[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
OPERATING OR RULEMAKING? A REVIEW OF SBA'S OPAQUE STANDARD OPERATING
PROCEDURES PROCESS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT, AND REGULATIONS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
NOVEMBER 2, 2017
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-045
Available via the GPO Website: www.fdsys.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
27-321 WASHINGTON : 2018
HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
TRENT KELLY, Mississippi
ROD BLUM, Iowa
JAMES COMER, Kentucky
JENNIFFER GONZALEZ-COLON, Puerto Rico
DON BACON, Nebraska
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
RALPH NORMAN, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
DWIGHT EVANS, Pennsylvania
STEPHANIE MURPHY, Florida
AL LAWSON, JR., Florida
YVETTE CLARK, New York
JUDY CHU, California
ALMA ADAMS, North Carolina
ADRIANO ESPAILLAT, New York
BRAD SCHNEIDER, Illinois
VACANT
Kevin Fitzpatrick, Majority Staff Director
Jan Oliver, Majority Deputy Staff Director and Chief Counsel
Adam Minehardt, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Trent Kelly................................................. 1
Hon. Alma Adams.................................................. 2
WITNESS
Mr. Joseph Loddo, Chief Operating Officer, United States Small
Business Administration, Washington, DC........................ 3
APPENDIX
Prepared Statement:
Mr. Joseph Loddo, Chief Operating Officer, United States
Small Business Administration, Washington, DC.............. 14
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
OPERATING OR RULEMAKING? A REVIEW OF SBA'S OPAQUE STANDARD OPERATING
PROCEDURES PROCESS
----------
THURSDAY, NOVEMBER 2, 2017
House of Representatives,
Committee on Small Business,
Subcommittee on Investigations, Oversight, and
Regulations,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:33 a.m., in
Room 2360, Rayburn House Office Building, Hon. Trent Kelly
[chairman of the Subcommittee] presiding.
Present: Representatives Kelly, Blum, Bacon, Norman, and
Adams.
Also Present: Representative Chabot.
Chairman KELLY. I call this hearing to order.
We are here today to examine the Small Business
Administration's standard operating procedure process.
According to SBA, standard operating procedures are
permanent directives that set forth the policies or procedures
relating to SBA programs or activities. What does this actually
mean? It means that SOPs instruct SBA employees how to do their
jobs; they help program participants understand their
responsibilities; they clarify laws and regulations.
But this Committee has been concerned for some time that
the agency's SOPs are doing more than just that. Specifically,
we are concerned that SBA is making legislative binding rules
outside of the rulemaking process.
The rulemaking process is governed by the Administrative
Procedure Act, or APA, which sets forth the requirements
agencies must meet when making rules and regulations. For
example, agencies must provide notice to the public and allow
time for public to comment. Agencies must then take into
account these comments before finalizing a rule.
But SBA is not required to go through these steps when
developing its SOPs, and neither is any other agency. They are
not required to solicit public input. And that is okay if what
SBA or any other agency is developing are, in fact, standard
operating procedures. But are they? Or are they developing
rules that are binding on regulated entities?
This Committee has been trying to find out. For the past
several months, the Committee has attempted to get a briefing
on the SBA's SOP process. We're still waiting.
And then, just recently, SBA issued an information notice
announcing the agency's intent to issue a revised SOP for
lender and development company loan programs. The notice was
issued on October 13th. This Committee was not alerted until a
few days later even though the Committee had been asking for
months about whether SBA was revising its SOP for lender and
development company loan programs.
During the Committee's hearing on May 17th this year, Mr.
William Manger, the Associate Administrator for the Office of
Capital Access, testified about the SOP rewrite that his office
was currently undertaking. When the Committee followed up with
the agency about this rewrite, it received little insight or
explanation, which is problematic.
And this is why the Committee has been seeking answers all
year, answers to questions such as: What prompts a decision to
revise or write a new SOP? Who makes that decision? Does SBA
consult with industry when revising or developing a new SOP? In
what way and to what extent? If it is, does industry know that
its input is considered? Does SBA ever consult with Congress on
the SOP process? How long does the revision process take, on
average? And how does SBA ensure that it is not engaging in
rulemaking when revising or developing new SOPs?
The Committee is hoping today's witness, SBA's Chief
Operating Officer, Joseph Loddo, will be able to answer some of
these questions.
