Transcripts For CSPAN2 Today In Washington 20110602

policy from eastern connecticut state university. mr. johnson, you're now recognized to summarize your testimony. thank you. >> thank you, sir. chairman meehan, ranking member spears and distinguished members of the subcommittee thank you for this opportunity to be before you today to discuss a role that transportation security administration. within the larger scope of the dhs and intelligence enterprise. since coming on board this january, i've had the opportunity and privilege to work closely with undersecretary wagner and my colleagues at the united states coast guard, custom border protection and immigration customs enforcement improving our external and external collaboration information-sharing. as the assistant administrator for intelligence for tsa, i oversee three primary mission threads. indications and warning, predictive analysis and response. the tsa office of intelligence can receive, assess, analyze and disseminate intelligence information for transportation security purposes that helps protect the 1.7 million passengers a day that use is i will aviation and the highways the 147 federal maritime passengers per year and the 29 million passengers that use mass transit and the 1.6 million tons that travel by freight rail and lastly over 2.5 million miles of natural gas and hazardous liquid pipelines. in my role as the intel for the tsa i'm often asked what keeps me up at night. the sans global threats coming primarily from al-qaeda and it's affiliate groups who continue to pose a serious threat to transportation security. al-qaeda in the arabian include continue to threat u.s. interests abroad and in the homeland. in particular the group is fixated on aviation as a means to inspire fear and economically cripple the and again, western interests. through four editions of inspire magazine aqap has referenced the october 2010 cargo plot, wrote about mutall jab's heroism as the christmas day bomber and featured how to make a bomb in the kitchen. in light of the successful bin laden roll-up we continue to track and seize material being exploited from his compound. and monitoring existing transportation threat streams from al-qaeda and its affiliates may seek to accelerate existing plots, prove their metal. passengers out there every day field key infrastructure security owners and operators. our mission is to provide them with the highest confidence threat reporting and to various modes of transportation. we we will form an external and internal bench that enables collaboration and transparency for all our reporting. over the past six months i've reached out to the hissic team along with the intel and law enforcement collaboration to evaluate threat assessments and leveraging existing analysis being done by partners at the national counterterrorism center, the secretary government coordination council's fusion centers, private trade associations and national joint terrorism task force. additionally under the leadership of undersecretary wagner, we've worked closely with dhsina with professional development and training. within my office we have created a development path that ranges from new hires to seasoned analysts that enables a continuous career progression. similar on the ground floor standing up our counterintelligence section. this will enable us to work closely with ci policies and instructions and procedures. i look forward to continued work with our intelligence partners to involve the intelligence enterprise it not only shares data but collabrates with headquarters and components to enable higher confidence reporting to our stakeholders in the field. with ntsa our passengers and field operations owners and operators. thank you for this opportunity to address this subcommittee and i'm happy to answer any questions. >> thank you, mr. johnson. i'm grateful for your testimony. our next witness is james japaro who's the assistant director of intelligence for the united states immigration and customs enforcement. his public service includes 20 years experience most recently as deputy undersecretary for operations in the office of intelligence and analysis. else has served as the director of human smuggling and trafficking center. special agent in charge of the ice denver field office and held the position of interim director of immigration interior enforcement for ice upon the creation of dhs. before that time he worked with the immigration and naturalization service as deputy assistant commissioner for investigations, director of antismuggling and assistant director for investigations and special agent. he also holds a bachelor of arts degree in political science from california state university at long beach. you're now recognized to summarize your testimony. thank you. >> thank you, chairman meehan, ranking member spear and distinguished members, i'd like to thank you for the opportunity to discuss ice's efforts in supporting the dhs intelligence enterprise. typical offer the subcommittee a somewhat unique perspective because i've had the privilege actually the honor of serving in leadership roles in both ina and ice. one of the larger components of dhs. ice is uniquely positioned to advance the dhs mission. we do this through intelligence production, through law enforcement investigations focusing on terrorism, human smuggling, human trafficking, financial crimes, trade fraud, weapons proliferation, drug smuggling, illegal tunneling and other illicit activities and our work done in operations and remove operations. as the did he recollect hs component with the most expansive investigative authorities, ice has people assigned in over two u.s. cities and in 70 offices around the country and around the world. ice is both a vital contributor to the dhs intelligence enterprise and a voracious consumer of its products and services. the ice intelligence program is structured along three major lines. we have the headquarters office of intelligence. we have field-based intelligence teams that support our field offices directly. and then we also have intelligence liaisons who we have strategically placed with interagency partners around the law enforcement and intelligence community. together, this combined approach really allows us to have people who will help serve and make sure that we have the right information going to the right people at the right time. in her opening statement undersecretary wagner provided an expansive your view of the dhs intelligence enterprise. i would like to focus on how collaboration within that enterprise is progressing from the ice perspective. the homeland security council, homeland security council or hissic as it was mentioned previously about my counterparts serves as an excellent venue to really coordinate on large strategic initiatives as well as working that we're working together on common threats. ice has launched hissic to launch important initiative on the counter-tunnels operations and investigations. we have worked on our collaborative capabilities to determine and identify illicit smuggling pathways, bringing people and goods to the united states illegally. and through our participation in the hissic, ice facilitates a bidirectional information flow between our field components, between our headquarters elements and between our external partners, both domestic and overseas. ice plays a critical role in support of the national intelligence community as well. ice is the leading producer of dhs homeland intelligence reports or hir's which provide valuable intelligence reporting from ice operations and we disseminate those externally to our partners. so far in fiscal year 2011, ice has accounted for about 58% of the department's production of hir's. perhaps more importantly, however, is the fact that 54% of those hir's were evaluated by the customers as either high value or major significance, which is very, very substantial in the intelligence world. the success rate of our reporting of hir's i think is a commitment not only for the people producing them but it's also a commitment to show that ice is really committed in making sure that we're putting out our most valuable information so others can use it to strengthen national security efforts. aisles has the leadership role in the dhs threat task force or ddf. this is an interagency, dhs entity that sits in the office of intelligence and analysis that works for ensure that dhs leadership maintain situational awareness on a continually and rapidly terrorist threat stream picture. that we do this through the enabling of counterterrorism threat coordination and by producing sensitive intelligence assessments. ice's participation in the dtf also helps serve our needs at ice because we're able to rapidly to glean components other dhs components as well as the national intelligence committee and share that with our special agents on the ground who are working in jtf's around the country to combat terrorist threats. aisles plays an important role in the dhs information-sharing with our federal, state, local and international law enforcement partners. we do this primarily through the law enforcement information-sharing initiative or leisi. since its inspection, the leisi has entered into eight significant law enforcement information-sharing greenlts on behalf of the department of homeland security. this includes an agreement recently signed with the international justice and public safety network. this is an important point. because this will enable us to share information with 785,000 state and local law enforcement officers around the country. and this is something that i'm very proud of and i think it's an initiative that will really help the boots on the ground not just in the federal community but also in the state and local community. the importance of integrating intelligence into our investigations and operations cannot be overstated. since 2006, dhs has leveraged the border enforcement and security task forces or best teams which combine federal, state, tribal and local and much law enforcement intelligence and law enforcement initiative to sink size to combat existing threats. ice intelligence provides operational support to the best teams and we're working with ina to increase the overall support addressing threats to the southwest border, the northern borders as well as the maritime borders. ice's office of intelligence also serves as important role in coordinating oversight of ice's intelligence functions and we serve as the primary conduit of the u.s. intelligence agency from ice and also from ice operations into the intelligence community. in a rapidly changing threat environment, however, we cannot be complascent -- >> mr. chaparro, i'm really -- i actually am very focused on your testimony and i appreciate it but i'm going to ask if what you can do is sum it up very, very quickly so i can get to ms. mitchell. we will try to get ms. mitchell if she can do five minutes and then that will allow us to do our votes and we'll be back as quickly as we can. can you give me your concluding sense on this? >> certainly, mr. chairman, in sum, ice is a valuable partner with the dhs intelligence enterprise. we take great advantage of the services that are provided by our partners utilizing information in our day-to-day operations and i look forward to answering any questions the committee members may have for me. thank you. >> thank you. and thank you, mr. chaparro. and we would like to identify our final witness, ms. susan mitchell the deputy of intelligence and operations coordination at customs and border protection and i hope you will allow me to -- the privilege of not sharing the same introduction as i did before and