[Senate Hearing 109-492]
[From the U.S. Government Publishing Office]
S. Hrg. 109-492
THE EFFECTIVENESS OF THE SMALL BUSINESS ADMINISTRATION
=======================================================================
HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
APRIL 6, 2006
__________
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
28-236 WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia MARK PRYOR, Arkansas
Katy French, Staff Director
Sheila Murphy, Minority Staff Director
John Kilvington, Minority Deputy Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Coburn............................................... 1
Senator Carper............................................... 9
Prepared statement:
Senator Levin................................................ 47
WITNESSES
Thursday, April 6, 2006
Hon. Sue Kelly, a Representative in Congress from the State of
New York....................................................... 6
Hon. Hector Barreto, Administrator, U.S. Small Business
Administration................................................. 14
William B. Shear, Director, Financial Markets and Community
Investment, U.S. Government Accountability Office.............. 25
Veronique de Rugy, Resident Fellow, American Enterprise Institute 27
Jonathan J. Bean, Professor of History, Southern Illionois
University..................................................... 29
David Bartram, Chairman, National Association of government
Guaranteed Lenders............................................. 31
John Pointer, Small Business Owner............................... 33
Alphabetical List of Witnesses
Barreto, Hon. Hector:
Testimony.................................................... 14
Prepared statement........................................... 55
Bartram, David:
Testimony.................................................... 31
Prepared statement........................................... 128
Bean, Jonathan J.:
Testimony.................................................... 29
Prepared statement........................................... 112
de Rugy, Veronique:
Testimony.................................................... 27
Prepared statement with attachments.......................... 85
Kelly, Hon. Sue:
Testimony.................................................... 6
Prepared statement........................................... 53
Pointer, John:
Testimony.................................................... 33
Prepared statement........................................... 134
Shear, William B.:
Testimony.................................................... 25
Prepared statement........................................... 62
APPENDIX
Charts submitted by Senator Coburn for the Record:
SBA Mission Statement:....................................... 49
Who Benefits From the 7(a) Program?.......................... 50
Estimated Outlays vs. Actual Outlays 2002-2006............... 51
Big Companies Get Small Business Contracts................... 52
Letters submitted by Senator Levin for the Record from:
Noel Cuellar, President, Primera Plastics, Inc............... 143
Chris F. Willis, CEO, Media 1 Interactive, Inc............... 144
Michael T. Fox, President, Quality Air of Midland, Inc....... 146
Lee and Betty Williams, Magic Kitchen & Catering............. 147
Keith Brophy, President, Business Development, NuSoft
Solutions, Inc............................................. 148
Bambi L. Straebel, Bambi's by Java Dave's.................... 149
Jim Pilgrim, CTO, Pilgrim Technology, LLC.................... 150
Doreen Bolhuis, President, Gymco............................. 151
Peter Wong, President/CEO, Roy Smith Company................. 152
Heidi N. Jacobus, founder and CEO, Cybernet Systems.......... 153
Barry Cargill, Vice President for Government Relations of the
Small Business Association of Michigan..................... 155
Marc Keys, constituent....................................... 157
Questions and responses for the Record from:
Mr. Barreto.................................................. 158
Mr. Shear.................................................... 165
Ms. de Rugy.................................................. 167
Mr. Pointer.................................................. 170
THE EFFECTIVENESS OF THE SMALL BUSINESS ADMINISTRATION
----------
THURSDAY, APRIL 6, 2006
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Tom Coburn,
Chairman of the Subcommittee, presiding.
Present: Senators Coburn and Carper.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. The hearing of the Federal Financial
Management Subcommittee of the Homeland Security and
Governmental Affairs Committee will come to order. This is the
31st hearing that we have had on government agencies looking at
spending, waste, and every other area that we can, to try to
make the government more efficient, to make sure we are good
stewards of the money that has been transferred to our care.
Before I get to the substance of the hearing, I would like
to take a moment to just address the events leading up to our
consideration of the Small Business Administration. I have not
only been surprised, but profoundly disappointed by the
negative reaction that some people have had to the mere mention
of a subcommittee holding an oversight hearing on the
efficiency of a government agency and particularly the Small
Business Administration. Before the hearing was publicly
announced, I heard from countless numbers of people asking what
business this Subcommittee had to look at the SBA, worse yet,
demanding that we not hold a hearing at all.
I just returned from China. You can't criticize your
government in China without going to jail. The fact that people
who may have a different point of view should not have the
ability to express their point of view in this country not only
harms our future, but does not bode well for freedom in this
country.
Unfortunately, it has also come to my attention that some
of this, and not with the knowledge of the Director or his
staff within the Small Business Administration, of which e-
mails that I have in my possession that came from SBA offices
were involved in that. That type of illegal lobbying is
unacceptable. It will be dealt with accordingly, and I have
already had a discussion with Administrator Barreto on those
areas and I know that this was not from the Director or his
office. It was done not under the direction of anybody in
charge of the SBA.
Contrary to what has been said, I believe it is Congress'
duty to do more oversight, not less, and this certainly
includes the SBA. There is a perception out there that to be
for the SBA is to be for small business and to be against the
SBA is to be against small business. While the SBA's charge is
to help small business, the interest of small business and the
interest of SBA are only synonymous if and when the SBA is
achieving its mission effectively and efficiently. That is why
there is no group that should be more interested in the
effectiveness of the SBA than small businesses, and advocating
for that effectiveness is advocating for their interests.
If we find out that agencies don't cooperate effectively,
then we take actions to try to fix those. That is where the
authorizers come in and the appropriate subcommittee that deals
with the authorization of the SBA. The only constituencies that
could be affected would be those who profit from business as
usual at the SBA. If the SBA has areas that are not running
efficiently, it is certainly not the small business sector that
benefits from maintaining the status quo, but rather those who
tend to profit from what the SBA does.
Like every hearing this Subcommittee holds, this one will
be fair, which means we will be tough on everybody. We will ask
appropriate questions. Congressional hearings should not be pep
rallies for business as usual. Small business deserves better.
Free enterprise deserves better.
Now, more than ever, it is urgent to discharge our
oversight duties in light of the fact that in 2007 this country
will spend more money on government than at any time in our
230-year history. When all receipts are totaled, we will have
spent nearly $3 trillion on everything from national defense
and health care to sculpture gardens and countless other
earmarked projects amounting to more than $9,000 per man,
woman, and child in this country. Last year, after raiding
Social Security, the Federal Government borrowed $538 billion.
This year, we again expect to borrow another $500 billion to
pay for all Federal programs. All of this will be paid for,
with interest, not by us but by our children and our
grandchildren.
There is almost no area of life left untouched by Federal
dollars and Federal intrusion. Behind all of this out-of-
control spending is the not-so-subtle notion that government
never met a problem it couldn't solve. So when faced with a
problem, Congress always does what it does best, spend your
money.
Today, the Subcommittee will look at the SBA, which
portions are set to expire this year until reauthorized by
Congress. SBA has a surprisingly large impact on the national
economy as well as the Federal fiscal outlook. Its budget for
2007 is $624 million, yet it oversees a loan portfolio of $70
billion. Even to Congress, $70 billion is a big amount.
More strikingly, though, is SBA's impact on the budget is
quite often much larger than its initial estimates. You will
see from this chart what the initial estimates were and then
what they actual were.\1\ Much of that is related to emergency
and disasters, but nevertheless, it is a large component of the
Federal budget.
---------------------------------------------------------------------------
\1\ The chart appears in the Appendix on page 51.
---------------------------------------------------------------------------
The SBA was established primarily to help small business,
but it is its disaster relief functions that have made the news
lately. Unlike many of SBA's critics in this area, I want to
commend SBA on the job they have done. We have never seen such
a disaster in our country, and the fact that they geared up--
nobody could have anticipated this. Even though they have taken
criticism for not anticipating enough, the fact is they did get
down there, they did hundreds of thousands of loans and are
continuing to do it. Even though the waiting period might be
longer than what we want, the fact that they responded in a way
that met people's needs is amazing to me. It is not good
enough, we know that. But the fact that they went from where
they were to what they got accomplished should be noted as
exemplary in terms of responding.
SBA was also established as the agency to which small
business can turn if they are unable to make it on their own.
Small businesses can turn to SBA for getting loans, getting
government contracts, or help getting access to capital. SBA is
also instrumental in representing the interests of small
business throughout the process of issuing Federal regulations.
One particular area of concern for me, though, is that the
Federal agency created to help small business only helps some
small business, not all. The unfortunate result is that small
businesses that do not have the benefit of SBA assistance are
left to compete on their own against those that do. Injustice
is bound to occur when government picks winners and losers in
the marketplace. Advocates may ask, what is the harm in helping
a few businesses down on their luck? After all, isn't it good
for our economy and for a compassionate government to help
failing businesses stay afloat?
We are not here to ask the existential questions of whether
the government should be intervening in the marketplace. We
already have an agency that we have established for that. But
we will have and continue to have hearings on the role of the
Federal Government.
SBA does exist to fulfill a mission and it utilizes
taxpayer dollars to do that. We want to examine the evidence
today of whether that mission is being achieved.
The problem: The 7(a) loan program is designed to guarantee
loans for businesses with such bad credit that no private
lender will give them a loan. A business in this situation can
turn to the Federal Government for a low-interest loan courtesy
of the American taxpayer. While a small fraction of businesses
and private lending institutions profit, these loans help the
few at the expense of many who don't get them.
The question today, though, is not whether we should help
those companies with bad credit, it is whether intervention
results in a measurable impact on the small business sector of
the economy that wouldn't have been realized without taxpayer
help. In other words, is SBA intervention in the marketplace
making a measurable difference in that marketplace, and if so,
is it better for those they help and those they don't?
The most fundamental mission of the SBA, though, for me is
to help small business, and that is through regulation reform
and the cost of regulation reform. The fact is, if you are a
business with 20 employees or fewer in this country, it costs
you almost $7,600 a year per employee, based on the footprint
of the Federal Government's regulations. That number has
increased, although the rate of increase is decreasing, and
that is in real dollar terms. So to me, one of the biggest jobs
for the SBA is decreasing the burden of the Federal Government
on small businesses so that they can become competitive.
We will also ask several other questions relating to the
granting of contracts and whether or not we actually see that
those are going to small businesses, and I look forward to
talking about the definition of small business, because as we
have looked at this, what we have found is several large
businesses with billions of dollars in sales and billions of
dollars in profits are actually getting help from the SBA,
which I believe is not the direction in which the Congress
intended.
[The prepared statement of Senator Coburn follows:]
PREPARED STATEMENT OF SENATOR COBURN
Before I get to the substance of this hearing, I would like to take
a moment to address the events leading up to our consideration of the
Small Business Administration. I have been not only surprised, but
profoundly disappointed, by the negative reaction of some of the mere
mention of this Subcommittee holding a hearing on the Small business
Administration. Before the hearing was publicly announced, I had heard
from countless numbers of people asking what business we had looking at
the SBA, or worse yet demanding that we not hold the hearing at all.
Unfortunately, it has come to my attention that some of this may
have originated within the Small Business Administration itself. I have
seen emails from SBA employees to organizations sent seemingly for the
purpose of undermining our hearing before it even began. This type of
illegal lobbying is unacceptable and will be dealt with accordingly.
I would like to state for the record that I do not believe
Administrator Barreto, here with us today, had anything to do with
these lobbying efforts. But, now that he is aware of these incidents, I
will be following up with him to resolve the matter once and for all.
Contrary to what has been said, I believe that it is Congress' duty
to do more oversight, not less, and this certainly includes the Small
business Administration. There is a perception out there that to be for
the SBA is to be for small business, and to be against the SBA is to be
against small business. While the SBA is supposed to help small
business, the interests of small business and the interests of SBA are
only synonymous if and when the SBA is achieving its mission
effectively and efficiently. That's why there is no group that should
be more interested in the effectiveness of SBA than small businesses,
and advocating for that effectiveness is advocating for their
interests.
If we find out that the agency isn't operating effectively and we
take action to try to fix the problem, which is, of course, our
Constitutional duty, it's certainly not small business that would be
hurt. The only constituencies that could be affected would be those who
profit from business-as-usual at SBA. If SBA is broken, it's certainly
not the small business sector that benefits from maintaining the status
quo at the agency, but rather the bankers and big corporations who are
currently profiting from SBA, among others.
Like every hearing this Subcommittee holds, this one will be fair,
which means we are tough on everybody. Congressional hearings should
not be pep rallies for business-as-usual. Small businesses deserve
better.
Introduction
Now, more than ever, it is urgent to discharge our oversight duties
in light of the fact that in 2007, this nation will spend more money on
its Federal Government than at any time in our 230 year history. When
all receipts are totaled, we will have spent nearly 3 trillion dollars
on everything from national defense and healthcare to sculpture gardens
and countless other earmarked projects--amounting to more than $9,000
per person. Last year, after raiding Social Security, the Federal
Government $538 billion in borrowed money. This year, we again expect
to borrow another $500 billion to pay for all Federal programs. All of
this will be paid for, with interest, by our children and
grandchildren.
There is almost no area of life left untouched by Federal dollars
and Federal intrusion. Behind all of this out-of-control spending is
the not-so-subtle notion that government never met a problem it
couldn't solve. And so, when faced with a problem, Congress always does
what it does best: Spends your money.
Fiscal Impact of SBA
Today, the Subcommittee will take a look at the Small Business
Administration, of which portions are set to expire this year unless
reauthorized by the Congress. SBA has a surprisingly large impact on
the national economy as well as the Federal fiscal outlook. Its budget
for 2007 is $624 million,yet it oversees a loan portfolio of nearly $70
billion. Even for Congress $70 billion is not pocket change, and it is
even less so to taxpayers whoa re on the hook for that money should the
bill come due.
More strikingly, though, SBA's impact on the budget is quite often
much larger than its initial estimates to Congress. Between 2002-2006,
SBA's beginning-of-year spending estimates have amounted to $3.5
billion. But, after all receipts were totaled, SBA spent more than $9.8
billion--nearly three times more than was initially estimated. And so,
like every hearing we have on any agency, this hearing is intended to
ask a very simple set of questions regarding what taxpayers are getting
in return for SBA spending.
Mission of SBA
The SBA was established primarily to help small businesses, but it
is its disaster relief functions that have made the news recently.
Unlike many of SBA's critics in this area, I would like to commend SBA
for a job well done in many respects following the hurricanes in the
Gulf Coast. They were on the ground making many more loans than anyone
thought they could do in a short period of time.
But SBA was also established as the agency to which small
businesses can turn if they are unable to make it on their own. Small
businesses can turn to the SBA for help getting loans, help getting
government contracts or help getting access to capital. SBA is also
instrumental in representing the interests of small business throughout
the process of issuing Federal regulations. One particular area of
concern for me, though, is that the Federal agency created to help
small businesses only helps some small businesses, not all. The
unfortunate result is that small businesses that do not have the
benefit SBA assistance are left to compete on their own against those
that do. Injustice is bound to occur when the government picks winners
and losers in the marketplace.
Advocates for the Small Administration may ask, ``What's the harm
in helping a few businesses down on their luck? After all, isn't it
good for our economy and for a compassionate government to help failing
businesses stay afloat?''
We're not here today to examine the existential questions of
whether the government should be intervening in the already crowded
marketplace. This subcommittee has had, and will continue to have,
hearings on the role of the Federal Government. The fact is, SBA does
exist to fulfill a mission, and it utilizes taxpayer dollars to do it.
We're simply here to examine the evidence for whether that mission is
being achieved.