On the front end, the Committee requests that the SBA
provide a briefing within the next 2 weeks on the current
revision of the SOP 50, the Lending Program SOP. So we would
make a formal request that we have a briefing in the next 2
weeks on that.
And, with that, I would like to thank Mr. Loddo for being
willing to testify today on this topic.
And I now yield to the ranking member, Ms. Adams.
Ms. ADAMS. Thank you, Chairman Kelly, for convening today's
hearing on this important issue.
And, Mr. Loddo, thank you very much for being here.
As the only agency in the Federal Government charged
specifically with helping small businesses grow and succeed,
the Small Business Administration is critical to our Nation's
overall economic health. All of its functions serve to
strengthen and preserve the entrepreneurial foundation of our
economy.
For small businesses to fully reap the benefits from these
programs, it is important that SBA operate efficiently and
effectively and invest taxpayer dollars wisely. As such, one of
the most important roles of this Committee is conducting
vigorous oversight of SBA and its activities so that we know
that the agency is serving small businesses well.
With those goals in mind, today's hearing will focus on the
process that SBA uses for implementing its standard operating
procedures. Considering that these documents set forth the
policies and procedures related to the agency's programs and
activities, it is critical that Congress be aware of how they
are developed.
Further, concerns have been raised from industry and by
this Committee that SOPs have been issued in place of formal
rulemaking. Following the Administrative Procedures Act by
complying with the regulatory rulemaking process gives all
stakeholders a chance to partake in important legal decisions.
And so it is our duty to guarantee them that right and prevent
the agency from bypassing important opportunities for comments
from stakeholders and from the public.
For example, SBA recently issued a Notice of Significant
Changes to its SOP on the 7(a) and 504 programs; however, no
formal notice or comment process took place. Similarly, the
process for interaction and input from Congress on creation and
revisions to SOPs remain in question.
So today's hearing seeks to provide this Committee with
clarity on SBA's SOP process and identify ways that it can be
improved. So I look forward to hearing from our witness, and I
thank you for your participation today.
And, Mr. Chair, I yield back.
Chairman KELLY. Thank you, Ms. Adams.
And, as you can see, bipartisan. We just want a lot of
transparency.
And if the Committee members have an opening statement
prepared, I ask that they be submitted for the record.
I would like to take a moment to explain the timing lights
to you. You will have 5 minutes to deliver your testimony. We
will be a little lenient with that today since you are the only
witness. The light will start out as green. When you have 1
minute remaining, the light will turn yellow. Finally, at the
end of your 5 minutes, it will turn red. I ask that you try to
adhere to it as close as possible, but understanding you are
the only witness.
I would now like to formally introduce our witness today.
Mr. Joseph Loddo is the Chief Operating Officer at the Small
Business Administration. In this role, Mr. Loddo works to
improve overall agency performance by implementing innovative,
effective, and more efficient processes through the agency. Mr.
Loddo is a member of the Senior Executive Service, with 30
years of experience in the Federal Government. Mr. Loddo also
served as a captain in the United States Army.
We welcome you today. I thank you for your service both to
the Federal Government and in our military. And we look forward
to your testimony as well. Thank you.
STATEMENT OF JOSEPH LODDO, CHIEF OPERATING OFFICER, UNITED
STATES SMALL BUSINESS ADMINISTRATION, WASHINGTON, D.C.
Mr. LODDO. Thank you, Chairman Kelly and Ranking Member
Adams, for the opportunity to testify today.
First, let me say I understand the Committee's oversight
role. As the Chief Operating Officer for the Small Business
Administration, I share your interest in making sure that we
operate as effectively and as efficiently as possible and that
we examine our operational procedures to make sure we are
achieving our collective goals.
Today's hearing focuses on the agency's process for
updating and revising standard operating procedures. These SOPs
help to implement our program regulations and govern the
operations of our respective program offices.
Since becoming the Chief Operating Officer in January, I
have enforced a consistent process for our SOPs. That process
requires the head of each program office to annually review and
certify the status of their SOPs.
