[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
CHALLENGES IN SBA'S STATE TRADE EXPANSION PROGRAM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON RURAL DEVELOPMENT, AGRICULTURE, TRADE, AND
ENTREPRENEURSHIP
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MARCH 12, 2019
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 116-010
Available via the GPO Website: www.govinfo.gov
_________
U.S. GOVERNMENT PUBLISHING OFFICE
35-333 WASHINGTON : 2019
HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
ABBY FINKENAUER, Iowa
JARED GOLDEN, Maine
ANDY KIM, New Jersey
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
JUDY CHU, California
MARC VEASEY, Texas
DWIGHT EVANS, Pennsylvania
BRAD SCHNEIDER, Illinois
ADRIANO ESPAILLAT, New York
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANGIE CRAIG, Minnesota
STEVE CHABOT, Ohio, Ranking Member
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
TRENT KELLY, Mississippi
TROY BALDERSON, Ohio
KEVIN HERN, Oklahoma
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
TIM BURCHETT, Tennessee
ROSS SPANO, Florida
JOHN JOYCE, Pennsylvania
Adam Minehardt, Majority Staff Director
Melissa Jung, Majority Deputy Staff Director and Chief Counsel
Kevin Fitzpatrick, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Abby Finkenauer............................................. 1
Hon. John Joyce.................................................. 3
WITNESSES
Ms. Kim Gianopoulos, Director of International Affairs and Trade,
Government Accountability Office, Washington, DC............... 4
Mr. Hannibal ``Mike'' Ware, Inspector General, United States
Small Business Administration, Washington, DC.................. 6
APPENDIX
Prepared Statements:
Hon. Jim Hagedorn, Minnesota................................. 15
Ms. Kim Gianopoulos, Director of International Affairs and
Trade, Government Accountability Office, Washington, DC.... 16
Mr. Hannibal ``Mike'' Ware, Inspector General, United States
Small Business Administration, Washington, DC.............. 29
Questions and Answers for the Record:
Questions from Hon. Nydia Velazquez to Mr. Hannibal ``Mike''
Ware and Responses from Mr. Hannibal ``Mike'' Ware......... 37
Additional Material for the Record:
None.
CHALLENGES IN SBA'S STATE TRADE EXPANSION PROGRAM
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TUESDAY, MARCH 12, 2019
House of Representatives,
Committee on Small Business,
Subcommittee on Rural Development, Agriculture,
Trade, and Entrepreneurship,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:11 a.m., in
Room 2360, Rayburn House Office Building. Hon. Abby Finkenauer
[chairwoman of the Subcommittee] presiding.
Present: Representatives Finkenauer, Chabot, Hagedorn, and
Joyce.
Chairwoman FINKENAUER. Good morning. The Subcommittee will
come to order.
It is a pleasure to have our witnesses testifying before
our Subcommittee this morning. I commend you for your
commitment to public service. I also want to take a minute to
thank Ranking Member Dr. John Joyce of Pennsylvania. He
introduced himself to me very early on and expressed how
important trade and rural development was to his district. I am
glad we share that as a common priority, and I look forward to
working with him in a bipartisan fashion on this Subcommittee.
As someone who grew up in a small town in Iowa--as I like
to say, in a town with more cows than people--I am thrilled to
be leading this Subcommittee focused on rural development. We
have an opportunity to give folks in districts like mine and
Ranking Member Joyce's a seat at the table for important
conversations like the one we are having today on helping
farmers and small businesses export their products.
It is no secret that for rural entrepreneurs and family
farmers in states like Iowa, the ability to do business
overseas is key to economic success here at home. Trade should
help us export goods but also protect our workers and our
communities.
Despite the economic rewards that come with exporting
products overseas, only 1 percent of our nation's 30 million
small businesses are able to do so.
With 95 percent of the world's consumers living outside of
the United States, small businesses are missing out on
opportunities to better support their families and communities,
create jobs, and expand our economy.
Today, we have a chance to hear from some of our nation's
leading experts on a federal program that aims to help small
businesses enter new markets around the globe. This initiative,
the State Trade and Expansion Program (STEP), was initially
created in 2010 as a 3-year pilot program. Five years later,
Congress enacted the Trade Facilitation and Trade Enforcement
Act to make the STEP program permanent and authorize $30
million in funding through fiscal year 2020.
STEP provides matching funds to states and territories to
help small businesses enter new markets, access export
financing, and go on trade missions.
Since its inception, the Small Business Administration has
awarded approximately $139 million in funding to almost every
state in the country.
