Steve Mnuchin Testifies on Small Business Loan Program Transcript July 17

Ms. Velázquez: (00:01)
Let me begin by saying that standing House and committee rules and practice will continue to apply during hybrid proceedings. House regulations require members to be visible through a video connection throughout the proceeding. So please keep your cameras on. And remember to remain muted until you are recognized to minimize background noise. In accordance with the rules established on the H.R.965, staff have been advised to mute participants only in the event there is inadvertent background noise. For those members here in the room, I urge members and staff to wear masks while in the hearing room. And I thank you in advance for your commitment to a safe environment for all here today.

Secretary Mnuchin, Administrator Carranza, welcome to the Small Business Committee, and thank you for being here today. Let me start by saying I want to give a sincere thank you to all the staff on both your agencies who have worked tirelessly over the last few months responding to this crisis. I am deeply appreciative of all the work which helps support millions of American jobs in a moment of unprecedented uncertainty. These are extraordinary circumstances, and I would like to paint a picture for you of the magnitude of the devastation that small businesses are going through right now.

Back in March, it became clear that COVID-19 will tear through our communities, leaving almost no sector of our economy unscathed. And the heat on small businesses was in many cases, deeper and grimmer than their larger counterparts. I have been on phone calls with small business owners in my display who have been mainstays in the community for decades, who have lived through 9/11 and the Great Recession and are now holding back tears telling me that if we do not do more to fix PPP and find longterm solutions, that they cannot imagine their business, their source of income for themselves and their employees, to survive the COVID-19 pandemic.

In fact, about 110,000 small businesses have already closed their doors permanently and an estimated 7.5 million additional firms are at risk for the same fate. And on top of all that, they turn on the news and see headlines like “Trump friends and family cleared for millions in small business bailout” and “SBA exempted lawmakers, federal officials from Ethics Rules in $660 billion loan program.” Let me tell you, that is a gut punch to the small businesses that this program was intended to serve. The ones that didn’t have the top notch financial connections to quickly get a PPP loan. And while we are grateful to SBA for providing data that I have been calling for since the start of PPP, it is not secret that there have been errors that are calls for concerns.

I am troubled by the Bloomberg News report that at least 226,000 loans were likely misreported by congressional districts, making it even harder for us to understand how businesses in our district fared in the program. Meanwhile, a report from the New York City comptroller suggests that PPP loans were made in greater frequency in states that were less hit by COVID-19 than in epicenters like New York City. And as we all know, the pandemic has been, especially unforgiving for our communities of color. Minority have borne the brunt of the health consequences of this terrible virus. We cannot let their businesses also disproportionally bear the economic consequences.

According to a survey, a mere 12% of black and Latino business owners who apply for PPP loans reported receiving what they asked for and nearly half anticipated being forced to close permanently in the near future. And we don’t even know how Asian and Native American business owners fared because demographic data wasn’t asked to be voluntarily provided. That is why collecting demographic data on these loans was imperative. I will continue to press to set aside more resources for minority and women owned businesses. And I hope that we will commit to do more for these businesses in what we are sure to be tough months ahead.

I am sure you both can understand many in our country are frightened. They are angry and they are hurting. We are here today to bring transparency and accountability to ensure that America knows they have a government that works as well for them as it does for the well-connected corporations and friends of this administration. As lockdown orders started in March, storefronts were shuttered and waves of layoffs were taking place. In response, Congress provided relief to reeling business owners and their employees. First, Congress established the Paycheck Protection Program or PPP, to provide forgivable loans to businesses and nonprofits for mainly covering payroll. Second, to help small businesses that need a financing beyond PPP, Congress enhanced SBA’s EIDL program to get more flexible working capital to more business faster.

Knowing that small businesses operate on razor-thin margins, Congress created the EIDL grant program to get cash into the hands of small businesses quickly to bridge the gap until their loans are disbursed. Despite the flaws in their implementation, these programs have been a lifeline for millions of entrepreneurs and job creators, injecting over $670 billion into the economy. To address concerns and make the programs work better, our committee held numerous hearings and forums with small businesses, lenders and leading policy experts over the past few months. One of the top issues we heard from PPP stakeholders is the incomplete and ever-changing guidance. Borrowers testified that they have very little guidance regarding how to spend their loans so they could qualify for full forgiveness. And lenders, lenders are still reporting the process for seeking forgiveness is unclear and unworkable. If forgiveness is the centerpiece of the program, a streamlined, efficient process for getting those loans forgiven should be a priority.

Turning briefly to EIDL. The lack of clear communication has been an ongoing issue. Given the urgency of this pandemic and the uncertainty for so many small businesses, SBA must do a better job communicating. As the spread of COVID-19 has accelerated in recent weeks and lockdown orders return, it will be extremely important that we take lessons learned since March to staff off unnecessary bankruptcies and make sure these programs are working for America’s small firms. We also need to explore other ways SBA can support our small business sector like turning to try and true program enhancements that worked after the Great Recession. Once again, thank you for being here today. I now yield to Ranking Member Chabot for his opening statement.

Steve Chabot: (09:07)
Thank you Madam Chair. And I want to thank Administrator Carranza as well as Secretary Mnuchin for being with us here today and taking time out of your very busy schedule. So thank you so much for being here both of you. While we all agree we must be forward looking as we continue to respond to the COVID-19 pandemic, the topic of today’s discussion is equally important. We must continue to work together to ensure the federal government’s relief efforts face sound and prudent oversight. These programs were developed to assist the nation’s smaller firms. Instances where ineligible businesses and entities, including political organizations who benefited from the programs, must be examined closely. Take for example, the over $300,000 taxpayer backed loans that were received by the Ohio Democratic Party in May. And Madam Chair, for the record, I would oppose such a bailout for the Republican Party as well, but it happened to be the Democratic Party in Ohio that took advantage of this. And I don’t think it was ever intended for that type of thing to happen.

Additionally, oversight of how well the billions of dollars allocated to assist small businesses was utilized is imperative. That will help us to formulate a future strategy and to make well-informed decisions that benefit the greatest number of Americans. I happen to represent most of the City of Cincinnati. For the past few months, I visited with countless small businesses, and obviously, many of their employees as well. And I and my staff have spoken with representatives from the Cincinnati African-American Chamber of Commerce and the Urban League and some of our smallest businesses, particularly those in minority and economically disadvantaged communities, oftentimes, the smallest businesses and typically, under 10 employees, they didn’t when this started, and many of them still don’t, they didn’t have the strongest relationship with banks or credit unions when they were seeking these loans.

So I think that it’s something that we… And I know as this as evolved and the chair has been instrumental in that effort as well and we’ve worked with her and her staff on that, but we have to make sure that those folks in these economically disadvantaged areas have access to this. Because as I say oftentimes, the relationship they’ve had with the banking institutions, financial institutions just isn’t there. So it makes it even tougher for them. Now, it’s impossible to legislate from Washington for every single situation across the country. Likewise, it’s impossible to regulate from Washington for every scenario that may come up. All of the folks in this room recognize this and have been reminded since March of that structural impossibility. Congress acted quickly earlier this spring. Speed was paramount in getting funds into the hands of small business owners to keep them afloat when they were forced to shut down through no fault of their own.

Consolidating six months of legislative work and a little more than six days, the Coronavirus Aid, Relief, and Economic Security, or CARES Act, was passed with overwhelming bipartisan support, Republicans and Democrats working together, and it was signed into law by President Trump on March 27th. This more than $2 trillion economic relief package delivered on our commitment to do everything possible to protect the American people from the public health and economic impacts of COVID-19. The CARES Act created the Paycheck Protection Program or PPP. Following passage of this landmark legislation, the SBA and the Department of the Treasury worked tirelessly to execute the law and issue regulations to inform borrowers and lenders alike, how the program would be administered.

To the credit of everyone involved, the first loans flowed from private lenders seven days, just one week later, on April 3rd. Since that date, the PPP program has distributed nearly 5 million loans to small firms in the amount of over half a trillion dollars. In my district and the surrounding area alone, small businesses utilized the program to preserve nearly half a million jobs. These successes cannot be ignored. And Ohio isn’t alone. This program provided small businesses and their workers, a lifeline across the entire nation. Were there bumps in the road? Of course. As I stated earlier, it’s very difficult to get a program this size up and running in a week. Have there been communication issues between the federal government and the lenders and the borrowers? Undoubtedly. But that is one of the reasons why we’re here today. We must examine and learn from the past and prepare for the future.

Unfortunately, there are still challenges that are presenting obstacles for the nation’s smallest firms. Because we continue to face this threat, we must be forward-thinking. More needs to be done. And we have proven that when we work together across the aisle, across the capitol, and across the different ends of Pennsylvania Avenue, we can move mountains. We aren’t done yet. And I look forward to engaging with you Madam Administrator, and you Mr. Secretary, as well as you Madam Chair, as we continue to work for American small businesses. I want to thank you both for being here, and again, thank the Chair for holding this hearing today. And I yield back.

Thank you, Mr. Chabot. I like to take a moment to explain how this hearing will proceed. Each witnesses will have five minutes to provide a statement and each committee member will have five minutes for questions. Please ensure that your microphone is on when you begin speaking and that you return to mute when finished. With that, I would like to introduce our witnesses.

Our first witness today is the Honorable Jovita Carranza, administrator of the. Administrator Carranza has an inspiring background. Born in Illinois to an immigrant family from Mexico, she began her career at UPS as a part time employee ultimately, climbing the corporate ranks to become President of Latin America and Caribbean operations. In 2006, President Bush named her deputy administrator for the Small Business Administration. And most recently was the Treasurer of the United States. Welcome back to our committee Administrator Carranza.

Our second witness is the Honorable Steven Mnuchin, the Secretary of the US Department of Treasury. Mr. Mnuchin has a successful career as a banker at Goldman Sachs for multiple decades before leaving to join other hedge funds throughout the 2000s. He was appointed Treasury Secretary by President Trump, where he has served for the last three years. Welcome to the House Small Business Committee, and thank you for joining us today Mr. Mnuchin. Administrator Carranza, you are recognized for five minutes.

Jovita Carranza: (16:29)
Thank you Chairwoman. Thank you.

The mic is not on.

It says [inaudible 00:16:36].

Okay, maybe bring it closer to you. Yeah.

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Right.

Thank you, Chairwoman Velázquez, Ranking Member Chabot, and members of the committee for the invitation to testify this morning. I’m eager to update you on the progress that has been made by the agency in helping small business weather the coronavirus pandemic. Since March, the SBA has processed more than… Excuse me, more loan volume than it has in the entire 67 year history of the agency. As of this morning, the PPP has approved nearly 5 million loans for over $518 billion in much needed fiscal relief to America’s small businesses. We administered this first of its kind program with an eye toward equity, recognizing that this pandemic has been particularly harmful to socially and economically disadvantaged businesses. We mobilized thousands of new lenders, including community banks, credit unions, fintech companies, farm credit lenders, and hundreds of CDFIs and MDIs that specialize in providing liquidity to underrepresented communities.

Through Economic Injury Disaster Loans and EIDL advances, the agency has reached over 8 million small businesses, disbursing nearly $170 billion in assistance. That amount is more than all other disasters in combined in the history of the agency. EIDL loans are currently being processed in just five days with disbursements occurring in just two days. These programs help the small business sector survive once in a lifetime disruption. Since early June, I’ve made a concerted effort to personally speak to businesses left reeling by this pandemic, and to financial institutions so that I can see for myself what is working and where improvements need to be made. One of the scores of business I visited was an African-American logistics management firm in Dallas. SBA loans provided him with a bridge, a financial bridge, over the most tumultuous waters he’s ever experienced. It helped him not only keep his employees on payroll, but also hire new workers who received comprehensive skills training and professional certifications.

