person at the head of either c.i.a. as it is now or c.i.a. in two parts. >> i think the main advantage, mr. chairman, is that you have a -- someone who knows the organization, if you choose the right person as you should, that person will have instant credit built. i think that the the best leaders are those whose jobs are specialized or difficult. you cannot walk in and do them with a general purpose background. the best leaders move their organizations a step further, more skilled, more unified, able to do new things. and i think that is best done by someone who knows the organization. i am influenced but what i -- by what i saw at the cia and they are marvelous.

any one of four people in that agency who i had the chance would have recommended to be the director. four good chances. there are good people there who can do it. if you have a dni who was running the top cover, you can have your director being an officer. that is what they do. i would say that is part of it. as i said, as i look back over the history of directors, there have some brilliant work done by outside officers, if you have to handicap the odds, those who are remembered as having done the best are at a higher percentage rate are those who have the background. that is the advantage. >> going deeper than you did in your opening statement about why

separate the cia into an analytic section or agency and a clandestine agency. >> starting off with trying to clean the slate and let's look at those two different functions, they are different approaches. an analyst as skeptical, questioning, uses the academic skills. a case officer or officers involved in covert operations has to be extemporaneous, flexible, doing the job. you have oil and water in terms of the sort of people who do it. until the early 1990's, they were divided out at langley. this tower was the analyst tower

and this was the operator side. when they were thrown together and mixed up, there were some advantages. the main advantages where for the clandestine service. the operators. it gave them a closer sense of what was required and they could direct their efforts more to that and become more reflective, and what they're doing, not just, where is the job, let's go do it, where is the door, let's run through it. i would lead an analytical cadre to perform that function. there was also over time, the operator that prevailed at the agency, being the sort of active can do people they are, they're the ones that set the tone for the agency. i think detracted somewhat from

the analytical ability and made it difficult analytically at some time, especially when the analysis was not supporting the program that the actions side was working on. in addition, if you look at where the intelligence comes from now, i do not have the figures with me. they may be classified. most comes from signals and intelligence gathered by the nsa. i do not see any this advantage to having this analytical shop separate and the clandestine service would be the specialist in human intelligence. in the same way as you recall when the national jewish spatial intelligence agency was formed,

analysts were taken out and put together with the same skills from the defense mapping service and they were the functional experts on spatial intelligence and they now helped the cia the way they help others. it is an analogous thing of having the functional division of the collectors fairly pure and the analysts together. the danger in that is people get back and there are fights and they do not cooperate and that is where i think the dni putting these teams together with representation from all these agencies is the norm. a final point. you will find the u.s. is unusual in having this collection of skills. if you look in other countries, it is not that we should be bound by other countries, but it is an interesting check of how it happened.

it is more a product of history than how it is generally done around the world. >> in -- i had not thought about this. this is a separation between the operators and the analysts in most of the department. >> correct. they are separate. >> when i -- i followed these from a distance. when i came here as a senator and started to understand what the cia was about, i was surprised how many people i would interact with in briefings who i would call basically researchers. it was valuable research. they were becoming expert in a particular country. most -- not all, a lot of what they were doing was from open sources. that is necessary. that is important.

not what i think the public feels is the cia. the public thinks of it as the operators in a clandestine -- and clandestine workers. those were interesting suggestions. let me talk to you about another one that is interesting and does relate to the bin laden case, which is as indicated briefly in your opening statement, we have title x which covers operations and to have title 50 covering intelligence and covert authorities in the case as we discussed. in the case of the bin laden search, the president gave the authority to the director of the cia which is interesting under title 50. although necessarily, i would

say and the director has been open and enthusiastic about this. he would be called lun the special operations and the admiral mccraven operating under title 10. you make an interesting and relevant suggestion. we need a total 64 what you called joint intelligence -- integrated task forces. let me ask you to develop that. i presume it comes from the fact that a lot of what intelligence operators are doing is inherent -- what would be the benefit of tunnell 60? >> lumley illustrate it first by