The Problem
For example, the 7(a) program is designed to guarantee loans for
businesses with such bad credit that no private lender will give them a
loan. A business in this situation can turn to the Federal Government
for a low-interest loan, courtesy of the American taxpayer. While a
small fraction of businesses and private lending institutions reap the
profits, these loans help the few at the expense of the many that don't
get them.
The question today, tough, is not whether we should help those
companies with bad credit. Its whether our intervention results in a
measurable impact on the small business sector of the economy that
wouldn't have been realized without taxpayer help. In other words--is
SBA intervention in the marketplace making a measurable difference in
that marketplace, and if so, is it better for those they help and those
they don't?
The most fundamental mission of the SBA, though, is to help small
business. Unfortunately, though, small businesses are not only the only
ones that get helped--big businesses are getting rich by taking
advantage of SBA programs. In February of 2005, the SBA Inspector
General reported that government contracts set aside for small
businesses are actually going to large businesses with some frequency.
For example, in 2002, the following companies all received millions of
dollars each in small business awards.
Northrop Grumman
Hewlett-Packard
General Dynamics
Oracle
These are all great companies that are helping our vibrant economy
and are doing billions of dollars of work for the Federal Government.
But no one would argue that they are small. It is doubtful to me,
though, that any of them are in great need of government help,
especially an agency that helps small business. How does the $2 billion
spent in FY2002 on these and other large companies help SBA achieve its
mission?
Finally, I am deeply concerned about the high costs facing small
business in complying with Federal regulations. As a small business
owner myself, I know first hand how hard it is to afford paying for all
kinds of regulations saddles on small businesses. SBA reports that
small business owners pay on average more than $2,000 per employee
every year than large companies for regulatory compliance. Each year
the burden of regulation increases for small businesses.
Yet, this year, SBA plans to use less than 2 percent of its budget
on regulatory assistance for small businesses. In fiscal year 2007, SBA
plans to spend 15 times as much money on program administration than on
regulatory assistance. I am concerned that this program gets far too
little attention from the SBA, yet this is the one thing SBA does that
truly effects all small business owners.
Conclusion
All of these examples bring me back to the central purpose of this
hearing, which is to take a look at the effectiveness of the Small
Business Administration at achieving its stated mission. By the end of
this hearing, I hope to have answers to some important questions, such
as:
Does SBA intervention in the loan market improve outcomes
for small businesses?
Is the SBA rigorously evaluating its programs against
measurable outcomes and reporting those results to Congress?
How do SBA programs affect businesses not helped by the
SBA?
Is that impact positive, negative or neutral?
I look forward to getting answers to these and other questions
during today's hearing.
Senator Coburn. I am very pleased to welcome to our
Subcommittee a friend of mine, somebody I have known for 12
years, and I value her insight. It is Representative Sue Kelly
from New York. We asked her to testify based on her experience
and background in this area.
Congresswoman Sue, thank you for being here. Your complete
testimony will be made part of the record and please let us
hear from you.
TESTIMONY OF HON. SUE KELLY,\1\ A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEW YORK
Ms. Kelly. Thank you. First, Senator, let me associate
myself with great approval of your concern and interest of
making sure that every single taxpayer dollar that comes to
Washington, DC, is carefully shepherded in a way that we get
the maximum use of those precious tax dollars that we take from
the American public. So thank you for your concern there.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Kelly appears in the Appendix on
page 53.
---------------------------------------------------------------------------
I thank you for the opportunity to testify here today. The
success of our local economy in New York's Hudson Valley, where
I represent, is especially dependent on the success of small
businesses.
Let me begin by telling you a story about a small business
owner in my Congressional district named Mandy Villodas. Mandy
operates the English Rose Day School in Washingtonville, New
York. It is located in Orange County. She began her child care
business in her home. Later, she rented space from a church and
she operated her child care business from there for a few
years. Then she began working with the Small Business
Administration to expand her small business and build a
permanent child care center. With the help of an SBA-guaranteed
loan, Mandy was not only able to expand her child care
services, she preserved 15 existing jobs and created five new
jobs for local residents. The English Rose Day School has been
operating very successfully ever since.
Without the help of the SBA, Mandy wouldn't be where she is
today. Her small business would not be having such a profound
impact on the lives throughout our local area. Let me give you
a couple of examples.
Mandy's success in getting the construction money through
SBA resources helped provide additional work for local
contractors. Remember that many of them are small businesses.
Her school is a happy, safe environment for parents to leave
their children in good care while they go out and work hard in
both large and small businesses. Those parents earn money that
they turn around and spend in many aspects in our local
communities in our small businesses.
Successful small businesses have a very positive ripple
effect through so many aspects of our local communities. This
is the ideal example of the importance of government's
investment in small businesses to boost job creation. The
resources that Congress and the SBA devote to help small
businesses grow and succeed are imperative to the growth and
success of our economy.
When times are tough, small businesses revitalize our
workforce and our communities. For instance, IBM operates a
very large facility in southern Dutchess County, where I
represent. While IBM had to downsize, particularly during the
1990s, New York's industries, governments, unions, nonprofits,
worked together to rebuild the employment infrastructure in
Dutchess County through small business growth. It has
diversified where it was mostly based on IBM economy.
Dutchess County economic development records show that 33
new firms opened their doors in Dutchess County between
February 1994 and February 1996. This alone created more than
3,000 new local jobs at a very critical time when IBM was
cutting them.
That trend continues today, not only in Dutchess County,
but in every other county in New York's Hudson Valley.
Increasing numbers of new small businesses are creating
increasing numbers of new local jobs. The numbers show that
without the help of the SBA funding and resources that were
relied on by the Small Business Development Center in mid-
Hudson, small businesses in our area would not have made it.
The lack of support for our small businesses translates back
into jobs for residents in our local communities.
The SBDC Mid-Hudson has worked directly with 12,338
businesses, helping them invest $363 million in the local area
economy. These efforts created and saved 10,429 jobs.
Small businesses in Orange County tell me that the 504 loan
product available through the SBA has been absolutely critical
in meeting their needs. These small businesses say that banks
are simply unwilling to do business with them often. So when a
bank shuts its doors on a small business, it leaves them with
no other source of any financial assistance. The SBA programs
then provide them with the millions of dollars in financing to
preserve the business, to grow the business and preserve local
jobs. SBA programs like the 504 loan program have enabled
lenders and borrowers to have a dialogue that never would exist
otherwise.
In ways like these, the SBA can play a critical role in the
livelihood of our local communities. Here in Washington, we
need to give them more than lip service because they create
seven out of every 10 new jobs. We can't pat small businesses
on the back for supplying the new jobs and then stifle their
access to capital. The effective SBA programs that are working
need to have our continued support here in Congress, just as
much as small businesses need continued support provided
through those programs.
In fact, there are some additional steps that the SBA and
Congress really ought to be taking to encourage small business
growth. One group that particularly needs our attention in the
next few years is America's veteran population.
New York is one of the States with the largest deployment
of reservists to Iraq and Afghanistan. Every month, reservists
are coming back to New York and other States and their previous
jobs are not always waiting for them when they return. Some are
returning to find that the small businesses that they owned or
the small firm where they worked has suffered dramatically in
their absence. Some of those doors have closed. But there are
doors that have opened. It leaves our veterans, though, hard-
pressed to make ends meet and in dire need of capital if they
want to start their own business or they need other forms of
assistance.
We need the SBA to be increasingly pushing veterans'
business opportunities. At one time, the SBA used to offer
veterans lending assistance at a discount, but currently, other
than some procurement programs, there are very few areas where
the SBA can give our veterans any preference at all.
At a time when new veterans are coming back to our country
after serving us in the war on terror, we need to provide the
SBA with the support that it needs to work with our veterans
and to do them proud when they return.
I feel that we need to equip the SBA and its affiliates
with the resources that they need to work with reserve offices,
to visit veterans who are hospitalized on their return, and to
provide veterans every opportunity to start a small business on
their own.
In other words, the SBA should be even more of a resource
for our local residents and communities in the future instead
of less of a one. Our economy needs small businesses. Small
businesses need the SBA. We need for the SBA to be with us for
our small businesses in a continuingly increasing way at the
very local level.
I thank you very much. It is a great pleasure to be able to
testify before you, Mr. Chairman. I appreciate your giving me
the opportunity here today. I would be glad to answer any
questions.
Senator Coburn. Thank you.
Senator Coburn. My Ranking Member is here, Senator Carper,
and I will give him an opportunity for an opening statement and
then we will go to questions for the Congresswoman.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. I look forward to having a chance to ask a
question or two of Representative Kelly. I don't think we have
ever met before. Welcome. We are glad you are here. Thank you.
Senator Coburn. Thank you.
Representative Kelly, in your statement, you said that
evidence shows abundantly that without SBA in Dutchess County,
that you wouldn't have seen that. What is the evidence that
shows that? Is there an economic study that showed there was a
shortage of capital? What is the evidence that showed that the
SBA was needed to supply capital for that, or the evidence
shows that there was not available capital for small business
in Dutchess County?
Ms. Kelly. When I took office, IBM had canceled 14,700
jobs. GM had moved a factory that resulted in 7,000 more jobs
being lost. So there was a huge job loss during the time period
that I quoted in my testimony. If the SBA had not been able to
insure loans by our local banks--because of the enormity of the
job loss, the banks themselves were feeling some loss--without
the SBA stepping in to ensure that small businesses could get
those loans, the small business diversity that we have would
never have occurred because the banks were unwilling to issue
loans.
In many instances, the people who were furloughed out of
those jobs, in fact, picked up pieces of the IBM, the old
system that was there and created small businesses with ideas
that they had for making that particular piece of the former
IBM business better, doing it more economically and so on. They
absolutely had to have loans and the loans that they were able
to receive are, I believe--I don't know if I can tell you for
sure that the SBA has absolute documentation that they produced
the jobs, but I can tell you that working with the Chambers of
Commerce and the NFIB and NAM, they can tell you that we moved
along in a much more diversified and much better economic
situation than we ever would have been and we did it much more
rapidly because the SBA was there to help.
Senator Coburn. OK. My question wasn't meant to dispute
that. I was looking for the evidence of the shortage of
capital. You have addressed that somewhat because of the fear
of the increased risk of the capital market to supply that, and
what you are saying is this was all advanced on a faster pace
because of the guarantees of the SBA.
Ms. Kelly. Exactly, because the SBA was willing to make
those very small loans.
Senator Coburn. OK.
Ms. Kelly. It takes an employee just as much time to
process a large loan as it does a small loan. In this instance,
the SBA was there and they were willing to process the smaller
loans and do it on a fairly rapid ramp-up, so we got the
businesses up and going.
Senator Coburn. You have recently put out a call for a
five-point plan to help small business with an emphasis upon
lower regulation and taxes as a centerpiece. Would you comment
for the record on that for us?
Ms. Kelly. Well, for one thing, small businesses--I will
just take the tax piece alone--small businesses pay more taxes
in many ways than large businesses do and the cost per employee
for small businesses is greater than it is for a large
business. Large businesses have banks of people in the back
room that do all of their economic form filling out. A small
business owner who employs one to ten people has to do that
themselves. They do it on their kitchen table.
Someone who is slightly large, a mid-size business, they,
too, are working to try--most of these people will have maybe
one accountant, maybe two, but it costs them money. The large
businesses, if you are selling stock in your business, you
figure all of that in. If you are a small business, you can't
figure it in because you are the only owner of that stock. So
it is your bottom line that it affects when you have to hire
people to fill out all these tax forms.
We need to lower the taxes on small businesses. We need to
make sure that people who are the sole owner of a business--
those people who have small businesses should not be double-
taxed. In some instances, they take their salary from the small
business and then the business itself is also taxed. These
double-taxation structures are very difficult.
So there are a lot of different pieces of the tax burden
alone that need to be addressed to help small businesses. They
will and they want to pay their fair share, but they cannot do
it if it is a constant outreach from the Federal Government
reaching into their pockets for more taxes.
As far as some of the other things that I am proposing, I
believe very strongly that our small businesses need to have
some of the other tax structures fixed. Our small businesses
can't plan. Many small businesses don't get through the third
generation. My family owns a small business. We are in our
third generation and I hope my children can inherit the blood,
sweat, and tears my husband and I and his father and his mother
put into the business, but it often happens that the tax man
comes in and takes the small business and the farms because the
families can't afford to pay all the taxes because we have not
made the death tax permanent.
Senator Coburn. Let me ask you one other question. One of
my concerns about SBA is less than 2.5 percent of its budget
goes to regulation reform, the very thing that you are talking
about in terms of such a burden. Is it your feeling that more
of their budget ought to go to regulation reform?
Ms. Kelly. I would not tell the SBA how to do that, but I
do think that regulation reform, cutting red tape, I have had a
bill that was signed into law. I never could get the money.
Perhaps you can help me get the money to put an office in the
GAO to take a look----
Senator Coburn. I am trying not to spend any money
anywhere. It is a hard sell with me, but maybe----
Ms. Kelly. Maybe we can work together to do that, but we
need to absolutely stop this red tape that is harming the small
businesses of this Nation. Our small businesses are subject to
so many rules and regulations that they--and there is so much
redundancy and overlap, we need to have the SBA's help in
helping us stand down some of that, and if the SBA can do that
by removing regulations of their own, so be it. We need to get
the regulations off the back of small business. They must be
allowed to grow.
Senator Coburn. Senator Carper.
Senator Carper. Thanks, Mr. Chairman, and welcome. It is
great of you to come. And you are from New York, correct?
Ms. Kelly. Yes.
Senator Carper. When were you elected to the House?
Senator Coburn. Nineteen-ninety-four.
Ms. Kelly. Nineteen-ninety-four. Dr. Coburn and I are
classmates.
Senator Carper. No kidding. It is a scary thought, isn't
it? [Laughter.]
Ms. Kelly. We have also worked together on a number of
issues, so----
Senator Carper. Where is the 19th District?
Ms. Kelly. Just north of New York City, Hudson River
Valley.
Senator Carper. I think you probably said this in your
statement. Do you serve on the Small Business Committee?
Ms. Kelly. Yes, I do. I have for 12 years.
Senator Carper. You must be pretty senior. Are you one of
the most senior members now?
Ms. Kelly. Yes.
Senator Carper. Are you chair yet?
Ms. Kelly. No.
Senator Carper. Someday?
Ms. Kelly. Hopefully.
Senator Carper. Soon?
Ms. Kelly. I hope. [Laughter.]
Senator Carper. All right. I left the House 2 years before
you got there. Mike Castle filled my shoes more than ably and I
have tried to fill his as governor back in Delaware.
SBA does a real nice job in Delaware, and I think one of
the reasons why is because we have some very good people that
are involved in working with our businesses in our State. A
friend of mine likes to say that programs don't change people,
people change people. I think, really, the same is true with
respect to the effectiveness of whether it is a Federal program
or it is SBA. The programs are oftentimes only as good as the
people that are there administering and running the programs.
We are blessed in Delaware with some very able people.
Do you all have Small Business Development Centers in your
State?
Ms. Kelly. We do have Small Business Development Centers.
Senator Carper. We have them in each of our counties. We
only have three counties. We have, in some cases, more than one
in each county, but we are big believers in SBDCs. The idea
that somebody can walk into really kind of a storefront
operation, if they need help on finding access to capital, you
would help them figure out how to incorporate, pay taxes, do a
business plan, do a marketing plan. We have our SCORE people
right there so they are able to hook up. We have sometimes
folks from some of our banks that are there. It is really kind
of a one-stop shop for helping small businesses. I just want to
ask, how do the SBDCs work in your State?