Many small business owners use that term, bridge, to describe how SBA loans provided them with time and the space needed to rethink, innovate, and to adapt their business models for success in this new environment. One African-American manufacturer in Greensboro, North Carolina told me that an SBA loan helped her develop brand new lines of revenue online. SBA loans helped a whiskey distiller in Traverse City, Michigan transition his manufacturing operation to hand sanitizer to meet both a social need and financial gaps. This pandemic has been an impetus for innovation in the small business sector, but Chairwoman, it also has accelerated modernization at the SBA.

For example, we’ve created an internal oversight plan for each CARES Act program, and we’ve looked long-term at our management responsibilities for millions of businesses and disaster loans. The agency has brought on thousands of staff to support our COVID disaster operations, while simultaneously, servicing 175 natural disaster declarations. We’ve significantly corrected the customer service experience for EIDL applicants by accelerating processing of our loan queue, helping them to better plan. Our dedicated SBA professionals have been working hard to achieve this largely on telework status. And as a result, we are more nimble, more responsive, and better prepared for tomorrow. Before I conclude, I want to say a few words about the PPP data disclosure made earlier this month. The data reflects information about loans approved by lenders and entered into the SBA loan system by those lenders. It does not mean that SBA has determined that a borrower has complied with program rules or is eligible to receive a loan and forgiveness. We are reviewing all loans. Moreover, we have provided the opportunity for business or lenders who believe that their reported information is inaccurate to contact us and we will work with them to fix it.

At the same time, we should not lose sight of the fact that this unprecedented program has emerged as one of the most successful and consequential federal economic response efforts in history. That success is the result of a collaborative effort that includes the White House, Treasury, SBA, the lending community, chambers of commerce, and importantly, each and every one of you. I know that there is more work to be done, and we all share the same goal of helping small businesses across the country. I look forward to working with this committee and other members of Congress. Thank you.

Thank you Administrator Carranza. Secretary Mnuchin, you’re now recognized for five minutes.

Steven Mnuchin: (21:51)
Thank you very much. Chairwoman Velázquez, Ranking Member Chabot, and members of the committee, I am pleased to join you today to discuss how the Department of Treasury and the SBA are working together to provide relief to business and their workers through the PPP. We remain committed to working together until every American gets back to work as quickly as possible. America’s economy continues to recover from the challenges posed by COVID-19. For the second month in a row, the jobs report vastly exceeded forecast with a record of nearly 5 million jobs. This brings the two month gain to approximately 8 million jobs. While unemployment rate is still historically high, we are seeing additional signs and conditions of improvement. The Blue Chip Report is forecasting that our GDP will grow by 18% in the third quarter. The US Chamber of Commerce reports that 79% of small businesses are at least partially open, and half the remaining businesses will open soon. Retail sales rose by 18% in May and by 7.5% in June.

But let me point out June was actually 1. 1% higher than the same June, 2019. This is a result of all of our programs working with Congress. Investors and businesses have historically high cast positions and are beginning to put them back to work. We are in a strong position to recover because the Trump administration worked with Congress to pass legislation on an overwhelmingly bipartisan basis and provide liquidity to workers and markets in record time. In particular, the PPP is keeping tens of millions of employees in their jobs. Economic impact payments are helping millions of families. We are monitoring economic conditions closely. Certain industries, such as construction are recovering quickly, while retail and travel are facing longer term prospects. We are sensitive to the fact that certain areas of the country are experiencing increased numbers of cases. The taskforce working with state and local officials is helping to ensure that people can work safely in this environment. We look forward to continued conversations with this committee and other members of Congress to address these critical issues.

Turning to the PPP, the SBA and Treasury worked together to launch this in unprecedented time. We approved over 5 million loans for $517 billion to support the employment of over 50 million jobs. This is truly an extraordinary achievement, and we are pleased that the loans were broadly distributed and made across diverse areas of the economy with 27% of the funds going to low and moderate income communities, which is consistent with the proportion of the percentage of the population.

As you might expect with a program of this magnitude executed on a national scale rapidly, we initially experienced some complications. We resolved them quickly. To implement the program, our teams work with members of Congress on a bipartisan basis to issue rules and guidance to provide clarity. By standing up the program quickly, we were able to support tens of millions of jobs. We have worked closely with members of Congress in both parties to pass three subsequent pieces of critical legislation. We also reached a second round of funding for over $300 billion. I look forward to these continued bipartisan efforts. A next phase of relief should extend the PPP, but on a more targeted basis for smaller companies and those that are especially hard hit such as restaurants, hotels, and other travel and hospitality business.

The Treasury Department is implementing the CARES Act with transparency and accountability. We’ve released a significant amount of information on our website reporting on usaspending.gov and updates to Congress. We are cooperating with various oversight bodies. Regarding the PPP, Treasury and SBA regularly released data. On programs, the Treasury and IRS have made data information regarding millions of economic impact payments available on their website and to the GAO. We are pleased that the Treasury working with the Federal Reserve has announced to add to existing disclosure on the liquidity facilities by posting additional information on the website. Chairman Powell and I have had productive discussions with the members of the Congressional Oversight Commission.

In addition to the PPP, we had 160 million payments for the economic impact payments. We’ve made massive amounts to support air carriers. We’ve had $150 billion to the Coronavirus Relief Fund. The Federal Reserve facility is up and running. I’m pleased to announce that Main Street made its first loan for $12.3 million to doctor’s offices consisting of 15 practices in Wisconsin. The lender was Stallion Bank, a family-owned $1.2 billion community bank. There’s a $50 million construction loan, which will save over 3,000 jobs in the working. I look forward to working with Congress next week on a bipartisan basis to pass additional legislation. I’d like to thank the members of this committee for working with us to help the American people. And I look forward to answering your questions.

Thank you, Mr. Secretary. We’ll begin by recognizing myself for five minutes. Secretary Mnuchin, Ethics Rules were waived administratively in the PPP, allowing friends of the Trump administration to get access without any further review. Meanwhile, there are thousands of small businesses, many owned by women or minorities and located in rural areas that were desperately seeking assistance. Were you concerned about those optics?

Well, let me just say, as it relates to certain loans that the administrator said, there will clearly be loans that are reviewed for appropriateness, but let me just comment on the conflict of interest rules. I had very specific discussions with Senator Schumer and McConnell on the conflict rules. And it relates to the direct loans from Treasury and the loans from the Federal Reserve. There were very specific requirements and certifications that were required from members of Congress and the administration. As it relates to the SBA program, Congress could have included those same requirements, but decided not to do so. And indeed, the SBA followed their standard provisions for the SBA. The SBA Standards Conduct Commission determined that the PPP loan should be governed by similar disaster programs. And explicitly, and again, this was a committee that did not consist of political people, explicitly decided to provide the same waivers that they’ve done for other programs. So again, we look forward to working with oversight committees to make sure that proper rules and regulations were followed.

Well, I welcome that and we intend to exert our responsibility and our constitutional duty to be at the table. I am the first minority female chairing a committee. And when we are discussing lending programs that are within the jurisdiction of this committee, I will demand for the ranking member and myself to be at the table. I insisted that Ethics Rule should not be waived. These are lending programs. If it’s good for the 78 and 504 and SBIC, it should be good for this type of lending. And I will insist on that when we sit down to discuss going forward. I understand EIDLs were capped at $150,000 in an effort to stretch the funding. However, I asked you administrator, the appropriators asked you, and the Senate asked you on numerous occasions if you needed additional funding. And the answer was not, yet here we are. And it is our small businesses that are suffering. Moving forward, you must work with us. And I ask that you remove the cap for new item loans immediately and allow those with existing loans to obtain the capital they deserve. You still have $200 billion of loan making authority left in the EIDL program while small businesses are hurting. So help us help you because members of this committee and businesses who came to testify before this committee, they said that they might remain open, but will not be able to keep those businesses open because when they were thinking that they will apply for the maximum allowable loans, then you reduce to $150,000. We need to do better than that. This is not going away. And too many businesses are suffering.

Mr. Mnuchin, the pandemic has cost the rate of black-owned businesses to drop by an astonishing 41%, and the rate for Latino-owned businesses by 32%. These numbers are unacceptable and are only going to get worse unless we act now. I meet reports, shouldn’t we set aside a percentage of the remaining funds for small businesses that need it most? I just heard you saying that you are going to ask for hotel, restaurant, the traveling industry. What about minority businesses?

I agree with you. There should be a set aside for small minority businesses.

Thank you. Thank you. So I can count on your support that we could set aside funding for mission-based lenders, because we are discussing here the smaller of the small businesses who have no connection, who has no pre-existing banking relationships with those financial institution. Those who have relationship are mission-based like CDFI, like MDI, like micro-lenders. And I hope that we could, going forward, work with you on that issue. My time has expired and now I recognize Ranking Member Steve Chabot.

Thank you, Madam Chair. Administrator Carranza, I’ll go to you first. Given the overwhelming response to this emergency, is the SBA prepared to respond to other disasters such as floods and hurricanes and fires? We know they’re coming at some point. Are you all prepared for that?

Yes, Mr. Chabot. At this point, we have about a three type disaster declarations that are being submitted by the governors. It’s either economic disruption based on civil unrest, or it’s natural disaster, and then of course, the March declaration of economic disaster. So we’re processing all three as we speak.

Very good. Thank you. Secretary Mnuchin, I’ll move to you next. Does the loan forgiveness process need to be simplified any more? For example, I know there’s some members of Congress that have suggested perhaps even forgiving all the loans under $150,000 for example. I’m not saying that we should or shouldn’t do that, but I’d love to hear your thoughts about it. I’ve heard a lot of concerns from folks out there about how complicated the forgiveness process can be. If you could talk a little about that.

Well, we look forward to working with this committee and the Senate Small Business Committee to simplify the process. There were provisions in the existing act that made it complicated. We tried to issue as much guidance as we could. I know one of the things we’ll talk about is should we just have forgiveness for all the small loans? I think that’s something we should consider. We should obviously make sure there’s some fraud protection, but we look forward to working with this committee and others.

Thank you. As you know, at this point, there’s approximately $130 billion that’s still in the PPP program. So everyone’s talking about. So what do we do with that? Do we reduce the number of employees eligible for-

Now, do we reduce the number of employees eligible from, say, 500 down to 100, or do we stick with what we have? Do we do a second PPP? And I know these are negotiations that everyone is having now, including the administration, the House, the Senate, this committee, and others. What are your current thoughts about that?

The administration supports using the existing money and topping it up with some additional money, and that will be discussed, and allowing for a second payment to the businesses that are especially hard hit. And Chairwoman, let me just say, I was only giving examples of businesses. I didn’t mean to any way imply that those are the only businesses that are hard hit. I think this time, we need to have a revenue test and make sure that money is going to businesses that have significant revenue declines. That’s something that Congress didn’t have in the first provision. But make sure that the businesses that are especially hard hit, particularly small businesses, and put in certain safeguards so some of the types of people we saw that took out loans, and I look forward to working with Congress. If Congress wants to put back in the conflict rules, we’re more than happy to work with Congress. The administration supports we will participate on the same basis of the House and the Senate.

