[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
DISASTER LOAN SIZE STANDARDS
=======================================================================
HEARING
before the
COMMITTEE ON
SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
WASHINGTON, DC
__________
February 27, 2002
__________
Serial No. 107-45
__________
Printed for the use of the Committee on Small Business
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78-735 WASHINGTON : 2002
____________________________________________________________________________
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COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin
PATRICK J. TOOMEY, Pennsylvania Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota TOM UDALL, New Mexico
MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
------
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Hearing held on February 27, 2002................................ 1
Witnesses
Barreto, Hon. Hector, Administrator, U.S. Small Business
Administration................................................. 5
Graham, John, Administrator, Office of Information and Regulatory
Affairs........................................................ 7
Klassovity, Rodney, CEO, Albany Travel Unlimited, Inc............ 10
Alton, Jacquelyn, Owner, CWT/Almeda Travel, Inc.................. 13
Appendix
Opening statements:
Manzullo, Hon. Donald........................................ 36
Sweeney, Hon. John........................................... 41
Jones, Hon. Stephanie Tubbs.................................. 43
Prepared statements:
Barreto, Hon. Hector......................................... 46
Graham, John................................................. 50
Klassovity, Rodney........................................... 54
Alton, Jacquelyn............................................. 63
HEARING ON DISASTER LOAN SIZE STANDARDS
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WEDNESDAY, FEBRUARY 27, 2002
House of Representatives,
Committee on Small Business
Washington, DC.
The Committee met, pursuant to call, at 2:07 p.m. in Room
2360, Rayburn House Office Building, Hon. Donald Manzullo
presiding.
Chairman Manzullo. Today's hearing is about small
businesses that are suffering and officials of the
administration in Washington, DC, whose method of helping many
small businesses has caused untold confusion and suffering. The
Small Business Administration operates a disaster loan program
to assist businesses that have been victimized by the terrorist
attacks.
One of these programs, the economic injury disaster loan
program, was expanded to allow relief outside areas immediately
surrounding New York and the Washington, DC metropolitan areas.
However, even after repeated attempts by elected officials in
Congress, including myself, the SBA has refused to discuss any
changes or allow any input from Congress. Thus, many businesses
are unable to take advantage of the financial assistance
because of arbitrary size classifications used by the Small
Business Administration in the operation of the disaster loan
program.
We will hear today from the officials and affected small
business owners. The president declared New York City and
Northern Virginia disaster areas on September 11th and the 12th
of 2001. On September 13th, the SBA declared the availability
of disaster assistance to small businesses located in New York
City. A similar declaration was made by the SBA for Northern
Virginia on September 24th. We applaud the SBA for moving
quickly on the president's request.
During the month of September, Congress appropriated a
supplemental $20 billion to provide assistance, of which some
has been going to small businesses. In addition, members of the
Senate and House introduced a number of bills designed to
assist small businesses recover from these attacks.
The first effort at helping small businesses beyond those
located in the disaster area came with the expanded economic
injury disaster loan [EIDL] program. As chairman of the Small
Business Committee, I talked with the chief of staff of the SBA
on several occasions in September and October about changing
the size standards. I was aware of the problem that many small
businesses would not be able to meet the existing standards.
The chief of staff repeatedly told me that he was waiting on
``OMB to move.'' When I learned of the actual change in the
EIDL program and its omission of size standard changes, I got
into a very heated discussion with the SBA chief of staff,
stating that the SBA would be misleading small businesses
because the size standards had not been addressed.
I asked the chief of staff for a one-day delay in issuing
the regulations so that Congress could have input, and he
refused. After repeated questioning by me, he said that he was
the one who had written the new regulation and was responsible
for its content, notwithstanding his protestations that to me
that it was OMB that was writing the regulations.
I also asked Administrator Barreto for Congress to be able
to provide input into the interim emergency regulations. All I
asked for was just one day, one day, for Congress to have input
in these regulations. Despite my warning to him that the new
regulations would give false hope to many small businesses, one
of whom is testifying today.
Mr. Barreto signed off on those regulations on October 16,
2001. I got a notice that there was going to be a press release
issued with the new regulations. His office called and sent a
press release. The press release was misleading because it gave
false hope to many businesses. Six days later, the expanded
EIDL program was published in the Federal Register.
Members of my staff met with SBA staff prior to October
16th to discuss new interim regulations; however, my staff was
repeatedly told that this was an administrative matter, and
they were not prepared to discuss this with Congress because
they had to submit the issue to OMB. It was apparent that the
SBA was not and still is not interested in Congress' input into
size standards.
As a member of Congress, I was aware of the size standard
problem while the SBA was making up the emergency regulations,
and each step of the way SBA has refused any input by Congress.
Thus, SBA has to bear the responsibility for many disappointed
businesses, included the ones seated at the table with
Administrators Barreto and Dr. Graham.
The expanded program did not help alleviate the problems
many small businesses were facing. Business owners that were
enticed into applying and publicizing the disaster loan
program, like Mr. Klassovity, were then denied loans because
they did not meet the ``arbitrary'' size standards used by the
SBA.
I have heard from enough members of Congress about
businesses that were turned down many times on the phone, never
even got an application, because of the arbitrary size
classification. For example, one of Mr. Ferguson's
constituents, Liberty Helicopter, was denied a loan because
they were classified as air tour operator. If they had 51
percent of their revenue from air charter service, they would
have met the size standard for air charter service of 1,500
employees and would have been eligible for a loan. Similarly, a
McDonald's franchisee with three units in the New York City
area, including one that is a block from Ground Zero, was
deemed not small by the SBA. I challenge anyone to demonstrate
to me that a three-unit franchisee is dominant in the
restaurant business.
Then I called for a hearing on December 6 because it was
apparent there was a serious flaw with the SBA EIDL programs
and size standards. As a follow-up to that hearing, I met with
the associate administrator for disaster assistance, Herb
Mitchell, and SBA staff on December 11, 2001. At that meeting,
Herb Mitchell, who has done a fantastic job in using what
resources were available to help small businesses, agreed with
us that the size standards could be changed administratively.
That meeting prompted another meeting the next day with Barry
Pineles, our staff attorney who specializes in administrative
law, and staff from the SBA. SBA staff agreed to change the
size standards because of the problem. Committee staff then
regularly contacted the SBA about the progress but were
continually told that the regulations are being worked on and
are at the highest priority.
Finally, after five weeks, the regulations were sent from
the SBA to the Office of Information and Regulatory Affairs
[OIRA] for review on January 18, 2002. The SBA has never fully
explained why this regulation took five weeks from point of
inception to submission to OIRA while the regulation expanding
the EIDL program took the same amount of time to get published
in the Federal Register. The SBA, hopefully, will have their
opportunity to explain the delay.
On January 23, 2002, I called Administrator Graham and
explained the importance of this regulation and the need for
expedition in review and approval. That has been over a month
now. Three weeks after receiving the regulation, OIRA returned
the regulation to the SBA. OIRA's primary conclusion was that
the regulation would not serve the interests of small
businesses. Now, why an administrative agency knows what serves
the interests of small business as opposed to the Small
Business Committee and small businessmen is beyond the pale of
comprehension. Administrator Graham will have the opportunity
to explain to the small businesses sitting at this table how
the proposed regulation does not serve small businesses.
After three months of trying to resolve the issue and six
months after the terrorist attacks, I was appalled by OIRA's
response that the changes would not help small businesses.
Since that time, all we have heard, after Committee staff
initiated contact, was that discussions were ongoing in trying
to resolve the issue. Well, the relevant parties are here
today. You can carry on the necessary discussions. If
necessary, I hope you brought your sleeping bags and your tooth
brushes because the two of you are not leaving this room until
this issue is determined. If it is not determined today, I will
issue a subpoena and bring you back next week, and you will
stay in this room until it is completed.
I would like to add that the Committee rules require
testimony be submitted 48 hours prior to the hearing. A small
business owner like Mr. Klassovity can meet that deadline, but
neither Administrator Barreto nor Administrator Graham were
able to meet that deadline. The people in charge of the
regulations cannot follow the simple rules themselves. Their
testimony was delivered to the Committee at eleven-thirty this
morning. It appears that this deadline is emblematic of
indifference shown to this Committee.
I have got the testimony here of Tom Sullivan, who is the
new Chief Counsel of Advocacy at the U.S. Small Business
Administration, a great choice. Do you know what his complaint
is? Red tape and bureaucracies not moving and hurting small
businesses. Well, the red tape now and the organization for
hurting small businesses is the Small Business Administration.
Today is the day of accountability.
Mr. Sweeney is going to be joining us here shortly. He is a
member of the Appropriations Committee. He has a distinct
interest in the budget of the SBA in making sure money is not
used to pay bureaucrats who fiddle in Washington while small
businesses are hurt across the nation.
I now recognize the ranking member, the gentlelady from New
York, Ms. Velazquez, for her opening statement. After that, as
soon as Mr. Sweeney comes, we will recognize him.
[Chairman Manzullo's statement may be found in appendix.]
Ms. Velazquez. Thank you, Mr. Chairman. I guess that today
we have an exchange of roles here. I will be the nice lady
today, not the nice guy. Mr. Chairman, I guess that we will
stay here, as you said. I wish you were willing to stay here
two weeks ago for two hours to discuss the administration
budget, the SBA budget, but we were not able to do so.
In the aftermath of September 11th, small businesses across
the country have borne a heavy burden in responding to this
national tragedy and working to rebuild their community. In
Chinatown, which is in my district on the lower East Side in
Manhattan, commerce dropped by as much as 80 percent for some
businesses. Businesses across New York could not help but feel
effects like that, when 100,000 jobs and 20 percent of
Manhattan's office space evaporated in two instants.
Thousands of businesses have sought disaster recovery
assistance from SBA. Unfortunately, we know that many of these
companies have been turned away because they are, according to
current SBA size standards, too big. We do not know how many
small businesses never bothered because they thought they were
too big, but the number could be considerable.
How the SBA determines what business is small and not small
is a critical distinction. It often means the difference
between survival and collapse is divided by a very thin line.
The current size standards are like a lottery, picking winners
and losers based on often arbitrary distinctions which we must
now change. We have known for a long time that SBA size
standards need to be updated. September 11th has only forced
this issue. This unprecedented event has flooded the disaster
loan program with applicants seeking recovery aid.
In December, we included in the Defense Department
appropriations bill a provision asking SBA to update its size
standards. SBA did so, but the Office of Management and Budget
refused to accept those changes. While OMB obstinately ignores
our wishes, countless businesses are suffering without
assistance or remain caught in an arbitrary bureaucracy.
OMB has complained that adjusting new size standards would
be burdensome and complex. It is difficult, they say, to
determine what is small and what is not small. Well, this
administration had no difficulty determining what constituted
an airline or an insurance company to qualify for disaster
assistance after September 11th. They made that decision in a
matter of weeks. We have known for years that our size
standards need to be revised, and we have given OMB at least
the past two months to come up with a plan.