Ms. Kelly. The SBDCs work fairly well. I represent five
counties and in those five counties, we do not have an office
in every one of the counties, but there is an availability for
anyone from any of the surrounding counties to get to the
offices that we do have, and the SBA has been working very
well. It is extremely important when a small business needs a
loan to enlarge their business. When you are moving up a step,
those 504 loans are critical to so many small businesses.
I had a small business owner come to me and say, ``I am
trying to get a 504 loan. I need a piece of equipment. It is a
million-dollar piece of equipment, but I think I can really pay
this back.'' We helped him. He was able to get this equipment
and he has now more than paid his business back for it. He
could not have done it without that loan because he is in a
tiny little area where the local bank was able to do it and
they knew him, but from what their bank regulations demanded,
it was too big a loan for them to handle without some kind of
assurance. The SBA came in and gave them the assurance.
Senator Carper. I arrived just as you were wrapping up your
testimony. Let me just ask you if you would just repeat for me,
and I apologize for getting here after you had started, just
repeat for me some of the one or two major thoughts you would
have us take away from your comments.
Ms. Kelly. One or two major things?
Senator Carper. Yes. If you don't remember anything else,
what would you have us remember?
Ms. Kelly. If you don't remember anything else, stay
focused on helping the SBA make the smaller loans to the small
and mid-sized corporations. Those are the ones that truly need
the help. Larger corporations most often have other places
where they can go. It is extremely important that we help those
small businesses get those loans because that is where our job
growth is.
Senator Carper. Do you have anyone in your district who is
doing these micro-loans, maybe under $1,000, not so much SBA or
commercial banks, but do you have anyone who is doing that kind
of thing?
Ms. Kelly. We very well may have, but I don't know about it
if we do.
Senator Carper. We have some faith-based organizations
working, a program called Nehemiah Gateway and they are doing a
really nice job with micro-loans and they are doing a nice job
with helping folks with their taxes to figure out whether
people are truly eligible for an income tax credit. It is
something that we commend to you.
Ms. Kelly. That is something that I have been actually
talking with some local people about. I have been looking at
bridging loans because these 504s sometimes are--you can't
qualify and there are other reasons. If you can get a loan to
bridge you over into a larger--into expanding your business, it
is a good way to go. I applaud you if you have micro-loans.
Micro-loans are wonderful, especially for women.
When I went into the bank to get my first loan for my first
small business, the bank officer--and I had enough money in the
bank actually to cover the loan, I just was trying to be as
economical as I could be about the way I was doing business--
the bank officer said, ``Of course, we will give you the loan.
Come back with your husband.''
Senator Carper. Is that how you met your husband?
Ms. Kelly. No. [Laughter.]
He was already my husband when I asked him to go----
Senator Carper. You walked up the street. You were looking
for a guy. No, I am just kidding. [Laughter.]
All right. There is a gentleman right over your right
shoulder who handed you a note or something. Does he work for
you?
Ms. Kelly. Yes, he does.
Senator Carper. You might just want to note, Nehemiah
Gateway and a woman named Mary Dupont in Wilmington, Delaware,
who runs, among other things, their ITC program and their
micro-loan program. We always steal good ideas from New York,
and maybe this is one you all could steal from us.
Thanks. Welcome. Nice to have met you.
Ms. Kelly. Thank you.
Senator Coburn. Congresswoman, thank you for your
testimony. We may have a few other questions for you that we
might submit for the record. If you would be so kind as to
respond to those, I would appreciate it.
Ms. Kelly. Of course, I will. Thank you so much for letting
me testify.
Senator Coburn. It is a pleasure. Thank you.
Before our next panel comes up, I just want to make a
couple of comments. Some of the questions that need to be
asked, and the reason I asked Congresswoman Kelly, is evidence
of lack of capital is an important question in SBA. We also
have heard and we will hear about job growth, and there is some
significant economic dispute over where job growth creation
comes from. We should not be afraid to have that debate in
Congress, because policy based on the truth of where job growth
comes on should be directed so that we incentivize the best job
growth and we incentivize the capital markets in the best way.
Let me welcome Hector Barreto. He is the Administrator of
the SBA. He has been in that position since 2001. He recently
led his agency through the unprecedented disaster in the Gulf
Coast. Prior to his work in government, Mr. Barreto was a
business owner and served as Chairman of the Board of the Latin
Business Association in Los Angeles.
Administrator, thank you so much for being here.
Senator Carper. Mr. Chairman, before he speaks, you were
good enough to offer me a chance to make an opening statement--
--
Senator Coburn. Sure.
Senator Carper [continuing]. And I passed up on it. Let me
just say, welcome, Mr. Barreto. It is nice to see you again.
Mr. Barreto. Thank you, Senator.
Senator Carper. One of the things that you probably heard
me say before, and I would just like to say it here on the
record, government has many roles. I like what Lincoln used to
say, ``The role of government is to do for people what they
cannot do for themselves.'' I thought that summed it up pretty
well.
The role of government is not to be a lap dog for business,
for big businesses or small businesses, but I think a major
role of government is to provide a nurturing environment for
job creation and job preservation. We do that in a variety of
ways with respect to making sure that we have a world class
workforce, that the people who are coming out of our high
schools and colleges have the kind of skills that our employers
are looking for to try to make sure that the health care costs
are not as outrageously expensive as they are today, to try to
make sure we have decent transportation systems, a measure of
safety in our communities and our workplaces and our homes.
Those are just some of the things that--access to
decisionmakers, reasonable regulation, bearable tax and that
kind of thing, but also access to capital is real important.
And frankly, for businesses, especially small businesses,
access to good advice, to good counsel.
I applaud the work that many of the folks who work with you
and are part of your team. We are really blessed in Delaware
with the folks who serve on your team in our state and we are
grateful for all that they do. They really see themselves as
servants and their job is to help nurture particularly small
businesses and folks who are trying to make a go of it and we
are grateful for their help. We like partnering with them and I
just want to say that for the record.
Mr. Barreto. Thank you, Senator.
Senator Coburn. Welcome, Administrator. Your complete
written testimony will be made part of the record and you are
free to testify. We would like for you to limit it to 5
minutes, but you don't necessarily have to. We want you to get
your message out.
TESTIMONY OF HON. HECTOR BARRETO,\1\ ADMINISTRATOR, U.S. SMALL
BUSINESS ADMINISTRATION
Mr. Barreto. I will talk as fast as I can. Thank you,
Senator. Chairman Coburn, Ranking Member Carper, Members of the
Subcommittee, thank you for inviting me to testify about the
U.S. Small Business Administration and its programs. At the
risk of repeating information, let me mention some small
business facts.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Barreto appears in the Appendix
on page 55.
---------------------------------------------------------------------------
The U.S. Census Bureau reports that 98 percent of
businesses have less than 100 employees. Economists from the
SBA's Office of Advocacy report that America's more than 24
million small businesses employ over half of all Americans and
create more than 50 percent of American non-farm GDP. The most
recent report from the Bureau of Labor Statistics states that
from September 1992 through March 2005, firms with fewer than
500 employees accounted on average for about 65 percent of
quarterly net employment growth, representing 13.5 out of 20.6
million net jobs created by the private sector.
Nobody is more supportive of small business than President
Bush. The President asked me to do this job because I know from
personal experiences the challenges they face as well as the
opportunities they create and the contributions they make. My
task was and is to make SBA a more relevant, more productive,
more efficient and effective organization, one we are proud to
tell you about today.
The role of the SBA is to counsel and assist entrepreneurs
and small businesses by providing tools that will help them to
survive and thrive.
When I became Administrator in 2001, SBA guaranteed roughly
$14 billion in loans to 42,000 small businesses at a cost of
over $110 million in subsidy. Four years later, in fiscal year
2005, SBA guaranteed over $19 billion at no subsidy cost to the
American taxpayer, and over 98,000 small businesses received
financing at terms they could not have found otherwise.
At that time, small businesses were awarded only about $50
billion in Federal contracts. Now, for two consecutive years,
the Federal Government reached its 23 percent contracting goal
for small business with nearly $70 billion in Federal contract
awards in fiscal year 2004. That is a 40 percent increase.
Finally, our technical assistance partners trained or
counseled over 1.1 million small businesses in fiscal year
2005.
By restructuring key operations and reengineering loan
programs, the SBA has achieved record program growth while
operating more efficiently. SBA's fiscal year 2007 budget
request is more than 30 percent less than its regular fiscal
year 2001 appropriation, but that fiscal year 2007 budget
request allows us to offer $28 billion in financial assistance
and maintain the zero subsidy. That is a record in loan-making
authority. Moving to zero subsidy allowed the agency to
continue to meet the financing demands of small businesses
without a taxpayer subsidy. For the first time in several
years, the SBA stabilized the 7(a) loan program and offered
financing without loan caps or temporary suspensions of program
availability. In addition, it focuses agency resources on
enhanced oversight of the portfolio in order to maintain a zero
subsidy rate.
With improved efficiencies and technological enhancements,
Federal procurement dollars going to small businesses have
grown, as well. In fiscal year 2004, small businesses received
contracts totaling over $69 billion of the approximately $300
billion in Federal contracts, $20 billion more than in fiscal
year 2000, supporting an estimated 156,000 jobs. Additionally,
there were an estimated $45 billion in subcontracts awarded to
small businesses.
SBA's Office of Entrepreneurial Development offers
assistance in various aspects of business planning through our
resource partners, those Small Business Development Centers,
the Women Business Centers, and SCORE, who trained and
counseled over 1.1 million clients in fiscal year 2005.
Additionally, 311,000 clients registered for our 23 online
courses, and one million accessed the SBA website.
Let me give you an example of how SBA programs work
together. Last year, Bob Layton and James Gardner, both
veterans and experts in the oil field business from Oklahoma,
went to our resource partner, the Small Business Development
Centers, looking for assistance to launch their business. After
being turned down for commercial lending options, they received
financing through our 7(a) loan guarantee programs. In
September 2005, 3 months after they started HOFSS--that stands
for Horizontal Oil Field Supply Systems--they won a FEMA
contract to apply their oil field technology to pump 169
million gallons of water out of New Orleans, something that
would have taken much longer without taxpayers' initial
support. What a great story.
In conclusion, Chairman Coburn, Ranking Member Carper, and
Senators, SBA is today assisting more small businesses at less
cost to the taxpayer. I am proud of our achievements and the
efforts by SBA's employees to make this possible. There is
still more work to do, but we are committed to delivering
greater results for the American taxpayer.
However, SBA programs alone cannot drive small business
growth. President Bush's small business agenda making enacted
tax cuts permanent, eliminating unneeded regulation, passing an
association health plan bill, and opening international markets
to American goods and services are vital.
Mr. Chairman, I thank you again for the opportunity to
testify in front of your Subcommittee and I look forward to
answering your questions.
Senator Coburn. Thank you, Administrator.
A couple of things, let us get out of the way. What is the
SBA's definition of small?
Mr. Barreto. Well, there are a couple of definitions that
are very well known. If you are trying to do business with the
government, in other words, going for Federal procurement, it
is a revenue size standard depending on your industry, and
different industries have different size standards, but an
average is $5 to $6 million in revenue a year. If you are a
manufacturing firm, it could be companies that have 500 or less
employees.
The reality is that more than 90 percent of businesses
aren't anywhere close to that. Most small businesses are very
small.
Senator Coburn. But should a firm that has $8, $9, $10, or
$20 million in revenues or profits and 500 employees--you are
calling that small. I think that is big.
Mr. Barreto. Again, it depends on what you are referring
to----
Senator Coburn. Well, if you look at the distribution of
the number of employees in facilities, a manufacturing facility
with 500 is in the upper range of what we see in this country.
Mr. Barreto. Right.
Senator Coburn. So that is not small by any definition in
terms relative to the mix of what we have.
Mr. Barreto. It depends on how you define it.
Senator Coburn. That is why I asked the question.
Mr. Barreto. And the reason is that most manufacturing
companies, as you know, most of the revenue that they make goes
right back into the company. If you have 500 employees and you
are a manufacturer, depending on what industry, that may not be
a very profitable company. There is a lot of money that goes
into capital expenditures, infrastructure, and those employees,
and that is why we have two definitions.
If you are trying to go after a government contract, you
may only have a few employees, but if you exceed the revenue
size standard in that area, you are considered large by our
definition.
Senator Coburn. OK. Well, look at this chart over here that
I have up.\1\ General Dynamics, net income was $1 billion----
---------------------------------------------------------------------------
\1\ The chart appears in the Appendix on page 52.
---------------------------------------------------------------------------
Mr. Barreto. We don't consider that small.
Senator Coburn [continuing]. And $13 billion in revenues,
and they have $30 million worth of contracts under the
restricted contracting program. Titan Corp., they obviously
aren't making much money, but their revenues are greater than
$1 billion, they have 10,000 employees, and they have $540
million in restricted access contracts. Raytheon, everybody
around Washington knows Raytheon, a $16 billion company, 76,000
employees, and $126 million in contracts. I am asking that
question----
Mr. Barreto. Sir----
Senator Coburn [continuing]. Because I know you can't
screen all of this out, and that isn't my point. My point is we
know what the statute says in terms of your direction----
Mr. Barreto. Right.
Senator Coburn [continuing]. And what you are trying to do
in terms of the 23 percent. One of my questions on the data--
and what was the name of the ombudsman or the advocacy office
of the firm they hired? Eagle Eye. They talked about that it is
really not 23 percent because there are some contracts that are
so big that they are taken out of the mix, and since the
denominator is made smaller, it raises the percentage.
So is the 23 percent number accurate as far as you are
concerned, and has the denominator been lowered because some
contracts aren't available to SBA-eligible firms?
Mr. Barreto. We think the 23 percent is pretty accurate.
Look, there are some things, for example, the Department of
Defense is the largest procurement agency in government and if
they are buying an aircraft carrier or the new jet fighter,
there is probably not a small business that is going to be able
to provide that to them. So there are some things that are
going to be taken out of the mix.
But also, I want to refer to your chart. I think there is a
misunderstanding, and the Eagle Eye study tried to clarify that
misunderstanding. We don't have an incidence where we have
these large companies that are going in there, taking contracts
away from small businesses. What we do have is that sometimes a
small business will get a contract when they are small and then
they will outgrow the size standard. Now, they still have that
contract, but they didn't get the contract when they were
large.
And sometimes a small business will grow and become
successful after they have gotten small business procurements
and they will be purchased by a larger company--a Raytheon, a
General Dynamics. But Raytheon and General Dynamics didn't go
after a small business contract. What they did is they
purchased a small business who had a small business procurement
in their portfolio.
Senator Coburn. Which probably explains most of this, is
that correct?
Mr. Barreto. We believe it does explain most of it.
Senator Coburn. So when they are buying, they are buying an
advantaged position in contracting with the Federal Government.
Mr. Barreto. Usually, that is not why they are buying the
company. Usually, they are buying the company because they are
trying to acquire some kind of technology or some kind of
patent. Large companies have discovered that it is much more
cost effective for them to let a small business develop the
innovation, the technology, and then purchase that. I think you
see that every day from some very large companies. There are
announcements in the paper every day about that.
Senator Coburn. I don't doubt their motivation, but the
fact still remains that they have bought an advantage over
somebody else who now would be a small competitor and now they
own it. So the question is, what happens? Is there any attempt
to change those rules so that you go out and you can knock off
a market----
Mr. Barreto. Right.
Senator Coburn [continuing]. You are keeping another small
business from competing for that same thing because it is now
owned by a giant.