All new or revised SOPs must follow the SBA's clearance
processes. First, program offices engage our Office of General
Counsel. This step helps to determine if a revision or a change
is best achieved through the SOP chain or through regulatory
action. Next, we have a robust internal clearance process which
involves all the programs and supporting offices. The internal
clearance process provides an opportunity for thoughtful review
of the documents and for discussions on any issues. As a last
step, Administrator McMahon will approve all new or
significantly revised SOPs.
SBA's October update of the SOP for our business loan
program provides a good example of this. We began an internal
review process. We included and involved all the appropriate
clearing offices. We performed a final check. Then we presented
it to the Administrator for signature.
On October 13, we released the information notice, which
was also distributed through stakeholders and shared with this
Committee. We are now in a period of receiving public comment
and input through the end of this year. If any technical or
other changes to the SOP are necessary in light of the comments
we receive, we will revise the document before it becomes
effective.
Along those lines, our program offices in general solicit
and receive input from program participants on an ongoing
basis. We have an ongoing dialogue with our lenders and our
external stakeholders. Our SOP updates are continually informed
by this kind of engagement.
Before turning to your questions, Mr. Chairman, let me wrap
up by thanking you and members of the Committee for your
commitment to the small-business community. On behalf of
Administrator McMahon, we appreciate your support of our
agency, and we look forward to continuing to work with you to
fulfill our mission.
Thank you.
Chairman KELLY. Thank you very much for your testimony.
I want to start out again and just say how important it
is--we really want you guys to give us a briefing within the
next 2 weeks on your new lending program SOP and the SOP 50.
I come from a background, probably a little bit similar to
yours, in the military, and we are SOP-driven. And that hasn't
changed probably since we were captains, maybe at the same
time.
But SOP sometimes do much more than that. And I just want
to make sure that we are not confusing regulations with SOPs.
Because there is an outside influence. Even if it is intended
only for internal, it also influences external. And just want
to make sure that we are doing that.
What is the purpose of the agency's SOP, and why do you
have them?
Mr. LODDO. Well, the purpose of the SOP is to provide
guidance to the staff in terms of the day-to-day operations of
that particular program area. It represents our official
permanent policies and procedures for each of the agency
programs. Program participants use the SOP to better understand
their responsibilities under the program, and the SOP provides
that guidance.
Chairman KELLY. Now, how does the SBA, specifically under
you--how do you ensure that you are not engaging in rulemaking
when you revise an SOP or develop a new one?
Mr. LODDO. When a program office is prepared to make a
presentation in terms of a new SOP, we strongly suggest that it
goes to the Office of General Counsel, where they make a
determination as to whether this is an SOP or a regulatory
change. If it is an SOP, then we have a clearance process that
it would go through. If it is a regulatory change, it would
follow the traditional regulatory process. So it is a decision
made by the Office of General Counsel.
Chairman KELLY. That is very good. So you basically have an
external audit proceeding that General Counsel looks at that,
as opposed to you guys determining what is a rule and what is
an SOP.
Mr. LODDO. Right. That decision rests was the Office of
General Counsel.
Chairman KELLY. Very good.
And do regulations trump SOPs?
Mr. LODDO. Absolutely.
Chairman KELLY. Okay.
Now, going back, what prompts a decision to revise or
rewrite an SOP, and who makes that decision?
Mr. LODDO. Well, the program office is responsible for the
standard operating procedures for that program. So the program
official would make that decision as to if it is necessary for
a revision to the standard operating procedures, then approach
the Office of General Counsel.
Chairman KELLY. And, on average, how long does it take to
revise or rewrite an SOP?
Mr. LODDO. Thank you for that question.
What we strongly encourage is that the program office do
some pre-vetting with the Office of General Counsel and any
impacted office with a particular SOP. Once they have arrived
then it is following the path for standard operating
procedures, the process is at maximum 30 days, unless
requesting for an extension.
The hope is, as a result of the pre-vetting of the proposed
SOP, that it can go through the different offices that are
required for concurrence or non-concurrence on that particular
SOP. It can be done and usually is done dynamically, not
sequentially. So it is not one office, then the next office. It
is all offices get the clearance document, they get to review
it, and they have within 30 days to respond back to our
ExecSec, in terms of their comments.
Chairman KELLY. And I just want to--we want to work with
the SBA. I understand we are oversight, but we want to work
with you. And the more transparent you guys are and the more
accessible and easy to access and the more information you
provide, generally that becomes better. I know that from the
military and serving with soldiers. When you are hiding
something, even it is not bad, I think it is bad.