We need to adjust the size standards to make more small
businesses like those in New York City eligible for recovery
aid. It follows the good choice made by Administrator Barreto
to open up the economic injury disaster loan program to any
small business affected by September 11th while expanding these
services to nonprofits and financial institutions. Whether we
adjust the standards for inflation or region or to respond to a
disaster like September 11, the goal is the same. The disaster
loans are designed to help small businesses survive and rebuild
after a calamity.
By sweeping aside the various existing size standards, this
proposal would go further to accomplishing the core mission of
the SBA: aiding and assisting small businesses. It goes without
saying that what constitutes a small restaurant in midtown
Manhattan is not the same thing for a small restaurant in
Wyoming. But right now they are treated as if they were the
same thing. As a result, one may benefit from disaster
assistance while the other does not. That needs to change.
Working together with OMB, I am confident we can change those
arbitrary distinctions that keep more small businesses from
receiving needed disaster recovery assistance. Thank you very
much, Mr. Chairman.
Chairman Manzullo. Okay. The first witness will be
Administrator Barreto. We look forward to your testimony. The
complete statements of all of the witnesses will be a part of
the record.
STATEMENT OF HECTOR V. BARRETO, ADMINISTRATOR, SMALL BUSINESS
ADMINISTRATION
Mr. Barreto. Thank you very much. Mr. Chairman, Ranking
Member Velazquez, and members of the Committee, thank you for
inviting me here today to discuss the size standard policy of
the U.S. Small Business Administration and the procedures the
SBA uses to establish those standards.
The statutory mandate set forth in Section 3(a) of the
Small Business Act guides the SBA's policy. The SBA has used
this basic statutory guidance with great success for nearly 50
years. The SBA size classifications currently encompass over 98
percent of all businesses in the UnitedStates. Size standards
have always played an integral role in the agency's services and
programs. The SBA understands that its determinations affect the
operations of programs in every agency of the federal government, from
procurement and financial assistance programs to regulatory regimes and
enforcement matters. These determinations, in turn, have a significant
impact on the life of a small business. The events of September 11th
have raised their importance even greater still.
It is in this spirit that the administration, our
legislative partners, the agency and OMB, took the following
actions to assist small businesses. We expanded EIDL
nationally, effective October 22, 2001. We increased the
monetary size standards to reflect inflation by 15.8 percent,
effective as of January 23, 2002. We allocated through February
25th $306 million to New York and Virginia and retroactively
applied inflation-based size standards. We allocated $217
million nationally. We extended the EIDL recovery application
deadline to April 22, 2002. And finally, we expanded disaster
recovery through the business loan program, effective January
31, 2002.
The SBA continues to work to assist small businesses
injured by the September 11th disaster. Like you, Mr. Chairman,
the SBA wants to make sure that it is assisting those small
businesses that are on the bubble with respect to size
standards but still possess the attributes of a small business.
We also want to review industry standards that may be out of
date or too narrowly defined to accurately reflect the small
business market. In fact, Mr. Chairman, you asked the SBA to
look at the travel agency industry, and we have. The SBA is in
the process of completing its internal legal review of the
regulation to address the size standard in this industry.
Chairman Manzullo. I would like to interrupt at this point.
When will that be ready?
Mr. Barreto. It is imminent.
Chairman Manzullo. When will it be ready? I want an answer.
Mr. Barreto. I do not know when it will be ready.
Chairman Manzullo. Mr. Barreto.
Mr. Barreto. Yes, sir.
Chairman Manzullo. Mr. Barreto, I want a date when that
will be submitted, then I want a date when OIRA is going to act
on it; otherwise, you are going to be back here again.
Mr. Barreto. I have just been instructed that it will be
ready by the end of next week.
Chairman Manzullo. What date is that? The end of next week,
March 8th? Would you send a letter to that effect? Have it
signed by the administrator. Go ahead, please.
Mr. Barreto. Thank you. The SBA is in the process of
completing its internal legal review of the regulation to
address the size standard in this industry. We hope to send the
regulation to OMB shortly for its review.
Chairman Manzullo. That will be sent on the same date also?
Could I interrupt you, please? Dr. Graham, how long will OIRA
act on that?
Mr. Graham. If you give me a phone call, Mr. Chairman, like
you did on the last one, it will be as quickly as the last
time.
Chairman Manzullo. That is not sufficient. That is not
sufficient. I want a date when you are going to act on it.
Mr. Graham. I would say we will do our best within two
weeks, sir.
Chairman Manzullo. Two weeks from when you get it? What
date is that? Two weeks from the 8th, the 22nd, would you send
a letter that will be ready by then, signed by you, faxed to
our office?
Mr. Graham. Yes, sir.
Chairman Manzullo. Thank you. Please continue.
Mr. Barreto. Serving small business is the agency's
mission. Therefore, during this process of reviewing size
standards, the SBA has taken care to assist small business
while ensuring that neither the expansion of the size
regulation nor the method of expansion renders the size
standards themselves meaningless. The loss of a meaningful size
standard would be a detriment to all small businesses.
In order to avoid such a problem historically, the SBA has
reviewed and imposed size standards on an industry-by-industry
basis. The SBA size standards vary by industry and can be based
either on revenue or the number of employees. Under EIDL, a
business must be small relative to the size standard
established for its primary industry. Common size standards
include $6 million for service and retail trade firms, $12
million for special trade contractors, $28.5 million for
general and heavy construction contractors, 100 employees for
wholesale trade firms, and 500 employees for manufacturers.
Furthermore, different size standards exist for certain
industries within more general industry categories. Varying
size standards are designed to reflect differing
characteristics of small business within different industries.
The SBA recognizes that some of its industry size standards
may not capture all businesses that possess small business
characteristics. In order to address this concern, the SBA
considered an expedited review of a large number of industries
but realized that the need to prepare and adopt revised size
standards quickly made this course of action impractical.
The SBA also sought to establish a single, employee-based,
size standard for applicants applying for EIDL assistance in
the aftermath of September 11th. The SBA chose this standard
for several reasons. First, firms with 500 employees or less
account for half of all of the economic activity. Additionally,
500 employees is the size standard the SBA already uses for
most manufacturing industries, and many research studies on
small businesses also use 500 employees as a general definition
of small business. Finally, the alternative net worth and net
income size standards used for the SBA's Small Business
Investment Company and the Certified Development Company
programs can include firms up to 500 employees.
OMB promptly reviewed the proposed uniform EIDL size
standard and indicated that it had several concerns with the
single-size-standard approach. Dr. John Graham, the
administrator of OMB's Office of Information and Regulatory
Affairs, will discuss these concerns in more detail with the
Committee. The SBA greatly appreciates Dr. Graham's and OMB's
cooperation in considering alternatives to the 500-employee
size standard and will continue to work them to find an
approach that will ensure that small businesses harmed by the
events of September 11th have access to SBA's programs. Thank
you very much.
[Mr. Barreto's statement may be found in appendix.]
Chairman Manzullo. Thank you. Dr. Graham.
STATEMENT OF JOHN D. GRAHAM
Mr. Graham. Thank you, Mr. Chairman, and members of the
Committee. I am pleased to have the opportunity to explain
OMB's position on the role of business size definitions in
defining the scope of SBA programs.
Under Executive Order 12866, OMB reviews all significant
regulatory actions to ensure consistency with the principle of
good regulatory analysis and policy. There are ultimately three
possible outcomes of OMB review: clearance of the rule,
withdrawal by the agency, or return by OMB for further
consideration.
When a rule is returned to the agency, it is the practice
of this administration to prepare a formal return letter that
is made available to the public as well as to the agency. Since
I was confirmed by the Senate in July of last year, I have
signed 17 return letters about various draft regulations. In
most cases the reason for the return was an inadequate
regulatory analysis to support the proposal. In five of those
cases to date, the agency ultimately improved the regulatory
analysis and the package, resubmitted it to OMB, and it was
cleared for publication in the Federal Register.
Moving to the specific issue at hand, OMB is acutely aware
of the devastating impact that the events of September 11th
have had on the business community, including large, medium-
sized, and small businesses. We support the special commitment
that Congress has made to assist small businesses through the
EIDL program. Since September 11th, we have worked with SBA to,
one, extend the coverage of this program to small businesses
outside of the immediately affected geographical areas, and,
two, we have accelerated a long overdue modernization of the
SBA definition of small business that accounts for inflation
since 1994. These expansions have resulted in $209 million in
obligation for the EIDL program. We are also open to
considering additional ways that SBA could cushion the economic
impacts of September 11th and protect the viability of small
businesses.
We returned to SBA for reconsideration a recent proposal to
expand the definition of a small business under the EIDL
program to any firm with less than 500 employees or less than
the industry-specific standard.
Our central concern is that SBA has proposed, in the
context of this draft rule, a rather fundamental shift in the
definition of a small business, a shift whose implications were
not adequately explored in the package that was sent to us.
Obviously, OMB is concerned that a change in the size standards
made for this program could readily be argued as a precedent
for changing the size definitions governing other SBA subsidy
programs.
If the change to the 500-employee standard were made across
SBA's programs, the consequences could be quite controversial.
For example, for any fixed amount of SBA funding, the proposed
change would cause a shift in the mix of support from the
manufacturing sector to the nonmanufacturing sector, where many
more service-oriented firms would be considered small. It does
not seem plausible to suggest that service-oriented firms with
several hundred employees are small in the sense that Congress
and SBA have previously intended in the context of SBA's
assistance programs.
Chairman Manzullo. Can I interrupt you at that point?
Mr. Graham. Yes, sir.
Chairman Manzullo. How would you make that statement when
Congress was never asked for any input? You have absolutely no
basis on which to make that statement.
Mr. Graham. Yes. I was referring to the historical
decision-making of both Congress and the SBA.
Chairman Manzullo. Well, there is no historical decision-
making because decisions are not made; arbitrary things are
made. Did you ever contact the travel industry?
Mr. Graham. No, sir.
Chairman Manzullo. Did you ever contact any industries?
Mr. Graham. No, sir.
Chairman Manzullo. Please proceed.
Mr. Graham. Speaking for manufacturing firms, On the other
hand, the 100-employee definition, is specifically in there
because of the nature of that specific type of industry.
In short, OMB is not convinced that the principle that
underlies the new size definitions, taking a manufacturing
definition and applying it to all other sectors of the economy,
we are not convinced that that represents sound economic
policy.
Although OMB has returned SBA's particular proposal for
reconsideration, we remain open to alternative proposals from
SBA that can address the financially ruinous impacts of the
events of September 11th. We have encouraged SBA to formulate
proposals that maintain the current industry-specific
approaches to defining small businesses.
Chairman Manzullo, you called me about a month ago, you
mentioned, and you requested an expedited review of this
matter. That phone call was my first awareness of the issue
that this hearing is about. I did, in fact, respond quite
promptly to your phone call, and we have, in fact, provided the
OMB response to SBA. Thank you very much for the opportunity to
be here today.
[Mr. Graham's statement may be found in appendix.]