Secretary Mnuchin, also, one of the things that you all were operating under impossible time constraints. We passed this, I was at the signing ceremony on a Friday. The next week, the loans were literally going out the door, although not that many, and it wasn’t glitch-free. We all know that, but you all got your act together pretty quickly and saved a whole lot of businesses all across the country. And God bless you all for doing that. And this committee was involved in it, many others as well. But I know one of the things that was frustrating, and again, I don’t want to be critical here, but was frustrating, I heard this from lenders, I heard this from small business folks, I heard it from our staff, was just the time it took to get the guidance out so people knew what the rules were, what we were all operating under. Do you have any thoughts for the future as to what we might be able to do with regards to that?

Sure. Well, let me say, in one of the more ridiculous statements I’ve ever made, I committed we’d get the program up in two weeks. And working with the SBA and the staffs, we were able to do that. Now, obviously in doing that, it ran into a lot of issues, but we made the judgment it was more important to get it up and running quickly, that sending money to people four months later wasn’t going to help small businesses. Now that we have it up and running, especially to the extent there are minor changes to the PPP and the EIDL programs, working with the SBA, we can get the guidance out very quickly. We won’t have the technology problems we had last time. And again, I would encourage this committee to work in the context of these programs and put more restraints.

The other thing I think you should consider on the EIDL is, now that we have Main Street open, for loans above $250,000, that we really do focus EIDL on loans that are $250,000 and below.

Thank you very much. My time is expired, Madam Chair.

Gentleman’s time has expired, and now we recognize the gentlelady from Iowa, Ms. Finkenauer, for five minutes.

Representative Abby Finkenauer: (38:28)
Thank you, Madam Chair. I appreciate you holding this hearing. So just for the Secretary Mnuchin and Secretary Carranza, for you guys to understand, the district that I represent is in Northeast Iowa, has three bigger city centers, and the rest is pretty rural. And our district has been hit very hard on a number of levels, whether it’s been the attacks on our agricultural community over the last few years, or now this pandemic, and how it has affected not just our cities, but also our rural areas as well.

And one of the things I want to touch on, Secretary Mnuchin, I know you brought this up, but really want to dive into this, are those economic impact payments. Those direct assistant payments that are important for individuals who are worried about how are they going to pay their mortgage, their rent, put food on the table, but also for local businesses as well who have been able to stay open to have some sort of economic stimulus here during this pandemic. And one of the things that I was really concerned about is when these went out to folks, obviously if they had their direct deposit set up, those went into their account, most of them. However, we heard from 700 people within my district about these payments who did not receive them, or they received them, but they were in the debit cards and didn’t realize that they were these economic impact payments. And so why was this set up the way that it was? Why was there no real communication out to these districts, out to folks who needed to understand how these were coming out?

And then also, I know we wrote you a letter, actually, Secretary Mnuchin, about the fees, and reissuing these cards, because so many folks were throwing them away. I’m glad you listened and decided to waive that $7.50 charge for replacing, but why does it cost $17 to priority ship these cards to folks? Why do taxpayers who need their money now have to wait longer, and it costs them more? This is just something, again, that needs to be dealt with, and I’m glad you fixed a piece of it. But what are we going to do down the road when hopefully we issue more support to folks and actually have that education, and why was this done in the first place?

Well, thank you for your comments. And let me just say, the fact that there were 700 of those in your community is inexcusable. And if you have specific issues, we’re happy to follow up. I would say the IRS and fiscal services did an extraordinary job in sending out over 150 million, again, in a record period of time. The debit cards, you did point out something. We didn’t realize that the debit cards were sent in unmarked envelopes. We will correct that going forward. I do think the debit cards actually was an interesting addition, for two reasons. One, it allowed us to get payments out quicker, since we could only create so many checks, and two, going forward, debit cards-

I’m sorry. I’m sorry, Secretary Mnuchin. How long did we have to wait to put those out because the President decided to have his name on those checks or on the paperwork that went out with those? How long?

I can assure you, there was zero delay associated with either one of those issues. It had no impact on the timing. We were limited in the number of checks we could print per week, but that had no impact on it, and I think the fees were waived. If the fees weren’t waived, and you have constituents that still have issues, again, I’m happy to follow up on that.

Yeah. The fee of $7.50 to replace was waived, but then there’s the $17 that that costs for the Priority shipping of the cards.

You let me know and we’ll follow up. That should be waived as well.

Thank you. And then I also have a question about the PPP program. Obviously this has been incredibly important all over the country and in districts like mine. But I have to be honest, I was really disappointed at the beginning when this rolled out. I mean, we allocate these dollars, and then they go to these agencies. So they go to SBA, they go to treasury to set up how these are doled out, and communities like mine, quite frankly, were left behind, because we have the highest concentration of community-based financial institutions in the entire country within my district. And so the first batch essentially went to big banks and people who were connected with their banks, and left out communities like mine.

Did either of you think about how this would impact our folks who lend with community-based financial institutions? Why was this done the way that it was at the very beginning? And how can we ensure, I know we have that set aside now for those dollars, but how can we ensure that as we continue to look at this, that we are doing what we should here with these agencies to make sure we don’t forget about rural areas? I mean, on the SBA, I understand as well that we lost the Head of Rural Affairs during that. Actually, she got moved. I know we’re short on staffing to deal with this, but not the time to move somebody that represents rural areas-

Time has expired.

… and then fighting with them.

If you wish to answer the question, sir.

I can assure you, we are very focused in making sure that the community banks and the CDFIs have equal access. And you’re correct. Unfortunately, there were issues in the beginning. We corrected it very quickly.

Thank you. The gentleman from Ohio, Mr. Balderson, is recognized for five minutes.

Representative Troy Balderson: (44:05)
Thank you, Madam Chair. Thank you both for being here today. My first question is for the Administrator. Thank you again for being here today, Administrator. I greatly appreciate your leadership through this pandemic. I would also like to convey to you that your local office in my district, Columbus, Ohio, SBA, has been a phenomenal partner and resource for me. We have been doing a back to business tour for the last three weeks. Everett Waddell, from your office, has been with me along the way and his team, and we’re very grateful, and to see the business owners that encounter the SBA while we’re there, and to put a face with the name, is very pleasing for them as well. So thank you.

An issue that I’ve heard more and more about from my constituents is the lack of clarity on PPP forgiveness. Specifically, I hear this often from business owners looking to have their businesses bought out. This could be because of the pandemic or a planned sale prior to COVID-19 that’s been placed on hold because of the virus. In this situation, the business owner took PPP in order to support their employees, and now they cannot sell their business with this forgivable loan on the books. Why is this?

Thank you, Congressman. This is a situation that I’d have to speak with you personally, and address the particular case, because this is news to me, about them taking a PPP and then wanting to sell. It’s not a new incident where small businesses that are ready to sell, because they don’t care to go through another pandemic or another crisis, they’re in a position and interested in selling their company, but the PPP or the EIDL loan issue was not raised when we had those discussions. But I have experienced similar to you that there are businesses that are ready to sell, but I’d have to look into, and I’ll concur with the Treasury on how to manage that situation, and the forgiveness. We haven’t addressed that at this point. An entity wanting to sell their firm, and they have a loan.

We will work with you on that. And the business, one, for example, that I’ve been in communication with, they were doing an exchange in January before the pandemic hit. So most of them that I’ve been in contact with have been having this issue before the pandemic even started, so we will work with your office and address that. Thank you very much.

Look forward to it.

Mr. Mnuchin, thank you. My next question is for you. I’ve introduced legislation with my colleague from across the aisle, Congresswoman Brenda Lawrence, that would provide a tax credit for small businesses to purchase and install PPE and related safety equipment. This legislation would help small businesses that are suffering financially under the weight of mandatory closures be able to afford the personal protective equipment required to reopen their doors. Are you open to working with myself and Ms. Lawrence to ensure small businesses are safely prepared to welcome customers again?

Yes, absolutely. And I’m not familiar with this specific legislation, but I like the concept a lot.

Appreciate it. It’s up to $25,000 tax credit, so thank you. Look forward to that. Administrator, back to you. If a business owner decides to use personal finances, monies, that’s not associated with their business to pay off their PPP loan in order to move forward with the sale of business, they just have to eat this as a loss? And again, that may be something that you and I may need to sit and discuss.

Yes, I agree. I’d have to understand all the nuances to that particular situation.

I understand.

And also perhaps there’s other businesses that may be facing the same thing, that we need to look into.

Thank you very much.

You’re welcome.

Mr. Secretary, my last question is for you, I greatly appreciate your leadership. It’s been fascinating to watch you. As we look towards the next aid package, much of the focus seems to be on providing aids to schools, hospitals, and first responders. I support these efforts, but also believe we must continue consideration of America’s economic engine, small business. And I know that Madam Chair and Ranking Member Chabot have both talked about this. What types of considerations for small businesses and workforce development efforts are also being considered? And I didn’t leave you much time, Mr. Secretary.

Various items. But again, I think that’s something that should be considered, and we look forward to working with you.

Thank you, sir. Madam Chair, I yield back my remaining time.

The gentleman yields back. Now we recognize the gentleman from Maine, Mr. Golden, for five minutes.

Representative Jared Golden: (48:53)
Thank you, Madam Chair. Secretary Mnuchin, I have a question that I’d like to raise with you, but first I just wanted to point out as you were talking in your opening statement about extending the PPP program, but perhaps trying to target the assistance to businesses that need that help the most, as well as maybe learning from some of the lessons along the ways as we’ve worked on the PPP program together, I wanted to encourage you to look at the RESTART Act, introduced in the Senate by Senators Bennet and Young, and here in the House by myself.

This bill builds upon the PPP program. It models itself after that, but I think importantly, it has some provisions in there that would target the aid to businesses that can demonstrate that they have, in fact, suffered revenue losses over the last past several months related to coronavirus and the economic impact. So I don’t know if you’re familiar with the RESTART Act, but I would encourage you to give it a look as you’re looking to improve upon whatever it is that we do next to assist businesses here in the United States, as we shift into a recovery phase.

I am familiar with it, and I think parts of it should be incorporated.

Thank you for that. I look forward to working with you and with the Senators and House members on something similar to PPP, and the program proposed in the RESTART.

I wanted to raise an issue with you on behalf of critical access care hospitals, including some in my district. Are you familiar with critical access hospitals?

A little bit.

Yup. Federally defined as providing important healthcare access in rural areas, in rural communities, where these are hospitals that are going to operate under very thin margins and struggle financially, but it’s important. The federal government recognizes how important they are to access to care. In addition to access to healthcare, they’re often the largest employers in a rural region, and therefore are just critically important.

Your department has, I think, rightfully looked at organizations applying for PPP who are foregoing undergoing bankruptcy as ineligible. I understand why you would do that under normal circumstances, but there are a number of critical care hospitals in the nation who are undergoing chapter 11 restructurings. And given the fact that we’re dealing with a pandemic and a recession, and that these hospitals have a very unique, federally recognized mission, and are providing important access to health care in areas where it’s going to be hard even in good times to be making money, these are really like nonprofit hospital organizations, I was wondering if you would consider reconsidering eligibility for critical care hospitals undergoing chapter 11 restructurings for the remaining PPP funding that you have. To date they’ve been excluded, and you can imagine during this pandemic and the recession the fact that they couldn’t do certain types of services that they normally would be doing. They’re really struggling, and several of them are at risk of closing, which would be a terrible loss for these communities.

