May212013
Hearing Transcript on Status of Veterans Small Businesses.
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STATUS OF VETERANS SMALL BUSINESSES
HEARING BEFORE THE SUBCOMMITTEE ON ECONOMIC OPPORTUNITY OF THE COMMITTEE ON VETERANS' AFFAIRS U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION APRIL 29, 2010 SERIAL No. 111-74 Printed for the use of the Committee on Veterans' Affairs
U.S. GOVERNMENT PRINTING OFFICE For sale by the Superintendent of Documents, U.S. Government Printing Office
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CORRINE BROWN, Florida |
STEVE BUYER, Indiana, Ranking |
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Malcom A. Shorter, Staff Director SUBCOMMITTEE ON ECONOMIC OPPORTUNITY
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Veterans' Affairs are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined. |
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C O N T E N T S
April 29, 2010
Status of Veterans Small Businesses
OPENING STATEMENTS
Chairwoman Stephanie Herseth Sandlin
Prepared statement of Chairwoman Herseth Sandlin
Hon. John Boozman, Ranking Republican Member, prepared statement of
WITNESSES
U.S. Government Accountability Office, William B. Shear, Director, Financial Markets and Community Investment
Prepared statement of Mr. Shear
U.S. Small Business Administration:
Joseph F. Sobota, Assistant Chief Counsel for Advocacy
Prepared statement of Mr. Sobota
Joseph G. Jordan, Associate Administrator, Government Contracting and Business Development
Prepared statement of Mr. Jordon
Export-Import Bank of the United States, Diane Farrell, Director
Prepared statement of Mr. Farrell
U.S. Department of Veterans Affairs, Tim J. Foreman, Executive Director, Office of Small and Disadvantaged Business Utilization
Prepared statement of Mr. Foreman
American Legion, Joseph C. Sharpe, Jr., Director, National Economic Commission
Prepared statement of Mr. Sharpe
International Franchise Association, VetFran Committee, Mary Kennedy Thompson, Vice Chairwoman, and President, Mr. Rooter Plumbing Corporation, Waco, TX
Prepared statement of Ms. Thompson
Vietnam Veterans of America, Joe Wynn, Senior Advisor
Prepared statement of Mr. Wynn
SUBMISSIONS FOR THE RECORD
American Veterans (AMVETS), Christina M. Roof, National Deputy Legislative Director, statement
Iraq and Afghanistan Veterans of America, Tim Embree, Legislative Associate, statement
MATERIAL SUBMITTED FOR THE RECORD
Post-Hearing Questions and Responses for the Record:
STATUS OF VETERANS SMALL BUSINESSES
Thursday, April 29, 2010
U. S. House of Representatives,
Subcommittee on Economic Opportunity,
Committee on Veterans' Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1:42 p.m., in Room 334, Cannon House Office Building, Hon. Stephanie Herseth Sandlin [Chairwoman of the Subcommittee] presiding.
Present: Representatives Herseth Sandlin, Adler, and Boozman.
OPENING STATEMENT OF CHAIRWOMAN HERSETH SANDLIN
Ms. HERSETH SANDLIN. Good afternoon, ladies and gentlemen, the Committee on Veterans’ Affairs, Subcommittee on Economic Opportunity, hearing on the Status of Veterans Small Business will come to order.
I ask unanimous consent that all Members have 5 legislative days to revise and extend their remarks and that written statements be made part of the record. Hearing no objection, so ordered.
Today’s hearing will provide the U.S. Government Accountability Office (GAO) an opportunity to update us on the ongoing work on veteran-owned small businesses (VOSBs), and also provide the U.S. Small Business Administration’s (SBA's) Office of Advocacy the opportunity to update us on the veteran small business population.
We will also hear from the veteran’s community about the barriers encountered by veteran-owned small business while providing them the opportunity to submit recommendations on how to improve existing programs.
Finally, we will hear from Administration officials highlighting veteran small business programs within their respective offices. This timely hearing comes 3 days after President Obama authorized an Executive Order to establish an Interagency Task Force on Veterans Small Business Development, of which we would like to learn more about.
I look forward to hearing from all of our panelists today on this very important topic. I thank all of our witnesses on each of the panels for their patience in light of the last series of votes and our late start today, but I don’t think we will have any more interruptions on votes for awhile.
I now recognize our distinguished Ranking Member, Mr. Boozman, for his opening remarks.
[The prepared statement of Congresswoman Herseth Sandlin appears in the Appendix.]
Mr. BOOZMAN. I think in the interest of time with our interruptions, what I would like to do is ask unanimous consent to submit my statement for the record.
[The prepared statement of Congressman Boozman appears in the Appendix.]
Ms. HERSETH SANDLIN. Hearing no objection so ordered.
We will move right to our first panel then.
Joining us on our first panel is Mr. William Shear, Director of Financial Markets and Community Investment for the U.S. Government Accountability Office, Mr. Joseph Sobota, Assistant Chief Counsel for the Office of Advocacy, U.S. Small Business Administration, and Ms. Diane Farrell, Director for the Export-Import (Ex-Im) Bank of the United States.
I would like to remind all of our panelists, the witnesses on this panel and others, that your complete written statements have been made part of the hearing record, and we ask you to limit your remarks to 5 minutes so that we have sufficient time for questions for each of the witnesses on the panel after you provide your testimony.