It is the same way with any organization. I worked in
retail, and my boss, the general merchandising manager, when he
would come walk through my area, he would say, ``You know,
always make sure your aisles, all the clothes are aligned and
they look good, because if it pops on the aisle, I am not going
to walk inside and see the clearance rack. But if it is messed
up on the aisle, I am going to dig in every clearance rack you
have because I assume everything else is messed up.''
And it as the same way with this, Mr. Loddo. And I think
you all can do a whole lot better job of making sure that when
we send requests, whether it is from staff or the actual
Members, that you comply with that. And I think it will make
our relationship that much better.
And, with that, I yield to Ms. Adams.
Mr. LODDO. I would just like to make an observation.
First, you bring back fond memories.
But, in addition to that, it is really important for us to
have strong communications, and certainly with this Committee.
With that strong communication, we can get the coordination and
the commitment to be able really to produce some desired
results that we both want.
Ms. ADAMS. Great. Well, thank you very much.
Mr. Loddo, we have heard from the 7(a) lending industry
that, often, key guidance for the program is implemented by SOP
rather than by regulation. So how would you respond to that?
Mr. LODDO. Well, I would suggest that we have reached out
to the industry in several different ways.
On August 21, 2017, we had a 66-page document that outlined
the response from all of the lenders. We did the informational
notice on October 13.
And, we are giving lenders, as well as the Committee, the
opportunity to comment up until January 1, with the idea that
these are the changes we are proposing and, if there are any
technical changes that we need to make, we are certainly
willing to do that.
We all have the same interest, which is to be fair to all
concerned. And we want to make sure this program continues to
be highlighted as one of the best programs at the Small
Business Administration.
Ms. ADAMS. Okay. So did you say that these 66 pages
constitute the changes--all of the changes? Do you have that
many?
Mr. LODDO. These represent changes in parts 109, 115, and
120 that have been incorporated into the issuance of the SOP
that is out for comment right now.
We actually believe that this is a good way to go, in terms
of asking the community and the stakeholders to comment, build
out what we have learned from those comments, build out the
SOP, put it back out to the community and to the stakeholders
as to, ``Here is what we are proposing for the SOP. We are
asking for your comments from October, November, to the end of
December so we can make any additional modifications.''
Ms. ADAMS. Okay. So that is, like, 90 days to----
Mr. LODDO. Yes.
Ms. ADAMS. Okay.
So how, if at all, does SBA engage congressional committees
as it develops or updates SOPs and other agency guidance? And
what improvements do you think could be made to this process?
Mr. LODDO. Well, certainly, any communications would go to
our Office of Congressional and Legislative Affairs. I think
all of our program offices are willing to meet with the
Committee at the earliest possible time in order to be able to
increase the communication, the cooperation, and the
coordination that we need both from the Committee as well as
from SBA to improve our programs.
Ms. ADAMS. Okay.
So, during the annual certification, you noted in your
testimony that 44 SOPs had either been revised or retired since
the end of the fiscal year 2016.
Have you completed the certification for 2017? And to what
extent do you expect further significant changes in the status
of SOPs? And you may have answered some of that.
Mr. LODDO. Well, we did the certification process in
January of 2017. We had all the program offices give us the
date when they expected a revision or if there was not to be a
revision.
It is a dynamic process. Thirteen have been revised since
then; two have been deleted. And others are what I would call
in process, because any change to the SOP has to go through
this process. And it is a very dynamic process, given what we
do and how we do it.
Ms. ADAMS. Thank you, sir.
Mr. Chair, I yield back.
Chairman KELLY. I thank the ranking member from North
Carolina, Ms. Adams.
It is great to be on this Committee. I can tell you, we
work well together on Subcommittees and full Committee as a
whole, both in a bipartisan way. And so I thank her again.
And, with that, I yield to the gentleman from South
Carolina, Mr. Norman.
Mr. NORMAN. Thank you, Mr. Loddo. I appreciate you coming
today.
I am in the real estate business. We have dealt with the
SBA. And I guess some of the complaints or comments that I
heard from lenders were that changes were made midstream. A
company would get a loan going, and then the requirements
changed. How would you answer that?
