STATEMENT
of the
Honorable Nydia M. Velázquez, Ranking Member
United States Hispanic Chamber of Commerce
April 20, 2005

Hello. I want to thank you all for having me today. It is always a pleasure to be here among some of the most successful Hispanics business leaders I know.

I don't have to tell this group that Hispanic businesses are booming today. Even in the midst of all the difficulties in the current economy, your community has continued to be a dominant force!

The numbers speak for themselves. You represent 40 percent of all small businesses - your growth has been amazing!

Each and every day your businesses are stimulating the U.S. economy, and creating employment opportunities. In 1997, Hispanic businesses created a surplus of nearly 140,000 new jobs by 2001. Clearly, you are leading the way in the business world and you deserve to have access to every opportunity out there that will allow you to continue on this successful path.

However, the truth is that the economic environment for entrepreneurs is not what it should be. With a budget deficit nearing $427 billion and skyrocketing gas, energy and healthcare costs - small businesses are having an even tougher time getting their feet off the ground.

In order to run a successful business, you must be able to provide benefits to your employees. However, with the increasing price of health care - rising 60 percent over the past five years - health care is a benefit that far too many business owners are simply lacking.
It is hitting the Hispanic business community particularly hard. Minorities make up a third of the U.S. population, but disproportionately comprise 52 percent of the uninsured. And six out of every 10 uninsured Americans are in families headed by self-employed workers, or small business employees.

This is not right. One of the solutions that has been on the table for quite some time are the Association Healthcare Plans (AHPs), which would allow small firms to pool together to purchase health coverage. In order to provide health care to the thousands of Hispanic business owners that don't have it, something needs to be done to finally move this legislation forward.

We need less talk and more action from our leaders here in Washington if we are ever going to address the health care issue, which has reached crisis levels in the Hispanic community.

Not only is health care a main concern, but many small businesses also do not have adequate retirement options. Today, 90 percent of large employers have retirement plans in place, while 80 percent of small business workers have no employer-based plan. This is not because they do not want to - but because they simply don't have the same options as large firms.

We have heard a lot of talk that the best way to help small business is through social security reform and by creating personal savings accounts. However, the truth is that additional liability, regulatory and cost burdens could be placed on small businesses through these accounts.

Instead of proposing changes to social security which could negatively impact your businesses - it would make more sense to come up with a solution to enhance retirement plans for your businesses, so you have the same options as Corporate America.

You all know that having ample benefits allows your business to remain competitive in today's world. A major tool that allows you to access the assistance needed to make your business venture a success is the SBA. However, this agency has sadly deteriorated over the past four years. What was once a Cabinet Level agency with a seat at the table is now nothing more than a shell of an agency. Five years ago before President Bush came into office, the budget for this agency was $1.1 billon dollars. That has now been cut nearly in half to only $593 billion.

The truth here is that Hispanic-owned businesses are without a doubt feeling the effects of SBA's continuous decline. The administration has claimed that SBA can do more with less - however the declines in loans, the lost contracting opportunities, and the shrinking access to development assistance tells a whole different story. What is really happening is that SBA, and in turn Hispanic entrepreneurs, are getting less.

I know you had a discussion just yesterday about accessing opportunities with the largest buyer in the world - the federal government. Despite the tremendous growth in the federal marketplace - which increased by $100 billion over the past four years - it is your businesses that have not fared well.

I do an evaluation every year - the Scorecard - that measures how federal agencies meet their small business contracting goals. Well, the sad reality is that the minority-owned business contracting goal has not been met since 1994.

That is 11 years of missed opportunities for your businesses! This failure has cost minority firms $15 billion in lost contracts over the past five years.

To make matters worse no one knows just how bad the situation really is, or what small businesses are doing in the federal marketplace. The SBA's own Office of Advocacy and GAO have reported that SBA's numbers were wrong. This resulted in as much as $2 billion dollars being misrepresented as small business contracts that really went toward large businesses in FY 2002. This is simply unacceptable.

What needs to happen here is that we must hold these agencies accountable for their failures. The administration talks about rising the accountability standards in the private sector - well it seems to me that these standards should be raised right here in the federal government.

Right now your businesses have very few rights in the federal marketplace. To change this, small businesses should have the right to refute adjustments made to their contracts, and stricter rules should be applied to stop bundled contracts. These actions are overdue and something needs to change.

At the top of the list of items that are long overdue is modernizing SBA's 8(a) program. This program has not been revitalized in so long that it is preventing successful minority businesses from accessing federal contracts. I have tried before to modernize this program in the SBA reauthorization - and I will try again.

