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U.S. House of Representatives,
Committee on Banking and Financial Services,
Washington, DC.

    The committee met, pursuant to notice, at 10:07 a.m., in room 2128, Rayburn House Office Building, Hon. James A. Leach, [chairman of the committee], presiding.

    Present: Chairman Leach; Representatives Roukema, Campbell, Royce, Lucas, Kelly, Weldon, Cook, Riley, Ryan, Ose, Biggert, Terry, Green, LaFalce, Vento, C. Maloney of New York, Gutierrez, Velazquez, Watt, Bentsen, J. Maloney of Connecticut, Hooley, Sherman, Sandlin, Lee, Goode, Mascara, Schakowsky, Moore, Gonzalez, Jones, and Capuano.

    Chairman LEACH. The hearing will come to order.

    The committee convenes today to take testimony on reauthorization of the Community Development Financial Institutions Fund and the Program for Investment in Microentrepreneurs Act of 1999, known as the PRIME Act.

    H.R. 629, the CDFI Fund Amendments of 1999, reauthorizes the CDFI Fund for four years and establishes management controls that will help ensure appropriate administration of the Fund.
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    The CDFI goal of promoting economic growth and revitalization to distressed communities through grants which was going to be matched dollar for dollar by non-Federal funds is one which many of us support. Shortly, I will recognize Mr. Vento and Mrs. Roukema, the chief sponsors of the legislation to elaborate on their proposal.

    H.R. 413, the PRIME Act, introduced by Representative Rush, myself, and a number of other Members from both parties, and in the Senate by Senators Kennedy and Domenici, is designed to assist low-income entrepreneurs start and maintain new businesses.

    One of the greatest challenges we face as lawmakers is providing for new ways for bringing low-income individuals into the economic mainstream. The PRIME Act strengthens an element of the American economy that is vital to its growth and stability—entrepreneurship. It is in this entrepreneurial spirit that the concept of microlending has been embraced as an avenue of opportunity.

    Critics of Government programs often point out that the root of opportunity often is lost when disadvantaged citizens are wrongly assumed to be satisfied with a Government ''handout'' that leads to economic dependency rather than the helping hand that liberates motivation and facilitates improvements in the quality of lives.

    It is inescapable that greater benefits to individuals and our communities result from creating paths that will move disadvantaged Americans from dependency and poverty to independence and self-sufficiency. If entrepreneurial dreams are denied any part of America, society as a whole is shortchanged.
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    Let me just ask unanimous consent to put in the record a fuller aspect of this statement, and ask Mr. LaFalce if he has any opening comments.

    Mr. LAFALCE. Thank you very much, Mr. Chairman. When our Banking Committee approved the Community Development Financial Institutions Fund in 1994, our objective was to help create very small businesses and jobs and improve communities. We would do this, we thought, by offering credit, investment capital, and other financial services in distressed urban and rural communities. I am very pleased that the CDFI program is achieving its objectives, and has made over $180,000,000 in awards to community development organizations and financial institutions.

    Today, we will hear from the CDFI Fund Director, Ellen Lazar, who should be commended for her leadership in securing the progress of the program. We are hearing from a number of others. I would like to single out Joan Dallis, the Director of Economic Development at what I consider to be a model CDFI, and fortunate to have it located in my district, the Rural Opportunities Enterprise Center, Inc.

    Rural Opportunities is dedicated to providing community economic development services to small businesses and has done a really great job, providing countless jobs and economic opportunities throughout my district and many, many other places in the Northeast. I look forward to hearing more about their good work.

    As a result of the good work and success of organizations like Rural Opportunities, and the CDFI program overall, I concur with your judgment to move immediately after this hearing, Mr. Chairman, to reauthorize the program for an additional four years.
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    I especially want to thank that great Congressman from the great State of Minnesota, Bruce ''The Body'' Vento——


    ——for his leadership on this legislation, and urge unanimous support for passage of the CDFI Amendments Act of 1999.

    Mr. Chairman, I know you also have scheduled testimony about the PRIME Act, introduced in the House by Congressman Bobby Rush. I am pleased that you and I, along with Mr. Vento, Mr. Frank, Mrs. Maloney, and a number of others, are original cosponsors of the bill. To date, there are more than 103 cosponsors. It is very bipartisan. The PRIME Act will provide critical resources to low-income, prospective entrepreneurs who are striving to become economically self-sufficient by creating their own small businesses.

    I had the pleasure of serving as the Chairman of the Small Business Subcommittee for eight years, as Ranking Democrat for a while until I assumed the position of Ranking Democrat on the Banking Committee, and I have long believed that m&ms were the most important thing you could give to potential small business. And by m&ms, I mean money and management expertise. Very often, we overlook the importance of technical assistance and training. That can be expensive, but it is also the most important resource for struggling small business entrepreneurs.

    Adequate technical assistance and training support are essential to help low-income small business entrepreneurs achieve their potential. And it is for that reason that I very strongly support the PRIME Act and urge my colleagues to support this legislation also, in addition to the CDFI bill.
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    I applaud the leadership of former Banking Committee Member Bobby Rush, as well as Senator Ted Kennedy from Massachusetts. Should I say Senator Ted ''The Body'' Kennedy? And I look forward to hearing their testimony.

    Chairman LEACH. Thank you.

    Does anyone else on this side ask for—let me turn to Mr. Vento, the prime sponsor of one of these pieces of legislation.

    Mr. VENTO. Well, thanks, Mr. Chairman, for holding the hearing and acting as an impromptu photographer between a Member and his constituents, and your kind comments. There are two bills up, of course, the Community Development and Financial Institutions Reauthorization and the consideration of new policy embraced in the PRIME bill, introduced by our colleague, Bobby Rush, and others, including myself, and, of course, Senator Kennedy from Massachusetts, who is here to testify. I am very pleased to see that—obviously, a testament to their commitment to this important program.

    The reauthorization of CDFI, originally introduced by myself and Chairwoman Roukema, represents a product of the Subcommittee on Financial Institutions and Consumer Credit's work from last year, with the input from the Oversight Subcommittee and Banking Committee, through the work of Mr. Bachus and others.

    Importantly, the CDFI bill will reauthorize the CDFI Fund, including the CDFI and Bank Enterprise Act—BEA—programs through 2003, with modest increases in the authorization from the current appropriation of $90 million a year. Building on the experience of the past few years—and I might say, the painful growing pains—the bill enhances these two key programs and allows a partnership program with States' small business capital enhancement programs to be finally initiated without the $50 million threshold requirement for a specific appropriation, which, in essence, has blocked its implementation.
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    The bill will also solidify administrative reforms in the statute to ensure that programs will maintain their improved process for awarding grants. These improvements include promoting liquidity for CDFIs and other incentives for insured depositories that increase lending and investment in both economically distressed communities and the CDFIs.

    The changes will build capacity through training and technical assistance programs that will be allowed to utilize cooperative agreements. The reauthorization embraces the reforms with the requirements which employ a scoring system and multi-person review panel to apply the scoring system in the applications review process.

    H.R. 629 will also make technical changes to conform the CDFI Fund with its status as a wholly-owned Government corporation within the Treasury Department.

    Through the work of the CDFI Fund, almost 300 CDFIs have been certified as having a primary mission of promoting community development in particular in target markets.

    Since its creation, the Fund has made over $180 million in awards to banks, community development banks, loan funds, credit unions, and venture capital funds in rural and urban areas in 46 States and the District of Columbia. Since 1994, the Fund has represented an opportunity for our Federal resource, to be leveraged with private dollars through the CDFIs themselves and banks that participate in the BEA program.

    Importantly, the CDFI program requires a one dollar Federal match for each private dollar. These CDFI programs have helped provide loans for small businesses and mortgage loans for first-time home buyers, along with other financial services for currently underserved communities.
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    The CDFI Fund has also had a program to recognize microenterprise achievements, which should provide the path and the basic framework for what we hope will be a newly created capacity building program for microentrepreneurs through the enactment of the PRIME Act, which was also part of the President's Fiscal Year 2000 budget.

    As an original sponsor of that legislation, I want to especially welcome Ms. Karla Melvin of Women Ventures and her family, who are here today from Saint Paul, Minnesota, who will speak to the importance of this legislation in providing additional capacity and resources for training and technical assistance to lower-income entrepreneurs.

    The PRIME Act can offer a solid complementary opportunity from within the CDFI Fund program to build capacity for microenterprise development, so that people can—low-income people specifically—help themselves and build self-sufficiency toward a better future.

    I would be remiss if I did not acknowledge the very effective team at the CDFI today, led by Director Ellen Lazar. I feel confident that Director Lazar competently can guide the CDFI programs into the future with this new authorization and the reforms and policy initiatives we are shaping, or will be shaping shortly today.

    And I might say that, maybe in responding to what Congressman LaFalce said, the World Wrestling Federation is going to recruit me for a future career. But, in any case, right now, I am content to wrestle with the problems in Congress. There are plenty of them. Thank you, Mr. Chairman.
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    Chairman LEACH. Thank you.

    Mrs. Kelly.

    Mrs. KELLY. Thank you, Mr. Chairman.

    Chairman Leach, Ranking Member LaFalce, I want to thank you both for agreeing to hold this hearing and markup for H.R. 628, the Community Development Financial Institutions Fund, and H.R. 413, the Program for Investments in Microentrepreneurs Act of 1999.

    I am very proud to be a co-sponsor of H.R. 413, known as the PRIME Act. It is written to target its assistance to low-income individuals, the majority of whom are women. Anti-poverty focused microenterprise development, as designed in H.R. 413, builds upon the vibrancy of small businesses by offering training, technical assistance, and access to credit to low-income individuals. Long-term studies charting the effects of microenterprise development have found that low-income individuals engaged in microenterprise development increase their personal incomes, build assets, and decrease their reliance on Government benefits. This initiative provides the training and technical assistance, credit and access to credit necessary to assist individuals to pull themselves up out of poverty. We are all aware that if we can provide people with the tools to help themselves, their dependence on Government benefits programs will be reduced.

    And the statistics really speak for themselves. Seventy-two percent of poor microentrepreneurs experienced gains in household income; 53 percent of them saw increases large enough to move out of poverty. Low-income entrepreneurs increased their household income by an average of $8,484, from $13,889 to $22,374. Poor entrepreneurs reduced their reliance on Government assistance by an average of 61 percent, and the average benefits there decreased by $1,679.
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    It is for these reasons that I am a strong supporter of this legislation, and I want to thank Congressman Rush for taking the initiative to introduce the PRIME Act in this House, and I look forward to its quick consideration and passage.

    I also want to thank our distinguished panel of witnesses, who have taken the time to join us here today and share their views with us, and I look forward to hearing your thoughts. And I do thank you, Senator Kennedy and Congressman Rush, for taking the time to testify here today.

    Thank you very much, Mr. Chairman. I yield back the balance of my time.

    Chairman LEACH. Thank you, Ms. Kelly.

    Mr. Watt.

    Mr. WATT. Thank you, Mr. Chairman. I won't take five minutes, but I just wanted to say a few words.

    Both of these bills are bills that I have a very strong interest in, and am very supportive of. Unfortunately, there is at the same time going on a markup in the Judiciary Committee. There seems to be a perpetual markup going on in the Judiciary Committee. I would much rather stay here and deal with these kind and gentle subjects, but we have to deal with subjects like guns and youth violence, so I have to be there.

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    On the second panel of witnesses, Mr. Gensler is going to appear, and I wanted to ask unanimous consent to submit a question to him in writing, if I might be able to do that, since I probably will not be able to get back to hear his testimony.

    Chairman LEACH. Without objection. If you would pass it down, maybe we will even get it verbally, if you would like that, too.

    Mr. WATT. All right. That would be fine. I thank you, and I yield back the balance of my time.

    Chairman LEACH. Thank you.

    Ms. Schakowsky.

    Ms. SCHAKOWSKY. Thank you, Mr. Chairman. I would like permission just to put opening remarks in the record after saying a few words. I want to thank Congressmen Vento and Rush, Senator Kennedy, and Congresswoman Roukema for providing the leadership here, and just acknowledge one of the groups that is going to be helped by this legislation, which is the Women's Self-Employment Project in my home town of Chicago.

    It was established to raise the income and degree of self-sufficiency of low- and moderate-income women through a strategy of self-employment. And through these means, the organization specifically hopes to serve as a catalyst for developing viable options for alleviating poverty. They have been incredibly successful. These bills will help them even more successful. Thousands of women have received technical assistance and training, including business planning, financial management, marketing, ordinance interpretation, and computer training.
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    So, I appreciate that these bills will help low-income women, minorities, and immigrants build their lives and provide our struggling communities with the jobs, the goods and services that are a hallmark of this country's greatness.

    And if I could put the rest in the record, I would appreciate it.

    Chairman LEACH. Without objection, your statement and anyone else's statement of the committee will be placed on the record.

    Does anyone else seek recognition?

    If not, the committee is delighted to welcome, from the U.S. Senate, one of the great leaders of the century, Senator Ted Kennedy; and from the U.S. House of Representatives, one of the most extraordinary new leaders, Bobby Rush.

    Senator Kennedy, if you would proceed.


    Senator KENNEDY. Thank you. Thank you very much, Mr. Chairman, and let me say, first of all, it is a great honor to appear before the committee again on the issue of the PRIME Act. And second, it is a special pleasure to be here with Congressman Rush, who is providing important leadership in the Congress, and to thank him very much for all of his good work and all the efforts that he and other Members of the committee—you, Mr. Chairman, and your Ranking Members, and others who have been a part of this whole process—thank you so much for the kind of support that you have given.
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    And I will be very brief because, listening to the opening comment and sentiments of the Members of the committee on both sides, it appears that there is very good understanding as to what we are attempting to achieve and the opportunities that are out there to achieve it.

