the subcommittee, thank you for the | |
| opportunity to be here today and for your continued support of | |
| the Office of Inspector General. | |
| As Acting Inspector General, I am proud to represent the | |
| dedicated men and women of my office. As an independent office, | |
| OIG conducts and supervises reviews and investigations relating | |
| to SBA programs and supporting operations. Today I am happy to | |
| discuss the work we have done to combat fraud, waste, and abuse | |
| in SBA's HUBZone Program. | |
| Before I discuss our oversight of the HUBZone Program, I | |
| want to provide the subcommittee with a bit of context to | |
| illustrate how the risks within the HUBZone Program factor into | |
| our top management challenges. Our independent reviews, along | |
| with an ongoing dialogue with SBA program officials and | |
| external oversight entities such as GAO, guide the | |
| identification of these challenges facing SBA. Pertinent to | |
| today's hearing, we have identified weaknesses in small | |
| business contracting programs and inaccurate procurement data | |
| as a top management challenge. | |
| Our work in overseeing the HUBZone Program continues to | |
| substantiate this challenge. We issued two reports in recent | |
| years specific to the HUBZone Program, one in November 2013 and | |
| one in September of 2014. Those scopes and methodologies | |
| differed. In both reviews, our findings called into question | |
| the accuracy of Goaling reporting as it pertains to the | |
| governmentwide Federal contract and Goaling results. We also | |
| found SBA had certified firms that did not meet all of the | |
| eligibility criteria, and ineligible firms had received | |
| contract awards. | |
| For the HUBZone Program, these findings indicate there may | |
| be distortions in the governmentwide Goaling results, and the | |
| intended economic benefits of the program are not realized when | |
| ineligible businesses receive HUBZone preferential contract | |
| awards. SBA has taken corrective action to close the five | |
| recommendations that were associated with those reports. | |
| In terms of substantiating the management challenge of | |
| weaknesses in Small Business contracting programs, we also are | |
| aware of work published by GAO which we factor into our | |
| oversight planning purposes to ensure we are not duplicating | |
| efforts. We intend to initiate a new review in the HUBZone | |
| Program in 2018. | |
| On a more granular level, our office continues to receive | |
| complaints on the hotline involving allegations of wrongdoing | |
| in the HUBZone Program. In fiscal year 2016, we received over a | |
| thousand complaints, with 18 being pertinent to the HUBZone | |
| Program. These allegations and other leads developed directly | |
| by our investigations division are thoroughly reviewed and | |
| processed for action by appropriate offices within and external | |
| to OIG, which can include criminal investigation. | |
| Since fiscal year 2014, our office has opened 13 | |
| investigations involving the HUBZone Program, resulting in 13 | |
| indictments or informations, 12 convictions or guilty pleas, | |
| about $12 million in dollar accomplishments, and $35 million of | |
| cost avoidances. | |
| In the course of our mission, we also promote suspensions, | |
| debarments, and similar administrative enforcement actions. | |
| Last year, for example, we sent 75 suspension and debarment | |
| referrals to the SBA. Seven involved the HUBZone Program. The | |
| year before that we sent six that involved the HUBZone Program. | |
| And in 2014, we referred 50 matters with two involved in the | |
| HUBZone Program. | |
| While the OIG is committed to rooting out the fraud, waste, | |
| and abuse, it cannot be overstressed that SBA's role in | |
| implementing proper controls and enforcing regulations on the | |
| front end is key to the viability of not only the HUBZone | |
| Program, but also of its Federal contracting programs. The | |
| regulatory oversight is especially important given SBA's | |
| attempting to tackle the competing interests of expanding the | |
| number of firms certified for HUBZone Program participation. | |
| Due diligence to ensure only eligible participants are | |
| certified and recertified is vital, as is the need for | |
| continued vigilance through on-site inspections. | |
| We will continue to focus on this important Federal | |
| contracting program as well as the most critical risks facing | |
| the SBA. | |
| Thank you for the opportunity to speak to you today. I look | |
| forward to your questions. | |
| Chairman KNIGHT. Thank you, Mr. Ware. And we will go on to | |
| Ms. Bailey. | |
| STATEMENT OF SHIRLEY BAILEY | |
| Ms. BAILEY. Good morning, Chairman Knight, Ranking Member | |
| Murphy, and members of the subcommittee. | |
| I want to thank you for the opportunity to testify on | |
| behalf of the HUBZone Contractors National Council. | |
| My name is Shirley Bailey, President and Board Chair of the | |
| HUBZone Council, and co-owner of GCC technologies, LLC, a | |
| certified HUBZone company located in Garrett County, Maryland. | |
| The Council strives to contribute to the economic | |
| development of disadvantaged communities by helping HUBZone | |
| certified firms maximize their success in earning Federal | |
| contracts. The underlying principal behind the HUBZone program, | |
| which was established 19 years ago, remains relevant today: to | |
| decrease unemployment and revitalize low-income and | |
| economically distressed communities by encouraging businesses | |
| to located in these HUBZone areas. | |
| Congress in its creation of the program wrote: Creating new | |
| jobs in economically distressed areas has been the greatest | |
| challenge for many of our Nation's governors, mayors, and | |
| community leaders. The trend is for businesses to locate in | |
| areas where there are customers and a skilled workforce. Asking | |
| a business to locate in a distressed area often seems counter | |
| to its potential to be successful. But without businesses in | |
| these communities, we don't create jobs, and without sources of | |
| new jobs, we are unlikely to have a successful revitalization | |
| effort. | |
| The question before this subcommittee is how this program | |
| can live up to its potential, and the numbers suggest that this | |
| program has room for growth. As of February 2017, there were | |
| only 6,026 certified firms, which represents a loss of over a | |
| third of the HUBZone firms since the 2010 Census. Yet these | |
| businesses have had substantial impact on their communities. An | |
| average HUBZone company is awarded over a million dollars in | |
| Federal contracts, a critical revenue threshold in business | |
| sustainability. Federal contracts awarded to HUBZone companies | |
| directly support more than 40,000 jobs every year, of which a | |
| minimum of 35 percent of these jobs are HUBZone employees. | |
| Our written statement goes into a full history of the | |
| program, but I would like to use my time today to address the | |
| changes we believe would increase participation in the program | |
| and ultimately help the communities that would benefit. There | |
| are two themes that should guide changes to the program, | |
| business certainty and program modernization. | |
| With respect to business certainty, we make the following | |
| recommendations. The first one is to increase or consider the | |