Chairman Manzullo. Thank you, Dr. Graham. Congressman John
Sweeney is going to be here both as an ex-officio member of the
Committee, and, Mr. Sweeney, I am going to give you the
opportunity to make a statement and then also to introduce your
constituent.
Mr. Sweeney. Thank you, Mr. Chairman, and I want to thank
you and Ranking Member Velazquez and members of the Committee
for welcoming me back home to this Committee that I miss
greatly.
Chairman Manzullo. You are on appropriations now.
Mr. Sweeney. Regrettably, I have two Appropriation
Subcommittee hearings going on concurrently, so I will not be
able to stay, but it is always good to be back at this
Committee because I know and respect and really appreciate the
good work you do. So let me begin by applauding your efforts on
behalf of small businesses and the commitment to small business
and, in particular, especially I want to commend your holding
this hearing on the hardships that have been incurred as a
result of the events of September 11th.
I, a member of the New York delegation, have been very
active with the ranking member and other members of the
delegation at trying to clarify and get the word out, the
message out, and ensure that the appropriate federal responses
were in place to all of those who have been affected. In fact,
my office has been addressing this critical issue for months to
no avail.
Here testifying before the Committee today is a constituent
of mine, Mr. Rod Klassovity, CEO and part owner of the Albany
Travel Unlimited, Incorporated. Mr. Klassovity and his
commercial financing consultant, Nathan Schecter, after
repeatedly being encouraged by local SBA offices to apply for a
disaster assistance loan, were ultimately rejected due to a
size-standard issue. Regrettably, even after the president
signed into law H.R. 3338 with an amendment enhancing the
disaster assistance loan program, Mr. Klassovity and Mr.
Schecter are still without a loan and are now faced with the
possibility of even further staff reductions. I will let Mr.
Klassovity tell you his story and tell you of the plight.
But the SBA continues to stymie the very same small
business owners it was established to help, it seems to this
member. This issue must be rectified immediately. I want to
thank Mr. Klassovity and his commercial financing consultant
for traveling to Washington. I will tell you that there was
some apprehension on their parts in participating in this
testimony, so I recognize the courage that you bring to the
table. His testimony, I think, will shed light on an issue that
is crucial to so many small businesses suffering throughout the
affected areas, and it is my hope that this hearing will begin
to rectify the problem.
And I will say, Mr. Chairman, that as a member of the
Appropriations Committee and to our colleagues from the Small
Business Administration, I am going to be watching. I am
interested in the results of the testimonies here and the
impact on the SBA and its adjustments to that as decisions are
made over in that austere Committee on what direction and what
priorities we are going to establish here in Congress.
So with that, I would like to introduce Rod Klassovity.
[Mr. Sweeney's statement may be found in appendix.]
STATEMENT OF RODNEY R. KLASSOVITY
Mr. Klassovity. Thank you. Chairman Manzullo, Ranking
Member Velazquez, members of the Committee, thank you for
inviting me to appear before you to describe the hardships that
we have incurred as a result of the events of September 11th
and the indifference in and mishandling of our disaster loan
application by the SBA and subsequently by OMB.
Before I get into the subject matter, I would like to thank
Congressman John Sweeney and his staff, Congressman Michael
McNulty and his staff, as well as Chairman Manzullo and the
Small Business Committee staff for their responsiveness in
hearing our calls for help. With their help and the help of you
as Committee members, hopefully we can together overcome the
bureaucratic road block that has denied us much needed disaster
relief.
I am the CEO and 50 percent owner of Albany Travel
Unlimited. We are a privately owned travel agency located in
Clifton Park, New York, right outside of Albany. We were
founded in 1955 and have grown prudently over the years. Prior
to September 11th, we had average annual commission revenue of
approximately $2.5 million and employed 50 people, with a
payroll averaging $1.3 million a year. Our business composition
is 70 percent corporate business and 30 percent leisure
vacation business. We book, among other notable accounts, the
travel for 125 agencies of the State of New York. The majority
of our business is in the affected north-south New York-Boston-
Washington, D.C. corridor.
As a direct result of September 11th, my business and the
livelihood of 50 families changed dramatically. In the 21 weeks
from September 11th through the end of January 2002, we have
lost $340,000 in revenue. As a result, and over the holiday
season, no less, I had to lay off 10 people, or 20 percent of
my staff, representing $123,400 in annual wages. Also over the
holidays, my remaining employees, including myself and my
partner, endured 14 weeks of partial pay, resulting in $51,400
in lost wages. Additionally, whereas I used to employ 50
people, of whom 39 were full time and 11 part time, I now only
employ 40 people: 30 full timers and 10 part timers.
I could have, and probably should have, cut more staff;
however, I have tried to do the patriotic thing by sustaining
my employees and their families during these difficult times.
Also, in a service business like mine, my skilled employees are
key to our continued viability. However, with travel still down
23 percent over comparable period last year, revenue continues
to be depressed, and our losses continue to mount. With my
personal and business resources depleted, I am now faced with
the real prospect of further job cuts.
None of this would have happened if the SBA had honored
their word to provide timely disaster relief. In fact, the
irony is that, after we contacted the SBA in October 2001 to
inquire about possible disaster relief and whether, as a travel
agency with annual commission revenue exceeding the $1 million
size standard, we even qualified. The SBA not only encouraged
us to apply but asked us to participate in a press conference
announcing the expansion of the economic disaster loan program.
We were hesitant to publicize our need because we did not
want to scare our employees orcustomers; however, we agreed to
assist the SBA in publicizing the program so as to help the SBA and
other hurt businesses. To date, 170 days since September 11th and 130
days since the SBA publicized our application, the SBA and OMB still
have not provided us with disaster assistance.
In my written testimony on pages two and three I have a
chronology of events, and I just want to go over some of the
highlights. On October 16, 2001, my commercial financing
consultant, Nathan Schecter, called the SBA office in Albany to
inquire about available disaster relief. Nathan was advised
that the economic injury disaster relief loan program had just
been expanded to include Upstate New York.
Familiar with SBA financing, Nathan explicitly asked if, in
general, size standards applied to disaster loans and if, in
particular, our three-year average of $2.5 million in revenue,
which exceeds the artificially low $1 million size standards
for travel agents, would pose a problem. The Small Business
Administration representative called back, stating that size
standards did not apply and that the Zone 1 disaster office in
Niagara Falls told him to send in the application. The very
next day, my partner and I, still uneasy about the size-
standard issue, called the Niagara Falls disaster office and
were told ``this program is designed for you; send it in.'' On
October 19th, we participated in the SBA's press release
regarding expansion of disaster loan program and our
application. The attached article appears in my testimony.
Approximately two weeks later, on December 3, 2001, Niagara
Falls called to inform me that my application had been turned
down because my firm exceeded the size standard. The next day,
Nathan Schecter, my financial consultant, called Niagara Falls
and was told but for the size standard, my firm would qualify
for the requested loan. He was also told that 45 percent of
disaster loans, or over 400 applications, having declined due
to size standards. And then on that day we contacted
Congressman Sweeney's office and asked for his help.
We were encouraged with Congressman Manzullo's amendment,
H.R. 3338, and at that point we thought we were going to be
recognized, but to this date that has not happened, and, of
course, here I am testifying before you.
I would like to say a couple of things about the size
standard. Per the SBA's size-standard table, there are 1,152
size standards. Of the 1,152 size standards, 602 are employee
based. Those employee-based size standards have a range of 100
to 1,500 employees, with an average of 561 employees and a
median of 500 employees. By comparison, I now employ only 40
people, which is less than one-tenth of the overall employee-
based size standard.
Of the 1,152 size standards, 538 are revenue based. Those
revenue-based standards have a range of $750,000 to
$29,000,000, with an average of $8,100,000 and a median of
$6,000,000. Within these revenue-based size standards no retail
or service category has a lower size standard than travel
agencies. In fact, there are only 46 categories with lower size
standards, and those are all agricultural. My current three-
year average revenue is $2.4 million, and I currently employ 40
people. By any measure, I am a small business.
Within the travel industry, 70 to 75 percent of travel and
lodging is booked by travel agencies. The travel and lodging
providers operate the physical assets, and travel agencies book
the sales. However, inexplicably, within the travel industry,
travel agents who book the sales for the travel and lodging
providers, have the lowest revenue-based standard. Beyond the
obvious air, rail, and cruise providers, other examples I have
inserted into my written testimony to show you some of the
other business types in our business that have a $6 million
size standard. Tour operators, hotels, motels, bed and
breakfast, all other travel arrangement and reservation
services, of course, which is a function we provide--all our $6
million. Travel agents are $1 million.
What is the rationale behind having a lower standard for
those that book the sales, that is, travel agents, than those
for whom the sales are booked, that is, the travel and lodging
providers? The 11-county Capital District where we live and
work, consisting primarily of the Albany-Schenectady-Troy area,
contains 1.1 million people. We are a second-tier market served
by one airport. In our market my firm books 26 percent of
travel and employs 24 percent of the total travel distribution
employment base. We handle travel for 125 agencies of the State
of New York and many of the area's other large employers. And
as you know, the State of New York has instituted an austerity
budget.
If we are left to wither on the vine and possibly even go
out of business, no other firm in our market possesses the
physical or financial resources to fill the sales or employment
void that we would leave. The result would be travel disruption
and increased unemployment in our already affected marketplace.
Travel has not returned to pre-9/11 levels. At the current
trend, and assuming no further terrorist attacks or negative
publicity, travel probably will not return to normal levels
until at least third-quarter 2002 and more likely not until
2003. Therefore, we anticipate total revenue losses at our
company of $600,000. Our request for a $600,000 economic injury
disaster loan was right on target.
We now need your help. Please use your influence to get the
SBA to raise the size standards for travel agencies to at least
$2.5 million, or in the alternate, grant us immediate special
dispensation so that we can get our much needed loan and retain
our employees. Please understand, I am not asking for a grant
like the airlines received. I am asking for a loan, which,
adding insult to injury, I will have to pay back with interest.
When those three planes hit on September 11th, I lost $600,000
that I will never recapture. I am not asking for a handout; I
am only asking for equitable treatment and a little assistance.
In the end it is me that will be borrowing so that I can
continue to make my $25,000-a-week payroll, and it will be me
that has to repay the loan. Please help me stay in business and
to weather the storm. Thank you for your time and assistance.
[Mr. Klassovity's statement may be found in appendix.]
Chairman Manzullo. Thank you. We are going to take a recess
to go and vote, and then we will be back, hopefully within 15
minutes, and resume the testimony.
[Whereupon, at 2:47 p.m., a brief recess was taken.]
Chairman Manzullo. I am going to call the Committee to
order. We have got about another 15 minutes before we have a
motion to recommit and some other votes that will take about a
half an hour total, so we will have the testimony of our next
witness, Jacquelyn Alton, who is with the American Society of
Travel Agents. I look forward to your testimony. If you could
pull the mike closer to you. Thank you.
