. \ \ S. Hrg. 104-102 EXPLORING THE FUTURE OF THE SMALL BUSINESS ADMINISTRATION Y4.SM 104-102 1/2; S. HRG, Exploring the Future of the Snail B. . HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS UNITED STATES SENATE ONE HUNDRED FOURTH CONGRESS FIRST SESSION FEBRUARY 10, 1995 ^^^<^A^ %. Printed for the use of the Committee on Small Business U.S. GOVERNMENT PRINTING OFFICE 9&-716 WASHINGTON 1995 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments.Congressional SalesOffice,Washington,DC 20402 ISBN 0-16-047501-5 . \ V S. Hrg. 104-102 EXPLORING THE FUTURE OF THE SMALL BUSINESS ADMINISTRATION Y4.BM 104-102 1/2; S. HRG, Exploring the Future of the Snail B. . HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS UNITED STATES SENATE ONE HUNDRED FOURTH CONGRESS FIRST SESSION FEBRUARY 10, 1995 %^ h V^'j QS?J^^>2r4 <. m >ifif Printed for the use of the Committee on Small Business U.S. GOVERNMENT PRINTING OFFICE 90-716 WASHINGTON 1995 : Forsalebythe U.S.GovernmentPrintingOffice SuperintendentofDocuments,Congressional SalesOffice.Washington,DC 20402 ISBN 0-16-047501-5 COMMITTEE ON SMALL BUSINESS CHRISTOPHER S. BOND, Missouri, Chairman LARRY PRESSLER, South Dakota DALE BUMPERS, Arkansas CONRAD BURNS, Montana SAM NUNN, Georgia PAUL COVERDELL, Georgia CARL LEVIN, Michigan DIRK KEMPTHORNE, Idaho TOM HL\RKIN, Iowa ROBERT F. BENNETT, Utah JOHN F. KERRY, Massachusetts KAY BAILEY HUTCHISON, Texas JOSEPH LIEBERMAN, Connecticut I. JOHN WARNER, Virginia PAUL D. WELLSTONE, Minnesota WILLIAM H. FRIST, tennessee HOWELL HEFLIN, Alabama OLYMPIA J. SNOWE, Maine FRANK R. LAUTENBERG, New Jersey Louis Taylor, StaffDirector and Chief Counsel John W. Ball III, Democratic StaffDirector ^^:) (II) cv;- CONTENTS OPENING STATEMENTS Page Bond, The Honorable Christopher S., Chairman, Committee on Small Busi- ness, and a United States Senator from Missouri 1 Bumpers, The Honorable Dale, Ranking Minority Member, and a United States Senator from Arkansas 4 Frist, The Honorable Bill, a United States Senator from Tennessee 43 Lieberman, The Honorable Joseph I., a United States Senator from Connecti- cut 48 WITNESS TESTIMONY Lader, The Honorable Philip, Administrator, U.S. Small Business Administra- tion; accompanied by: Mary Jean Ryan, Associate Deputy Administrator for Economic Development; Patricia R. Forbes, Deputy to the Associate Deputy Administrator; Doug Criscitello, Deputy Associate Deputy Adminis- trator, Management and Administration; Robert Neal, Associate Deputy Administrator, Government Contracting and Minority Enterprise Develop- ment; Bernard Kulik, Associate Administrator, Disaster Assistance; Martin D. Teckler, Deputy General Counsel; Doris Freedman, Deputy Chief Coun- sel, Advocacy; Robert Stillman, Associate Administrator of Investment; and Kris Swedin, Assistant Administrator, Congressional and Legislative Af- fairs 5 ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED Bond, The Honorable Christopher S. Opening statement 1 Post-hearing questions posed to Mr. Lader and subsequent responses 74 Bumpers, The Honorable Dale Prepared statement 4 Frist, The Honorable Bill Prepared statement 43 Lader, The Honorable Philip Testimony 5 Prepared statement and attachments 13 More detailed responses to questions asked during the hearing 61 Responses to post-hearing questions from Chairman Bond 74 Responses to post-hearing questions from Senator Pressler 96 Lieberman, The Honorable Joseph I. Prepared statement 48 Pressler, The Honorable Larry Prepared statement 95 Post-hearing questions posed to Mr. Lader and subsequent responses 96 (III) EXPLOREVG THE FUTURE OF THE SMALL BUSINESS ADMINISTRATION FRIDAY, FEBRUARY 10, 1995 United States Senate, Committee on Small Business, Washington, DC. The committee met, pursuant to notice, at 10:04 a.m., in Room SR-428A, Russell Senate Office Building, Hon. Christopher S. Bond, chairman of the committee, presiding. Present: Senators Bond, Burns, Kempthorne, Bennett, Warner, Frist, Snowe, Bumpers, and Lieberman. OPENING STATEMENT OF THE HONORABLE CHRISTOPHER S. BOND, CHAIRMAN, COMMITTEE ON SMALL BUSINESS, AND A UNITED STATES SENATOR FROM MISSOURI Chairman Bond. The Small Business hearing will come to order. Good morning and thank you very much for attending the first hearing of 1995 before the Senate Committee on Small Business. Today we will begin an overview on the future of the Small Busi- ness Administration. I should tell our witnesses that almost all of the members have indicated they will attend, but unfortunately on a day like today, as so many other days, there are many other hearings going on. I know a Budget Committee hearing has a number of our members. So as small businesses have to run efficiently in order to be profit- able, we are going to try to start on time and end on time and hope that as many of our members can join us as possible. As this committee explores the future of the SBA, and we are very pleased to have the Administrator of the SBA, Phil Lader, with us today, I hope that all the members of the committee and the others who are interested in SBA will consider the appropriate Federal role in helping promote entrepreneurship and growing businesses in this country. For the past four decades, SBA has been the ombudsman and advocate for small businesses in the Fed- eral Government. Without the focus and emphasis provided by SBA during this period, America's small businesses might not have come to occupy the central role that they do today in the U.S. econ- omy. However, this past fall, voters throughout the U.S. made it clear they were fed up with the Government inefficiency, wasteful spend- ing, and they asked for a change. I think it is important for us to recognize their call is not simply limited to fiscal matters. Many voters have expressed their unhappiness with Government's failure to meet their expectations in carrying out legitimate