I’m very sympathetic to those types of hospitals, and we look forward to working with you and considering that.

Well, I appreciate that very much. As you know, the Treasury and SBA have been able to make some changes in the program for eligibility, for organizations to include some nonprofit hospitals that are tax exempt under section 115, and hospitals owned by a state or local government, as well as others. But I think that those jobs, obviously very important in rural communities, but even more important is ensuring the access to care is preserved. And they have been applying for PPP. They were rejected. In some instances, some of these hospitals have gone to courts who essentially have said that the determinations made by the treasury in SBA would have to be changed, or Congress would have to act. So I don’t know if you think that you need some kind of legislative action, or if you think that you have the authority you do to look at this and make that change yourself.

But I want to thank you for working with both my office, but also Senator King and Senator Collins from Maine, and I’m sure other Senators who represent similar hospitals in a similar situation are eager to work with you to try and help these hospitals.

The gentleman’s time has expired, and now we recognize the gentleman from Oklahoma, Mr. Hern,

Representative Kevin Hern: (54:06)
Thank you, Madam Chair, Ranking Member Chabot. The Secretary, Administrator. Thank you both for being here in person for this. This is unprecedented times.

Mr. Secretary, our office has dealt with many people who have waited weeks and weeks further unemployment checks to get approved at the state level. Hundreds of thousands across the country, I’m sure. As you may remember, we discussed this on a phone call over four months ago, where we noted that under the current capacity, states were ill equipped to handle the influx of unemployment applications. To combat this problem, to keep hardworking Americans employed, Congress worked in a bipartisan way, unprecedented, actually, in today’s times, to establish the paycheck protection program. And while I believe this program could have been expanded and more work have been done to help the 40 million Americans who are currently unemployed, this program has successfully saved 51 million jobs in America, which was designed so that when we come out of this pandemic, that we can quickly stand up the economy, which is what we’ve been seeing happen in May and June, and continue to see that happen now. You have stated many times that the priority of the PPP was to predominantly preserve and save jobs and employees, rather than the business owners themselves. Would you still agree with that statement?

Yes.

Additionally, could you discuss what you’ve learned from this, or strategies that the federal government can implement in the future to better prepare for this next situation, or this situation in the future?

Well, let me just comment on, one of the things we liked about the PPP was all the money we were spending on the employment side of this was money we saved on unemployment. I think one of the issues we’ve learned, and we have to fix in the next legislation, is the technical issue where in certain cases, states with the top up were paying people more not to work than to work. And as you said, some of the states were better prepared. Some of these states are 40 year old computers.

I also want to just say one thing. I know a lot of people use this, “40 million people unemployed.” Fortunately, it’s not 40 million unemployed. People thought we’d get to that. But fortunately, right now we only have 18 million unemployed, and we have about 14 million more than where we started this, and we got to get those people back to work. But thank you.

Thank you. Further, my casework team has worked with hundreds of people who have had difficulties receiving their stimulus check. And I know you’re aware of this. We’ve talked to your offices. Can you briefly explain, very briefly, what we’ve seen happen, and why? Is there a big issue here, or all these one-offs?

I mean, let me just say, all these one-offs, I’m sympathetic, because these are real people who want their checks. So I don’t mean to any way minimize this, but again, we sent out over 150 million checks in record time. And yes, there were certain cases, because they were either done off of previous tax returns or other information that we got, and that’s unacceptable, but we’ll work with you on it.

Thank you, Administrator Carranza, two weeks ago, Associate Administrator Rivera testified before the committee regarding the ODA program. And during my conversation with the Administrator, he committed to providing this committee with a document outlining some best practices by the end of the third quarter, September 30, 2020. This will be a document to explain what the SBA has learned, and how you all believe you could better be prepared in the future should another pandemic arise.

Just as a side note in that, the administrator had stated he’d been here since 9/11. He’d been through 9/11, the financial crisis, and we keep reinventing the wheel, and it seems with all of us engaged in this in a very bipartisan way, that we could put a pandemic playbook in place so that we could learn from our mistakes and not repeat them again. Because when we make mistakes, people are harmed, or not at least given a stimulus when they need it. So if we could learn from those mistakes and do better, that would be great, and I think that would be a way to do it in a non-political way that we could put these on the shelf.

One of the key components of this document would be to design a communication plan for future pandemics, which would greatly help all of us work together. Would you commit to seeing that get done by the end of the third quarter?

Yes, Congressman. We’ve already begun. We’ve prepared the first deck on how we are addressing fraud. We have also staffed up. I’ve started with two additional executives, SESS and ODA, so we’re going to reinforce the leadership in ODA for future situations and in preparation the end of the year. So definitely you’ll have a full SOP or MOP.

Well, and as business people, and many are in this room, I’ve been in business 35 years, we can talk about what happened, but that doesn’t really solve a problem. So if we can indel in a document what those issues were so that we can not make those again, we’ll make new ones, and that’s human nature. But if we can get that done, that will be great for us. And Madam Chair, Ranking Member, I thank you for allowing us to have this meeting, and it’s very important, and thank both of you for being here, for what you’ve done in these unprecedented times. Thank you.

Look forward to continue working with you. Thank you.

Thanks.

Gentleman’s time has expired, so now we recognize the gentleman from New Jersey, Mr. Kim, for five minutes.

Representative Andy Kim: (59:26)
Thank you, Chairwoman, for convening this hearing. Thank you to the witnesses for showing up. Secretary Mnuchin, I wanted to start with you. You rightfully noted in your testimony that small businesses are continuing to face a dire circumstance right now. Even those that have received paycheck protection program loans are telling me that they’re unsure whether or not they’re going to be able to survive. And there are a lot of concerns about just the bigger state of our economy, and whether or not our economy is going to be able to pursue through these coming months. And if not, is that going to have a negative impact on our small businesses? In my home state, in New Jersey, we’ve gone through a really tough time over the last couple of months, and we face a tough challenge up ahead when it comes to our state economy. It’s been crippled. We have dramatically hampered our recovery, especially for small businesses. And these are not just about COVID-related expenses. It’s about loss of revenue that could very well create widespread layoffs, decreased consumer spending, weaken our investment in our communities.

Representative Andy Kim: (01:00:27)
Secretary, I wanted to ask you if you would commit to working with Congress to ensure that we have the necessary funding to our states and local municipalities to solve the crisis that we face and create a strong economic recovery.

Steven Mnuchin: (01:00:42)
Well, I think as you know, we allocated significant amounts of money to COVID-related expenses. We’ve tried to issue guidance, to be very clear that money can be used for law enforcement, first responders and others. I think the issue of lost revenues is a much more complicated issue, and the issue of taxing authorities between the state and the federal government, but we’ll be working with Congress on this.

I raise this because I’ve heard you talk about before what could potentially come next with state and local funding on this. And I think it’s really important and central to this discussion that we’re going to be having over the coming weeks about this. When I’ve heard you talk about it before, you’ve particularly described this money as bailouts for some states. And so I just wanted to hear from you a little bit more on that front. I believe that for you, perhaps it’s that you don’t want to see this funding going to states that you characterize as mismanaging funds, because you don’t think that would be fair. That it wouldn’t be fair to other states that are working hard on their economy and their budget, so why have them cover for other states? Is that sort of a correct interpretation of your assessment?

What I have said, and I agree with this, that if there were financial conditions that states had coming into this, it’s not the federal government’s role to bail them out of that. Now, we have through the Fed facilities, we have provided lending facilities to the states and municipalities, but the issue of taxing authority, the federal government has taxing authority and the states have taxing authority. So where there are lost revenues, I think there is a fairness issue of how those get allocated across the country.

I agree with you that there’s a fairness issue here at stake, and in New Jersey, our state only gets back somewhere around 75 cents to 81 cents for every dollar that we put into the federal government. It’s one of the lowest in the nation. Other states get back well over a dollar, some $2. Kentucky gets back about $2.35 cents, last I saw. So I guess I’d ask you, is that fair? Is that fair to the residents of New Jersey?

Well, let me just say, I’ve lived in New York and California, and both New York and California cite those numbers as well. I don’t believe that that is an appropriate number, because the answer is more rich people live in those states, and because of the way we have taxes, and the rich people are the ones who pay the preponderance of federal taxes, I don’t believe the calculation as a result is the right way to look at things.

Okay. Well, that’s helpful for me to understand how you’re approaching this problem, and I want to continue to work with you on that. Because from my standpoint, if New Jersey is often calculated that we give into the federal government about $20 billion more than what we get back every year, I think there is an issue of fairness here, and I really don’t want us in the middle of a pandemic to get to a situation where we’re trying to pit states against each other. We saw that with personal protective equipment, and now with funding, I think there’s a chance for us to really come together here and try to think about this, especially when we know that current and former Fed chairs all have said, and reportedly warned, that economic recovery could be hampered if we do not appropriate more aid to state and localities.

Just switching gears here at the very end. Administrator Carranza, I understand that the Economic Injury Disaster Loans were capped at $150,000 to ensure all borrowers could access the funds. However, this policy shortchanged many businesses. So I wanted to ask you, moving forward, will you commit to removing this cap for new EIDLS and to allow the existing loans to obtain more funding in phase two.

Jovita Carranza: (01:04:22)
Congressman, what our experience is currently is that the average loan has dropped from 63 to 57,000 down to about 37,000 since we’ve opened in June. July, excuse me. And so at this point, the operating expenses that people apply for are not hitting the cap in great numbers. About 1% of the applicants are pursuing that amount. 80% of the loans that we have processed come in significantly under the 150,000, but I will continue assessing it. We’re reviewing that on a daily basis, Congressman, so I look forward to working with your office.

Thank you.

Ms. Velázquez: (01:05:03)
Would you yield, if there’s any time?

I will.

Thank you.

We are over time, but I expect for you to lift that cap, especially when there are other States that are facing now the pandemic. You cannot predict if any business from those states will need more than 150,000. So the fact that now, from those other states, you’re not getting those type of applications or that type of amount doesn’t mean that that will apply to every audit. Businesses should have the opportunity to be able to apply for over 150,000, if that is what they need.

Congresswoman, at this time, since we opened up the portal, we have an additional five million applications. We have probably about 15 to 20 days remaining with the remaining funds. So if I keep that level of 150, I will be able to service five more million small businesses.

Sure. But from the beginning, appropriators, myself included, Senator Cotton, and some of the Senators asked you if you needed more than what we included in the bill. And you said yes, so come to us. Tell us when we ask if that is enough.

Representative Jared Golden: (01:06:31)
Yes, I will work with your office.

Thank you. And now we recognize the gentleman from Minnesota. Who is it? Mr. Stauber.

Representative Pete Stauber: (01:06:43)
Thank you, Chair Velazquez, and Ranking Member Chabot. And I also want to thank the two witnesses for being here today. So Secretary Carranza, this kind of follows what the Chairwoman just talked about. I’d first like to share with you some concerns that I’ve heard from my constituents, and it seems that the SBA has taken some liberties to reduce the cap of loans given out from two million to 150,000. While this is likely to ensure the maximum number of businesses receive some sort of funding during this crisis, my constituents are rightfully upset. They feel that they are being cheated out of what they were promised by their government. I heard from your colleague, Mr. Rivera, on this issue a couple of weeks ago, but I wanted to give you the opportunity to respond today.