    I say, first of all, I would hope that the Members, who have obviously thought about this issue and understand its importance to the community, will give us the benefit of their good judgment on this. We have tried to take the best ideas that we have had, principally incorporating the suggestions and recommendations from those people that are out in the field, and incorporate them in the legislation. But we always welcome and value ideas and suggestions and recommendations, and particularly from those who have been working in this field for some period of time. We would hope to have the benefit of their good judgment.

    Just very quickly, Mr. Chairman, I think all of us understand the extraordinary economic progress that we have made as a nation in the recent times. But having said that, I think all of us also understand that there are many areas of our country that have been left out and left behind. And the kind of innovation and the kind of creativity and the work habits of men and women who want to be a part of this whole expanding economy and lift their families up and see a future for their children is very evident in all parts of our Nation. And I look at this legislation, the PRIME Act, as giving many of those who have been left out and left behind really the opportunity to be a part of this whole kind of process.

    We do not come here with a new idea. We come here with something that has been tried and tested and demonstrated effective, based on the fact that there are probably more good ideas that are left behind in the parking lots of banks than any other place. And we want to try to be able to offer the kind of technical help and assistance and skills to individuals who may have ideas, have energy, and are lacking these kinds of professional skills and want to be able to, in a modest way, begin to use their creativity in ways that are going develop self-sufficiency, make them a part of the economy, and give them more constructive, productive, useful, and valued lives; and raise their whole sense of hope and participation in the future.
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    And this committee has had numerous examples that have been submitted to it. We have a number of different groups that have been working in the microcredit area. In my own State of Massachusetts, Working Capital is one of the very important ones, but several others have been recognized. And the illustrations, and we will file those, of what they have done in terms of reaching out into some of the most difficult communities in the sense of individuals not having great opportunity to date to rise with the economic tide of this country, are really extraordinary.

    Let me just say that we welcome the extraordinary leadership exhibited in the CDFI program—Ellen Lazar and the others—through the work of this committee, as those agencies in the local communities are getting capital and working within the local communities. This is a very natural fit because it provides the kind of help and assistance to the individuals, again working with the local communities, focused on those that are the most economically disadvantaged. This is, we think, an opportunity to have really a very, very important and significant impact.

    Mr. Chairman, we have welcomed the strong bipartisan support. I am here to ask that Senator Domenici, who has been a very, very strong supporter of this program, his statement of support be put in the record. Senator Domenici was really a key factor in terms of our financial modernization and getting the full Senate to be willing to accept PRIME with a modification in terms of the total outlays over the period of four years, and just having level funding for a period of $15 million a year for the four years, rather than the step-up, which we had as part of the earlier legislation.

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    We have a very, very strong group of Republican supporters and Democratic supporters, and we are very, very hopeful that we will have this legislation achieved this year.

    So, we thank you very much. I would like to ask that my full statement be made a part of the record. We hope that this legislation can sort of sail underneath the radar, so to speak. We will always have major areas of differences in the Congress, and it is perhaps important that those differences be examined and debated and discussed. But I am very, very hopeful we can achieve this. The need out there is extraordinary; the opportunity, unbelievable; and the impact that this can have on people's lives across this Nation. Whether it is in the Indian reservations of this country, or in the city of Boston, which is having enormous financial success, there are incredible pockets of opportunity there for individuals to take advantage of these factors, and we are very, very hopeful that we can have this legislation achieved. I think it will be a great credit to the Members of this committee and to the Congress. And I am grateful for the chance to appear before the committee.

    Chairman LEACH. Without objection, the statement of Senator Domenici will placed in the record.

    Chairman LEACH. The full statement of Senator Kennedy is placed into the record, and without objection, in bold print will be placed the phrase, ''Thousands of the best ideas in the world are left in bank parking lots.''


    Congressman Rush.
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    Mr. RUSH. Thank you very much, Mr. Chairman. I, indeed, feel very privileged and proud to be here again before the Banking Committee, on which I served. I am proud to be here with my colleague from the Senate, Senator Edward Kennedy.

    Mr. Chairman, I want to thank you, thank Ranking Member LaFalce, thank each and every Member of this Banking Committee for your work on behalf of the PRIME Act, H.R. 413.

    Mr. Chairman, I must just indicate to you how I feel about the time that you have allowed me to pull you aside in elevators, in the hallways, on the plane, talking about the PRIME Act. You have been very, very open and accessible to me.

    This PRIME Act was introduced in the 105th Congress, and we testified before this committee about the importance of domestic microenterprise and the necessity of the PRIME Act. I believe how, as I did then, that PRIME is an essential investment in American small business.

    Over the next four years, PRIME will invest $105 million to assist small business entrepreneurs in obtaining the skills, education, and training necessary to run a successful microenterprise. In short, PRIME is simple and PRIME works.

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    Under PRIME, microenterprises are defined as disadvantaged small businesses of five employees or less. PRIME will provide not-for-profit organizations grants to conduct the hard work of training and educating low-income microentrepreneurs. PRIME microentrepreneurs will receive training and technical assistance in such areas as starting a business, recordkeeping, advertising, financial management, and business development.

    Fifty percent of the funding provided under PRIME is specifically designated to very-low-income microentrepreneurs—those with incomes of not more than 150 percent of the poverty line. Fifty cents of every dollar invested by PRIME must be matched by non-Federal sources. It is that simple.

    Mr. Chairman, I am going to ask for permission to put the balance of my statement into the record. But I must say that out in my district, as well as districts all across this Nation, there are people who desperately need this Act, need these services, who without these services will be sentenced—continue to be sentenced—to lives of depravity, lives of disadvantages, lives where they have no hope. This Act, this piece of legislation, will make a difference in people who live right now in public housing, people who have ideas, who have creativity, who have energy, who will, if they just could get a helping hand, be able to turn the corner into successful entrepreneurs, people who will be able to employ other people who have no hope. You just cannot imagine, Members of this committee, the impact that this legislation will have on literally millions of Americans.

    And I ask you to continue to work in a bipartisan way to make sure that this bill passes and that this bill becomes law. And the resources and the training and the technical assistance that this bill provides that those resources will be a made available to people who cannot get it any other way; do not have access to any other entity. They are counting on the Members of this body, the Members of this committee, and the Members of this Congress, to at least give them some semblance of hope and assistance.
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    Thank you so very much.

    Chairman LEACH. Thank you very much, Congressman Rush, for that thoughtful statement.

    Does anyone have any questions for Mr. Rush?

    [No response.]

    If not, I thank you very much.

    Mr. VENTO. Mr. Chairman, Mr. Rush is, of course, invited to join the panel, I assume, if he has the time.

    Chairman LEACH. You are very welcome to join the committee and, in the spirit of bipartisanship, there is extra space on this side.


    Mr. RUSH. OK. All right.

    Chairman LEACH. Our second panel consists of the Honorable Gary Gensler, who is Under Secretary for Domestic Finance at the Department of the Treasury, and Ms. Ellen Lazar, who is Director, Community Development Financial Institutions Fund. Accompanying Ms. Lazar is Maurice Jones, who is Deputy Director for Policy and Programs.
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    Mr. Gensler, please proceed.


    Mr. GENSLER. Chairman Leach, Ranking Member LaFalce, Members of the committee, it is an honor to appear here before you today, and I am pleased to be here with Ellen Lazar and Maurice Jones by my side.

    I also want to thank Representatives Vento and Roukema for introducing the CDFI Fund Amendments Act; Representative Rush, Chairman Leach, for introducing the PRIME Act; and the Members of the committee that have cosponsored the act. Both bills have received significant bipartisan support. I was glad to hear the numbers of 103 cosponsors already on the PRIME Act. That is very, very encouraging.

    I also want to acknowledge the important role of this committee in bringing our attention to the areas in which the CDFI program could be improved.

    The CDFI Fund helps to promote private sector growth in economically distressed areas. It helps to bring low-income Americans into the economic mainstream. CDFIs provide financial services to those who are typically overlooked by traditional financial providers. CDFIs expand the reach of the private sector marketplace to the underserved communities. And, in addition, they demonstrate to traditional lenders that these are viable markets that they can support.
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    The role of the CDFI Fund is to strengthen and grow these institutions through a series of programs. The leveraging of the Fund's investments is powerful. We require CDFIs to match our dollars at least one to one. CDFIs, in turn, further leverage their investments by attracting additional sources of capital. A survey of the Fund's first year of awards in 1996 showed that $34 million in Federal dollars helped to stimulate $560 million in community development loans and investment. Where I came from on Wall Street, that is called leverage. And that is a very good leverage as contrasted with some of the other leverages that we talk about sometimes, Chairman Leach.

    Under the Bank Enterprise Awards, banks and thrifts are increasing investments in economically distressed areas. The Fund's $58 million in awards to the Bank Enterprise Awards have already leveraged close to a billion dollars and support, 17 times the Fund's awards.

    With important insight and advice gained from the Subcommittee on Government Oversight of this committee, Ellen Lazar and her team, Maurice Jones—Paul, I see back here—have undertaken the necessary improvements to the Fund's financial and program management.

    In this year, the Fund received a positive audit, verifying that the Fund had successfully corrected all material weaknesses identified in last year's audit. In sum, the CDFI Fund has a strong management team in place with a sound infrastructure and is well positioned to serve low-income communities in the years ahead.

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    Let me now turn to the efforts in microenterprise and the importance of the PRIME Act. The Fund already plays a leadership role in the microenterprise field through the Presidential Awards for Excellence in Microenterprise Development. The awards reflect an ongoing commitment of the Administration to advance the role of microenterprise development in enhancing economic opportunities for all Americans.

    The marketplace for microenterprise in the United States has grown significantly, but we believe that there is more that can be done. PRIME is an essential component of the Administration's broad microenterprise strategy. Its unique features are that it funds training for low-income entrepreneurs and that it provides targeted assistance to the most vulnerable and lowest income entrepreneurs.

    It also complements other microenterprise efforts like the SBA microloan program. We believe that the PRIME Act will help maintain and strengthen the capacity of local microenterprise development institutions to serve impoverished areas. The difference between success and failure of any business is the availability of sound business advice, and this is particularly true of low-income microentrepreneurs. The PRIME Act will help microbusiness to develop the expertise they need.

    In conclusion, Mr. Chairman, the Fund's mission is practical and thoughtfully developed. The investments are making a difference, and enactment of reauthorization and the PRIME Act are important to continue to promote economic growth for all Americans. Thank you.

    Chairman LEACH. Thank you, Mr. Gensler.
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    Ms. Lazar.


    Ms. LAZAR. Chairman Leach, Congressman LaFalce, and distinguished Members of the committee, it is a pleasure to be before you today to represent the CDFI Fund. I am Ellen Lazar, the Director of the Fund, and I am delighted to join Under Secretary Gensler here today.

    Before I begin my testimony, I would like to introduce you to two other key members of the Fund who are with me today—Paul Gentille, our Deputy Director for Management and CFO, and Maurice Jones, who is beside me, the Deputy Director for Policy and Programs at the Fund.

    I would like to ask the Chair to submit my written statement for the record, and for the purposes of time, I will abbreviate my statement.

    Chairman LEACH. Without objection.

    Ms. LAZAR. Thank you.

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    Since becoming Director of the Fund, one of my top priorities has been the implementation of improvements to the Fund's financial and program management, reporting systems, internal controls, operating procedures, and awards monitoring. I am very pleased to report to the committee that over the past 16 months, we have made great progress in these areas.

    I would also like to acknowledge the role the committee has played to help strengthen the Fund. The Fund's mission is to promote access to capital and local economic growth by directly investing in and supporting CDFIs and expanding banks' and thrifts' lending investment and services within underserved communities.

    In 1998 and 1999, we began measuring and reporting on the performance and outcomes of Fund awardees. As you know, the Fund invests in CDFIs to promote their long-term viability and ability to serve distressed communities. Today, I am pleased to be able to report some preliminary findings of our efforts thus far with respect to the accomplishments of our awardees.

    Using surveys, the Fund collected performance and outcome data on 30 of our 31 first-round CDFI core component awardees. The awardees were chosen in 1996. Together, they received $34 million in CDFI awards.

    What has our $34 million helped accomplish? Our preliminary findings demonstrate that these awards have generated significant community development activity over the past three years.

    For example, they have made $565 million in community development loans and investment. These loans and investments have helped to create or expand over 1,800 microenterprises and 1,100 businesses, create or retain over 12,000 jobs, develop over 8,000 units of affordable housing, 98 child care centers serving over 7,000 children, 17 health care facilities serving over 32,000 clients, and 170 additional community, cultural, human services, and educational facilities. Further, these awardees have provided business training, credit counseling, home buyer training and other development services to over 10,000 individuals.
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    Since receiving their awards, these 1996 awardees have strengthened their capacity in significant ways. Their total assets have increased by 122 percent, growing from $473 million in the aggregate—before they received CDFI awards—to $1.05 billion in the aggregate in 1998. It is a good number.

    I would like to talk to you for a minute about our reauthorization. H.R. 629 proposes to extend the appropriation authorization for the Fund through Fiscal Year 2003, and enable the Fund to more efficiently and effectively promote economic revitalization, community development, and community development financial institutions. The reauthorization legislation also contains safeguards designed to ensure that the Fund administers its programs in an effective, proper, and thorough manner.

    The primary purpose of H.R. 413, the other bill before you here today, the Program for Microentrepreneurs Act of 1999, is to build the institutional strength of microenterprise development organizations and programs and other qualified entities and assist these organizations to effectively meet the training and technical assistance needs of low-income and disadvantaged entrepreneurs. One of the clearest messages that has emerged from the first decade of microenterprise development activity in the United States is the necessity for the provision of training and technical assistance to help create successful entrepreneurs.

    In the developed U.S. economy, starting and running a successful business requires a solid understanding of business regulations, tax issues, recordkeeping, and marketing. Many of the people who want to and who have started microenterprise to make ends meet do not have these skills. PRIME would address these issues.
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    Should H.R. 413 be enacted, the Fund would administer the program in a manner similar to administration of its existing assistance programs. We would create a competitive grant program. Under that program, the Fund would seek to provide grants to those qualified organizations that demonstrate they are viable institutions that can deliver quality training and technical assistance to disadvantaged micoentrepreneurs for some time to come.