So Mr. Shear, we will start with you. You are now recognized for 5 minutes.
STATEMENTS OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; JOSEPH F. SOBOTA, ASSISTANT CHIEF COUNSEL FOR ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION; AND DIANE FARRELL, DIRECTOR, EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. SHEAR. Chairwoman Herseth Sandlin, Ranking Member Boozman, and Members of the Subcommittee, it is a pleasure to be here this afternoon to discuss our evaluation of U.S. Department of Veterans Affairs (VA) actions to expand Federal contracting opportunities for veteran-owned small businesses and service disabled veteran-owned small businesses.
Our work is mandated by the Veterans Benefits Health Care and Information Technology Act of 2006.
My statement today is based on preliminary observations from our ongoing 3-year study looking at VA’s efforts to contract with VOSBs and service-disabled veteran-owned small businesses (SDVOSBs).
As to the status of our study we have provided a draft report to obtain agency comments from VA. We plan to issue our final report by the first week of June.
My statement discusses first the extent to which VA met its prime contracting goals for SDVOSBs and VOSBs in fiscal years 2007 through 2009, and second, VA’s progress in implementing procedures to verify the ownership, control, and veteran status of firms in its mandated database of SDVOSBs and VOSBs.
As shown in my statement, VA has exceeded its contracting goals. The increase of awards was associated with the agency’s use of unique veteran preference authorities established by the 2006 Act; however, a review of interagency agreements found that VA lacked an effective process to ensure that interagency agreements include required language that the other agencies comply to the maximum extent feasible with VA’s contracting goals and preferences for veteran-owned small businesses.
With respect to verification, VA has made limited progress in implementing its verification program. While the 2006 Act requires VA to use veteran preference authorities only to award contracts to verified businesses, VA’s regulation does not require that this take place until January 1st, 2012.
To date VA has verified about 2,900 businesses or approximately 14 percent of businesses in its mandated database of veteran-owned small businesses.
In our evaluation of VA’s verification program we have identified a number of weaknesses. They include first, files missing required information and explanations of how staff determine that control and ownership requirements had been met. Second, a large and growing backlog of higher risk businesses awaiting site visits as required by VA procedures. And third, although site visit reports indicate a high level of misrepresentation, VA has not developed guidance for referring cases of misrepresentation for enforcement action.
Here I will add that such businesses are subject to debarment under the 2006 Act.
In our final report we anticipate making recommendations to VA addressing its verification program and other matters.
It is a pleasure to appear before you today, I would be happy to answer any questions you may have.
[The prepared statement of Mr. Shear appears in the Appendix.]
Ms. HERSETH SANDLIN. Thank you, Mr. Shear. Mr. Sobota, you are now recognized.
Mr. SOBOTA. Chairwoman Herseth Sandlin, Members of the Subcommittee, good afternoon, and thank you for the opportunity to appear before you today to update information provided to the Subcommittee last year and to provide new data in response to the questions you have posed.
My name is Joe Sobota, and I am an Assistant Chief Counsel in the Office of Advocacy at the U.S. Small Business Administration.
Because Advocacy was established to provide independent counsel to policymakers, its testimony is not circulated for comment through the Office of Management and Budget (OMB) or other Federal offices, and the views expressed by Advocacy here do not necessarily reflect the position of the Administration or of SBA.
Economic research on all types of small business issues has been one of Advocacy’s core mission since its inception. Public Law 106-50 further directed Advocacy to develop information about firms owned by veterans and by service-disabled veterans and the role that they play in our economy.
Advocacy continues a long-term research effort in this important area. This includes the collection and interpretation of data from existing sources, commissioning of special tabulations of unpublished data, and contract research on issue specific topics.
The most important source of data on veterans in business remains the U.S. Census Bureau’s somewhat dated 2002 Survey of Business Owners and Self-employed Persons, what we call the SBO. The Census Bureau plans to issue a new report on veterans in business in May 2011 using data from its 2007 SBO. Until then, the 2002 SBO remains our best source.
Concerning the questions you have posed, we are pleased to be able to offer some very interesting information that Advocacy has developed by commissioning special tabulations of SBO data that have not been published in the Census reports. These special tabulations help us fill some data gaps and have not received wide circulation.
Using both the new and previously available data we can address three of the questions that the Subcommittee posed, those relating to location, industry sector, and export sales.
First, a few general statistics. The 2002 SBO indicated that 14.5 percent of all business owners were veterans and about seven percent of these were service-disabled. The Census also found that 12.2 percent of all firms were veteran owned. If these percentages remained the same in 2009, there would have been about 3.6 million veteran-owned firms last year, of which perhaps 250,000 were owned by service disabled veterans.
Caution needs to be used with this sort of extrapolation, and if you want we can return to that subject.
Veteran-owned firms mirror the greater business community in most respects, including their distribution by size both in terms of revenue and number of employees; their distribution by industry type; the percentage of those that are home based; in their level of franchise ownership; in the sources of capital used for business start up, acquisition and expansion; in the types of workers they use; and in the types of their major customers.
Veteran business owners are, however, much older as a group than other owners, and they are overwhelmingly male. These characteristics reflect the demographics of the underlying population of all veterans.