| increase in the redesignation period from 3 to 7 years. To | |
| determine program eligibility, SBA uses data from the decennial | |
| Census and the American Community Survey. While Census data is | |
| updated every 10 years, ACS data is updated every 5 years. For | |
| certain areas, this means minor changes in economic data can | |
| lead to a community's eligibility to change annually as they go | |
| through those evaluations. | |
| When a track or county ceases to meet the qualifications | |
| for HUBZone status due to changes in income, unemployment, or | |
| poverty data, it becomes a redesignated area. As a redesignated | |
| area, it qualifies as a HUBZone designated area for an | |
| additional period of 3 years. To create business certainty, we | |
| recommend increasing the current 3-year redesignation period to | |
| 7, which will allow firms to make more substantial, long-term | |
| investments without the fear of losing their status before the | |
| business has had an opportunity to succeed or mitigate | |
| potential financial impacts resulting from the loss of their | |
| HUBZone status. | |
| Two, consider supporting the capital investment of a | |
| company's principal office. Many firms make significant capital | |
| investments to locate their principal office in a HUBZone, such | |
| as signing long-term leases or buying and renovating buildings. | |
| In order to incentivize the company to stay in the distressed | |
| area even if the area loses its HUBZone designation, we | |
| recommend the principal office requirement remain fulfilled | |
| regardless of redesignation until the firm relocates or no | |
| longer meets other requirements of the program, such as the | |
| employee residency requirement or Small Business size standard. | |
| This will encourage long-term investment by providing business | |
| with certainty. | |
| Three, simplify employee residency requirements for the | |
| smallest businesses. By changing the current residency | |
| requirement from a 35 percent threshold to 33, 1 in 3 employees | |
| would be required to reside in a HUBZone. In addition to | |
| simplifying the calculation for employers, this also helps | |
| small firms ensure that they meet the requirements after the | |
| unforeseen departure of one employee. | |
| With respect to program modernization, we recommend the | |
| following: increased participation in the rural communities. | |
| Fewer than expected nonmetropolitan counties qualify for the | |
| HUBZone Program due to having more burdensome requirements for | |
| median income and unemployment than metropolitan areas. While | |
| rural areas tend to have lower median income and higher | |
| unemployment, nonmetropolitan counties are not homogenous. | |
| Certain county areas may be better off due to the presence of a | |
| single employer, such as a hospital or college--this is the | |
| case that we have in Garrett County, Maryland--and cause the | |
| county to be ineligible. We recommend the nonmetropolitan | |
| county qualification levels be reexamined to account for the | |
| diversity in these areas. | |
| In closing, let me be clear that the Council is advocating | |
| for strengthening and modernizing the program. However, it | |
| should not come at the expense of effective compliance efforts | |
| by the SBA. Fraud penalizes those companies that have gone | |
| through the proper procedures of certification and met the | |
| requirements. In order to achieve the desired rulings of an | |
| effective program, Congress should provide the funding | |
| necessary to allow for expeditious processing of applications | |
| and the required steps recommended by the GAO. | |
| It is disingenuous to fault SBA for failing to administer | |
| the program without appropriating funds to adequately meet the | |
| directives. By working together, distressed communities can | |
| attract businesses which will create jobs and investment. To | |
| continue on the current path will result in underutilization of | |
| the program. Our goal should be to encourage businesses to | |
| locate and create jobs in these communities, and we stand ready | |
| to help. | |
| And thank you again for your time and consideration. | |
| Chairman KNIGHT. Thank you, Ms. Bailey. We are going to put | |
| a bookmark right here, Doctor. We have votes. Votes are called. | |
| We have about 7 and a half minutes left to vote, so I want to | |
| make sure that all the members have a chance to get down. | |
| So we will take a recess right now, and we will reconvene | |
| with Dr. Mollaghasemi when we return. | |
| [Recess.] | |
| Chairman KNIGHT. We are back in, and I appreciate you all | |
| staying around. | |
| We did have the chairman of the full committee who was here | |
| earlier, and I appreciate Chairman Chabot being here. He has | |
| been an exceptional chairman and we appreciate when he can come | |
| to our subcommittee hearing. | |
| So when we left off, we had Ms. Bailey. I appreciate your | |
| testimony. And now we are going to go to Dr. Mollaghasemi for 5 | |
| minutes. | |
| STATEMENT OF MANSOOREH MOLLAGHASEMI, PH.D. | |
| Ms. MOLLAGHASEMI. Good morning. Chairman Knight, Ranking | |
| Member Murphy, and members of the subcommittee, thank you for | |
| the opportunity to testify at this hearing. | |
| I am honored to share my experience as an entrepreneur and | |
| highlight the critical role of the program such as HUBZone in | |
| the growth of our economy. My name is Mansooreh Mollaghasemi, | |
| and I am the founder and President of Atria Technologies, an | |
| engineering company based in Orlando, Florida. | |
| Please allow me to first provide some context on the role | |
| of small business in fostering innovation in the United States. | |
| All of today's household names like Google, Amazon, Apple, | |
| Facebook, and many more were all small businesses, in the early | |
| years, with an incredible vision and an unmatched team, and | |
| they did not spring forward from within large organizations. | |
| But how can we infuse this innovation from small business into | |
| our Federal Government? | |
| These SBA programs can provide a mechanism for entry, and | |
| without them, frankly these barriers are often insurmountable. | |
| To give you a firsthand account, please allow me to share my | |
| story. Right after I finished my Ph.D. in industrial | |
| engineering, I became an Assistant Professor in the Department | |
| of Industrial Engineering at the University of Central Florida. | |
| Don't get me wrong. I love teaching. I love doing research, | |
| managing my grants, and graduating graduate students and | |
| mentoring them. But there was always something missing. I | |
| wanted to solve real-world problems and apply my research to | |
| more impactful real world problems. | |
| So years later I finally took the leap and started a | |
| business focused on using technology to improve the | |
| productivity and efficiency of private and public | |
| organizations. I remember how naive I was, thinking if I could | |
| offer a solution to a government organization, of course they | |
| are going to use me. So I started down that path, but the | |
| meetings went generally like this. I would go; I would listen | |
| to their problem; I would talk to them about our core | |
| competencies and offer a solution; We would brainstorm, and | |
| then the conversation would go something like this: We like | |