In the 2018 annual report, SBA reported that the agency
awarded 44 grants totaling $18.9 million in fiscal year 2016.
The rate of return was 31 to 1 for every dollar invested,
states reported $31 in sales.
STEP has the potential to unlock opportunities in the
global marketplace for small businesses in a town like
Maquoketa in my district, whose owners may want to sell
products overseas but could lack the staff capacity or even an
idea of where to start.
Having said that, the reports and audits conducted by our
nation's watchdogs raise some concerns over the implementation
of the STEP program and show areas for improvement as we look
at the need for reauthorization in 2020. Work by the Government
Accountability Office found that SBA lacks a strong process to
ensure states are complying with the program's requirements.
GAO also found states face serious and ongoing challenges in
trying to utilize the funds with some even giving the funds
back. Problems range from short application windows and
difficult reporting requirements to a lack of timely
communication from SBA.
The Inspector General's audits uncovered similar problems
and determined more work needs to be done to improve the
program's performance measures and oversight. Moreover, the
report showed that SBA is at risk of not fully realizing the
potential of the program.
My office had a chance last week to hear from the Iowa
Economic Development Authority about problems in utilizing the
funds. In one instance, Iowa was awarded a STEP grant on
September 21st with a start date of September 29th, just 8 days
later.
In another instance, SBA announced a grant opportunity on
April 2nd only to post a second announcement with new and more
accurate information on April 18th. SBA did not respond to
Iowa's questions about the application until April 27th, but
the deadline for applying for the STEP grant was May 16th. That
is a pretty tight turnaround.
While this is frustrating, STEP is a needed initiative, and
I look forward to hearing other states' ideas for improving it
and hopefully getting some of our states on record in the
future about how we can make STEP work better.
In Congress, we ought to be making it easier for farmers
and small businesses to succeed in the international
marketplace-- not harder--while also protecting our workers.
STEP has the potential to help Iowa's entrepreneurs and
entrepreneurs around the country tap into new markets.
If utilized properly, this program stands to provide small
businesses with the tools they desperately need to expand,
create jobs, and boost wages throughout America, especially in
rural areas that quite frankly have been ignored for too long.
Let me close by saying how grateful I am to have the
opportunity to Chair this Subcommittee. I look forward to
working with my colleagues on both sides of the aisle to
harness the feedback we receive today to make much needed
improvements to the STEP program for all of our communities,
small businesses, and hard-working families.
I want to thank our witnesses for being here for what I
hope will be a productive discussion.
I would like to now yield to the Ranking Member, Dr. Joyce,
for his opening statement.
Mr. JOYCE. Thank you, Madam Chairwoman Finkenauer.
Small businesses eying international markets face daunting
obstacles, such as insufficient manpower, lack of external
resources, inadequate access to financing, and clearly,
bureaucratic red tape. The Small Business Administration (SBA)
is one of the six agencies that offer export promotion programs
specifically for small businesses.
The SBA Office of International Trade, often referred to as
OIT, is responsible for a variety of programs that provide
training, counseling, and export financing for small
businesses. We are here today to review just one unique program
within an exceptionally complex network of trade promotion
programs.
The statutes governing the State Trade Expansion Program,
known as STEP, are very specific to ensure each dollar hits its
target. Since its creation as a pilot program in 2010, SBA OIT
has struggled to comply with STEP's strict legal requirements.
One of Congress's most vital roles is not only to exercise
fiscal responsibility when spending taxpayer dollars but also
to ensure that the taxpayer dollars we allocate are being spent
wisely and reaching their maximum impact.
I appreciate the cooperation between all agencies and their
commitment to seeing that SBA fulfills its goals relating to
this program and maximizes every dollar received to help small
businesses reach their potential in the international market.
This hearing resumes the Committee's oversight of OIT and
the STEP program. Our witnesses represent the Government
Accountability Office (GAO) and SBA's Office of Inspector
General (OIG). They are our eyes and our ears. They are here to
present the issues plaguing the STEP program. I am encouraged
by the dedication shown by all parties to expanding the
opportunities for small businesses and farmers, and I look
forward to working with you to achieve our common goal of
reducing barriers to small businesses participating in global
trade.
Thank you again to our distinguished witnesses and I yield
back.
Chairwoman FINKENAUER. Thank you, Dr. Joyce. The gentleman
yields back.
If any Subcommittee members have an opening statement
prepared, we ask that you submit it for the record.