allow you to get right to your testimony. >> thank you. good afternoon, mr. chairman meehan, ranking member spear and distinguished members of the subcommittee. it's a privilege and honor to appear before you with my colleagues. and to discuss cpb or custom and border protections intelligence efforts and evolution. first i'd like to just highlight with almost 60,000 employees, cpb makes up the largest law enforcement organization in the nation. and has been given the responsibility to protect the united states from terrorists, weapons of mass effect, drug and human smugglers, agricultural disease, among other threats, all while fostering our nation's economic security and competitiveness through facilitating lawful international trade and travel. cbp provides a layered defense along with 7,000 miles of land border and along 95,000 miles of shoreline in partnership with the u.s. coast guard. at the core of cbp's mission is to detect and detour the movement of foreign terrorists and terror-related materials across the u.s. border. i'll give you two quick examples that highlight's cbp's highlights effort on this front. cbp officers at port angeles prevented the entry of the understand an so-called millennium bomber who was transporting explosive materials and plotted an attack on los angeles international airport on new year's eve and was by physical examination of the vehicle he was driving. more recently on may 3rd, 2010, cbp's national target center worked with cbp apprehending faisal shahzad flight on middle east. on that trip, he changed drastically from his northern patterns of traveling with his family documenting his stay at home versus the documents showing on this troop a motel 8 traveling alone and changing his return, coming back weeks after he originally booked his return flight. we were the first to identify him as a certain level of concern and fully document his travel and his admission interview. after the attempted bombing we then applied the fbi with a keystone to link the phone number from the person who sold the car to the actual suspect, providing the fbi with his name, picture and address. the phone then had been obtained and documented during that arrival process months earlier. we then posted a look at our system while the formal watch listing process was occurring and sure enough, he hit in our targeting systems when he attempted to flee the country. our targeting work both on the inbound process and the outbound attempt, we work closely with our dhs partner tsa and our local partners at jfk airport to stop that departure as he had already boarded that flight. in this case every second mattered and it highlighted the need for real time targeting and cooperation between federal, state and local partners. in the interest of time i'll discuss targeting more when you get back. i just wanted to hit on cbp's office of intelligence and operations coordination was established in 2007. merging the former offices of antiterrorism intelligence as well as components of the office of field operations, border patrol and information technology. oic serves as the coordinating facilitator that intergrates and leverages all cbp's diverse intelligence capabilities into a single cohesive intelligence interprice. to create that intelligence-driven organization. we support the agency's extended zone of security through the use of multilayered approach to address threats to our borders, consisting of collecting advanced traveller and cargo information, the use of enhanced law enforcement technical collection capabilities and productive intelligence-sharing relationships with federal, state and local tribal assistance. and i'll talk more when you get back. >> thank you kindly for testimony. the subcommittee will recess for five months following the last vote in the series. thank you. >> the committee will come to order. i want to say thank you again for your patience. i thank you for your testimony as well. so at this point in time, what i'd like to do is to begin the questioning and i hope what we can do is do five minutes for each of us again at the conclusion, if we have some remaining questions, as well because i think there's an awful lot of material to go through. so to begin the questioning. undersecretary wagner, i'm very grateful for your being here and for the role that you've undertaken in an agency in which there's been a great deal of not just collaboration necessarily but, of course, the role in which a number of agencies have been put together in an effort for us to more effectively and efficiently respond to the multiple challenges. that's difficult at any point in time. when you're talking about the sharing of intelligence among the agencies. i think we've made a great deal of progress in terms of breaking through some of the old stovepiping that existed as well as some of the agency tendency to want to hold on to, you know, their role in their information so i'm grateful for the progress that has been made but, of course, we still live in a very active world in which information flows and the threat is immediate. so i'm certainly aware that one of the challenges that each of us has is the prioritization, some elements of our infrastructure are defended in depth against attack. others not quite so much. we're always constantly worried about the ability of terrorists willing to adapt what we have to do as well. we're also quite aware that there were 12 home grown-inspired jihadist plots just in the last year. two attacks and 10 plots by american citizens, lawful permanent residents of the united states were included in that by comparison over seven years from the 9/11 attacks there were an average of only two such plots a year. so we are really in a period of enhanced concern. you discuss the homeland's security threat task force, the dttf, which is being brought to bear again specific instance or national security investigations. i'd really like to know what role that group is playing now in light of the information that we purportedly received from others in overseas against specific threats against others in our infrastructure? >> thank you, mr. chairman. i want to first just make clear that the name dtf sometimes causes some confusion because it sounds suspiciously like the fbi's jttf's but they really do very difficult things. the dhs threat task force was created by my principal deputy who was then the acting undersecretary in the wake of the zazi and hedley cases. as jim chaparro mentioned, it was created largely as a way to pull together all of the disparate pieces of information that were in the department and all of the expertise in the department to make sure that the department leadership was up to speed on rapidly evolving threats. since then, we have expanded the mission of the dtf a little bit to be sort of the focal point of following emerging threats to the homeland and making sure that we have pulled all the right strings, touched all the right data sets, have reached out to our partners at fbi and the cz watch and nctc so that we're doing everything and on the right page. currently it's headed by someone from ice. we beefed up the dtf recently on a surge basis to be the focal point for dealing with the information that was flowing from the exploitation of material captured during the ubl raid. and we've been -- and we appreciate the fact that we got extra people in from the components to help us deal with that. and we were using the dtf to be our focal point for reviewing that information and determining when we needed to request tear line working in partnership with fbi and nctc so that we can get information out to our state and local customers. >> are you satisfied that you are able to analyze this treasure trove of information that you've got the capacity to be able to make some discretionary calls but to be able to distinguish from among that trove of information and that there is a capacity to communicate that down appropriately to the local level? >> absolutely. i think i have rarely seen such a good interagency effort on this. the task force that the cia is leading on which we as a department have, i believe, seven people participating who are linguists and there are people all over the community participating in that. we pulled together a group to work the tear line issue. i'm confident that we are getting the information that we need, that needs to be shared with our state and local partners and with our critical infrastructure sectors. and it's actually been going relatively smoothly considering the volume of information. and we have been working jointly with the fbi to put out most of the information that we've put out. we've put out probably about 12, i think, joint intelligence bulletins at various classification levels and various audience ranges and in combination with other information that is still coming through regular intelligence channels. >> okay. well, thank you. my time has expired. so at this point in time, i'll turn to ranking member speir for questions she may have. >> thank you, mr. chairman. thank you all for your testimony. as inch saying you are the unsung heroes in making sure that our country is safer because of it so thank you. let me start by asking you the house is presently considering a $1 billion cut to the dhs budget. how you will this impact your specific intelligence functions within your departments and agencies? and if you just go right across the line as quickly as you can, but make your points. >> i will start by saying that i think that we, my office, specifically, has fared reasonably well. and we are appreciative of the mark that we received from the appropriators and i will defer to the others on any issues that they have. >> thank you. my understanding is our budgets fared fairly well as well. and that we aren't anticipating any major cuts at this time. certainly any major cuts would have significant negative impact on our ability to collect and report information. >> thank you. >> ma'am, same from tsa's perspective. we're doing really well. >> from the ice perspective, i think that we're doing well. i would want to make sure that there's a couple of critical pieces that are in there. one is we had an annualization of some positions for our southwest border supplemental and as you know, the work that we're doing on the southwest border is critical. i would not want to see that falter. so far we're good and i'd like to hopefully keep it that way. thank you. >> and cbp's intelligence capability actually also did what fared well and received a small bump-up for our targeting capabilities, which i think one of the things you heard today is the cbp targeting capabilities really do support all of our partner agencies. >> so the billion dollars is not from any of your budgets? >> if i could add one thing that is not specifically a target issue. but i think we're concerned about potential cuts to the grants because the fema grant program is the source of a lot of funding for our state and local partners. and while that is not specifically in my budget, we obviously are interested in ensuring that they receive enough funding to continue to be active participants in the homeland security enterprise. >> are any of your agencies involved with review the bin laden treasure trove as we tend to refer to it? you are all nodding your heads? so every one of you has a role in reviewing the materials? okay. you know, this is a diagram of this entity that you're all part of with undersecretary wagner in the middle. it's somewhat confusing because there are straight lines and then there are dotted lines. and it's very difficult to bring 22-plus agencies together under one roof that have been independent and