| what you do. We think it would be useful to our organization, | |
| but we have no mechanism to come to you. First time I heard | |
| that, mechanism, what is a mechanism? | |
| So then I started researching. My research uncovered | |
| multiple things. I learned about the 8a program, more so than | |
| the HUBZone, but I knew that it existed. And I was already in a | |
| lease, that was not in a HUBZone, so I went down the path of 8a | |
| certification. Needless to say the process and its requirements | |
| were daunting, and I was advised to hire a firm to help me. So | |
| I paid, years ago, $4,000 in consulting fees and a lot of hours | |
| of my own time, and luckily because of paying attention to | |
| details, I got certified. And another thing I should mention is | |
| that I had no visibility into the application process. I didn't | |
| even know whether it was moving from one step to another or | |
| whether I would be ultimately certified or not. | |
| While I was able to in the meantime, while I was going | |
| through that, acquire and retain high-profile commercial | |
| clients and competitive government contracts, the 8a program | |
| really was the key that opened a lot of opportunities for me. I | |
| should mention that through one of those 8a contracts with | |
| NASA, I developed, with my team, the first ever supply chain | |
| model of earth to Mars, arguably the longest supply chain known | |
| to mankind. In another contract, we built a highly | |
| sophisticated optimization tool to help USDOT to move freight | |
| more efficiently that with internal R&D I was able to develop a | |
| commercial tool out of it. | |
| Fast forward to 10 years later when I founded Atria | |
| Technologies. I was surprised to experience the same lack of | |
| visibility and long lead time in the application process, which | |
| was over 7 months. So there are certainly opportunities for | |
| improvement in the application and the certification process. | |
| But let me also share with you the positives that I have | |
| observed about the HUBZone Program. Aside from providing the | |
| small business with much needed past performance and experience | |
| to compete for larger opportunities, I am not aware of any | |
| other program with such significant social impact. This program | |
| provides, as you know, distressed areas with sustainable and | |
| meaningful jobs, leading to economic development of these | |
| communities and reduction of unemployment, and as Ms. Bailey | |
| mentioned, reduced homelessness. | |
| Personally, while I have always strived to provide | |
| mentorship to various groups, especially women, prior to owning | |
| a HUBZone company, it never dawned on me to go specifically | |
| seek out people that live in specific areas. This program | |
| forces you to do that and do something good and have a social | |
| impact in the process. | |
| So in summary I would like to leave you with three | |
| thoughts: small business in America is an engine of innovation | |
| that is unmatched in any other economy in the world. Second, | |
| programs like HUBZone are the essential keys to bringing the | |
| benefit of this innovation to the government of the American | |
| people through Federal contract awards and spurring economic | |
| development in distressed areas. And, third, opportunities | |
| exist to streamline the application and oversight process for | |
| these programs to enable their more efficient and effective | |
| use. | |
| It is truly an exciting time to be the leader of a small | |
| business. We are the envy the world and rightly so. The Federal | |
| programs we are discussing today are vital to enabling the | |
| bright light of small business innovation to shine on the | |
| services provided by our Federal agencies. | |
| Thank you for your time today. | |
| Chairman KNIGHT. Thank you very much. | |
| We will now go into questions. I have a few of my own. We | |
| will take about 5 minutes each, and I am sure the ranking | |
| member has questions. | |
| Quickly, Mr. Shear, we have got, according to GAO, the SBA | |
| has not implemented the procedure measures, the effectiveness | |
| of the HUBZone Program. What do you think are the most | |
| important metrics that SBA needs to start collecting and | |
| tracking? And before you answer that, I am going to take a | |
| couple of the comments that you made that it looks like the GAO | |
| has made recommendations. And one of the questions outside of | |
| this that I kind of jotted down was how do you lose | |
| eligibility, and if you do lose eligibility, what happens? Is | |
| it pulled from you, or is there some sort of enforcement | |
| mechanism? How do we go about that? I know there is three or | |
| four questions there. | |
| Mr. SHEAR. I think the answer to your question on | |
| eligibility is what happens to businesses subject to | |
| decertification. There is a process where businesses can become | |
| decertified from the program, even though we have said--and | |
| sometimes this gets kind of confusing, and I know I have asked | |
| a lot of questions of it as we have done our work-- | |
| recertification is almost like a self-certification. So we say, | |
| well, why would there be a backlog and things like that? Well, | |
| the question becomes if a firm becomes identified to be | |
| decertified, there is a process for that, but there is a | |
| decertification process, and there are firms that are | |
| decertified. | |
| Some of the companies are being decertified that are asked | |
| to self-certify and provide documentation, and they don't do | |
| that, so some will withdraw on their own. But there is a | |
| process where there are businesses that lose their | |
| certification, and that might be a question for the HUBZone | |
| Council as well. | |
| Going back to evaluation, I will just say generally SBA's | |
| track record of evaluating its programs, including pilot | |
| programs--HUBZone isn't one--but evaluating programs and using | |
| evaluations in their strategic planning and to inform how | |
| programs could be improved, is something that SBA comes up | |
| short on. So in terms of what we are looking for, and I know we | |
| had extensive interactions, SBA hired an economist after our | |
| 2008 report to work on an evaluation---- | |
| Chairman KNIGHT. And I will stop you right there because I | |
| have got Mr. Ware here shaking his head a little bit, and I | |
| want to kind of delve into this, because I think part of what | |
| we are going to be doing, in this subcommittee, is making sure | |
| that if a program is in place, we want it to be in place to | |
| help and to enhance opportunities. | |
| But if there is a problem and the problem is not being | |
| looked at or not being solved, then that might be someplace | |
| that we want to take a harder look at and structure some sort | |
| of work that way. | |
| Mr. SHEAR. And so let me finally kind of get to the issue | |
| on evaluation. Evaluations can start out as simple. It is | |
| looking in specific districts. I mean, sometimes it can just | |
| start with let's look at the HUBZone map. I have a rough | |
| HUBZone map here for your district. | |
| Chairman KNIGHT. I have seen it. | |
| Mr. SHEAR. And for Orlando. And you just see the way they | |
| are configured. And the question is, you look at the map and | |
| you just even start to ask questions about how does this | |