Now I would like to just take a minute to explain the
timing rules. Each witness will have 5 minutes to testify and
each member will have 5 minutes for questioning. There is a
lighting system to assist you. The green light will be on when
you begin and the yellow light will come on when you have one
minute remaining. The red light will come on when you are out
of time, and we ask that you stay within the timeframe to the
best of your ability.
I would now like to introduce the witnesses.
Our first witness is Ms. Kimberly Gianopoulos. Ms.
Gianopoulos serves as the director for international trade
issues in the International Affairs and Trade Team at the
Government Accountability Office (GAO). She has a distinguished
career and has provided leadership in a number of efforts to
improve government programs, including contributions to GAO's
high-risk series. Ms. Gianopoulos has also received a number of
awards, including a Meritorious Service Award, a Client Service
Award, an Assistant Comptroller General's Award, and several
Results through Teamwork Awards. Welcome, Ms. Gianopoulos.
Our second witness is the Honorable Hannibal ``Mike'' Ware,
the inspector general of the Small Business Administration. Mr.
Ware was sworn in as the inspector general of the Small
Business Administration in May 2018. He is responsible for
independent oversight of SBA's programs and operations, which
encompass more than $100 billion in guaranteed loans and nearly
$100 billion in federal contracting dollars. Mr. Ware has 28
years of experience within the OIG community and has received
numerous awards throughout his career, including several awards
from the Council of Inspectors General on Integrity and
Efficiency in recognition of his significant work in the
inspector general community. Welcome, Mr. Ware.
Ms. Gianopoulos, you are recognized for 5 minutes.
STATEMENTS OF KIM GIANOPOULOS, DIRECTOR OF INTERNATIONAL
AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY OFFICE; HANNIBAL
``MIKE'' WARE, INSPECTOR GENERAL, UNITED STATES SMALL BUSINESS
ADMINISTRATION
STATEMENT OF KIM GIANOPOULOS
Ms. GIANOPOULOS. Thank you.
Chairwoman Finkenauer, Ranking Member Joyce, and members of
the Subcommittee, thank you for the opportunity to be here
today to discuss our recent work on SBA's State Trade Expansion
Program.
As you know, Congress established STEP to help small
businesses export. Many states report that STEP is important to
their export promotion operations. However, concerns have been
raised related to the management of the program, including
SBA's processes for administering and monitoring grants, and
the effectiveness of the program in reaching its goals.
My testimony today is based on our report, which is being
released at this hearing. Today, I will discuss two items: one,
the extent to which SBA's STEP grants management process
provides reasonable assurance of compliance with selected
requirements of applicable law, and two, the extent to which
SBA has responded to states' challenges in using grant funds.
First, we found that SBA does not provide reasonable
assurance that STEP grant recipients meet two of the three
Trade Facilitation and Trade Enforcement Act requirements that
we reviewed before the grant is closed out.
The first requirement states that SBA must limit the amount
given to the 10 states with the largest numbers of eligible
small businesses. SBA demonstrated reasonable assurance that
this first requirement was being met.
The second requirement is that states must provide either a
25 or 35 percent total match to the Federal grant amount. We
identified four instances where according to SBA's
documentation, states did not report sufficient total matches.
Nevertheless, SBA closed these grants.
The third requirement is that a state's match cannot be
less than 50 percent cash. SBA collects information about the
matching funds, including the proportion provided in cash.
However, it does not monitor states' compliance with this
requirement. Additionally, SBA considers the salaries of state
trade office staff who work on administering the grant to be a
form of cash and most states use staff salaries as their total
match, including the required cash portion.
SBA does not ensure that states that do this are not also
using grant funds from STEP to pay for portions of these
salaries. As a result, SBA cannot consistently determine
whether states are meeting the cash match requirement.
In our report, we recommend that SBA establish a process to
ensure documentation of states' compliance with the total match
requirement and develop a process to determine states'
compliance with the cash match requirement. SBA agreed with
these recommendations.
Our second finding is related to the overall use of grant
funds and the challenges that states report in using their
allocations. We found that nearly 20 percent of grant funds go
unused each year despite SBA officials stating that they seek
100 percent use of these funds. For example, in 2016, across 41
of the 43 recipient states, combined grant use was about 82
percent, leaving nearly $3.2 million unused. This includes one
state that left nearly 95 percent of its funds unused that
year.
SBA made some changes to the program that could improve
states' abilities to use all their grant funds, such as
extending the fund's usage period to 2 years; allowing certain
flexibilities, including travel; and reducing the length of the
technical proposal.