    In conclusion, Mr. Chairman, Members of the committee, thank you for giving me the opportunity to provide you with this information on the Fund's current activities, and the proposed legislation regarding its reauthorization, and the PRIME Act. I look forward to working with you on this legislation, and I would be happy to respond to any questions you may have.

    Chairman LEACH. Mr. Jones, did you want to make an opening statement?

    Mr. JONES. No, Mr. Chairman.

    Chairman LEACH. Thank you.

    Well, first, let me just say we have reviewed the audit, and it is very important that a clean audit has been presented. Quite frankly, getting programs of this nature started can be difficult, and that is understood. As Chair of the committee, I have only had one qualm with the program at all, and that is the difference between the ''P's''—professionalism and politics. And to the degree politics is out of the program, and professionalism is imbued in it, this program has complete support.
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    I spent several years of my life at the old Office of Economic Opportunity in the late 1960's, and one of the things that always impressed me was in dealing with programs with poor people, there was a surprising—I should not say surprising—but there was an almost total absence of graft. And when one looks around the world and looks at programmatic assistance at many levels, it is amazing how much graft exists around the world and how little in this country. There is always a problem with overhead, both at the community level and at the Federal level. And this is one of these programs we have hoped that at the Federal level should be hallmarked, as at the community level, by low overhead. And that is something that we always have to look at.

    One aspect of this program that is a little bit unusual is that this is being administered by the Department of the Treasury, and the Department of the Treasury is not historically a grant-making agency. And it is one of the reasons that, despite the first year's funding problems, that I have wanted to give the benefit to the Treasury, because this is a new endeavor, and there are a lot of aspects of grantmaking that are not a normal Treasury function. But I would like to ask, Secretary Gensler, if you are convinced this fits the Treasury and this is the locus of where this program should reside?

    Secretary Gensler.

    Mr. GENSLER. Chairman Leach, I do think that it fits the Treasury. I concur with your comments that it is very important that this program be organized and supported in a professional manner. I think with the support of this committee, the good direction of Ellen Lazar by my side, we have the internal controls and the proper focus on management at the CDFI. I think it also links well with the Treasury in terms of promoting economic development, importantly, for all Americans.
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    Chairman LEACH. Well, thank you and, Ms. Lazar, you concur on that?

    Ms. LAZAR. Yes, I do. We have gotten tremendous support from our colleagues at the Treasury Department over the past sixteen months, certainly since I have been there, in helping to develop the systems, policies, and procedures that we need to move forward. And I am always amazed at how, when I pick up the phone, I get very quick responses. So I am delighted to report that to you.

    Chairman LEACH. Good. Well, that is very assuring.

    Mr. LaFalce.

    Mr. LAFALCE. Thank you, Mr. Chairman. The last time we had a hearing on this in the previous Congress, and I asked somewhat similar questions to the questions you have just raised, but not quite as concise as you: does this fit Treasury? It made me think of what could Mr. Gensler say? ''If it does not fit, we must convict'', or . . .?


    So, therefore, it must fit. A question that I will not ask is, but where would be the best fit be? Would the best fit be Treasury or HUD or SBA, and so forth? And that was the nature of the question as I asked in previous Congresses, but right now another adage is, you know, ''if something is working and working well, do not mess with it.'' I think on the basis of the audits we have received thus far, this program is working well under Treasury, and whether it could fit someplace else or even fit more appropriately, I would rather not get into that because of the risk involved, and the risk involved being you could upset the program, and you might not get as much money for the program.
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    I have really resolved myself to the fact that, whatever the mechanism, and how and where we could get more money going to microenterprises and management going to microenterprises where society, small businesses are better off. So, I am all for just keeping it the way it is right now, although we ought not to neglect the great work that is being done by the SBA in providing monies and management to small businesses and communities. There are dozens of programs under those agencies, and it is imperative that you and your office coordinate very, very closely with them them, so the left hand knows what the right hand is doing.

    On behalf of Mr. Watts, I have a question for Mr. Gensler.

    Senators Helms, Edwards, Bayh, and Santorum offered an amendment to S. 900 that passed the Senate. Their amendment would allow non-depository community development financial institutions to apply for Federal Home Loan Bank advances as non-member mortgagees, similar to the status currently granted to State housing finance agencies. In the context of comprehensive financial services reform, would you support this amendment or some other amendment language which would accomplish this objective? If so, why so? If not, what are your concerns about this proposal?

    Mr. GENSLER. In the context of comprehensive reform of the Federal Home Loan Bank system we would support access for community development financial institutions.

    Mr. LAFALCE. Well, now just a second now. The question posed was in the context of financial services modernization, and you have just responded in the context of reform of the Federal Home Loan Bank system. Are these one and the same, or are you giving me a different answer than the question?
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    Mr. GENSLER. It is possible that I misheard the question.

    Mr. LAFALCE. OK.

    Mr. GENSLER. But we do think that it is important to take up an issue like this in the context of comprehensive reform of the Federal Home Loan Bank system, and we would be fully supportive of this initiative in that context.

    Mr. LAFALCE. OK, if the comprehensive financial services reform bill does not have comprehensive reform of the Federal Home Loan Bank system, would an amendment like this be agreeable or not agreeable to you? Because some have argued that what we have is comprehensive financial services reform, but missing comprehensive reform of the Federal Home Loan Bank system. I just wanted to——

    Mr. GENSLER. Right. It is a very good question, Congressman LaFalce, and representing Congressman Watts. We would hope that it could be taken up in the context of comprehensive Federal Home Loan Bank system reform. As it was taken up in the Senate, as you know, we took no position at that point in time in that context, in the context of I think it was S. 900.

    Mr. LAFALCE. Thank you.

    Chairman LEACH. Mrs. Roukema.

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    Mrs. ROUKEMA. I thank you. Mr. Chairman and panel, I do apologize for being late. It was unavoidable because of a backup on a press event that I had to attend. But I do have a couple of questions.

    I am very pleased to see this bill coming before us. As you know, Mr. Vento and myself introduced the legislation, and I am pleased with what I see. But there are a few specifics, not having heard your testimony, that I want to ask you about. For instance, whether you believe there has to be statutory reform. We are going to take care of this bill this year, I am sure, with the Chairman's leadership. What I am concerned about are the reforms. I want to know whether we have the checks and balances and the accountability that we need. We are intent on having reform, particularly with respect to the kinds of problems we saw in the Fund in the early years. The question is whether we really rectified them.

    Can you generally outline for me the checks and balances, the accountability system, and your plan for addressing the internal control weaknesses? I am not sure I understand with specificity how this is addressed. I am also concerned about the disclosures, services and cost of contractors question, and the objective scoring system. Can you be a little more specific for my purposes right now? If you have mentioned it in your opening statements, I understand, but I am particularly interested in hearing about the internal control weaknesses. Yes?

    Mr. GENSLER. Let me say some general comments and then maybe Ellen could get into the detail. With the advice and guidance of this committee, the CDFI Fund has addressed these important weaknesses that were identified.

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    Mrs. ROUKEMA. Well, I understand that in general terms, but be precise about how we have increased accountability here.

    Mr. GENSLER. OK. Just if I could say one more thing, I think it is going to be helpful for the continued confidence in the Fund to adopt the amendments that are in this bill, because while we have addressed the weaknesses and have what is called a clean audit, I think for the confidence in the Fund moving forward, it is very important to have these provisions in the bill, but maybe Ellen wants to specifically address the detail.

    Mrs. ROUKEMA. Thank you.

    Ms. LAZAR. Yes, Congresswoman Roukema, we built into the managers' amendment last year, when this bill was before your subcommittee, a number of safeguards that will help us as we move forward—things that we have already incorporated into our activities. Let me tell you a little bit about it, and ask Mr. Jones to join me in describing them more fully.

    For one, we have implemented an objective scoring system in how we score our applications. We bring in readers from around the country. We make sure we do substantial conflict-of-interest checks on those readers, and they are the people who are the first line of decisionmaking on all our applications that come in. We bring in folks from all different fields that are relevant to the work of the organizations that we are reviewing, and we make sure that we bring in people with significant professional credentials and stature.

    One of the safeguards built into the reauthorization legislation is an objective scoring system that also establishes a neutral multi-person review panel. That is something we are doing already, and that is something that is in the legislation now.
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    In addition, there were questions about our activities vis-a-vis contractors. What was built into this legislation was that we would be required to submit to Congress information regarding the services of contractors that we use and also notification to Congress if we intend to use 8(a) contractors at all. I am happy to report that we are not using 8(a) contractors at all.

    Finally, there is a requirement that there be a report on the implementation of the scoring system that we would get into you, and that is also put into this amendment. So there are a number of things—in addition, a GAO report would be commissioned eighteen months after this legislation was passed. So there are a number of things that we are already doing that have been incorporated into this piece.

    Mrs. ROUKEMA. My time is up. But could you just briefly be a little more precise about, aside from reporting to Congress, what you do internally with respect to addressing the internal control questions. The service and costs of contractors you may use before you report to Congress?

    Mr. JONES. With respect to our contracting practices, we work very closely with the contracting officers at the Department of the Treasury to make sure that we are adhering to all of the applicable contracting regulations, and particularly the FAR. So before we acquire the services of any contractors, it goes through the internal vetting system at Treasury, through our procurement office, to make sure that we are following the applicable regulations in the statute. In addition to that, we will be reporting to you as well regarding what we do in this area.
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    Mrs. ROUKEMA. All right. Thank you. That is helpful. Thank you very much.

    Chairman LEACH. Mr. Vento.

    Mr. VENTO. Thanks, Mr. Chairman. I think it is important that Chairwoman Roukema refresh our memory as to reforms, you know, making it a wholly-owned and wholly-Government corporation under Treasury, which it was not before. Taking out sort of the political aspect of administrative appointments is very important. A third of the representatives are non-Government persons that are on the advisory committees.

    The issue here, of course, with the audits has never been a dollars-and-cents problem in the sense that the dollars were spent improperly. The question has very much been the process—and, of course, the sad occasion of somebody reconstituting our records from memory, as I recall. Just to relive that sad moment, and clearly that rather than having the confidence in Congress to understand the growing pains, trying to, obviously, there was a lot of suspicion that was cast upon this, especially since it was an initiative of the President, growing out of a political environment.

    But I think that looking at the substance, the dollars and cents of what has been done here, and I think the philosophy, which really embraces—I mean, the issue here, and I think the issue is dancing around a lot about, is not this really overlapping with SBA and what banks do? And the Congress really rewrote this when we got ahold of it in 1994. We just did not do what the Administration wanted in terms of the providing. We said we are going to give some of this to financial institutions, to banks and S&Ls—about a third of the money goes to them, for the purpose of dealing with CDFIs, community development financial institutions, which incidentally Bill Clinton and others of us here did not invent. They have been around.
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    And what we are trying to do is recognize that this component, community development financial institutions are not funded by banks. I mean, they are, in essence—Senator Kennedy is right, sadly, that banks want creditworthy projects, and they are not interested in building capacity and training, and so forth.

    So, I think, with that in mind, you know, I hope that we are going to mark this up, and I know many Members, so if I am pontificating a little bit on this, I hope the Members will understand my normal behavior, and excuse this. But with that in mind, I think the issue here is, one, some aspects of this are important. We are a little under the authorization level the Administration has requested. But we certainly have, I think, recognized and appreciate the support for building this program.

    There is maybe some confusion about, you know, SBA does not do community development financial institutions. They do a lot of the free market loans and guarantees and grants, but that is not their focus. And having this over in Treasury makes some sense. It seems especially true since we are sitting here watching all the mergers between financial institutions, and letting them grow, that maybe we ought to do something to deal with the ones that are fragmented that would deal with this low-income individuals and other self-help type of capacities that CDFI deals with.

    And with that said, of course, there are obviously a lot more applicants than there are dollars to go around. There is no shortage, is there, Director Lazar, of applicants?

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    Ms. LAZAR. Oh, no, not at all.

    Mr. VENTO. Use your—you better get to that microphone if we are going to—you know, Mr.——

    Ms. LAZAR. Yes, this year we had 153 applicants requesting $193 million. We have about $50 million to give out. And we had more good applications than we were able to visit and award money to. We expect to give out somewhere in the neighborhood of between $50 million and $60 million. That is a third of the request.

    Mr. VENTO. We are going to enable the State program to go forward. What do you anticipate that is going to do in terms of the limited number of dollars? Some of those dollars, do you anticipate going through the State type of program?

    Ms. LAZAR. We thought initially that we would do a small pilot, maybe in the range of about $5 million.

    Mr. VENTO. So that will, again, reduce the amounts that are available. What about the microentrepreneur program being within CDFI? In other words, you know, it is nice—I notice it is a hundred sponsors for that, and only we did not really anticipate to get that many sponsors for the basic bill. But that is sort of one of the programs in the portfolio of CDFI. And is there overlap today between them?

    Ms. LAZAR. No, I do not think that there is. I think we will be able to—in terms of how we run the program, we would run it in a similar fashion to our technical assistance and other competitive grant programs. If I am understanding your question correctly, I think we will be able to incorporate the process and procedures fairly easily.
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    Mr. VENTO. Well, yes, you know, not to answer the question, but I think my view is that the CDFI Funds the institutions, the CDFI institutions and loans and programs, but the other funds the actual—prepares the applicant, the entrepreneur to, in fact, be in business. And recognizing, I suppose, one of the strains is that there is a gray area: Where does the dollar stop with the institution and where do they go when you are dealing? So this will actually permit you to legitimately say these are dollars to get this business started, these empty storefronts in many areas that are a weight and becoming antique stores, I guess, in most of my communities, unfortunately—but to actually to put real businesses into those real entrepreneurs into those particular roles.

    Ms. LAZAR. That is right.