The top ten States for veteran business owners were California, Texas, Florida, New York, Pennsylvania, Illinois, Ohio, North Carolina, Georgia, and Michigan. Virginia and Washington State also appeared on the top ten list for service-disabled veteran owners.
Advocacy’s special tabulation also showed that concentrations of both veteran and service-disabled veteran owners were slightly higher in rural areas than those for all business owners. Generally speaking, about eight and a half percent of all veteran owners were in rural areas, those being areas without urban core populations of 10,000 or more.
Those industries with the largest share of veteran-owned firms were the same as those for all U.S. firms. Professional, scientific, and technical services lead at 18.7 percent of all veteran-owned firms; construction, 13.9 percent; other services, 10.2 percent; retail trade, 9.5 percent; and real estate and rental leasing, 9.3 percent.
Some variations occur in these distributions between employers and non-employers.
Finally, Advocacy’s special tabulation provides information on owners whose firms have major export customers, those customers accounting for ten percent or more of a firm’s sales, and among employer firms this is about 2 percent of all owners; 1.8 percent of veteran owners, and 2.2 percent of service-disabled veteran owners had major export customers. There were slightly lower levels among non-employers.
Advocacy currently has in progress two additional economic research projects on veteran-related issues. One is examining factors affecting entrepreneurship among veterans, and another is looking at tax and regulatory problems facing veteran entrepreneurs.
This study should help us answer another question you have posed, and it is currently in peer review and should be ready this summer.
We have only mentioned a very small fraction of the large amount of information in the special tabulations we have appended to our written testimony today. I hope that this additional data will be useful to the Subcommittee, and we stand ready to help answer any questions that arise in connection with its review.
We at Advocacy very much appreciate the Subcommittee’s interest in veteran entrepreneurship issues and Advocacy’s work in this area. We look forward to continuing to work with the Subcommittee in any way we can to help advance our knowledge about veterans in business and to help you in your deliberations on how to best serve the Nation’s veterans community.
[The prepared statement of Mr. Sobota appears in the Appendix.]
Ms. HERSETH SANDLIN. Thank you, Mr. Sobota.
Ms. Farrell, we believe it may be the first time that the Export-Import Bank has testified before our Subcommittee, so we welcome you and look forward to your testimony.
Ms. FARRELL. Thank you very much, Madam Chairwoman, and also thank you to Ranking Member Boozman for inviting us here this afternoon. We welcome the opportunity to talk about veterans and small business.
I do bring greetings from our Chairman, Fred P. Hochberg, who I might add was the Acting Administrator of the Small Business Administration during a prior Administration, so he brings commitment and dedication to the small business area, especially when it comes to Ex-Im Bank.
Because we are a small agency, I did want to take a moment just to share exactly that which it is that we do to provide support to U.S. companies, especially veterans and small businesses, and then talk a little bit about what we are doing going forward.
We are first and foremost a jobs agency. That is how we see ourselves. We are dedicated to providing a level playing field to U.S. companies who want to compete overseas, recognizing that 95 percent of markets these days tend to be overseas. This is a particularly important moment in time for Ex-Im Bank and the service that it provides.
We actually provide short-term support, which would be either in the form of working capital or export credit insurance. We also provide medium term, 3 to 5-year financing, as well as long term, which can run anywhere from 5 to say, 18 years. However, the focus today is clearly on the short-term products.
We are not here to compete with the banks. I think that is very important. We are here to provide assistance when it is necessary. If a market is of particular concern and it has an opportunity to an exporter but a bank may be somewhat hesitant to become involved, that is where Ex-Im can really take a role in providing the kind of assurance to the exporters bank in order to make sure that that sale can go through and that the exporter can be successful.
We are a self-sustaining agency. I am always proud of saying that. And to the envy of some of my colleagues in this field we are of course chartered through the Congress. Our budgets are overseen by Office of Management and Budget, but we do have an arrangement with the U.S. Treasury, and each year we do actually return funds to the Federal coffers, and we are quite proud of that fact.
We do not have a lot of offices. We are a small agency. We have six offices across the country. They are listed in your official testimony, but we do a lot with the SBA, a lot with the Department of Commerce. We have a presence in all of the U.S. Export Assistance Centers (USEACs) across the country.
And to our Chairman’s credit, we have embarked upon a very ambitious marketing program over the last year where we have actually held events known as ExportsLive, in a number of key markets, and that is continuing now to what might be considered secondary markets, and I offer to our Members of Congress and this Committee that we are happy to provide an ExportsLive event in any of your districts should you feel that it is an appropriate opportunity.
In addition to that we are also very active with the TPCC, the Trade Promotion Coordinating Committee. In that regard again we are trying as best we can to find multipliers as it were to get the word out about Ex-Im and what exactly we are able to do.
To date this year we know that we have positively effected 109,000 jobs. We also know that we are on track to have another historic year. Last year we did $21 billion in exports, $4.4 billion of that amount fit the SBA definition of small business. So again, we are seeing an up-tick.
Our Chairman has also raised the bar and wants to see us get to $6 billion if at all possible this year, so you can imagine that we are exceptionally busy.