The 12 states we interviewed cited numerous challenges,
including timing of the application and award processes,
administrative burden, and communication between the states and
SBA. We heard about variable and short application timeframes,
inflexible application requirements, a difficult process for
repurposing funds, burdensome and changing reporting
requirements, and delayed and inconsistent communication of
requirements from SBA. SBA does not assess and address the risk
posed by some states' low use of funds. Also, SBA officials
told us that while they informally collect feedback from
states, there is no process to collect states' perspectives on
challenges with the program. We recommended that SBA assess
this risk to achieving program goals posed by some states' low
grant fund use rates. We also recommended that SBA enhance
collection and sharing of best practices among states. SBA
agreed with these recommendations.
Thank you again for the opportunity to testify. I am happy
to answer any questions you may have.
Chairwoman FINKENAUER. Thank you, Ms. Gianopoulos.
Mr. Ware, you are now recognized for 5 minutes.
STATEMENT OF HANNIBAL ``MIKE'' WARE
Mr. WARE. Thank you, Chairwoman Finkenauer, Ranking Member
Joyce, 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. I am proud to
represent the dedicated men and women of my office and speak to
you about their important work.
We have published three reports and written one management
advisory regarding what is now known as the State Trade
Expansion Program, or STEP. Across these three reports, we made
22 recommendations, all of which are now considered closed.
While the STEP program has benefitted from congressional
scrutiny, OIG oversight, and most recently oversight by my
colleagues at GAO, my office has identified systemic risks to
SBA's grant management practices that are important in context
of today's discussion.
Our first STEP review was conducted pursuant to the Small
Business Jobs Act of 2010, which authorized SBA to establish a
STEP grant program as a 3-year pilot to increase the number of
eligible small business concerns in states that export and to
increase the export value of those eligible small businesses
that already export. In 2015, Congress authorized STEP as a
full-fledged program through the Trade Facilitation and Trade
Enforcement Act of 2015. Our two most recent reports were
mandated by the 2015 act.
We conducted our 2012 audit of the pilot program to
determine the extent to which the grant recipients were
measuring program performance. To achieve our objectives, we
reviewed the Small Business Jobs Act of 2010 and the Fiscal
Year 2011 STEP program announcement. We judgmentally selected
all STEP grants exceeding $1 million to review. Six grant
recipients met this threshold. We conducted site visits to
California, Pennsylvania, Washington, Michigan, and Illinois.
We found that STEP grant recipients did not implement adequate
metrics to measure program performance and issued nine
recommendations for corrective action. In addition, SBA granted
more than $1 million to an ineligible applicant, the
Commonwealth of the Northern Mariana Islands, which was the
subject of our advisory report. In response, Congress included
an expanded definition of state in the 2015 act which resolved
the issue in the advisory.
Our second STEP review was performed to determine how STEP
funds were used. We requested grant award and expenditure
totals from SBA, queried STEP data from usaspending.gov, and
selected 15 grant awards totaling $15.2 million. We found that
SBA could not provide consistent STEP award and expenditure
data and did not update usaspending.gov. We did, however, find
that SBA implemented new reporting requirements for the fiscal
year 2014 STEP program that significantly improved controls
over the quality of the grant recipients' performance and
financial reports. We issued three recommendations based on our
review findings.
Our final report we issued was also issued pursuant to the
2015 act authorizing STEP. The objectives of the audit were to
determine the extent to which STEP recipients measure program
activity performance and the results of those measurements. It
is noteworthy that Congress included certain performance
measures within the 2015 authorization as a follow-on to our
findings that SBA lacked adequate metrics in the pilot stage.
We selected five cooperative agreement awards totaling $3.9
million, conducted site visits and obtained documentation from
recipients in California, North Carolina, Washington, and
Mississippi. We also interviewed and obtained documentation
from cooperative agreement officials for Illinois.
We found SBA has made significant progress in improving the
overall management and effectiveness of STEP since our audit of
the pilot program in 2012; however, SBA could utilize existing
data to further improve its performance measures and program
oversight. We issued six recommendations based on our review
findings.
It is safe to say the STEP program has evolved since its
inception and has benefitted from oversight review from my
office, GAO, and congressional scrutiny. Nonetheless, our
reviews of SBA's grant programs continue to identify systemic
issues with SBA's accuracy of grant data for both financial and
performance reporting, ineffective oversight, and inadequate
standard operating procedures.
In our most recently published, most serious management and
performance challenges facing SBA in fiscal year 2019, we
identified grant management as an agency challenge for the
first time. SBA officials acknowledge that there are systemic
issues with its grant management processes and have documented
plans to address them. That said, we will continue to perform
reviews and make recommendations for corrective action to
promote efficiencies and effectiveness within SBA's grant
programs.