Mr. LODDO. Well, first, I don't want to pick an argument
that the lenders that you were talking with, but on August 21
we sent, through the Federal Register, all the comments that we
received from our external stakeholders, to include lenders, as
to the changes that related to SOP 50-10. So we have that
communication going on.
I would urge that lender to work with SBA so that they are
fully informed about what we are doing, when we are doing it,
and our plans in terms of going forward. It is really important
that we get the feedback from all of our lenders, our external
stakeholders, so that we make a better product for our Nation's
small-business community.
Mr. NORMAN. A lot of them are reluctant--and you could
see--they are reluctant to, not criticize, but offer, I guess,
constructive criticism, because in their minds it could make it
harder as they go down the line as another project comes up.
Walk me through the process on when those comments are sent
in. How do you answer those comments, the ones that are adopted
versus the ones that are not adopted?
Mr. LODDO. In the notice that was in the----
Mr. NORMAN. Yes.
Mr. LODDO.--Federal Register, we state what the comment was
and we state what the response was.
I can assure you that if somebody is making a negative
comment we are not holding that individual in terms of reprisal
in any sort. That is not who we are; that is not how we
operate. So the idea is that we want the input, both positive
and negative. That is the only way we can improve this program
or any of the programs that we have.
And it is upon us to review what is being suggested,
understand what is being suggested; if we don't understand it,
ask; and come up with, in light of all the different responses
we have, a better program. That is our intent. We welcome the
entire participation from the lending communities and the
associations attached to those lenders.
Mr. NORMAN. Well, that is encouraging. And I urge you to
keep that going, because you all provide a vital service. And a
lot of times, those that you are serving and making the loan to
are not that well-versed in the regulations, and it is almost a
process, you have to walk them through it.
Are all of these posted online after the fact?
Mr. LODDO. Yes. All of the SOPs are posted online.
Mr. NORMAN. Okay.
Mr. LODDO. And the comments, obviously, are in the Federal
Register. They are available for anyone to see.
Mr. NORMAN. Well, you provide a valuable service, so I
encourage you to keep the transparency, as Congressman Kelly
mentioned, because it is a vital service that you--you provide
a good need.
One other question. When you make a loan, does the SBA take
a first or a second position?
Mr. LODDO. Well, in the 7(a) program, we actually don't
make a loan. We guarantee the loan. The lender makes the loan--
--
Mr. NORMAN. Right.
Mr. LODDO.--and we guarantee the loan.
As it relates to collateral, the bank is traditionally
making those requirements. We do not make a loan because of
collateral. We are really a cash-flow lender, so we are really
looking at the management and the cash flow of the business and
less about the collateral. The lender is looking to us for our
guarantee, because that is gold in terms of worst-case
scenarios.
Mr. NORMAN. And your guarantee percentages are what?
Mr. LODDO. Oh, they are different depending on what
program. From 50 percent up to 85 percent, I believe.
Mr. NORMAN. Is 85 the max?
Mr. LODDO. No. I think in the International Trade Program
we go up to 90 percent.
Mr. NORMAN. Ninety. Okay. Thank you, sir.
Mr. LODDO. You are welcome. And thank you for your kind
words about the Small Business Administration and its
importance.
Chairman KELLY. Does the gentleman yield back?
Mr. NORMAN. Yes, I yield back.
Chairman KELLY. I now recognize the gentleman from Iowa,
Mr. Blum, for 5 minutes.
Mr. BLUM. Thank you, Mr. Chairman.
And thank you, Mr.--is it ``Loddo''?
Mr. LODDO. ``Loddo,'' yes.
Mr. BLUM.--Loddo, for being here today.
How long have you been the Chief Operating Officer? Is that
correct?
Mr. LODDO. Yes, I am the Chief Operating Officer.
Mr. BLUM. And how long has that been?
Mr. LODDO. January of 2017. Prior to that, I was the Deputy
Chief Operating Officer.
Mr. BLUM. And how long was that?
Mr. LODDO. About 2 years.
Mr. BLUM. As I have been on this Committee now for almost a
year, it seems to be a recurring theme that SBA--and I will say
in the past--has been mismanaged. I am not sure if that is true
or not. I would just like to--I know it is not exactly on topic
with standard operating procedures, but give me your thoughts
on that. There has been issues, let's put it that way.
Mr. LODDO. Yeah.