We also in addition to some of these broader outreach efforts I am pleased to say that we do work with the Interagency Network of Enterprise Assistant Providers (INEAP), as well as the Center for Veterans Enterprise (CVE).
And I might add that while your delay may have been vexing to some in the audience, it did give me the opportunity to meet a number of key constituents who are here, and I think that we have begun a conversation that we are going to be able to carry forward in terms of outreach to members of those organizations.
The last point that I will leave you with is really a very quick story, but I always think that these are the things that bring it home. As I always say, we are the rubber that meets the road, we are the actual U.S. Government facility that can provide help with a transaction.
And there was a couple in 1956 in southeast Maine who were both veterans and decided that they wanted to start a business. They could see that there was an opportunity to purchase a lobster business, not surprising coming from Maine.
Fast forward to 2010. The business transferred to their daughter and to their son-in-law who actually realized that given the fact that there is a glut of lobster due to over fishing—we can get into the science of this at a future date—they realized that they had tremendous opportunity to sell overseas, and it was through our export credit insurance that we were able to provide the support that they needed, and now their business is almost exclusively overseas. First in the United Kingdom and Italy, now they are looking to Spain and Korea. And they note that at least 20 of their lobster-men, the individuals who are out there in the boats who are supplying the lobster, are in fact veterans themselves.
So it is a good story, one that I think again sort of brings all that we do down to the real, to the true, to the personal level and to the exporter themselves.
Thank you again for inviting us to testify.
[The prepared statement of Ms. Farrell appears in the Appendix.]
Ms. HERSETH SANDLIN. Thank you, Ms. Farrell. Let us just go from there then on the story. How did the daughter and son-in-law find out about the export credit insurance program?
Ms. FARRELL. That is a wonderful question. They actually contacted the USEAC in Boston who put them in touch with the appropriate Ex-Im representative who is actually based out of New York, but knows enough about lobster that we were able to get the transaction through.
Ms. HERSETH SANDLIN. Okay. What is a USEAC?
Ms. FARRELL. Oh, I am so sorry. A U.S. Export Assistant Center. So those are offices around the country that will have representatives from the U.S. Commercial Services, Department of Commerce—
Ms. HERSETH SANDLIN. Okay.
Ms. FARRELL [continuing]. From SBA, Ex-Im, et cetera.
Ms. HERSETH SANDLIN. Are there fees associated to the small business? What kind of fees could the business in the story that you described or others expect, if we are looking at is veteran-owned small business—
Ms. FARRELL. Yes.
Ms. HERSETH SANDLIN. They want to get in touch and learn about some of the programs that you provide. We know that there are always fees, and sometimes we try to waive those fees temporarily to spur utilization of the programs or the loans. Could you describe those for us in terms of what Export-Import Bank would do?
Ms. FARRELL. Well the fees are determined by our credit underwriters. As we like to say, every credit is a unique credit. They obviously have to take into account the level of risk that is involved with the particular market that our exporter wants to sell in to.
What I can say about the fees generally is that they are cents on the dollar when it comes to export credit insurance, as was the case with the lobster facility. And in fact, in many cases—and this is an opportunity that we actually present when we are talking to U.S. exporters—if you take out export credit insurance through Ex-Im Bank oftentimes then your buyer is not required to take out a letter of credit when it comes to procuring the funds that they need from their, you know, bank, the bank overseas. And so what we explain to exporters is number one, it gives you peace of mind that in the event of a non-payment you are covered. It gives your bank peace of mind that in the event of a non-payment they, you know, they have the expectation that they are still covered, and it can help the buyer. And so that helps our exporter to say, hey, I am helping you out as well by taking out this insurance because your bank is going to be more comfortable about the way the transaction works.
So the fees—we have never really had a complaint about the amount of the fees—the fees are really there to sort of service what it takes for us to provide it.
In fact as we talk about expanding more aggressively and from a credit underwriting perspective, we are actually discussing the fact that the fees may not in fact cover the cost of this program, but that when you look at the bank’s transactions overall where that is a loss, there are other programs say in the aircraft sector, for example, that do provide a healthy enough return that we can cover the losses adequately.
Ms. HERSETH SANDLIN. Then through your partnerships that you have with SBA, Department of Commerce, the Center for Veterans Enterprise, are you in a position with the resources that you have, or is it through these partnerships where you are not just sort of waiting for the business to have identified an export market opportunity, but you are aggressively looking at through trade policies, through monitoring. What is happening in the global marketplace, particular export opportunities that would match up and in sharing that information with these other agencies that know of businesses that are out there that could take advantage of what is happening globally?
Ms. FARRELL. Yes, absolutely. Again, when Chairman Hochberg came in one of the things he did immediately was to take stock. And you know, we are only about 400 employees. I mean, that is how small a Federal agency we are, so we have to rely upon the SBA, Department of Commerce, and work closely also with the U.S. Trade Development Agency (USTDA), as well as the Organization of the Petroleum Exporting Countries, you know, to maximize our exposure and the number of impressions that we can make.
But one of the things that Chairman Hochberg did initially was to identify key markets in strategic regions around the world so that we were at least, you know, placing our maximum efforts where we felt we were going to get the maximum return.