| program play out? It can involve the role of district offices. | |
| But when we talked about evaluation here, we were talking | |
| about what is it about the HUBZone Program; how can you measure | |
| its impact on local economies? So part of it is collecting | |
| metrics other than how many firms are you certifying? It is not | |
| a matter of counting up jobs that those firms employ. It is a | |
| matter of trying to come up with some kind of benchmarks, and | |
| let's try to look at where you have HUBZone activity. | |
| What do you see what is happening to those local economies | |
| in terms of what it is--it can be jobs. It can be looking at | |
| just improvements in economic conditions, but there are a | |
| number of metrics you could use, but the idea is whether you | |
| start at a case study level or you are using systematic, | |
| economic modeling. There are ways to assess programs like this, | |
| and this is what we were sharing with SBA at that time---- | |
| Chairman KNIGHT. Okay. And I am going to go to Mr. Ware | |
| here real quick. We talk about this at the State level, too, | |
| and I am sure that Florida and California and all of the other | |
| States have their own programs that try and enhance and try to | |
| give businesses opportunities inside a zone, whether it be an | |
| enterprise zone or a free-trade zone or something like that. | |
| Mr. Ware, let me kind of get to the crux of this. Is there | |
| something more that the SBA should be doing? Because I am | |
| seeing these numbers from 2006, from 2007, all the way up to | |
| 2015 and 2016, of numbers that are not alarming, but it doesn't | |
| seem like they are correcting. | |
| Mr. WARE. Thank you. And I think that is a very good | |
| question and actually one being relatively new to SBA that I | |
| asked coming through the door as I started to review more of | |
| our work. And that question was, are we really measuring the | |
| right things to make sure that the programs are really having | |
| the type of economic impact in the communities that they are | |
| supposed to be having? And I am not sure, based on the body of | |
| work that I have seen, that that is how we are working towards | |
| answering--those are the answers that we are measuring and | |
| trying to come to. But---- | |
| Chairman KNIGHT. So, those are always going to be the | |
| questions though, and I know I am taking a little extra time | |
| here, but the metrics of how you measure a program are always | |
| the key to the program. If you can't measure if it is doing | |
| something, or if it is providing what you initially | |
| constructed, then we don't know, and that is a bad thing. | |
| Mr. WARE. Yeah. But the agency has done quite a bit to | |
| strengthen the program and to do things, and the findings of | |
| both my office and Mr. Shear's is it generally wraps around | |
| those types of, the same type of things all the time as you saw | |
| by just going forward and reading the reports. It is basically | |
| with certification or recertification or with how we measure | |
| and report on the numbers and everything else. Although they | |
| have made a lot of strides, a lot more work still needs to be | |
| done. | |
| Chairman KNIGHT. Very good. I am going to go to the ranking | |
| member for her questions. | |
| Mrs. MURPHY. Thank you for all of your testimony. | |
| My first question is for Dr. Mollaghasemi. You know, a | |
| major purpose of this hearing is for us to get a better | |
| understanding of how this program works for small businesses | |
| and within the community. Could you elaborate a little bit on | |
| what your experience with the HUBZone certification process | |
| looked like? | |
| Ms. MOLLAGHASEMI. Sure. So the answer that I will give you, | |
| I will try not to do it too much, but when you have a data | |
| point, you tend to go to that, so I am going to compare it to | |
| the 8a certification because I have gone through both. | |
| The application process was not bad, you know, the | |
| requirements. It wasn't as daunting as the 8a certification. I | |
| was really happy to find it online because when I was doing 8a | |
| certification, a folder like this had to be mailed, and you | |
| always worried will papers get misplaced and so forth. So I | |
| liked that part of it, the online format of it. | |
| The problem came in when, again, you had no visibility into | |
| where it is? Am I moving in the process? And the help desk was | |
| extremely cordial every time I asked for status. While they | |
| were very quick to get back with me, this sort of form email | |
| came out that within 30 days you are going to be assigned a | |
| rep, and then within 90 to 160 days you should be certified. | |
| So, that is a very lengthy process. That is an eternity for a | |
| small business. So the visibility was not there, and it was a | |
| lengthy process. | |
| And I have had more questions answered today than I have | |
| ever been able to ask because of all the valuable advice that | |
| is here. And there is really no, I haven't found, other than my | |
| local SBDC office, that resource is extremely valuable, as you | |
| know, in the entrepreneurship sense. I have them on speed dial | |
| if I have a question. So that has been my experience. | |
| But in terms of recruiting, as you know, right by UCF there | |
| is a HUBZone. I am extremely fortunate, although I am extremely | |
| small now, I am very fortunate to have one very high-tech woman | |
| engineer that occupies one of the full-time HUBZone positions. | |
| But I am able to augment the part-time 40 hour a month from the | |
| surrounding University with students, so I can mentor them and | |
| give them experience. | |
| Mrs. MURPHY. Just as a follow-up to the recruitment piece, | |
| in your experiences, do small businesses incur additional costs | |
| when they are located in and employ workers who reside in | |
| economically distressed areas? Is it harder for you to find and | |
| recruit and train workers? | |
| Ms. MOLLAGHASEMI. In my case no, but I suspect going | |
| forward, because I have a high-tech business, I am not going to | |
| be able to staff up full-time employees. As you know, these are | |
| high-paying jobs, and the likelihood of living in a HUBZone | |
| area is slim. | |
| So because of the location that I am, I can hire part-time | |
| people, but remember that in a high-tech business if they are | |
| part-time students, for example, what does that do? That just | |
| increases your rates because they become overhead for the most | |
| part. So I don't foresee for a technical engineering, high-tech | |
| company that this would be fast growing without me finding | |
| other types of service contracts to be able to do, which I | |
| haven't done yet. | |
| Mrs. MURPHY. Great. Thank you. | |
| And then my second question for Mr. Shear, you talked | |
| extensively in your testimony about some of the status of how | |
| SBA has followed through or not on the implementation of the | |
| recommendations. Can you talk a little bit more about why you | |
| think it is that the SBA has been incomplete in their effort to | |
| evaluate the program? And also specifically you had mentioned a | |
| technology solution that was in process. Can you tell me a | |
| little bit more about that? | |
| Mr. SHEAR. Yes. Let me start with the second first on | |
| technology. In response to recommendations we made, actually | |
