NATO EXPANSION Question. In 1956, I remember when the Hungarians rebelled and the Russians vaded. They believed Secretary Dulles and our radio broadcasts, but we did not ome to their aid. Now you are proposing to bring Poland, the Czech Republic, Slovakia, and Hunary into NATO. ? Does this mean that you are now making a treaty commitment that the U.S. is ligated to go to war to defend these countries? That is what you are saying, isn't Answer. Article 5 of the North Atlantic Treaty provides that, in the event of an med attack against a member of NATO, each other member "in exercise of the ght of individual or collective self-defense recognized by Article 51 of the Charter the United Nations, will assist the Party or Parties so attacked by taking forthith individually and in concert with the other Parties, such action as it deems necsary, including the use of armed force, to restore and maintain the security of the orth Atlantic area." " The Treaty protects our right to act in accordance with our national interests and e provisions of our Constitution. We do, however, consider it a commitment to me to the assistance of any NATO member who is the victim of outside aggreson. Whichever new countries are admitted to NATO (and that decision has not yet en made) will bear the same responsibilities and share the same rights and priviges as the existing members. NATO's essential purpose to safeguard the freedom and security of its members ad to work for the establishment of a just and lasting peaceful order in Europe is not changed and will not change with the admission of new members. NATO's inciple of collective defense has served as an effective deterrent to armed aggreson against its members for almost 50 years. Enlarging NATO will further our efts to strengthen stability and security in Europe. QUESTION SUBMITTED BY SENATOR BARBARA A. MIKULSKI OUTDATED TECHNOLOGY Question. How can our diplomats represent our interests with rotary phones and tdated computers? Answer. The Department of State is engaged in a long-term effort to modernize information technology to successfully support the conduct of foreign affairs. To s end, the Department has focused on three areas in its modernization efforts: -The application of management improvement strategies for all information technology projects, including appropriate decision making processes, project management methodologies, capital planning and performance measures practices; —A coordinated planning approach including a Strategic Plan that lays out a fiveyear program that will resolve critical problems with our obsolete technology infrastructure. In addition, we are implementing a Tactical Plan, to be followed over the next two years to achieve the goals set out in the Strategic Plan. Simply put, the Strategic Plan states what must be done and the tactical plan lays out in two-year increments, how we will do it; -Through targeted investments, we have directed limited IRM funding to the Department's high priorities: replacing obsolete equipment (desktop PC's, overseas radios and telephones); extending electronic mail world-wide; and upgrading our mainframe computer capabilities. We have made strides in reducing the number of obsolete units in unclassified systems overseas, classified systems overseas, telephones, unclassified e-mail, and computer mainframes. Our next step is to continue investing in information technology upgrades and imvements. The additional $80 million we plan to invest in fiscal year 1998 (above base) will be used for: -Infrastructure upgrades. We will continue to work toward eliminating our underlying antiquated infrastructure so that we can provide business quality information systems and services. Overseas, posts will have modern desktop, computer, and communications equipment and higher speed communications circuits. Our headquarters infrastructure will be upgraded as well to accommodate requirements from overseas. -Applications. We are preparing for the Year 2000 and will continue to develop and ron nt arator ing maier business viromento such tem, based on industry standards. -Training.-We will develop a training strategy a such as distance learning. Our new School of App must map training to the new generation of equip replacement business systems that will soon be in worldwide. SUBCOMMITTEE RECESS Senator GREGG. If there is nothing furthe recessed. [Whereupon, at 3:32 p.m., Thursday, Mar was recessed, to reconvene subject to the call LTB EPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE JUDICIARY, AND RELATED SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC. The subcommittee met at 1:55 p.m., in room S-146, the Capitol, n. Judd Gregg (chairman) presiding. Present: Senator Gregg. SMALL BUSINESS ADMINISTRATION ATEMENT OF AIDA ALVAREZ, ADMINISTRATOR COMPANIED BY GREG WALTER, DEPUTY CHIEF FINANCIAL OFFICER PREPARED STATEMENT Senator GREGG. You are here and I am here, so let us get start Ms. ALVAREZ. OK. Senator GREGG. I expect from our notes that we may not have Full complement anyway. Hopefully, other Senators will join us. This is a fairly informal exercise on this side of the Capitol. We lcome you to the committee. It is a pleasure to have you here. hy do you not give us your thoughts on your budget? Ms. ALVAREZ. I hope you do not mind if I have some prepared tes here. I want to thank you for the opportunity to appear here discuss with you, Mr. Chairman and members of the committee, e President's fiscal year 1998 budget request for the U.S. Small siness Administration. After my brief remarks, I, of course, hope respond to questions and I request that you enter my written tement into the record. Senator GREGG. That will be done. PREPARED STATEMENT OF AIDA ALVAREZ Mr. Chairman and Members of the Subcommittee, thank you for the opportunity appear before you today to discuss the President's fiscal year 1998 Budget request the U.S. Small Business Administration (SBA). t has now been a little over three weeks since I was privileged to take the oath ffice as Administrator of the SBA. I have met some terrific people who have been cient, more effective, and of broader help to America's s As I said at my confirmation hearing on February leading edge in financial management, a disciplined, keeps its eye on its larger mission. I will seek partnerin our resources and will apply business-like methods a be a strong advocate for small business. I know that jectives without adequate resources and strong coopera view of the President's budget request is an appropria fort to chart a course for the SBA. And so I welcome with you. The President's request reflects his continued stron and his confidence in the SBA's ability to perform its with his overall objective to reach a balanced budget ciate