Mr. BLUM. And just give me your thoughts.
Mr. LODDO. Well, I think the Office of Inspector General is
the one that gives a very insightful view in terms of the
management challenges facing the agency, the most serious
management challenges. I think we have eight that they have
identified last year. We have made major progress.
In terms of the management, as you know, we have had a
change of administration, so that always creates a little bit
of apprehension and turmoil. But our work, in terms of that
transition, it has been viewed as a model in terms of the other
Federal agencies, because one of the things that we were able
to do was rely very heavily on the Senior Executive Service to
work with the beachhead team that was arriving to make the
transition very successful for the Small Business
Administration.
Mr. BLUM. What is the Senior Executive Service, you said?
Mr. LODDO. Yes.
Mr. BLUM. What is that?
Mr. LODDO. That is what I believe to be, and I think most
would believe to be, the elite group of senior leaders in the
Small Business Administration. Normally, grade levels go grades
basically 1 through 15. Above that is the Senior Executive
Service.
And I am not sure of the amount of senior executives across
the Federal Government. Inside SBA, we have two groups: career
and political. The career group totals about 26 individuals,
and the political group can only be 25 percent of that group.
But it is the senior-most people knowledgeable about the
program areas within the Small Business Administration.
Mr. BLUM. You mentioned the biggest management challenges.
You referenced that. What are those? Give me the top two or
three, in your estimation.
Mr. LODDO. Well, first our CIO office, has made tremendous
progress in terms of where we are, which lends itself to the
question you originally raised, to where we are now. For
example, we had eight CIOs in about 5 years, which--that type
of continuance management is havoc. We have Maria Roat, who has
testified before this Committee and has shown that she has
built the foundation for us to really have an enterprise
solution.
That is one of the management challenges. Another, of
course, is the Office of Human Resources, Office of Capital
Access. Certainly, the Office of Government Contracting and
Business Development.
In particular, we have had one management challenge that
has been red forever, red being no progress, and that is a
definition of ``economic disadvantage.'' Fortunately, at the
end of last year, we were able to enter into a contract for an
independent assessment as to what constitutes economic
disadvantage. We should have the results of that contract
midyear, which will redefine the bottom level for economic
disadvantage for programs like the 8(a) Business Development
Program.
Mr. BLUM. Do we measure a lot of things in the SBA? I am a
businessman. I know that which you measure will improve on.
Mr. LODDO. Exactly. And we measure almost----
Mr. BLUM. We have measurements in----
Mr. LODDO. In fact, one of the projects----
Mr. BLUM. I am speaking relative to the performance of
managers in their departments.
Mr. LODDO. Well, two parts to that answer. One is that we
have the Administrator's priorities, and they cascade all the
way down to the individual person in terms of their performance
plan.
And in their performance plan, we have what is called
results-driven, and we outline what a level 5 is, what a level
4, what a level 3, or a 2, or a 1. Level 5 means that you are
outstanding in your work, so we outline exactly what you have
to do in order to be a level 5 performer, level 4, level 3.
And we also require supervisors to meet with their staff on
a quarterly basis, and not do it by email but face-to-face when
possible, to explain where they should be applauded and where
they need some reinforcement, in order to--we are trying to get
everybody to be a level 5 but based off of the criteria, not a
pass-through, with a 5 or a 4.
Mr. BLUM. What grade would you give the overall management
of SBA?
Mr. LODDO. The current management of the Small Business
Administration?
Mr. BLUM. Yeah. What grade would you give it?
Mr. LODDO. Pardon me?
Mr. BLUM. What grade would you give it, A to F?
Mr. LODDO. I would give Administrator McMahon grade level
5--outstanding, holding everybody accountable, particularly on
the performance side. She has told----
Mr. BLUM. I have confidence in her. How about everyone--how
about management below her?
Mr. LODDO. Well, that is why I am the chair of the
Performance Review Board. All those senior executives, their
performance statement is in front of us, along with their
statement of accomplishment, along with their rating official.
And we, as an independent body, view the grade level being
given by the rating official and the comments made by the
individual senior executive as well as the comments made by the
reviewing official. And we determine the recommendation to the
Administrator in terms of the grade level that that person
should get, whether it is a 5 or downgraded to a 4 or
downgraded to a 3 or a 2 or a 1.