    Mr. GENSLER. Let me just say, we also think, Congressman, that it builds on the foundation of strength that CDFI has with local communities. So CDFI has already plugged in on the local level on these important community groups that are building economic development. By putting the training dollars into the CDFI program through the PRIME Act, it leverages those relationships and that strength that CDFI has now.

    Mr. VENTO. Well, we have had a lot of experience, Mr. Chairman, trying to do this. There have been appeals for the community development block programs and through other programs in HUD, and so forth, that build on this. But none of the other—you know, so I think it is perfectly—you know, it is logical to build this investment in terms of the entrepreneurs through the CDFI programs. It is a natural extension. And I think to point out that we are leveraging, as it has been pointed out, many, many dollars through these relatively small grant programs, and there is obviously a lot of hope and expectations—so I hope that we can keep our eye on the goal and move forward today, and I look forward to your support.
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    Thank you, Mr. Chairman, for your efforts and help.

    Chairman LEACH. Thank you, Mr. Vento.

    Mr. Sandlin.

    Mr. SANDLIN. Thank you. I think this question is for Director Lazar.

    I recognize the distinction among all these programs and the CDFI, microenterprise, SBA, USDA, and those are certainly wonderful programs. Is there any effort made to centralize the dissemination of information about these programs for someone that wants to take the benefit of these programs? Is there one central location they can go to get information or are they under the burden of going through department after department and agency after agency to try to determine what help might be available?

    Ms. LAZAR. Actually, that is a good question. We recently established an interagency work group on microenterprise that I co-chair with the SBA. One of the first activities undertaken by that work group was to take all the websites that all the individual departments throughout the Federal Government have on microenterprise and link those websites, and link them to a main interagency work group website. It really has been our effort to take all the resources throughout the Federal Government and pull them together and make them accessible to the microentrepreneurs and to microenterprise development organizations. And we are trying to do what we can with the industry to make sure that that resource is widely known.
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    Mr. SANDLIN. Thank you, I have no further questions, Mr. Chairman.

    Chairman LEACH. Thank you.

    Ms. Lee.

    Ms. LEE. Thank you, Mr. Chairman. Let me just say I fully support what you are doing, and we need these community development financial institutions now more than ever in terms of the economic development needs of urban and rural communities. And let me just ask you a couple of things.

    First of all, in terms of—I know, for instance, just in my community, we only have one institution that is actually certified, Community Bank of the Bay. With this reorganization now, reauthorization that has taken place, will it allow for the expansion of new certified institutions or will we only be able to continue with the ones which are existing?

    Then the second question I have is, I am just curious, Ms. Lazar, why did you say you are happy to report that we are not using 8(a) contractors, when, in fact, 8(a) contractors have created many, many jobs in our communities and have allowed minority and women-owned businesses to become part of the economic fabric of this country?

    Mr. GENSLER. Why do not I address the first question. CDFI reauthorization, we think, promotes the continued strength of the program. And to your question: ''Will it encourage more community development financial institutions,'' I think the answer is absolutely, yes, because it will show a commitment and a permanence that right now we are in the annual appropriations cycle as to whether CDFI stays, and the Congress through thoughtful consideration has kept it each year. But we think having a four-year reauthorization, and coupled with the important amendments that have been offered to strengthen the program, in strengthening the program, we will encourage more community development financial institutions.
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    I think the reference to the 8(a) program was just some of the history, and Maurice and Ellen can comment, but some of the history—the growing pains that the Chairman referred to earlier about when the program got up and running, and some of the contracting issues in the past that we, with the advice of this committee and the Oversight Subcommittee, addressed. But they could give you more of the memory on that.

    Ms. LAZAR. Yes, I would like to just add that I certainly understand and applaud the goals and objectives of the 8(a) program. I think the Fund, earlier in its tenure, had had some controversy over the use of 8(a) contractors. And we needed to grow our staff and not be as reliant on outside contractors under the 8(a) program. And we have done that.

    Ms. LEE. Well, are 8(a) contractors allowed, though, to participate in the overall program or not?

    Ms. LAZAR. Yes, they can.

    Ms. LEE. In terms of providing the type of services to you?

    Ms. LAZAR. Oh, absolutely. Absolutely.

    Ms. LEE. Or providing the types of projects and investment opportunities for the communities for which the Fund is certified?

    Mr. JONES. If the 8(a) firm is eligible, meaning if it meets the criteria that we set forth—that you have set forth, actually, in the statute—to be a CDFI, then that 8(a) firm would be eligible to receive assistance from us, yes.
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    Ms. LEE. OK, that clarifies my question. Thank you very much, Mr. Chairman.

    Chairman LEACH. Thank you.

    Mr. Terry.

    Mr. TERRY. Thank you, Mr. Chairman. First of all, I just want to give my opening statement in a sense, and that is I really strongly believe in these types of programs. I think some of the policies of the past that failed were all that we want to do is send money to the social programs, and to me, that was like taping a live leaf onto a dead tree. These type of programs truly plant the seeds that will revitalize communities.

    But I come from the Omaha Nebraska City Council. I spent eight years on there, so I worked in these neighborhoods. And what I see, though, is great programs that have great titles and money behind them, but when you get out onto 24th and Ames Street, they are not seeing the money. And what I see in Omaha, and we have seen this—small business network, enterprise zones—so many of the other programs that are supposed to provide capital to the entrepreneurs in this area and allow that revitalization and the true growth—you know, growth that is not hollow. But what I see is these organizations of business development, or whatever they call themselves, and the money gets beyond them to the entrepreneurs, the ones that are truly going to strengthen the community.

    What is in here that reassures me that the capital is going to get to them? What can you do to assure me that this is not going to be just another feel-good measure that we can go back home and tell our people and brag about, but, again, they come back a year and they sit there and say, ''We have never seen it.''?
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    Mr. GENSLER. There are a number of features in the Fund that are important that relate to getting dollars out, and then with PRIME training out. One is the matching program—that the dollars have to be matched up and form, in essence, an equity base on financial institutions—the FI in CDFI—and the leverage that was referred to earlier. And we have only been able to survey 1996, but the leverage of $34 million of Federal money providing $560 million of community development loans and investment such that the dollars get out.

    In addition, each of the CDFIs have to report to us; have to file financials on a regular periodic basis. We have to do surveys to show and follow up to see what the results are, to be rigorous about seeing what the results are after the rounds of awardees have come out.

    And in terms of PRIME, three-quarters has to be to business, to literally developing and stimulating business and entrepreneurs.

    Mr. TERRY. And is that measured? How is that measured, though? Because part of my point is that we measure on the front end, but we do not measure on the back end, which is truly how many small businesses were able to expand? How many small businesses were created? And so is the 75 percent of the money that is being set aside—what is in here that we can actually measure it, so we can measure it for the success?

    Mr. GENSLER. We share your concerns about measuring afterwards, and actually that is what many of the surveys are about. But let me let Ellen or Maurice answer how the actual measurement.
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    Mr. JONES. Let me talk also about the front end and the back end. One of the things that we look at when deciding what institutions to fund is something we call their deployment ratio, which is what is their track record of getting dollars out to individuals that you are talking about, at the moment that we see them. So, before we make a decision, their track record needs to be impressive in that regard to start with. That is the front end vetting, if you will.

    On the back end, when we actually select an institution to receive money, we do not give them that money until we enter into a legally binding contract with that institution. Included in that contract are performance goals that they have to meet to be in compliance with our assistance agreements, we call them. And most often, what you will see is performance goals that relate to how many loans are you getting out. How many mortgage loans are you getting out? How many units of housing are you developing? How many microenterprises are you providing technical assistance to? And there are specific numbers that they have to meet each year to be in compliance. If they do not meet those numbers, then under the contract we could declare them to be in default. We could, and take the money back.

    So what we want is performance. That is actually the bottom line in terms of what we want in return, and what we try to do to ensure that we are going to get it is force them to enter into a legally binding agreement, which is in our enabling legislation. Congress put that provision in.

    Mr. TERRY. Thank you. Mr. Chairman, I do have one more question. How do I obtain that additional time to ask that, since my time is up?
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    Chairman LEACH. The Chair is going to be lenient on time. If you have an additional question, please proceed.

    Mr. TERRY. Thank you. One quick one: I said that I am from Omaha, Nebraska, and that we have great need in our district. But I have also reviewed where most of this money goes. In our three-State region of Iowa, South Dakota, and Nebraska, there have been two awards for $75,000. Now is that inherent—the information that I have been given—one award in South Dakota for $50,000; one in Nebraska for $25,000. Now is this system skewed toward the bigger States—the New Yorks, Chicagos, and the Bostons? What do we need to do in the smaller communities that have equally, but maybe not the number, but percentage-wise, per capita-wise, an equal need? What do we do to compete for these dollars that we are obviously losing?

    Ms. LAZAR. Sure. I think that the information that you were given is wrong. We actually have made a $350,000 grant to the Nebraska Microenterprise Partnership. So, we will get you more updated information.

    But the question you raise is a good one. It has been a big challenge to us to be able to get out into different parts of the country and reach out to those communities where there may not be as active a community development community, if you will. We have done significant outreach every year, and each time that we issue notices of funds availability, we do outreach workshops, often in conjunction with the Federal Reserve. Over the last couple of years, we have been in 39 States. We have been out to Iowa, to Nebraska, and to South Dakota. We are happy to keep coming.
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    Mr. TERRY. Good.

    Ms. LAZAR. And we are happy to attend forums that you think are worthwhile places for us to come and talk about the Fund. We get on the road as much as possible to get the word out about these resources.

    Mr. TERRY. Good. We will organize that. Thank you, Mr. Chairman.

    Chairman LEACH. Well, thank you, Mr. Terry, and let me stress on the behalf of rural America, there is a great deal of rural poverty, and it is isolated. But it is also is very appropriate to microenterprise types of initiatives; that there are many people scattered in small towns and outside of towns that can take advantage of this program, and I think the concerns of Mr. Terry are real.

    Ms. Velazquez.

    Ms. VELAZQUEZ. Thank you, Mr. Chairman. I would like to address my question to Ms. Lazar.

    Let me read to you two different statements of purpose. I would like you to explain to the committee the differences that exist between these two statements.

    The first one: ''to authorize qualified organizations to provide technical assistance and capacity building services to microenterprise and development organizations and programs to disadvantaged entrepreneurs.''
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    The second one: ''to make grants available to eligible non-profit entities that, together, with non-Federal matching funds will enable such entities to provide intensive marketing, management, and technical assistance to assist low-income entrepreneurs and other low-income individuals.''

    Can you explain to me the differences between these two purposes, these two statements?

    Ms. LAZAR. The second statement I believe is the beginning to the PRIME Act legislation, and it requires that matching funds be provided. I think——

    Ms. VELAZQUEZ. That is the statement for the microloan program of the SBA. The first one is the one related to——

    Ms. LAZAR. To PRIME.

    Ms. VELAZQUEZ. Yes.

    Ms. LAZAR. I think that both those statements are talking about serving, you know, serving microentrepreneurs, and serving them with technical assistance. I think that if you go into the body of the legislation, we could distinguish a little bit more between them.

    Ms. VELAZQUEZ. OK. Ms. Lazar, it seems to me that these two statements, the first one from PRIME, as it appears on H.R. 413, and the second one from the authorizing language of the SBA microloan program, are very, very similar.
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    My second question is Section 174 of H.R. 413 is titled ''Uses of Assistance.'' This section states that a qualified organization ''shall use grants made under the bill to provide technical assistance and capacity building,'' then states in paragraph four that ''the grants shall be used for such other activities as the administrator determines are consistent with this subtitle.'' Can you assure the committee today that the CDFI will not engage in loan making through the PRIME program, and will you include a prohibition on loan making in your initial regulations for the program?

    Ms. LAZAR. I think that we can feel comfortable doing that. The intent of the PRIME program was to provide technical assistance and training, not to provide access to capital.

    Ms. VELAZQUEZ. Thank you. The SBA program, microloan program, the SBA microloan technical assistance and capacity building programs have historically been underfunded by Congress. And the Administration has rarely requested the authorized amount for the programs. Why will funding a similar program under the CDFI be any different?

    Mr. GENSLER. Well, it is our hope to work with Congress to get the funding, the increased funding, for the SBA microloan program that the President included in his budget, and also the authorization under the PRIME Act.

    I think we think of the PRIME Act as leveraging one of CDFI's strength, and, as Senator Kennedy said earlier in his statement, its strength with community groups. Two, that it is targeted to the underserved communities.
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    Ms. VELAZQUEZ. I have got to tell you that I am very concerned that authorizing PRIME would give us two weak programs, underfunded technical assistance and capacity building grant programs that are competing for the same funding. That is my concern; that the Administration does not request the funding; that we are not providing the money that they need to provide effective technical assistance for the microloan program, and the same is going to happen here. And what we are going to have is two programs that are supposed to be helping and providing technical assistance competing against each other for funding.

    Mr. GENSLER. We share the Congresswoman's concern and hope that Congress would work with us to get the funding for these important programs.

    Ms. VELAZQUEZ. Good luck.

    Ms. Lazar, I have another question. How do the PRIME technical assistance and capacity building programs differ from the SBA microloan technical assistance and capacity building programs?

    Ms. LAZAR. OK, for one, the PRIME Act program is meant to serve very-low-income people. It is targeted toward very-low-income, with all of the program providing for funding for low-income people and for people at—150 percent of—the program is required to serve folks at 150 percent or less of the poverty limit. And that is a significant difference.

    Ms. VELAZQUEZ. Well, yes——
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    Mr. GENSLER. I was just going to add the other distinction is that it is solely for training, as you have I think helped us point out to the whole committee. It is solely for training as in contrast to the SBA program, which also has important strengths. It is focused on lending and training related to getting that credit access. The training in this program relates to broad business strategy.