STATEMENT OF JACQUELYN ALTON
Ms. Alton. Mr. Chairman, Ranking Member Velazquez, and
members of the Committee, my name is Jackie Alton. I am owner
of CWT/Alameda Travel in Houston, Texas. I thank you for this
opportunity to speak to you today regarding the Small Business
Administration's size standard, especially as it pertains to
the travel agency industry. As a member of the American Society
of Travel Agents, the InterAmerican Travel Agents Society, and
the Society of Government Travel Professionals, I am honored to
present this joint statement on their behalf.
ASTA, established in 1931, is the world's largest and most
influential travel trade association, with over 26,000 members
in more than 170 countries. ITAS, established in 1953, is the
largest and oldest association of African-American owned and
operated travel agencies in the world. SGTP is the national,
nonprofit education forum for all components of the $20 billion
government travel market.
Mr. Chairman, I also have a letter from ATI Travel of
Kirkland, Washington, that I would like to have entered in
today's----
Chairman Manzullo. That will be made part of the record
without objection.
Ms. Alton. Okay. And furthermore, this agency was also
denied the loan.
The travel agency community is very grateful to you, Mr.
Chairman, and this Committee for the time and effort spent to
assist small businesses in dealing with the aftermath of
September 11th. Mr. Chairman, we deeply appreciate you having
keynoted SGTP's travel management conference earlier this
month. We also applaud the Small Business Administration for
opening nationwide the SBA economic injury disaster loan
program that has helped many small businesses with much needed
financial assistance. Although there are some positive signs of
improvement in the travel and tourism industry, much will
depend on the U.S. economy and consumer confidence to travel in
the months ahead.
During the heart-breaking days immediately following the
September 11th attack, America's travel agencies were there for
their clients, and they were there for others as well. Across
the country, travel agents were in their offices trying to help
the many thousands of people stranded by the nationwide airport
closure. Many of them provided free assistance to people who
had bought their tickets on the Internet and had no one else to
go to for help. The travel agents performed these services
because they were the only people who could. At the same time,
they watched their businesses collapse. Many agencies reported
gross earnings for the week including September 11th of less
than $50.
It is a fact that in this unprecedented situation there was
no substitute for travel agents for tens of thousands of people
who needed help. Travel agents served as the only one-stop,
neutral source of comprehensive information and counseling
about an incredibly complex, constantly changing array of fares
and services that confront the general public.
Ninety-five percent of all travel industry firms are small
businesses that are local and family owned. Eighty-five percent
of travel agency jobs are held by women, many of whom are flex-
time mothers and single. The vast majority of travel agencies
are independently owned. Seventy percent of owners and managers
are women.
Long before the events of September 11th----
Chairman Manzullo. Jacquelyn, excuse me. Could you go down
to the issue of size standards?
Ms. Alton. Yes.
Chairman Manzullo. Thank you.
Ms. Alton. The current SBA size standard for travel
agencies was established in 1995 at $1 million, as measured by
agency income. ASTA, ITAS, and SGTP support increasing the SBA
travel agency size standard from $1 million to $3 million of
income. Increasing the size standard will restore the
competitive viability of locally owned, family businesses. It
will also make future SBA loan programs available to additional
agencies that are now considered too big to qualify under the
current size standards.
We respectfully request congressional support of the SBA
initiative. By increasing the size standard, more agencies
currently considered too large will be eligible for small
business government contracts and set-asides as well.
Transaction-based contracting has established itselfas the
basic practice of corporate America, including federal government
programs. Current government regulations, contractor procedures,
including an emphasis on past performance, and the cutting-edge way
corporate America now does business with technology resources is taking
away from the smaller travel agency the opportunities to compete
successfully in an open marketplace unless we are able to grow.
A few firms dominate the air travel generated by travel
agencies that are business-travel oriented. Sixty-nine percent
of total air travel comes from just six agency organizations.
Ninety-eight percent comes from the top 62 agencies, according
to the current Business Travel News. Increasing the size
standard to $3 million of income still keeps competition with a
market area among locally owned, family businesses.
Some specialists in the small travel agency bidding process
have observed that levels of competition among travel agencies
have dropped dramatically. One federal agency that attracted 51
responses to RFPs received only five responses the next bidding
cycle. Currently, of $9 billion of official government travel,
about 50 agencies nationally hold GSA contract task orders, and
about 30 travel agencies service the DoD, some of them
servicing GSA as well. Government set-asides attract fewer
respondents at the current $1 million level. Increasing the
size standard to $3 million would produce more interest,
provide an incentive for incumbents to rebid on their accounts,
and yield better value for the U.S. Government and its
taxpayers.
Thank you, Mr. Chairman, for the opportunity to present
ASTA, ITAS, and SGTP views. I would be delighted to answer
Committee questions.
[Ms. Alton's statement may be found in appendix.]
Chairman Manzullo. Thank you very much. There evidently is
a problem with travel agencies grossing over a million dollars,
and I would like to know, either from Dr. Graham or Mr.
Barreto, what the problem is with travel agencies and why there
is a reluctance to increase. My understanding is that the 15
percent increase did not even apply to travel agencies.
Mr. Barreto. I think there is a number of factors that goes
into developing size standards, but obviously that is one of
the things that we are looking into in this proposed rule that
we are sending up to OMB. We think that there is some room to
expand that, and that will be reflected in the rule that OMB
receives from us.
Chairman Manzullo. Is there a dollar amount that you are
going to put in there for travel agencies?
Mr. Barreto. I do not have a dollar amount in front of me
right now, but we think it is going to be a significant----
Chairman Manzullo. Does anybody here with you know what the
dollar amount is going to be? You have got a staff here.
Mr. Barreto. I do not think that we have that information
with us. That will be reflected in the information----
Chairman Manzullo. Who has the information?
Mr. Barreto. I believe that the folks, our, is working at
the SBA----
Chairman Manzullo. Who is in charge of the team?
Mr. Barreto. Well, there is a number of individuals in
charge of the size standards and others that are communicating
with our executive team.
Chairman Manzullo. Has anybody ever contacted the travel
agency for input on this?
Mr. Barreto. Absolutely. One of the things----
Chairman Manzullo. Have you been contacted by the SBA for
input on size standards?
Ms. Alton. We requested and had a meeting with the SBA.
Chairman Manzullo. Do you want to use the mike? When was
that?
Ms. Alton. July of 2001.
Chairman Manzullo. And you had the meeting then?
Ms. Alton. Yes, we did.
Chairman Manzullo. July of 2001?
Ms. Alton. Yes.
Chairman Manzullo. Mr. Barreto.
Mr. Barreto. I think that there has been a host of contacts
that have been made. We have received some feedback from the
government travel agents group. We have also received some
feedback from some of the smaller travel agencies. We have
requests in right now from some of the larger operators as
well, so we are taking all of that feedback into consideration.
Chairman Manzullo. She gave you that in July. This is now
almost March. This is almost nine months later.
Mr. Barreto. I think this has been an ongoing dialogue that
we have had, but obviously in the last couple of months there
has been a tremendous amount of activity. I have no less than
15 contacts and 15 actions that have taken place since December
11th.
Chairman Manzullo. Mr. Barreto, are you aware of the fact
that lawyers that have $5 million in gross revenue and CPAs
that have $6 million in gross revenues could always get
disaster loans? Are you aware of that?
Mr. Barreto. I am aware that one size does not fit all.
Chairman Manzullo. You did not answer my question.
Mr. Barreto. We have, as has been mentioned before, many,
many size classifications, depending on the industry.
Chairman Manzullo. Mr. Barreto, you are aware that lawyers
can gross up to $5 million gross revenue and CPAs up to $6
million.
Mr. Barreto. I am aware of that.
Chairman Manzullo. Are you aware of that also, Dr. Graham?
Mr. Graham. No. I was not aware of that.
Chairman Manzullo. The SBA would give you that information.
If you had been aware of that, Dr. Graham, would you have
considered increasing the travel industry standard?
Mr. Graham. We at OMB have never had a proposal from SBA--
--
Chairman Manzullo. That is correct.
Mr. Graham [continuing]. On the travel. I did want to make
a comment, if I could----
Chairman Manzullo. Of course.
Mr. Graham [continuing]. To our two witnesses from the
private sector who are here today. I listened carefully to both
of their testimonies, and I actually think that they do
present, I think, a reasonably strong case for consideration of
the specific rationale for the current size standard in the
travel agent industry and whether it should be changed. I just
want them to know that we at OMB are listening to those
concerns. This is the first time I have heard it in the kind of
vivid way that we are hearing it today, and I want you to know
that we will take it seriously.
Chairman Manzullo. This is what is wrong with the entire
process because, Mr. Barreto, you will not even take my input.
Mr. Barreto. I am happy to take your input at any time,
Chairman.
Chairman Manzullo. You are not. I am sorry. I got into a
big fight with your chief of staff. I knew this was going to
happen, and I begged him for one day's notice, one day
opportunity, for the chairman of the Small Business Committee
to review the size standards. Do you know what he said? OMB is
in a hurry on this. And then you called, and I asked you for a
day, and you said, OMB is in a hurry on this, and you put out
that press release that turned out to be nothing but a fraud
because it induced people like Mr. Klassovity.
What you did to him, your agency in baiting him to make the
application, inviting him to take part in a press conference,
resulted in all kinds of favorable publicity for the SBA. A
major article appeared in his newspaper. This man went forward,
and then to come to find out that the agency charged with the
responsibility was so totally incompetent that they do not know
anything about the size standards. And do you know what he has
gotten out of it? Absolutely nothing, but he has to pay for his
own trip here to Washington.
Are you aware of the fact that in the defense
appropriations bill the following can get disaster loans: banks
with $100 million in assets; nonbank lenders such as mortgage
bankers, $5 million in gross revenues; stockbrokers with $5
million in gross revenues? Are you aware of those standards?
Mr. Barreto. Yes, sir.
Chairman Manzullo. And still you balked at helping out the
people in the travel agency or the helicopter people.
Mr. Barreto. We try to help every business that we possibly
can based on the standards that we are held to. We are always
willing to consider and reconsider. Obviously, we are working
with this Committee.
Chairman Manzullo. But Mr. Barreto, why do you say that
when you would not even let me have any input on it? I knew the
problems coming up, and I had called your chief of staff, and I
had called you and said there is a problem with the size
standards. Then you took those emergency regulations, you ran
them over to OIRA, and they approved of them within what, two
days? Within two days. That was an emergency because you
determined it to be an emergency. If something comes from
Congress, and we ask for consideration, it takes four weeks. Do
you think we are here just to rubber stamp your agency?
Mr. Barreto. Absolutely not.
Chairman Manzullo. Well, that is the way you are treating
us.
Mr. Barreto. I am sorry that you feel that way. That would
never be our intention.
Chairman Manzullo. Well, the best intentions is not working
because you are not going to leave this room today until there
is a determination made as to the travel industry. I want you
to understand that. I am not going to excuse you to leave.
Mr. Barreto. I completely understand, Mr. Chairman.