| for both the 8a program and HUBZone a number of years ago, SBA | |
| embarked on a technology solution to help assist with those | |
| programs, and it was called OneTrack, and it ended in failure. | |
| It was never implemented. | |
| And SBA generally, from our management review we did at the | |
| request of the full committee, we just observed a lot of | |
| turnover at the CIO level and an agency that is challenged in | |
| implementing technology. | |
| So now let me bring that to the HUBZone Program. There is a | |
| recognition, and rightly so, that SBA is now developing a new | |
| technology for the HUBZone Program. So like when we spoke with | |
| them last August, it seemed to be a very vague idea, but they | |
| said, well, we will have it up and running in the spring. And | |
| we never thought that that was possible, and it wasn't. So | |
| speaking with them last week, they spoke with much more detail; | |
| they have thought a lot more about this technology solution, | |
| and they are now more realistic about the timelines. | |
| It should be something that businesses can use, hopefully | |
| by the end of the fiscal year, and that SBA could use for its | |
| own analysis of the program by the end of the calendar year. So | |
| we just hope that by the end of the calendar year they will | |
| have something that is actually usable. | |
| So now let's talk about that technology. The idea is that | |
| you would have data that would be for each of the HUBZone firms | |
| where you could do queries on where are they located? Where are | |
| they generating economic activity? You can use it for data | |
| mining for looking at places where fraud might be most | |
| prevalent. So you can use it for a number of things. So they | |
| have said, well, they will use it for recertification. They | |
| will use it to notify firms because it is very difficult to do | |
| without that. | |
| So they are proposing a technology solution, and I hope | |
| they can get it to work because then you can also have queries | |
| again for firms that end up in redesignated areas. Where are | |
| they? I was just showing, Dr.--and I am sorry, I can't | |
| pronounce your name, a map of Orlando, and you just see the way | |
| HUBZones are spread out. If you just have, if you can make | |
| informed decisions about where the activity is occurring and | |
| just try to say what is happening in the areas where the | |
| activity is occurring compared with other similarly situated | |
| places. When we spoke to the economist that was hired by SBA in | |
| 2009 to try to develop an evaluation, we shared these ideas | |
| without saying how he should do his evaluations. | |
| But to go back to what Chairman Knight said, we actually | |
| had a mandate, a number of years ago, to evaluate the | |
| Empowerment Zone Program. And so we shared with the SBA | |
| economist how that was done, but it requires data on where | |
| activity occurs. So from a standpoint of conducting | |
| evaluations; making it easier for firms by notifying them; and | |
| by dealing with the recertification process by doing queries | |
| where you can try to identify, in a risk-based way, where might | |
| you have to go do a site visit, or where you might have to | |
| follow up and get more information from firms from the internal | |
| control standpoint--the technology solution coudl be useful. | |
| And then again, where is the activity going on? What | |
| happens at this location? Are they decertified firms? Are they | |
| firms that are in redesignated areas? Are they isolated places, | |
| or are they adjacent to areas with depressed economies, just | |
| looking at the map can be useful. So it is promising if SBA can | |
| pull it off, but let me just flip to the other side. | |
| Supposedly the district offices are the boots on the | |
| ground, and in our work, now in Puerto Rico we are including | |
| the district office in a very big way, but in the past we | |
| didn't go through what the district offices are doing. We went | |
| to business groups, and we went to chambers of commerce and | |
| local economic development entities to kind of see from their | |
| standpoint what is SBA doing to help encourage this program? | |
| So when you don't have technology in place, it becomes more | |
| important to really have a presence in a community and have | |
| resources committed to that. And so from the lens that we have | |
| looked at that, it doesn't seem like SBA really has a presence | |
| in those local jurisdictions. | |
| So there is a number of ways to do some of these things | |
| that involve, people, like site visits are very expensive, that | |
| involve people in the absence of technology, but it is like | |
| neither side of that, there is not enough of that occurring on | |
| either the people or technology side. | |
| Mrs. MURPHY. Thank you. | |
| Chairman KNIGHT. Thank you very much. | |
| I have to go in to get my driver's license renewed tomorrow | |
| and change the address, so I know, Doctor, what you are going | |
| through because I have looked online, and they said I come in, | |
| and it will take them 90 days to send me my driver's license. | |
| When I have to go in, to be there to take care of all this, I | |
| don't know why it would take 90 days, but that is the | |
| department of redundancy department that I am going to. | |
| So, Ms. Bailey, I have one final question. Are you aware of | |
| any economically distressed communities that have experienced | |
| significant economic improvement due to the HUBZone Program, | |
| and does the SBA highlight these communities? | |
| And the reason I ask this, and I will give you a little bit | |
| of a follow-up here, is because I think that some of these | |
| zones that we have talked about before that are trying to help, | |
| that are trying to give this effort in, and I agree, Mr. Shear, | |
| it has got to be easier to check and make sure that things are | |
| working, and if we are going to talk about fraud and abuse and | |
| things like that, I always say that the business has to be a | |
| partner in this, but the HUBZone has to be as easy as possible | |
| to make sure that the business can get through this. | |
| So if we are going to ask the business to do something, | |
| then it should be a very easy process, and that is why I bring | |
| up the DMV. It should be a very easy process for me to go | |
| through a very simple step. And yet 3 months later is when the | |
| step is going to be completed. That doesn't seem very simple, | |
| even though you are asking me to come in and take care of this, | |
| and that is fine. That is not what government should be doing. | |
| Government should be the partner, and then if you are doing | |
| something wrong, we should be able to come back and say you are | |
| doing something wrong and we are going to ask you to correct | |
| it. And if you can't correct it, then we are going to ask you | |
| to leave. That is the way, in my opinion, it should work. | |
| Ms. BAILEY. And that is true, and the question was is do we | |
| know of HUBZones that have actually shown some economic | |
| improvement as of this program? And, yes, we have ones that are | |
| going in and out, but the definition of what is that | |
| improvement? How much is that improvement? | |
| The example of Garrett County, Maryland, we moved in to | |
| Garrett County, Maryland in 2007, and the way we ended up doing | |