Yes, Congressman. I also receive emails where their calculation on operating expenses may have not reached the 150,000, and we have taken those under special reconsideration and looked at ways where we could increase that amount. Secondly, to exceed the 150,000 at this given time would be premature because we have five million applications currently. As I stated to the chairwoman, if there are needs for funds, then we will bring that up for discussion. What we do with the applicants that need more fund is we counsel them that there is the PPP program also, that’s the forgiveness loan, and we provide technical assistance. We don’t influence, nor do we recommend. We just share that there’s also another option that they can consider. We don’t take lightly the fact that businesses are in need of funds. It’s an emergency lifeline that we initially thought this pandemic was going to be two weeks, and now it’s a couple of months. And so we recognize the fact that they are in need of greater funds.

Thank you, Madam Secretary. And as I said before, the SBA and the Treasury were given a nearly impossible task. And while there have been some bumps in the road, we appreciate the work that you, Secretary Carranza, and Secretary Mnuchin, and your respective teams have put into helping the small businesses across this nation during this pandemic.

My last question will go to Secretary Mnuchin. Shifting gears a little bit, I’ve been hearing from local grocery stores and convenience stores of the coin shortage. What are your thoughts for addressing this issue? And have you considered some type of public messaging or political PR campaign to help jumpstart the coin circulation across the nation. Secretary Mnuchin?

Thank you. We are working very closely with the Mint and the Federal Reserve on the coin shortage. And the mint is working overtime. As you’ve said, as a result of COVID, a lot of the coinage is stuck, but we are working on a public messaging, and we’ll get updates to your office.

Thank you, Mr. Secretary. And I would say this committee would be happy to help you in that public relations-

Speaker 1: (01:10:03)
-would be happy to help you in that public relations campaign. With that, Madam Chair, I yield back. Thank you.

The gentleman yields back, and now we recognize the gentleman from Colorado, Mr. Crow.

Thank you, Madam Chair, and thank you, Administrator Carranza and Secretary Mnuchin, for joining us today. Administrator Carranza, on July 6th, the SBA sent to Congress a list of the loans distributed by congressional district. They sent to my office a list showing 317 small businesses within my district received loans over 150,000, and over 3,600 received loans less than that. I knew that wasn’t right, given the number of small businesses in my district, so we conducted our own analysis and determined that there were actually over 1,400 businesses in my district that received loans over 150,000 and over 10,000 that received them under 150,000. So that data was way off. What are you doing to fix it?

I’d like to visit with you and address those particular statistics. We would be premature to comment on these particular data points that I’m not familiar with at this point, so I look forward to working with you on them.

So you’ll commit to work with me and every other member of Congress to make sure that data is right?

Absolutely, the entire committee. Yes.

Okay. Administrator Carranza, I was very pleased to hear from Secretary Mnuchin that he would commit to work with us to look at how to get that 100 billion plus of PPP money that’s still available to members of the black and brown community and to women-owned businesses and others especially hard hit. Do you share that commitment, and will you commit now to work with us to develop a program to give money to those businesses?

Yes, I do. We’ve been working in concert with the Treasury. We’ve worked together on the CDFIs, the credit unions, the savings and loans, the FinTech organizations. Many of these community banks are the ones that are very specialized in providing funds to these particular underserved communities, so we’re working in tandem. Definitely, I agree with Secretary [crosstalk 01:12:14].

Thank you. I appreciate that.

Thank you.

Thank you. I appreciate that commitment, Administrator. Secretary Mnuchin, to you, you’ve had a long career in investment banking and banking, correct?

I haven’t been in investment banking in close to 18 years, but I’ve been in banking.

In banking. When you are in banking, you advise your banks on where to send money and to whom to give loans and funds to, correct?

I had a regional-based bank. I didn’t advise where to give money. I served on a loan committee, but we gave across the board in the community.

Your banks would make decisions on where to send money, to whom to give loans to, correct?

I’m sorry. I couldn’t hear you. Could you repeat that, please?

Your banks would make decisions as to where to send money and to give loans to, correct?

Well, again, customers applied for loans, and the bank made credit decisions. (silence)

Mr. Crow, we cannot hear you.

… closure requirements as to whether or not an employee of that bank, a family member of you or one of your employees, or close business relationship was one of the recipients of that money, correct? There are disclosure requirements in the financial industry?

There are disclosure requirements. There are also requirements by the FDIC and the OCC that we would follow.

In 20 seconds, what are the purpose of those disclosure requirements?

Well, the real focus is the conflict of interest, and to the extent there is a conflict of interest, in many cases, it has to go to the Board of Directors to be approved. So it’s more focused on conflict of interest than disclosure.

But you need to have that disclosure in order to do that analysis, correct?

Again, most banks do not publicly disclose-

Now, Secretary Mnuchin, you have to have the disclosure of that information in order to do the analysis on conflicts of interest, correct?

Disclosure within the bank. Yes, that’s correct.

Okay. So by that same rationale, is it important that members of the Trump family, associates of the Trump organization, or employees of the administration disclose their interests in entities that are receiving PPP money so you can conduct that conflict of interest analysis?

Again, let me repeat, and I repeated this before, as it relates to-

No, Secretary Mnuchin, I asked you a very specific question. Do you believe that disclosure is necessary in the context of the administration?

Again, I don’t believe that, because, again, this was not an issue that was required by Congress. This was a very specific issue, and there were no restrictions. Now, I’m not aware if they took loans or they didn’t, but let me be clear. There was no restrictions on the PPP. There were restrictions for the administration in Congress, same terms, on the other-

Well, I will take it as a no, that [crosstalk 01:15:21] the same-

I believe the Trump administration should be held to the same standard as Congress on the PPP. So there-

But they should not be held to the same standard that your banks in the financial industry was held to during your career?

Again, I think you’re misrepresenting my comments on, again, conflict of interest versus disclosure.

I think I was very clear. My time is out. I yield back, Chairwoman. Thank you.

Gentleman’s time has expired, so now we recognize the gentleman from Tennessee, Mr. [Burchett 00:01:15:56]. Is he here? Is he…

Mr. Burchett: (01:16:01)
Yes, ma’am. Can you hear me?

Yes.

Chairlady?

Yes, I can hear you.

Thank you. I’m sure my melodious voice carries well over the Internet. Hey, let’s see. Thank y’all for letting me be here, Chairlady and Ranking Member. Administrator Carranza, and I might’ve missed this earlier. I’ve had some technical difficulties. I’m having trouble hearing what people were saying. So then if you can just give me the brief answer, that’d be great. As of last Friday, the SBA still does not have a portal of a process for accepting loan forgiveness applications. Why is this? What can we do to speed this portal and process up?

The forgiveness portal or the application or guidance will be out very shortly. We’re resolving some of the language between Treasury and SBA, but it’s going to be available very, very soon.

When do you think that would be? I know government very soon is like a glacier. I’m in Tennessee, and people-

Well, I haven’t been allowed that luxury lately, not under this pandemic. So you can trust that we will work as expeditiously as we can. We’re trying to make it right the first time and address all the issues that have been raised by not only the lenders, but the borrowers as well. So if-

Okay. [crosstalk 00:07:24]-

If I can tell you by August, that’ll be a target date.

Of 2020?

Yes, sir. Yes, sir.

Yes, ma’am. I had to get that cleared, because we are-

Yeah, thank you.

Yes, ma’am. Secretary Mnuchin, in your opinion, how should we in Congress utilize the remaining 103 billion in the PPP funding?

My suggestion is that Congress would reauthorize the program to allow for a second check, a second payment to the businesses that are most hard hit.

Which would those be, in your opinion?

I think we should use a revenue test. So as opposed to … I don’t think any specific industry should be targeted, I think that we should use a revenue test and something significant.

I got part of that earlier, but it cut out. Secretary Mnuchin, do you believe the nation’s smallest businesses, those with ten or less, received the assistance they needed to survive this emergency?

Many of them did. I’m sure there were some that fell through the cracks, but we’re very proud of the majority of the loans went to very small businesses.

Okay. Ms. Carranza, what measures are in place for the SBA to reduce the waste and fraud and abuse in the EIDL and the PPP?

We’ve developed an infrastructure that is overseen by our CFO, and we have contracted a vendor as well so that we can have institutional knowledge as it relates to experience in the lending sector. So we have a very comprehensive approach to oversight not only for the PPP, the EIDL, but ongoing audits of the CARES Act implementation at SBA in total.

Okay. Do we have a flow chart or something that we could have just when we talk to our folks and our local media about that?

Yes, I-

We get inquiries.

Yes. I have no hesitation reviewing what our deck looks like or strategy appears with the committee. Look forward to reviewing it. Not a problem.

Yes, ma’am. If you could get that to committee, I’d be very grateful.

Will do. [Crosstalk 01:19:47].

Yes, ma’am. This year. Yes, by August, noting that August is my birthday month, so that would be great.

Okay.

Okay. Thanks, Chairlady. It’s always good to see you.

You’re welcome. Likewise. Thank you.

Thank you.

I yield the rest of my time.

Gentleman [inaudible 01:20:05], and now we recognize the gentlelady from Kansas, Ms. Davis.

Ms. Davis: (01:20:11)
Good afternoon, everyone. Thank you, Chairwoman Velasquez and Ranking Member Chabot for holding this very important hearing today. Secretary Chairwoman Velasquez and Administrator Carranza, I appreciate the both of you appearing for this committee to answer our questions and discuss the way forward in supporting our small businesses through this unprecedented crisis.

Ms. Davis: (01:20:32)
We enacted the Paycheck Protection Program to ensure that our country’s small businesses can keep their employees on payroll and keep businesses afloat during the crisis, and I know many small businesses in my home state of Kansas, especially the minority-owned ones, struggled to access the program during what was a critical time. At the same time, we saw well-connected and even publicly traded companies getting these loans with little to no problems or even borrowing when they had already borrowed from their own executives. I believe Kansans need to know that their tax dollars are not being used to pay back high dollar salaries of executives.

Ms. Davis: (01:21:14)
That’s why I’ve been working alongside my colleagues on this committee to push for accountability and transparency that the public deserves. In fact, I introduced the PPP Accountability Act, which would ensure that both Congress and the public are able to see the information about the loan recipients for themselves. I appreciate that you listened to some of these concerns and have made some of the initial data public.

Ms. Davis: (01:21:40)
From this information, we know that in the Kansas third, close to a hundred thousand jobs were retained and preserved. We also know that there’s a lot of information. We’ve heard about it from some of my colleagues today, a lot of information that we still don’t know, like what loan forgiveness rates will look like, the rate at which minority businesses have received loans, and this information is essential for Congress to provide the oversight that we’re constitutionally mandated to provide.

Ms. Davis: (01:22:10)
So I think we’ll start with Secretary Mnuchin and Administrator Carranza. Can you tell us what your plans are for releasing the data of the recipients for the loan forgiveness portion here?

Well, let me first say I agree with your comment on the public companies, and there was about $30 billion have returned. As the administrator has said, we’re going to have a very robust process to review loans before loans are forgiven. Yes, in the forgiveness process, people will be required to provide much more data, and that data will be released.

Ms. Davis: (01:22:54)
I know you had mentioned earlier and it was highlighted a couple of times that there’s definitely a commitment to making sure that minority-owned, women-owned businesses, and some of the most marginalized or disadvantaged small businesses out there should be getting access to these loans at the same rate as everyone else. Some of the fields included in the data are optional, and when we talk about how many jobs are saved through loans and demographic information about the ownership of the business being optional, I’m curious what your plans are to evaluate the effectiveness and reach of the program without this information.