We do the same thing to a degree in sectors, because we are required—again, as a jobs agency here to create and maintain jobs we have certain content requirements to ensure that the jobs are happening here in the U.S. as opposed to, you know, potentially facilitating for jobs to migrate overseas, and that is probably the single most complex restriction that we have with in terms of working with companies here, but we are providing ways to be as expansive as possible in our support.
So yes, I would say we rely upon the kindness of strangers to quote Tennessee Williams, but it works very cooperatively. We do trade missions with Commerce, with USTDA, we share information, and of course the export cabinet that was created as part of the National Export Initiative when President Obama actually rolled this at our annual conference last month, has been very good as well in terms of coordination and strategic efforts to bring good business prospects to our exporters.
Ms. HERSETH SANDLIN. If the Ranking Member doesn’t mind I will just maybe pose one more question as sort of a segue. I think that is an important restriction. Right, the objective is to create jobs here in the United States, and so that leads me to my question for Mr. Shear. We have, as it relates to contracting requirements, a goal of making sure that it is veteran-owned businesses that are getting these opportunities, just as it is in terms of the restriction Ms. Farrell described, but they are jobs created here as the objective.
In your written testimony you stated that the VA had hired a contractor to assess the verification programs process and the contractor report included recommendations. I mean again, we are a little concerned with sort of the progress the VA is making on the verifications as it relates to those on the database who have been verified to be veteran-owned businesses to deal with the issue of veteran shopping that we have had concerns about with the Subcommittee previously.
Can you elaborate on what recommendations were given to the VA?
Mr. SHEAR. I will paraphrase in a way that, we have, as I stated, we have a draft report, and there is a need to implement our VA’s information technology in a way that allows for more efficient processing of these applications.
You also need—really it is development of people in terms of their ability and the guidance that they have to have in terms of how they verify businesses.
So I am segueing a little bit into what, what we are reporting on, but basically that VA has been very slow in this process, and the reason we think it is very important to verify is because the preferences are meant to serve veterans and veteran-owned small businesses, and there is not an assurance that that is occurring, and it has been delayed for some period of time.
So just the fact that the consultant study took so long until VA moved in that direction is of concern to us.
Ms. HERSETH SANDLIN. Mr. Boozman?
Mr. BOOZMAN. Thank you, Madam Chair.
Mr. Shear, Public Law 109-461 requires VA to review contracts for compliance with subcontracting proposals. Would you share GAO’s view of VA’s performance in implementing the provisions?
Mr. SHEAR. Subcontracting will be contained in our final report. And what we observed with subcontracting requirements, there are certain issues as far as the date when the requirements becomes effective. But what we have observed to date is that with respect to subcontracting VA falls very short of its goals.
Mr. BOOZMAN. Thank you very much.
Ms. HERSETH SANDLIN. One final question. Mr. Sobota, of the States that you listed you didn’t list South Dakota or Arkansas. The ten that you listed have a very high population, high density population States, and so did you do an analysis—I know you gave us some—in terms of the additional materials to your testimony, did you do an analysis per capita by States, and then can you elaborate just a little bit more in terms of the rural nature of the businesses that you described?
Mr. SOBOTA. Yes, ma’am. The top ten States are certainly correlated to population. And all 50 States and the District of Columbia are listed in the prepared testimony.
I must say that the way that the Census Bureau presents its data in terms of percentages makes it a little more difficult to translate that into raw numbers that would be more user friendly, and you have to go through a number of steps in order to get to an estimate, and there are some statistical problems involved.
However, yesterday preparing for the hearing I decided that I ought to run a couple States just to see what they look like, and at random I just picked South Dakota and Arkansas, and so I will make an estimate without going through all the methodology, because I know that we have time constraints here.
In 2002 it would appear that South Dakota would have had about 11,900 total respondent veteran owners, of which about 800 would have been service-disabled. In Arkansas, it would be a little bit larger than that, and in Arkansas we figured about 32,700 total respondent veteran owners, and about 2200 of those would have been service-disabled.
Now those are 2002 numbers, and as explained in the testimony, this is a bit dated, and we hope when we get the 2007 data in 2011 that we will have some updated information here.
There is a way to make an extrapolation from the 2002 data to 2009, but we really have more and more difficulty with reliability the further away you get from the base year, and there is a further problem with the demographics in that we know that there are about 25 percent more businesses now than there were in 2002, but the long-term trend for the veteran population is down as the population ages, so we actually have about 10 percent fewer veterans in 2009 than in 2002, and I just looked that up this morning on the Department of Veterans Affairs Web site.
So while we have a growth in the business community as a whole, we have fewer veterans, and that makes the use of the 2002 factor of 12.2 percent of all firms being owned by veterans problematic in 2009. That percentage could well come down in this next round. So we are a little hesitant to make a prediction at the State level for the number of veteran-owned firms today, but we can certainly work with staff there to try to flesh out more information and anything else that we can do. But those two overall numbers I gave you I think are reasonably close for 2002.
We will have better information too after the new Census Bureau report comes out.
Ms. HERSETH SANDLIN. Which is when?
Mr. SOBOTA. May 2011 is what Census has currently scheduled.
Ms. HERSETH SANDLIN. All right, thank you.
Mr. Adler, did you have any questions to this panel?
Mr. ADLER. Madam Chair, I am embarrassed that I came a little late, so I think I am going to defer for now.