Thank you for the opportunity to speak to you today. I look
forward to your questions.
Chairwoman FINKENAUER. Thank you, Mr. Ware.
You guys are very good on time. Oh, my goodness.
Mr. WARE. Exactly on the 5 minute mark.
Chairwoman FINKENAUER. Exactly. Thank you all. We really
appreciate everything you have shared with us.
I will begin the questioning by recognizing myself for 5
minutes.
The first question is for Ms. Gianopoulos. Trade is
obviously a priority for me and for the state of Iowa, which is
why I am so pleased that our first hearing is on how small
business trade assistance programs can work better for farmers
and small businesses but also our states. Iowa is the number
one export state for corn and pork, and number two for
soybeans. Iowa is also number two in the country overall for
commodities behind California. I am sure the administration
shares the goal of improving small business trade assistance
programs, as well, so I hope this is a bipartisan issue.
For GAO's report, you interviewed 12 states that left at
least 25 percent of their grant funds unused. Why do some
states spend all their money while others are struggling to do
so?
Ms. GIANOPOULOS. When we spoke with the states, they gave
us a variety of responses as far as the barriers and challenges
that they experienced in trying to use some of the grant monies
that they received from SBA. I touched on them a little bit in
my oral testimony but they included everything from the, as you
mentioned earlier in your opening statement, Chairwoman, the
application deadline. It is not always the same day or the same
week every year so some folks who have very small state trade
offices cannot plan in advance when to dedicate their time to
this application process.
As you also noted, sometimes things change. The reporting
requirements change. In other cases, the states have difficulty
in repurposing funds. For example, we heard one story where a
state was unable to attend a trade conference overseas because
things had changed or certain companies had dropped out and
they had a very difficult time getting those funds repurposed
through SBA. So in some cases it is the timing that works
against the states and in other cases it has to do with the
management of the program itself.
Chairwoman FINKENAUER. Got it. Thank you.
My next question is for Mr. Ware. You also found that grant
recipients did not expend all the funds awarded. In response to
your findings, SBA enhanced its oversight procedures so that
the program managers are monitoring states to ensure they are
meeting their quarterly goals. What could SBA do to make it
easier for recipients to use funds? Has the appropriations
process impacted states' abilities to utilize the funds?
Mr. WARE. I believe that the appropriations process has
impacted the states' ability. I mean, the states are on record
as my colleague stated of discussing the difficulties they have
with the short timeframe, and it is compounded, of course, when
the short timeframe is made even shorter. Relative to spending,
I think one of the things that SBA did was after our last
audit, they increased the period of performance time which
should take some of the pressure off the states in terms of
spending. But I caution that that does come with its own set of
challenges that I could get into but I am sure that answers
your question, or I hope it does.
Chairwoman FINKENAUER. Great. Thank you.
I thank both of you for being here. This is enlightening
and there is clearly a lot that we need to be doing better.
STEP is a great program and we need to make sure that it is
implemented in a way that our states and our small businesses
can get what they need to be able to grow. I really appreciate
your time and look forward to ongoing discussions.
With that, I am going to yield back my time. The Ranking
Member, Dr. Joyce, is now recognized for 5 minutes.
Mr. JOYCE. Thank you, Madam Chairwoman.
My first question is for Mr. Ware. The SBA's OIG identified
what truly were systemic issues with the SBA's financial and
performance oversight. These grant programs and the elevation
of this by this review show that these issues into 2019 had
management and performance challenges in the report. How do
STEP's management issues compare to other SBA grant programs?
Mr. WARE. Thank you. It goes hand in hand. The same type of
problems we find in STEP, we find in the other programs. It is
basically two things. So it is inaccurate data and it is not
enough oversight or inadequate oversight. And when I say they
go together it is that those problems are what we find
systematically across just about every grant program that we
look at, which was the reason why we elevated it to a top
management challenge and notified the agency.
Mr. JOYCE. Has the SBA Office of Grants Management made any
changes based on the recommendations in the report, and how
long will it take for this reform to take place?
Mr. WARE. They have made changes. And I will give you some
of the ways they did. They did the earlier detection in terms
of a risk management process by which they visit states based
on risk that are not spending on time based on the quarterly
reviews of the performance data now. And they also came up with
an agency-wide data quality plan that they are supposed to
implement across the board on all their grant programs. They
provided us with sufficient documentation to prove that they
have put those things in place. We have not done the work yet
to determine the impact of those changes.
Mr. JOYCE. How can Congress monitor SBA implementation
progress?