Mr. Barreto. Yes. That is a good point. Before the Eagle
Eye study came out, the SBA put forward a regulation that
requires a small business that is selling their company and
selling those small business procurements to a larger company
to certify that they are going to a larger company. That is
very important. I think that will mitigate a lot of what you
are referring to.
Senator Coburn. Has anybody done a study that would compare
capital market availability without the 7(a) program?
Mr. Barreto. Sure. There are lots of studies out there.
There are organizations, for example, like the Greenlining
Coalition. You may have heard of them before. They have done a
lot of work in this area, and they claim that without SBA
programs, without SBA filling that gap, many communities,
especially the emerging markets, the fastest-growing segments
of small business in the United States, which are minority
businesses, 40 percent of all businesses are owned by women,
would be prevented from accessing a lot of this procurement.
You don't have to go very far. You can go anywhere in the
country and if you ask small businesses, what is one of their
biggest challenges, they are going to tell you it is accessing
capital. This is a common complaint from small businesses.
Senator Coburn. I am just going to take another 30 seconds.
Is there a point in time when a small business shouldn't have
capital and some other small business should and one of them
fail and one of them succeed?
Mr. Barreto. I am not sure I completely understand that
question. What I will tell you is that small businesses are
pretty savvy consumers. Oftentimes, they are getting an SBA
loan because there is no way for them to get the loan without
the guarantee. It doesn't mean they are a bad business. It
doesn't mean that they won't be successful. It may mean that
they don't have a long track record. It may mean that they need
a loan for a longer term than a lender can offer them. But when
that business becomes----
Senator Coburn. It may mean that they can get a lower rate
if they have got an SBA----
Mr. Barreto. They don't get a lower rate. They get
competitive interest rates, and after they pay the fees that
the lenders pay, they get a larger--it costs them more to get
an SBA loan.
Senator Coburn. But your comparison is against an unknown
sample. You are saying they can't get capital.
Mr. Barreto. I am saying----
Senator Coburn. So how can you contrast against the very
premise that says somebody cannot get capital and saying that
they are not getting the rate? If you cannot get capital, there
is an infinite interest rate.
Mr. Barreto. They can get capital, but they are not going
to get capital at those rates.
Senator Coburn. That is right. That is exactly my point.
Mr. Barreto. They can get capital through a factor. They
can get capital from a credit card company. They can get
capital from some unsavory sources who are going to ask for a
huge, onerous----
Senator Coburn. I am talking about legitimate----
Mr. Barreto. Yes, apples-to-apples comparison, a lot of
times, the only chance that they get, the only chance they are
going to get is if they get that loan guarantee, because in a
lot of those cases, that borrower is very close, but that
lender might say, look, I want to do the deal, I believe in
your company, but if we could get the guarantee from the SBA, I
think we can do this deal, and I think that is what happens in
a lot of the cases.
Senator Coburn. OK. I want to cover one last point, the
President's PART Management System.
Mr. Barreto. Yes.
Senator Coburn. You all are still in the red on financial
performance.
Mr. Barreto. Well, we have actually made significant
progress over the last few years. We got a clean opinion on our
audit last year. We have a tremendous amount of controls that
have been put in over the last couple of years. We have a loan
monitoring system for the first time in a long time.
So I agree with you. We are not totally satisfied we are
there yet, but, of course, we have worked very closely with
GAO. We have taken a lot of their recommendations. In fact,
they have told us, and I believe that you are going to have
some testimony, that they like the direction that we are going
on the implementation of a lot of those.
Senator Coburn. You are--and I want to give the President
and his Administration credit. This is the first time ever in
our history that good, transparent management systems have been
installed, and even though you are not there yet, you are
making progress. But it is still in the red, which means if you
were an agency--anybody trading publicly in this company, you
would be in hock with the SEC big time and you would not be
traded right now.
Mr. Barreto. Right. Well, I think one of the reasons we
might be traded is the fact that even though our budget has
gone down 35 to 40 percent, the production of the agency has
doubled over the last 4 years. And also, we are very proud of
the President's management agenda where we are currently green
in three out of the five areas and green on progress on every
one of those areas.
Senator Coburn. You are. One last thing, and you don't have
to comment on it, but we are going to be submitting a lot of
questions for the record on default rates----
Mr. Barreto. Sure.
Senator Coburn. For example what the American people are
actually exposed to, because that is not talked about often in
terms of the SBA, and several other questions.
I will defer now to Senator Carper.
Senator Carper. Thank you. Let me go back to a question
that the Chairman asked about the two businesses trying to vie
for credit, and one maybe has a more meritorious idea than the
other and whether or not one could get credit maybe, or the
company with the less meritorious idea or business plan or
business model.
Sometimes if you or I are a company or small business and
the administrator here is the banker and I know him because we
went to high school together, or I know him because my wife and
his wife are friends and there is a relationship that exists
outside of the merits of the business, there are those kinds of
advantages that come to bear here, as well. Personal
relationships do matter. Sometimes good ideas don't get funded
in the private sector simply because of those relationships.
That is just kind of a fact of life.
You mentioned your budget is down, what did you say, 30
percent?
Mr. Barreto. Approximately 35 percent over the last few
years from where we were.
Senator Carper. What is going on with the funding for Small
Business Development Centers over the last 3 or 4 years?
Mr. Barreto. Funding for SBDCs has been pretty level. I
mean, that is pretty much--I think we put $90-plus million into
it. With what they raise on their own--remember, it is a match.
It is a dollar-for-dollar match. But oftentimes, they exceed
that match. That is really close to a $200 million program.
Senator Carper. Where does the match have to come from?
Mr. Barreto. Well, it comes from a variety of different
sources. As you know, Senator, many of those SBDCs are located
at universities and community colleges, so oftentimes the
partner is that educational institution. But they are not
always there. Sometimes they are sponsored by a State agency.
Sometimes there are nonprofits that contribute to it. They may
be getting money from the private sector. But most of the time,
you are going to see it come from a university system or a
State budget.
Senator Carper. When you look at the Administration's
request for SBDCs, say in 2006 or 2007 compared to, say, 2001
or 2002, what does it look like?
Mr. Barreto. Well, it has been pretty flat.
Senator Carper. I know that is where we have ended up in
terms of appropriations, but I am asking about requests.
Mr. Barreto. Well, every year we work together with the
SBDC organization. In fact, this year, they met with the Office
of Management and Budget directly, which we were very glad that
we could facilitate that, because it is important for them also
to be able to state their case. As what has already been said,
every dollar that goes----
Senator Carper. Would you try and answer my question? It is
not a trick question or anything like that. My recollection is
the Administration comes in each year and asks for less and
less for SBDCs----
Mr. Barreto. No.
Senator Carper [continuing]. And we end up going ahead and
restoring the funding----
Mr. Barreto. We pretty much ask for the same amount every
year. What happens, though, is the SBDCs come in and ask for
more every year and we feel that the amount of money that we
are already investing in that program and the amount of money
that is leveraged against that should also go into the
equation.
Senator Carper. OK. Let us talk about New Orleans. The
Chairman and I are going to go down to New Orleans and have a
field hearing on Monday and we will be talking with folks from
businesses large and small there and the folks that are trying
to rebuild levees and all. Just take just one minute and talk
to us about New Orleans and what you all are doing down there,
what we need to be mindful of as we go down.
Mr. Barreto. One minute. Seven-and-a-half billion dollars
so far. That is almost twice as much as ever has been
guaranteed in U.S. history. We processed pretty close to
400,000 applications. We are dealing with an area that is
90,000 square miles wide. We are dealing with five States,
millions of people. And I just tell you this----
Senator Carper. Do you have any posters or any visuals? It
looks like there might be something right here.
Mr. Barreto. Well, these are the average days to a billion.
It took us 88 days to do a billion dollars. We did the second
billion in 28 days. We did the third billion in 17 days. We did
the fourth in 16 days. We did the fifth in 21 days. And the
last billion, we did in 13 days, and that is pretty much what
we are running right now.
I think the key that people need to understand is it truly
has been an unprecedented disaster. I am glad that you are
going to be down there. I have been down there five times----
Senator Carper. But what should we be looking for?
Mr. Barreto. Well, I think we should be realistic on the
conditions on the ground and what it is going to take for these
folks to get back on their feet. I mean, it is just--it is
truly devastating. I mean, two-thirds of the people are still
gone. There are parts of the city that still haven't been
decided about if they are going to rebuild. The customer base
is gone. The worker base is gone. There are huge difficulties
to rebuilding that the small businesses and the homeowners are
still facing down there.
In fact, I think there was an article this week in either
The Washington Post or The New York Times that was talking
about people who have already got loans who are saying, ``I
don't even know with the loan if I am going to be able to
rebuild.''
Senator Carper. OK. You mentioned in your testimony, you
talked about association health plans.
Mr. Barreto. Yes.
Senator Carper. I think I mentioned in my comments the
access to affordable health care and that the rising cost of
health care in this country is killing us.
Mr. Barreto. Yes.
Senator Carper. And whether you happen to be businesses
large or small, and we look at the government itself and the
funding for Medicare and Medicaid, it is killing us as
taxpayers, as well, because we end up borrowing all that money
from overseas to help fund programs like Medicare and Medicaid.
Our friends Senator Enzi and Ben Nelson have tried to get
together and improve, if you will, the association health plan
legislation. They are offering that, I think, when we maybe
come back in a couple of weeks. We are going to have a chance
to take up and debate on the floor AHPs with a real focus on
what they are doing.
Senator Blanche Lincoln of Arkansas has proposed, along
with several of us, a different kind of idea, and I just want
to mention it to you. I think it is one with merit. You know
how we have the Federal Employee Health Benefit Program, where
we sort of allow all of our Federal agencies, little ones and
big ones, to kind of pool their purchasing powers to ask
insurers to come in and offer us health care plans, and given
that kind of massive purchasing power, we get pretty good rates
and fairly good variety of plans. What we are trying to do is
to get the Office of Personnel Management to play a similar
function for small businesses and allow a little business where
you have 10 employees or 100 employees to act almost as Federal
agencies, small Federal agencies, and to pool together their
purchasing power.
I think that is an idea that has merit, as well. You have
probably heard about it, and I just wanted to----
Mr. Barreto. I have definitely heard about it.
Senator Carper [continuing]. Lay it on the table.
Mr. Barreto. Well, that is the whole concept between
association health plans. We want small businesses to be able
to pool together across State lines, develop their own pools,
decide what kind of insurance they want, and be able to
negotiate better rates and better benefits from the private
sector.
Senator Carper. If you could just sort of critique for me,
if you will, the plan put forth by Senator Lincoln. What do you
like about it? Any reservations about it?
Mr. Barreto. Well, I think that small businesses get really
concerned when we start talking about a government-wide
program, a government-wide health program. They start thinking
about some of the other large bureaucracies in government and
how those work and what the customer service is and what the
flexibility is and I think they get nervous about it. They get
worried about it.
What they would rather have is they would rather be
empowered themselves. What they can't understand is why they
are the only group in America that doesn't have access to
affordable health care. If you work for a large corporation,
you have it. If you are a member of a union, you have it. If
you are a government employee like I am now, you have it. But
if you are a small business owner, good luck. You are going to
get double-digit increases on your health insurance every year
whether you use it or not. There is less choice now. I remember
when I----
Senator Carper. I don't mean to be rude, but my time has
expired and I am just going to----
Mr. Barreto. Oh, you said one minute, I am sorry.
Senator Carper [continuing]. Interrupt you, if I may. What
we are trying to do with Senator Lincoln's proposal is to give
the small businesses, frankly, the opportunity to get the kind
of health care that we do. You mentioned a reluctance on the
part of small businesses having these country-wide or nation-
wide programs.
Mr. Barreto. Yes.
Senator Carper. You actually administer several of those--
--
Mr. Barreto. Yes, I do.
Senator Carper [continuing]. And they are, for the most
part, I think, a good thing for small businesses.
Mr. Barreto. Yes.
Senator Carper. The last thing I want to bring up, my staff
is good enough to hand me this question. It says, a question
for SBA and/or GAO, and since I am not going to be here when
our friends from GAO testify, I just want to take a moment and
share it with you.
I am told that we will hear testimony from another witness
later in the afternoon, Ms. de Rugy, that small business,
including minority and female-owned businesses, may not have as
much of a problem accessing credit as most people might
believe. I believe this witness will note at one point that 80
percent of small businesses in a recent survey used some kind
of credit and more than 71 percent, she says, use non-
traditional forms of credit, much of it credit cards.
Here is my question. Have you seen any research comparing
the success of businesses that can get bank loans and those
that might depend on some of these non-traditional forms of
credit?
Mr. Barreto. Well, there have been a lot of different
research. I don't know if it has been specific to that. You
know, we have an Office of Advocacy that does a lot of research
on it. One of the things they are going to tell you is that 50
percent of small businesses don't make it past 5 years. They go
out of business. They don't go out of business because they
want to. They don't go out of business because they didn't work
hard. They don't go out of business because they are not
creative and innovative. They go out of business because they
don't have the tools that they need to succeed. At the top of
the list is access to capital.
But they also need other things that we provide. They need
technical assistance. A lot of times, they don't know what they
don't know. It is not their fault. They are good at one thing
and they may not be good at something else. They need access to
opportunities. They need access to Federal contracts, to
contracts with the private sector.
In all of those areas, SBA provides a critical role. I will
tell you that the fastest growing segment of small business are
those minority businesses. All you have got to do is pick up
the newspaper. Last week, the Census Bureau reported that
Hispanic business, for example, is growing three times the
national average. Women are the fastest overall group.
And if you listen to them, they will tell you a very
different story. When I was in business, I learned a long time
ago, if you listen to your customers, they will tell you
everything you need to know about what they need to be
successful, and these groups are very vocal and adamant that
there is not a level playing field yet, they are not there yet,
they still need assistance. They are not asking for a handout,
they want a hand up. They want an opportunity to get in the
game and they will do the rest.
I think that is one of the things that has made our country
the greatest country in the world. I will tell you that we get
countries coming into our agency every day asking us to please
help them duplicate the programs of the SBA, and we are proud
to do that.
Senator Carper. All right. Good. Thanks very much for being
with us today and for your leadership.
Mr. Barreto. Thank you, Senator.
Senator Carper. Thanks.
Senator Coburn. We will be submitting multiple questions
for the record for you, Administrator. Just to give you a heads
up, right now, your testimony is that 7(a) and 504 operate
without a subsidy, but that is kind of Washington-speak because
your numbers are $675,000. Subsidy rate is zero percent, but
the number is $675,000. It doesn't fit into a percentage, but
there actually is money----
Mr. Barreto. Right. The cost of producing the loans, it
doesn't cost the U.S. taxpayer any money. But does money go
into our capital access program for employees and for office?
Yes, we have money that goes into that.
Senator Coburn. So there is a cost?
Mr. Barreto. Well, there is a cost to oversee the program
and to be able to interface with the 6,000 lenders that we have
as part of our delivery system.
Senator Coburn. Why wouldn't we want the cost of those
programs to pay for that, as well, since we are going to be in
a declining budget? I mean, if we say there is zero subsidy, we
ought to say there is zero subsidy.
Mr. Barreto. Well, what I am saying is that when a loan
defaults, the U.S. taxpayer doesn't, as before, used to put up
$110 million to cover those. They don't put up that $110
million anymore. So the fees that----
Senator Coburn. So no subsidy for the loan default risk?
Mr. Barreto. That is right.
Senator Coburn. But there is still a subsidy for the loans.
Mr. Barreto. Well, there is an appropriation that goes to
the SBA to run our programs, yes.
Senator Coburn. And so the point is the SEC, their
appropriation is part of what they collect. All I am trying to
do is make a point----
Mr. Barreto. Right.