Ms. Davis: (01:23:36)
I appreciate the commitment that you have to making sure that some of the most vulnerable businesses out there are getting a loan. So I’m just curious how you’re going to get there with some of this information being optional.

Well, the jobs numbers will be required. So when people apply for forgiveness, they’re going to have to be very specific in how much money was used for payroll and the number of jobs. So that will be required. As it relates to demographics, this is optional. There are legal issues associated with forcing people to have demographics. As I commented in my opening testimony, we have looked at low and moderate income census tracks, and we’re pleased that money was distributed proportionately, but we look forward to working with you and the committee on transparency and collecting more of this information.

Ms. Davis: (01:24:27)
Well, I appreciate that, and I know that this has certainly been an iterative process, particularly when we’re thinking about the rollout of the guidance and the rules around these programs. I know that folks are working really hard at the SBA and Treasury departments. I have a lot of appreciation for the career folks who have been putting in tons of hours, and thank you both for continuing to show up and listen to our concerns. I want to particularly thank you for listening to the concerns that my office put forward about the tribal enterprises and making sure that the Paycheck Protection Program was accessible to all tribal enterprises. So thank you for that, and I’ll look forward to continuing to working with you to make sure that our small businesses are taken care of in this country.

Time has expired. Now we recognize the gentleman from Pennsylvania, Dr. Joyce. Five minutes.

Representative Troy Balderson: (01:25:23)
Chairwoman Velasquez and Ranking Member Chabot, thank you for convening us here today in Washington. Administrator Carranza and Secretary Mnuchin, thank you both for joining us here. Thank you for your leadership during what is an incredibly difficult time. Small businesses, which we in this group frequently state are the backbone of America, and joining this COVID crisis, truly, we have seen that these small businesses have become the heart of America.

According to data that you provided to us from the SBA, my district fortunately has received $ 295 million in PPP loans. This number represents over 2,700 small businesses, which were able to retain their employees, pay their benefits, their health insurance. This was a significant relief for the small businesses in Pennsylvania.

This number would be substantially lower had it not been for your attentiveness for the needs of the farmers. On behalf of Pennsylvania farmers, I thank you for your willingness to work with my office on adjusting these programs to fit the needs of our agricultural producers, those who, every day, feed us safe and nutritious food.

Administrator Carranza, as we continue to reopen our economy, it is possible that people may increasingly rely on the Internet platforms to purchase goods and services and to even work from home. While these platforms provide enormous opportunities for small businesses, this transition could further stretch the digital divide between urban small businesses and access to affordable and reliable broadband in the rural areas, who have less reliable Internet options.

This response to COVID-19, as you so eloquently stated, has been an impetus for innovation. Those words were very striking to those of us sitting here in the committee. Would you support further modifications of the PPP that would allow funding to be used for broadband improvements or other costs associated with the tools and the infrastructure that is so necessary to allow rural small businesses to telework effectively and utilize online platforms?

Congressman, I’ve always been a strong proponent of cost-effective broadband for the rural areas and the most underserved markets. So I look forward to working with your office to continue that discussion. Yes.

Thank you, Administrator. So those in our rural areas can more readily access the necessary avenues of commerce, thank you for this consideration, and thank you for allowing us to continue this discussion and evaluate the use of PPP to support rural broadband.

Secretary Mnuchin, thank you for acknowledging that utilizing the remaining funds in PPP can positively affect small businesses that have been and continue to be drastically affected by COVID. Thank you for focusing on different businesses and considering the additional economic impact and qualifying by economic impact on the businesses. I think that’s a reliable model that will allow us to move forward and effectively utilize the remaining PPP funds.

Thank you for your continued work with us, Secretary Mnuchin, and for the efforts to return those remaining workers to their jobs. Do you feel that utilizing the additional PPP resources will allow us to continue to see those additional workers return to full employment?

Yes.

Thank you both for being here today. Thank you for continuing your work, and I yield the remainder of my time.

The gentleman yields back, and now we recognize the gentleman from Maryland, Mr. [inaudible 00:19:52].

Congressman Mfume: (01:29:58)
Madam Chair, thank you very much for the opportunity. I’m going to thank you for your relentless efforts at trying to bring about fairness and equity to this issue and to the overall sphere of what’s happening with small businesses in this country and even more so of what’s not happening. I want to thank the Ranking Member, and I obviously want to thank our guests who are here.

There is, from where I sit, a great deal of skepticism in many circles across the nation, from people who see the awarding of PPP funds and the rollout of this project as being discriminatory, as being something that works for others, but does not work for them, and as something that they believe was set up to be that way.

Now, people, for whatever reason, have their own beliefs and their own shortcomings and misgivings about things. But when they look at the fact that the President’s lawyer received PPP funding, that members of Congress have received it, that private equity chains have received this funding, it’s kind of hard to look at those persons and say, “Well, no, that’s not the case. These are just coincidences.”

So it’s out of that backdrop, for me, at least, and, as I said, from where I sit that I’m concerned that we continue to have this discussion about bringing equity to black and brown and Korean businesses, where if we, I think, were true to what we were saying to begin with, whether it was this program or any program that preceded it, that would be something that we would look for. We would automatically have that as a threshold, as something we’d want to try to achieve.

As I said the other day, Madam Chair, after having served on this committee ten years, through the ’80s and the ’90s, through three Presidential administrations, and then to be fortunate enough to return 24 years later to be a part of this Congress and, again, this committee, it is disheartening for me to look back over that period of time and to recognize that many of the same arguments advocating on behalf of black and brown and Korean businesses for fairness and equity are still being made.

I mean, it’s almost unconscionable. It’s unbelievable, and if I didn’t live at myself through the 10 years that I was here and the 24 years that I was gone, I wouldn’t believe it. People are concerned, Secretary Mnuchin and Madam Administrator, that what they see does not gel with what they have been led to believe. They think that the awarding of this program in some way represents Robin Hood in reverse, that the people who really should be getting some of this money on a fair basis are not getting it. They anticipate that there will be another review, another study on the study, and then another Plan B for the Plan A that failed.

So I want to get that on the record, because these people oftentimes don’t have an opportunity to speak for themselves. Let me just say to you that in the hearing conducted by this committee on June 17th, we learned of many issues that many borrowers and lenders have faced in applying for and in using PPP dollars. Witnesses outlined various areas of improvement, including and not limited to more explicit rules, clearer guidance around loan forgiveness, and more accessibility for minority-owned and underserved businesses.

They believe those are crucial issues. We learned that the structure and the implementation of PPP continues, as has been said, to disadvantage smaller businesses, specifically businesses of color, and that’s due to the structural limitations that are built into the program.

I think both of you would probably agree that PPP funding is heavily dependent on traditional financial institutions and prior banking relationships. Many of those institutions have been documented to have bias in their awarding of loans and bias and their consideration of loans, not to mention a different assignment of risk for persons who may be black, Latino, or Asian.

So those things have traditionally hampered black businesses, and now when we get to this stage and this juncture, persons like myself, at least I’m … You’ve got to show me that this is not true. Prior to the June 17th hearing, both of you know that a letter was sent to each of your departments inquiring how and why minority businesses have had so much trouble, and being denied, in many instances, outright for the EIDL and the Paycheck Protection Program. We needed transparency. We requested that you immediately began publishing the demographic data on PPP recipients.

On July 6th, that data was released, and our worst anecdotal observations were confirmed, especially in my congressional district, where, in the entire state of Maryland, which is not a large state. This is not California or Texas. There are only eight congressional districts. The district that I represent-

Gentleman, it’s time.

… got 2.7% of the funding.

[crosstalk 01:35:33]. Yes, sir. You can finish your … Yeah. Okay. Now we recognize the gentleman from North Carolina, Mr. Bishop.

Steve Chabot: (01:35:42)
Thank you, Chairman Velasquez and Ranking Member Chabot and especially to all the committee members physically present right here in this hearing room in Washington, along with our distinguished witnesses, which demonstrates the kind of leadership the American people need to see. Thanks. I join those who have complimented you and those serving with you, especially for your historic accomplishment in implementing the Paycheck Protection Program.

Secretary Mnuchin, as you have observed, the key to that historic success and speed was enlisting private sector financial institutions, including traditional banks, fintechs, credit unions, CDFIs to serve as the conduit for massive relief to huge numbers of small businesses. Given that fantastic success, if Congress legislates additional relief, we would be wise to continue the model of PPP and keep private sector lenders enlisted in the mission. But we’ve heard that lender fatigue is an issue.

This is attributable in part to the fact that after these business entities jumped to respond to the call of the federal government, a number now face frivolous lawsuits, proving that too often when government is concerned, no good deed goes unpunished. As the administration looks at additional relief measures, it seems to me that we should try to prove that adage wrong for once, mainly by clarifying that the current hold harmless language, which protects PPP lenders from liability, applies throughout the life of the loan.

Mr. Secretary and Madam Administrator, isn’t it important to fight lender fatigue in this way? Will you work with us on this protection for lenders who have done so much to help in the current crisis?

Yes. We’ll work with you. Thank you.

Madam Administrator?

Likewise.

Shouldn’t we also be looking at that same issue for small businesses who face similar concerns, that is, frivolous liability or frivolous lawsuits?

Yes. One of the concerns I had was that we don’t take any measures that would be punitive to the borrower or the lender, especially when we have started with 1,800 authorized lenders and grew that to 5,500. The secretary and I are still working on additional non-traditional lenders that are still applying to provide PPP loans. We are looking forward to making sure that the underserved, the sole proprietors and the independent contractors, really have an opportunity with this over 100 billion dollars that remain.

Thank you, ma’am. Administrator Carranza, I want to follow up on an issue that’s disturbed millions of Americans. It is now widely known that abortion provider Planned Parenthood brazenly violated the law concerning business affiliation by taking $80 million of PPP loans via its affiliates. The American people want to know how the SBA failed to act in real time to prevent this wrongdoing and how it will act quickly to compel the return of those funds and prosecute those responsible.

I’ll answer that question into two manners. One, we do not discuss individual loan issues publicly, and secondly, we will be reviewing all affiliations and all loans closely.

Madam Chairman, I request unanimous consent to submit for the record the May 19, 2020 letter of SBA Associate Administrator William Manger to Planned Parenthood of Delaware, Incorporated, including the investigative document request and interrogatories appendant there, too.

Finally, Mr. Secretary, your testimony referred to your anticipation of additional relief to business and, importantly, that it will be targeted to parts of the economy that need it most as our economy is starting to move from lockdown to restart. Undoubtedly, the lockdowns hit certain industries harder, and I was pleased to hear that your answer to Ranking Member Chabot, that in targeting the relief, the administration proposes to rely on neutral standards, such as documented pandemic-related revenue loss. Can you elaborate on the threshold you have in mind of revenue loss that would warrant relief, and do you believe that relief would be graduated in proportion to the degree of revenue loss?

Well, I look forward to working with this committee and the Senate committee to determine those issues. Again, as you just raised, we should look at whether it should be a specific number or graduated. So yes, we look forward to working with you, but I think it’s important that we target this to the businesses that are hardest hit.