Chairman Manzullo. And Dr. Graham also. The two of you can
talk here. You are not going to leave this room. By the time we
end here, at midnight tonight, if necessary, this is going to
be determined because I am not going to have small businesses
in this country suffer while you guys cannot make up your mind
what to do. Lawyers can get $5 million, and a travel agency
cannot get two and a half million. Is that fair? Mr. Barreto?
Mr. Barreto. We try to do everything we can----
Chairman Manzullo. Is it fair?
Mr. Barreto. Is it fair? I am sorry. Could you----
Chairman Manzullo. Is it fair to the travel agents?
Mr. Barreto. We are working with the travel agents right
now. In fact, we have received letters of support----
Chairman Manzullo. If you had said it is unfair, I would be
really impressed. If you had said it is unfair and the standard
stinks and you want to change it, that would be the proper
answer.
Mr. Barreto. Chairman, our size standards right now fit
98.5 percent of all businesses in the United States, and as I
have said before, one size does not fit all.
Chairman Manzullo. That is not what we are asking. We are
asking for some common sense and some input. Members of
Congress are elected; you are not. You are not responsible to
anybody. You are accountable to no one. We are. Our
constituents call us. As the chairman of the Small Business
Committee, we got calls from all over the place. Do you know
what we heard? We could not even get past the SBA people on the
phone. They told us our size standards--that we were too big
for the size standards. And, in fact, one of the testimonies
from Mr. Klassovity, how many people were turned down? Four
hundred is what you were told, just in the Albany office alone.
Mr. Klassovity. No. It was out of the Niagara Falls office.
Chairman Manzullo. Oh, the Niagara Falls office on it.
Mr. Klassovity. It was 45 percent of disaster loans and
over 400 applications.
Chairman Manzullo. And you never quantified the number of
people that never made an application, that never got through
the person that answered the telephone. What is it going to
take to make SBA come up with some half-decent standards
starting with the travel industry? What do you want? What more
input do you need? Do you want him to get on his knees?
Mr. Barreto. We would never ask for that.
Ms. Velazquez. Mr. Chairman, would you yield?
Chairman Manzullo. Of course, I would yield.
Ms. Velazquez. Mr. Barreto, the situation of the travel
agents could be resolved if OMB accepted and authorized
proposed changes in the size standard. Isn't that the case?
Mr. Barreto. We are working with OMB on that right now,
Congresswoman.
Ms. Velazquez. The problem is that you sent changes to
them, and they sent you this letter rejecting it. So I would
invite the chairman, and I echo your frustration and your
observations, but I also feel that it should be directed to
OMB.
Mr. Graham. Congresswoman, I think it is a fair question.
The proposal that was sent to us was not specifically on the
travel industry. It was on applying the 500-employee standard
all across the American economy. And we felt that there were
some larger policy issues that concerned us with that type of
proposal. However, what I was commenting on was the case we
heard from the private sector witnesses today about a specific
industry size standard. Recently, there have been updates in
the health care industry size standard by FDA, the petroleum
industry size standards by SBA. They have worked constructively
to make those changes, and I think we are seeing a reasonable
case here for a change in that particular industry.
But I want to be a little bit supportive of my
administration colleague, Chairman Manzullo, and indicate that
obviously your disagreement on the broader proposal that was
sent is not with SBA. SBA sent that to us.
Chairman Manzullo. Well, they sat on it for five weeks.
Mr. Graham. Right, but I think the substantive disagreement
is----
Chairman Manzullo. Do you know what the problem is?
Mr. Graham [continuing]. Is with OMB, and it is not with my
colleagues at SBA.
Chairman Manzullo. Do you know what the problem is? You get
a proposal. Congress does not know about it. No opportunity for
any input, none, zero. You get a proposal. You look at it. The
affected industries, no opportunity for anything. You are just
there making these decisions yourselves. What are we here for?
Why do you have these people out here? They are here to help.
Who knows it better than they do?
Mr. Barreto, what do you think should be the size standards
for travel agencies?
Mr. Barreto. We have not made the final determination.
Chairman Manzullo. You have not even come to a conclusion
yet?
Mr. Barreto. I think we are pretty close to making a
conclusion.
Chairman Manzullo. That is not enough. In your opinion, is
2.5, $3 million, is that reasonable?
Mr. Barreto. It all depends on the situation.
Chairman Manzullo. It all depends on the situation. What is
the situation? Travel agents; they are now limited at $1
million. What dollar figure do you think would be fair and
reasonable?
Mr. Barreto. I do not know.
Chairman Manzullo. You do not know. Do you have an opinion?
Mr. Barreto. That is being formulated at this time.
Chairman Manzullo. By whom? You are the administrator.
Mr. Barreto. We are working together with our team----
Chairman Manzullo. Mr. Barreto, you are the administrator.
All right? You could tell Dr. Graham right now what figure you
want, and he would probably approve $3 million. Why don't you
just get a piece of stationery? Anybody back there with a piece
of SBA stationery--I am not kidding--that Mr. Barreto could
take and submit to Dr. Graham, saying please change the size
standards to $3 million or something reasonable? I am waiting.
I am prepared to wait all day and all night until it is done;
otherwise, you will not act.
Who has got stationery back there from the SBA? Who is here
from the SBA? Would you get some stationery, please? I hate to
do this. It is embarrassing. It is humiliating, but I represent
them and these people that have been hurt, caught up by an
administrative agency that cannot act and will not take any
comment from Congress. Could you get some stationery from the
agency, have it faxed over? Mr. Barreto, I am going to ask you
to write a letter to Dr. Graham right now with your
recommendation. I do not need your team; I need you. What
figure are you prepared?
Mr. Barreto. I do not know.
Chairman Manzullo. You have no idea.
Mr. Barreto. No.
Chairman Manzullo. Dr. Graham, do you have an idea?
Mr. Graham. No, sir. This is early in our----
Chairman Manzullo. It is.
Mr. Graham [continuing]. Consideration of this matter, but
I am learning quickly, Mr. Chairman.
Chairman Manzullo. It is. It is, and I appreciate that. Who
at the SBA agency is part of the team? I want the names of the
individuals. Who are they?
Mr. Barreto. We will be glad to provide that to you.
Chairman Manzullo. No, no. I want them right now. Who back
there knows who these people are?
[No response.]
Chairman Manzullo. Who is here from the SBA?
[Hands raised.]
Chairman Manzullo. How many representatives do we have?
One, two. Who are these people? Does anybody know who these
people are that are working on the size standards? We do not
know? Who is leading the team?
Mr. Barreto. I am leading the team, sir.
Chairman Manzullo. Well, who is on your team?
Mr. Barreto. Well, it is all of the individuals that are in
our office of size standards. We would be glad to provide you
with those names and my senior team.
Chairman Manzullo. Who are they? Who is in charge of it?
Mr. Barreto. I would be glad to provide you the names----
Chairman Manzullo. You do not know who is in charge of it?
Mr. Barreto. We are meeting with them on a regular basis.
Chairman Manzullo. But you do not know their names. I want
to know their names. I want to subpoena them in here. I want to
get this thing done. She gave the input in July. I want it
done. If I have to do it in open Committee, I am going to have
it done. I want it done. Who is on your team?
Mr. Barreto. We will be glad to write those names down----
Chairman Manzullo. No. I want to know. Tell me now.
Mr. Barreto. We are preparing that list for you as we
speak.
Chairman Manzullo. Ms. Velazquez, do you have some
questions?
Ms. Velazquez. Thank you, Mr. Chairman. Mr. Barreto, I want
to thank you because I requested that you extend the comment
period on the proposed regulation on the 8(a) HUBZone, and you
did. I hope that we could work together and extend the comment
period for 30 more days.
Dr. Graham, in your letter of February 11th to the SBA, it
appears clear that OMB is concerned with multiple expansions of
a program. Is this true?
Mr. Graham. No. I think what we tried to say is we have
already approved two expansions of the program previously, one
for small businesses outside of the immediately affected areas
of the September 11th events, and the second one, the
acceleration in the expansion of the size standards because
they were outdated in terms of the inflationary adjustment. So
we have already made two expansions in this program, and we did
have a concern, sort of a basic policy concern with the
approach that was in the proposal that was sent to us.
Ms. Velazquez. So you are not concerned about expansion.
Mr. Graham. Yes. Indeed, one of the concerns we had was
that if the rationale was applied to other types of programs,
there would be an expansion issue.
Ms. Velazquez. So let me ask you, if you are concerned
about the expansion, I just would like to ask you why you are
not concerned about the fact that they expanded the HubZones
regulation?
Mr. Graham. I am sorry. I do not know the specifics on
HubZones.
Ms. Velazquez. OMB, SBA recently proposed expansion of the
SBA HubZone program. Aren't you concerned about that expansion?
Mr. Graham. I see the thrust of your question now. Our
concern was with expanding the size definition of a small
business. We have supported a variety of expansions in support
for the small business community. That is not where the
objection is. It is with the particular proposal to say if you
have less than 500 employees, you are automatically a small
business for the purposes of loan assistance or financial
assistance.
Ms. Velazquez. Dr. Graham, by virtue of locating in
Manhattan and other urban areas with high rents as well as
other increased costs of doing business, a business must have a
higher revenue stream in order to survive. However, such a
business is penalized as not a small business when it comes to
the EIDL program. Will OMB consider approving regional size
standards?
Mr. Graham. I have not given that matter previous
consideration, but I have to confess that the way you have
framed it in that question has a little bit of merit behind it.
Ms. Velazquez. Would OMB consider approving regional size
standards for disaster loan programs?
Mr. Graham. I think the same principle should apply to both
at first blush.
Ms. Velazquez. Would OMB consider approving a regional size
standard for all size standards?
Mr. Graham. Certainly would consider it.
Ms. Velazquez. Dr. Graham, it appears that OMB's primary
objection to changing the size standard for the purpose of EIDL
to 500 employees is that some businesses with less than 500
employees may be dominant in their industry. Is this your
primary objection?
Mr. Graham. That is certainly, I would say, the major one.
Ms. Velazquez. Okay. If SBA resubmitted the proposed rule
and added the caveat that businesses will be eligible as long
as they are independently owned and operated and not dominant
in their field, would you approve the change to a 500-employee
size standard?
Mr. Graham. I do not believe so. In fact, I think the
phrase you just referred to is the current statutory provision,
and it is the second part of that phrase that we have concerns
about because we think the thrust of that is to insist that SBA
look at whether a business is small within the industry that is
being evaluated, whether or not it is small or whether or not
it is dominant within that specific industry.
Ms. Velazquez. Can you provide us with any example where an
industry with 500 employees is dominant?
Mr. Graham. Well, I think it would be very interesting to
ask the private sector witnesses at this table right now
whether they would consider every travel agency a small
business because----
Ms. Velazquez. How could you then object to the
regulations.
Mr. Graham [continuing]. The 500-employee standard,
Congresswoman, would be tantamount to saying that every travel
agency, with maybe 50 or 60 exceptions, is a small business.
Ms. Velazquez. It should be.