Senator Coburn. Could the SBA be like the SEC and not take
any taxpayer dollars?
Mr. Barreto. Of course, we do a lot more than just do
loans, but I hear your point.
Senator Coburn. OK. The other thing we will be talking
about is if at any point in time you find this is not to be the
case or you are amenable to changing your rates, to make sure
it stays that way.
Mr. Barreto. You are talking about the zero subsidy?
Senator Coburn. Yes.
Mr. Barreto. Absolutely. I mean, we are committed to it. It
is one of the reasons that every year that we have been there--
well, the last couple of years, we have broken every record in
SBA history.
Senator Coburn. Yes.
Mr. Barreto. So a zero subsidy works and we are committed
to it.
Senator Coburn. And we are going to give you a great
opportunity to directly refute Ms. De Rugy's testimony----
Mr. Barreto. Great.
Senator Coburn [continuing]. And that will be one of the
questions we will ask you.
Mr. Barreto. Wonderful.
Senator Coburn. OK.
Mr. Barreto. Thank you, Senators. I appreciate it.
Senator Coburn. Thank you so much for being here.
Mr. Barreto. Thanks a lot.
Senator Coburn. Our next panel is panel number three. First
is William Shear, Director of Financial Markets and Community
Investment at the Government Accountability Office. He received
his doctorate in economics from the University of Chicago.
Veronique de Rugy is the Research Fellow at the American
Enterprise Institute.
Third is Jonathan Bean, a professor at Southern Illinois
University. He received his doctorate in business history from
Ohio State University. He has been published extensively on
issues relating to small business and the Small Business
Administration.
David Bartram is the President of U.S. Bank's SBA Division,
Chairman of the National Association of Guaranteed Lenders. His
organization represents approximately 80 percent of lenders
that issue SBA loans.
And then finally is John Pointer. He is a former NFL
linebacker and small business owner. He received help through a
SBA program and is here to share his experiences.
I would like to thank each of you for being here. Your full
written testimony will be made a part of the record and you
will be recognized in the order in which I introduced you. Mr.
Shear, if you would start, please. Thank you.
TESTIMONY OF WILLIAM B. SHEAR,\1\ DIRECTOR, FINANCIAL MARKETS
AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Shear. Thank you very much, Mr. Chairman, Senator
Carper, and Members of the Committee. It is a pleasure to be
here this afternoon to discuss the evaluations we have made at
the Small Business Administration. My testimony is based on a
number of reports that we have issued since 1998. These reports
have focused on how well SBA has administered its programs in
carrying out its mission.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Shear appears in the Appendix on
page 62.
---------------------------------------------------------------------------
SBA's purpose is to promote small business development and
entrepreneurship through business financing, government
contracting, and technical assistance programs. In addition,
SBA's Office of Disaster Assistance makes loans to households
to repair or replace damaged homes and personal property and to
businesses to help with physical damage and economic losses.
Significant changes in SBA's management of its loan
programs, its information technology, human capital, and
financial resources have occurred, and we have studied various
aspects of these changes. Today, I will discuss, first, changes
in SBA's oversight of the 7(a) business loan program; second,
steps SBA has taken to improve its management of information
technology, human capital, and financial reporting for its
business loans; and third, SBA's administration of its disaster
loan program after the September 11 terrorist attacks and the
recent Gulf Coast hurricanes.
In summary, since the mid-1990s, when we found that SBA had
virtually no oversight program for its 7(a) guaranteed loan
program, SBA has, in response to our recommendations,
established a program and developed some enhanced monitoring
tools. The oversight program is led by its Office of Lender
Oversight, which was established in 1999. Although we have not
comprehensively reviewed the 7(a) program in some time, over
the years, SBA has implemented many of our recommendations for
lender oversight and continues to make improvements toward
addressing others.
With respect to other management challenges since the late
1990s, SBA has experienced mixed success that affects its
ability to manage the 7(a) program. While the agency was
unsuccessful between 1997 and 2002 in developing its own
information technology for a loan monitoring system, it awarded
a contract in April 2003 to obtain loan monitoring services.
This service allows SBA to carry out off-site monitoring of its
7(a) lenders to help evaluate risk and other loan
characteristics. The agency has made good progress in response
to our recommendations addressing financial management issues,
but there are still some that remain. There are still
challenges that remain in all these areas.
Now, I will turn to SBA's administration of its disaster
loan program. After the 9/11 terrorist attacks, we found that
SBA followed appropriate policies and procedures for disaster
loan applications in providing approximately $1 billion in
loans to businesses and individuals in the disaster area, as
well as to businesses nationwide that suffered economic injury.
We are now evaluating the agency's response to the 2005
Gulf Coast hurricanes. Our preliminary findings indicate that
SBA's workforce and new loan processing system were overwhelmed
by the volume of loan applications. We have identified three
factors that have affected SBA's ability to provide a timely
response to the Gulf Coast disaster victims.
First, the volume of loan applications far exceeded any
previous disaster.
Second, although SBA's new disaster loan processing system
provides opportunities to streamline the loan origination
process, it initially experienced numerous outages and slow
response times in accessing information.
And third, SBA's planning efforts to address a disaster of
this magnitude appear to have been inadequate.
In summarizing, I want to make one more statement about the
Gulf Coast hurricanes and what has happened to our Gulf Coast
residents based on our experience in visiting the region. Our
hearts go out to the victims, and I think, Senator Coburn, as
you have been in the region and all of us that have gone there,
our hearts just have to go out to the victims of this and our
hearts are with helping those victims get their lives back.
I will also say that there have been a number of people who
have worked for the SBA in this region who have been very
dedicated on a daily basis. We might have some questions about
the leadership that has come in this effort, the planning
efforts and other characteristics of the response of SBA, but
we have certainly seen an awful lot of dedicated public
servants really put out tremendous effort in trying to help
these victims recover.
With that, I would be happy to answer any questions that
you may have.
Senator Coburn. Well, you obviously, Ms. de Rugy, are the
one that has raised all the stir and controversy over this
hearing. People don't want to hear an opposite viewpoint from
what has been expressed many times. I want to welcome you to
our Subcommittee and tell you we value every opinion,
especially learned opinions of people who actually study
capital markets. The comments that have been made because you
have written on this in the past would lead me to believe that
there is something more in terms of problems with the SBA than
what we have had because of the tremendous overreaction.
I just want to tell you, I welcome you here. I welcome your
testimony. And anybody who truly supports the SBA ought to
welcome any criticism there can be because that will hone it to
be better and make us better. So I want to defend your right to
say what you are going to say. I want to defend the excellence
that I have seen that comes out of AEI and other research that
you have done. I think it is great for us to hear from you and
I welcome you. Take the time that you need.
TESTIMONY OF VERONIQUE DE RUGY,\1\ RESIDENT FELLOW, AMERICAN
ENTERPRISE INSTITUTE
Ms. de Rugy. Thank you, Mr. Chairman. Chairman Coburn,
Ranking Member Carper, who is gone, Members of the Committee,
it is an honor to appear before you today to discuss the
effectiveness of the Small Business Administration. The
promotion of small business is a cornerstone of U.S. economic
policy. There are about 25 million small business firms in the
U.S. employing almost 50 percent of all workers.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. de Rugy appears in the Appendix
on page 85.
---------------------------------------------------------------------------
The particular area of concern for policymakers is whether,
in the free market, small businesses can access sufficient
credit. The imperfection of credit markets, particularly for
small businesses, is often used as the quintessential
illustration of a market failure that necessitates government
intervention.
Encouraging lending to small businesses is one of the
primary purposes of the Small Business Administration. Its main
program to achieve that goal is the SBA's flagship loan
guarantee program, the 7(a) loan. But are these SBA loan
guarantees desirable? Is there, in fact, a market failure that
justifies government intervention via the SBA? If there is a
market failure, are the SBA programs well designed to address
the problem, or if there is no market failure, does the SBA
help achieve policy goals important enough to justify its
meddling in a well-functioning market?
First, my work concludes that there seems to be no failure
of the private sector to allocate loans efficiently. There
might have been 53 years ago, but today, it is not true. A
large and growing body of research has challenged the widely-
held belief that credit rationing makes it difficult for small
businesses to obtain capital. A series of papers by de Meza and
Webb conclude that government intervention is not necessary and
may actually be detrimental to entrepreneurship. The
theoretical arguments are confirmed by an increasing number of
empirical studies.
However, if for the sake of argument we assume that there
is a market failure that prevents small businesses from
receiving adequate credit, we can show that the SBA's loan
programs are not an effective way to combat the problem.
Basically, if there is a gap between the supply and demand of
loans, the SBA is irrelevant in trying to fill it.
Looking at the flow of SBA's 7(a) loans, we find that, one,
no more than 1 percent of all small business loans are SBA
loans each year. The private sector finances most loans without
government guarantee, and hence, the SBA is largely irrelevant
in the capital market.
Two, each year, 75 percent of SBA's 7(a) loans go to
helping a very small fraction of small businesses in mainstream
service, retail, and wholesale sectors, and even in those
sectors most likely to receive SBA loans, only 1 percent of all
firms do.
Three, each year, in the 25 sectors receiving the largest
share of 7(a) loan guarantees, less than 0.5 percent of small
businesses receive the guarantees.
Four, there is no shortage of firms or new start-ups in
America. The data suggests that new businesses would be started
at the same rate without SBA's 7(a) loan program.
Five, in 2004, 29 percent of 7(a) loan guarantees went to
minority business owners, but the SBA accounted for only 3
percent of all loans to minority firms. The same trend is true
for women-owned firms.
Six, the market is functioning well in the sectors that
account for 75 percent of SBA lending. There are an
overwhelming number of firms, a large amount of competition,
and no empirical evidence that the market is being underserved
in these areas.
Seven, since the small distribution of SBA loans is in
highly competitive sectors, it is unlikely to greatly improve
the prices and products available to consumers or significantly
bolster economic growth. The primary effect of the SBA loan
guarantees is to create an unlevel playing field and hurt non-
SBA firms.
All the evidence points in one direction. The SBA's 7(a)
loan guarantee program is not having a significant positive
effect on the market. But you would never know this from the
SBA's evaluations of its program. The SBA does not publish or
even try to measure the gain, economic or social, of its
program. In fact, the SBA's only measure of success amounts to
stating how many loans have been guaranteed in a given year or
how much it has spent on small business rather than measuring
the return on these dollars.
Measuring the performance of SBA loans should include their
effect on economic growth. It is possible, for instance, that
even though a large share of SBA borrowers default on their
loans, costing a lot of taxpayer money, the economic growth
triggered by the other borrowers compensates for this loss, but
you still have to measure it. And on that front, the results of
my studies show that it is very unlikely that SBA loans create
enough value to compensate for the risk taken by taxpayers.
First, there is the high level of default among SBA
borrowers.
Second, the SBA cannot point out success stories, other
than marginal examples, that would compensate for the costs to
taxpayers. In addition, for each SBA success story, we can
point out thousands of examples of firms that became great
stories, great entrepreneurial American stories, and that did
it without the help of the government.
The SBA's case rests mainly on anecdotes of small firms
staying afloat thanks to its program, yet that is a very weak
case for the program, especially considering the large
literature showing that average weekly wages, which are highly
correlated to productivity and economic growth, increase with
the size of the establishment.
To conclude, most of the nation's 25 million small
businesses are funded and grow without government subsidies.
Entrepreneurship is definitely one thing that Americans know
how to do without the help of the government.
Thank you, Mr. Chairman.
Senator Coburn. Mr. Bean, welcome.
TESTIMONY OF JONATHAN J. BEAN,\1\ PROFESSOR OF HISTORY,
SOUTHERN ILLINOIS UNIVERSITY
Mr. Bean. Thank you, Chairman. I brought a book for you on
the history of the Small Business Administration, and since the
Ranking Member has left, I will have to send him his copy.
Thank you for inviting me here to speak on a subject I have
studied for some 15 years, which culminated in my book, ``Big
Government and Affirmative Action: The Scandalous History of
the Small Business Administration.''
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Bean appears in the Appendix on
page 112.
---------------------------------------------------------------------------
I have a written statement for the record and I have also
prepared a few brief words on the effectiveness of the Small
Business Administration. I will offer a 5-minute assessment of
the program, and then hopefully during questions and answers, I
have six concrete ways to eliminate what you call waste, fraud,
and abuse in SBA programs.
In a word, the SBA was and is unwanted, unknown, and
unneeded. First, it was the unwanted orphan of the
Reconstruction Finance Corporation, RFC, a huge government
lending agency established during the Great Depression. In
1953, a new Republican President and Congress carried through
on their pledge to eliminate the corrupt RFC, but created the
SBA as a stop to small business advocates in Congress. Since
then, however, nearly every President I studied sought to
eliminate the ineffective, scandal-ridden SBA or merge it into
another government agency, usually the Commerce Department. It
has survived because it serves the interests of Congress, not
the small business owner.
Second, the SBA is the, ``great unknown'' among small
business owners. Very few ever come into contact with it, and
any support is a football field wide and an inch deep. Congress
and bankers are the prime constituencies keeping it alive.
Indeed, the SBA has been called by more than one author, ``a
creature of Congress.''
Third, the SBA is unneeded. Government reformers have
proposed sunsets for legislation so that Congress will
periodically revisit the effectiveness of laws that may have
outlived their usefulness. The sun set on the SBA a long time
ago, yet Congress has failed to follow through on decades of
studies, many of them by the GAO, highly critical of the
agency's various programs. There is little fear, however, about
sunsetting the Small Business Administration. If the SBA fell
dead in the economic forest, few people not on its door would
hear it crash.
What are some of the problems with the SBA? And I do have
solutions later, if you are interested. First, it represents an
unstated back-door industrial policy, a notion discredited by
the experience of the past quarter century. That is the notion
of the government picking winners in the economy, or gazelles
as they are called in small business literature, just as they
did in Europe and Japan. The U.S. economy, proponents argued in
the 1980s, was lagging behind Japan and Europe because
government and business were not intertwined. Twenty years
later, we see that the industrial policy model has failed in
the long run, vindicating the American path of growth through
deregulation and tax reform, so-called climate policies. Yet
the latest rationale for the SBA is that it picks winners,
though no evidence to back that up, helping small firms create
jobs and spawning technological innovations.
Second, the SBA doesn't help the truly small or
disadvantaged business. Those are groups that are never
adequately defined by the agency. Moreover, when it did try,
the SBA's efforts to wage war on poverty or create start-up
businesses in high-unemployment areas failed miserably. There
were additional policy failures in lending with taxpayers
cosigning the loans and absorbing the risk bankers should
themselves take, contracting preferences to small and not-so-
small businesses, affirmative action originally targeted at
African Americans which collided with immigration reform,
making Asians and Hispanics the unintended beneficiaries of
billions set aside for disadvantaged firms.
Last, the SBA's history is uniquely scandalous in the
modern era. Neither party escapes blame. The Eisenhower
Administration turned the SBA into a huge pay dirt plum, under
Kennedy, an SBIC venture capitalist dealt in their own firms,
minority programs have fostered unending scandals involving
fronts, cronyism, and governmental corruption, the most
spectacular examples being Wedtech under Reagan and Whitewater
under President Bill Clinton.
I asked former SBA Administrator Bernie Boutin why scandals
keep sticking to the SBA and he said, ``Any time you have
money, you will immediately find the mugs. It draws them like
flies.'' I might add that it is other people's money.