Agreed, Mr. Secretary, and I guess last point, I’m curious if you would agree, that the reason to do that, the targeted according to revenue loss, rather than, say, picking specific industries, is that to do the latter would be both over-inclusive and under-inclusive, and you might arbitrarily pick winners and losers, rather than responding to a particular need.

Yes.

Thank you, Madam Chairman.

Time has expired. The gentle lady from California, Ms. [inaudible 00:30:47], is recognized for five minutes.

Congresswoman 1: (01:40:50)
Yes. Administrator Carranza, I would like to follow up on this issue of Planned Parenthood. Planned Parenthood has been a lifeline for healthcare providers. Their affiliates serve nearly three million patients annually, and it is an important health care provider for many low income people across this nation.

Let me say that planned Parenthood affiliates operate independently from the national organization, each having their own CEOs and board of directors, and therefore qualify for PPP. On May 28th, I [inaudible 01:41:37] a letter to your agency, along with Chairwoman Velasquez. It was signed by 166 members of Congress, and we asked you to administer the PPP program in a uniform manner and specifically not to exclude any entity or nonprofit on the basis of political ideology.

This letter came in response to numerous Planned Parenthood affiliates learning that they were under investigation for violation of the PPP affiliation rules, even though they were not. So I am deeply concerned about the motivations which would have prompted the SBA to conduct these investigations into the eligibility of Planned Parenthood affiliates, especially after several of them learned about these investigations first from Fox News, rather than from the SBA directly.

So Administrator Carranza, of the over 500,000 healthcare and social assistance entities that have received PPP loans, can you tell the committee how many investigations into violations of affiliation rules have been conducted, and has the SBA initiated such investigations against any other nonprofit organization for violation of affiliation rules under the PPP?

As I addressed Congressman Bishop, at this point, I’m not able to discuss any particular loan review, and I am not in a position to discuss any others that we are reviewing. The specific one that you’re referring to is under review, as well as others. But I will not get into any specifics about that. I’m sorry.

Well, then let me focus in on another issue. Mr. Secretary and Ms. Administrator, I’d like to adress two mandates of the CARES Act. One is that all COVID-19 loan programs be translated into the ten most commonly spoken languages other than English. The other mandate is that PPP should prioritize underserved businesses, such as those owned by women, minorities, and veterans. Despite this clear mandate, Treasury and SBA failed to even collect demographic data of PPP applicants. As a result, the loan level data released by your agencies showed that, for instance, in California, only 6% of loans under 150,000 included information on race and ethnicity. In May, the SBA Inspector General testified to the subcommittee that I chair, the oversight committee, that agencies had failed to issue any formal guidance to lenders on how to prioritize underserved businesses and, of course, to adequately collect data.

So to demonstrate the seriousness of this failure, just this week, the National Community Reinvestment Coalition published a study showing that black business owners with identical or better finances than white business owners were less likely to be offered federal assistance by participating PPP lenders.

… by participating PPP lenders. So Mr. Secretary, please explain why you haven’t provided this guidance to lending institutions on how it should be prioritizing the underserved and what you’re doing to address this issue, as well as the collection of demographic data. And Ms. Carranza, I do appreciate your testimony saying that the SBA has translated resources to 17 languages, but the EIDL application still is not translated and what is happening with that? SO, Mr. Secretary?

So, first let me just say the demographics’ information was always really intended to be collected on the forgiveness. So again, this is something that we couldn’t force people to do, but we hope that people do this and there’ll be a lot more information disclosed. We’ve made major efforts to work with the CDFIs for greater access. And as I said, we do have access to census tracks, so, again, that’s well represented, but we can always do a better job and we will.

Gentle lady’s time has expired. Ms. Carranza, you may answer the question.

Yes. Concerning the language, you’re correct, we have 17 languages’ interpretations of the PPP application. I’ll have to look into how many languages the EIDL, but that that program was also to have a bilingual.

The gentleman from Pennsylvania, Mr. Evans is recognized for five minutes.

Congressman Evans: (01:46:35)
Thank you, Madam Chair, for your leadership, especially on this subject and staying relentless on the subject. We’re all concerned about it. Madam Chair, is this possible, for the gentlemen from Baltimore, that I can yield some of my time. I don’t have much to get the answer to this question.

The gentleman from Maryland is recognized.

Thank you, Madam Chair. I want to thank the gentlemen from Pennsylvania. I will not take much of it. The point that I was trying to make though, is that when the data did finally get released after our letter, the data that was released to all of us on July 6th, it showed Mr. Secretary and Madam Administrator that in the state of Maryland, which only has eight congressional districts. The one that I currently represent now got 2.7% of all of the funding, even though it’s the most diverse district with black, Latino, and Korean business persons, anywhere in the state.

Now this district had been previously represented by the late Elijah Cummings and so we’ve been without a representative for some time until I got sworn in. But there is no reason in God’s world that there should be that kind of a disparity, so obvious, in a state, and a district in particular, that diverse and I will yield back the time to the gentleman from Pennsylvania and I appreciate it.

Thank you. I want to specifically go to the Secretary of the Treasury and, and kind of piggyback a little bit on what was just stated. The question I would ask, what are you doing to address the discriminatory loan practices and what are you going to do to home these banks accountable in terms of process? We have seen that, I think, the Chairperson and Chairwoman Maxine Waters, they worked together, about CDFI [inaudible 01:48:44]. What are you, specifically as Secretary of Treasury, because obviously black borrowers have been treated different than white borrowers. So can you speak to that, Mr. Secretary?

Well, let me first say, I’ve had multiple calls with Chairwoman Waters and they’ve been very constructive and very helpful. We’ve also made a major effort to work with the CDFIs and expand the CDFIs and we’re pleased with their work. Robert Smith, as I’ve commented before, has been particularly helpful, we’ve had weekly conference calls with him and his team. And we have to do a better job to make sure that all areas and all communities have access to these funds. And to the extent there are specific situations of discrimination or others, obviously we want to research that.

Well, when you say better… And you have a lot of experience, I heard the gentlemen from Colorado asked you about your banking background. Can you in a very specific way tell us what tools that you intend to use, especially when you know that this problem does exist?

Well, let me just repeat the statistic we have on lower-moderate income housing is we did have proper representation. Now that obviously is different than other demographics. The CDFIs, I think, are best used at being able to access the underserved communities. And that’s why we proactively put a CDFI set aside, something we very much support and we support in additional legislation, making sure that the CDFIs have the proper resources to serve these communities.

Go to the Administrator real quick. The EIDL program relating to constituents of mine who called about the question around credit and what, tell me what was your thinking in of receiving that information? Was there a ranking of order relating to EIDL distribution of grants? How exactly was yours or management around you relating to the EIDL program?

The EIDL advance administration was based on the number of applications that were, again, in the queue applying for the advance and we based it on $1, 000 per employed, it wasn’t just an arbitrary number, it was a well assessed and analyzed strategy. It was discussed with members of the Senate Small Business Committee. We had advised them that in order to cover the number of applicants, the number of small businesses that were applying for the advance, we needed to do something so that many more people would receive the funds. The average for both the agriculture and as well as normal businesses were about three employees per business. So it was about $4,000.

Gentleman’s time has expired.

Thank you Madam Chair.

The gentleman from Illinois, Mr. Schneider, is recognized for five minutes.

Thank you, Madam Chair. And I want to thank you for holding this hearing, congressional oversight of these unprecedented programs is critical, especially as we think strategically about our posture going into the fall. I want to thank you as always and to the committee staff for the work you’ve been doing throughout this process. Secretary Mnuchin and Administrator Carranza, thank you for joining us today and for your work assisting small businesses throughout this pandemic.

Administrator Carranza, you assured me that many of our complaints about the EIDL program, the lack of communication to borrowers, the backlog of applications have been addressed. I heard you say today that you’ve compressed the time of processing to only five days, but I’m concerned that, at this moment, as we’re in this kind of lull, it’s kind of like a diner in between the lunch and the dinner rush, things are quiet, but it’s going to get busy again soon when money starts to run out.

When you talked about the $150,000 as a cap, and earlier you had mentioned that through our work had provided a bridge, when you created that arbitrary cap, that’s a bridge that goes partway across the river, but without a full bridge, many of these businesses are going to find themselves in the river, getting wet and many of them will drown. We need your help and I hope you will lift that cap and give the help that many of these businesses need.

Economic uncertainty continues and will continue in the months ahead. Small businesses are still going to need more help in the fall and so today what I’d like to discuss is Treasury and SBA’s preparations to anticipate the expected surge and challenges in the fall. Earlier this week, I sent both of you a letter with questions I’d like to discuss on the PPP and EIDL loans, how well they were implemented? How they help the businesses? What gaps remain? And what your agencies are doing to anticipate that? In that vein, Secretary Mnuchin, what economic forecasting or modeling, if any, has Treasury done to anticipate future needs?

So, I think economic modeling is particularly hard at the moment because of the fact that we closed down the economy, this is not a typical economic situation. But we are relying upon our economic models where we do anticipate as we open the economy, that we will have a significant improvement, as I’ve said, in the third quarter, but there will be industries and we’ve done economic modeling within the Treasury on the industries that are going to be hit the hardest and the sizing that we need of additional PPP funds to address that. And we’ll be working with this committee and what the Senate on that.

Do your models take into account the fact as we’re seeing in California, Texas, Arizona, Louisiana, Florida, a serious spike in cases? California, you’re seeing businesses closed down again, do the models take that into consideration?

Well, again, let me just first say that traditional economic models, given the medical situation, are very hard. But yes, we’re looking at this across the entire US and certain scenarios, as you said, where there will be a slowdown in opening and certain areas where things are doing better. But again, that’s the reason why I think we need additional funds to help these hardest hit businesses.

And I appreciate it’s hard, but it’s necessary. And it’s also necessary for these businesses, and other organizations like our schools, to have clear and consistent guidance. I’ve had countless conversations with businesses, yesterday at a group Zoom call with school superintendents, and all of them are talking about the challenges they’re facing with the lack of clarity in the guidance coming from both your department, as well as others. And I asked the superintendents about the teachers, the teacher said they’re absolutely terrified about going back to work. I don’t think the government’s doing nearly enough to provide that guidance, I hope we can see more guidance. But as you’re looking at forward thinking and what we might need, how do you incorporate the data you have, the uncertainty that lies ahead to make sure we can give better guidance to our businesses going forward?

Well, I can assure you that the task force will be working and continues to work with the States on guidance and obviously the state to refine it based upon the different areas. And on your comment, I expect that we will have a significant amount of money dedicated to K to 12 education to help them deal with as the areas that reopen have the proper money to fit so that it’s safe for students and for teachers.

Thank you. Let me just say it’s critical, not just the money, which desperately is needed, but the guidance on how to use that money and how best to open safely. In my last few seconds, Administrator Carranza, when we spoke last, I gave you last month, a letter asking for an update on 59 businesses in my district that still had not received a decision on their EIDL application. As of today, 12, more than 20%, of those companies are still waiting. Can you give us an estimate when we will get these companies, like Easy Cut, in my district that are waiting and trying to get that information to survive this pandemic?

Gentleman’s time has expired. You might proceed to answer the question.

Congressman, I look forward to working with your office to identify the remaining balance of those businesses to come to a conclusion.

Thank you.

You’re welcome.

With that, I yield back.

The gentleman from New York, Mr. Espaillat, is recognized for five minutes.

Mr. Espaillat, you need to unmute yourself.