have everyone work well together. so i'm sure there have been many challenges, probably none of which you would like to discuss in public but as you have moved to adapt, i want to know whether or not there are still areas that we should be aware of in terms of assisting you in unifying as a single agency? >> one of the areas that we, i think, still struggle with as a department is in our -- as in integrating our information systems. as we came from a different places we have a lot of different legacy systems. the department has a great deal of data, travel data, immigration data, cyberdata. a lot of that data is resident in very -- in different little stovepipes. and so we are working very, very diligently with the components and with the department's chief information officer and then in my capacity as information-sharing executive to work through how to do a better job internally of ensuring we have appropriate access to our data and that we're not having to redo functions multiple times, check individuals multiple times against multiple databases because they're all more linked. we have ways to go before we get to that goal and that's something that we are still, you know, basically working on. but i would offer anyone else the opportunity to comment if you're interested. >> i agree with undersecretary wagner. i think one of the biggest challenges we face is the vast volume of data that we have to sift through in order to identify these sometimes very vague or amorphus threats. and having the -- having the data tools and the connectivity to be able to look at tsa data or communication data or travel data and be able to do that in a integrated fashion is a challenge that we all face day-to-day. >> anyone else? >> there's a tremendous amount of collaboration that needs to occur and you have to have those collaborative tools that are out there. and how many different documents we have to go through every day and analytical tools that are out there to help us provide fused products and put them together at the end of the day could be very helpful. .. laughing as you do. thank you very much for that. my quick question is could you tell me what keeps you up at night? what is the main threat to your ability to do your job? >> we don't have any imminent threat in the maritime domain. being the new guy on the block i am learning quite a bit about what the intelligence community is working on but my biggest concern is twofold. one is safeguarding the coast guard personnel themselves. how we provide support for that protection. and the next piece would be those transnational frets whether they be criminal or terrorist organizations and how they get into the country and attack the american people. not having a specific threat right now, really trying to identi identify, working with colleagues across the intelligence community to identify how to stop that. >> thank you. i feel your pain when it comes to being the new guy on the block. mr. johnson, according to t essay, can you expound upon that a little bit? >> we had a closed-door session a couple months ago. closely by mass-transit, different threats being espoused from a global threat perspective and providing regional focus to the united states. >> mr. shapiro, could you allude to it? >> my blackberry keeps me up at night. all kidding aside, eyes --ice has a lot of things we cover. it is the pedophiles and the transnational criminal organizations we investigate, threaten the cyberworld. there are many things we have to focus on in order to make sure our citizens are safe and the wish it were only terrorism but it is that and much more. >> thank you for that and thank you for being by your blackberry. miss mitchell, could you expand as well? >> the biggest thing we are concerned with is some of the unknowns that we believe we have a good handle on identifying those we now are bad but to ensure our system also has that predictive modeling capability that allows us to pick up on those things that are of concern. picking up on the clean skin. also the impact of global security that we are partnering with a lot of the foreign governments to make sure they're picking up on the same thought process. as we have here. >> would the international community be assisting you or is it more of a challenge? >> as they're finding their targets as well, we can show some success stories in targeting methodology. they are becoming more willing partners. >> the one thing that keeps me up at night the most is there being an attack on the homeland and discovering we had data in the department that was relevant to it. that is what i focus my efforts on making sure we have the procedures in place to make sure we are tapping every piece of information we have so i hope never to be in that position. >> i hope you never are as well. two years ago secretary janet napolitano has to work with state and local fusions center is were a lot of genesis comes from with boots on the ground. i am from minnesota. because of an alert pilot giving instructions to a guy who wanted to take off in a 747, being able to fly the plane, critical information could have followed up the chain of command. would you please update us on that progress? >> we have made a great deal of progress building a network of national fusions said it is that shares information uppers with financial intelligence and law enforcement community and with each other which is an important aspect of this. what we are trying to do is leading the efforts of the department that include expectations to provide information, training, anything to help the fusions and this achieve the ability to analyze their own information, report on it and understand what information is valuable to others so it can be effectively shared. we haven't, the officers in the fusions sanders. they are compounded representation that many of them provide training courses in writing, protecting civil liberties and we are seeing from most of the fusion centers improved levels of situational awareness. we have a great interchange with them on a daily basis. we are focusing on implementing with the department of justice the suspicious sector reporting initiative and fusions and is our key element of that. the secretary has been promoting beat say something campaign. that is a way for us in the fusion center to leverage the american public to be on the lookout for information, behavior's that might allow us to disrupt activity. the national suspicious activity reporting initiative is feeding us and the guardian system. the constant direction that we have, we are in a very good position to use those guys as the first line of defense in detecting and deterring homegrown violent extremists. >> i am over my time. i yield back. >> thank you, mr. a cravaak. the chair will recognize the gentleman from arizona for five minutes for questioning. >> underat secretary wagner, we hear about the need to improve the level of information sharing between federal agencies but we don't often hear about how that is done in each individual department at dhs. were you doing to improve the intelligence collaboration and information sharing in the intelligence enterprise? >> we are doing multiple things because there's not a single silver bullet to solve the information sharing or communication. we start with the homeland security council we discussed earlier with some of the key members. we meet regularly on a monthly basis. we have weekly teleconferences to make sure we are on the same page about the emerging threat and other things we're trying to address collaborative lee but at the same time we have multiple daily levels of indirection. these folks have representatives on the dhs taskforce which is keeping everybody up to speed on emerging and evolving threats. we work together on a daily basis to produce joint products which go and the secretary's daily briefing book. many of which are shared with state and local partners. it is multiple interactions across the board. we worked closely on collection requirements as well as on analysis and developing analytic tools. i can even discuss all the levels we have been trying to significantly improve the cooperation and communication on. i think we have made a lot of progress. >> thank you. the drug cartel activities are keeping you up at night sometimes. what level -- what we doing from an intelligence standpoint to apprehend and make sure we are not seeing these drug cartels continue to move across our border? >> as we have seen the drug cartel threat and violence evolve particularly in mexico but also elsewhere as well, i have seen a higher level of emphasis placed on the intelligence community and i would say very candidly that they have been very responsive to our requests for information and support. it is a strain. we have wars going on in iraq and afghanistan and the intelligence community is stretched very thin but this is very close to home and impact our communities tremendously so we're doing everything we can possible from a law enforcement perspective to bring the cartel members to justice but also to make sure the information coming out of our operations as we understand the cartel's structure, where they are operating and how they are communicating, we are making sure we are passing that information to the intelligence community to sharpen their focus. >> what is the ability to work with your counterparts on the mexican side? has that been fruitful? have you been able to glean a lot of information and have a good working relationship with them? >> i have been in this business a long time and the cooperation has never been stronger. when a special agent was murdered in mexico last february the support we received from the mexican government as well as the u.s. law-enforcement intelligence community was unprecedented. they cooperation is good, we can always make things better but i have never seen it as good as it is today. i yield back. >> thank you, mr. quayle. i hope i might ask just one more round of questions myself. the ranking member might have a few questions. this might seem counterintuitive because we spend a lot of time in the intelligence field trying to develop as much information as we can on emerging threats which means we develop a lot of information about a lot of things and the lot of people. we are building a sophisticated network, fusions centers touching our communities. a broad spectrum of agencies that are simultaneously participating. so within our treasure trove of information there is information about a lot of people including american citizens among others. my own state of pennsylvania before i was elected on was very aware of information that was developed by one of our entities that was let out into -- sort of into the mainstream to the benefit of a private entity that took advantage of that intelligence information. but are we doing to assure that the civil liberty and privacy protections are in place so that we access information appropriately but guard against inappropriate use of that information? >> thank you for that question. that is something we focus on a lot. for all of us, we have intelligence oversight embedded in this organization and it flows from the executive order 120003. we have pretty well defined ways of training our people, double checking to make sure we are following the rules and periodically going through reports and seeing how we are doing. this is a new world in which they're operating so we have focused a lot of time and effort and resources on training them to understand the rules regarding privacy and civil rights and civil liberties and constitutionally protected activity. we worked with them to insure every fusion center have a privacy