a well-known bad example. that is always instructive. if you are called when we went into afghanistan late in 2001, cia agents famously wrote in -- rode in rickety old soviet airplanes with bags of money and they started reaching their contacts, secretary rumsfeld was impatient that the special forces were not there yet. they were slow, they were getting in place ready to jump and never again will dot be second getting into one of these. there was explicit competition between those groups to get in and do the same job. tragically, a number of cia agents were killed with a group of afghans who have been taken prisoner. the cia officials were

outnumbered and beaten to death. the military backup for that was not readily available. and yet it is one country, when president, when congress, one set of authorities. what we need to do is put the best capabilities of the defense department to this problem together with the capabilities the cia could bring integrated staff so that you have knowledgeable direction and use everything. whether you're using all the skills that the cia has developed in terms of working with working with foreign intelligence, the cia has more budget flexibility than dod has. but having the huge backup logistics' planning capability and -- that the department of defense can bring to bear. let's do them both.

let's not have the president make this decision. do i give this one to the cia or to the department of defense? the other thing that has happened is that the definition of covert action under title 50 has changed since the cold war. we could take legal action against the soviet union and areas around the world. we could deny it and we would not risk escalation to world war iii. if we were ever an operation that was less intended to be deniable, i do not know what was. i do not think anyone's understanding of what a covert action was. we regret to do it, there were going to be cia and sailors

involved, 5000 people were probably involved in that operation and we were going to do it. why, because it was a border that -- a job that was not being done by a country we could call want to do it and we felt we had to do it ourselves. that is the nature of the challenge we face with al qaeda and its affiliates. drug cartels, a law operations of various kinds, even some knoblauch countries. it is not the state boundaries cold war that we invented plausible deniability to take care of. in addition, a lot of these campaigns go on for a long time like our current campaign in afghanistan. if there is a less well publicized cia action than drones in pakistan, i do not know what that is either. cia officers called reporters and told them about what happened on a routine basis.

i think the definitions are getting in our way, not helping us. they do set up a competition for who is in charge. rather than a mechanism so both sides can bring it to bear. i am for doing it. the questions involved, there is witty questions. title 10 is part of what entitles soldiers to protection under the geneva concession -- convention. total 60 would have to be signed in a way that these are soldiers if they are captured. the provide some protection but have one of those helicopters gone down in north waziristan and there were picked up, i do not think they would have been motivated by the geneva convention and that is the way it is in these situations. similarly, who does this group

report to and who was it accountable to? >> i was thinking about that. in total 50, there is a requirement for limited notification to congress with covert action. special operators are operating all the time with no notification for congress. how would you balance that? >> i would within title 60, i would say that both the intelligence committees and armed services committees need to be notified. there was one instance of a somewhat similar operation i was involved in. we formed a joint briefing team and went up and talked to the leadership. both parts -- houses, both parties. it involves military and intelligence community actions. the world did not come to an end. they asked good and tough questions. i think we can do the notification part of it well.

i think we need ways to draw those capabilities together. >> who would be in charge of one of the joint task forces? >> i would look at it and say this is a mixed set of skills here. is it on balance, is it 51 intelligence and 41 military or is it the other way around? the deputy i would make from the other disciplines so you have the two top people bring both sets of skills to bear and i would make sure that there will -- the top people had qualifications and experience with operating with the other agencies. similar to the way we do it with joy commanders. i would mix them and i have the staff makes so you have the skills available to spark that

synergy and to keep from doing something stupid. in intelligence or the military realm. e dniat the -- would thy always be involved? >> that would be comparable for the final approval and concurrence with a deputy and if you are a good dni, if you have chosen good people, you let them roll. a hand it to good leadership for what i understood of what happened during those hours of the raid. they sat there and let the people who were right there make the decisions and that is the way it ought to run. >> those are very interesting ideas. within the rules of the geneva convention, i interrogated you