Mr. BLUM. I am sure Administrator McMahon will be happy you
gave her a 5.
I yield back the time I do not have.
Chairman KELLY. The gentleman's time has expired.
I now recognize the ranking member, Ms. Adams, again for 5
minutes or a little longer if she needs.
Ms. ADAMS. Thank you, Mr. Chair. I don't think I will need
that much time. But, as a former teacher of 40 years, a
professor, it seems like your whole class passed, did well,
huh? That is good.
So let me ask you, you know, we have heard concerns from
7(a) lenders regarding the requirement for a 10-percent equity
injection for some small-business borrowers, as well as,
spelled out in a newly issued SOP, we understand lenders may
request a carveout, such as for low- to moderate-income small-
business borrowers.
So do you anticipate authorizing these kinds of requests?
And how would a decision be made regarding them?
Mr. LODDO. As I mentioned before, the bank is the lender,
and we guarantee the loan program. From our point of view, each
individual loan is viewed separately in terms of its cash flow
and its management. So I would have to defer to the program
manager in terms of anything that would be macro, and that may
require an SOP or a regulatory change.
Ms. ADAMS. So do you have situations where, if certain
requirements aren't met, that you give them an opportunity to
do that? Or how does that work?
Mr. LODDO. Well, for example----
Ms. ADAMS. Is it one shot?
Mr. LODDO. I think we are very fortunate, the Small
Business Administration, to have the entire economic toolbox to
offer the Nation's small-business community. For example, our
entrepreneurial development offers counseling through the Small
Business Development Center, SCORE, Women's Business Center,
online, 24/7.
Here is an example of how it works in our Disaster Loan
Program, where disaster survivors are under stress when they
are seeking a loan. Whether we approve it or not, they are
under stress, given the environment that they have inherited
because of that particular disaster. Whether we approve the
loan or whether we decline the loan, we provide to them local
technical assistance in terms of their business plan or
whatever help that they may need. So, if they were not approved
for a loan, we are telling them to go to the SBDC, to SCORE, to
the Women's Business Center, work out what we said was a
shortfall, and come back to us with reapplying.
Many times, many times, we are able to approve the loan
because of the technical assistance we have provided through
our resource partners. That is how the synergy works with our
programs. We all have something to offer, together, to the
Nation's small-business community.
Ms. ADAMS. Okay. Well, that sounds like a pretty good
process. And so you have a pretty good return rate? In other
words, they come back, and then they may even get the loan. Do
you do any kind of followup to see, I mean, that you may have
lost some folks? In other words, you sent them----
Mr. LODDO. Yeah. Well, unlike the 7(a)----
Ms. ADAMS.--to talk to the Small Business Center or
wherever, and they did not come back. Do you do any followup
or----
Mr. LODDO. Well, thank you for that question because that
is really important, because there is a big difference between,
for example, the disaster program and the 7(a) and 504.
Remember I talked about guaranteeing the loan in the 7(a)?
Ms. ADAMS. Uh-huh.
Mr. LODDO. In the disaster program, we are the Nation's
bank. We are the banker. And we are making a direct loan to the
disaster survivor. And once that loan is made, and then we are
responsible for servicing that loan as well as, worst-case
scenario, the liquidation of the loan. So we are monitoring
that loan from the very day that it is approved for its life.
Ms. ADAMS. Okay. All right. Thank you, sir.
I yield back, Mr. Chair.
Chairman KELLY. Mr. Loddo, I thank you again for your time
here in front of the Committee. I thank you for being forthwith
with this.
I go back--I can't remember if it was law school or
somewhere I worked somewhere--but I remember reading a book
about getting to ``yes,'' you know. And our SBA ought to kind
of be driven by that. And I don't remember all the details of
the book, but it means we shouldn't look for reasons to turn
people down. We should look for either getting them in that
program or, if that is not the right program because they don't
qualify, letting them know what is available.
And I think we in government need to do that a whole lot
better, especially the more bureaucratic you get, we need to
get to ``yes'' instead of looking for reasons not to do as much
work. I think that we've got the right attitude with the SBA. I
encourage the SBA, as an overall business, to be more
transparent. That is why we are asking for these things,
because we want to be your partner and we want to be helpful.
I thank our ranking member, Ms. Adams, for her insight.
