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MARCH 31, 1981


Washington, D.C. The committee met, pursuant to notice, at 8:30 a.m. in room 334, Cannon House Office Building, Hon. G. V. (Sonny) Montgomery (chairman of the committee) presiding.

Members present: Representatives Montgomery, Danielson, Leath, Mica, Stump, and Jeffries.


The Subcommittee on Oversight and Investigations is meeting this morning to hold its third oversight hearing on the implementation of the provision of Public Law 93-237 which granted veterans special consideration in obtaining direct and guaranteed loans from the Small Business Administration.

This included Federal procurement contracts under section 8(A) of the Small Business Act.

Interested veterans organizations and the SBA revealed in the two previous hearings that the agency had not vigorously implemented the special consideration provision of Public Law 93-237. It was also learned, however, that SBA was in the process of planning to make more funds available for veterans who seek to become businessmen.

At the September 10, 1980, hearing, then Deputy Administrator William H. Mauk, Jr., testified that SBA's services to veterans were improving at every level within the agency, and that SBA was taking new initiatives to further implement the provisions of Public Law 93-237.

Among the initiatives Mr. Mauk enumerated were instructions to SBA field offices that veterans be given special consideration in the areas of loanmaking, increased financial assistance from the bank loan guarantee program, assistance from the SBA's Office of Advocacy for veteran business owners with problems involving other agencies, specially designed workshops for veterans under the agency's management assistance program, and a special training program for the agency's veterans affairs officers to make them more effective in dealing with veteran applicants.

At this point I want to reemphasize that this subcommittee, and, of course, the full committee, is intensely interested in Vietnam veterans.

Many of these veterans have now completed their education under the GI bill and are now ready to become participants in

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various areas of business endeavors. Therefore, these veterans would be most affected by actions taken by the SBA to provide additional special consideration to them.

While the subcommittee can and does appreciate the actions enumerated by Mr. Mauk at our last hearing, nothing is going to assist these veterans more than providing the necessary capital to establish and operate their businesses.

To this end, Mr. Mauk indicated that in fiscal year 1981, SBA planned to target 15 percent of all loan funds for veteran-owned businesses. However, in its revised budget estimates for fiscal year 1981, no loan funds have been designated for veterans.

We certainly do expect the SBA representative here today, Acting Administrator Roger Jones, to comment on that because it appears that SBA is reneging on its commitment to America's veterans.

Because of the poor record of the Small Business Administration, earlier this year I introduced H.R. 1139, a bill that would establish a small business loan program for Vietnam veterans to be administered by the Veterans' Administration. There would be authorized to be appropriated $25 million to be used in fiscal year 1981.

This committee has jurisdiction over the Veterans' Administration, and in my view, an SBA program for veterans would be much more effective if it were under the direction of the Administrator of Veterans Affairs.

At this point, I would like to request that all witnesses limit their oral testimony to 10 minutes. I assure you, however, that your complete statement will be made a part of the hearing record.

Our first witness this morning will be the Director of the VA's Veterans Assistance Service.

I'd like to thank Mr. Stump and Mr. Leath for being here this morning. Other Members will join us as the hearing progresses. STATEMENT OF JAMES J. COX, DIRECTOR, VETERANS ASSIST

Mr. Cox. Good morning, Mr. Chairman.

Before I begin, I would like to introduce the two gentlemen with me. On my left, Mr. Edward D. Green, who is the Deputy Director of the Veterans' Assistance Service, and on my right is Mr. James Kane, Assistant General Counsel of the Veterans' Administration.

Mr. Chairman, and members of the subcommittee, we appreciate the opportunity of appearing before you today to discuss the relationships between the Veterans' Administration and the Small Business Administration.

Mr. Chairman, as you well know, the Veterans' Administration's primary role is to administer those benefits available to eligible veterans under appropriate veterans benefits laws.

Over the years, we have made a strong effort to provide as much service to veterans as possible. To do this effectively, we have tried to acquire knowledge about services and benefits for veterans provided by other agencies at the Federal, State and local level.

This information that we have acquired has been incorporated into our training programs, handbooks, and pamphlets.

With respect to SBA, for many years our field offices have maintained liaison with local representatives of the Small Business Administration. This liaison has resulted in SBA representatives participating in VA training sessions. Through these sessions, our VA counselors have obtained information about SBA programs and services to pass on to veterans requesting such information or assistance.

SBA also provides suitable handout material which includes office addresses, phone numbers, and the names of key personnel.

VA has also shared similar information on our agency with SBA.

Our counselors are cautioned about the dangers inherent in trying to provide detailed information about benefits and services that lie outside VA jurisdiction, and we try to avoid getting into indepth counseling with respect to SBA application procedures or the special assistance and loan programs that they have.

We stress the importance of making a clear and direct referral of veterans to the appropriate SBA personnel for the technical and expert assistance required.

At the Washington, D.C. level, most of VA's contacts have been with a Mr. A. J. Prendergast, the Associate Director for Field Services. I met with Mr. Prendergast, and we've had numerous telephone conversations and correspondence as well. I can say that a good climate of cooperation has been established.

In my detailed statement, I mention that we have worked together on the preparation of an Executive order calling for special assistance to veterans and closer VA/SBA working relationships.

Currently VA and SBA are combining their efforts to assure that veterans are informed of all available SBA programs and provided with all the assistance and special considerations to which they are entitled.

During the summer of 1980, meetings were held with Mr. James Pechin, the executive director of the Center for Community Economics. This is a nonprofit corporation which conducted under contract with SBA, a study of that agency's veterans' programs.