Mr. WARE. One way Congress can monitor the implementation
progress is by the work that both GAO and the Office of
Inspector General does in terms of that.
Mr. JOYCE. And finally, how will grant management reforms
impact the STEP program?
Mr. WARE. It should impact it significantly, mainly because
we want a transparent, well-functioning program that has the
right level of oversight on it and that is providing the type
of performance measures data that Congress can use to provide
the type of oversight. And I think that based on our work, they
have come a long way in terms of that. Like, for example, in
the past they only did the rate of return on investment as the
true measurement. They have since stepped that up based on our
recommendations to provide measures more in line with what the
authorizing language asks for.
Mr. JOYCE. And will the better management help states use
these funds, fully implement the access to these funds?
Mr. WARE. I believe so, especially in regard to the early
detection of states who are struggling to use their funds.
Mr. JOYCE. Thank you very much.
My next questions are for Ms. Gianopoulos. Your report
found that the SBA does not have sufficient processes to ensure
that states meet the total and cash match requirements mandated
by the statute. Can you explain total and cash match
requirements and why they are mandated?
Ms. GIANOPOULOS. Sure. So the total matching requirement
that a state has to meet is 25 percent of the total amount that
they are going to receive. So, for example, if a state was
going to spend $100 on export promotion, $75 of that could come
from the STEP program and $25 would come from the state itself.
And of that $25, $12.50 would have to be in cash and the other
$12.50 could be either in cash or by some other way, either an
indirect or an in-kind contribution, that sort of thing. So
that is what TFTEA, the Trade Facilitation and Trade
Enforcement Act requires when it updated the program and made
it a permanent program. So what we found were there were some
difficulties that SBA had in not only confirming that the match
had been met, but also that the cash match was being met with
actual cash. As I explained in my statement, there were some
issues having to do with staff salaries being used as part of
that or all of the cash match, and it was unclear to us whether
that was actually following the guidance that was put forward
in order to meet the requirements of TFTEA.
Mr. JOYCE. Now, you mentioned indirect costs and in-kind
contributions. Can you tell me more about that? Can you
directly address what representation of that would be?
Ms. GIANOPOULOS. Sure. So, indirect costs and in-kind
contributions are the noncash options that a state can use to
help provide its portion of the program. So they could offer a
conference space for a meeting. They could use the utility of
their travel offices to arrange overseas travel for some of
these conferences. It is the different types of services that
the state can provide that would not be something you would see
on a balance sheet but could be valued in various ways by the
states to meet their requirement.
Mr. JOYCE. And how do you monitor the----
Chairwoman FINKENAUER. Thank you. The gentleman's time has
expired but we will allow for more questions after this as
well.
Mr. JOYCE. I yield back. Thank you.
Chairwoman FINKENAUER. Yes, thank you.
The gentleman, Mr. Hagedorn, from Minnesota, is now
recognized for 5 minutes.
Mr. HAGEDORN. I thank the Chair and the Ranking Member and
the witnesses. Appreciate all the work done by staff, including
my own. Thanks for putting this together.
It is a timely hearing. This is National Agriculture Week,
so anything we can do to help our farmers and agribusinesses,
especially expand in area of trade, is very important. And as
somebody who also sits on the Agriculture Committee, I have a
vested interest in this in a number of ways.
Our farmers and agribusinesses, not just in Southern
Minnesota where I represent that district, but across the
country, many of them have been in recession one way or another
for the better part of 5 years. We have had low commodity
prices, high input costs, and all this predates anything with
the trade issue.
And so what we try to do, at least my goals with
agriculture and being here, three things for our farmers: Make
sure that we can do everything possible to reform the Federal
Government so we have good government policies in the areas of
regulation, health care, taxes, energy, you know, work
requirements for welfare, whatever, to make sure that we drive
down the cost of farming as much as possible, and make sure
that we have the workforce there for our farmers. Secondarily,
we want to sustain our farmers when times are tough, and we do
that with implementation of the 5-year Farm Bill, E-15 year-
round, things of that nature. And third, and this is the
critical part where we have an opportunity at the Federal
Government, the Federal role, expand our exports. Drop down
those barriers. Make sure that we have new markets around the
world.
In southern Minnesota, we have about 20,000 farms. It is a
highly rural area. It happens to also have the urban spot of
Rochester where we have the preeminent institution of medicine
in all the world, the Mayo Clinic, but mostly farms. A lot of
good crop and livestock producers. The second largest hog
production congressional district in the whole country. And so
each one of those farms, each one of those farmers is producing
enough to feed about 165 people. And we see that that reach is
not just across the country but the whole world.