And as this hearing comes to an end, I want to again thank
you for your testimony.
This Committee works hard to find ways to ease the burden
of regulations on small businesses across industries and across
our country. That is why this issue is important to us. We want
to make sure SBA and other agencies are not rulemaking through
their standard operating procedures.
The Committee expects SBA to keep us informed of the SOP
process as well as any future SOP rewrites and revisions.
I thank you again for your testimony.
And, with that, this hearing is adjourned.
[Whereupon, at 11:10 a.m., the subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Kelly, Ranking Member Adams, and other
distinguished members of this Committee. Thank you for inviting
me here to speak with you today. My name is Joe Loddo. I am the
Chief Operating Officer of the US Small Business Administration
(SBA). I am here to today to discuss the SBA's process for
writing, reviewing, and updating Standard Operating Procedures
(SOPs). SOPs are used to issue Agency policy, the procedures
for carrying out Agency policy, the assignment of
responsibility for duties, and other purposes.
SOPs are official written communications that initiate or
govern action, conduct, procedure or policy, or relay
information to multiple parties, inside or outside the Agency.
As the COO, the responsibility for maintaining Agency records,
including SOPs, falls under my purview. SBA has a strong
Directive Management system, which controls the issuance,
revision and cancellation of all Agency SOPs.
SOPs are essential guiding documents at the SBA. The SOPs
serve as the policies and procedures for both customer facing
and internal operations. They provide the guidance necessary to
make decisions and ensure compliance with relevant regulations
and statutes. The Administrator approves and signs all SOPs.
In FY 2015, GAO recommended that SBA should set time frames
for periodically reviewing and updating its SOPs as
appropriate. Further, GAO found that a number of our SOPs were
outdated and did not reflect program and operational changes.
At the time, SBA noted that 74 of our 165 SOPs needed to be
revised; 31 needed to be cancelled; and 60 required no
revision. An additional 9 new SOPs needed to be issued.
To be responsive to GAO, and to comply with our internal
annual SOP certification requirement, SBA program office4s have
undertaken a complete review of all SOPs and we have
implemented a process to ensure that all are updated in a
timely fashion. A cross-sectional team was created to review
and revise our written procedures (known as our ``SOP on
SOPs'') for issuing and maintaining agency directives,
including SOPs. The Office of Inspector General reviewed the
revision, as did all SBA program offices. The revised
procedures were issued on August 26, 2016.
Since becoming COO in January 2017, I have mandated a
consistent process for updating, revising, or cancelling SOPs.
In the past 10 months, 13 SOPs have been revised, 1 has been
canceled, and 4 new ones have been created. We continue to work
to ensure that our guidance documents are always up to date,
and I am committed to meeting that objective.
Currently, the head of each office is required to annually
certify in writing as to the status of current SOPs issued by
his/her office. The office head is required to review the
relevant SOPs and certify to me, for each SOP, that the SOP:
(a) does not require any revision; (b) is currently being
revised; or (c) is being canceled. If the SOP is to be revised
or canceled, the office head must provide an expected
completion date. I hold each office accountable to this
timeline.
During the annual certification in January 2016, program
offices identified 19 SOPs that were obsolete and 25 SOPs that
needed significant revisions. All 44 have been either revised
or retired since the end of FY 2016. Going forward, program
offices that identify SOPs as needing revision will be required
to report on the status of that revision. Either through
revision, consolidation or cancellation, SBA has reduced its
number of SOPs from the GAO reported 165 to the current 148.
All new or revised SOPs must follow the SBA's clearance
procedures--with the Administrator approving all new or
significantly revised SOPs. Prior to presentation to the
Administrator, all such documents are cleared concurrently by
at least five mandatory clearing offices (including the Office
of General Counsel, the Office of the Chief Financial Officer
and my office) and any affected program offices. We encourage
pre-vetting among the affected program offices and the Office
of General Counsel. It is through the pre-vetting and clearance
processes that authorities for the SOPs are identified and
compliance3 ensured.
SBA takes its records management and SOP process very
seriously. Efficient and effective program delivery cannot
happen without an organized method of documenting policies and
procedures. Administrator McMahon is holding every senior
manager accountable for results and expects to see them. I
fully support and share her view. Thank you very much for the
invitation to testify and I welcome your questions.
[all]