The hearing has begun with opening statements from Senator Mary Landrieu and Senator Olympia Snowe. Also present at the onset of the hearing is Senator Rand Paul. Senator Landrieu expressed the overarching concerns of the Small Business Committee with reports of fraud and abuse in federal small business contracting programs. Ms. Landrieu also noted GAO investigations into this matter, and her hope that both the first panel representing the SBA, and the second panel representing the GAO and small business community, could help shed light on this issue.
Senator Snowe began by echoing Senator Landrieu’s statements, and further detailed the importance of this hearing, particularly in the context of job creation in the small business community. Expressing concerns at potential abuse in the SBA’s small business lending programs, Ms. Snowe also put forth her backing for s. 633 the Small Business Contracting Fraud Protection Act, which will take aim at eliminating fraudulent practices in the awarding of federal small business contracts.
In Senator Paul’s opening statement, he detailed concerns over the government’s interference with the free market, and placed these concerns in the context of the Small Business Administration’s lending programs. He described the possibility of a “politicization” of small business loans, and stated that the government’s facilitation of lending to small businesses may not be the best course for economic stimulus and job creation. (continued….)
Senator Landrieu began by asking both Karen Mills and Peggy Gustavson why there was disagreement between the SBA and the SBA IG over the definition of what constitutes an improper loan payment, and what both were doing to address the ramifications of this issue, namely that there have been sizable losses in recouping small business loans.
Ms. Mills answered first, noting that the issue was much more of a procedural one, where greater attention was needed in “dotting the i’s and crossing the t’s”. Ms. Mills contended that there had been much progress made toward curbing fraud in small business loans during her administration.
Peggy Gustafson answered next, disagreeing somewhat with Ms. Mills assessment. Ms. Gustafson contended that this issue is not simply a procedural one, that the issue is material and requires swift action to ensure oversight over small business loan programs.
Senator Snowe followed Senator Landrieu’s line of questioning, asking why improper loan payments were so difficult to define. Ms. Gustafson answered that each case required some analysis, and that it was not as simple as asking whether the agency had lent money twice, for example.
Senator Snowe continued, noting that the procedures in place and the level of implementation of said procedures was stll unclear. She asked whether the SBA IG was satisfied with new enforcement procedures against fraudulent loan agents. Gustafson stated that the IG was happy with the procedures, but that these procedures were not fully set in place. She further noted that the SBA needed to be much more serious about debarment as a punitive action for fraudulent loan practices.
Senator Snowe next asked Karen Mills whether a task force was in place to enforce this issue. Mills replied that the task force was indeed in action, though in the beginning stages. She said that all indications were that on the most recent round of fraud cases, that every one had been or was being pursued.
Snowe then moved to the issue of oversight, and gave an example of a recent Wall Street Journal article that claimed government officials were not monitoring the federal contractors for compliance. She further noted that the while the SBA claimed that oversight procedures had been transferred to the Pentagon, the Pentagon maintained that oversight remains in the purview of the SBA. Snowe then asked Ms. Mills what the SBA was doing to bolster this oversight.
Ms. Mills confirmed that the oversight for government contracting was the SBA’s responsibility, and then went on to clarify Senator Snowe’s quotation of the Wall Street Journal. Ms. Mills stated that each government agency though was responsible for the initial contracting procedures, and that the 8 million annual federal contracts as a whole were under the final oversight process through the SBA.
Following Senators Landrieu and Snowe, Senator Rand Paul began his line of questioning by noting that many thought the number one issue for small business loan programs wasn’t access to capital, but taxes and regulations. He asked the panel whether they were concerned over the increase in taxes for those making over $250 thousand dollars a year, claiming that many small businesses would be affected.
Ms. Mills responded that only 2 percent of those who make $250 thousand dollars or more are small businesses. Senator Paul followed up, noting a previous conversation with Ms. Mills where she had claimed that small business loans were a great help when there was a “market failure”. Senator Paul asked whether or not the term “market failure” was arbitrary, and put forth his contention that the market does not fail, but simply makes a choice. Senator Paul contended that it was not the governments job to decide which businesses receive loans.
Ms. Mills gave the example of both the housing and credit bubbles, and the aftermath of these crises, noting that indeed those private sector forces making loan decisions (namely lending banks) had closed their doors to small businesses, and that the government necessarily could step in through the facilitation of the SBA.