policy in place and they are adequate, everyone has been trained in those policies and those policies are being followed. we work closely with civil-rights and civil liberties office to provide training teams out to the fusion centers to make sure they are fully trained on the same things we have grown up. >> do you reach out within their communities? local police and otherwise? >> yes. i am confident we are very much leaning forward to build protection of privacy, civil-rights and civil liberties at the front of our engagements with fusions centers and all the products we are putting out. >> thank you for that and for your work on that. it is vitally important as part of our mission. you touched on a variety of things. thinking about a lot of different issues, is there something we could be doing better. you touched on one area in which agencies like yours might be the elite people that are an opportunity to reach out and be a lifeline to some victims who lived a horrible existence and the the the victims of human trafficking and others who are put down into the system. how are we doing in that battle? >> i think human trafficking is an area where ice has really stepped in front to take a leadership role not only in rescuing victims but aggressively going after and prosecuting the horrific criminals that commit these crimes but equally important we have victim witness assistance coordinators' in every single one of our field offices to assure the victims of human trafficking get the help they need in order to recover. similarly we are working closely with community organizations on government organization that we are working domestically and overseas to combat human trafficking. >> what about local police departments and others? you would often have local police departments that might come in to look at somebody and realize this is an immigration violation but not worth making an arrest for some particular purpose but they're looking past symbols that indicate there is something more going on and are we training local police to identify signs that as the appropriate questions and come back to experts like you? >> of big part of our effort is the out reach that we do including working in local human trafficking taskforces around the country so that as local authorities identify science as an indicator they know to ask the right questions. they go that step farther. the outrage we had in terms of formal training as well as various conferences passing out brochures. there is no substitute for working hand in hand for a local task forces so we understand what they face and often the signs are hard to detect. the victims are often very scared to come forward and it takes a lot of work sometimes to uncover these violations. >> my time has expired and thaw will turn to the ranking member, miss spier. >> i have an interest in the human sex trafficking issues so much so that we did the work force locally. the local police and training, it was an all-day training a couple weeks ago but i will tell you this. we have just scratched the surface and while we may on a federal level make resources in your jurisdiction available, we need to do much more. in the short time we have been working on this issue our local be a has gone back and recognized two domestic violence complaints that came in on the same person with different complainants turned out to be a sex trafficker. it didn't dawn on him until he participated in this program. i bring it up because we need to do more. you are already taxed but it is a horrific problem. the sex trafficking of those under the age of 18 is close to 300,000 in this country alone. we can see new initiatives come out within your various agencies as well. i have one last question. it would appear based on what we have been able to glean from the information osama bin laden had in his abbottabad location, i happen to have traveled with my daughter over spring break, college tour along the east coast and we did it by train. i thought about a lot because i think the trains are incredibly -- i don't know what we have underway to tried to address that issue. but it is just right for some kind of an attack that will come from a lone wolf that was homebound right among ourselves. if any of you have anything you would like to share on what we can or should be doing relative to rail i would appreciate it. >> i will turn it over to dan. just to say that it is based on looking at events overseas that rail has been a target of interest to terrorists and al qaeda affiliate's as we looked at what happened in london and madrid and moscow. we have been publishing on the tactics and techniques used in these attacks on rail to our law enforcement and public sector partners to help them think through the appropriate protective measures for some time. i will turn it over to dan for specifics. >> we have specific analysts that look at rail specifically and passenger or freight rail and they do annual assessments of classified and unclassified level and probably would be better if we go ahead and have a closed-door session and walk you through the classified findings that we have with him the rail assessments we have out there especially in light of bin laden's wrote. >> i want you to feel confident we have been looking at this for quite a while. >> i want to express my appreciation to this distinguished panel for your patience and your excellent testimony and the preparation that went into it and for your service. all of us appreciate that you are on the front line and you are on the front line in what is now a very precarious time for our country and that the same time i don't like to be alarmist because of the work you are doing is making a big difference that we have seen in the course of last year and increase in real threats to our nation but simultaneously if you were to have looked at this ten years ago from september 11th and predicted what may have been, there maybe a few that would argue that we have not been vigilant and had some genuine successes. tomorrow is another day and dino is not on my watch. so i want to thank you for your work but more important your service to our nation. the members of the committee might have some additional questions and i hope that if they do, you will do your best to be as responsive as you can in writing and the hearing record will be open for ten days. without objection of the committee stands adjourned. [inaudible conversations] >> up next, business owners testify about the economy and lending for small businesses. later in the morning the house oversight committee gets an update on the gulf coast recovery following last year's oil spill. haley barbour specifies -- testifies. coverage at 9:30 eastern. >> the last time our legislative branch in its entirety will appear in the medium of communication through which most americans get their information about what our government and the country does. >> several times today this has been referred to as a historic occasion. whether or not it is a historic occasion is a subject for the judgment of history. >> this marks 25 years of coverage of the u.s. senate. on that first day in 1986 c-span2 carried in 6.5 million homes. today it is available in eighty-nine million homes. watch the first day and any of the 2100 hours of senate coverage on line at the c-span video library. it is all searchable and free. the c-span video library, washington your way. >> up next a house panel in small-business lending. business lenders and banking officials. this hearing is an hour and 35 minutes. >> called this hearing to order and they our witnesses for being here. we look forward to hearing your testimony. apologize for being a little bit late as we had a vote called. as america seeks to recover from this recession which has obviously been a terrible blow to a lot of folks we are going to be relying on the nation's small businesses to lead the way. for small business to expand and create jobs they need adequate financing. small-businesses tell us access to capital remains a hurdle in the economy. despite rallies on wall street and government efforts to loosen credit, on the other side of the equation are lenders who say they have capital available but businesses are not as creditworthy as they were a few years ago would banks claimed today's borrowers have lower credit scores and collateral value due to the depressed real-estate values. if we want entrepreneurs to grow their business and create jobs we need to bring the gap between lenders and small business borrowers. we examine the challenges small businesses and banks are facing when expanding or lend money and addition we are going to examine alternate kinds of financing for small business and to get the capital that they need. i am pleased to have several distinguished witnesses who provide members of the committee within sight about the importance of capital for small businesses and impediments' leading to the banker lending that banks are experiencing. this will be a very good hearing. with that i am going to yield to the ranking member for her opening statement and we will get started. >> thank you, mr. chairman. job creation is understandably a top priority for all americans right now. new data out this morning suggests there are 38,000 jobs in the month of may. these new numbers show large firms cut their work force this month. the small business of job-creating power right now. in order for small firms to play their traditional job creating role several factors must be in place. perhaps the most important ingredient is the availability of capital. if small businesses are truly the backbone of the economy that they are the lifeblood. challenges remained that have progress in this area. small business in the first quarter of this fiscal year are 15% over last year. small firms are falling behind or defaulting on loans suggesting they are in better shape to take additional debt and hopefully expand. lending through the small business administration is always critical for affordable capital. however, during economic downturns when credit is elsewhere, it becomes more important. several provisions this committee practice in the recovery, mostly lending. the 7 a loans, incentive to make small-business loans. other provisions made the loans more affordable. as of now they have demonstrated the most quantifiable proven results for the recent policy actions that are yet to exhibit the same level of success. examining the amount of lending is only one metric. for these loans to ignite real job growth the agency must concentrate on the right kind of small businesses, namely start ups with the highest potential for job creation. on average it cost $75,000 to launch a new enterprise. it dropped propositions on the best circumstances. this small startups are not seeing their fair share of fda loans. in the first half of fiscal year 2011 less than one quarter of loans went to start ups. it is my hope that today's discussion will generate new ideas about how congress, the fda and the lending community can expand small firms financing options but especially for those at the earliest stage of the business cycle. and capital options for small firms. some businesses to find through conventional loans while other entrepreneurs meet their capital needs with microfinancing. the invest based solution may not make sense at all. investment might be a better fit. a small manufacturer in ohio might not be appropriate for a family farm internet feed to say nothing of the technology start up in lower manhattan. i would like to thank our witnesses for taking time to be here with us. their diverse views and experiences will be valuable to the committee as we see how best