We cannot hear you, so I’m going to recognize the gentleman from New York, Mr. Delgado, for five minutes.

Congressman Delgato: (01:58:22)
Thank you, Chairwoman. I want to thank both Administrator Carranza and Secretary Mnuchin for being with us today. While the PPP and EIDL programs have been critical for small business owners, I want to take a moment to highlight a bill that I introduced that was included in the CARES package, the Small Business Repayment Relief Act, now known as the Small Business Debt Relief Program, which provides six months of payments, principal interest, and fees for qualified SBA loans, including SA, 504, and micro loans. In the month of April, the SBA made payments to lenders just over $1 billion. These payments corresponded to 263,192 total borrowers. However, estimates provided by the Congressional Research Service indicate that there are about 320,000 outstanding loans across these three programs. Administrator Carranza, you noted during a Senate Small Business Committee hearing last month, that the SBA had taken steps to notify borrowers of this benefit, but needed to do more outreach to ensure borrowers who are eligible are aware of this benefit. Can you tell me what concrete steps you’ve taken to ensure that every eligible borrower is able to take advantage of these six months of payments?

Yes. We dealt with the lenders and intensified the communications. As a result of that, we have realized it’s gone from $1 billion to $3 billion of debt relief. And we can do more because, as you stated, there’s still an opportunity to work not only with the existing businesses, but others that are interested. And our 7A has grown significantly, which we’re very pleased about. 504 is not growing as quickly, so we need to intensify in that particular area. I’m very pleased to announce that within the HUBZzone, as you know, the 504 falls into that area, the underserved market, we have over $106 billion that have been appropriated under the PPP program. I look forward to working with your office, if you have any particular areas that you’d like me to concentrate on.

Well, I would like to just follow up if I may, you said you contacted the lenders, and then you said you can do more. So I’m curious if you would be able to detail what the more would include?

Follow up calls to the individuals that we initially contacted through our Office of Capital Access.

Anything else?

Again, I look forward to speaking with you and working up a strategy if you have a particular area that you believe we could do a better job of. I’ll go back to the office and inquire as to how we are working with all of the other program offices? Again, 7A has progressed well, 504 not as strong, but the debt relief has seen an increase of a couple of billion dollars since we last spoke. That is to say, since the hearing. Thank you.

Given that 7A has increased well, are there things that are being done with regards to that loan that could be utilized with regards to the other major loans that could help close some of the gap that we’re speaking of now?

Well, Congressman we’ve been talking about perhaps strengthening of all of the flagship loans, and we’ve been communicating that information to Treasury.

Okay. We should definitely coordinate with our offices and talk through a bit more what other concrete steps we could take to help facilitate this? We also don’t know how much has been spent through this program since May. We don’t know how much has gone to new qualify loans compared to existing, we don’t know how many borrowers have yet to receive it, and we don’t know which lenders have failed to comply. On June 5th, Senator Coons and I sent a letter requesting this information. Do you have this information available or when can we expect this information?

I look forward to working with your staff. And if we have the data which we reconcile on a quarterly basis, from what I understand, we can make that available to you in short order.

We sent a letter June 5th and I just want to know if have you been in receipt of the letter?

I’m sure our Congressional Legislative Office is working on it, sir. So I look forward, again, to connect with your office and resolve that particular issue and provide you the information that you need.

I appreciate that. We certainly would like to expedite this process, given the urgent needs in the ground. I’m sure you can imagine the importance of that. So with that, I’ll yield back my time.

The gentleman yields back, Mr. Espaillat is recognized for five minutes. He’s not ready. They’re having some technical issues. So the gentle lady from Minnesota, Ms. Craig.

Congressman Espaillat: (02:03:34)
Can you hear me now Madam chair?

Yes, I can hear you.

Okay. Will you allow me to proceed?

Go ahead. The gentleman is recognized for five minutes.

Thank you, Madam Chair and thank you ranking member. Thank you, Administrator Carranza and Secretary Mnuchin. Several months back I spoke at this committee and I said that small businesses, mom and pop stores, throughout New York were really upset and were mad as hell because we all know… And I’m really amazed to see how everybody’s praising the PPP program and how it began, because we all know it was a debacle, the portal crashed, traditional banking institutions went to their preferred customers and only the well heeled and connected we’re able to get access to the PPP program. To the degree that many of them were shamed into returning the money because they were publicly embarrassed that they were accessing this money.

And small businesses throughout America felt that main street should be bailed out, we’ve already bailed out Wall Street, we already bailed out the airline industry, we already bailed out a bunch of industries, but main street needed to be bailed out. And the startup of the PPP program was a debacle. In fact, it took a carve out of some money and acknowledging that we needed to engage community-based banking and CDFIs to access dollars and give them to the small businesses across our main street in America. But even with that, we’ve just recently seen how a Wall Street Journal report on an investigation made by the New York City controller revealed that only 12% of the 1.1 million businesses, employee-based businesses in New York City, got PPP loans in comparison to 20% of businesses in States like Montana, Kansas, Iowa, Wyoming, et cetera. While the pandemic was ravaging New York, the PPP Program was giving money to those States that were the least impacted by the pandemic. So my first question is to you Secretary, you mentioned that you will carve out some money for minority women-owned businesses, how much money from the remaining part of the PPP program and additional funding that will count for it, will you carve out for that particular part of the economy? And the second question is Mr. Secretary, will you consider you having some parity in the level of access to the PPP program for States like New York, which contribute far more to the federal coffers and contribute in ways that other States don’t and, yet, they get far less back? Again, only 12% of businesses here got that as opposed to 20% in States like Kansas, and Wyoming, and Iowa, and Montana. Those are my two questions. How much money will you carve out for minority and women-owned businesses? And do you want, is there an effort to give States like New York, which are hammered, the Bronx, which was hammered by the pandemic, had at one of the lowest numbers of PPP loan given to their businesses? In fact, if you look at who got the loans, you will see that many management consulting firms got it, legal services firms got it, as opposed to, let’s say for example, nursing homes, which I think were critical in bringing life and death services to people impacted by the pandemic. So those are my two questions, Mr. Secretary.

So, as it relates to the first question, is there a specific dollar amount set aside, I’ll be working with this committee and what the Senate to see what both committees think is appropriate for that. And I’m sure we can reach an agreement that something that is appropriate and significant. As it relates to New York, I’m not sure why more PPP loans haven’t been made there, there’s still money available. So to the extent there are businesses in your area that need loans, we’re more than happy to work with you. I don’t believe there should be set asides for certain States and I think, again, it took a while to get this up and running, but I think now we have a system that will work well in the next round.

Well, Mr. Secretary, now that the pandemic is ravaging the rest of the country, States like Florida, you must agree that Florida, Texas, Arizona are getting hard hit right now. And in fact, some of those businesses may have to shut down. Perhaps as New York looks to reopen, this is the perfect time to focus in places in New York to see how we can help out New York. As goes New York, goes to the rest of the country. And so is there a commitment to help small businesses, minority women-owned businesses in New York State?

Gentleman’s time has expired. Now we recognize the gentle lady from Minnesota, Ms. Craig.

Congresswoman Craig: (02:09:02)
Thank you so much, Madam Chairwoman. And I want to say thank you to Administrator Carranza and Secretary Mnuchin for your efforts over the course of the last three months. This committee has been really a model of bipartisan efforts to save our small businesses, so I just want to say thank you to my colleagues across the aisle as well. Secretary Mnuchin, I was going to ask you and Administrator Carranza about extending the PPP applications for a second loan, you’ve indicated that you are open to that idea. I actually have the bill here in the house that would allow those hardest hit sectors like restaurants and retail and hospitality to come back and get a second forgivable loan, if their revenue has been impacted by 50% or more, and the size of their business is 100 or fewer employees with that remaining, approximately $130 billion.

I also had the bill a couple of weeks ago that passed the house and thank you to the President for signing the extension of the loan program through August 8. I will tell you that I already this week have been meeting with small community lenders, who have been telling me that smallest of smallest businesses loans of a $6,000, $9,000 people are coming back and getting the PPP loan for the first time in the smallest of loans, which is really heartwarming and I thank you for extending that. Secretary Mnuchin, can you just say a little bit more about the program as you would envision it allowing those hardest hit sectors to come back? And I just want to make sure that I understand the direction that you and the administration are thinking as well.

Well again, let me just say, we look forward to working with you and the committee and the Senate, but my suggestion would be, we have a program that works. We try to keep as many parts of the program consistent. We allow a second check and that we put a limitation on a revenue decline and size. And I understand your bill, I think that’s a reasonable approach, but something again, we’re going to want to work with you, this committee, the Senate, to figure out what the appropriate revenue decline should be? What the size of the businesses should be? Whether it should be 100 or slightly higher than that? But again, we have complete agreement, there should a second check available to the businesses that are hardest hit and there should be requirements around that.

Thank you so much. My lenders in my small businesses, as of this week, are starting to ask the question, Administrator Carranza and Secretary Mnuchin, If there’s any thought with respect to the smallest of smallest loans? I know there’s a Senate bill that defines it as $150,000 or less, that would absolve these businesses from essentially filling out those loan forgiveness applications, just from the perspective of the bureaucracy of doing that. Is there any thoughts on either of your parts that whatever number we might not require, or should we be advising our small businesses, ” Get your materials ready, everybody’s going to have to fill out this loan forgiveness application.”?

Well, we’ve put out what we call the “Easy form,” and I think there are certain things that we can work with the committee on in new legislation to simplify this even more. I’m somewhat hesitant to just say a blank check, if you were $150,000 or less, you don’t have to do anything, because, again, I’m concerned about fraud and want to make sure that the oversight committees are comfortable that this money was used appropriately. So I think some level of reporting in a simple way is important.

Thank you so much. And then two final things, very, very quickly, the initial CARES ACT with the $1,200 Economic Impact Payment, I know over the course of the next couple of weeks, you’re going to be working with the Senate with the house, perhaps, on a second or an additional bill. The 17 and 18 year olds were left out as dependents, adult disabled dependents, college students like mine who were back in my basement eating us out of house and home were left out as dependents. Secretary Mnuchin, would you be open to including them in the next package and making that retroactive?

So, let me just say from a policy standpoint, I understand that issue and I’m sympathetic to it. There are some technical issues that the IRS and we have in administering that because of the way dependents were reported on tax returns, but we’re trying to figure out if there’s a way to do that.

I appreciate that very much, sir. And with that, Madam Chairwoman, I’ll yield back.

Gentle lady yields back. And let me thank the Administrator and the Secretary of the Treasury. Thank you again for being with us today to discuss your agency’s response to the COVID-19 pandemic. I am dedicated to pushing SBA and Treasury to prioritize our very small and underserved businesses because these communities are hurting. The programs have been fraught with challenges for participants and a lack of transparency for those of us seeking to conduct oversight. With that said, I expect regular updating to the data on PPP and forgiveness in the future.

And I also asked that you publish a comprehensive program guide. We cannot continue to operate this way, it’s not good for borrowers, it’s not good for lenders either. We cannot work when there are at least 22 interim final rules and 49 frequently asked questions that borrowers and lenders must navigate. Understanding that this program was put up with extraordinary speed, it is long overdue that a comprehensive guide is published. I asked unanimous consent that members have five legislative days to submit statements and supporting materials for the record without objection, so order. And if there’s no further business before the committee, we are adjourned. Thank you.

Steve Mnuchin Testifies on Small Business Loan Program Transcript July 17

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