Task X of that study contained a number of recommendations covering SBA/VA cooperation.

On December 29, 1980, a copy of that report was transmitted by my office to each of our field stations and all of our regional offices and our VA personnel were encouraged to plan for implementation of the report recommendation.

I have forwarded to you a copy of that letter and the task X report.2

Mr. Chairman, that summarizes the highlights of my prepared statement, and in keeping with your request for brevity this morning, I'm prepared to answer what questions you might have.

Mr. MONTGOMERY. Mr. Stump.
Mr. STUMP. I have no questions, Mr. Chairman.
Mr. MONTGOMERY. Mr. Leath.
Mr. LEATH. I have no questions, Mr. Chairman.

See p. 27. 2See p. 28.

Mr. MONTGOMERY. I am going to yield to staff and allow Mr. McDonell to ask a question.

Mr. McDonELL. Mr. Cox, in testimony that you submitted for the record, you state that the VA central office directed all local VA offices to be alert to task report X of the SBA veteran project and that the VA would cooperate with SBA and implement items three, four, and five of that report. These three items generally call for SBA and VA personnel to work more closely in providing each other with basic benefits information.

Could you go into some detail on this and let the committee know how successful you have been in dealing with the SBA, and also, your timeframe for implementing the three items in final form.

Mr. Cox. That is ongoing at the present time, and I can report that in a recent survey, that's in the past 10 days, VA has initiated 167 contacts with SBA for the purpose of accomplishing these particular objectives.

We have had 79 contacts from SBA. VA attendance at SBA meetings, 27 of our offices report participation in SBA meetings. At the VA meetings, 37 SBA representatives have attended.

We have had joint sessions. SBA attendance at training sessions, there were 29 appearances. There were 32 VA and SBA joint attendances at meetings outside of the agency where they were working together in a community effort.

I think in the last 6 months, there has been an accelerated effort in bettering relationships.

Mr. McDONELL. Thank you. One more, if I may, Mr. Chairman.

Recognizing that SBA is a relatively small agency which serves business needs of a wide group of individuals, do you feel that a separate small business loan program for veterans administered by the VA would be appropriate?

Mr. Cox. I would defer that question to Mr. Kane since he has worked on the legislation, and the preparation of it.

Jim, would you address that?

Mr. MONTGOMERY. You might address a bill I've introduced, H.R. 1139. Is that what you are alluding to?

Mr. McDONELL. Yes.

Mr. KANE. We have prepared a report on H.R. 1139, Mr. Chairman. As of yesterday morning, we do not have clearance. I called OMB; they promised to get clearance for me, if possible, but then, of course, in confusion resulting from the President being shot, we never got it.

At this point, I can only speak for my personal impression of informal conversations, and that personal impression would be that under the present resource restrictions, it would seem the wiser course of action to leave the program in SBA where the expertise is. Where they have the people in place who know these business loan programs. It would seem the better course of action would be to put the emphasis, or renew the emphasis in the SBA. It would be a whole new program for VA to undertake.

Mr. Cox. I would contribute some other information. We do a trend analysis, Mr. Chairman, finding out what types of inquiries are called in, or what persons visit our offices seeking information, and about 60 percent of our callers, writers, and visitors are interested in compensation and pension from VA. Regarding housing loans, about 5 percent, and business loans would be less than 2 percent of the numbers of inquiries that we receive from beneficiaries.

So, it is a rather small volume activity, at least from the point of view of VA.

Mr. MONTGOMERY. I am going to ask Mr. Fleming to explain to the committee members what H.R. 1139 actually does, so we can set the stage to talk about it later on in this hearing.

Mr. FLEMING. H.R. 1139, Mr. Chairman, is a bill that would establish a small business loan program within the Veterans' Administration, the theory being that it would parallel the program that's now administered by SBA.

One can look at the testimony from last year and see that the record of SBA in approving small business loans for veterans has not been very effective. This bill would establish a SBA program in VA for disabled and Vietnam era veterans to be administered by the Administrator of Veterans' Affairs. It would provide an authorization of $25 million from which these loans could be made. It's a simple bill. Mr. Kane from the Veterans' Administration is very familiar with it. As a matter of fact, in the drafting of the legislation, the Veterans' Administration, as a technical service, provided some assistance although officially the agency has taken no position on the bill.

Mr. MONTGOMERY. Any questions from Mr. Mica?
Mr. MICA. I have no questions, Mr. Chairman.

Mr. MONTGOMERY. Thank you for being here this morning. We certainly appreciate your coming in this morning and giving us this information.

[The prepared statement of Mr. Cox appears on p. 27.]

Mr. MONTGOMERY. We have the new nominee for Administrator of Small Business, Mr. Michael Cardenas. We would like to ask him to come forward this morning. We hope he is confirmed. Also, the Acting Administrator, Mr. Roger Jones, we'd like for him to come forward.

Mrs. Lewis, we certainly welcome you to the committee. You've been an old friend of ours, and we are glad to see you on the Hill.

If the new Administrator is ready to take over, we're ready to work on him some.

Mr. CARDENAS. Well, something like that.


ADMINISTRATOR OF SMALL BUSINESS Mr. CARDENAS. Mr. Chairman, I'm Michael Cardenas, the Administrator of SBA, the new Administrator. This is my second day on the job.

Mr. MONTGOMERY. You've brought quite a bit of excitement with

you, too.

Mr. CARDENAS. I wanted to come today partly as a courtesy to the committee and perhaps more because I need to know more directly and personally of your concerns. I thought that there could not be a better way than to be here personally.

I shall be setting the policy for SBA and working with Congress in this and many other areas.

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