to make entrepreneur is capital options of. i yield back. >> thank you, ranking member. if any other committee member has an opening statement submitted for the record and explain to each of you for five minutes. and light will turn yellow and then read. we will be little late on that but try to stay within the five minute mark. our first witness is the chief executive officer of william hall franchise. he has five locations in texas. mr. hall serves on the board of directors for the international franchise association and chairs the credit texas committee. we appreciate you being hit today. we look forward to your testimony. >> i want to thank you and ranking member velazquez. it is hard to say hello in five minutes but i will do my best. i've made dairy queen franchisee in texas and a member of the international franchise board of directors. i want to talk about a roller u.s. economy franchising holds. as ms. velasquez mentioned, small-business start-ups are important part of the economy and franchising meet that need with a little bit of a lifeline for the first role in business because they have a system of training and it allows someone to start a business without being in business themselves. the franchising world grew at a faster pace through 2008 when we had a financial meltdown. since then recovery has been slow. markets have been frozen. difficult to obtain any financing. we greatly appreciate the work you did on a small business jobs act. the provisions have been a lifeline and we appreciate but currently there is very little lending for the entrepreneurs in the franchising world. to survive, the community has cutback to live with what we had. we didn't add new jobs or remodel where we needed to because we couldn't borrow any money. it is small to large. we delay the new acquisitions and franchise orders because we couldn't put them in the units to get the initial financing. people pay the finance fee but couldn't get the initial financing to get going. we think small business creates six of ten jobs in the country and if we don't have access to credit, we are not creating the jobs we need. there's a 20% shortfall, and we have been critical filling the need but we are 20% short which means we could have normal access to credit. franchising is all about small-business. sometimes we get confused because even dairy queen is large company. i started from nothing. most of the people in the franchising business started with one unit. we are resilience as a group and we are diverse as a group and other franchising of 19%, obama minorities whereas non franchise sector there are 13% owned by minorities. we have a great program for veterans. it discounted startup opportunity effort veterans. that has been a fantastic program and well-received by veterans coming back. in the franchising world you are in business for yourself but not by yourself. that is a tremendous benefit which does put us into a position where we could be a good borrower for these lenders that want to make loans because they need to make loans to be successful. so we thought how can we solve this problem without help from anyone and we decided as a group to get together to reach out to lenders to show them what we had to offer because we knew they needed to make loans. so we think it is a better loan than an non franchise loan. there is training and support. the franchise does underwriting before you go to the lender. there is some safety there. what we did is put together a credit summit to bring together all the parties. i don't want to go through. i would ask if we could introduce this piece into the record which does describe the credit conference we brought together lenders and franchise folks to come up with a solution. a private sector solution to the problem. as we go forward we need help in this regard. we need to help our lender friends to be able to loan money to us. we will do our part. we are not trying to look for a bad loan. we are putting a proven loan that could be made and paid back but we need help because those markets are closed. without the sba lending we would see a lot less people employed in the u.s. and with their help and your help to them there will be more jobs available. we are not looking for a bailout. just access to credit to improve our businesses and provide more jobs. i want to thank everyone for having us here. i will answer any questions. >> thank you. our next did witness is lynn ozer, executive vice president of sp lending in susquehanna bank in pennsylvania. she represents the national guaranteed lenders where she served on the board of directors thanks for coming and look forward to that. >> all the members of the committee, as chairman graves mentioned i am executive vice president where i manage all government guaranteed lending for route our banks for state footprint. we have approximately $14 billion in assets and operates through 223 branches in the mid-atlantic states. susquehanna is active in those programs. currently holds a portfolio of $300 million in government guaranteed loans. i am here representing 700 members of the national association of government guaranteed lenders. for the past 23 years i served on the board of directors and for many of those years i served under executive committee and as chair of the technical issues committee. members are responsible for approximately 80% of the volume as well as most of the lender portions of the 504 loans. thank you for inviting me to testify and holding this meeting of the importance of availability to access capital. in the interest of time i will submit my full written testimony for the record and provide a brief summary. i want to begin by publicly thanking the international franchise association for taking a leading role driving the discussion on the direct correlation between access to credit, job creation and economic development. because of the exemplary efforts, we have a loan program that is much better able to meet the capital needs of america's small business and it is important to note that the work on this issue did not end with the passage of the small business jobs act. approximately a year ago while we were working on credit access issue on different tracks, we began a dialogue we have continued. through those encounters we came to realize there was a significant overlap in the issues affecting both organizations's membership and to note that each group has much to learn from each other. so we forged a partnership intended to increase availability of capital to franchise small-businesses. the highlight of the ongoing efforts to address the credit issue was the credit summit organized and delivered in april. bill hall, the share of the credit committee briefly describe some of the things i as a is doing but because they won't how the organization's with to bring attention to this important issue, and isand a's effort for this, i want to do this for them. i want to specifically mention the exemplary leadership shown by isa accedes ceo of who has worked tirelessly to highlight the import role access to credit plays in creating jobs and increasing economic output. the most important message i could bring to the committee today is to reiterate what you already know. fda loans are critical to keeping small business segment of the economy the biggest job creating segment healthy. we are seeing signs of economic recovery but for a variety of reasons, accessing capital continues to be difficult for small businesses. lenders want to be able to provide this necessary capital but they are experiencing a perfect storm of circumstances that together serve to stifle the conventional small business activities. lending activities. how are banks meeting the credit needs of small business customers? many lenders are increasingly turning to fda loan programs and in particular to the fda 7 a loan program. that is essential to keeping credit flowing because fda is the single largest provider of long-term capital to u.s. small-businesses. it guarantees over 40% of all long-term small-business loans made in america. from the lender's viewpoint a key benefit to the program is to take less capital to support an fda loan than a conventional loan. from the small business viewpoint the fda allows increased taxes to capital particularly the kind of financing that appropriately matches the loan term to the life of the loan assets being financed. that finances long-term assets with long-term loans. according to federal statistics the typical loan has original maturity of 12 years while conventional small business loans have an original maturity of three years or less but the significant majority of those loans having a majority of one year or less. logger maturities allow small business to access capital that would not be available if repayment required in substantially shorter periods. the importance of fda lending demonstrates recent demand for the program. in the last two years, private sector lenders provided approximately $42 billion in loans to small-business but the success of the 7 a program is causing a new problem. based on loan approval to date it appears likely that the program demand will exceed the 17.5 billion program level set by congressional appropriators. this means it is likely that the 7 day program will have to shut down late this summer unless the congress acts to raise the program's level. to avert this program suspension on behalf of its members nagle is requesting congress act now to increase this year's program level for the business loan program to $19 billion. this will not affect the budget because suspicion of appropriations are available to support the increase to the program level ceiling. we no small business leads the way to creating new jobs and having a vibrant small business segment in the economy is vital to continuing the fragile economic recovery we're seeing. we also know that keeping the 504 loan programs available to meet the capital needs of tens of thousands of credit were the small businesses have nowhere else to turn is equally vital. do i still have time left? sorry. that wraps up. i will answer any questions. >> you will have more opportunity when we get to questions. i turned to ranking member velazquez. >> my pleasure to welcome dr. dennis jacobe, chief economist at gallup. he understands consumer public opinion and the economy more broadly. he has designed many of gallup's special financial indexes including the small business index on investor and retirement optimism. they currently focus on the bureau and economics for the idea of financial well-being. welcome. >> thank you, ranking member velazquez. i am pleased to be here today. i am gallup's chief economist. comments today are my own, not necessarily those of gallup. we are concerned about the economy and i will summarize my statement very quickly but we interview a thousand americans every night and we have done that since the beginning of january of 2008. we ask various questions about the economy and look at those results and report on them on a weekly or monthly basis. what our numbers show is what you see in economic data today which is the economy is softening. we have seen it for quite a while. by asking americans how they feel about the economy we get some insight into where it is headed. the economic data you're seeing today lags a little bit, we think our numbers are confirmed by what is happening and we are certainly in a soft patch potentially stagnation or stagflation situation. the numbers we get show consumer spending has not been increasing. at the same time we are seeing unemployment at very high levels. the number that will come out friday, gallup measures its own unemployment rate. hour number