    Ms. VELAZQUEZ. Excuse me, that is not the case. According to testimony given to the Small Business Subcommittee by the SBA for the Fiscal Year 2000 budget, since 1992, close to $90 million has been invested through the SBA microloan program in the form of technical assistance and capacity building. And these two—and I just want to put this into the record—this includes two programs that are not tied to loans.

    The non-lending technical assistance program is authorized to make grants of $125,000 per year to non-profit organizations that provide technical assistance to low-income microenterprises, and the SBA also has non-lending capacity building programs. Unfortunately, both of these programs are consistently underfunded.

    And, Mr. Chairman, I would like to enter into the record the written response by the SBA to questions before the Small Business Subcommittee on the Fiscal Year 2000 budget. These responses outline the SBA non-lending technical assistance and capacity building program.

    Mr. LAFALCE. Would the gentlelady yield?

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    Ms. VELAZQUEZ. Sure.

    Mr. LAFALCE. The gentlelady makes some excellent points. As the past Chairman and Ranking Member of the Small Business Subcommittee, I can empathize with her position. I have taken a position wherever we could do it, let us do it. Let us do it with the SBA. Let us do it here. And let us coordinate the two programs. One thing I do not think the gentlelady mentioned in addition to points she raised was the Section 503, 504 program of SBA.

    Are you aware of those programs where they work with community organizations that are set up; that it provides them the seed money to those organizations, which, in turn, lend to the community. And I do think that whenever you have your coordinating sessions, your work groups, that is something else you should be working with them on. And that, too, is an excellent program that could use additional assistance. I thank the gentlelady.

    Chairman LEACH. And without objection, the unanimous consent of the gentlelady to put several things in the record will be agreed to.

    Ms. VELAZQUEZ. Thank you, Mr. Chairman.

    Chairman LEACH. Mr. Riley.

    Mr. RILEY. Thank you, Mr. Chairman.

    Ms. Lazar, I was just handed a note here that says that Alabama has five certified CDFIs, and since the inception of the program in 1996, there haven't been any grants awarded to the CDFIs in Alabama. Can you give me an explanation of why Alabama CDFIs haven't received any of the CDFI Funds? I understand they are competitive grants, but if we are uncompetitive to the point that we do not have any, then I think we probably need to reassess our ability to apply for those grants.
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    Mr. JONES. We have provided dollars in Alabama. Two institutions have received technical assistance grants from us in Alabama. One is the Demopolis Federal Credit Union. I am probably mispronouncing that. It is probably Demopolis, right?

    Mr. RILEY. It is Demopolis.

    Mr. JONES. OK.

    Mr. RILEY. But you did fairly well.

    Mr. JONES. They received $25,000 in technical assistance. The other one is the Stillman Community Development Federal Credit Union, which received $25,000 in technical assistance as well. Having said that, we are concerned as well that we have not penetrated Alabama as much as we would like. And we have been making outreach efforts there, and we continue—I think we were in Birmingham?

    Ms. LAZAR. Yes, we were.

    Mr. JONES. In March. We were in Birmingham in March of this year giving an outreach workshop there, attempting to inform more prospective applicants about the resource at the Fund, and we will continue to do that.

    Mr. RILEY. Well, again, Mr. Jones, I think it is a great program. I wish more people in Alabama, especially in some of the more disadvantaged areas, would take advantage of the CDFI program. We have a couple of communities that I can think of right now that would benefit from this program. I do not know who I need to talk to, but I would appreciate if someone from your staff would get in touch with my staff and maybe we could hold some field hearings. We have got one or two counties that would desperately like to participate in this program. Whatever we can do to help facilitate that, I certainly want to be a part of that.
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    So if you would have someone on your staff contact my office, maybe we can set up a field hearing in one of these districts down there, and see if we can get it started.

    Ms. LAZAR. We are happy to participate. Glad to be there.

    Mr. RILEY. Thank you, Mr. Chairman.

    Chairman LEACH. Thank you. There have been several that have been here longer than others, but I would just as soon—does anyone desperately seek recognition at this time?


    Mrs. Jones.

    Mrs. JONES. I am not really desperate, Mr. Chairman, but seeing how no one else spoke up, I thought I would. Good morning to the members of the panel. I would like to say that, like Ms. Velazquez, I sit on the Small Business Subcommittee as well as Banking, and I want to sign onto her concerns that neither of these programs would be underfunded for purposes of community development. I come from the city of Cleveland, and I am checking through my numbers here. I am not checking—I see that Sherbank as well as Shore Rich Capital and Faith Community Credit Union, at some juncture, were awardees of the program.

    One of the things that I think would be a good idea—it seems I am new to Congress. I have been here all of four months, and there all these wonderful programs that somehow our communities do not seem to grasp or get information. On Friday, in Cleveland, I am hosting a small business meeting of current SBA recipients with the Deputy Director of SBA. I would like to, like my colleague from Alabama, have the opportunity to be in contact with whoever is responsible for northeastern Ohio to be able to do the same thing with regard to CDFIs. I think that it would be good for you to make use of Members of Congress to get to access other programs. I mean, not for purpose of political gain, but just the fact that there are programs that we—or people we can access that are constantly saying, ''Well, what is going on? What is available to us?'' And we are saying, ''All of this.'' And they say, ''Well, how do we contact them?'' It would be an easier route.
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    A couple of questions. What is the funding cycle for CDFIs?

    Ms. LAZAR. We do annual awards based on notices of funds availability. For each of our programs, we issue the notices at different times of the year. For this year and for next year, we are scheduled to do our bank enterprise awards program, send out the notices of financial availability in late September; for our core CDFI program in late October. And for our technical assistance awards, the notice of funds availability will go out in January. And we are happy to provide you with a full schedule.

    Mrs. JONES. Traditionally, is that something that you send to the Members of Congress, those notices?

    Ms. LAZAR. We do. We have a newsletter that we think we get to all of you, and those notices should be getting to you. We will make sure that you are on our list.

    Mrs. JONES. I think that would be another way of trying to get the program to a broader group of people.

    Ms. LAZAR. It is a good suggestion. Thank you.

    Mrs. JONES. Second, what is your process for assessing the viability of these programs? I mean, do you do a community survey? How do you do that?

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    Mr. JONES. We engage in a pretty extensive underwriting process at the beginning before we fund any institution.

    Mrs. JONES. Right, I heard that part, but I mean, once you have funded an institution, what do you do after you fund them?

    Mr. JONES. Once we have funded them, then we sometimes, to their chagrin, monitor them quite a bit. We require that they report to us on a quarterly and annual basis. So they provide quarterly reports to us that outline how they are doing with respect to their performance goals, that outline any significant or substantial material changes to the management or to the board of the institution. They provide us their internal audits. Then, on an annual basis, there are also financial soundness covenants, I should add, that we impose upon them that they legally agree to abide by within their agreement, and they report how they are performing on that as well.

    And on an annual basis, we get some of the same information. In addition to that, we get profiles of the types of clients that they are serving, and what accomplishments they are achieving within their communities that we are providing them money to serve.

    Mrs. JONES. Just as a close, I appreciate the information. I am particularly interested in getting additional information. So, I am sure, some of my colleagues are. They have not expressed it. So I am expressing, I am—what did you say I was—''desperate'' to get the information.

    Lastly, I lost that thought because I was desperate. OK, anyway, thank you very much, and please whoever—can you tell me who the contact for northeast Ohio is? You will get that information to me?
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    Ms. LAZAR. We will get to you.

    Mrs. JONES. I appreciate it. Thank you very much, Mr. Chairman. No longer desperate.

    Chairman LEACH. Thank you.

    Mr. Goode.

    Mr. GOODE. Ms. Lazar, in 1998, Fiscal Year 1998, what was your total appropriation—how much did you receive?

    Ms. LAZAR. In 1998, we received $80 million.

    Mr. GOODE. OK, let me ask this: Out of the $80 million, how much went for grants?

    Ms. LAZAR. Let me give you some numbers.

    Mr. GOODE. OK.

    Ms. LAZAR. At least two-thirds of it was for grants.

    Mr. GENSLER. In each of the given years, it has been somewhere between two-thirds and as high as 80 percent to grants.
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    Mr. GOODE. How much went for salaries?

    Ms. LAZAR. Our salary—our operational costs were capped by Congress. We were capped in 1998 at $5.5 million for our administrative costs.

    Mr. GOODE. OK. And your employees, how are they scattered throughout the United States?

    Ms. LAZAR. We are all here Washington for the most part. We have an operation on 13th Street, and we are here. We had one employee this year who was outposted to California, but, otherwise, we are here in town.

    Mr. GOODE. So all $5.5 million for salaries was spent right here in DC.?

    Ms. LAZAR. Yes.

    Mr. GENSLER. That total, Congressman, is actually for total administrative costs, so that would be——

    Ms. LAZAR. It is not total salaries?

    Mr. GENSLER. Yes, that would be for other—rent and other services.
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    Ms. LAZAR. Contracting, database building.

    Mr. GOODE. To follow up on what the lady from New York asked with regard to the SBA, now they do grants very similar to what you do, but you told her a distinction between what the PRIME Act would do and what you do. And what? Could you repeat that again?

    Ms. LAZAR. We really see the PRIME Act providing funding for training and technical assistance that is targeted to low-income people and very-low-income people. It will really allow us to help build community-based institutions that are serving very-low-income people. It really is a human development strategy to help folks who really need to learn business skills, such as accounting and regulations and rules regarding owning a business—really financial literacy types of education rather than providing access to credit.

    Mr. GOODE. You are going to give these grants to some non-profits, right?

    Ms. LAZAR. That is right.

    Mr. GOODE. And then, they are going to talk to the people on how to do tax forms, workers' comp forms, if they hire somebody, and all that stuff, is that right?

    Ms. LAZAR. The money is going to be given to microenterprise development organizations that work with entrepreneurs and potential entrepreneurs who need to learn a host of business skills. The organizations we will be providing the money to will that use that money, for the most part, for delivery to microentrepreneurs and prospective microentrepreneurs.
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    Mr. GOODE. You mentioned low-income. Give me a definition of what you would—would you determine what low-income is or would you leave that up to the non-profits that you give the grants to?

    Ms. LAZAR. The low-income, why do not you go ahead? It is defined——

    Mr. GENSLER. Part of it is going to be defined in statute, and we I believe that half the money, 50 percent of the PRIME Act money would have to go to the most vulnerable being at 150 percent of the poverty rate or lower, and that would be explicitly defined in statute. And the other ratio, I am waiting to hear, but it is also defined in statute.

    And just in terms of working—two observations: Working with these 500 to 1,000 microenterprise development organizations, we feel is the best way to leverage their local abilities and talents, so we are not trying to supplant that from the Federal Government. We are trying to augment that with the training dollars and those who are best at the local level to get out there in these communities and work in these communities.

    Second, in terms of the SBA, we are working with the SBA. We continue to work closely with them. The Administration is committed. Treasury is committed to a coordinated approach to microenterprise and a strong relationship with the SBA.

    Mr. GOODE. The very-low-income, where are they going to get the money from? You are not going to give them the capital, is that right?
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    Mr. GENSLER. This program, the PRIME program, is specifically for training, as Ellen laid out, and the importance of training to get people an ability to understand how to move forward and try to start those small businesses.

    Mr. GOODE. Your people like guide them to the SBA or lending institutions? Who would they guide them to to get the finances to start the business?

    Mr. GENSLER. The finances might well be from the SBA, as you said. It might be from community development financial institutions that the CDFI program supports, and that is why, in essence, there is a hand-and-glove mechanism. As the Congressman says, the capital as well as the training. So both through the CDFI program, the microloan programs, and, in fact, other programs.

    Mr. JONES. If I could just add to that, the microenterprise development organizations that are receiving, that will be receiving money under PRIME, one of the major services that they actually provide to the very-low-income and low-income borrowers is actually connecting them with sources of capital. So, you will find that these institutions will be providing technical assistance, say, for example, helping them with business planning, but they also will be helping them to secure loans.

    So, some of the same institutions providing the TA will be helping the low-income borrowers to achieve access to capital, and actually might even be making the loans as well.

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    Mr. GOODE. Thank you.

    Chairman LEACH. Thank you, Mr. Goode.

    Mr. Mascara.

    Mr. MASCARA. Thank you, Mr. Chairman. I have some good news: the success story——

    Ms. LAZAR. I am glad.

    Mr. MASCARA. As a former county commissioner in Washington County, Pennsylvania, I asked business and industry, academia, to engage in a symposium to take a look at our efforts in economic development, helping people to start new businesses. Out of that came the Washington County Council on Economic Development, which has received a sizable grant. And we put that money to good use. In fact, we have expanded to include SBA loans not only in multi-counties in southwestern Pennsylvania, but into West Virginia also.

    We have provided $1.9 million to 95 firms, creating 425 new jobs. We did a community fund-raising effort and raised $500,000. So that when our grant writer, paid out of county funds, submitted applications—and I have never met any of you—apparently, to your organization, once you saw that we did our homework, we raised—and that is where we did raise some money locally from businesses and banks and industries, to help support their program.

    It is working tremendously. And it is a worthwhile program, and I am speaking of the microloan and SBA loans, and we are creating a lot of new jobs, and working with a lot of new entrepreneurs who want to do well. So I thought you would like to hear that.
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    Ms. LAZAR. Thanks for sharing.

    Mr. GENSLER. We do.

    Mr. MASCARA. Thank you, Mr. Chairman.

    Chairman LEACH. Thank you, Mr. Mascara.

    Mr. Gonzalez, you have been here the longest of anybody.

    Mr. GONZALEZ. Well, I am glad you noticed, Mr. Chairman. I am going to continue the good news by not asking any questions.

    Chairman LEACH. Well, thank you very much.

    I want to thank the panel. We appreciate very much your testimony, and we will try to be forthcoming and forthwith.

    Mr. Gensler.

    Mr. GENSLER. I am reminded by my staff that I forgot to ask that my testimony be submitted for the record, the full testimony.

