Mr. BARNES. Yes.

Senator CLARK. This bill I introduced at the request of the administration.

Mr. BARNES. I say, my next sentence was I want to thoroughly endorse this particular bill.

Senator CLARK. We find ourselves in accord on at least one matter. Mr. BARNES. In the disaster-loan program, whenever we get a bank to take a participation, and they go on and administer the loan-you will recall, Senator Bush, we did this in Connecticut; we were able to get several banks there to take the participation. We were also, in California, able to get some of the big banks there to take some participation. This enables us to handle disaster loans much more quickly. But the Comptroller of the Currency, while he is taking the most liberal possible view under the law, does have to follow the law, and it has been necessary sometimes to criticize some of these loans. We have had, in turn, to buy the bank out. We would much rather have this bill enacted, which would enable the banks to participate if they so desire.

On this point, there is in one of the bills that have been introducedI believe it is this House bill-a provision requiring a 90-percent participation by banks in disaster loans. This I do not recommend. It would be much preferable to have the law remain as it is or as it is spelled out in the Thye bill. The reason is we are willing in a disaster loan for a bank to take less than a 10-percent participation. We are, because it is to the interest-in the first place, the interest rate is so low, 3 percent, that a bank could not expect to make very much in view of the administrative cost and servicing the loan. But, if they will service the loan, then it would not be necessary to have Government employees do it. Yet if we spell out in the law 10 percent is required, there will be some cases; they would come in, or they would, at least, think they would prefer not to.

At the present, we will actually take a participation if the bank would take 1 percent, but we do not wish to advertise this fact. We encourage the banks to take as much as they will. So that, if the law is left as it is at present or if it is worded as it is in the Thye bill, it will provide a very satisfactory situation that might be changed if the wording of the House bill is adopted.

In closing, I would like to impress upon this committee the importance of early action upon the legislation extending SBA. Only 5 weeks remain before the end of this fiscal year. We cannot develop a budget estimate for the fiscal year starting July 1 until we know the programs and responsibilities to be assigned SBA beyond June 30. Further, it is not possible to forward to Congress an appropriation estimate for any activity which does not have prior legislative authorization.

We presently estimate that the revolving fund will probably be exhausted by July 1. Under the circumstances, it is difficult to recruit, as well as to hold, some personnel. This is the present situation. at a time when the business-loan and contract set-aside activity is the largest in SBA's history, and when there is a substantial activity in excessive rainfall and other disaster loans.

At this point, I will offer these exhibits, with the understanding that the staff may not wish to use all of them.

Senator CLARK. That is correct. The staff will screen them. Now, Mr. Barnes, I have just asked Mr. Yingling to give you an agenda which the staff has prepared for committee consideration of proposed small-business legislation. I want to be sure that we have your comments on all of these many different bills.

As you have gone along, the staff has checked various items and I think you have commented on all except four of them.

The first one I would like to call to your attention is No. 8 on page 1. I would like you to tell us the present status of your business loans, disaster loans, prime contracts, and whether you are still satisfied with-well, rather whether you are satisfied with the amounts set forth in the House bill, which is slightly different than the Thye bill, which I believe was the bill that you favored.

Mr. BARNES. Yes, sir.

Senator BUSH. May I ask a question parenthetically?

Senator CLARK. Certainly, Senator.

Senator BUSH. The House has passed a bill which is in hearing

now.

Senator CLARK. Right.

Senator BUSH. Mr. Barnes, the House has passed a bill, which is now before this committee.

The three suggestions you made are to modify the House bill?
Mr. BARNES. Yes, sir.

Senator BUSH. Thank you.

Mr. BARNES. We had a Bureau of Budget clearance on the figures set forth in S. 1789 and it is my

Senator CLARK. S. 1789?

Mr. BARNES. Yes. It is my understanding we also have a clearance on the figures set forth in H. R. 7963, which are as follows: For business loans, $500 million; disaster loans, $125 million; for prime contracts, $25 million; a total of $650 million.