Mr. Graham. It should. Well, that runs contrary to the
historical practice in the program of saying ``small'' is
defined within the context of a specific industry. There always
have to be some large ones as well as small ones. That is the
whole structure and history of the program.
Ms. Velazquez. So, Dr. Graham, 97 percent of all businesses
are small businesses in this country.
Mr. Graham. Okay. Was it 98, Hector said? It is a lot.
Right.
Ms. Velazquez. In your February 11th letter to the SBA, you
also expressed concern with the SBA proposal to determine a
business small based upon the date of the EIDL application. Can
you expand on your concerns with this proposal?
Mr. Graham. No. I think the way you have summarized it is
accurate. The small business determination should be at the
time at which the event occurred, not a subsequent period.
Otherwise, you have the possibility that general economic
trends are causing the problem, if I am referring to the right
paragraph, Congresswoman.
Ms. Velazquez. What I understand is that you are concerned
that businesses will use the EIDL process to request assistance
as a result of the recent economic downturn. However--
Mr. Graham. Rather than the events of September 11th----
Ms. Velazquez. Right.
Mr. Graham [continuing]. Right, which is a pretty central
issue in the design of the program.
Ms. Velazquez. Yes. And that is a concern for you.
Mr. Graham. Yes. My understanding is that is what the
program is designed for.
Ms. Velazquez. So are you aware that the EIDL application
specifically requires businesses to show how they having
directly impacted by the 9/11 disaster?
Mr. Graham. I probably should be, but you have done a good
job of reminding me of it.
Ms. Velazquez. Sir, I do not have to remind you of that. I
am just asking you are you aware of that.
Mr. Graham. I am now.
Ms. Velazquez. You are now. So you know that if they cannot
prove and show that they are suffering economic injury as a
result of the disaster, 11th, then they cannot apply, and that
application would be rejected, would be denied.
Mr. Graham. A fair point.
Ms. Velazquez. Mr. Barreto, did the SBA perform the
inflationary adjustment to most monetary-based standards for
the purpose of expanding the EIDL program?
Mr. Barreto. I know that that was taken into consideration.
When you say did it take it into account in every situation, I
would have to check on that, but I know that that is one of the
considerations when looking at that analysis.
Ms. Velazquez. So let me ask you, what was your reaction
when you saw that OMB's letter of February 11th referred to the
inflationary adjustment as a second expansion of EIDL?
Mr. Barreto. I think, as we have discussed, revising these
size standards is not as easy as it sounds. It can be a very
complicated matter, and a lot of factors is taken into
consideration when we are looking at these size standards, that
being one of them. One of the things that we knew is that OMB,
stood ready and open to continuing the dialogue and continuing
the negotiation, if you will, with regard to whether or not
this would take place. We continue those negotiations, and as I
have committed to today, by the end of next week we will be
sending them over some new language and a new regulation that
we hope that they will duly consider.
Ms. Velazquez. Mr. Barreto, can you please explain the
whole chain of events that led to the mess with Mr. Rodney
Klassovity?
Mr. Barreto. I did have a conversation with Rodney at the
break, and obviously it is something that we are looking back
into. Let me just start off by saying, I am very proud of the
disaster team, and I know that you and I have worked on that.
They have done an incredible job. I do not mind being
criticized myself, and I duly accept it; that is part of my
job. But I need to say a word for them. They have done an
incredible job under some very trying circumstances. I think
they have done an A-plus job. Can we do better? I think we can.
Ms. Velazquez. Mr. Barreto, I have been there. I have been
there. I have witnessed the work that all of these people have
been doing in New York City. I understand that, but can you
please explain?
Mr. Barreto. Sure. The main thing that happens obviously is
that we outreach to people all the time. We are sending
information out. We work through our district offices, and we
want to get them in. We try to do a loan every chance that we
can. Obviously, once we receive all of the information, if it
exceeds a standard, then we have to turn down that application.
In this case it did exceed the standard. Even with the
increasing standard of $1.25 million, the current level of
sales of $2.4 million with Albany almost doubled the current
standard that we have, and that is really what the issue is. It
is not that we do not want to make the loan. Right now we are
constricted by----
Chairman Manzullo. Would you yield a second?
Ms. Velazquez. Sure, sir.
Chairman Manzullo. The inflationary did not apply to travel
agencies. The 15 percent did not apply to the travel agencies.
Are you aware of that?
Mr. Barreto. What I have in front of me here is that we
adjusted the size standard upward by 25 percent to account for
the labor surplus market--that is what it was--bringing it up
to 1.25. That is what we did when we wrote this.
Ms. Velazquez. Mr. Barreto, I have not seen a copy of what
the SBA proposed as far as the size standard change or changes,
although I have heard some of what has been proposed. Can we
get a copy of the SBA proposal?
Mr. Barreto. Absolutely. I will make sure that you receive
it right away, Congresswoman.
Ms. Velazquez. The one that was sent to OMB. Thank you, Mr.
Chairman.
Ms. Christensen. I am usually brief. I want to thank the
panelists for coming. Thank you, Mr. Chairman.
I think we have spent a lot of time on the 500-employee
size, but I want to ask just one question of Mr. Barreto on
that. Do you have any concerns in retrospect about that
request?
Mr. Barreto. I do not have any concerns about it. I think
that we are continuing to work on it. I want to also let you
know that we received 269 applications that we rejected from
September 11. Only five have been rejected because they
exceeded the size standard in over 500 employees. Sixty-nine
were rejected because they had a size standard of over 100
employees, depending on the industry.
So the actuality is very few companies that have been
rejected for exceeding the size standards. And again, we try to
do everything that we can to approve the loan, and we sometimes
will take a second and third look at it. We are never opposed
to do that. For us, it is not absolutely not under any
circumstances.
Ms. Christensen. Do you have any flexibility or authority
to allow a waiver if a business is sort of on the borderline?
Mr. Barreto. On the bubble. Exactly. We have looked into
that. Our folks have told us that we do not have any
independent authority to waive those standards by ourselves,
and that is why it is important that we work in collaboration
with you and also with OMB to make sure that when a size
standard change is necessary and required, that we are able to
do that.
Ms. Christensen. I probably will come back. I want to go to
the travel agents for just a minute because I know that, Ms.
Alton, and I am not sure if you got a chance to talk about this
in your testimony because I know you had to jump over, about
this issue of total sales versus gross revenue. When you talk
about going up to $3 million, are you then allowing the travel
agents to use total sales still, and also for you, Mr.
Klassovity, when you talked about $2.4 million, were you
talking about gross revenue or total sales?
Mr. Klassovity. We are talking about gross revenue. Well,
it is tough for all the commission cuts, but they are
commissions. We are judged by commissions. It is revenue,
commission revenue.
Ms. Christensen. So you are not counting the money you are
holding to pay to the----
Mr. Klassovity. No.
Ms. Christensen. Okay.
Mr. Klassovity. Right.
Ms. Christensen. So the $3 million would be gross revenue.
Ms. Alton [continuing]. Gross revenue.
Ms. Christensen. Were you saying that because some travel
agents do not use total sales, they are rejected because they
give the appearance that their gross revenue is larger? No.
That does not happen.
Mr. Klassovity. No, because the SBA recognizes the revenue,
not the sales.
Ms. Christensen. Okay. Help me, Mr. Barreto and Dr. Graham.
Can you help me with what it takes to get from the $1 million
to the $3 million because I am concerned that even though SBA
is going through a process now of looking at revising the size
standard for travel agencies, that it is going to come too
late? It is already too late to help them. Many of them are
having problems like Mr. Klassovity told us about.
Did you consider doing anything as an immediate stopgap?
How long is this going to take, and what is the process that
you have to go through because why can't you just request the
increase? You are disposed to looking at it favorably because
of what you have heard here today.
Mr. Barreto. There is a process that we go through, and I
will let Dr. Graham speak about his, but things that we look at
are average firm size, the distribution of firms by size, the
startup cost, industry competition, the impact of a size
standard revision on SBA's programs. So there is a number of
things that we have to go through and look at before we are
able to make that recommendation.
You know, I have spent my whole life in the private sector.
I understand very clearly that the pace of change is much
different in the private sector than the public sector. We are
moving this as quickly as we can. As I said, I think that we
are going to have something expedited by next week, and I know
that Dr. Graham will be taking a look at that. We go through a
number of things, and we have to collect this information
before we are ready to submit what I think is a comprehensive
recommendation into OMB.
Ms. Christensen. When you first came to us--I think it was
after September 11th--and we talked about being flexible
because this was a very unique set of circumstances, there is
nothing that could be done between then and now?
Mr. Barreto. I mentioned some of the things that we already
have done.
Ms. Christensen. For travel agents.
Mr. Barreto. Well, no, not travel agents. I am talking
about all businesses that were affected by September 11th.
Ms. Christensen. Yes. I understand that. These were
airplanes. People were afraid to travel. I come from a travel
destination, and I am amazed at how hard it was and still is to
get any attention for the travel industry, not only from SBA.
Mr. Barreto. We are very, very focused on it. I will tell
you that the state right now that we are getting the most
requests for EIDL is Florida, outside of New York, and simply
because that state is so dominated by tourism. And I also want
to state for the record that we have done loans in the travel
agency industry already. We have received letters of support
and recommendation from the travel industry thanking us for the
efforts. So I do not want there to be this impression that we
are not helping travel agents because we are.
Ms. Christensen. It is not just SBA. It is Ways and Means.
Ms. Velazquez. Would the gentlewoman yield? Mr. Barreto,
given the fact that you are still working on these changes on
the size standard, and the national EIDL deadline expires on
April 22nd, would you consider to expand or to extend the
deadline?
Mr. Barreto. Yes, ma'am. We have had those conversations.
Obviously, we will work together with our folks in our disaster
office. We will work together with OMB. But we do that on a
periodic basis anyway. As you know, we have already extended
it, and my understanding is that FEMA is extending some
deadlines in New York themselves. So this is something that is
a normal part of our ongoing process, and absolutely if need
be, we will consider that and make the appropriate decision.
Ms. Christensen. I would like to ask the travel agents. How
much does extending the deadline help you right now? People
will be going to other travel agencies if you cannot provide
the business. Can I get an answer from either one of you or
both?
Ms. Alton. What I wanted to ask him, if it is extended,
will people be grandfathered in if the size standard changes,
because as it stands now----
Mr. Barreto. What I would like to do is get you a very
formal answer to that. My understanding is that we have made
changes retroactive to businesses that were impacted. We have
already done that. In this particular case, obviously, that
would be one of the things that we would consider doing as
well.
Ms. Christensen. Because that is what the intention was in
some of the other changes that you proposed or did, was it not?
Mr. Klassovity?
Mr. Klassovity. You know, from our end there are two
issues. There is the size standard issue and the disaster
relief loan. We applied for a disaster relief loan. We were not
trying to change the size standard.
Ms. Christensen. Right.
Mr. Klassovity. And our application that we made was well
over 150 pages with everything that they would need, and it
zeroed in on all the requirements due to 9/11. I was not
looking to change the size standards. I was told size standards
did not apply due to 9/11. So in our particular case we were
looking for----
Ms. Christensen. I am sorry. Maybe they thought we had
passed a democratic backed bill that we had proposed last year.