| that, we were first in Allegany County. Went in, renovated a | |
| building. It got redesignated, so we had to look for another | |
| area that would have the HUBZone Program. So we looked around | |
| with Garrett County. | |
| When we went to Garrett County, we had 14 people. We now | |
| have over 200 with over about 75 in Garrett County alone. When | |
| we looked at that, when we first went in, there was probably | |
| only two or three of our companies in there that were HUBZones. | |
| Now we have over 11. Garrett County for the first time since | |
| the inception of this program is now redesignated. Do we | |
| consider it to be a significant improvement? Probably not, but | |
| we have gone over those thresholds that were considered to be | |
| the 80 percent, and we are now at 88, which isn't a whole lot, | |
| and then 125 versus the 140. | |
| So we saw this improvement. But when we went into that | |
| area, we were about at 180, and probably income was probably | |
| about 60, 65 or something like that, so there has been | |
| significant improvement. But there are several organizations | |
| that did come into there, made a significant impact. These | |
| organizations are very community oriented. They focus, they | |
| have active community involvement programs, those types of | |
| things. They have connections with the commissioners, the | |
| economic development groups, the colleges. And we find that | |
| these areas that are very successful have those types of | |
| toolkits in their pocket, that they are a working unity that | |
| are all going through and trying to propel the HUBZone Program. | |
| Garrett County puts out as the HUBZone Program as one of | |
| their major economic development tools. So looking at this, | |
| there are certain areas, we know that there are areas like in | |
| Page County, Virginia, those areas that are outside about the | |
| 200-mile radius of the D.C. they have to have a different type | |
| of mechanism to be able to pull all of these units together and | |
| be able to get these dollars into those areas. And that is what | |
| is key here. | |
| The key is to get the dollars and the contracts being | |
| performed in these areas so you get the maximum multiplier | |
| effect. It doesn't do any good to issue a contract to a | |
| contractor who has an principal office in these areas and all | |
| the work being done in Washington, D.C. | |
| So the more that we can concentrate on being able to do | |
| that, you are going to see a greater impact in these areas. And | |
| that is a perfect example. And I will go back, you know, using | |
| our company as an example. When we went out to Garrett County, | |
| one of our first contracts was to help the SBA in 2008 with | |
| doing the HUBZone Program. And we talked to SBA. Originally our | |
| contract was to be performed in D.C. And after months and | |
| months of conversation, we convinced them, let us do this in | |
| Garrett County. And we ultimately were able to do that, expand | |
| that contract, and be able to support them from Garrett County, | |
| Maryland. | |
| We were subsequently able to do that with the VA | |
| verification support as well, which is still being done in | |
| Garrett County, Maryland. So it shows that this type of work | |
| can be done outside of the Washington, D.C. area, and you are | |
| going to get the biggest impact when you can do that. So the | |
| greatest thing that we can do is try to figure a way to get | |
| these contracts out to these areas. And the further out we go | |
| into the Midwest, into those areas that don't have these | |
| straight government installations right in their back door, | |
| those are the ones we can have the biggest impact on as well. | |
| Chairman KNIGHT. Well, thank you very much. We always | |
| appreciate entrepreneurs and business owners that come in and | |
| have provided jobs and opportunities for people. That will | |
| always about our mantra around here, that we do believe in | |
| opportunities and the ability to create. So, Ms. Murphy? Do you | |
| have any more? | |
| Mrs. MURPHY. Just one final question. So in 2008 and 2009, | |
| we have discussed how the GAO investigators have identified 29 | |
| firms that were participating in the SBA HUBZone programs that | |
| were not in compliance with the program requirements. And then | |
| in 2013, SBA OIG found three firms that the SBA certified that | |
| were not in compliance with the eligibility criteria. And the | |
| example we talked about was the one firm who had the HUBZone in | |
| Washington, D.C., whose primary location was in a HUBZone in | |
| Washington, D.C., but its actual location was in an affluent | |
| suburb. | |
| Mr. Ware, from your perspective, what adverse outcomes can | |
| occur when participating businesses are not in compliance, and | |
| what proactive strategies can SBA use to mitigate any negative | |
| impact. | |
| Mr. WARE. Well on the first part--could you repeat that | |
| first question? The first question was--maybe I should have | |
| just taken the second one, but go ahead. | |
| Mrs. MURPHY. Just from your perspective, what adverse | |
| outcomes can occur when participating businesses are not in | |
| compliance? And then what proactive strategies can the SBA use | |
| to mitigate the negative impact? | |
| Mr. WARE. Thank you very much. | |
| The adverse outcomes, when firms are in that should not be | |
| in, that means that a firm that could have gotten that contract | |
| did not. So definitely that is, in my opinion, the most major | |
| part, and then on top of it, all the Goaling numbers that we | |
| are so interested in for good reason, they are thrown off as | |
| well. So those are the two major reasons for it. | |
| And in terms of proactive strategy, we have long been | |
| talking about the need to definitely leverage more of | |
| information technology resources, and piggybacking off of what | |
| Mr. Shear said, I mean, we are saying the same things. | |
| In terms of some of their legacy systems, that system they | |
| have currently is about 17 years old. It is archaic. It is not | |
| working. Things are still stovepiped, so it causes a lot of | |
| delay and everything else. But makes the need for more boots on | |
| the ground in terms of doing a stronger review and | |
| incorporating the work of contracting officers as well because | |
| they also play a role in this in terms of raising red flags | |
| when they see it because they are the ones getting it first. | |
| And if they were kind of brought into the equation to help out | |
| in that regard, those are some of the things that could | |
| definitely strengthen it and be a proactive stance, a proactive | |
| approach instead of everything being so reactionary with us | |
| coming in after the fact with the finding. | |
| Mrs. MURPHY. Thank you. | |
| Chairman KNIGHT. I would like to thank all of our witnesses | |
| for coming in, and this is our first committee. | |
| I can tell you we will have a fairly bold agenda talking | |
| about the issues that come in front of us. I think that, I am | |
| not speaking for the rest of the committee, but we do believe | |
| in opportunities. I am sure I am speaking for everyone when I | |
| say we do believe in opportunities, and we do believe that | |
| businesses should thrive. If there are opportunities that | |
| businesses can thrive and work in partnership with government, | |