enough today. you have been extremely helpful. senator collins and i talked about this briefly on the floor. you give us -- i am not quite sure we will do from here. we may recommend some additional legislation if it makes sense which i think some of these really do. in other cases we may have core recommendations to the president or to the dni. i reserve the right to call you and come in and talk about the direction we're going. the combination of your experiences in the service of the country is unique and helpful. you have had the independence out of office to make some of the suggestions that people in office sometimes do not make. this is what i have to look

forward to after jan. 2013. >> i hope we can call and your wisdom after you leave the chair. >> you always can do it. thank you and thank your wife for being with you. thank you. we will keep the record of the hearing open for 15 days for any additional questions or statements. great thanks to you for what you have contributed to the hearing. the hearing is adjourned.

[inaudible conversations]

>> some members of congress have threatened to cut aid to pakistan following suspicions that elements of the security forces may have harbored osama bin laden. tomorrow, a discussion on u.s. relations with pakistan and the

future of the country. it is hosted by the asia society and the u.s. institute of peace. live coverage at 10:00 a.m. eastern. >> the gaithersburg book festival, live with offers on the gulf oil spill, wall street, the universe, india, and the middle east. a panel discussion on the book industry. also former ambassador to yemen . look for the complete schedule at booktv.org. >> next, a discussion with tom davis. this is 50 minutes.

host: former republican congressman and chairman of the national republican congressional committee tom davis. if you were running the nrcc today, would you think of the medicare plan that paul ryan has put out would be a liability for republicans? guest: i think it will be fine but a lot of people think it over -- if it goes and answered, you are in trouble. it does not apply to people over 55, their benefits are guaranteed. long term the do nothing approach jeopardize is it for everybody. the difficulty is when you get attacked -- either side, democrats have the same problem last -- is you tend to grow up in a ball and not defend it. it is further complicated in this new your special election by the fact you have a third- party candidate taking votes away from them. but at the end of the day, the deficit is the issue of our time. it may not be front and center

for most people -- but this is the next bubble that is going to burst if we do not do something. host: have the republicans in your view effectively answered to democrats? guest: no, they are running for cover. that is the difficulty. look, the ryan plan may not be the perfect plan for anybody but at least he is addressing e issue. everybody else is putting their head in the sand. this is the fastest growing program in government, growing 7% a year. we have a federal government borrowing 41 cents on the dollar. that is just unsustainable. you've got to look at all of these programs and i think everybody is going to have to take a haircut. host: who will win the new york special? guest: it is cplicated because it is a three-way race. i will tell you one thing -- it is close. host: they picked up the massa seat. guest: but we lost two other specials. it did not portend anything for

the next november. medicareill help the democrats with their base vote, but at the end of the day of the democrat wins it she will be well under 50% with a tea party and republican candidate taking up the ball. this is a republican district. this is jack kemp's district. host: is corwin a strong candidate? guest: an excellent candidate. the problem is the candidates lost control. you have outside groups running ads. what the parties and candidates spend is dwarfed by tt. medicare is front and center and it is a question of getting information out. host: if you were running nrcc, would you be spending money up there? guest: they are spending money. i think they will spend a few hundred thousand dollars but you have to put on the ground. by getting your base vote out at this point, some of information across the airwaves, just adding a little bit more mike beebe

value added. host: reid set to force aote on gop medicare plan. set to vote next week on paul line that a budget but is this a smart political move? guest: it looks good today, but you've got to look ahead in politics. it is not where you are today. wayne gretzky used to say he was great because he skated where the puck was going to be and not where it was. reid and the democrats are skating where the puck is and that is trying to scare seniors. it has traditionally worked for both parties. but the debt issue is so overwhelming something is going to have to be done about medicare what ever you. rtyan's plan, at least republic -- whatever you think about ryan's plan at least a republican the stepped up. i think a year from now, i do not think medicare will go unscatd. host: tom davis served as congressman from 11th district

of virginia, republican congressman. he was chairman of the national republican good rational committee from 1998 until 2002. he is here to talk about the 2012 elections and republicans at this point. 202 is the area code -- please allow 30 days between calls and you can send a tweet -- c-span-wj is the twitter handle. and you can send an e-mail to journal@span.org. politically right now the debt ceiling debate that is going on, who does a favor, in your view? guest: what it is, is is an opportunity for both parties to come together and make tough decisions. nobody wins on a debt ceiling vote. this will be politically poisonous.