Mr. Klassovity. Well, you know, when you wake up, and you
have zero business for three months, which we all ran into, and
you are trying to save your business, and then when you are
told to apply, and we are definitely a perfect candidate for
it, that does not quite wash. And that is why I believe I am
here. I am talking about we were told to apply for a disaster
relief loan, and we were a candidate. I agree with the size
standards, but we were not questioning or even trying to change
size standards. We viewed it as the 9/11 incident.
Ms. Christensen. You know, I do not understand why some
special provision could not have been made. There were other
provisions that were made. The disaster, for example, was not
limited to New York, Virginia, New Jersey. It was expanded.
That was something that was out of the ordinary, so I still do
not understand why something could not be done.
Chairman Manzullo. Would the gentlelady yield on that?
Ms. Christensen. Yes.
Chairman Manzullo. That is why I wanted one day for
congressional input. I was going to suggest that, but you were
close to it, Mr. Barreto, and so was your chief of staff. And
when our staff tried to meet with yours, you said, well, this
is administrative, that we do not have to discuss this issue
with you; OMB is working on it. All you had to do was take our
suggestions from the duly elected representatives of the United
States Congress who work with people like this and who are
responsible to them. But you were not open. You were closed
like a book. Why? Why wouldn't you take any input from me?
Mr. Barreto. Chairman, I am always happy to take input from
you.
Chairman Manzullo. Answer the question. You did not. You
refused. I am sorry. It is your time.
Ms. Velazquez. Would the gentlelady yield? Thank you. Dr.
Graham, I would like to know if SBA extends beyond April 22nd,
would OMB approve it?
Mr. Graham. To be quite honest with you, Congresswoman, I
do not even know whether a change of that magnitude would
require OMB approval. My colleague from SBA may know the answer
to that. I do not.
Mr. Barreto. I would defer to our disaster director, who is
here right now----
Ms. Velazquez. I believe that it does require approval from
OMB.
Mr. Graham. Well, we would certainly give it prompt
consideration.
Ms. Christensen. I just still have that concern with what
do we do until that time because these businesses are likely to
go out of business. Even extending the deadline is not----
Mr. Barreto. Whenever we have a situation where a loan is
declined and I made this commitment to Rodney--we will be
following up with him after this, not because we are doing this
hearing, but we do that as a matter of course anyway. The SBA
provides a lot of different services and resources. You know,
oftentimes individuals that do not qualify for a disaster loan
for whatever reason--they may not have the right credit history
or whatever--we will look at other ways that we can help them,
either through our regular loan programs or one of our resource
partners, or refer them to organizations or agencies that are
doing grants. There is a whole host of ways that businesses can
be served. This is not the only tool that the SBA offers; it is
a very important tool, and we are not closing the door to this
opportunity. We are going to work together and make sure that
if it is possible to change this, that we are able to change
it.
But even if that was not available, and we have talked
about this before, not every business that applies for a
disaster loan gets disaster assistance, but they can get
assistance from the SBA in other ways.
Ms. Christensen. But there is something else that could be
provided these businesses now that----
Mr. Barreto. Absolutely, absolutely. Sometimes what we find
out is that a business will say, I did not know that you had
this program. Now that I am talking to you, I did not realize
that you had programs that did this type of assistance, this
type of technical assistance. I did note that you guys could
help me get more business or a contract. So there are other
things that we do as well as a variety of other capital access
programs.
Ms. Christensen. I guess we are going to be here until
midnight, then, because we still have not resolved this.
Chairman Manzullo. We may be here a long time. Would you
yield a second?
Are you aware that the 7(a) program still would not apply
to the travel agents because of the size standard? What is
available for them? What is available for the travel agent
people from the SBA for help? Could you tell me?
Mr. Barreto. And again, depending on the size of that
business----
Chairman Manzullo. What is available for Mr. Klassovity?
Mr. Barreto. I do not have all of the particulars with
regard to Mr. Klassovity.
Chairman Manzullo. What SBA programs are available for him?
Mr. Barreto. He could get available technical assistance,
for example, and there may be a situation where----
Chairman Manzullo. He does not need technical assistance.
He knows how to operate his business. What else is available?
Mr. Barreto. We may be able to refer him to a grant program
that is available in his area.
Chairman Manzullo. There were not any grant programs
available. The airlines got all the money on that.
Mr. Barreto. We actually have a list of about 20 grant
programs in and around the New York area that are currently
doing grants to small businesses.
Chairman Manzullo. We have got three votes that we are
going to take. I am going to when we get back ask Gary Jackson,
who is here--evidently he is in charge of the office of size
standards--is that correct? Are you here, Mr. Jackson? If you
could have a seat up here on the panel, we will come back, and
we can continue our questioning with you. So we should go vote
at this point, and we will be back. It is going to be probably
about 45 minutes. You might want to take that time to bring the
team together. Perhaps you can come up with a resolution to
this in a hurry.
[Whereupon, at 3:54 p.m., a recess was taken.]
Chairman Manzullo. Okay. We will call this Committee back
to order.
My understanding is that the Small Business Administration
has agreed to submit EIDL rules on size standards for the
travel industry by close of business tomorrow.
Mr. Barreto. That is correct, sir.
Chairman Manzullo. And, Dr. Graham, that OIRA will examine
that and complete its process by a week from Thursday at 9 a.m.
Is that correct?
Mr. Graham. One week is fine.
Chairman Manzullo. Within one week. I have just a couple of
questions I would like to ask Mr. Jackson. I do not think we
have any further questions of the folks from the travel agency.
If you would not mind giving up your seats there. Mr.
Blanchard, did you want to sit next to Mr. Jackson? Okay. You
probably wondered why you came today, huh?
Mr. Jackson. It has been an interesting day.
Chairman Manzullo. It has. Mr. Jackson, could you pull the
mike up? Thank you, sir. I just have a few questions, and this
will not take that long. Could you please state your name for
the record?
Mr. Jackson. Gary M. Jackson.
Chairman Manzullo. And could you spell the last name,
please?
Mr. Jackson. J-A-C-K-S-O-N.
Chairman Manzullo. And, Mr. Jackson, what is your official
position at the Small Business Administration?
Mr. Jackson. I am the Assistant Administrator for Size
Standards.
Chairman Manzullo. And briefly could you just tell us what
the size standards office does?
Mr. Jackson. My primary responsibility is to review
existing size standards and also review requests from the
public or requests from within the agency and to advise the
administrator on whether changes to size standards should be
made or not.
Chairman Manzullo. How many people work within your unit?
Mr. Jackson. I have a very small staff. It is just me and
three other people, so a total of four.
Chairman Manzullo. And then is there a procedure whereby
you elicit comment from interested groups, and how do you go
about doing that?
Mr. Jackson. Within any size standard change we must follow
the rule-making process of the Administrative Procedure Act.
Chairman Manzullo. Okay.
Mr. Jackson. So once we propose a change, we do get comment
from the public at thattime. We do consider comments before we
make a final decision on a number of rule-making actions, and it varies
with the industry, Mr. Chairman. We may talk with people, companies in
the industry, federal agencies, trade associations. We have done that
recently with the forestry industry. We have met with companies and
associations in the travel agency industry already. So we do talk with
others during our formulation, but I have to say that that varies
depending on the nature of the issue that we are looking at.
Chairman Manzullo. So at times before you formulate the
proposed regulations you do get input from the outside
community.
Mr. Jackson. At times, yes.
Chairman Manzullo. There is nothing that prohibits that.
Mr. Jackson. Correct.
Chairman Manzullo. And there is nothing that prohibits
getting input from members of Congress either. Would that be
correct?
Mr. Jackson. Certainly not, no.
Chairman Manzullo. And how long have you been at the SBA,
Mr. Jackson?
Mr. Jackson. Almost 14 years.
Chairman Manzullo. Okay. And how long have you been in the
present position?
Mr. Jackson. Almost 14 years. I have had a couple of
details in other offices, but for the most time in that
position.
Chairman Manzullo. Okay. The statutory definition of a
small business is ``independently owned and operated and not
dominant in their field.'' You would agree with that?
Mr. Jackson. Yes.
Chairman Manzullo. We scratch our heads as to how lawyers
have $5 million, CPAs $6 million, I think architects $4
million, and manufacturing facilities 500 employees regardless
of the amount of money that you take in.
Mr. Jackson. Let me just give you the general answer, and I
would like to talk about the travel agencies specifically.
Chairman Manzullo. Sure. Go ahead.
Mr. Jackson. As Administrator Barreto had mentioned, our
size standards vary by industry. Those differences for the most
part reflect differences in industries. A company with a few
hundred employees in manufacturing is relatively small, where
in many service industries, dry cleaners, lawyer offices that
is a very substantial, very competitive, very strong business.
So we do try to reflect those differences.
And the Small Business Act does also require that if we
establish definitions by industry that we are to take into
consideration differences among industries. Within the travel
agency industry one reason that standard is at the level it is
now is because it has been a somewhat sensitive industry over
the years. At one time back in the nineties we proposed $5
million for that industry, and the trade association that spoke
before you today commented on that, and they were not
supportive of that as were many other travel agencies.
So in that particular industry there are two sides to the
story, and during the process that we last changed the standard
back in 1994, a million dollars was an acceptable size standard
at that point. I cannot go into the details, but I will say we
do not believe that that is currently the most appropriate
standard, and we are looking into that.
Chairman Manzullo. Now, there was an increase of 15.6
percent made that applied to most industries, but that did not
apply to the travel industry.
Mr. Jackson. Right. Correct.
Chairman Manzullo. Why were they singled out?
Mr. Jackson. The main reason is because we did have the
separate ongoing action that we thought would be more
substantial and more effective to help those businesses. I wish
we could have done both at the same time, but we were not able
to get that through.
Chairman Manzullo. As it stands now, it is the $1 million
plus that 25 percent for the labor surplus.
Mr. Jackson. Correct.
Chairman Manzullo. So it is $1,250,000.
Mr. Jackson. Correct.
Mr. Blanchard. If I may help, Mr. Chairman.
Chairman Manzullo. Yes, yes. Of course.
Mr. Blanchard. I think the point is the regulation that we
are considering on the travel agencies is leaning much more
forward than the 15 percent inflationary increase.
Chairman Manzullo. It is, except that it is now five months
after September 11th.
Mr. Blanchard. This is something that we have committed to
you in settling very quickly.
Chairman Manzullo. But it is possible, is it not, that at
the time that these emergency regulations were being drawn by
the chief of staff of the SBA that there could have been
congressional input?
Mr. Blanchard. Sir, you are right. We could have done
better seeking congressional input, and I will commit to you
now----
Chairman Manzullo. But you were not there at the time.
Mr. Blanchard. Well, I was not at the time, but I worked
closely with SBA in my previous role, as you well know. I am
thrilled to be here at SBA and working with you and your staff,
and we are going to do things a little differently this time
around.