| then we want that partnership to be a lot clearer and a lot | |
| easier for both parties. | |
| SBA's HUBZone Program was created to combat poverty, | |
| increase economic independence and provide stability. As we | |
| have learned today, the HUBZone Program has faced some | |
| challenges in the past. SBA has made some improvements. | |
| However, we need to continue working to ensure the program | |
| operates at the highest level to help both our small businesses | |
| and our communities most in need. | |
| I encourage SBA to continue on this path forward | |
| collaborating with GAO and OIG to resolve any outstanding | |
| recommendations, and I believe we will be following up and | |
| seeing, because I would hate to have this panel back next year | |
| and be talking about the exact same things. That is not our | |
| goal. Our goal is always to be better and to correct | |
| deficiencies. | |
| So I look forward to working with each and every one of you | |
| to make the HUBZone Program one that works for our small | |
| businesses and our communities. | |
| I ask unanimous consent that members have 5 legislative | |
| days to submit statements and supporting materials for the | |
| record. Without objection, so ordered. This hearing is | |
| adjourned. | |
| [Whereupon, at 11:53 a.m., the subcommittee was adjourned.] | |
| A P P E N D I X | |
| [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] | |
| Chairman Knight, Ranking Member Murphy and members of the | |
| Committee on Small Business Subcommittee on Contracting and | |
| Workforce, thank you for allowing me the opportunity to testify | |
| at the hearing entitled ``Learning from History: Ideas to | |
| Strengthen and Modernize the HUBZone Program.'' | |
| My name is Dr. Mansooreh Mollaghasemi and I am the Founder | |
| & President of Atria Technologies which provides professional | |
| services in engineering, program management, and technology & | |
| system integration. I'm pleased to share my experiences as an | |
| entrepreneur and small business owner in the United States, and | |
| highlight the critical role of programs such as the HUBZone | |
| program in the growth of my business--and many others like | |
| mine. | |
| But first I would like to provide some context on the role | |
| that small businesses play in the unique innovation of American | |
| business. Google, Amazon, and Apple are all household names | |
| today with a market cap of $1.7 Trillion. The common theme | |
| among all of them is that growth was achieved primarily in the | |
| business-to-business or business-to-consumer space in the US | |
| first, with dramatic expansion to worldwide presence shortly | |
| thereafter. | |
| Note that these companies did not spring forward from | |
| within large corporations. They were all small businesses in | |
| their early years, staffed with employees with an unmatched | |
| fire for the achievement of an incredible vision. And succeed | |
| they did! This is American business at its core. The bottom | |
| line is that there is no other country in the world that has | |
| shown the same ability to innovate. | |
| But what is missing from this picture? What is missing, is | |
| a commensurate infusion of this unparalleled innovation from | |
| small business into the requirements of our Federal government. | |
| The HUBZone program provides one mechanism to transfer this | |
| innovation from a small business to solve the problems faced by | |
| our Federal government. | |
| Last year, Federal government spending reached $1.1 | |
| trillion dollars in contacts and grants \1\ with approximately | |
| 75% of that funding awarded to businesses. The lion's share of | |
| that funding is awarded to large businesses and one key reason | |
| lies in the risk aversion of the government. Agencies generally | |
| look for three things in selecting contractors: past | |
| performance, ``back reach'', and financial security/depth. To | |
| meet all three criteria, large business is almost always | |
| preferred, with ``second place'' going to those medium and | |
| small business that have managed to find a way to gain | |
| experience and past performance with federal contracting. | |
| --------------------------------------------------------------------------- | |
| \1\ USA Spending. https://www.usaspending.gov/transparency/Pages/ | |
| OverviewOfAwards.aspx. Publication date unavailable. Updated 2017. | |
| Accessed February 21, 2017. | |
| So the ``catch 22'' here is that the experience with | |
| federal contracts that small businesses need to demonstrate | |
| successful past performance, depth of staff with federal | |
| program track records, and the financial depth from contract | |
| wins--that ver experience, or rather the lack of it, is the | |
| major roadblock to their ability to contribute their innovative | |
| --------------------------------------------------------------------------- | |
| capabilities to government efforts. | |
| Finding that mechanism to enable them to gain experience | |
| with federal contracting is precisely the value that these | |
| small business vehicles like the HUBZone program provide to | |
| those small businesses who seek to provide their goods and | |
| services to the Federal government. Without these programs, the | |
| barriers to entry can be insurmountable. | |
| Why is this? Please allow me to use my own story as an | |
| example.... | |
| After receiving a Ph.D. in Industrial Engineering, I began | |
| my career as an assistant professor at the University of | |
| Central Florida. While I greatly enjoyed teaching graduate and | |
| undergraduate classes, conducting research, and mentoring and | |
| directing graduate students, I often longed for applying my | |
| research to more impactful real world problems. To that end, I | |
| finally took the leap in 2001 and started a business to focus | |
| on using technology to improve the productivity and efficiency | |
| of private and public organizations. I am extremely fortunate | |
| to have agencies like NASA and US Department of Transportations | |
| (USDOT) as well as Lockheed Martin, Disney, and Universal | |
| Studios among my clients. But the road to success has not been | |
| easy. | |
| There are numerous challenges facing an entrepreneur, the | |
| least of which are the long hours, recruiting and retaining | |
| quality employees, and the constant pressure to make payroll. | |
| I knew that we had services that would be of value to | |
| Federal government agencies. And I remember how naive I was at | |
| the start, thinking that if I could offer a solution to a | |
| government agency's problem, they would, of course, want to | |
| procure my small business services! But the meetings generally | |
| went along these lines: I would listen to their particular | |
| problem, present what our core competencies were and offer a | |
| solution to their problem, and have a brainstorming discussion. | |
| Then would come the response... ``we like what you do... we | |
| think it would be useful to our organization... but there is no | |
| mechanism for us to procure your services.'' | |
| So I began researching the various mechanisms. I learned | |
| about the HUBZone program and the 8a certification and the | |
| benefits of each problem as well as the difficulty attaining | |
| the certifications. At the time, my office was not in a HUBZone | |
| location and because I was already committed to a lease, I | |