this is like tarp. i saw one pundit described as park on steroids. i voted for tarp in the congress. you did not have much of an alternative -- not doing it could have caught the economic meltdown. but because we back it and became law you did not have a meltdown so you are second guessed by a lot of people. i got out and defended the vote and did not have problems doing it. this is more poisonous. polling shows people do not want to raise the debt ceiling. host: if you were chair of nrcc today, where what resources be? republicans went from 178 seats to 240 in the 2010 midterms and democrats went from 257 to 192. are the republicans going to hold congress, and you you -- in your view? where would be spent resources? guest: we have seen in three straight nationalize elections anything can happen.

all but seven house members will be running in different districts because of redistricting. host: than all but seven? guest: a they are the seven who are at large. you have to remember the key battle is over redistricting, shaping member districts, trying to make members who are maybe a little weaker have tougher districts and tried to strengthen their districts. there will be pluses and minuses. republicans control more seats at the redistricting table than in any time since 1920. and they have the lead so you have to take -- say, advantage republicans, at this point the. secondly, president obama is still on the white house and usually a voter animosity goes toward the party in the white house. they have to have another nationalized elections under those circumstances toe the to win and a national election that works in their favor. trying to think what would bring about a fourth straight nationalize the election? voter discontent. republicans would have to

nominate somebody who is really radioactive. it is possible -- i will not given to names, but it is possible republicans could nominate somebody of the goldwater strike -- and for the record, i was for goldwater and thought he was great. but 62% of americans didn't. it is important for republicans to nominate somebody who will be competitive on main street. not doing that could cost the house. host: would jon huntsman be in the main street christmas guest: i tell you why, because he would appeal to the swing voters and the middle of throad. i think he holds the base because i think again president obama you are going to hold the base. the animosy is there, and to the age where the administration -- their policies, the attacks on any republican candidate would help drive the bay's home. but there is a swing element in this electorate that one heavily democratic in 2006 and in 2008 -- it came back to the republicans in 2010, not because they like us but -- but because

we were the alternatives in the efforts to balance the budget. huntsman -- you look at his persona, he has a sweet spot in that set of voters. not a set of voters, however, who will be nominated but they are the kind who can give you elected. host: from this story -- can a republican moderates abide about -- about jon huntsman. guest: i think so but it has to be the right circumstances. there's a lot of folks out there who are not given choices the want in elections. if you take a look of the polarizing factors in american politics today -- number one, the parties are ideologically sorted. if you are a conservative today you are a republican. when you were growing up there were conservative democrats and liberal republicans. now the most -- most liberal republican in the senate is more conservative than the most conservativeemocrat in the senate. ideological sort thing which

means primary process dominated by more conservative democrat -- members. sendly, a very polarizing media -- c-span accepted. but if you watch fox and msnbc they are different planets talking to different constituents, opinion makers within the different parties. you saw, glenn beck was able to assemble 100,000 people on the mall. republican leaders did not do that. they are speaking to an electorate and giving them information and political leads lost the ability to do that. the same with the left with rachel madow and some of the spokespeople on msnbc. the third factor and almost as important is the fact with campaign finance reform coupled with the citizens united decision, the money has moved away from the political parties. that is what campaign finance did. but out there on the wings. moveon.orgs, club for growth, if you look at the special election in new york more money is spent

