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Hearing of the Senate Committee on Small Business & Entrepreneurship on SBA's Budget for FY 2007

By:
Date:
Location: Washington, DC


Kerry Opening Statement for Hearing on the SBA's Budget for FY 2007

Madam Chair, thank you. Thank you for this hearing and that important opening statement. I was listening to your statement and it's a pretty remarkable statement to come from the Chair of this Committee, where you are in the majority that represents the same party as the Administrator. This is not a party issue. When you think of the past hearings that we've had over the last years with the same Administrator and the same Administration, it just seems like a Johnny-one-note process of repetition of the same old, same old. You don't seem to hear what anybody sitting at this table or on this Committee is saying. I see this chart that shows increased loans and I know what you're going to say. You're going to come in here and say we've had this big increase in loans. But you didn't do that, we did that. You didn't propose these lending levels. You didn't ask for it. You didn't fight for it. We had to fight for it over your objection.

There's a piece of me that didn't want to come to this hearing. I've been here 22 years and have never said that. But the reason is there's just no dialogue. I don't know if you've called the Chair of this committee and said, ‘Hey how do we get this to be a good working process this year. Why don't we sit down before we put the budget together?' I don't know if you did that. But I know you didn't do it with me.

I take a look at this and I say to myself, are you trying to get rid of the SBA? Is that really what's going on here over a period of time? The budget request has $624 million for the SBA. Yet, we have $350 billion that's been going to Iraq. And we've got less than $1 billion going to the SBA in its entirety - which is a reduction of $17-18 million compared to the 2006 budget. This is the sixth consecutive year of budget cuts for the SBA resulting in a 37 percent reduction to the SBA funding since the Bush Administration came into office - a 41 percent reduction when compared to the fiscal year 2001 budget request. The SBA has experienced the deepest budget cuts of any federal agency during Bush's tenure. It's the second year in a row the SBA has been demoted as a major federal agency. OMB no longer lists SBA among the major federal agencies, which means it's impossible for Congress and the public to compare that budget with previous years and other agencies. I've sent a letter to OMB urging them to restore SBA to the list of major agencies, which I think it ought to be.

For the second year in a row the Administration is proposing to eliminate line items for contracting and counseling programs, including the 7(j) technical assistance program, the HUBZone program, which Senator Bond from Missouri worked hard to put in place and I joined with him in cosponsoring it when he was Chairman. The Native American program - is Native American outreach complete in America? Do we have what we need in terms of Native American participation in our country? Who recommended we cut that? The U.S. Export Assistance Center program - we don't need to increase American exports among small business? Last year I opposed that proposal along with others because it limits transparency and reduces the authority of this Committee and the Appropriations Committee to ensure that funds are allocated. It's almost as if it didn't matter that we opposed it last year. And you're back again - same old, same old without a new rationale.

For the third year in a row, the Administration has requested zero funding for the 7(a) program, claiming to realize a savings of $100 million for the taxpayer. But that's not a savings of $100 million for the taxpayer. That's passing on all the costs to the small business borrowers and lenders. That's an increased tax on them. You come here and you tell us that you're making a savings by taxing people more - it's a pretense, it's just a shell game. And it's unclear. Why would SBA limit the level to $17.5 billion when people are requesting $18 billion and the program requires no appropriation? So you pass on the cost and you still limit the level.

You're also proposing to increase fees on loans as the Chair said: $1 million or more in the 7(a) working capital, 504 loans for property and equipment, SBIC debenture capital programs. And these new fees will result in a combined savings of only $7 million, they'll impact three percent of 7(a) borrowers, 15 percent of 504 borrowers and the majority of SBIC deals. These administrative fees are the first time the SBA has attempted to pass along administrative costs to lenders and small business borrowers in that field. In addition, to the pressure that puts on programs to make smaller loans, it's just a bad precedent. And if Congress were to go along, which I hope it won't, we'll see another increase in administrative fees on a larger number of those loans in coming years.

On microloans, for the third year in a row the President is proposing to eliminate the Microloan program and Microloan Technical Assistance - counseling - the largest federal program solely dedicated to supporting credit needs of the smallest businesses and self-employed entrepreneurs.

You know, it's stunning, when you look at the rate of return on that, the rate of compliance, the minimal loss versus gain - which is a net gain, incidentally. You have to ask, what's the rationale? Why do that? That program serves a completely different kind of borrower - it serves a special need. These people who participate in the program are able to satisfy the minimum credit score of 680-700 required by most conventional lenders. Yet in spite of the labeling, since its inception in 1992, the Microloan program has had only two total losses. The program creates one job for every $1,800 that's loaned, compared to the other loan programs which are 15 times as expensive.

In minority lending, I know you're going to claim you're doing record lending to minorities, but the fact is in the 504 program the number of loans and dollars of loans to African Americans have stayed at a flat two percent. The numbers of loans to Hispanics went up only one percent, and the dollars stayed at six percent - they stayed the same. Additionally, loans in dollars to Asians have increased but the 504 loans to women, which has always been a major focus of this Committee, have decreased from 19 percent to 15 percent and dropped from 16 percent to 14 percent in dollars. Loans to African Americans have dropped in number in the Microloan program from 28 percent to 21 percent and dollars have dropped from $7.1 million to $5.7 million. Loans to Asians and women are essentially flat.

In the disaster loan program, and we've gone through this, amazingly the President's budget includes a request to increase the cost of disaster loans to homeowners and small businesses by eliminating the low interest cap of four percent and raising the interest rates on these loans after the first five years. Now, these loans are typically 30 year loans, so basically you're attempting to save money on the backs of disaster victims. There's no other way to describe it - that's where the savings come from. You raise the interest rates, you take away the cap that we've had in there, and it's the disaster victim who's going to pay more. And I know that will be the focus of some questions here today.

As early as December of 2005, you knew Mr. Administrator, that you had underestimated the average size of disaster loans in the Gulf Coast by one half. You knew you'd be running out of money, but you didn't want to alert the appropriators until the end of January. You didn't alert our Committee until the second week of February. I wrote to the President to express our concerns about the late notice and urge that the Administration request full funding for disaster loans so that we wouldn't be in the same situation in April. And with the program on the brink of running out of money we finally managed to get something done. So Congress had to step in three times so far this fiscal year to prevent the disaster loan program from turning away hurricane victims. I could go on.

It's just stunning - Women's Business Centers are being cut. What is the rationale for cutting Women's Business Centers? The Small Business Development Centers, which provide counseling and training to small businesses, has been at level funding since 2001 and this year you cut it. A $1 million cut down to $87 million. The fact is that years of level funding have eroded the SBDC network - challenging the very notion that it's possible to do more with less. In addition, the total number of SBDC clients has been declining since 2003 due to those budget cuts. I think you're on a terrific track to undo years of effort by this Committee and the SBA to grow small business in America, in the most propitious fashion possible.

I know you're going to be able to show there are loans being made. Yes, there are businesses that are still in business and they're still growing. But that's not the standard. That never should be the standard. The standard is: are we doing everything in our power that makes sense within all the limitations and choices of our budget to grow our small businesses and facilitate their lives and help people in a disaster situation. There's always been unanimity in this Committee, a bipartisan approach, with an understanding that we're not trying to have the government make these choices for people. But when you look at the record at Intel, Calloway Golf, FedEx, and a bunch of people who got started with loans through this effort under a different construct than you have created, we have repaid the budget of the SBA many times over through the taxes of just a few success stories alone. This is an unbelievably short-sighted and incomprehensible approach to the small business needs of the country.

Thank you, Madam Chair.

http://sbc.senate.gov/democrat/record.cfm?id=252504

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