    Chairman LEACH. Without objection, so ordered. And if Mr. Jones has any great ideas he would like to present later, too, that would be submitted for the record then.
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    Mr. JONES. I have no great ideas.

    Mr. GENSLER. Thank you.

    Chairman LEACH. Just continue to do a good job.

    Ms. LAZAR. Thank you.

    Mr. GENSLER. Thank you for your support.

    Chairman LEACH. Our third panel consists of Mr. Jason J. Friedman, who is Vice President of the Institute for Social and Economic Development in Iowa City, Iowa, and, as I am sure most members of the panel recognize, the leading expert in the country on this subject. Our second panelist is Ms. Marguerite Sisson, who is President of River City Cleaning in Clinton, Iowa. Our third witness is Ms. Joan Dallis, who is Vice President of Rural Opportunities Enterprises, Incorporated, and I do not know if Mr. LaFalce would like to say anything, fine. Our fourth panelist is Ms. Karla Melvin, who is Director of Employment Services, Women Venture, from Saint Paul, Minnesota. Our sixth witness is Ms. Peggy Clark, who is Executive Director of the Economic Opportunities Program of the Aspen Institute. Our seventh witness is Ms. Ellen Goldman, who is Chairman of the Association for Enterprise Opportunities. And our final witness will be Mr. Mark Pinsky, who is Chairman of the Coalition of Community Development Financial Institutions.

    We will begin with Mr. Friedman.
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    Mr. FRIEDMAN. Good morning, Chairman. I also would like to say hello to Congressman LaFalce. I am a native New Yorker, and have long appreciated his leadership on behalf of small businesses in New York and the Nation.

    And I would like to ask that my full testimony be entered into the record.

    Chairman LEACH. Without objection, as will the full testimony of all the witnesses.

    Mr. FRIEDMAN. Thank you.

    The Institute for Social and Economic Development is a non-profit microenterprise development and public policy research organization located in Iowa City, Iowa. The last time I was in Washington was this past February, when ISED had the honor of receiving the Presidential Award for Excellence in Microenterprise Development in the category of poverty alleviation. As the award suggests, ISED regards microenterprise development specifically as a poverty alleviation strategy and has helped over 350 welfare recipients start small businesses and build assets for their families' future.

    At the end of last year, ISED assisted in starting or expanding more than 1,200 businesses within Iowa and has helped our clients access nearly $6 million in capital. Of the businesses that we have helped start or expand, 86 percent of them have been owned by low-income Iowans, and 42 percent of the business owners were on public assistance at the time of enrollment in our program. Significantly, our clients have a remarkable business survival rate—63 percent of businesses assisted by ISED since 1988 are still operating.
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    And shortly, you will hear from one of the 1,200, Marguerite Sisson from Clinton, Iowa, who will share with us her remarkable story of how she transformed her life through small business ownership. And ironically, I had to come to Washington, DC. to meet Marguerite, because I do not get enough opportunities to visit with the clients that we serve, focusing instead on administration and development and the day-to-day management, and I admit that sometimes I get disconnected from the people that we help, and the power of microenterprise as a way up the economic ladder.

    But, however, I did recently share an experience with another ISED business owner that I wanted to share with the committee, because it underscores the importance of PRIME. Last October, ISED celebrated its tenth anniversary. And we had a day-long series of events, including a symposium and a trade fair with all our businesses and dinner, and we had over 250 of our entrepreneurs at this event. And a woman by the name of Joanne Wilton was one of them. And she stopped me the hallway outside the banquet room and introduced herself and her husband to me. And she told me that ISED helped her start a combination bait and tackle and convenience store in a poor area of southern Iowa. And we helped her obtain a loan. And I thanked her for coming to the event, and told her that she could call us whenever she needed help.

    And I started to walk away, but Joanne, she grabbed my arm. She did not let go of it. And she said, ''I do not think you understand, Mr. Friedman. A year ago, I thought we were finished. My husband was injured on the job and went on disability. I had been home raising two young children. And soon our savings were gone. And we were going to lose our home. And we had to go on public assistance.''

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    She said, ''I learned about ISED at the welfare office.'' And she was still holding my arm. ''I once worked in a marina when I was a kid and thought, well, maybe I could turn that experience into a business. I did not know how to do this. I just knew I had no choice.''

    Well, I started to say something, but she kept on speaking and she started, and her voice started trembling and she said, ''You do not know how many hours your staff put into help me get this business going. ISED believed in us when no one else did. Do you know that that feels like?

    ''Well, we are back on our feet now, and we are off welfare. And, well, whatever you did to help get me here today, well, I will never forget it. And I just wanted you to know that.'' And she walked away.

    You will hear a great deal about the importance of the PRIME Act to the field of microenterprise development. Well, for ISED, it means that Congress firmly recognizes and embraces microenterprise development as a strategy to help low-income people create their own jobs, enter the mainstream economy, provide for their families and contribute to society. Through this Act, the Congress affirms that someone who creates their own job is no less important to the economy of this country than the Fortune 500.

    Through PRIME, Congress will give hope to many low-income Americans that want the opportunity to live the American dream, but lack the training and guidance to succeed.

    Now, as the committee knows, the Federal Government does provide support for the SBA program, but for many organizations capacity, not credit, is the issue. Capital without knowledge can be capital wasted. PRIME will provide the training and technical assistance to low-income entrepreneurs to help them get started, manage their businesses, pay off the loan, and most importantly survive. That is the PRIME difference.
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    Also, SBA focuses on businesses, while PRIME focuses on supporting the growth of community-based institutions. Despite the growing demand for these services, there is no Federal program that invests in developing and strengthening these locally based institutions. One of the driving principles behind PRIME is to do just that, so that they can effectively generate wealth in poor communities. And therefore, it makes perfect sense to place PRIME within CDFI, and we strongly support its reauthorization.

    Mr. Chairman, on behalf of all the ISED business owners, thank you for your leadership on this issue, and thank you for the opportunity to again testify on behalf of PRIME.

    Chairman LEACH. Thank you, Mr. Friedman.

    Ms. Sisson.


    Ms. SISSON. Good morning, Mr. Chairman.

    Chairman LEACH. If I could ask you to put it fairly close [referring to the microphone].

    Ms. SISSON. My name is Marguerite Sisson from Clinton, Iowa. I am 27 years old and the single parent of a 7-year-old son, William.
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    I am also a welfare recipient and have been for six years, but the real reason I am here today is because I am a small business owner. I own a successful commercial cleaning business. I am here today to tell you my story: how a microenterprise development organization helped me to transform my life, get off welfare, and become financially independent.

    Two years ago, I was on welfare, making minimum wage for a railroad company. I drove a van to transport the crews and clean the buildings. My coworkers gave me a lot of compliments, but the boss never noticed me. I then went to work at a factory. But it was not what I wanted to do. Then I started working for a cleaning company.

    When the boss found out I was thinking of starting my own business, he fired me. You would think that that would have discouraged me, but it did not. I became even more determined. I started my business with my last paycheck and managed to get one client, a small construction firm. But I really had no idea what I was doing and where I was going. I did not know how to market my business, do the books, much less write a business plan. I did not know if I could make enough money to get off welfare and become financially independent. And honestly, I did not have the confidence or self-esteem to really believe I could do it. But I wanted to get off public assistance. My welfare case worker suggested I enroll in the ISED entrepreneurial training program, which is a part of Iowa's welfare program.

    Jane Duax was my business consultant. Jane gave me the tools, but I had to apply them and sometimes it was hard to do. And I was reluctant at first. But Jane did not let up. She walked me through the process, step by step, and taught me how to prove the feasibility of my business, conduct surveys, do a market analysis, keep the books, and prepare financial statements. I am proud of the business plan I put together. It contains my short-term and long-term goals and a plan for getting there.
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    Also, Iowa's welfare program allows me to continue to receive assistance and medical insurance for twelve months after I started my business with ISED as long as I invest my earnings back into my business. They knew that it was going to take time for me to build up my business and make this work not have to worry about putting food on the table. I will finally be off welfare next month, and that feels really great. I know there are a lot of books that you can buy to help write a business plan. But I what I needed was a coach, a mentor, someone who believed in me and was with me every step of the way. You cannot get that in a book. I had no one to tell me I could make it; no one who understood what I was going through.

    That is what these microenterprise programs are all about. They give you the tools and they give you the hope and encouragement. Jane is still there when I need her, and she is my cushion, my comfort, and my friend. One year later, I am proud to tell you that I have nine employees, some of who are on public assistance. I pay my employees $8 an hour, and I am working on getting a medical benefits plan. My clients now include the police department, a medical complex, a small construction company, and the visiting nurses association. And I just contracted with the railroad company that I used to work at.

    Based on current projections in just one year, I expect to gross between $65,000 and $70,000 in 1999. In fact, I have another idea for another business to start. I learned more than how to run a business. I learned that I am important. I learned that I am a strong and intelligent person. My son is very proud of me, and tells his teachers that I own a small business. And being a role model to my son is one of the most important achievements, setting aside everything else. I am showing him that anything is possible, and when he grows up, he will understand that hard work can take you any place you want to go.
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    Mr. Chairman, you are cosponsoring legislation that will allow organizations like ISED to help more people like me. I would not be successful in business if I did not go through ISED's program, and I probably would still be on public assistance.

    You know what these organizations do? They do not just help people start a business. They help them change their lives. On behalf of all the other ISED business owners in Iowa, I ask you to do everything possible to get this legislation passed this year. Thank you.

    Chairman LEACH. Thank you very much, Ms. Sisson.

    Ms. Dallis.


    Ms. DALLIS. Mr. Chairman, Congressman LaFalce, Members of the committee——

    Mr. LAFALCE. Mr. Chairman, may I just interrupt? I just wanted to say how very, very impressive your story was, Ms. Sisson.

    Ms. SISSON. Thank you.

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    Mr. LAFALCE. I mean, you are the poster person for this program. Very, very impressive.

    Ms. SISSON. Thank you very much. I am very proud. Thank you.

    Mr. LAFALCE. Joan.

    Ms. DALLIS. Thank you, and Congressman, thank you for your very kind words about ROI this morning. I will convey them back to Stuart Mitchell and Lee Beaulac, who asked me to convey their regards and their thanks to you today.

    My name is Joan Dallis. I am the Director of Economic Development for Rural Opportunities in Rochester, New York, and I am the Vice President of the Rural Opportunities Enterprise Center.

    ROI is a regional community development corporation engaged in affordable housing, economic development, and human and social services. The Enterprise Center, which is ROI's economic development arm, is a CDFI and also an SBA microloan intermediary.

    We strongly support the reauthorization of CDFI, and the passage of PRIME. We feel that CDFI has provided invaluable support to the microenterprise industry, both as a funding source and as a source of support for building the capacity of community-based organizations. And we feel that PRIME will significantly enhance the capacity of the Enterprise Center and organizations like ours to develop microbusinesses and revitalize our communities.

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    We have provided loans, investments, and training to nearly 200 businesses in upstate New York since 1991. And what we have found in those nine years is that there are literally thousands of opportunities to create jobs and to create wealth in New York's communities.

    The Enterprise Center's customers include small tool and die shops, printers, daycare centers, specialty manufacturers, hair and tanning salons, medical suppliers, contractors, cleaning services, photographers—in short, the mix of businesses one would find in virtually any community.

    Some of our customers, however, distinctly reflect the rural nature of many upstate New York communities. And many of those businesses have found it particularly difficult to access training and technical services because of the remoteness of their locations and because of the specialized nature of their businesses. Consider, for example, a microbusiness called Krenzer Tanker Services in Hilton, New York, which is a village in northwestern Monroe County. Francis Krenzer grew up on a dairy farm in western New York. He came to the Enterprise Center with an idea for a unique agriculture related business. He transports and spreads liquid waste for farmers throughout the area.

    The problem was in starting his business, as he has stated, nobody knew a lot about this kind of business; and, therefore, he found it very difficult to get help in putting together a business plan. He described for us, in an interview, how the Enterprise Center helped him get his business started. And I quote: ''In not even a two-and-a-half month timeframe, we went from start to finish through the whole business planning process, and we were in business. The Enterprise Center did a lot of research, connected me with people from Cornell University, and helped me as much as they could with selling points, as I was talking to farmers. All in all, they have been extremely helpful in a situation where we had all but given up on the whole idea.''
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    The Enterprise Center first met Mr. Krenzer in 1997, when he was embarking on his first season in business. This spring, he is beginning his third season, with the newer and larger truck that he purchased over the winter, and by the end of the season, he hopes to have hired a new employee.

    Mr. Krenzer is one of over a thousand individuals who have called the Enterprise Center in the past few years looking for help in finding information on starting a business. The Enterprise Center is primarily a financing source for microbusinesses. We provide intensive training and technical assistance to our borrowers, but we simply do not have the capacity to provide training and support to the huge population of nascent entrepreneurs in the communities we serve. PRIME would make a critical difference in our organization's capacity to serve microentrepreneurs that need technical assistance to start and grow their businesses.

    In conclusion, I would like to read a letter written by one of the microentrepreneurs our program has helped. Aaron Buchanan owns a blacktop and paving business in Niagara Falls. When we first met him in 1994, he had just started his business and was working in it part time. Today, he works full time in the business and has created jobs for others. His letter acknowledges the importance of the loans we made to this business, but it does more than that. It also captures far better than I could the hard road he had to travel to get to the point where his business was ready for credit. Perhaps Mr. Buchanan's struggle could have been eased by the availability of training and support in the early stages of his business. Here is his letter:

    ''Being a small business owner is very hard. I used to do the estimates, organize the crew, equipment, and materials. Then I would make the invoice and collect the money. That started being too much, so I had my wife help me to do some of the jobs. I hired a worker to help organize for the next day. During the summer, I used to work 16 hours a day, but now with a little help, I only work 12 hours a day. I started seal-coating driveways with a 55-gallon drum and a borrowed pickup truck. I came across ROI in 1994. I was able to get a loan for $5,200 to buy a pickup truck and a 275-gallon sealer tank, and the business took off. I made enough money to start paving; then I got another loan from ROI to buy a tri-axle dump truck. I repaid my first loan early and was also able to buy a second dump truck while still paying for the first dump truck. Without Rural Opportunities, I never would have been successful. Thank you, Rural Opportunities.''
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    And thank you, Members of the committee.