by intert groups and parties and candidates combined. that is in the future and that is a polarizing factor. parties are a centering force for american politics. but interest groups are not. we are wre we are -- this will be a good test. but huntsman as the pedigree, i think heould raise the money and it will be an interesting test. host: what do you think of your old speaker newt gingrich's ron? guest: off to a rough start. we love them -- those who work with them. toe to toe in a debate nobody is better. if you get him in a room with people and talk about issues of the day he has a sweet spot. we will see if he can recover. he starts out with more negatives than a lot of republicans. if you look athe head-to-head polling, huntsman is kind of the blanks late because he is not as well known. gingrich has engrain feelings about him and significant negatives. they could be overcome but he is

off to a tough start. host: if you do name names, who are the two most endangered congressman at this point? guest: you do not want to ne names. you can take a look at the districts that obama performed very well in the. if you have a high number of minorities in a presidential year turnout, that district is going to change its behavior patterns and be more difficult. let's look until redistricting is done and that will give you a bett feel. the last congress, it would not have been hard. joseph won a great race. he won because his opponent was indicted and convicted. we do not have that

circumstance. in theory, -- >host: have you had a chance to meet with reince priebus? guest: i have not. the money is now wit outside groups. a lot of these other groups are putting more money into this. host: this week for you, tom davis -- this tweet for you, tom davis -- guest: you can have a lot of ads going back and forth. there is a budget agreement that includes medicare. what worries me if the democrats win the special election in new york, i think they will dig in hard on medicare and be reluctant to deal with the

fastest growing program in government. bar with 41 cents on the dollar is unsustainable. -- borrowing 41 cents on the dollar is unsustainable. interest rates are going to bounce up at one point. it will bounce up with a vengeance. this is a serious problem and you hope serious members consider across the table and come to some agreement on this. host: tom davis is also president and ceo of the republican main street partnership. the first call for him comes from brooklyn, new york. caller: good morning. i have a question for you. i am very curious. the republicans have been portrayed as anti-women, anti- grandmothers, but what is very

interesting is you have been portrayed for the very rich and against the middle-class and against the poor. can you explain to me how you get elected? guest: let's look at new york city. some of the wealthiest americans live there. these areas overwhelmingly went for president obama. you get into some of the more middle n come precincts in new york, that is where john mccain performed best. some of the poorest counties in america voted overwhelmingly for the republicans for president, while some of the wealthiest counties in theountry, fairfax county, montgomery county, md., these are where the wealthy elites voted for obama.

the portrayal of the rich is just plain wrong when it comes to voting turnout. politics has been largely a cultural preference as opposed to economic preference. if you look at it the way it has evolved over the last 10 ars to 20 years, republicans are not all rich. it is just rhetoric. host: this street -- guest: that is a supreme court decision. you have the case which undermined campaign refor it defines free speech, and corporations get free speech as

to individuals. in the law that you consign has to get around supreme court decisions and is the law of the land at this point. the court defined freeze preach broadly. -- free speech broadly. unfortunately, you have a lot of people going back trying to work around these decisions. i think disclosure is the best -- right now, people can give large amounts of money and not have to disclose this. this was far worse than it was before you had mccain it-a fine gold. the bill has been decimated. they know now it was a mistake. it made the situation worse. it has empowered interest groups. some who voted against it -- it is a disaster at this int.

it is a constitional issue. host: tina tweets in -- guest: i appreciate that. that is a prevalent deal. i respect that. to let me give you an alternative. how do you resolve budget issues and the fact that we are borrowing 41 cents on the dollar? 10,000 people today are entering medicare. as my generation retires and becomes eligible for these benefits. if you do not change the structure in some significant way, he will not have medicare for the next generation. we can put our heads in the sand. politically, we know where the politics of this has been traditionally, but that is not where the country is going or where the budget deficit is going. you have to make these changes. if congress and the president