for may is 9.2%. that is not seasonally adjusted as an unemployment rate. when we look at underemployment, people who are unemployed or working part-time looking for work the number goes up to 19.2% and we think people underestimate what the effects are on society and the economy of having one in five americans unemployed or underemployed. in addition to this daily monitoring we do something we call the wells fargo small business index and what we do in that is we serve a small business owners across the country and ask a variety of questions to measure small business operating environment. i have inserted a chart in my testimony but what happens is confidence was up and so was small business confidence recovering from the last year and a half when it was low and the latest measure in april small business confidence went down. that does not portend well but fits with our other measures in terms of the economy overall. in terms of credit availability as part of that index we measure small business owners when they feel credit is available to them as small business owners. in my testimony i include a chart that 30% of small business owners say it is difficult or very difficult to get credit right now. the number may seem small but it is three times the difficulty of getting raided by small business owners prior to the recession. in terms of whether credit is easy to get, we have 20% who say it is easy, but that number is down from 50% prior to the recession. there is a slight improvement in credit availability for small businesses as mentioned by a lot of people but it is far down from pre recession levels. there are a couple of different things that are very important having to do with job creation, i won't go through that discussion in detail except to say that we find 40% of small businesses tell us they are hiring less people than they need. if we can turn that around and get them to hire what they need rather than to grow, there could be an explosion in job creation. it is not expected by most economists. the question is how to do that effectively. three areas that are not mentioned often, one has to do with education. i would be glad to discuss that but there needs to be some time into education from our polling with small businesses. the real-estate area which you heard more bad news about which is another area that is important to small businesses and the energy problems. i would be glad to answer any questions. >> thank you. next i turned to rep landry. >> thank you. i would like to introduce mr. bob kottler who is based in d.c.. he is a 2-lane brad. mr richmond is the other. we have at tulane grab on the committee. he is currently the executive vice president near my home town in louisiana. this may make him -- he may be able to understand the problems. mr. kottler has capitalized on finance expertise and devoted much of his career working on what makes small business work. in his current role he is responsible for the retail segment including retail operations, credit card sales, retail training and small business. before joining iberiabank he was vice president of small business banking and capital one covering texas, virginia, new york and connecticut. i don't know how you connect texas and louisiana to the east coast. he worked in tandem with capital one's small-business credit-card team and headed the real estate division in texas in the texas area and served as iberiabank's cheese support officer in the merger. he started his involvement with the consumer makers association in 1995 as a member of the small business committee. he has been extremely active in the last 16 years in his role as chair of the membership committee and the board of directors for ten years. he has 20 years of practical experience providing small business access to capital and credit. thank you for your service to our communities in louisiana and other states. >> thank you, mr. landry. you used up all your time. >> thank you. good afternoon, chairman graves and ranking member of alaska as. i am bob kottler and i'm responsible for retail and small business banking at iberiabank and also a member of the consumer bankers board of directors. the recognized voice of retail banking including small business banking for the nation's capital for 90 years. in my positions at iberiabank and 21 years with small business lending i understand the challenges we face getting through the current economic environment. over the past few years my unemployment resulted in less consumer spending and consumer spending is critical to boost sales of small businesses. the decline in sales of weak economic conditions led to weaker than normal in consistent demand for small-business loans. a recent study found for sales and uncertainty continued to be greater problems than access to credit. another factor diminished the demand for lending is value of home equity and home equity is traditionally a strong form of collateral many business owners use to secure their business loans. december study by federal reserve of cleveland found a decline in home values constrain the ability of small business owners to obtain the credit they need to finance their business. it is important to understand how the decline in sales of home values has affected small business lending. when banks underwrite loans will get two things -- cash flow both historical and projected as well as the collateral in alone. in the decline in these two criteria over the economic cycle is a significant factor behind reduction of lending and making clear why lending is difficult but we see it improving. cba members increased demand for small-business loans. in addition the commerce department announced increase consumer spending for the tenth straight month which we think is a positive sign and we are turning the corner. what is cba doing to improve lending? many banks institute aggressive second look programs where the banks take a look at a loan that may have been declined and find a way to improve it and looking to find ways to make more quality loans through the process. a number of banks announced lending programs and commitment to small business and many see be a member of the established enhanced training and incentives to the branches which is the primary place our customers ask for loans. also specifically improving use of fda programs. cba supported and continue to support efforts of the committee and congress to expand small business lending and economic development. we believe program improvements including 7 a 504 and express are important and small-business lending funds and other enhancements and all those things are taking as in the right direction. this spring cba joined with the international finance association to sponsor a small business lending in washington d.c. and through that summit and the dialogue that we have with isa we look for ways to improve lending. as a result cba's small business committee is working to develop a template franchisees' can use to repair their franchisees' to secure financing needs. this will provide the bank with information about the franchise and hopefully help us successfully underwrite the loan. one final point, the importance of communication between borrowers and lenders even before request is made. they are better prepared and knowledgeable about the process, the more a lender knows about the bar were the more successful the out come. small businesses and lenders need to bridge that divide and better understand one another and that is one of the things we are working on with the isa. we are starting to see signs of growth in the economy but we have a ways to go. any successful small business needs sufficient demand for strong cash flow to prosper and we think as the unemployment rate falling demand will increase which will continue to increase small business lending and small business growth and cba look forward to working with this committee and small businesses to strengthen the nation's economy. thank you for the opportunity to testify and i will be available for questions. >> i will pass my line of questions to the end of the hearing. i am going to turn to mr. west. >> thank you. thank you for taking the time to be here with us. we had an interesting morning. we met with president obama and one of the interesting topics we brought up is what we are discussing today as far as lending and especially the regulatory burdens we place on small business. one thing the president said was these are independent regulator is dealing with small businesses and the government doesn't have any effect upon them. is that really the case? have you seen an increase of government regulators coming down that are restraining or restricting lending practices for small banks because that is an important relationship. i will defer to our bankers and mr. hall. >> what we found is the fdic regulators are in consistently applying regulations for route the banking community. that has been a reported to the trade association. >> i think the banks have not seen a lot of regulatory impact. we are always concerned about it but i ultimately think it is improvement in the economy that is keeping more loans from being made. .. >> we hear there are significant restrictions on credit based on the inconsistency of the regulators. and i'm not -- i don't know enough about this. i'm not trying to pick on anybody, we're just trying to find a solution to the problem. >> can you give examples of these inconsistencies as maybe one or two maybe? >> i can tell you what i heard. but i will defer to the bankers. unless they don't answer then i will tell you. [laughter] >> hot potato. >> what we hear is the sba loans, and again, i know we had the vice-chairman of the ftse speak of our credit conference. he clearly said we are trying to help you in this effort. but we hear what's happening that it's not getting filtered down to the local examiners. what's happening is at the local examination level, they're looking at sba loans as being more risky because they are guaranteed and, therefore, are substandard. so they're getting pushed over into a more restrictive line within the individual banks. we think franchise loans are good loans, but because they are sba loans there's apparently some bias against the. again, i'm only answering because you asked me the question. >> this is the same information that we've heard as well. some banks on the government guaranteed loans are asked for high reserves than others on the same guaranteed purses and guaranteed portion. so it's been handled inconsistently. and then exactly what mr. hall was saying as far as the classification of the loan and the risk rating. and then that naturally affects how much capital has to be reserved for the loan. >> thank you. mr. jacoby, one question. in your estimation, what is it to economic policy over bullets that would enhance access to capital for our small businesses and help us to sustain a growth environment? [inaudible] >> i wish there were a silver bullet. but two things that would really help. i think one is stabilizing for housing and real estate markets. i think that as you hear from the bankers in terms of how small business loans are made, and i've worked with bankers for 25 years and they tell me the same thing. and that is a lack of collateral. a lot of that is related to the housing situation. the second thing has to do with education. when we did our polling prior to the recession and prior to the financial crisis, a lot of the things we found was that small businesses had problems finding people who were skilled and had the skills they need so that they could grow. that remains a problem. and when we polled recently, among the other problems, they still