I have one last short paragraph. Let me end with several
quotes by Senator William Proxmire, longtime nemesis of the
SBA, best known for his Golden Fleece Awards for government
waste. In the 1960s and 1970s, Proxmire characterized the SBA
as ``a medium-sized or even a big business administration,''
not dedicated to the truly small businessman and one that only
helped a minute number of businesses. He put the SBA on a short
list of wasteful, useless agencies--his term--that should be
abolished. Others included the Selective Service and the
Interstate Commerce Commission, agencies that have passed away.
In 1979, this maverick Democrat, joined by a growing chorus
of critics, stated, ``The Federal Government is too big,
spending is excessive, the SBA, which has lost its way and
outlived its usefulness, is the place to start cutting.'' And
later, in 1985, Proxmire labeled the SBA one of Washington's
ten worst boondoggles.
This Congress has an opportunity to carry through on
Proxmire's legacy and eliminate this distraction from the real
problems facing small business.
Senator Coburn. Mr. Bartram.
TESTIMONY OF DAVID BARTRAM,\1\ CHAIRMAN, NATIONAL ASSOCIATION
OF GOVERNMENT GUARANTEED LENDERS
Mr. Bartram. Mr. Chairman, I appreciate the opportunity to
testify today on the effectiveness of the SBA's 7(a) program,
SBA's largest and oldest guaranteed loan program.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Bartram appears in the Appendix
on page 128.
---------------------------------------------------------------------------
The SBA 7(a) program fills a critical gap for small
businesses that need access to long-term loans. In fact, the
SBA in partnership with private sector lenders who use the 7(a)
and 504 loan programs account for about 40 percent of all long-
term loans to small businessmen throughout this country.
This means SBA is the single largest provider of long-term
loans to U.S. small businesses. Conventional sources, like
conventional banks, typically make short-term loans to match
short-term deposits, and this leaves small business with a
credit gap for long-term loans. Therefore, the SBA loan
programs are where small businesses and the private sector
lenders turn to bridge this gap. This is especially true for
new business start-up ventures and early or younger companies.
An important note is that the SBA's 7(a) loan program is
self-funding. It receives no Federal appropriations for credit
losses, to clarify your previous point. Instead, fees paid by
the borrowers and lenders alike keep the 7(a) subsidy rate or
net present value cost to the government at zero.
It is also important to note that according to the
Administration's fiscal year 2007 budget submission, over the
last 10 years, fees paid by the borrowers and lenders have been
excessive. More than $800 million in excess fees have flowed
back to the Treasury. This means that the SBA has collected far
more than necessary to cover predicted costs of the SBA's 7(a)
program. In short, the SBA 7(a) program has been a profit-
maker, not only through the fee income but also through tax
revenues paid by small businesses, their owners, and their
employees.
Small businesses benefit from a SBA loan in three ways.
First, the SBA provides access to capital on reasonable,
market-rate terms that these SBA borrowers cannot find
conventionally. Many bank loan policies do not allow
conventional financing of new start-up or early-stage
companies--and this is true at my bank, U.S. Bank, we are the
sixth-largest bank in the country--where our banks do not allow
us to lend to a company that is 18 months old or less. The SBA
loan program is the only option for many of these small
businesses. So there are countless numbers of small businesses
that simply would not be in business today if it were not for
the SBA loan programs.
Next, the SBA guarantee allows a small business to
appropriately finance long-term assets with long-term loans if
they are going to buy commercial buildings, long-term
equipment, and such. According to Federal statistics, the
typical 7(a) loan has an average maturity of 12 years. A
significant majority of conventional loans to small businesses
made by commercial banks have an original maturity of 3 years
or less, with the average being less than 1 year.
Because of the longer maturities, the third benefit is that
the borrower has significantly lower monthly payments with an
SBA loan than they would have with a conventional loan. Again,
this is especially critical for new businesses or younger
companies.
Over the past several years, the SBA loan program has
experienced tremendous growth. Just for the last fiscal year,
more than 100,000 small businesses received financing through
both the 7(a) and the 504 program. These loans totaled $25
billion. For the current fiscal year, it is estimated that the
combined programs will reach $30 billion. Again, no
appropriations are provided for credit subsidies, meaning that
the program users, the ones that actually use it, are lenders
and small businesses actually cover the losses associated with
this program.
Over the last several years, the SBA has also worked to
streamline the program so the lending process for us, the
lender, has been reduced, reducing our cost. It means that the
red tape that the customer has to go through to get these loans
is also less.
The results are clear. Record lending in both the 7(a) and
504 program, this public-private partnership has been and still
is a shining example of what can be achieved when the private
sector and the Federal Government work together.
I would certainly be glad to answer any questions that you
might have. Thank you again.
Senator Coburn. Thank you so much for your testimony.
Mr. Pointer, I read with interest your testimony 3 or 4
days ago and the thought that shot through my mind is, if you
had never seen the SBA and had a loan outside of the SBA, you
would probably still have that business.
Mr. Pointer. That is correct.
Senator Coburn. So I am looking forward to your testimony.
TESTIMONY OF JOHN POINTER,\1\ SMALL BUSINESS OWNER
Mr. Pointer. Thank you very much, Senator. I really
appreciate this opportunity to come and speak to you as well as
the Subcommittee Members.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Pointer appears in the Appendix
on page 134.
---------------------------------------------------------------------------
Senator Coburn. Everybody should know you are an Oklahoman.
I just want to make sure everybody knows that.
Mr. Pointer. Well, I am from Tennessee. [Laughter.]
I am very disappointed at this point in time. I want to go
on record that Chief Administrator Barreto is not here to
listen to my presentation today.
Again, it is truly an honor to be invited to give my
testimony regarding my experiences with the Small Business
Administration, the SBA. My presentation today will acknowledge
my expertise in small and minority business development and
full understanding of SBA's various programs. I have submitted
today a written documentation for the record.
Most recently, I have been the liaison for Hurricane
Katrina recovery for small and minority business development on
behalf of the State of Mississippi under their agency,
Mississippi Development Authority. Before I advise you today of
my dealings with the SBA, I want to give you briefly, Chairman,
just a little bit about who I am and why I am here today,
thanks to you.
I would like to give you an insight of my background and my
strong moral beliefs. My brother, Reggie, who is here today, we
grew up in a small town in Tennessee, in Columbia, just 50
miles outside of Nashville. We were taught Christian values and
we also were taught how to utilize the golden rule, treat
people the way you would like for them to be treated and for
you to be treated, as well. My mother was a schoolteacher prior
to the segregation in the South as well as after. She taught
school for 37 years. My father was the first African American
store manager with Atlantic and Pacific. As we all recall, that
was A&P Food Stores.
I stand here today before you with Washington insiders who
have proclaimed me as the nation's largest minority
whistleblower in the history of Federal programs designed by
Congress and Senate to assist women and minority businesses and
their development. Just as I am proud of my actions to stop
waste, fraud, and abuse, Chairman, I still stand disillusioned
after over a decade of fighting the SBA due to their misuse of
Federal regulatory power, depravity of facts, and improper use
of illegal maneuvers regarding the laws of Federal and State
courts, all the while under the watch of Chief Administrator
Barreto.
In 1989, as a small business owner to the State of
Tennessee's No. 1-rated minority business, I alerted the SBA of
criminal wrongdoing of their Specialized Small Business
Investment Corporation, the SSBIC, and also my company was
Pointer Oil Company. I was a petroleum distributor. There was
blatant illegal acts such as illegal wire transfers, forgery of
tax documents, and check fraud. For years, sir, the SBA denied
my company and my family protection from wrongful misuse of
SBA's regulatory acts as well as refusing to honor our original
SBA business loan of $250,000, although, sir, they acknowledged
that they would replenish the $250,000 during the criminal
investigation.
The Department of Justice, along with the SBA's
investigation team, worked in the State of Tennessee starting
in 1989 after 5 days, sir, of me notifying the Atlanta office
that there was misuse and possibly criminal use of their
investment company. It started in 1989 and the official
criminal request was in 1993. So all those years, sir, I was
trying to still maintain an existing business, a business that
was doing business or serving products with Martin Marietta,
the company who developed ammunition and was servicing Desert
Storm. I was supplying fuel for that plant in West Tennessee,
and unfortunately, I had to shut down due to bankruptcy causes.
The U.S. Federal Court eventually found the SBA's
fraudulent investment firm and owner guilty of Federal fraud to
the SBA and to some of the various portfolio firms, such as
Pointer Oil Company. Even my sole testimony, sir, gave the SBA
the opportunity to be granted the receivership in the State of
Tennessee, but nevertheless, after they were granted
receivership, they took my attorney and my family on a 7-year
journey of trying to find out what kind of claims do we truly
have against now the SBA's receiver company, the investment
firm. Also, the former owner died eventually while waiting on
his Federal prison sentence.
So, Chairman, can you imagine now you have got the SBA, the
SBA receiver, you have got the estate of the former owner now
teaming together and fighting me in Federal court as well as in
State and local courts in the State of Tennessee, denying me
the rights of getting just a simple restitution.
The SBA was granted $3 million of liquidated losses. Now,
mind you, I want to back up and say, Chairman, that the
investment company had been in existence 10 years prior to my
notification. So, therefore, the U.S. Small Business
Administration had put a Federal suit out against the estate of
Walter Cohen, the former owner, and his investment company of
over $22 million. So the bottom line is that they received $3
million, requested in their Federal final order that the
Federal judge at that time request that all documentations be
destroyed, sir, and they brought back here to Washington $3
million. Whoopee. Can you imagine, sir, the amount of legal
payments for attorneys here within the SBA and attorneys they
used in the State of Tennessee and all their travels? I mean,
that was $3 million that was used in all of that process.
So I stand here today, sir, willing to answer any questions
not only about my personal concerns, but my existence at this
point in time. I want to say this. I am no longer with the
State of Mississippi. Just as I am proud of your letter you
sent me, and I submitted that to my officials at the State of
Mississippi, they began signing papers to terminate my
effectiveness down in the State of Mississippi. The
retaliations have been unreal and I hope the SBA officials will
give that information back to Chief Administrator Barreto and I
thank you for the time.
Senator Coburn. Mr. Pointer, thank you. I just want to
assure you that I asked the Administrator to have people here.
He does have several people here, and I wanted to make sure he
was aware of your situation.
Every agency has a horror story.
Mr. Pointer. Yes, sir.
Senator Coburn. That has happened because of the size of
the government. Is it your experience to suggest that this is a
symptom of a larger problem within the SBA?
Mr. Pointer. I think it is, sir. I think there is a
concern, just as Chief Administrator Barreto was very proud to
talk about small businesses, you and I both know, as well as
Congressmen and Senators here in Washington, they are talking
about larger small businesses. What about the one- to ten-
employee operations that are desperately needing these business
opportunities?
What about the legitimate, and I want to talk about this
since I am no longer with the State of Mississippi. Mr. Barreto
talked about how proud of the loans that had been submitted
down in the Gulf Coast, sir. We did a survey while I was
employed, effective in January 2006. Prior to my coming on
board, they did a market survey just in the Gulf Coast area of
Mississippi and they found out over 500 firms that were in that
distressed county areas, the majority of them were SBA
minority-certified and a lot of the white females testified it
was their husbands' companies.
And also we found out in market surveys that they had
applied for bridge loans. The State of Mississippi had
submitted their bridge loans. They were happy. The SBA, even as
far as just a few weeks ago, had not--they had not received
their SBA loans.
So I think it is a hypocrisy as far as the Chief
Administrator to proudly talk about what is going on down in
Katrina. Larger businesses are doing very well. They are
getting their loans, sir. They are getting SBA contracts also.
I was sitting in--I was part of a meeting with veterans,
disabled veterans down on the Gulf Coast and they talked to the
SBA Regional Administrator on the fact that there is not any
preference opportunities. We also know that there are also sham
companies that are using disabled veterans as fronts. I did not
see that Administrator, sir, say, well, listen, we have a
district office here. Here is the contact. Here is a phone
number. Or, sir, let me take down that information. I will pass
it on. Or, here is our toll-free number.
For us to keep looking away, everything that is on your
tripod over there, there is no accountability, nothing but just
a proud order to come and tell Senators and Congressmen here
that they are doing a great job.
Senator Coburn. Thank you.
Ms. de Rugy, was it your testimony that 29 percent of the
private capital loans were to minorities and small business?
Ms. de Rugy. No, the Small Business Administration----
Senator Coburn. Through the Small Business Administration?
Ms. de Rugy. For the 7(a) loan.
Senator Coburn. For the 7(a), 29 percent.
Ms. de Rugy. Yes.
Senator Coburn. And then you said the private market was--
--
Ms. de Rugy. No, I said but it is still going, so their
claim that without them, minorities couldn't do it, because
there is this huge gap. And I say, well, it is surprising
because it is true that a large share of all the 7(a) loans go
to minorities, 29 percent, which is a great increase in the
last 10 years. However, they are still serving only percent of
minority-owned businesses, which is quite irrelevant.
Senator Coburn. So 97 percent of minority-owned businesses
can get capital?
Ms. de Rugy. Can get capital either through traditional
bank loans or through credit cards or non-traditional loans.
Senator Coburn. It has been said you are anti-small
business by critics who take shots at you or criticism. Does
one have to be for SBA programs to be anti-small business, or
small business pro?
Ms. de Rugy. Well, actually, it seems that someone has to
be pro-government subsidy of all sorts to be in favor of small
businesses. This is what people are blaming me for, is that I
called for the abolishment of small business subsidies because
they were inefficient and, in fact, they were probably hurting
small businesses, and that enraged everyone because it seemed
that people misunderstand attacking the government for
attacking small businesses.
Senator Coburn. It is a great advocacy when you can do
that. I want to get these----
Ms. de Rugy. I have also been called anti-American.
Senator Coburn. I don't think you are that.
Ms. de Rugy. No. Actually, in fact, I guess I am the only
one who chose to live here.
Senator Coburn. Ninety-nine-point-five percent of all small
businesses finance outside of the SBA, is that right?
Ms. de Rugy. Yes. The number I have for 2004 is the private
sector issued 15.3 million small business loans, and if you add
the roughly a little over 100,000 loans issued by SBA, that is
less than 1 percent.
Senator Coburn. And I want to ask your opinion. If loans
don't cost the Federal Government any money, and I am not
certain that they don't because we are exposed to $70 billion
right now, but if they don't, why shouldn't we just have the
SBA loan everybody all the money?
Ms. de Rugy. I think the relevant question is why should
the Federal Government be doing that business when the private
sector seems to be doing it perfectly well.
Are they really costing nothing to the taxpayer? And I
think you are wise to be skeptical. For one thing, I think the
experience of the last 10 years, or the last 5 years, where
small businesses who have overpaid fees is the proof that the
SBA and OMB are unable to estimate what fees are needed, based
on what the economy is going to be, to actually make it a zero
subsidy.
Senator Coburn. Are you saying with low interest rates and
readily available capital today, the private capital market in
many ways for some of these firms could be cheaper than through
the SBA when you take a total cost----
Ms. de Rugy. Yes.
Senator Coburn [continuing]. Associated with that?
Ms. de Rugy. Yes. It is also important for the record to
say that not everyone who wants to start a small business
actually should if they are not willing to pay the price. I
mean, the market provides a great indicator and also a great
service, which is to eliminate people who are not willing to--
who are not able to provide a service at a cost that people are
willing to pay for. And asking taxpayers to back up people who
still want to do that is quite irresponsible.
But to go back to your zero subsidy question, when the
economy was growing, obviously the SBA and the OMB were not
able to estimate the kind of fees that were needed for it to
run a successful program. Actually, they were over-successful.
They measure their zero subsidy and the fee that goes with it
right now based on an estimate of what the economy is going to
be. The economy is booming. The economy is doing really well.