caot come together, keep pointing fingers, the bond markets will make the change for us and it will be hard. host: hi, bonnie. caller: it is strange when deficits only matter when there is theepublican nod in the white house. we had a perfect solution for medicare. instead of medicare part d, we should detonated -- created medicare part e for everyone because a larger pool would lower the risk. my healthy 24-year-old and i would've brought down the cost. instead, the solution is the same solution that republicans always seem to have -- let's privatize it. if you are 55, or under 55, you

can look forward to be given if dra voucher. of those with pre-existing conditions will very gladly give a 65-year-old with health conditions health care for the voucher that you are going to give. your solution for the health delivery system and our problems is ari operandi. guest: i was there and supported medicare part d. i am not particularly proud of that vote. we have to remember there was a competing bill that would provide a much larger benefit which i do not think we could have afforded. to me, it was the question of medicare part d or a larger entitlement that we could not afford at the time. we decided to have competition

that was more likely to drive down cost then to let the government negotiate cost. the government has not been a good negotiator when it comes to the private sector. we think the marketplace will do more for competition. if you take a look at the way it has performed, the deficits are far below what was originally projected by the congressional budget office and we think that is the result of competition. you real do not have competition. you have a third-party payer system. if you could shop and it was your own money, we think costs would go down and people would be more price-oriented. there is a doughnut hole in the bill. you cannot have it both ways. i think republicans have been terrible on the deficit just like democrats have.

they decided to try to come in with their stimulus package and the like and to put deficit up to an all-time high. faced with the overwhelming economic problems, that was their antidote. i think voters in history will judge whether it's at work or not. we can lk across the pond and see what other countries -- they are going in a different direction right now where they are attacking their deficit issues. time will tell. i ok back on this now and i do not have to worry about what anybody thinks except my wife. we are going to have to tackle this deficit, and the sooner the better. you cannot patchwork this. everybody is going to have to sit around a table.

republicans and democrats. it is a hair cut for everybody. hosttom davis served as a supervisor in fairfax county here in the washington area. last night, the president in boston said this. guest: again, i think it has to be shared. if you take a lookt the bush tax cuts, the wealthy part of that was less than 20%. if you really think there is a revenue issue, you probably have to spread its more than 2% and may be let everything expire or look at it more broadly if you really want to increase revenue at this point. it is easy to go after the rich.

this year, the irs anunced 51% of households paid no federal income tax. what is fair on this thing? if you over-taxed at the top level, capital goes elsewhere. rich people mover. you do not attract capital. you have to be careful. will we end up with an agreement where everybody pays more? probably. that is going to be difficult given the fact that a lot of members have signed tax pledges. we will see where it goes. going after the rich does not give you that much money. but we will see where it ends up. right now, we are at the rhetorical stage of this debate. we are an airplane flying into

the mountain, and we need to steer a different crse. to do that, both sides are going to have to go after their base. host: tom davis, if you were in charge of the national congressional committee, which democrats would to be targeting? guest: first of all, i would be focusing on redistricting. in indiana, theave picked up a seat. -- they have picked up a seat. you look at redistricting because the map is going to be completely different when this thing is over. they got rid of the low hanging fruit in the last campaign. instead of saying i am going to go after this democrat or that democrat, you do not look like what -- you do not know whether district will look like at this point. it is a little bit early to take

a look at which democrats we are going to target. host: the next call comes from san antonio, texas. caller: good morning. obama made a speech the other night, and everybody picks up on the same thing. shared sacrifice. government employees that do nothing in the formation of wealth. the only format deb the private sector seems to format all of the wealth around here. how do you sacrifice if it always has the be the private sector that has to sacrifice anything? guest: federal employees right now -- there is a five-year pay

freeze. the obama administration has put a two-year pay freeze on this. i think everybody gives on this. if you are taking a look at your governmental employees and your cancer researchers, scntists, he won the best people you can get in these jobs. you do not want to take the dreg. to do tt, you have to pay them and treat them appropriately. the reason we have what we have is we have layer after layer of reporting requirements and the bureaucrats that congress are the ones who have authorized these and put them on. many times when we have a crisis we add a new layer of government. he won the best and brightest people going into government. -- you want the best and brightest people going into the

government. our greatest asset was not our buildings. it was not our computers. it was our people. we understood to be successful in information society like we have today you want those people coming back every day. you have to appropriately incentivize them. they are your food inspectors, your safety psonnel, your faa people in the tower keeping to save on your airplanes. you want to pay people well that are doing their job. given the budget deficits we have, shared sacrifice means federal employees, tpayers, everybody has to come to the table. we have let this deficit go on and on and on to the point where there are no easy solutions and nothing that is politically palatable.