Chairman Manzullo. This is shameful that this had to take
place in a hearing like this. Mr. Barreto, he admitted what you
did not, that he would like to do things differently, and you
just continued to say, well, we have worked with you in the
past and everything. You know, you came out of the private
sector.
Mr. Barreto. Yes, I did.
Chairman Manzullo. And I am sure there has been a
substantial decrease in your income. What is it about Congress?
Are you taught by OMB--excuse me, Dr. Graham--by somebody that
we are persona non grata, that you are not supposed to talk to
us?
Mr. Barreto. Absolutely not.
Chairman Manzullo. Then why didn't you let me give you a
comment on those regulations, the emergency regulations? I am
the chairman. I set your budget. I was personally offended when
people had come to us, and there could have been a very minor
change that would have accommodated the travel industry. But
you said, no, OMB wants it now, and that is it. You put out the
press release. You were on national television. I told you it
would be misleading to declare the entire nation a disaster
area. And exactly what I told you October 17th has come to
pass. Why didn't you talk to me?
Mr. Barreto. Mr. Manzullo, we always are willing to talk
anytime that we can. I have a chronology of 15 contacts and
meetings that we have had on this issue, and we continue to
have those conversations going forward. So we look forward to
continue working with you and gaining your input.
Chairman Manzullo. If it is working on this basis, do not
come in my office anymore because nothing gets done unless I
embarrass you in front of the public, the public here. I am not
going to have this continue with the size standards. This is
not going to continue because one of two things is going to
happen. Either we are going to change the way size standards
are done and make life a lot easier for Dr. Graham or we are
going to get Mr. Jackson into another position there at SBA
with his three people and have Congress set the size standards.
The telecommunications industry; do you know what their
standard is? It is 1,500 employees. They were eligible for
EIDL, and yet these people from the travel agency, he was not
eligible for it. That does not make sense. There is no rhyme,
there is no reason to that.
You might want to be thinking of how you are going to
handle these size standards in the future because I am not
going to put up with this. I represent these little guys over
here. I do not represent you. You are not my constituents, and
unfortunately it is obvious there is a tremendous breach of
communication between the White House, if that is what OMB is,
and the United States Congress. And I will hold hearings every
day as long as I am chairman of the Committee to make sure that
these get done.
The next thing that has to happen is the tour operators.
Jim Santini is still here. The SBA rules exclude from the
calculation of gross revenue monies collected by travel agents,
realtors, and media buyers that are then passed on to other
parties. Tour operators fit within this category, but when tour
operators asked for a rule to this effect, a change, they said
it would take six to 12 months.
Mr. Blanchard. Mr. Chairman.
Chairman Manzullo. Yes, sir.
Mr. Blanchard. I have committed to your staff to reevaluate
the impact that eliminating the pass-through monies that go
from, I guess, hotels through tour operators that some think
should not be considered as revenue. I have committed to your
staff to reconsider that and take a look at that this week.
Chairman Manzullo. I will take your word for it. I am sure
it will not take six to 12 months. It has got to be an
oversight on here.
Sometimes you have to have hearings like this, but it
really was not necessary when I see the grief going on. We
still have Mike Ferguson and the issue with the helicopter
people. That was never resolved. He still has not gotten his
loan. Who knew about that situation? We had a hearing on that,
and that was brought up with the SBA here at the hearing on
December 6, and we told, I think by you, Mr. Barreto--were you
here on December 6?--that you would look into it. Mike Ferguson
was here. This is now February 27th. He still has not gotten
his loan. I do not understand that, and we talked on the phone
on that. I mean, these are little people that are falling
through the cracks. Why? Why is that happening?
The ombudsman is here, is he not? Is the ombudsman here?
Here he is. Can you take a look at that with Mr. Ferguson on
what happened to his helicopter guy? Not now. We could give you
the details on it. I would like to have somebody at SBA be the
point person to get this thing done.
Mr. Blanchard. I would be happy to work with Mr. Barreto to
work with the proprietor of the helicopter company, sir.
Chairman Manzullo. Okay. You know, I do not want Mr.
Barreto to work on it personally. I do not expect that, as long
as there is a point person on it. Would you be willing to do
that?
Mr. Blanchard. I would be happy to be that point person.
Chairman Manzullo. Okay. Could you fellows get him the
information on it? Does the tour industry have any further
questions you want to ask? Yes.
Ms. Alton. I wanted to say that contracts are coming up.
Chairman Manzullo. Could you get to the mike there, please?
Thank you.
Ms. Alton. Contract renewals are coming up, and new
contracts for the Department of Defense, and if the size
standard is not done before these contracts come out, small
businesses will be locked out for five years for bidding on
them.
Chairman Manzullo. Okay. When do you need the size
standard, then, fixed? By what date?
Ms. Alton. There just was an extension of three months, so
we need it before June 1.
Chairman Manzullo. Okay. And you are making a
recommendation on the size standards?
Ms. Alton. I did earlier, three million.
Chairman Manzullo. Three million dollars. Okay. Tell us
again the significance of the $3 million and the June 1st date.
Ms. Alton. The Department of Defense is redoing their whole
operation with travel agencies, and they will go out for bid
around June 1, and agencies like myself are just at the cusp of
not being able to bid on that because we are at the $1 million
revenue stream, and contracts that we are currently working on
with good past performance, we will be ineligible to rebid
those.
Chairman Manzullo. Okay. All right. I appreciate that.
Let me just say that my office door is always open. We are
always willing to meet, but one thing I do not ever want to
hear again from the folks in the SBA congressional liaison--you
have got some really nice people there--is the fact that this
is administrative, and we cannot talk to you. I will not
tolerate that under any circumstances. As long as we control
your budget, and as long as we are responsible to the elected
people, you have an obligation to talk to us.
I had that problem with the last administrator. She came in
the office with her entire team and made them all apologize in
the office for the way they were treating us. They were just
smoking us, keeping us out in the dark. And the other thing I
want to bring up is going to the Appropriations Committee, SBA
gives suggestions to OMB. OMB gives those suggestions to the
Appropriations Committee and completely blindsides the
committees of jurisdiction. I do not want that ever to happen
again. I do not care whatever suggestions you have. Run them
past the committee of jurisdiction. At least give us the
decency of a phone call before you make the recommendations to
OMB. Can you assure us of that, Mr. Barreto?
Mr. Barreto. I would be happy to continue working with you,
Chairman.
Chairman Manzullo. You have not answered the question. Is
it a yes or a no?
Mr. Barreto. I am happy to work with you on the process as
we go through it, absolutely.
Chairman Manzullo. That does not answer the question.
Before you submit anything to OMB where you are asking for a
change from the Appropriations Committee, do I have your word
that you will contact the committees of jurisdiction so that we
are not--what is the word?--so that we are not blindsided when
we get down on the floor?
Mr. Barreto. Well, we promise to never try to blindside you
on any issue, especially our budget or any of these other rule
changes. We take our responsibility and the relationship that
we have with you and this Committee very seriously, and we are
committed to it. So we know that we have some work to do, and
we will continue doing that work and building the relationship
that I think that we already have.
Chairman Manzullo. The personal relationship is fine, but
professionally it is not doing too well.
Mr. Barreto. I get that loud and clear, Mr. Chairman.
Chairman Manzullo. I think you are a heck of a guy. And,
Dr. Graham, you do not have to put up with this stuff. You came
out of the private sector. You come over here, and you end up
on this crazy Committee. So what you are telling me, Hector, is
that any time that the SBA is going to request OMB to send
something to the Appropriations Committee that you have vetted
by us----
Mr. Barreto. We will be happy to work with you, Chairman.
Chairman Manzullo. Is that a ``yes''?
Mr. Barreto. The only thing that is hard to understand is
what every situation on every issue is going to be. We take our
responsibility to you very seriously. We do not want you to be
blindsided or surprised.
Chairman Manzullo. I think that has happened three times
already.
Mr. Barreto. We know that we have some work to do to make
sure that that is not happening.
Chairman Manzullo. But all you have to do is say yes, and
then I will not be blindsided.
Mr. Barreto. The answer to the question is I will not do
anything that I believe is going to blindside you. So the
answer to that question is yes. I do not want to blindside you.
Chairman Manzullo. Hector, you can give the answer that you
want. It does not have to be a political answer, which is what
you gave. I am just disappointed that you cannot make the
statement here. I know that the administration asks for things
and everything, but, you know, let me tell you what happened.
We were on the floor, and SBA had gone behind our back--this is
the Authorizing Committee--and put authorizing language into
the appropriations bill. First of all, you are not supposed to
authorize in an appropriations bill. That is a rule down there,
unless you are in the Senate; they can do anything. And second
of all, when the committee of jurisdiction gets bypassed for
that, do you know what that makes us feel like? That we are
irrelevant, that you are not even interested in letting us know
what you want to do.
We had had a bill. You took some good provisions out of it,
went over, tucked it into another bill, left out the rest, and
we had to go in there and rip everything out just as a matter
of principle so that you would come to the Authorizing
Committee. I would be thrilled, I would be absolutely thrilled
if we got a call from the SBA and said, ``We have designed a
new way to do the size standards. Chairman, would you consider
hearing on it?'' I would be ecstatic to have you come in here.
We are having a Small Business Success Day. Small Business
Week; when is it, in May? The first week of May. We are
bringing in here a constituent that has a factory of 200 people
in a town of 2,000. That factory was going to move, and we were
able to work with the USDA, got a waiver because it was a
little town that was near a big town. They went to the AMCOR
bank, which is pre-approved to get loans, and this company got
a $1.2 million SBA loan that saved the company. And we are
going to bring those people in here. They have got a machine
that burns corn. It is 100 percent efficient. It is even corn
that is not totally dry. There is no smoke. It will heat 2,000
square feet with a bushel of corn. A bushel of corn is now
$1.89, with two cents added on top of it for the deficiency
payment.
And that is to highlight the successes of the SBA. That is
7(a)--no, it was a 504. This was a 504, which is what you want
to do. You want to get innovative. That 504 saved that company.
It saved a town of 2,000 from losing a major employer. These
are major success stories, and we are bringing them out here,
with the corn machine, the inventor is coming out. No one
believed in them. And this company is making trailer legs, you
know, when you detach the semi from thetractor, and they are
manufacturing them in Byron, Illinois, and exporting them to Mexico and
China. This is the type of small business story that we are proud of.
We are really proud of it. This is what we want to do at the SBA. So we
would expect a lot of reciprocity on your part to clean this thing up
so poor Mr. Jackson does not have to show up at these hearings and get
involved in this stuff. Please work with us on it.
Mr. Barreto. We will, Mr. Chairman.
Chairman Manzullo. And, Dr. Graham, you have got a very
difficult position there, but OMB is not God around here. Not
that you have said it is, but it really is not. And just the
way the whole system is set up causes this type of conflict. I
want to see it end.
Thank you for sticking around, and this Committee hearing
has ended.
[Whereupon, at 5:28 p.m., the Committee was adjourned.]
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