And these fees are probably in check right now and we don't
really have enough years to actually really measure. In fact,
their own Inspector General is actually challenging that idea
that it is really that great of a new model.
But what is going to happen when the economy goes south?
That is when even more people are going to default. That is
when our budget, because of unemployment, is going to actually
go up. And that is when the SBA is going to have to turn over a
lot of taxpayers' money to lenders.
Senator Coburn. That is right. OK. Thank you.
Mr. Bartram, we went to your website and I want to ask you
a couple of questions about it. Your website indicates that the
SBA's 7(a) program in particular is a great tool for lenders to
expand their client base and make a good return on investment.
How much money do banks and lending institutions make off 7(a)
loans?
Mr. Bartram. Well, I can only speak somewhat to what U.S.
Bank does, because that is the bank that I do work for. I
represent the trade association as the Chairman as a volunteer
type of a position. But if I could, too, I would also like to
answer the subsidy question, if you would give me an
opportunity after I answer this.
Senator Coburn. Sure. I will be happy to, and if I don't,
remind me to.
Mr. Bartram. OK. As to the program itself, these are loans
made to companies that need longer terms. So there is an
incentive to the lender to use the 7(a) program to match up a
proper term with the company's need. That way, the company has
a better chance for success. If you look at a 3-year loan
versus a 10-year loan, there is a savings of about 40 percent
in the cash flow that the small business would experience. So,
therefore, the company has a greater chance to succeed with
that type of term.
As far as the profitability----
Senator Coburn. You are increasing their short-term working
capital.
Mr. Bartram. Correct.
Senator Coburn. OK.
Mr. Bartram. As far as the profitability, we can be as
profitable in a 7(a) loan program as we are in our conventional
lending if done correctly, and done correctly meaning that we
are prudent as to how we approve credits. We are going to have
higher delinquencies with a 7(a) loan than we would have with a
conventional loan, but we share in the risks, so our losses
should be similar to that of a conventional loan. That is the
role----
Senator Coburn. You are markedly decreasing the risk,
correct?
Mr. Bartram. We have a 25 percent exposure, let us say,
rather than a 100 percent exposure.
Senator Coburn. Right.
Mr. Bartram. But these are also loans that we would not do
on a conventional basis. So that is the enhancement that we
have to utilize the 7(a) program.
Senator Coburn. Well, what about the other 95 percent of
the people that are small business who finance a 10-year, $4
million loan for their equipment? Where are they getting their
loans?
Mr. Bartram. Well, I think that you are assuming, and I
think you are referring to the $25 million----
Senator Coburn. No, I am talking about the testimony that
you gave that you said. You talked about the fact that these
people would not be able to get--but it is less than 5 percent
of the people out there that require a capital loan that is a
small business. Ninety-five percent of them do it without an
SBA loan. I am wanting to know, where do they finance?
Mr. Bartram. I think that you are assuming, though, that
every small business is actually looking for financing, which
is not true. Additionally, according to Dunn and Bradstreet, 80
percent of the small businesses have revenues of $100,000 or
less. So those companies probably have very small needs. So I
think you have to cut that sample size down to see what the
effectiveness is.
Senator Coburn. OK. That is a good point.
Mr. Bartram. If you look at financial call reports that
banks have to provide and you look at small businesses that are
contained within these call reports as they are compiled, loans
of 3 years or more, the SBA makes up 40 percent of all those
loans made. So that is really the target group that the SBA
hits upon. Not every small business out there, but companies
that need long-term financing----
Senator Coburn. Let me re-ask my question in a different
way, then. You said they supply 40 percent. Well, where do the
other 60 percent get their capital?
Mr. Bartram. Well, basically, banks still make conventional
loans to small businesses. Some business loans----
Senator Coburn. But if I was a bank and I thought I could
get the government to be on the hook for 75 percent and me only
25 percent, why wouldn't I go the other way? Which comes back
to the point that there is no cost to the taxpayers of this
country except for the possibility of default in a recession,
which is real. If there is no cost, why shouldn't all the
capital to small business be run through the SBA and be
guaranteed by the government?
Mr. Bartram. Because small business wouldn't stand for it.
It is more expensive for them to get an SBA loan than it is to
get a conventional loan. We charge a lesser rate of interest on
our conventional loans than we do on SBA loans. There is also a
large up-front fee that the SBA requires that pays for the
program that we wouldn't charge the customer if they were to
get a conventional loan.
Senator Coburn. But we are----
Mr. Bartram. We are not allowed to put a company----
Senator Coburn. But if they had the ability to repay but
yet were higher risk, their interest rate would go up, right?
So when you make those loans, you discount them and resell them
in the market, correct, most of them?
Mr. Bartram. No, we----
Senator Coburn. Well, that is what you all say on your
website.
Mr. Bartram. There are some--that is the trade
association's website----
Senator Coburn. Right.
Mr. Bartram [continuing]. And there are some lenders, about
40 percent of the loans, SBA loans that are made, the SBA
portion is sold. Banks still service it, though.
Senator Coburn. Let me get this into the record. Here is
what your trade association says, and I think it is important
because I think--I am not critical of where we are, but I think
it is important that SBA's policies are about helping small
business, not helping the people who help small business.
Mr. Bartram. I would agree.
Senator Coburn. So here is what it says. The SBA's flagship
7(a) program provides loans to small businesses unable to
secure financing on reasonable terms through conventional
credit channels. That is Ms. de Rugy's complaint with it, is
that maybe there is not a market there. But let us take her
away for a minute and say that there is.
For lenders, the 7(a) loan program has the potential to
increase profitability. Return on assets of SBA loans can
easily exceed 5 percent, and return on equity can exceed 70
percent. That is a pretty good term for a bank. That is as good
as credit cards. Increase the size of your portfolio. Provide
Federal guarantees as high as 90 percent. Increase liquidity.
Seven(a) loans can be readily sold on the program's healthy
secondary market. Increased competitiveness. Ability to offer
terms as long as 25 years gives you more desirable products to
offer prospective and existing customers.
My point is how much of--if this is a policy of the Federal
Government to incentivize the aiding of small business if, in
fact, there is a capital shortage--we will discount Ms. de
Rugy's comments for a minute--how much of that profit should--I
mean, 70 percent return on equity annualized is a pretty
healthy return. There are not a lot of businesses other than
what some would say about the oil industry today that can do
that. So why shouldn't that rate even be lower to small
business if, in fact, there is 70 percent return on equity on
turning SBA loans?
Mr. Bartram. Well, basically, if you were to sell the SBA
guarantee portion, now you have only 25 percent of direct
exposure on your bank's books----
Senator Coburn. Right.
Mr. Bartram [continuing]. So that is the reason why there
is a leveraging power there. That is the reason why the loan
can be profitable. However, there still is a larger risk of
loss to an SBA customer than there would be to a conventional
client. So it is basically risk versus returns. So the lender
is taking----
Senator Coburn. OK, but when I go and look at Citibank's
return on investment, return on invested assets, there are not
anywhere close to 70 percent. They are not anywhere close to 40
percent. They are not anywhere close to 20 percent. So you are
having one-fourth exposure.
My point is this, and I am not critical of the market that
you all have developed. I am not saying it is not fair. But
what I am saying is, as a policy question, if there is that
kind of return on equity in being involved in 7(a) loans in the
SBA, then the rates ought to go down some to better reflect,
even with the increased risk, your return would seem to me to
be highly excessive compared to what you can do in the
commercial market outside of SBA. And if I am wrong, are you
making 90 percent equity on businesses that aren't SBA
guaranteed? No. This is a higher-end business because it has
got a Federal guarantee to it, right?
Mr. Bartram. Correct.
Senator Coburn. OK. Now, you had wanted to answer a
question earlier and I have forgotten what it was.
Mr. Bartram. About the subsidy rate.
Senator Coburn. Yes.
Mr. Bartram. We talked a lot about that today, and my
understanding is that there are rules and basically laws under
credit reform that actually dictate how that is done and how
that is calculated. But effectively, the fees of the program
that are charged go to the Treasury and there is a loan loss
reserve set up just like a bank would have a loan loss reserve,
and as the economy turns down, those costs have already been
covered, and with a new budget coming out, fees would go up to
cover those costs. So there is no taxpayer risk of future SBA
loans or loans made today. Those costs are either already
covered through the loan loss or they would be charged higher
fees in subsequent years.
Senator Coburn. The fact is if we were to have a severe
recession tomorrow and we have a $70 billion exposure, there is
not the money in a reserve form at the Treasury, even taking
all nets coming from the SBA, to cover anywhere close to 20
percent of that. The last numbers I saw, I can't remember what
they were, but there is not anywhere--and I guess it would be
good to ask GAO that question. The fact is if tomorrow, $35
billion went up delinquent, 75 percent of it or 80 percent of
it being Federal Government's share, is the money sitting in
the Treasury to pay for that?
Mr. Shear. No, it isn't.
Senator Coburn. Yes.
Mr. Shear. I think that what you have here is a budget
accounting system, which does its best whenever loans are
originated in a year of estimating what is the present value of
those future payments. So you could almost think of it, on
average, what do we expect to happen?
And so you are posing a very good question in terms of why
would anybody participate in this program if there is no
subsidy involved, and then you get into certain questions as
far as there is a certain exposure that lenders take when there
is no subsidy involved and what happens if there is a very
severe recession, either nationally or in a region of the
country where there is a concentration of 7(a) loans.
So it is a distinction between what is used for budget
accounting purposes and whether there is still a real economic
subsidy involved. It is a little hard to believe that you could
have participation in a program, large participation in the
program in the absence of a real economic subsidy, and then you
are raising also a very good question, what do we get for that
economic subsidy that is involved?
Obviously, when the budgetary cost was larger, when you had
a ``positive subsidy program,'' it was costing more both in
terms of budget terms and in terms of economic subsidy. But
nonetheless, there is some economic subsidy involved.
Senator Coburn. Right. And is it true that actually the
people who borrow this money are the ones that are actually
paying that subsidy?
Mr. Shear. That is a difficult question but, again, you are
posing very good questions. What does it mean that there is a
market failure? Certain times, we have all been exposed to the
claim that if some borrowers pay interest rates that somehow
just are considered too high in the view of somebody's value
judgment, is it a market failure or is it a response to the
riskiness of providing a loan to that individual? So it is--to
say that the borrowers are paying too high a rate is difficult
to say because the borrowers and the lenders participating in a
program see it in their advantage.
Senator Coburn. But ultimately, the fees associated with
these loans and the interest rate that is charged and the net
profit that whoever the lender is, whether they roll and sell
it in the secondary market or they keep it themselves, those
fees are consumed as a part of the cost of doing business one
way or the other, and it is either a lessened profit or a
higher profit that is figured in. Most businessmen know what
their costs are and figure those costs as they roll the thing.
The fact is, if there is a subsidy--I guess the other
policy question is, if there has to be a subsidy, should it be
the borrowers paying it or should it be the American taxpayer?
I guess that is the policy question. If there has to be a
subsidy for it, should it be the American taxpayer or should it
be the group of borrowers? I am not advocating one way or the
other. I am raising the policy question.
Mr. Shear. I think the policy question there becomes one
for those who participate in the program, they probably see
some advantage of participating in the program. They are
probably borrowers, as was intended, that are higher-risk
borrowers, and the question from the standpoint of the exposure
of the American taxpayer is that what are we getting for that,
either in terms of serving those borrowers, the businesses, the
jobs they are creating, the general welfare of the local
economies they are operating in. These are the types of
questions we have to ask. Somewhere there is an exposure of the
American taxpayer.
Senator Coburn. OK.
Mr. Pointer. Senator, may I add something on that?
Senator Coburn. Sure.
Mr. Pointer. I want to comment on the fact that, privately,
as you mentioned, and as a private businessman on the front end
of this, having a college degree, having post-graduate degrees,
working with the small business that had been working with
Fortune 500 companies prior to my starting my own business, you
are so correct on the fact that when I looked at the SBA, after
being turned down initially by several banks in the State of
Tennessee, to know that, hey, here is a program. Yes, I am a
minority, but the fact is that when you are sucked into that
program, seeing, well, it is a few points below prime for me to
enter, and yes, I could be classified as a small disadvantaged
business, knowing that I wasn't economically or socially
disadvantaged, those are the sort of taste buds that are out
there that attracts people into this program.
If it is legitimate, if it means something to the people,
especially the small disadvantaged businesses, then it has to
stand for it. It cannot just be a token program. And I ask that
you guys mandate that the SBA really looks into this, and I ask
that you guys, when you go to New Orleans, you will find that
there are not a lot of certified--and I ask for you to look at
the State of Louisiana's certification process as well as the
SBA's process down there to see who is legitimately certified,
either federally or in the State requirements, that are women-
owned and minority-owned and veteran-owned to see how many of
them are actually doing business in Katrina. Just don't get a
fluff number, Senator, and bring it back. I think you will be
disillusioned.
And the last thing I want to add, sir, I ask and I pray--I
brought my daughter here, Danielle, who is 16 years of age--you
were talking about accountability and regulatory misuse. When
my wife was in her birthing room 16 years ago to bring forth
this wonderful child, the SBA were even in there trying to get
us to sign affidavits and for me to wear live wire tapes and
everything as far as with their concerns, but yet they could
care less about how I was going to get restituted. Senator, I
think these are issues that really need to be looked at.
Senator Coburn. I would just--anybody that is hearing this
testimony would do well to read the record of Mr. Pointer's
full testimony. It doesn't speak well for our government and
what has happened in the past and the lack of responsiveness,
and I will leave it at that.
I am going to come to you in just a second, Mr. Bean.
Mr. Bartram, you all have access to profitability
information about your members that is available only to your
members, correct?
Mr. Bartram. No. Basically, the only thing we could provide
is what they would publicly disclose. But no, we don't have
anything that would be of any kind of private information
publicly. Whatever they have through----
Senator Coburn. You all haven't combined data associated
with your association?
Mr. Bartram. Nothing to do with----
Senator Coburn. No combined data at all associated with
your association on profitability?
Mr. Bartram. No.
Senator Coburn. Mr. Shear, I want to ask you one question.
In the GAO look at the SBA, do they measure economic outcomes
according to real data or do they measure measurements that
aren't associated with true economic outcomes? What does the
GAO--I am saying, we see the number of loans, we see this and
this. What is the economic impact of that and are they
measuring the right thing?
Mr. Shear. We haven't evaluated the effectiveness or
economic impact of the programs in general.
Senator Coburn. Has anybody?
Mr. Shear. This is an area where there are certain data out
there, none of which I would say are very convincing, on
economic impact. It is clear that one can state who is--the
characteristics of certain borrowers who receive these loans.
In terms of saying what activity does it crowd out or who gets
the loan, one business gets the loan rather than another.
And let me go even further back, before there was any sense
of monitoring the lenders and what they were giving out Federal
guarantees for. We really didn't know, was it just somebody
that was trying to leverage an investment further rather than a
person that might have been able to put up the collateral? So
the ``what if'' questions, what would happen if these borrowers
did not get these loans, what would be the impact on those
specific borrowers, but even what would be the impact in those
local economies where those borrowers are operating?
It gets to your question that why are there so many
businesses, so many small businesses that don't rely on SBA?
Well, one reason could be the zero subsidy or low subsidy, but
part of it could be the absence of any information. What
happens when somebody walks into the bank between what they
have to do to get a conventional loan or an SBA loan? What
happens there and how does that affect the economy? There is
nothing that we have seen that is convincing.