they are going to have to step forward and take some risks. there is nothing wrong losing an election if you are there trying to do it for the right reasons. that is what we get into public service. host: have you ever lost an election? guest: no. host: the next call for him comes from fort worth, texas. caller: thank you, guys, for taking my call. there is no question that the spending on medicare has to be addressed at some point in time in the near future. however, wouldn't it been more politically advantageous to the think theys if the perso focused on was national defence? that is what we spend the most on in our government.

we have military bases all around the world that have nothing to do with national defense. guest: if you go back to the 1960's, which were spending over 60% of our budget on national defense. now it is only 20%. that has gone steadily down at this point. its basically congress's budget. the congre and sometimes uses the department of defense as a jobs court. when you take a look at entitlement spending, entitlement spending is almost three times what it defense spending is, 2.5 times anyway. you have to look at everything. defense spending is not going up at the rate that entitlement spending is. the reason why you want to start addressing these changes is because you have 10,000 baby boomers a day retiring becoming

eligible for these programs. if you lock in 15 years from now which will not give you immediate savings but at least make the out-year projections more palatable, people will be able to make arrangements in their lives and in their retirement plans so they know what they are eligible for. if you make the changes very quickly which some other countries have had to do, it becomes more draconian. that is why it is important to address the medicare and social security. from a cash flow point of view, soci security is now generating deficits. we are going to have to address these issues. a medicaid has to be addressed. so, that is a huge burden on state governments. what we fnd is that is

crowding out money for education in state budget. when you take a looat federal pensions, veterans, interest on debt, medicaid, medicare, and the social security, almost two- thirds of the budget we are spending on retirees. we are not spending it on research and development or infrastructure. our global competitors are focused on the future. they are not investing in the past. we look over our shoulder and we are no longer going to be number one. we are not investing in the future. we are running huge deficits that are going to cost us. host: this tweet coming in for you -- guest: you know, we are not tea partiers.

i think the thrust of what the tea party is looking at, i think we all share that. the teap party has done a service to the country by identifying the national debt as an issue. people usually are not looking at the future. i think they have done us a huge service in addressing this issue and focusing on this issue. they are in pretty an eclectic group of people that are out said the box and recognize that it needs to be a coalition and not a private club. we have pro-life, pro-choice, some very strong conservatives, and we have some that have links to unions. we are main street. we are not wall street. host: the next call comes from chicago. caller: [unintelligie] --you just lose some people.

listening to you and knowing about your politics, you have progressed from that. when you say that, you just lose some people. anyway, tom, you all missed a golden opportunity. does make some sense, however there was no agreement to raise revenue. you cannot talk about cutting programs that hurt a certain segment of society without saying at least raising taxes on revenue. i think you all missed that opportunity. guest: that is aood comment. what shared sacrifice is is fferent to different people. the ryan plan does talk about

closing some of the loopholes. there is going to have to be a revenue component. i think those that have looked at this recognize that. i love goldwater. he would be considered very moderate today and libertarian. he was also president of the -- a member of the naacp in phoenix. it was a different time and a different era. as i like to tell my class, you had a higher rcentage of republicans to vote for the civil-rights act in 1964 than demoats. it passed with republican votes. the vast majority of the filibustering was from democrats. that is history. parties have involved a long time from that. host: where do you teach?