    Chairman LEACH. Well, thank you very much, Ms. Dallis.

    Ms. Melvin.


    Ms. MELVIN. Good morning, Mr. Chairman, Congressman Vento, and esteemed Members. I am Karla Melvin. I work at Women Venture in Saint Paul, Minnesota, and I come from a family of entrepreneurs that reaches across three States—in Congressman Rush's Illinois, one set of grandparents were farmers; another owned a trucking company. My mother and father owned an agribusiness. In Colorado, my brother is a freelance architect. And in Congressman Vento's Minnesota, my sister is a freelance photographer. I had a training consulting business, and my daughter developed a lemonade stand with a new twist—home deliveries.

    We are an intergenerational entrepreneurial family. At Women Venture we say generally, statistically one out of ten people is an entrepreneur. This means one out of ten people in this room have a business, perhaps on the side, or they are dreaming up one. This thing, this gift of entrepreneurship, is not bound by income or class. Our low-income and TANF women are no different. One out of ten of them wants to be a business owner. She has probably tried the pink collar route, and it has never been the correct fit. What is different my middle class family is not just access to capital, but access to support, concrete implementation strategies and real world information. She may or may not have her high school diploma or GED, but she has a special gift that cannot be quantified academic terms. She arranges flowers. She repairs jewelry. She makes candles, or she sews out of her home.
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    These are not the sexy businesses that we might find on the Internet or that require a staff of telemarketers. Typically, they are neighborhood-based and provide an anchor for the entrepreneur, her family, and the low-income community in which she lives.

    At Women Venture, we know low-income individuals can be great business owners. They pay back their SBA loans, and they become self-sufficient. With JOLI funding, 59 jobs were created through business development and employment; 23 clients achieved self sufficiency; and 13 clients were able to make $20,000 or more. We also had a refugee program through the Office of Refugee Resettlement, of which many clients were low-income. Through that, 29 businesses were created or expanded, providing employment to the business owner and most often her extended family.

    Currently, we have Mott Foundation funding targeting TANF recipients, and it encourages a patching approach. This is a strategy that combines income generated by business and traditional employment. This is an innovative program that meets TANF work first philosophy and requires us to leverage a match, like those funds that may be available—that could be available to us through PRIME.

    I would like to tell you briefly about some entrepreneurs in Congressman Vento's district, and the type of service they required from Women Venture to become successful.

    At Women Venture, we do what needs to be done. There was one summer staff worked in the production line of a salsa factory. Now, eight years later, the business is still operating with mild, medium, and hot in the refrigerator case. Jenn owns Primrose Home Services. She provides home health care to seniors. She wants to expand her services and dreams about hiring LPNs and certified nursing assistants and creating and expanding services to include things like hair washing. She has used the technical assistance services of one Women Venture consultant, one business intern, and one business volunteer. This group of three have helped her with her financial and marketing issues, and she is current with her $5,000 loan.
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    Barbara has great plans to expand her etiquette training business. She is a single mom, three kids, and is on TANF because of medical bills. She attended the Mott 12-week business development employment class, meets with her business consultant.

    She is teaching kids in her neighborhood good manners, and she is doing that out of her neighborhood community center. She has a mentor who she e-mails, and she knows there is also a market to which she can expand. Because of the guy that she heard about who was taken to lunch for a job interview, and reached across the table, grabbed a french-fry off the interviewer's plate, and did not get the job—so lots of opportunities for her.

    Leslie had a failed floral business. A second time around, she did not have enough cash flow to even make change for her customers. She went through Women Venture classes and consulting services. A $500 loan for her Valentine's Day flowers turned into another $500 loan for a refrigerator; $3,000 then was leveraged, and eventually she received an $82,000 loan.

    The SBA loans were necessary to her success, but a loan was not sufficient. Leslie says Women Venture does not just give you money; they give you training, all the books and information you need to be successful.

    In conclusion, what organizations like Women Venture need is ongoing funding, PRIME funding, to allow us to do the continuous deep training and technical assistance our clients need. We need to hire caring, compassionate, knowledgeable staff to support our clients at many levels, often not just business development issues, but social service issues, child care, transportation, emergency funds, and not the least of which is self esteem.
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    With PRIME, we have leveled the playing field for poor people. We provide equal access to asset building and self-employment opportunities. With PRIME, we will create a generation of entrepreneurs and not a generation of welfare recipients. I encourage you to support this. Thank you.

    Chairman LEACH. Thank you very much, Ms. Melvin.

    Ms. Clark.


    Ms. CLARK. Thank you, Congressman. Good morning. My name is Peggy Clark. I am the Executive Director of the Economic Opportunities Program at the Aspen Institute, and I will try to keep my remarks brief since you have been very patient with us this morning. And I hope that you will have chance to ask questions of Ms. Sisson, whose comments were so poignant and helpful to making this legislation make sense to all of you.

    I would like to tell you that I have been involved in evaluation of microenterprise since 1991, and we have tracked over 400 entrepreneurs, and I have had the very great honor of speaking with them at hour—up to two-hour conversations, tracking the progress of their businesses and their attempts to get out of poverty over a five-year period.

    The results of that are in this report, which most of you have, and I would encourage you to take a look at it at least the executive summary if you would like to. And my main purpose today is to give you a snapshot of some of the findings of that research and I will be happy to answer any other questions related to program performance on the part of the microenterprise organizations or outcomes for entrepreneurs who get those services.
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    In the self-study, we were looking at seven of the oldest microenterprise programs when we started in 1991, and we focused specifically on what was happening with the programs, really how well were they were delivering services, as well as outcomes on the entrepreneurs. Did the businesses survive? Did people make enough money from them? And when we started this study, of course, there have always been microentrepreneurs in the country, but there has been very little evaluation of that sector of the economy.

    I would like to tell you in 1991, when we started, there were literally maybe eight programs. Today, there are over 300 microenterprise development organizations. We have put out every two years, in collaboration with the Association for Enterprise Opportunity, a directory of microenterprise programs. And you have been given this as well, which gives you some highlights from the new one that tells you the size of programs and how much money they are putting out, and how many people they are reaching. Cumulatively, they have reached close to a quarter-of-a-million microentrepreneurs, and we have learned a lot about how to deliver services to microentrepreneurs, and we are still learning a lot.

    There are four main points I would like to make today.

    The first is that from the study, we saw very strong outcomes in terms of ability of entrepreneurs to get out of poverty through a microenterprise.

    Second, that training and technical assistance really is critical to microentrepreneurs, and especially to very-low-income entrepreneurs.

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    Third, there is a need for additional Federal funding, especially funding that is targeted to training, technical assistance, and to low-income borrowers.

    And fourth, just as an evaluator, I would be happy to speak to the emerging capacity and the development of the industry as its ability to in an accountable way deliver services to microentrepreneurs.

    I am going to tell you very briefly about some of the outcomes from the study, because Congresswoman Kelly so helpfully gave us some of those findings this morning already. But some of the most surprising and I think important are that a very large majority, 72 percent, of the people in the study increased their household income. The average change in household income was $8,000. They went from $13,000 to $22,000 on average, over five years. And perhaps the most important finding of all is that more than half, 53 percent, were able to earn enough money to actually get over the poverty line, and we used 150 percent of poverty as our definition of this. This is, in fact, quite distinctive when you look at a range of employment and training programs that are serving very-low-income individuals, and you do not usually see results that are that promising.

    All importantly, entrepreneurs reduce their reliance on Government assistance by 61 percent. The largest reduction was in AFDC benefits.

    For those who got out of poverty, money from the microbusiness was a critical source of income to the family, and it ranged from 30 percent of household income to 80 percent of household income.

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    Assets also grew in households, and business survival rate was 49 percent, which is comparable to Census and Commerce Department figures for businesses of this type.

    I would also like to mention that we estimate using Census, Small Business, and Commerce data that there are upward of 2.5 million low-income microentrepreneurs across the country. And when you look at the fact that today, the microenterprise industry is reaching about 125,000 entrepreneurs, you see that there really is an unmet need out there for entrepreneurial assistance.

    I will just skip ahead a little bit. One thing about the importance of training and technical assistance is that we live in a very complex economy, and very often what a loan microentrepreneur needs of connections to the markets, specific ideas that can connect them to people who are able to buy their services. Very often that is industry specific work, and there are some interesting examples of microenterprise programs that have been effective at that.

    I will just close by bringing to your attention the fact that there is private sector complements to this effort, or the PRIME Act, and you have a very bright—I have a lot of orange today—orange folder that describes the field program which is a private foundation-funded program, $6 million that is explicitly looking at training and technical assistance grants for low-income people. That is a nice complement to the PRIME Act. Thank you.

    Chairman LEACH. Thank you, Ms. Clark.

    Ms. Golden.

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    Ms. GOLDEN. Chairman Leach, Members of the committee, thank you for the opportunity to testify this morning. I am Ellen Golden, Chair of the Board of Directors of the Association for Enterprise Opportunity, and Senior Program Officer for Microenterprise and Women's Business Development with Coastal Enterprises in Maine. And I would ask that my full testimony be submitted for the record.

    Chairman LEACH. Without objection. The full testimony of all the panelists will be submitted for the record.

    Ms. GOLDEN. Thank you. Although I am here today representing AEO, I am also a microenterprise practitioner. CEI is private, non-profit community development corporation with nearly 20 years of experience in microenterprise development and a substantial record of achievement.

    AEO is a national non-profit association of over 500 organizations founded in 1991 that represents the field of microenterprise in the United States. AEO supports the PRIME Act because the legislation responds to two key areas central to the development of the microenterprise industry: technical assistance to low-income entrepreneurs and capacity building for community-based microenterprise organizations.

    One of the most striking features of the U.S. microenterprise industry is its diversity. And the goals and outcomes of individual organizations vary with the needs of their communities. Despite this diversity, the 1999 directory of U.S. microenterprise programs that Peggy referred to earlier reveals that the majority of microenterprise programs target their services to economically disadvantaged entrepreneurs.
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    The needs of those populations influence the shape of the programs and the services that are delivered. The more disadvantaged the population, the more intensive the services. And CEI's experience affirms this. As a rule, we provide one-on-one technical assistance, supplemented by workshops and seminars. However, in working with welfare recipients, low-income women and non-native English speakers, CEI provides more specialized and intensive assistance. We have found that it is impossible to separate personal from business issues when working with microenterprises. Each program must take many factors into account if it is to support individual aspirations for business ownerships and succeed.

    The diversity of the microenterprise industry presents a public policy challenge. Variation in program design and community need prevents microenterprise development from fitting neatly into the jurisdiction of any single Federal agency or congressional committee.

    AEO has been actively involved in policy work since its inception, and several of AEO's founding members worked with Senator Bumpers to craft the initial proposal for the SBA microloan demonstration program in 1991, when many were skeptical about the viability of microenterprise development. Eight years later, we can point to the success of that program. Seventy-nine hundred loans, $800 million loaned, and not a single loss to the SBA.

    However, AEO's policy work goes well beyond the SBA microloan program. AEO has in the past advocated for the authorization and funding of the CDFI Fund, and we now support H.R. 629, which would reauthorize the Fund. We support many other Federal programs with implications for microenterprise and a list of AEO's legislative priorities is attached to my testimony.
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    Just as conventional lenders rely on their experience for better ways to develop business, improve their products, and reach new markets, we as an industry know what is needed to enable programs to effectively meet the needs of low-income entrepreneurs, and we believe that PRIME responds to those needs. The idea of a fund to support the needs of low-income entrepreneurs emerged from the AEO policy committee working in partnership with a number of other organizations, including Results, the Corporation for Enterprise Development, the Aspen Institute, FINCA USA, Working Capital, and members of the CDFI Coalition. In their testimony, my colleagues have already discussed the importance of support for training and technical assistance, so in the next minute or two, I would like to focus on the capacity building component of the Fund.

    In the past few years, AEO has seen a dramatic increase in the demand for training and support as the industry has expanded. Some mature organizations need training and support as they move into the next phase of programming while others are looking for ways that they can provide more sophisticated training and marketing in sales to their clients. The efforts of these mature microenterprise organizations to expand their services would be supported by PRIME.

    The training needs for new and emerging microenterprise organizations are really quite different. They need access to fundamental information about program design, best practices, reasonable outcomes, developing partnership and leveraging resources. PRIME can also support the development and dissemination of essential information for these programs, and there is currently no Federal program that invests in developing and strengthening the network of community-based non-profit microenterprise development organizations. Targeting funds to capacity building activity will have a significant long-term payoff for low-income individuals and communities.
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    In closing, I would like to share a story of one of our clients who enrolled in a program targeted to welfare recipients in 1992. She received training, business counseling, and mentoring. All too aware of the precariousness of her financial situation, Susan chose to bootstrap her business and never borrowed any money. Her residential cleaning business has enabled her to get off welfare, to support her family and raise her aspirations. Thanks to the skills and confidence she has gained from successfully operating her business, she is now planning on returning to school to prepare herself to open an second and potentially more lucrative business. It is for people like Susan and the organizations that support them that I ask the committee to consider authorizing the PRIME Act. Thank you.

    Chairman LEACH. Thank you, Ms. Golden.

    Mr. Pinsky.


    Mr. PINSKY. Thank you, Mr. Chairman, very much. And thank you, Members of the committee.

    My name is Mark Pinsky. I am Chairman of the CDFI Coalition, which represents the CDFI industry broadly. That includes not only microenterprise lenders, but community development banks, community development credit unions, community development venture funds, and community development loan funds. So it is the whole range of types of institutions. In my day job, I am the Chief Executive of a group called National Community Capital Association, which is a national CDFI intermediary. There is more information about National Community Capital attached to my testimony.
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    The Coalition is here today to urge you to approve H.R. 629, the CDFI Fund reauthorization, and also to pass H.R. 413, the PRIME Act, which we think is a very important complement.