| decided to pursue the 8a certification. The process and its | |
| requirements seemed daunting; so I hired an experienced firm | |
| and paid over $4,000 in early 2003 to help me with the | |
| application preparation. The process was every bit as time | |
| consuming as I had been warned about but luckily paying | |
| attention to details and providing the requisite documentation | |
| helped me to get 8a certified one year later. It is worth | |
| noting that I had no visibility into the application evaluation | |
| process and no idea if my application was even moving through | |
| the process, and whether it would ultimately be accepted or | |
| denied. | |
| While I was able to acquire and retain many high profile | |
| commercial clients and won some competitive grants, the 8a | |
| program was the key that opened the door to major opportunities | |
| for us to serve the needs of our Federal government. | |
| <bullet> Through one of our 8a contracts with NASA, | |
| my company developed and analyzed the first every | |
| supply chain model of Earth to Mars, arguably the | |
| longest supply chain known to mankind. | |
| <bullet> In another contract, we built a highly | |
| sophisticated optimization tools to help USDO to pilot | |
| solutions for moving freight more efficiently. With | |
| additional infusion of internal R&D funds, this tool | |
| served as the genesis for the development of a | |
| commercial tool. | |
| As we built our past performance and developed intellectual | |
| property, additional opportunities came about that spurred our | |
| growth further. | |
| Years later, when I decided to start Atria Technologies, I | |
| was surprised to experience the same lack of visibility and | |
| long lead time in the application process. | |
| In 2013, I founded Atria Technologies to meet the needs of | |
| local prime contractors to fulfill HUBZone requirements. I | |
| learned that many small businesses have difficulty attaining | |
| and/or maintaining their certification. This may be due to | |
| redesignation of HUBZone areas, difficulty in meeting the 35% | |
| HUBZone employee requirement, or lack of experience in running | |
| a business, in general. | |
| Although I already had an existing business, very few of my | |
| nearly 30 employees who were engaged in multiyear projects | |
| lived in a HUBZone. With Atria Technologies, there was an | |
| opportunity to start with a clean slate, pursue and hire full | |
| time employees that live a HUBZone, and find and mentor part | |
| time HUBZone employees who happen to be students at the | |
| university. | |
| I acquired an office in a HUBZone location, hired my first | |
| HUBZone employee who was a student at the university and | |
| applied for HUBZone certification for Atria Technologies a few | |
| months later. While I was pleased to find the application | |
| process fully on line, the certification process was not much | |
| different from what I had experienced in 2003 while pursuing 8a | |
| certification. | |
| During what turned out to be a full 7-month certification | |
| process, I made several inquiries into the status of the | |
| application. While the email correspondence with the HUBZone | |
| helpdesk was extremely cordial and I received a prompt response | |
| generally within a day, the helpdesk team was unable to provide | |
| a time frame for processing my application. | |
| For any business in the 21st Century, seven months is a | |
| long time--as long as the life of many products. Please believe | |
| me when I say that for a small business, a seven-month wait for | |
| paperwork to be approved is an enternity. It is worth noting | |
| that by the time I received certification, I had already spent | |
| over $15,000 without a single contract. | |
| While my other business focuses on developing software | |
| tools to put in the hands of end users, Atria Technologies | |
| focuses on professional services to serve government agencies | |
| and prime contractors. Almost all federal contracts won by | |
| large companies include a small business contracting plan that | |
| includes 1 to 3% HUBZone certified small business requirement. | |
| This will provide small businesses with the much needed past | |
| performance to compete for larger opportunities while | |
| contributing to jobs and economic development in distressed | |
| areas. | |
| Today, Atria Technologies is a subcontractor to a large | |
| Prime contractor on a multi-year Air Force contract in Systems | |
| Engineering, has 4 employees with 2 residing in a HUBZone. One | |
| of the HUBZone employees is a full time engineer and the other | |
| is a student who works 40 hours per month. The ability to hire | |
| part time HUBZone employees on a 40 hour basis is one of the | |
| regulations that I find beneficial. This not only allows the | |
| small business to meet the requirement of the program but most | |
| importantly provides an opportunity for the part time employees | |
| to gain experience, build their resume, and make additional | |
| income. | |
| So what is the takeaway? These SBA programs are critical | |
| for enabling small businesses to take their first steps into | |
| serving the needs of our Federal government and as a result | |
| contribute to growth and economic development. Specifically, | |
| the HUBZone program helps the small business program | |
| participants earn their track records for ``past performance'' | |
| that enable them to stand up and compete on their own for | |
| larger opportunities while infusing further investment and jobs | |
| in distressed areas. | |
| But as beneficial as these programs are, there are ways | |
| that they can be improved, primarily in the removal of ``red | |
| tape'' and barriers to entry for small business leaders. For | |
| example, it would be extremely valuable to provide visibility | |
| into the application process. Existing technology can be | |
| effectively used to streamline the approval process, and | |
| historical data can be mined to predict the time required to | |
| process applications based on their complexity. Moreover, once | |
| HUBZone certified, small business owners would greatly benefit | |
| from having a resource that can provide guidance and answer | |
| questions about the program. I have been fortunate to find such | |
| a resource at our local SBDC office whom I have contacted on | |
| several occasion to clarify rules and seek guidance. | |
| So, in summary I would like to leave you with three | |
| thoughts: | |
| <bullet> Small business in America is an engine of | |
| innovation that is unmatched in any other economy in | |
| the world, | |
| <bullet> Programs like HUBZone are the essential keys | |
| to bringing the benefits of this innovation to the | |
| government of the American people through federal | |
| contract awards and spurring economic development in | |
| distressed areas, | |
| <bullet> Opportunities exist to streamline the | |
| application and oversight process for these programs to | |
| enable their more efficient and effective use. | |
| It is truly an exciting time to be the leader of a small | |
| business. We are the envy of the world, and rightly so. The | |
| federal programs we are discussing today are vital to enabling | |
| the bright light of small business innovation to shine on the | |
| services provided by our government agencies. | |
| Thank you for your time today. | |
| [all] | |
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