And so when we get into what is going on with these
programs and how they can be better utilized, do you think we
should track closer as to how much of this money it spent on
direct work trying to promote farmers and agribusinesses and
our commodities? And secondarily, and I will ask both of you,
do you work closely with USDA to try to implement these things?
Are there measures that we should take to make sure that we are
not duplicating costs but we are using our monies as
efficiently and effectively as possible?
Mr. WARE. I believe your first question was should we track
what goes to the farms differently?
Mr. HAGEDORN. Well, just how do you track the money? For
instance, in Minnesota, we spent, I think it was like $150,000,
something like that. Do we track exactly what we are trying to
do with those monies or do you get to that level in your
reports?
Mr. WARE. In my reports, we stay programmatic in line with
the mandate for us. We did not go into exactly what the states
were using the money for.
Mr. HAGEDORN. Should we do more in that area of tracking
the money? What would that require? How would we get that done?
Mr. WARE. Well, it is a different scope for us if we were
to do that. The act says that we are supposed to look at XYZ.
In order for us to do something like that it would just be a
different focus, a different scope. And if the member wanted to
request of my office that we did something like that, we are
definitely open to it.
Mr. HAGEDORN. Okay.
Ms. GIANOPOULOS. So when we started our work, as you know,
we looked at the 12 states that used less than 75 percent of
their allocation in 2015. And I am just looking now at my
statistics. Your home state Minnesota was actually the one that
used only 23.3 percent of its 2015 STEP allocation. We did
pursue possibly looking into the kinds of things that each STEP
grant was used for, but because the IG identified the issues
with the reliability of the data that SBA had, we were unable
to do that. Now, anecdotally, when we spoke with the 12
different states, we did hear a number of different industries
that were benefitting from the STEP program, such as heavy
manufacturing, medical equipment, food and beverage, consumer
appliances, that sort of thing, but that is purely anecdotal
and cannot be generalized. So we do not have specific
information but I did want to share that with you that your
state was one of the ones that we spoke with about the low use
rate.
Mr. HAGEDORN. Well, that is very useful, and we will follow
up on that. I appreciate your testimony. I yield back.
Chairwoman FINKENAUER. Thank you. Now we will go into a
second round of questions. There is a lot to talk about here
today. I will begin by recognizing myself for another 5
minutes. My first question, again, will be for Ms. Gianopoulos.
According to your report, SBA told you that it does not
formally facilitate the sharing of best practices between
states. You recommend that SBA enhance its identification and
sharing of best practices. How might this improve the program?
And do you have any thoughts on how this can be achieved?
Ms. GIANOPOULOS. Well, we did not specifically tell SBA how
it should be achieved because we wanted them to work within the
parameters and the resources that they had available to them.
But there are a number of ways, and we have noted in other
reports some suggestions of how not only states but also
agencies can share best practices and information. What the SBA
officials told us is that they perhaps informally--
anecdotally--speak with a particular state regarding the
difficulty it might be having in using its grant funds but
there is no systematic way. And when we spoke with the 12
states they told us there is no systematic way that they can
learn from each other--other than through outside organizations
such as State International Development Office (SIDO) and that
sort of thing--to learn from each other what it is that is
working and not working for a particular state. And we realize
that every state's situation is a little bit different, but
because the 12 states we talked to were so variable, they were
small states, large states, urban and rural, all different in
and of themselves, there should be some way that SBA could
facilitate that sharing of information in order to better use
the money and better achieve the program goals.
Chairwoman FINKENAUER. Absolutely. Thank you.
Mr. Ware, metrics are obviously a very valuable tool in
measuring the success of a program, but they also let us know
where to make improvements. How can we better measure the
success of the program in terms of increasing exports and the
number of small businesses that export?
Mr. WARE. Right. That is a good question. And I think it is
a question that we asked based on our recommendations for SBA
to do. And we believe that they have now done that in terms of
addressing what the mandate was, which was to increase the
small businesses that do exports. As I think I said earlier,
they were focused so much on the return on investment that was
being reported, and as a matter of fact, that is what was
mandated to be reported. What the body could possibly do is in
the new version is to make some of those measurements, the ones
that they are now doing as a result of our recommendations,
perhaps make those mandatory as well. And on top of that there
is a lot of room out there for outcome-based recommendations
and there are other, like someone said, six other places that
are doing this. So there should be best practices, like we were
just discussing, out there on how best to measure this program
if you are really focused on determining the true impact of the
program in the states.