Senator CLARK. So you are content with the House figures?
Mr. BARNES. Yes, sir.

Senator CLARK. Í take it the Budget Bureau would not permit you to support S. 3453, which would increase the disaster loan fund to $175 million?

Mr. BARNES. No, sir, not at present.

Senator CLARK. Nor S. 3664, which would increase the disaster loan fund to $225 million?

Mr. BARNES. No, sir.

We have at present $75 million left in the authorization. On the basis of past experience, this is adequate for the foreseeable future. Certainly Congress would be in session before the amount we presently have would ever be exhausted.

Senator CLARK. This is taking into account the substantial increase in loan applications which you testified to earlier this morning? Mr. BARNES. Yes, sir.

Those were in business loans and also in the rainfall disaster loans. As I say, it is adequate for that as we now see it, as we are able to foresee.

Senator CLARK. In other words, the authorization applied for in the House bill is adequate to take you down through next January? Mr. BARNES. Yes, sir.

Senator CLARK. Your judgment being based at least in part on the present rate of applications for loans?

Mr. BARNES. Yes, sir.

Senator CLARK. Will you turn to item 9, a matter by which the money is paid into the revolving funds.

The staff has handed me the existing law, which reads-and I quote

For this purpose, appropriations not to exceed $535 million are hereby authorized to be paid to a revolving fund in the Treasury.

Is that procedure satisfactory to you?

Mr. BARNES. Yes, sir.

Senator CLARK. I notice that the Thye bill changes it.

Mr. BARNES. I realize that, sir, and I am going to-I mean my testimony to indicate that the appropriation route would be preferable.

Senator CLARK. The House bill continues the present language of existing law.

Mr. BARNES. Yes, sir.

Senator CLARK. The Thye bill would change it.

Mr. BARNES. Yes, sir.

Senator CLARK. You support the House bill?

Mr. BARNES. I support the House bill.

Senator CLARK. All right. Now turn, if you will, to item 18.

The Sparkman bill would increase the maximum loan limit from $250,000 to $500,000. What are your views on that?

Mr. BARNES. I support the House bill and the Thye bill.

Senator CLARK. You do not desire any increase in the maximum authorization.

Mr. BARNES. No, sir.

Senator CLARK. Why not?

Mr. BARNES. We have relatively few if any calls for loans in excess of $250,000 and although we have made a number-and when we do have one, almost invariably it is a size company and the credit standing is sufficient we can work out a bank participation and have them take on the excess. If we get beyond $250,000, we tend to get into a field of financing that is just not small-business financing; it is something else. It is another type of activity.

Senator CLARK. All right, now item 32. You may well have made all the comments with respect to these advisory boards that you have in mind, but I note that the House bill has language somewhat different from the Thye bill and I wonder which you prefer and why.

Mr. BARNES. Well, sir, it is fairly difficult to see the difference. I can tell you what the problem is, better than I can tell you about the language.

We have taken the view that our Advisory Board should be composed of men for the most part from small business, but if there is some individual that by reason of his background or activities or interest had a real contribution to make, that we would appoint him to the Advisory Board by reason of the services he could perform. This means we have had some people on there that are perhaps from educational institutions. There are 1 or 2 from banks that would 93527-58-pt. 2-5

not be considered small banks. And there are 1 or 2 from large companies, but whose assignment is such that they are working with improving the management of small companies and their interests are completely with assisting small companies. I believe that this is a matter of interpretation by the Administrator.

I certainly am not going to have anybody on the Advisory Boardor any advisory board-that would work against the interest of small business. I do not feel limitation should be set that they must be small-business men or put them through some kind of screening test. We have never had difficulty in this regard, but there have been a few people who say you should not have anybody but someone who can qualify as a small-business man.

Senator CLARK. Do you think the present law is unduly restrictive?

Mr. BARNES. I do not as long as the interpretation I have placed on it is permitted.

Senator CLARK. And do you think you could live with the language in the House bill?

Mr. BARNES. Well, I believe I could. I do not believe there is much difference between "wholly representative" and "truly representative."