Senator Coburn. So your testimony, there is nothing out
there in the literature that measures outcomes, that measures
economic outcomes--in other words, the whole part of the PART
system and the whole part of us in terms of our government
ought to be if we have a purpose in mind and we fund a program
in mind, there ought to be an end point at which we see and
then we ought to measure it to see if we are getting there.
And what I guess my question is, has anybody ever measured
to see if we are getting there? We have some disputed testimony
here today. There is no question about it. All I am asking is,
where is the science? Where are the studies that would show,
and has GAO ever been asked, what are the program's goals and
is it meeting its goals? Is there an economic impact?
Mr. Shear. We haven't been asked and----
Senator Coburn. Get ready. You are getting ready to be
asked.
Mr. Shear. OK. We like to serve the Congress, and you are
asking good questions.
Senator Coburn. I have to ask Comptroller General Walker
first, but I will ask.
Mr. Shear. OK. But I am sure we would welcome it and I am
sure the Comptroller General would welcome questions like that
of trying to establish, if not, trying to resolve the
controversies, but at least of trying to identify what would be
good indicators or good comparisons----
Senator Coburn. Measures.
Mr. Shear. What are good benchmarks to use to try to
evaluate what the economic impact of the 7(a) and other
programs are?
Senator Coburn. And nobody should want to object that you
would want to measure that to see if it is accomplishing what
it says it is supposed to, right?
Mr. Shear. I would hope not. Just as we said in the late
1990s, Congress and SBA and others should know how this Federal
guarantee is being administered by private lending
institutions, I am sure there were some that objected to that,
but I think this is part of what we do to serve the Congress.
Senator Coburn. That is fine. Thank you.
Mr. Bartram, I asked the question wrong, so I apologize. On
your website, you claim to have ready access to the following
data: A list of the top 30 SBA lenders by dollar and volume,
1998 to present; SBA's total loan portfolio for both 7(a) and
504 programs, 2004 to present; 7(a) and 504 loan volume by
State, 1998 to present; 7(a) and 504 loan volume by industry,
2004 to present; how often 7(a) and 504 loans failed by
industry; and 7(a) program loss reports, 1975 to present. You
all do have that data?
Mr. Bartram. Correct.
Senator Coburn. Can you share that with the Subcommittee?
Mr. Bartram. Certainly. I don't see any objection.
Senator Coburn. Thank you. That is what I was looking for.
I misstated the question.
Mr. Bartram. OK.
Senator Coburn. And now, finally to Mr. Bean. You gave in
your----
Mr. Bean. Before, just to add one thing, Mr. Chairman, in
1967 in a hearing much like this, I asked for the same data on
measuring impact. The SBA coughed up some tables. I asked what
the data was and then said they couldn't locate it. So the
question was asked in 1967 and you are probably the first one--
--
Senator Coburn. Mr. Bean, I have a reputation of not taking
no for an answer, and I assure you, if we ask, we will get the
information.
You had some suggestions to eliminate waste, fraud, and
abuse associated with the SBA. Would you share those with us,
and we will finish up after this.
Mr. Bean. Sure. I am glad to be here with Veronique and
with my friend, John Pointer. The SBA has dodged some very
fundamental issues which I think make waste, fraud, and abuse
systemic in many of its programs, particularly contracting,
Section 8(a), but not exclusively those.
We start with definitions. There were attempts in the past
to reform size standards. You asked SBA Administrator Barreto,
how large is a small business, and he gave you an answer. He
whipped up a number. He has no idea where those numbers came
from. They were concocted not by an economist, but by a
bureaucrat in the 1950s and 1960s and are encrusted in SBA
code. They are arbitrary.
There is a mismatch between the man-in-the-street
definition of small business, which is family-owned, locally-
owned, independently owned and operated, and the SBA's
statistics as a result are absolute junk, which I think
Veronique implied, but I will state more forcefully. It relies
on self-certification, as Mr. Barreto noted, and self-
certification. So the agency needs to take a real hard look at
the definition of small business because it has policy
consequences which turned up in one of your previous charts
with affiliates and subsidiaries of large corporations
receiving benefits that they shouldn't.
The same with the definition of disadvantaged. Most people
think of a disadvantaged person as being poor. The net worth of
the typical disadvantaged business enterprise receiving a
Section 8(a) contract is greater than the average American, and
we hear disadvantaged and minority used interchangeably. The
U.S. Civil Rights Commission has asked the SBA and other
agencies to come up with race-neutral alternatives to get in
conformance with civil rights law.
So the SBA has gotten on this wave of getting credit for
creating minority jobs. These programs were originally
intended, rightly or wrongly, to help people like Mr. Pointer,
African Americans who had a history of discrimination. The
statistics that Veronique discussed, 29 percent of the loans
went to minorities, I saw almost two-thirds of those went to
Asians. Throw in Hispanics, you have 11 percent go to African
Americans.
So there is a great deal of support for these programs
based on a rather dubious definition of disadvantaged. So I
think that SBA needs to look at the Civil Rights Commission's
report on redefining disadvantaged.
Second, in terms of reporting, they can't rely on self-
policing. It needs to measure impact. I work at a university.
We have to measure impact. We have to produce data on
graduation rates for our students. We follow cohorts. If you
are not going to do it for all small businesses, do it for
cohorts. Find some way to do it. The rest of the world has to
do it.
Third, the SBA is a conglomerate agency with many different
missions. It is stretched far too thin. It has 3,300 employees,
I believe, which was the number it had in 1965. I am not
arguing for a massive increase in the SBA bureaucracy. On the
contrary, I think it should be stripped of certain functions.
They wouldn't say this publicly, but in interviews with me,
since they were now retired, prior SBA administrators said that
they wanted to have disaster lending removed from their purview
because it was a people-eater during times of crisis, so that
would be one concrete suggestion, to consider removing and
relocating disaster lending.
Privatize SCORE, Service Corps of Retired Executives, which
has the loosest connection with the SBA.
Spin off the SBDCs, which are affiliated with universities,
to the Department of Education.
This is a small agency which does a great deal of harm in
some cases to certain small businesses and profits others,
particularly bankers. There are good people at the SBA doing
good work, but they cannot police a vast small business
community and that is why we have this rampant fraud
continually in small business certification, in 8(a)
certification. I just got on the Internet, the SBA Inspector
General has another report on fraud, 8(a) contracting, an Asian
Indian woman, $500 million in contracts because she is
disadvantaged. That doesn't resonate with the American people
and the SBA shouldn't get away with it.
Senator Coburn. All right.
Mr. Bean. Oh, and one last suggestion--two last
suggestions. To deal with situations like John Pointer's, give
the SBA more teeth, the ability to fine or to bar fraudulent
contractors or large corporations from further contracting.
They have done that at the municipal level to deal with
minority fraud. They can do it at the Federal level.
And offer some protection and compensation for
whistleblowers like John Pointer, who may not be in the
government but have information.
And last but not least, I believe you are a doctor, is that
correct?
Senator Coburn. I am.
Mr. Bean. I think it was the classical version of the
Hippocratic Oath that said, first, do no harm. The Congress
should be the watchdog of small business when it formulates its
legislation, not the SBA, which is a bureaucratic mosquito. I
hope that Congressmen and women, when they frame laws, will
think of the intended consequences and not rely on the SBA.
Senator Coburn. Well, I want to thank each of you for being
here. The purpose of this hearing is to make the government
efficient, to look and see if we are achieving the goals that
we need to be achieving, do we have measurement techniques and
processes in place, and to hear all viewpoints. I think we got
to do that today.
You each will receive some written questions from us, which
we would very much appreciate you answering in a timely manner.
I want to thank you for taking the time to prepare
testimony and also the time to be here to give it, and I am
sorry this hearing lasted so long. Thank you so much.
The hearing is adjourned.
[Whereupon, at 4:45 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
[GRAPHIC] [TIFF OMITTED] T8236.001
[GRAPHIC] [TIFF OMITTED] T8236.002
[GRAPHIC] [TIFF OMITTED] T8236.003
[GRAPHIC] [TIFF OMITTED] T8236.004
[GRAPHIC] [TIFF OMITTED] T8236.005
[GRAPHIC] [TIFF OMITTED] T8236.006
[GRAPHIC] [TIFF OMITTED] T8236.007
[GRAPHIC] [TIFF OMITTED] T8236.008
[GRAPHIC] [TIFF OMITTED] T8236.009
[GRAPHIC] [TIFF OMITTED] T8236.010
[GRAPHIC] [TIFF OMITTED] T8236.011
[GRAPHIC] [TIFF OMITTED] T8236.012
[GRAPHIC] [TIFF OMITTED] T8236.013
[GRAPHIC] [TIFF OMITTED] T8236.014
[GRAPHIC] [TIFF OMITTED] T8236.015
[GRAPHIC] [TIFF OMITTED] T8236.016
[GRAPHIC] [TIFF OMITTED] T8236.017
[GRAPHIC] [TIFF OMITTED] T8236.018
[GRAPHIC] [TIFF OMITTED] T8236.019
[GRAPHIC] [TIFF OMITTED] T8236.020
[GRAPHIC] [TIFF OMITTED] T8236.021
[GRAPHIC] [TIFF OMITTED] T8236.022
[GRAPHIC] [TIFF OMITTED] T8236.023
[GRAPHIC] [TIFF OMITTED] T8236.024
[GRAPHIC] [TIFF OMITTED] T8236.025
[GRAPHIC] [TIFF OMITTED] T8236.026
[GRAPHIC] [TIFF OMITTED] T8236.027
[GRAPHIC] [TIFF OMITTED] T8236.028
[GRAPHIC] [TIFF OMITTED] T8236.029
[GRAPHIC] [TIFF OMITTED] T8236.030
[GRAPHIC] [TIFF OMITTED] T8236.031
[GRAPHIC] [TIFF OMITTED] T8236.032
[GRAPHIC] [TIFF OMITTED] T8236.033
[GRAPHIC] [TIFF OMITTED] T8236.034
[GRAPHIC] [TIFF OMITTED] T8236.035
[GRAPHIC] [TIFF OMITTED] T8236.036
[GRAPHIC] [TIFF OMITTED] T8236.037
[GRAPHIC] [TIFF OMITTED] T8236.038
[GRAPHIC] [TIFF OMITTED] T8236.039
[GRAPHIC] [TIFF OMITTED] T8236.040
[GRAPHIC] [TIFF OMITTED] T8236.041
[GRAPHIC] [TIFF OMITTED] T8236.042
[GRAPHIC] [TIFF OMITTED] T8236.043
[GRAPHIC] [TIFF OMITTED] T8236.044
[GRAPHIC] [TIFF OMITTED] T8236.045
[GRAPHIC] [TIFF OMITTED] T8236.046
[GRAPHIC] [TIFF OMITTED] T8236.047
[GRAPHIC] [TIFF OMITTED] T8236.048
[GRAPHIC] [TIFF OMITTED] T8236.049
[GRAPHIC] [TIFF OMITTED] T8236.050
[GRAPHIC] [TIFF OMITTED] T8236.051
[GRAPHIC] [TIFF OMITTED] T8236.052
[GRAPHIC] [TIFF OMITTED] T8236.053
[GRAPHIC] [TIFF OMITTED] T8236.054
[GRAPHIC] [TIFF OMITTED] T8236.055
[GRAPHIC] [TIFF OMITTED] T8236.056
[GRAPHIC] [TIFF OMITTED] T8236.057
[GRAPHIC] [TIFF OMITTED] T8236.058
[GRAPHIC] [TIFF OMITTED] T8236.059
[GRAPHIC] [TIFF OMITTED] T8236.060
[GRAPHIC] [TIFF OMITTED] T8236.061
[GRAPHIC] [TIFF OMITTED] T8236.062
[GRAPHIC] [TIFF OMITTED] T8236.063
[GRAPHIC] [TIFF OMITTED] T8236.064
[GRAPHIC] [TIFF OMITTED] T8236.065
[GRAPHIC] [TIFF OMITTED] T8236.066
[GRAPHIC] [TIFF OMITTED] T8236.067
[GRAPHIC] [TIFF OMITTED] T8236.068
[GRAPHIC] [TIFF OMITTED] T8236.069
[GRAPHIC] [TIFF OMITTED] T8236.070
[GRAPHIC] [TIFF OMITTED] T8236.071
[GRAPHIC] [TIFF OMITTED] T8236.072
[GRAPHIC] [TIFF OMITTED] T8236.073
[GRAPHIC] [TIFF OMITTED] T8236.074
[GRAPHIC] [TIFF OMITTED] T8236.075
[GRAPHIC] [TIFF OMITTED] T8236.076
[GRAPHIC] [TIFF OMITTED] T8236.077
[GRAPHIC] [TIFF OMITTED] T8236.078
[GRAPHIC] [TIFF OMITTED] T8236.079
[GRAPHIC] [TIFF OMITTED] T8236.080
[GRAPHIC] [TIFF OMITTED] T8236.081
[GRAPHIC] [TIFF OMITTED] T8236.082
[GRAPHIC] [TIFF OMITTED] T8236.083
[GRAPHIC] [TIFF OMITTED] T8236.084
[GRAPHIC] [TIFF OMITTED] T8236.085
[GRAPHIC] [TIFF OMITTED] T8236.086
[GRAPHIC] [TIFF OMITTED] T8236.087
[GRAPHIC] [TIFF OMITTED] T8236.088
[GRAPHIC] [TIFF OMITTED] T8236.089
[GRAPHIC] [TIFF OMITTED] T8236.090
[GRAPHIC] [TIFF OMITTED] T8236.091
[GRAPHIC] [TIFF OMITTED] T8236.092
[GRAPHIC] [TIFF OMITTED] T8236.093
[GRAPHIC] [TIFF OMITTED] T8236.094
[GRAPHIC] [TIFF OMITTED] T8236.095
[GRAPHIC] [TIFF OMITTED] T8236.096
[GRAPHIC] [TIFF OMITTED] T8236.097
[GRAPHIC] [TIFF OMITTED] T8236.098
[GRAPHIC] [TIFF OMITTED] T8236.099
[GRAPHIC] [TIFF OMITTED] T8236.100
[GRAPHIC] [TIFF OMITTED] T8236.101
[GRAPHIC] [TIFF OMITTED] T8236.102
[GRAPHIC] [TIFF OMITTED] T8236.103
[GRAPHIC] [TIFF OMITTED] T8236.104
[GRAPHIC] [TIFF OMITTED] T8236.105
[GRAPHIC] [TIFF OMITTED] T8236.106
[GRAPHIC] [TIFF OMITTED] T8236.107
[GRAPHIC] [TIFF OMITTED] T8236.108
[GRAPHIC] [TIFF OMITTED] T8236.109
[GRAPHIC] [TIFF OMITTED] T8236.110
[GRAPHIC] [TIFF OMITTED] T8236.111
[GRAPHIC] [TIFF OMITTED] T8236.112
[GRAPHIC] [TIFF OMITTED] T8236.113
[GRAPHIC] [TIFF OMITTED] T8236.114
[GRAPHIC] [TIFF OMITTED] T8236.115
[GRAPHIC] [TIFF OMITTED] T8236.116
[GRAPHIC] [TIFF OMITTED] T8236.117
[GRAPHIC] [TIFF OMITTED] T8236.118
[GRAPHIC] [TIFF OMITTED] T8236.119
[GRAPHIC] [TIFF OMITTED] T8236.120
[GRAPHIC] [TIFF OMITTED] T8236.121
[GRAPHIC] [TIFF OMITTED] T8236.122
[GRAPHIC] [TIFF OMITTED] T8236.123
[GRAPHIC] [TIFF OMITTED] T8236.124