Chairwoman FINKENAUER. Great. Thank you.
I will yield back the rest of my time.
And I would like to again recognize the Ranking Member, Dr.
Joyce, for 5 minutes.
Mr. JOYCE. Thank you, Madam Chairwoman.
This is for Mr. Ware. We heard earlier that the
Commonwealth of the Northern Mariana Islands was awarded a STEP
grant and they were actually an ineligible recipient at that
time. Testimony says that OIT personnel did not have the
experience or training required to manage and administer such a
complex grant program. What has SBA OIT done to ensure its
staff now fully understands STEP's statutory requirements?
Mr. WARE. At the time that happened, it was still in the
pilot. So it was very much in the beginning. As a result of our
recommendations, they did implement a training program and
trained all the grant managers across the board. Now, that
being said, keep in mind that it is not like contracting
officers where they have a requirement to do annual training or
anything like that. They did training at that time and they
have implemented steps to make sure that they provide the
training going forward. And that is something that they are
doing across the board for all the grant programs right now.
Mr. JOYCE. So along that same line, how are the states made
aware and held accountable for the STEP's legal requirements?
Is that training extended to individual states?
Mr. WARE. We did not look at the training to the individual
states. However, the grant managers from a systematic
standpoint of SBA's oversight of the program, that was covered
in the training.
Mr. JOYCE. This question is for Ms. Gianopoulos.
Several states claim that STEP reporting requirements were
much more detailed and burdensome than grants from the
Department of Commerce and other agencies. Can you provide me
with more details on this, please?
Ms. GIANOPOULOS. Well, what we heard from the 12 states
that we interviewed is that some of the difficulties in using
all of their funds had to do with the level of detail with
which they had to report back the use of those funds or to ask
for reimbursement. So, for example, one of the states told us
that when a group of trade folks were traveling say to a
conference, in order to request reimbursement of that money, if
they were all in a cab together they had to divide the cost of
the cab and claim it individually by person, which made for--
and that was only one example--a great deal of administrative
burden for them and made it very difficult. And in some cases
they were even having second thoughts about applying for the
grant the next year because of the amount of burden it was on
them--to request that money back. And in some cases that money
is such a small amount, even though it is important to them,
they had to do a cost-benefit analysis as to whether it was
worth their time in order to get that money back as part of the
STEP grant.
Mr. JOYCE. Do find that then states apply for less
burdensome application processes? Are they reaching out in
other directions when facing such obstacles?
Ms. GIANOPOULOS. We did not really get into a lot of detail
with where they put their efforts, but because the size of the
state trade offices varies so widely, the very small state
trade offices have to make choices as to where they are going
to put their time. And as I mentioned earlier, because this
program does not follow a set standard routine every year, it
is not available on the same day every year, it is not the same
amount of time every year, they have to make those types of
choices state by state by state as to what they are going to
apply for and how they are going to use their resources.
Mr. JOYCE. Would you presume that they do reach out to less
burdensome application processes?
Ms. GIANOPOULOS. I have not talked with them about that,
but if I were making a decision as far as what I was going to
do with my resources and my time, I would want the most bang
for my buck.
Mr. JOYCE. That makes sense.
Thank you both for your concise answers. I yield back my
time.
Chairwoman FINKENAUER. Thank you. Thank you very much to
both of you for being here today, for your public service, and
for taking out so much time out of your schedule. It really
means a lot, and this was a very informative day. Ms.
Gianopoulos and Mr. Ware, we are very grateful.
As we have heard today, STEP offers many promising
opportunities for entrepreneurs and farmers in Iowa and across
the country to succeed. Over the past decade, STEP has grown
from a 3-year pilot program to a permanent, successful program
in SBA that with some improvements will be a critical piece of
a trade assistance portfolio. I appreciate your work in
identifying some of the systemic issues that we need to
resolve. It has led to significant improvements in the
implementation of the law. More work, obviously, needs to be
done. In my role as the Chairwoman of the Subcommittee on Rural
Development, Agriculture, Trade, and Entrepreneurship, I look
forward to working with my colleagues on both sides of the
aisle to make much-needed improvements in STEP. I am committed
to making life easier for small business owners in Iowa and
across rural America so that they can grow their small
businesses and better support their families and our rural
communities.
I would ask unanimous consent that members have 5
legislative days to submit statements and supporting materials
for the record.
Without objection, so ordered.
If there is no further business to come before the
Committee, we are adjourned. Thank you.
[Whereupon, at 11:58 a.m., the subcommittee was adjourned.]
A P P E N D I X
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