the President's support and understand his insis with greater use of new technology, and more innovati livery. Our programs at the SBA are already helping m ers. With new resources, we will be able to do even mor President Clinton has established five priorities for context for our long-standing programs as well as new are to: Improve access to capital for small business own ulations and unnecessary paperwork requirements tha businesses; make the SBA more effective, efficient and support small business education, counseling and traini ca's small businesses. SMALL BUSINESS IN THE U.S. ECO As we discuss the budget request for SBA, it is imp critical small business is to the U.S. economy: -The number of small businesses is growing at a re new firms created in 1996-a 55 percent increase small businesses since 1982. -Small businesses employ more than 50 percent of generate more than 50 percent of the gross domesti Small businesses are our country's leading source that small firms innovate at twice the rate of large -Small firms also bring more members of society in New women-owned firms (one-third of all firms) b of men-owned businesses for a decade. From 198 by African-Americans grew at twice the rate of al firms grew over three times to the rate of all firms. -Small businesses are the key to a successful nati six percent of all exporting companies are small than 500 employees, according to the latest Comme -Small business is healthier today, with failures every year since 1993. RECENT ACCOMPLISHMENTS SBA has played a key role in the growth of small bus by nearly doubling its loan volume, providing record a vestment, and ensuring that millions of small business ing and training they need to succeed. With an increas cessful public-private partnerships, the SBA is clearly tion's efforts to reinvent government and "do more wit current business portfolio is more than $35 billion, th 1998 budget is less than the taxes paid in one year b ceived critical SBA financing when it was quite small During fiscal year 1996, SBA achieved many success dent's goals for the Agency. We increased access to c than $10 billion in small business loans, licensed more ment Companies (SBIC's) than in the previous 20 years latory burden by rewriting all of our regulations in plai by more than half, streamlined Agency operations thro ment Project (LIP), and improved access to education nineteen new Women's Business Centers (formerly kn tion Sites) and fifteen U.S. Export Assistance Centers n Over the history of the disaster loan program, SBA has helped over 1.3 million isaster victims by providing more than $24.1 billion in disaster assistance. During 996 alone, SBA approved nearly 38,000 disaster loans for an amount of almost $1 illion. A more complete listing of SBA's fiscal year 1996 achievements are listed in an ppendix attached to this statement. FISCAL YEAR 1998 BUDGET REQUEST This budget request for the SBA reflects continued support by the Administration fund the growth in demand for SBA's principal credit and non-credit programs uring fiscal year 1998. For fiscal year 1998, SBA requests $701.6 million in new budget authority and tal staffing of 4,634 Full Time Equivalents (FTE's), which includes 3,047 non-disster, non-Inspector General (IG) FTE's. This compares to our fiscal year 1997 apopriation of $852.4 million that funded 4,569 FTE's, including 2,985 non-disaster, on-IG FTE's. The principal reason for the reduction in our appropriation requireent from fiscal year 1997 is the use of unobligated balances to fund the disaster an program in fiscal year 1998 and lower loan program subsidy costs. In 1998, SBA proposes to continue to increase its reliance on its private sector rtners. Three initiatives will allow SBA to complete its transition from physically rvicing and liquidating its $36 billion loan portfolio to overseeing its private sector rtners. First, 7(a) General Business lenders will be required to service and liqdate all loans approved after fiscal year 1997. Second, SBA will sell its $10 billion rtfolio of defaulted guarantees and direct loans beginning in fiscal year 1998, nich includes $9 billion currently outstanding as well as $1 billion in new direct ans and newly defaulted guarantees. Third, ŠBA requests $18 million to improve = portfolio monitoring capabilities. These proposals will allow SBA to focus its limed resources on expanding assistance to small businesses while relying on its prite sector partners for "back-end" activities. The budget estimates that these prosals will lead to lower credit, administrative, and subsidy costs. The budget proposes growth in programs to expand access to capital, assist disvantaged small businesses, and provide education and training. As part of SBA's al of stretching taxpayers' dollars, the budget also assumes that (1) Small Busiss Development Companies will charge counseling fees to substitute for a reducon in federal grants and proposes that (2) disaster loan borrowers pay an interest te equal to the rate on Treasury securities of comparable maturity. Some of the more significant aspects of our fiscal year 1998 budget request are: -Budget authority of $153 million to provide guaranty authority of $8.5 billion for the 7(a) General Business Loan Guaranty program; -For the Section 504 Certified Development Company loan program, no new budget authority is required to provide a program level of $2.3 billion; -For the Small Business Investment Company program, $20.2 million in budget authority to provide program levels of $376 million of debenture guarantees and $456 million for participating securities; -For the Microloan program, no new budget authority for loan-making is required. $44.1 million in microloans in fiscal year 1998 will be funded through the carryover of unused budget authority from fiscal year 1997. SBA is requesting $16.5 million for technical assistance to microloan borrowers; -An additional $18 million to support enhanced lender monitoring and oversight; -$600,000 to support increased International Trade outreach and implementation of the new "SBA Export Express" lending tool; -No new loan subsidy budget authority is requested for the Disaster Loan program. Expected carryover from fiscal year 1997 will be used to support $785 million in disaster lending; -$57.5 million in federal funding for the Small Business Development Center (SBDC) program; -$3.5 million to provide $1.7 billion in surety bond guarantees; -An increase in funding for the Minority Enterprise Development (MED) program to restore 7(j) business development assistance to previously-provided levels; -For the Office of Advocacy, a restoration of a $1.4 million funding level for data collection and research that is statutorily-mandated; illion to |