Ms. HERSETH SANDLIN. I understand. Mr. Boozman and I covered quite a bit of ground in terms of the testimony that we heard and getting a little bit of clarification from the GAO interim report and what we can anticipate, so you can also submit any questions for this panel for the written record.
Mr. ADLER. And thank you for your opportunity.
Ms. HERSETH SANDLIN. I want to thank each of you for highlighting, your findings on veteran-owned small businesses, elaborating more on the work that your agencies are doing. Your feedback of course helps us to better understand the population that the Subcommittee and the full Committee seek to assist. We look forward to learning more as you receive more up-to-date information in the weeks, months and years ahead.
Mr. Sobota, again we will—I think you make some good points in terms of how to keep up with this data effectively, and so again we appreciate the information on the status of our veteran-owned small businesses and we will look forward to seeing the finalized reports currently in process.
Thank you very much.
Mr. SHEAR. Thank you.
Ms. HERSETH SANDLIN. I now invite the second panel to the witness table. Joining us on our second panel of witnesses is Mr. Joseph Sharpe, Director of the National Economic Commission for the American Legion; Mr. Joe Wynn, Senior Advisor for the Vietnam Veterans of America (VVA); and Ms. Mary Kennedy Thompson, Vice Chairwoman of the Veterans Transitioning Franchise Initiative, the International Franchise Association (IFA).
Again your written statements have been made part of the hearing record. We will recognize you each for 5 minutes, and Mr. Sharpe we will begin with you. Welcome back to the Subcommittee.
STATEMENTS OF JOSEPH C. SHARPE, JR., DIRECTOR, NATIONAL ECONOMIC COMMISSION, AMERICAN LEGION; JOE WYNN, SENIOR ADVISOR, VIETNAM VETERANS OF AMERICA; AND MARY KENNEDY THOMPSON, PRESIDENT, MR. ROOTER PLUMBING CORPORATION, WACO, TX, AND VICE CHAIRWOMAN, VETFRAN COMMITTEE, INTERNATIONAL FRANCHISE ASSOCIATION
STATEMENT OF JOSEPH C. SHARPE, JR.
Mr. SHARPE. Madam Chair, Ranking Member Boozman, and Members of the Subcommittee, thank you for the opportunity to submit the views of the American Legion’s regarding the status of veteran businesses.
In fiscal year 2009, Federal agencies missed their small business contracting goals by two percent. Procurement officers have made statements according to the Chair of the House Small Business Committee that those numbers are insignificant and nothing to be concerned about; however, while a two percent shortfall may not sound like a lot to those officers, it ultimately cost entrepreneurs approximately $10 billion in missed opportunity and employment for veterans.
According to the Department of Labor, the present unemployment rate for recently discharged veterans is an alarming 20 percent, and for veterans between the ages of 18 to 24 there is a 30.2 percent unemployment rate.
Furthermore, presently one out of every four veterans who do find employment earns less than $25,000 per year.
Historically small businesses have created an estimated 65 to 75 percent of the net new jobs, therefore, providing a central element for strong economic growth.
The American Legion believes that government should assist in the creation of new jobs by encouraging qualified entrepreneurs to start and expand their small businesses.
The American Legion also knows that no group is better qualified or deserving of this type of assistance than veterans.
Increasingly, the near term growth and stability of this Nation’s economy is dependent on the long-term success of small business networks across the country.
In conclusion, the American Legion strongly supports the mandates of the Veterans Entrepreneurship and Small Business Development Act of 1999, Public Law 106-50, that were designed to assist all veterans wishing to start, expand, or protect their business.
Agency leadership need to be held responsible for meeting the three percent Congressionally mandated goals, and that this Committee should schedule hearings with all Federal agencies who consistently do not meet their Federal procurement goals with the service-disabled veteran-owned business.
Madam Chair, this concludes my statement. I will be happy to answer any questions you may ask.
[The prepared statement of Mr. Sharpe appears in the Appendix.]
Ms. HERSETH SANDLIN. Thank you, Mr. Sharpe, appreciate your testimony.
Mr. Wynn, you are now recognized.
Mr. WYNN. Thank you, Madam Chairwoman. Good afternoon, and good afternoon to Ranking Member Boozman, Members of the Subcommittee.
I am here today on behalf of the Vietnam Veterans of America and its members to address our views regarding the status of veterans small businesses and are we failing them?
Just to quickly put it, yes, I think in many ways we probably are as we focus on contracting for veteran-owned businesses.
I am just going to hit on a couple of points, itemize a few points, because I know that this Committee has been very supportive of veterans and veteran business opportunities.
One of the things that hasn’t been happening is still a lack of accountability, oversight, and enforcement. The agencies that have been directed to carry out the laws still are not being held accountable, they still—if they don’t make the three percent nothing happens. There is still a lot of ambiguities in the laws that govern the service-disabled vet program.
We have heard a lot over previous years about the word “may,” as it pertains to the service-disabled vet program, the word “may” that governs this program is often interpreted as, “I don’t have to.” What would be more effective is to change that word “may” to “shall,” and change it in all programs, all of the preference programs, at least the 8(a) and HUBZone, as well as service-disabled vet so that we would have some true equal parity.