can't find the skilled people they need and talented people they need in those areas that are growing. so those are two things i would focus on. >> thank yothank you very much,i yield back, mr. chairman. >> thank you, mr. chairman. dr. jacobe, in your testimony you discussed that while credit conditions have improved for small businesses, they are still considerably tighter than they were in 2006, 2007. and i know that you mentioned three factors. one of them housing and real estate markets. but do you see based on the surveys that you take every night any conditions that are improving so that we could be to a point where we were five years ago? >> well, actually until about january of this year we started to see a lot of things improving. and i thought we actually were going to build some economic momentum. and that has been sort of dashed in the last couple of months. i think that we can build surprising economic momentum and we could really get back there if we can unleash this pent-up demand in the economic sector and a few things basically would be today if we were not+ infused, capital, in terms ofo helping prevent the capital collapse, capital markets from collapsing? >> that's really interesting. last night i was watching too big to fail, and during the period of time when all those events took place i was pulling nightly, not only national consumers but also banking customers. and i could identify very well with some of the feelings that are betrayed in that show. it's really hard for people to go back and imagine what conditions were at that time. but at that stage i was among a group of people they would support almost anything because we were really afraid that things are going back to the stage of 1930. i know a lot of people don't agree with that anymore but that's what we felt. >> and it is interesting that you know that the small business index had increased 40 points between july 2010 and january 2011. what do you attribute this increased to? and you think that the federal stimulus played any role? >> well, certainly i think, and people disagree about how effective the federal stimulus was and all those kinds of things, but we really did see the economy start to recover from a really bad point about a year ago. and our numbers and consumer optimism, everything, really did start to pick up late last year and until early this year. i think was a combination of things having to do with a lot of uncertainties been removed in the economy and people were much more optimistic. >> and you just made a comment that the economy -- given the numbers that we heard in terms of job creation, only 38,000, and that could have an impact on capital availability or credit availability for small businesses. up to this point, last year we passed a small business lending form under the department of the treasury, and it's supposed to provide capital to the banks so that they could lend to small businesses. up to this point only 626 financial institutions have applied for the treasury's spl. and none of been approved yet. so cheesy this initiative having a major impact on small businesses ability to secure capital? >> i don't think that anybody really expected to have a huge impact from the program, lisa people i talked to, particularly up in the banking business, but that was really going to turn things around. so not really surprised by the results. there are a bunch of issues around that program that just make it difficult for small banks to take advantage of it. and i'm not sure that it will help in what i see as a softening is coming. >> when we were debating the legislation that created the small business lending form, one of the concerns that a raise was the fact that in the language there was no requirement to the banks to lend, if you take that money, if you ask us about money, it should go to small business. so in light that we didn't have, we do not have that requirement, which you've -- what you think will have the impact it will have on small business access? >> are not really optimistic that the program will have a major impact. it's a little uncomfortable for me because i think conditions are bad enough that we have to do anything we can't. anything that provides help in this kind of area, i am for. but in terms of expectations i wouldn't have great expectatio expectations. >> i will have questions for the other witnesses, but i will do it in the second round. thank you, mr. chairman. >> mr. butler -- ms. barr. >> thank you, mr. chairman. and my questions are going to be a little more directed to you as well. i really found interesting in the survey you provided us, with 40% of our small businesses are not hiring as much as they could come we're not talking about -- it's difficult to create new businesses, in my state leslie i heard a lot let's get new capital and expense i can think we need to protect the business owners who are currently -- those small guys are struggling right now should be our immediate focus. that's the quickest way to get job growth in our country. i 13, 14% unemployment. i the double-digit unemployment for three years now in my biggest county. it's because primary small business based economy. and i was looking through these answers that they gave you, 79% said they were worried revenues their sales wouldn't be able to justify the new employees. no one will buy what they're selling so it's not worth it to expand. worried about cash flow or ability to make payroll. i can take either low small business owners who have not taken a paycheck in several years. to keep their employees employed. hard to find qualified employees which alludes to your education component. and didn't worried about the potential cost of health care. that's something we haven't talked about at all here come and we had a panel on a couple months ago. daily thing i was surprised i didn't see on here is with regard to the regulatory and climate come in the health care fits under that. but this is really much more -- this is much more big picture, this regulation or that regulation. is that not something that even registered with this part, we and i -- was a cloaked in the answers for these questions? >> i think it's overcome by the other answers. it is sort of under there somewhere, and when we have had larger sample sizes it does show up but it's a much smaller percentage. >> it's a regulation, okay. so going back to the certainty and confidence issue, you know, you have three suggestions or solutions. each one of them could take a significant amount of time, and had we stabilize the housing values and education is obviously more of the state responsibility but there are federal workforce programs that we could align perhaps. and then energy, and in the we're working on gas prices here, you know, the more supply out there and hopefully we can drive down the costs. in getting to these three, where would you suggest we start? >> i think that the most important thing that could be done, and i know this is not the view of a lot of people is that we need to do something about housing. i think that housing has affects across the country that are underestimated. it has had a major impact on small business, on collateral to small business has ability to lead, the wealth of the american people. and in terms of going for many broken housing finance system. i used to be a housing economist many years ago, and if you go back in history as how housing has really stimulated, as it commits impact on committees, and then on the country. so i know that it's not a topic that is being generally discussed but i think that's really -- were not going to get this economy going to potential without housing. get housing going i think growth will be a lot faster than most people think. >> thank you. and i yield back. >> mr. kottler, you talked about the decline in lending having÷?? more to do with drops in cash flow and home collateral values? over the years, and that÷?÷?÷?÷? increase copper requirements and regulatory uncertainty have mad? it difficult to lend. but i wanted to look at the÷?÷?? underwriting÷? standards.÷?÷?÷?? what are the current÷?÷?÷?÷?÷?÷? underwriting standards for÷? applicants seeking those with a? small businesses, and have a÷?÷? change over the last three years? >> i think as the economy worsens, there's a question that banks became -- names wereç worried about the uncertaintyñ and certainly spent a lot moreç time asking questions ofñçç borrowers in making sure that we would make loans that could beç retained we didn't replicate problems that caused some of this in the first place.çñ i think we really look at threeç things and we underwrite the loan.ñçñç first is the cash flow of theñç business, both how the business has done historically and thenç the projected cash flow.çñç what kind of context of theñwçç have, look at opportunities do they have. i think one of the difficultiesç has been obvious as the economy has been tough over the last çuple of years, historic cashç flows of our businesses don't look as good as they did in the years before the downturn.çç so that certainly goes into the underwriting. the second piece is a secondary source repayment or the collateral of the borrower, andç that's where housing comes in,ç commercial real estate appraisals coming. and clearly we have all beenñwç very cognizant of making sureçs that appraisalsñ are right andç that they represent the trueç value of the property.ñçç and in the third is generallyñ especially in small business the personal guarantees of theçñ business.çç we will look to the owner ofçç that business to make sure that they are strong and can alsoçñ support the business through any issues it would have.çñç so i don't know that it's asçñ much underwriting has changedñç more than being very cautious tç make sure to go through each ofw those steps. and then a lotñw of cases, the borrower doesn't look as strong as they did in the years before the downturn. >> are there any barriers though in a process that could keep a business owner from securing a loan even though they might be a good candidate for the loan?ñw >> you know, i'm not aware of any. i mean, i think banks are in the business of lending money.ñw that's what we do.ç and i think that we all want to make loans.ñwñw i can say in my business if itñw grows, that's what weñ want itw do. so i think the real issue is just getting the economy on track, getting the jobless ratew down, removing any otherñ uncertainties that would cause small business from expanding.ñ i think if those things happen then i think we will begin toñw make loans. i will also tell you that ourñww lending is up considerably from the bottom, but we're still not all the way back to where weñ were. as an industry and as an association, from or members from the top. >> i looked with interest at your, at this program of the consumer bankers association, the second look program. so what would trigger a secondñ look at a good candidate for a loan? >> i think that, you know, çtentimes loans will be declined by an underwriter andç so what we did, when thatç happens we put many of ourñwñwñ member banks in the processes i place of a supervisor or their manager takeover, anotherñw underwriter take a look at thosw loans to see if there's another question we can ask orñw information weñw could get, additional collateral that would make the bank comfortable, but something to try to take a look to see how we can make loans. and our members have seenññw anywhere from -- we pulled ourñw small business community, a lift in the approval rate of those loans.