Senator CLARK. I do not either.

Mr. BARNES. I cannot tell what is meant.

Senator BUSH. You do not want any change, do you?

Mr. BARNES. Well, I think if we have a change, it would indicate some dissatisfaction with what is being done at the present andSenator BUSH. In other words, you do not think a change is necessary?

Mr. BARNES. That is right. Yes, sir.

Senator BUSH. You would support the Sparkman bill, then, which is the same as existing law?

Mr. BARNES. Yes, sir.

Senator CLARK. If we were to adopt the House language, would you change your Advisory Board?

Mr. BARNES. Well, I would not, I would not; but it would be possible to indicate that this showed a congressional intent that I should change in some way. So I would rather have it left as it is.

Senator CLARK. We might cover that in the legislative history, the point being why have more points of difference with the other party than necessary.

Any questions, Senator Bush?

Senator BUSH. No.

Senator CLARK. Senator Proxmire?

Senator PROXMIRE. Yes, I have a couple of questions.

On page 2, you point out the big improvement in set-asides.

It is my understanding that only about 4 percent of all military dollars are involved here and that quite a bit of it is in the apparel industry, another industry where you have small business anyway. Mr. BARNES. Well, this is perhaps true; but of course the set-asides, Senator Proxmire, not all of the business goes to small business.

Senator PROXMIRE. I understand small business gets about 18 or 19 percent of the military contracts.

Mr. BARNES. That is right; yes sir. But these are contracts that have been screened individually and each time have to be set aside.

Now, I think that this figure would materially increase if the billSenator PROXMIRE. On page 10, you point out you would like to have it increased.

I take it the House bill and Sparkman bill both would give you what you need?

Mr. BARNES. Yes, sir. Well, I have forgotten the number of that bill, but there is the one the General Services Administration drafted. This would give us authority we do not have now to permit us to make the set-asides by class of contracts. Under the present lawSenator PROXMIRE. S. 3224?

Mr. BARNES. Yes, sir.

Senator PROXMIRE. I understand the General Services bill is not before this committee. It is before another committee.

Mr. BARNES. It relates to the set-aside bill program. I do not know if there is anything that can be done, but

Senator CLARK. It is not before this committee.

Mr. BARNES. I see.

Senator PROXMIRE. Then you would simply say that the language in the Sparkman bill would be an improvement in the present law, of course; and it would be an improvement I presume, although in the Thye bill-item 28 on this chart might help you. The Thye bill adds: "Facilities which include civil production and war defense production"; and the Sparkman bill and House bill simply say "all productive facilities of small business."

Mr. BARNES. Yes. Either the Sparkman or the Thye bill, and I would say the Sparkman bill language would be preferable.

Senator PROXMIRE. I have received a lot of suggestions, criticisms, and so forth-usually generalized, frankly, but nevertheless I have received them-that small business is not getting its share of the defense dollar.

Do you feel on the basis of this kind of legislation, plus S. 3224which I presume would be plus-that this is about all that you would recommend at this time?

Mr. BARNES. Yes; these are all of the legislative changes that I would recommend. We have for discussion with the Defense Department continuing suggestions on proposals to improve these procedures, and I think they can be materially increased and improved. I am not going to say that the small business is getting all that they can get or that could be obtained for them; we are having cooperation and the offices there are collaborating with us to improve some of these procedures.

Senator PROXMIRE. I understand at the present time under the current law "set-asides jointly by SBA and military, with final authority by military," is provided. S. 3372, then, allows SBA to earmark its own by its own authority.

I wonder if you like that or do you think it is not necessary? Mr. BARNES. Well, I am not prepared to testify on that. At a previous hearing, I believe Small Business Committee, there was some testimony by Mr. McGuire on this general subject I certainly subscribe to. We have proposals to work this out administratively and we are exploring that at present. This involves, however, all the services and it is not something that can be settled overnight. We have made proposals along this line and they are being considered by the proper offices in the Defense Department.