We used to have or we still have an Executive Order 13-360, but it has faded significantly in its significance. In that Executive Order it called for agencies to actually write out a strategic plan showing how they would increase contracting opportunities for service-disabled vets. That doesn’t seem to be happening very much anymore, and instead we later came up with—SBA came up with a score card program for all small businesses that doesn’t seem to be as effective, at least in terms of veteran businesses increasing.
There is still an overuse of large prime contractors and bundling. This not only affects veteran-owned small businesses, it affects small businesses across the board. When you continue to lump contracts together and make them awful large, small businesses just can’t compete.
There is also no authorization within the service-disabled vet program for contracting officers to make direct awards in the same manner as it is within the 8(a) program. Again, if we are going to equalize the playing field let us make the activity and actions equal across the board.
A couple of other reasons I would just like to hit on quickly. There is still limited business development assistance. We know that recently there was grant awards made to the SBA Office of Veteran Business Development to increase the number of veteran business centers, business outreach centers, but the amount of the funding is still woefully low. One hundred fifty thousand dollars per center to cover huge geographic areas is not acceptable.
One other point too on the VA’s Veteran First contracting program. While this has been a significant step forward, is it still for some reason there is a prevailing belief that SDVOB stands for small and disadvantaged veteran-owned businesses, wherein all of our veteran-owned businesses are not in that category. So this is a disservice to those that are capable and qualified of competing on the open market.
VA contracting with Veterans First really should be a government-wide model, and we would like to see this program improved and actually have it implemented across the government.
We hear often that small business is the engine that fuels the economy and it creates more jobs. This is a statistical fact, and we would like to see more effort put into creating opportunities for our veteran small business owners.
Just recently this week as a matter of fact, we listened to the announcement about an Executive Order to increase contracting opportunities for veterans. We are definitely appreciative that this has come forward. Although I might note that this Executive Order for veteran businesses actually mirrors the language that was in Public Law 110-186 2 years ago. So hopefully this will now move forward since this Administration is supporting it.
Let me conclude my statement by just saying that if we are going to help veterans, we need to help them now. The majority of our veterans are Vietnam veterans. Of course we know as time continues to move forward our veterans are getting older, we want to bring more new veterans into the marketplace, but we don’t want to—the other day we were talking about increasing the number of service-disabled veterans. Quite frankly, we really don’t want to increase more veterans to have to be service disabled before they can get a contract, but at any rate let us see if we can do more for our veterans.
Thank you.
[The prepared statement of Mr. Wynn appears in the Appendix.]
Ms. HERSETH SANDLIN. Thank you, Mr. Wynn.
Ms. Thompson?
STATEMENT OF MARY KENNEDY THOMPSON
Ms. THOMPSON. Good afternoon, Chairwoman Herseth Sandlin, Ranking Member Boozman, and Members of the Subcommittee.
My name is Mary Kennedy Thompson and I am President of Mr. Rooter Plumbing based in Waco, Texas. Mr. Rooter is a proud brand of The Dwyer Group family of service enterprises, and we have more than 270 locations across the United States.
As a veteran, I am truly honored to have this chance to speak to the Subcommittee on Economic Opportunity about veteran entrepreneurship.
I appear today on behalf of the International Franchise Association.
According to a 2008 study conducted by PricewaterhouseCoopers, there are more than 900,000 franchised establishments in the United States that are responsible for creating 21 million American jobs and generating $2.3 trillion in economic output.
Today, I will talk about a program that is very near and dear to my heart, the Veterans Transition Franchise Initiative, or VetFran. I will also highlight specific legislation, H.R. 2672, the "Help Veterans Own Franchises Act," that will make it easier for veterans to purchase a franchise.
But first, I would like to share the story of how I decided that franchising was the right path to small business ownership for me. Helping fellow veterans make the transition to civilian life and realize their dream of small business ownership is one of my passions. I have taught what franchising offers at entrepreneurship classes offered specifically to disabled veterans. I also serve as the Vice Chairwoman of the IFA’s VetFran Committee.
Franchising is the great American dream. It allows people to own a business, and it teaches them a system to help them be successful. It did just that for me.
In 1985, I received my commission as an officer in the United States Marine Corps where I served for 8 years and achieved the rank of Captain while on active duty and later the rank of Major in the reserves. When I left active duty, I chose franchising because it provided me a framework of training and support to help me succeed as a small business owner.
I became a multi-unit franchisee in the Cookies by Design system where I earned company awards for Top Performer and Outstanding Customer Service. My success lead to being asked that I join the corporate team. I started out as Director of Franchise Operations, and eventually becoming the brand’s President.
I joined Mr. Rooter in October of 2006 to proudly serve the 40-year-old company as its first female President.
The military and franchising have a lot in common.
As a veteran from a military family I didn’t know how to run a business, I didn’t know how to get it started; however, I had the dream of being my own boss, and my military experience enabled me to lead others towards a common goal.
The Marine Corps also trained me how to follow a system and successfully execute a plan.
Members of our Armed Forces are disciplined, hard working, and passionate people who understand how to work well within systems. They are accustomed to following standard operating procedures, they have strong teamwork skills, and they are dedicated to mission success. These are crucial attributes that make military veterans excellent candidates for franchise ownership.