ñwññ so it's worked, something that has been successful in helping us small businesses for our industry. >> ms. ozer, you look like you have something to say on this. >> what i was going to add is the second look program is just something that a lot of, that we do, other things that are produced that heavily with the small business administration is we do at the second look see if we can utilize the small business administration's guaranteed on these loans that don't meet our credit criteria on a conventional basis. the credit criteria of our bank in particular, and i but i'm speaking for most banks, has the credit box itself has tightened due to regulations and losses and so forth. but what that means is that the businesses that no longer qualify for conventional lending fall off their plate and land on mine as the director of government guaranteed lending. so that's why we have been doing more loans because we do look at the same exact criteria that mr. kottler was speaking about, but with the enhancement of the government guaranteed we're able to make more loans to small businesses by utilizing that, and that's what the vitality of that program is so important. >> thank you. i yield back. >> mr. mole they. >> thank you, mr. chairman. briefly i think one thing we heard earlier bears repeating. i was as surprised as colonel west was when we met with the president this morning and were told by him from his own mouth that he had very little direct control over the regulatory environment. and you mention whether her legit been facing in your business dealt with the fdic. so i ask you, who oversees the fdic? is that the treasury? >> i think it's an independent agency. >> i believe it is treasure which would be mr. geithner. i will ask him directly about his role over the regular tour in fiber. i was very surprised to hear that. what let's come to issue hand. i have a question for mr. kottler. you heard mr. hall talk about the role franchise like. i've been a franchise or a franchisee. he's absolutely right. there's a pent-up demand in our industry their traditional our industry has been sort of a stabilizer, are cyclical. when business got bad and people got laid off they would turn to franchising as wait to start own business a. we saw that in own business. the demand for restaurant went up dramatically. but the -- knowing to get financing. mr. kottler, let me ask you this. you talked you talked about what is preventing you folks from lending, and i did all the things that it would ordinarily expect, which is your cash flow and your collateral, makes perfect sense to me, but my question is this. is there anything we can do or perhaps undo as a government to help you lend money? i'll give you an example, another industry, the realist industry which had a great deal of difficulty refinancing right now. in large part because of regulation that there's a rule in place now this is if you refinance a real estate welcome even though it is perfectly healthy and performing, if you refinance it it automatically goes into a troubled asset category. to me that shows some opportunity for us to fix things. what can we do or undo to help you lend money to folks like mr. hall? >> i think one of the things is be supportive of the sba programs, a lot of our banks use them. and the increases that were done and the amount to land and some of the other things that were done there has been pretty important. and banks have used that pretty aggressively through the economic empowerment to make loans. i think that, i think that's the primary thing, other than just more global economic things that i think we have to continue to work on, and that will take care of a lot of this in the process. >> you talk about the fact in a testament that if there was no sba, if there were no sba lending other we would have almost none in our industry. have you ever done an sba loan? >> no, sir, i have not. >> i know ms. ozer has. and he tells the difference in terms of the paperwork involved behind getting an sba loan and a traditional loan, maybe mr. kottler can help on that as well. because it is much more difficult to get an sba loan than it is an ordinary premarket loan. >> the amount of credit information that's required ronde barber, the basic credit information is this thing. in order to do your due diligence and the underwriting process that congresswoman had asked about before, we need the same amount of financial information. however, when you are applying for an sba loan, there are rules and regulations standard operating procedures, that have to be followed. so if you decided you borrow money from a bank who has expertise in that area, there should not be a huge amount of difference for the individual borrower. that you do need to have a lender that has experienced in that, because there is credit underwriting on the bank level and then there's credit underwriting the has to be done on behalf of the small business administration. so there is basically two times the amount of work. you can use the same credit underwriting but you do have forms and applications that need to be done. eligibility checklist that need to be done, tracking of use of proceeds, and there's more of an administrative burden on the banks to do an sba loan. but the bar with himself shouldn't really be experiencing more problems. >> i had the great pleasure of having an sba loan once i pick it was a great expense, don't get me wrong but is between getting an sba loan and a conventional route. the conventional route was always preferable. >> i would add while i haven't had an sba loan, it looks like i'm going to be going after one. and i will just give you the real work perspective on that. in the past, if i put a new unit in or put a restaurant in, i typically am putting a lot of capital in there already, in addition to the loan. and in times past i may not have to guarantee the loan personally. in fact, i wouldn't do it unless i absolutely have to. in today's environment every bank in making me guarantee that loan personally, so now faced with the fact that i probably can't get the loan that the commercial bank, i'm not saying okay, i've got to go through sba if i want to expand my dairy queen, which i'm currently looking at right now, ipod going to expand my dairy queen's to refurbish them to an sba program because that's the only route i can take. am i excited about one, the paperwork, into, guaranteeing it would have think i have? no, i'm not. but i don't have choice if i want to renovate my units. so that's the response about the sba. >> thank you mr. hall. thank you, mr. chairman. >> mr. peters. >> thank you, mr. chairman.ñ÷ i want to talk a little bit about the bankers situation with making loans and i know how the deals have changed but it seems to be two issues with the banking industry that i found talking to my community bankers, credit unions and others is that certainly the deals that are coming to you are different cash flows, cash flow is different, collateral is different. some of the other questions we're getting is that oftentimes the fdic will go into a community bank, i would like you to respond, then go into the community bank and say basically looking at your portfolio and sing your collateral that you have, realistic example has dropped for your collateral has dropped as result of that you need to have increased reserves which seems to be a prudent thing to do is to increase reserves as your collateral has dropped. but that, of course, lynn jorde billy glidden because you have to bring in private capital which is a difficult thing to do in a tough economy, a lot of small banks to look like a great investment to people, particularly my area or you have to call in loans are usually ability to lend. so the question, to what extent is the factor having trouble finding credit worthy borrowers, and to what extent is it the fact that just because your own portfolios have dropped, collateral has dropped comedy so they don't have the capital to lend? what is that bounced? >> -- what is that balance of? >> i get a from her experience we have been very well capitalized and had very good lending performance through the cycle. i will tell you that one of the reasons i came to iberia was to do more small business lending. it was something the bank manager, the bank wanted to do. as result i don't think -- my expense is at least at our bank that's been an issue. the issue is really -- >> more broadly than your bank is an issue? >> it's interesting. i have attended some different forms over the last few years and some of the smaller banks have certainly raised that issue, but i will tell you from my experience that our bank is $10 million at the larger bank i don't think it was. >> my experience with our bank is similar in that we have capitalized that have been able ñ lend throughout the crisis.ñ we do have issues with loan los ññrves, and on a conventional basis they are looking moreññ closely because ofñ regulation and the types of collateral that they're able to use.ññññññ the equity values haveñññññ decreased, but we have availabl to us the way to make loans is to utilize the government guarantee. ñd we have been able to do that and to conserve capital because that's one of theñ major thing that that program allows us toñ do.ñ the credit worthiness of theññ borrowers, at the present timeñ people that you're looking at now that coming to borñrñow m they -- their expenses areñññ lincoln men and most of themññ have a topline problem and not  bottom line problem because of the consumer spending. and those are the things thatñ make the banks nervous. we use the government guarantee to do that on a conventional basis a lot of banks areññññ requiring borrowers to pay off theirñ credit lines that they have utilize all the way, andñ they don't have availability on it.ñññññ ended with an sba guarantee we can give them 10 years to repay that loan ñas opposed to theñ banksñ requiring only two, thr for your loan.ññññññññ so byñ applying a guarantee to what we increase the workingññ capital available to those borrowers to keep them in business. >> let me jump in with your use of the s.b. which is an important part for you. there's discussion on the fees with the sba loans the tradition of those these have covered all the cost of the program. however, now is being subsidize and i know the administration and others have concerns about the subsidy of the fees. although the fees can be relatively high for a small business. right now what impact do you think it would have if we are in a position where we subsidize those these, have to raise those these, are you concerned? are you concerned about having to face even higher sba these?ñ >> on a personal basis, theññ borrowers have that concern but this also touches on whatññññ mr. hall was saying.ññññññ whenñ you utilize an sbañññ guaranteed loan, it's becauseñ credit is not availableññññ elsewhere.ñññññññ so these small businesses are either fighting to stay in business or they want to fight to start business. and the fees can be financed and amortized over the life of theñ loan whichñ generate a longerñ period of time than he would get on a conventionalñ basis.ñññ so as a lender, yes, it'sñññ cñoncerning. as a borrower i'm sure that it' concerning as well.ññññññ except for that if you're in añ situation where it is the mostñ reasonable way to continue inñ business or start in business, then we will continue to do it. >> i have a financial backgrou background, cpa which i started eight years and i've been an odd burner since then. unfortunate, not about the fees but once the payment. >> is a situation where you need the credit, you need to finance something, you're going to be a higher fee and be willing to pay a hefty than you ever thought you would. the same as example i gave on the personal

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