    In the spirit of ''less is more'', knowing that my comments, my full comments are in the record and before you, I am going to skip directly to the question the committee asked us to address and then to conclusions in the hopes that we can move forward today.

    The committee asked us particularly to address how the CDFI Fund has performed. I want to respond that from the industry's perspective, the Fund's performance has been outstanding. There were, as we have talked about before, some bumps in startup as there are, in my view, with any business enterprise. But the Fund has committed itself to continual improvement and has done that and has been increasingly focused on serving the full range of the CDFI field, and we are delighted about that.

    As you heard earlier, the CDFI Fund has been productive and successful in its first three round of awards, with more than $180 million invested in CDFIs, reaching tens of thousands of people.

    The CDFI Fund has had the effect on the CDFI industry that I believe Congress and the Administration intended by providing principally equity capital or equity financing. It has enabled growth. It has enabled CDFIs to take on appropriately and prudently new risk by reaching deeper into the markets and having a greater impact on people's lives. It has also, as the testimony earlier from the Fund and from Treasury indicated, enabled significant growth in the CDFI industry to meet growing need in our society.
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    The last thing I would say about the Funds' performance is they have been very responsive. By creation of the TA program, they have enabled a number of organizations, startup organizations, to get a leg up. And in a moment, I will talk about a recommendation we have for what we think could be another step on the ladder to success.

    And they are looking to provide a broader training initiative to support the growth of the industry, to support CDFI capacity by providing an expanded training program for them.

    Ellen Lazar deserves enormous credit. She has done a terrific job in bringing the management of the Fund forward, as has the rest of the management team and the staff there.

    What I would like to do is just run through a few points from the CDFI industry's perspective about why we think Congress should continue to support the CDFI Fund. As you heard earlier, from the survey the Fund did of its first-round awardees, and that is just the first of three rounds, the impact has been enormous, where the 30 CDFIs awarded money in the first round have turned $34 million in CDFI Fund investment into about $565 million in new investment in local disinvested communities.

    The second is that the Fund's programs are consistently oversubscribed. You heard about that earlier. In the first three rounds of the core component of the program, more than 560 CDFIs requested more than $662 million. The Fund, because of the resources it had, was able to award just $119.5 million, or about 18 percent of what was requested to 117 CDFIs.
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    Now, let me add the flip side of that which is one of the things that makes the CDFI Fund unique and special and I think very good is that it is a competitive application process. And it requires, as the testimony earlier said, it requires preparation of a fairly thorough business plan, and a demonstration of real effectiveness in past performance for those continuing CDFIs. Not all CDFIs have received money. Not all CDFIs should, but demand exceeds supply.

    Let me turn to legislation. As I said, we fully support H.R. 629. The Coalition and the industry has a couple of recommendations that we think could make it stronger still.

    The first is that we have been advocating for some time that the Fund create a small and emerging CDFI access program. And it would be a program that would have a cap on the amount of capital that was available, but would streamline further the business plan process. When you have a CDFI that is a startup or a small institution that has one staff person, it simply—to prepare a business plan based on what is required now, it is simply not possible to prepare that business plan and to continue being a lender at the same time. So you have got to chose one or the other. We think there is a way to make that more efficient, but at the same time cap the amount of money. We see that as a step, as I mentioned earlier. The TA program gives a first step up. The SECAP, as we call the Small and Emerging CDFI Access Program, would be a second step. The next step would be to gain access to the main core program, which we think is where we want all CDFIs to get to.

    The second is we would like to see the Bank Enterprise Program in the CDFI Fund, which has worked very well, opened to include credit unions as well as banks. We think that they provide many of the same services that banks do and can be vital in meeting needs in low-income communities.
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    Finally, let me just say that the industry hopes the Congress will be able to appropriate the full $125 million that the President requested for this program. We understand that constraints on budget that you all have to wrestle with. We see the CDFI Fund and the CDFI industry as a critical investment, long-term, in the well being of this economy and this country. So, I thank you for that.

    Chairman LEACH. Well, thank you very much, Mr. Pinsky, and thank the panel of real professional expertise and entrepreneurial spirit, and this is very impressive.

    I have no questions.
    Mrs. Roukema.
    Mr. Vento.

    Mr. VENTO. Well, Mr. Chairman, I just want to recognize the panel has provided, I think, excellent testimony. I think there were some questions earlier about what are the results, and, you know, since, you know certainly the CDFI program its two major programs have only had three rounds of grants in 1990, and we are still giving out 1998 money this year, so really the 1996 and 1997 money is what we can go by. But what the witnesses have brought to this is the perspective of what the CDFIs are doing in terms of a longitudinal or a long-term type of view.

    And I was talking to my colleague, Virgil Goode, before, and I pointed out that there is a one-to-one match for the CDFI program, the Bank Enterprise Fund. But there is also—I did not—in looking over the matching requirements for the microentrepreneur program, there is a 50-cent match, Virgil, for each one dollar that is spent in terms of the PRIME program as well. So, in addition, I think these matches do—I guess the question is, do they represent a—I mean, right now you are doing this 100 percent on your own, and so obviously having a match does not represent a big barrier, does it? I guess Ms. Clark would be the best person to ask from the Aspen Institute which seems to have had the most—some experience with this.
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    Ms. CLARK. I think, in general, the match that is outlined in the PRIME Act and in others is not problematic and does serve to encourage other funders to come in, especially when they see that the Federal Government is supporting it at this level. So, the idea is that it is incentive, and I think, in fact, we can see that it has worked well in the past and is not problematic for programs to meet that match.

    Mr. VENTO. Mr. Pinsky.

    Mr. PINSKY. Yes, I would say in the CDFI program the match has been a critical tool not just for leveraging private sector capital, which is primarily what it has done, and it has done very effectively. Because of the visibility of the CDFI Fund, it has created a set of civic relationships between CDFIs and financial institutions, philanthropic institutions, commercial institutions in communities that are as important as the money that allow the CDFI to leverage their resources in different ways.

    Mr. VENTO. Yes, I paid close attention to your remarks with regard to the startup issue for CDFIs and whether or not we should, in fact, legislate, proscriptively a specific aspect for a program for a single individual CDFI. You know, my judgment is that the—if in fact, the Administration has that flexibility to, in fact, do that, do not they?

    Mr. PINSKY. Well, I may not have been clear in my statement, so let me be clear. This is not for a single type of CDFI, but it is for a CDFI at a certain stage of development, in my view.
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    Mr. VENTO. Yes. No, I understand. No, I was clear.

    Mr. PINSKY. But, as I understand it, the Administration, Treasury, has the authority—they could create the small and emerging CDFI access program. What Congress could do that they cannot do without a statutory change is allow——

    Mr. VENTO. A setaside.

    Mr. PINSKY. It is not a setaside. It should not be a setaside. I very clearly would emphasize that I do not believe in setasides in this program. But it would allow the Fund to create a more streamlined business plan process that would not place such a burden, a preemptive burden, on emerged small CDFIs to apply, which is what happens now. There are a large number of CDFIs in this country who do not apply, not because they do not need the capital, but because to take two months out of their year to prepare a business plan that has a lot of value.

    Mr. VENTO. Let me just add to the complexity of the question already, and not try to put words into your mouth. I certainly did not mean to do that. But with the State aspect to the program—you know the State authorization of the State aspect, would not that help in terms of these small startup CDFIs?

    Mr. PINSKY. I think it potentially could help. I do not know all that Treasury plans to do with it. It could help.

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    Mr. VENTO. It might be a place where we could add some language—you know, add some impetus in terms of doing that. I think that we are reluctant, based on sort of the history and based on trying to find the benchmarks and to establish the benchmarks for the program, especially with aspects that have not been implemented and then adding on PRIME, which would be a major new tool in its portfolio. I think that there is probably a reticence to, in fact, include additional dimensions to it, Mr. Pinsky. And from my standpoint, from what I am getting, the feedback, I am, you know, interpreting from those that are promoting it.

    I think, Karla, your testimony was excellent. You know, very often we have the pleasure of having local constituents that come in and are working on the program. But you really did a good job in terms of delivering your testimony and the dimensions of it. And I feel very confident in asking a question, which I did not prepare you for at all.

    But with regard to—there are a lot of SBA programs. You have heard some of the debates here about whether or not SBA ought to be running this program. Of course, SBA has no special relationship with CDFIs, has no special relationship with microentrepreneurs. In fact, they specifically probably are not creditworthy. They have a large business plan and other requirements which simply do not fit. I mean, we are talking really with persons here that are low-income. You have brought up the instance that many of the persons that benefit from these programs are individuals that might be on—receiving public assistance, like through the TANF program in Minnesota.

    Would you comment upon the appropriateness of where the SBA fits into the helping in these cases, and why it does not reach down to these particular programs, whether it is the CDFI, or in the case of the individual that might be on welfare or a very-low-income person?
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    Ms. MELVIN. Right. Women Venture is an SBA intermediary. We have borrowed about $1.5 million from the SBA, and typically loan out about $300,000 a year. The average size of an SBA loan is $12,000. What we find with our low-income clients with those who are on the Minnesota version is MFIP, rather than TANF, who are on assistance is that there is some reluctance to take on debt; that people try and get very creative in how to put that startup capital together, put assets together, so that they can begin a business basically on a shoestring. And we get creative with them about how they can do that. So, we do have low-income clients.

    One of our Mott clients received a $4,700 loan for her candle-making business. And she is on public assistance. She wrote a very strong business plan, a compelling marketing strategy, realistic cash-flow projections, and was creditworthy. So, she was one of those who, in fact, did receive SBA funding.

    We have several different loan funds. We have one that we call the CETO loan fund, is a low interest loan fund, up to $5,000, for low-income individuals. We had a refugee loan fund. What we found with our refugee clients, many of whom were low-income is that they did borrowing within their families, in their clan. So there are creative ways to get some of that startup without SBA funding. And typically, we like to see a client begin their business, get some of those first contracts, before we would even consider them as a loan candidate.

    Mr. VENTO. And so, in those instances, they need the type of—the investment in the individual, I guess. It is an investment in the person——

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    Ms. MELVIN. Absolutely.

    Mr. VENTO. That is what the enterprise, and that is the difference. This is not a loan program in this instance at all. And none of these are really loan programs, I guess, you know.

    Ms. MELVIN. Right. For example, with the Mott program, we have the one client, the candlemaker who has a loan, but we have seven other businesses that have started without any loan money, and with that they need a tremendous amount of training, our support, creative problem-solving.

    Mr. VENTO. Well, I noticed the one case, you worked on the salsa line, one of your——

    Ms. MELVIN. Yes. Right. That is one of those stories that is passed from generation to generation at Women Venture.

    Mr. VENTO. Thank you, Mr. Chairman.

    Chairman LEACH. Thank you.

    Mr. Ryan, would you seek recognition or Ms. Biggert? Thank you.
    Mr. Goode.
    Mr. Gonzalez.

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    Mr. GONZALEZ. Thank you, Mr. Chairman. And I appreciate the last questions regarding what really would have been Congresswoman Velazquez' concern about duplication—going to the same resources, because they are limited. And I must admit that during these first few months here in Congress, I have not met a microentrepreneur program that I did not like. But I need to also realize that there are limitations. So for those, anyone on the panel that wishes to address it—actually, the question that was posed by Congresswoman Velazquez, and that is simply, is there something that we are duplicating, taking into account, of course, the resources that are limited in nature?

    Mr. FRIEDMAN. That is a good question, Congressman. Congresswoman Velazquez' concerns are legitimate, but once you get beyond the statement of intents in both programs and you go into actual practice, it is quite different; that in reality, sure, the SBA microloan program does provide a small amount of funding to a small number of organizations to provide technical assistance, but only if the entrepreneur requires capital to start the business. It is loan packaging technical assistance. It is not the startup managing, management assistance, putting the business plan together, putting the cash flows, and the financial statements together. It is targeted very specifically so that in Iowa, for example, 50 percent of our clients, we cannot use that money for them, because they do not need a loan. They are like Marguerite, who used the last paycheck from her minimum wage to get some supplies to start the business. She did not need the capital. If she did, SBA would be there for her. We would help her work with a bank and another alternative lender. But what she needed was a lot of hours of training and technical assistance.

    The SBA program would not—we could not be authorized to use those funds for her, because she was not getting a loan. PRIME is totally different. PRIME acknowledges that in the microenterprise industry, lot of folks do not need capital right away. What they need is they need the intensive management experience, and this does it. So it makes it much easier for microenterprise organizations because we struggle to find those training technical assistance dollars that we lack, you know, that SBA would provide if she needed a loan. But she did not. So that is a very critical difference that sometimes gets lost.
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    Another key piece is that the SBA microloan program does not define low-income. The program is eligible for low-income individuals and minorities and women, but does not actually define what low-income means. And it was very important to the coalition of folks that were putting PRIME together to really define that and talk about folks that were truly economically disadvantaged, that were truly lacking the resources and the income to get these businesses going. And that is also a critical difference.

    Ms. GOLDEN. Can I just add that I agree with everything that Jason has said, and I think the experience is fairly universal; that every microenterprise program works with many, many more customers who need training and technical assistance and ongoing management support than need access to credit, even though that is an important component. The other point I would make is that, as important as the SBA microloan program is—and it is an important program for the industry—that even if we succeed in increasing the appropriation and expanding the program to 200 intermediaries, the program will not be nearly as large as the industry. There is a significant demand that far exceeds the current capacity of the SBA program.

    Mr. GONZALEZ. Thank you very much.

    Chairman LEACH. Thank you, Mr. Gonzalez.

    If there are no further questions, let me thank very much the panel. We appreciate very much your testimony.

    [Whereupon, at 12:42 p.m., the hearing was adjourned.]
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