An estimated 250,000 men and women transition out of the military each year. Like me, many of these veterans are looking for a chance to be their own boss and leaders within their communities.
The vision to use franchising to help military veterans transition to civilian life began nearly 20 years ago. Don Dwyer, Sr., the founder of The Dwyer Group and a veteran himself, conceived the plan to help our veterans achieve the American dream by owning their own franchised small business. Mr. Dwyer’s Plan has become the IFAs VetFran program, a voluntary effort of IFA member companies designed to encourage franchise ownership by offering financial incentives to honorably discharged veterans.
Since 2002, more than 1,700 veterans have purchased their own franchise business from nearly 400 participating systems with the help of this program. What began as the idea of one veteran entrepreneur has today become a path to the American dream for thousands of veterans.
I am proud to report that in February of this year, The Dwyer Group topped the $1 million mark in VetFran discounts awarded to veterans.
Since 2002, The Dwyer Group has sold franchises to 233 military veterans through this program, and Mr. Rooter Plumbing was recently recognized by USA Today as one of the top 50 franchises for military veterans.
Congress has the opportunity to make this important effort more effective. Legislation has been introduced to cement the benefits of a program like VetFran into policy and encourage more franchise systems to support veterans as small business owners.
I strongly urge the Members of the Subcommittee to co-sponsor and for Congress to pass H.R. 2672, the "Help Veterans Own Franchises Act." This bill is co-authored by Representatives Aaron Schock and Leonard Boswell, and currently has more than 30 bipartisan co-sponsors.
This legislation establishes a tax credit for franchised businesses offering qualified veterans a discounted initial franchise fee. The tax credit would amount to 50 percent of the total franchise fee discounted offered by the franchisor capped at $25,000 per unit, and also provides a tax credit to the veteran for the remaining initial franchise fee paid.
I want to thank Ranking Member Boozman who has already co-sponsored this important legislation.
Enactment of this tax credit will encourage economic growth and make it easier for veterans to become small business owners. Our veterans deserve this chance after so faithfully serving our country.
Again, on behalf of the International Franchise Association, Mr. Rooter Plumbing, and the Dwyer Group family of brands, we sincerely appreciate the work of the Subcommittee. Thank you.
We strongly urge you to support and pass the "Help Veterans Own Franchises Act" so that more of our veterans may return home and begin building a bright future for themselves, a bright future for their families, and for their communities through small business ownership.
Thank you, and I look forward to answering any questions you may have.
[The prepared statement of Ms. Thompson appears in the Appendix.]
Ms. HERSETH SANDLIN. Thank you, Ms. Thompson. You have an impressive record of military service and professional achievements, and we are very pleased to have you here today.
In addition to your advocacy for H.R. 2672 and the tax credits to be provided, what are some of the current existing discounts or benefits available to veterans purchasing a franchise?
Ms. THOMPSON. Well with the VetFran program any of the participating members, and we have over 400 members, any of those participating members are offering discounts up to about 50 percent of the franchise fee that is offered to the veteran.
In Mr. Rooter Plumbing we have offered that and given that to over 50 franchises already—veteran franchises.
Ms. HERSETH SANDLIN. Can you tell us what the average cost is of a franchise for a perspective veteran?
Ms. THOMPSON. Certainly. I can speak from my own experience. An average franchise especially in our system is going to cost about anywhere from $50,000 to $100,000, that is including equipment and including the franchise fee and getting started. They are going to probably pay about $30,000 for a franchise fee, so they get a 50 percent discount, which means that they get a $15,000 discount, and that $15,000, that is a truck. In the world of plumbing that is a truck. And they get more trucks on the road, they get their business started faster.
Ms. HERSETH SANDLIN. That is very helpful. Can you elaborate on the details of the Memorandum of Understanding between the VA and the International Franchise Association?
Ms. THOMPSON. I sure can. We do have a Memorandum of Understanding that—let me grab my notes really quickly. There is it.
We came into that Memorandum of Understanding a few years ago, and it is a collaborative agreement with the VA and VetFran to champion free enterprise and to expand business opportunities for veterans.
In 2006, we renewed our official Memorandum of Understanding with the VA and IFA jointly promote the program.
Ms. HERSETH SANDLIN. Thank you, Ms. Thompson.
I do have a question for both Mr. Sharpe and Mr. Wynn.
According to witness testimony for the hearing today, as well as phone calls from veterans to our Subcommittee staff, veterans have been unsuccessful when applying for the SBA’s Patriot Express Loan. Have either of you been made aware of this problem or similar problems?
Mr. SHARPE. That is probably the largest most frequent complaint that we receive from our business owners, that they are not able to access loans, and that the credit crunch in their viewpoint is a serious problem. That is one reason why we have been advocating for a direct loan program from SBA.
Ms. HERSETH SANDLIN. Mr. Wynn?
Mr. WYNN. Yes. I would have to concur with that. We were actually set up—we have set up a veteran business resource center here in DC, and one of the primary services we are planning to offer is how to access capital.
In talking with some of the veterans with regard to the Patriot Express Loan, they are having difficulties also to acquire that capital.
The rational seems to be because the—you know, the banks in general seem to be tightening the credit, their lending practices, so that is, you
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