public respon- (1) sibilities. I view that call for change as a positive challenge which was issued by the voters to all of us in Government to target our resources wisely, increase our oversight over Federal activities, and ask the basic questions of what we are doing, why we are doing it, how are we doing it, and do we need to be doing it? As Chair of this Committee, I think we have to create and en- hance an atmosphere where the small business owner is encour- aged to expand and to create more jobs. It is critical, therefore, that we scrutinize and evaluate every SBA program. If there are some that do not work, we need to weed them out. What is working we need to support and strengthen. More importantly, we must push ourselves to move beyond the structures and the programs of the status quo when necessary, if necessary, to respond to the needs of small business. We hear a lot of talk today about reinventing and streamlining Government. In the past we have seen many of these restructuring efforts fail, both in Government and in the private sector. It does no good to nibble around the edges of an agency and chop off helter-skelter a few limbs. This tjqje of incremental change usually fails when it becomes an exercise in covering over or patching prob- lems. However, neither will radical and indiscriminate cuts in agency functions and personnel yield the proper results. Such cuts may accomplish narrow budgetary goals, but the strategy is likely to fail us in the long run, particularly if we discover that the wrong programs were eliminated or the wrong people were let go. If we are serious about revitalizing the SBA, and I think we are on this Committee, we need to rethink the basic role of the agency, to assess its mission. We need to identify its customers and evalu- ate what results can be obtained from intelligent deployment of available resources. Clearly, the 1996 budget for SBA that we received from the Ad- ministration could be characterized as a nibble around the edges of the agency. We think that new thinking and new assurances from the Federal Government to the small business community are needed. I think this Committee can best serve America's emerging and growing businesses if we get down to our business about what SBA should do. We have to take responsibility for encouraging the sur- vival and growth of small businesses that will provide tomorrow's innovative products and processes, and the new jobs that result. We look for answers to the fundamental questions, as I mentioned earlier, about the mission, the customers, and the results of the agency. It is a pleasure to welcome to the hearing Phil Lader and his co- horts. On Thursday, February 16, we will hold a follow-on hearing with witnesses from a cross-section of the small business commu- nity to hear their perspectives on this issue. Now it is a real pleasure to turn to my ranking member, a gen- tleman with whom I was privileged to serve when he chaired this Committee, and a neighbor to the south. Senator Bumpers. Senator Bumpers. Thank you very much, Mr. Chairman. I will, with unanimous consent, insert my opening statement in the record in the interest of time. Chairman Bond. So ordered. [The prepared statement of Senator Bumpers follows:] OPENING STATEMENTOFSENATOR DALE BUMPERS Committee on Small Business February 10, 1995 Mr. Chairman, I want to complimentyouon schedulingourfirst hearingofthe 104th Congress sopromptly followingthe release ofPresident Clinton'sbudget. This timinggivesus anopportunitytoconsidernewdirections forthe agencyin thecomingyear. Ialso wantto thankandcongratulateAdministratorPhil Laderforgettingthe Administration's support forthe mostreasonable SBA budget proposal wehave seeninmyrecollection. The most remarkablethingsaboutthe President'sbudget for SBA are what itdoesnot contain: No outlandish lendingfees forborrowers; no smokeand mirrorsalesofassetsto help hide thedeficit; noeliminationofuseful and provenprograms like Small Business Development Centers, SCORE, and Small Business bistitutes. histead,the ClintonAdministration hasgone onthe record squarelysupportingtheavailabilityofcapital forsmall firms. Yearinandyearout, small businessownerstell methatthe costandavailabilityof capital fordailyoperations, forbusinessexpansion, forinventory, orforfixedasset financingis the biggestproblem facingtheirsectorofthe economy. Todaymanypeoplearedisgruntled aboutgovernmentregulationorover-regulationofbusinesses, andoftenrightlyso. However, we would beextremelyshort-sighted ifwedevotedall ofthe Committee'seffortsto regulatory issues, and fail to address small business' continuingneedforaffordable capital. ThePresident's budget provides some $11.5 billion in small business loansand loanguarantees, plusall ofthe training, informationandassistanceprogramsofthe SBA, plusall salariesand expensesof3600 SBAemployees, all atacosttotheTreasuryofaround $800million. SBA'sloanprogramswork. Theycreatejobsbyallowingbusinessesto startandexpand. Forthe mostpart,theyworkreasonablywell and havemodestcosts incomparisonto their economic benefits. These programscreate and sustainjobs intheeconomic sectorthat is perenniallythemostenergetic and innovative, butwhich remains financiallyunderserved because small loansand small customersarenotthe mosteconomical forlarge banks. I fearthis problemwill onlyworsenwiththecontinuingonslaughtofmergers intheworldofbanking. Iamproud oftheworkthisCommitteehasdoneoverthe last several years inreinventing the SBIC program, in creatingthe Microloanprogram, and inreducingthe subsidycostofthe 7(a)program bymorethanhalf Whatevernewdirections Chairman Bondand Chairwoman Meyersmayhave in mind, 1 hope theywill not flinchfi-omthe continuingneedofsmall business owners foroperatingandgrowthcapital atareasonablecost. I lookforwardto workingwith themandothersonthe Committee onthis andotherimportant issues.