Not only has the federal government remained closed to your businesses, but they have also made it difficult for you to access capital.

This has been one area that has posed particular difficulties for the Hispanic business community. Whether it was a sense of distrust for financial service institutions in the past, or a tradition of gravitating toward family networks - when it came to utilizing banks, many Hispanic entrepreneurs are still operating outside the mainstream.

It seems that good ideas and sound business plans often times do not fit into a financial institution's lending box. This has proven true in the past for many Hispanic business owners who wished to tap into the capital markets but were unable to qualify for traditional bank loans.

Given all of this, it seems as if the Hispanic business community stood to gain the most out of the public-private partnerships created by government lending programs. This need is the reason why these incentives were established in the first place.

The numbers show that Hispanics businesses are not getting the capital they deserve. Currently, minority-owned firms receive only 3 percent of venture capital investment.

SBA's flagship lending program, 7(a), provided only 7 percent of their loans to Hispanics. And most upsetting is that while the average 7(a) loan is $167,000, the average loan to Hispanics is only $128,000 - 25 percent less than the program average. It is not a coincidence that these figures are skewed this way. These programs have been under-funded and mismanaged.

This started almost immediately when President Bush took office and simply walked away from the commitment to small businesses and lenders. The administration neglected venture capital and allowed small businesses to carry almost the entire burden.

Most recently, the president did the same to the 7(a) program. Their actions resulted in as much as $3000 in upfront fees - this fee is really nothing more than a new tax placed on small businesses. It doesn't end here - this president proposed to completely eliminate the Microloan program, which last year provided $3.7 million to Hispanic entrepreneurs.

As a result of these actions, the SBIC participating securities program - the government's only venture capital program - is now closed. Given the miniscule amounts of venture capital your businesses were getting - it will be absolutely nothing now.

This is what happens when the administration walks away from the public-private partnership. If you look at the 7(a) program, small businesses are now getting millions less since the new lending tax was imposed.

But what worries me most is the long term ramifications this will have on access to capital. I worry about the lenders who truly believe in the program, but are then forced to leave it because it is too costly. This will likely impact small and rural communities the most - which is where Hispanic businesses often thrive.

A clear indication of the drop in participants is that in FY 2001, there were over 5,000 lenders that made at least one loan in the 7(a) program. But in FY 2004, there were nearly 2500 fewer active lenders. What will happen is that the 7(a) program will only be offered by a few banks in a limited number of communities.

This is not just about money either - it is about making poor choices. A perfect example of this is the 504 program - which does not cost the taxpayer even one cent. It is critical in spurring job creation and economic development - and is exactly the type of program that the Hispanic business community needs.
However, the administration's most recent budget request questioned the need, and limited its lending ability. I will tell you where this is heading - to yet another SBA program being shutdown. That would be 3 for 4 on their record of program shutdowns - not a record to be proud of.

We clearly cannot let this keep happening. These programs give us economic equity and are a true equalizer. It is these programs that make sure that the merits of business are measured on virtue itself.

That is why it is absolutely critical that these programs improve and expand - we should not be satisfied with just the status quo.
The SBIC participating securities program needs to be immediately re-opened, so it can act as a true public-private partnership and so small businesses do not have to bear the entire cost of the program.

With less than 2 percent of the SBIC investment going toward Hispanic businesses - something needs to give. Making the necessary changes should be the number one civil equity issue in the next two years. Our businesses deserve to receive their fair share of venture capital.

For traditional lending, the 7(a) program needs to be made more affordable and making new initiatives to bring lenders back.

Gateway programs like the Microloan program - a key economic empowerment initiative - must be maintained. The bottom line is that without a vibrant lending community, there will be no economic development.

With the lack of access to healthcare, contracts and capital - something needs to be done put these opportunities back into the hands of Hispanic business owners. It is the Hispanic community that knows how to fight and it is time to do just that.

At some point - someone needs to put their foot down. Trust me, I certainly have, but I cannot do it alone. It is your businesses that will be impacted - and your future and the U.S. economy that will be at stake. That is why I need you to make some noise - I need you and your fellow Hispanic business owners to get out there and tell your Members of Congress what needs to be done.

It is your businesses that have the power to really turn this economy around - and you need to be heard. I know it, but we need everyone to know it. It is time to really make a difference, and you are the only ones with the power to truly do that.
I look forward to working with all of you. Thank you.

 

 

 

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