guest: at george mason university. i teach a three-hour class once a week. i also have to do with me and jim grant. we get to go at it in the class. host: have you talked to paul ryan or john boehner? how are they both doing? guest: i think they are both doing great. this is not easy stuff. you have to give paul writing credit for attacking a problem. people will probably tell you that medicare is an issue that we have to address. people recognize that it is an issue. to his credit, he came out there with a budget proposal. the challenge for the administration is to come out

and saying here is the way we would address it, said across the table from each other, and at the end of the day if nobody is happy with a, at least you have addressed the problem. we cannot agree on energy policy. weave not had a good energy policy in 30 years. we have not solved the issues along the border and what we are going to do because people are afraid to take a tough vote. just kick it down the road. i will tell you this. if we do not do it, the day is going to come when markets react and things start going downhill very quickly. everything the government is doing will hurt the private sector.

where were you guys? i was on c-span trying to sound the alarm. host: give your impressions on scott walker and the recall election. guest: it is goi to be very interesting. they have basically been a cultural. this puts a big fisher with your blue-collar union workers and sympathizers. for the record, mass. the did something similar without a scratch. it was more collaborative and less confrontational. wisconsin did not have collective bargaining forublic employees until 1959. for the first time, they come in and reward their base. in virginia, we do not have collective bargaining for any public employees. federal employees have fewer rights and collective

bargaining. if it is such an outrage, the president and congress can try to change it. it is not what you do but how you do it. they were itching for a fight, and it is going to be bloody. host: are you done with electoral politics? guest: i am done with electoral politics. it is going to be an interesting race. they have some solid attributes and some solid bases. allen's problem is going to be northern virginia. in a presidential year turnout, the turnout is going to be ver high in nova. the minoriti are going to turn

out very, very high and will be overwhelmingly democrat. northern virginia is a hodgepodge of people from all over the world. it can be pretty affluent. they are a base for many caribbean and hispanic voters. they are swing voters -- korean and hispanic voters. in the urban areas, it is where allen will have to center and hold down the margi. host: who are some of the senators? guest: i could go back to rorschak. you have to go back a ways. voters make up their minds, it is tough to come back. on t other hand, tim kaine was the democratic chairman.

i think he is very intelligent guy who would be a good campaigner. host: "roll call" this morning -- guest: the dynamics are different. you have an economy now -- last time, the republicans are owned it and you were in an economic meltdown. you were coming off of the republican president whose members were in the high 20's. obama at that point at 8221 spending aantage. it is a different dynamic going into this next round. these tend to be referendums on the president.

if he gets unemployment under control, and continues for policy, let's face it, the osama bin laden killing has helped his foreign-policy, giving him a little bit of a boost that he did not have before. it is going to be the economy, peter. it will be a referendum on that and to a lesser extent of who the republicans match him up with. if the republicans need to do what they have to do, it will not matter. if things are in bad shape, there may not be anything he can do about it. host: we have about five minutes left with our guest. indiana, james is a democrat. caller: i have a question. you talk about entitlements and social security. social security had a lot of

money before the guys like you starting giving i.o.u.'s for social security. we take ery year and borrow $6 billion. we pay intest on that $6 billion. we give that money to israel. they bring it back and we pay the interest. that is absolutely ludicrous. their income is $2,000 a year more than spain. they have free health insance. why don't we wised up? nobody has the nerve to stand up to them. guest: it is not going to solve your deficit problems. you can make the aument that we are spending money abroad that we should not be. everything needs to take a hair cut including foreign aid. look, what was happening is you

are generating more revenue through your taxes than you are paying out in benefits. what do you do with that money? do you put it in a shoebox? the government ended up borrowing that with treasurys. we are having to pay it out of current account. when i left congress, social security was dinner and $100 billion a year in surplus money -- one unless congress, social security was paying out $100 billion a year in surplus money. what it has done to your current accot and your budget is you are paying out what you are taking in. i've fought for a lock box and a lot other issues to put a fence around that so it would not be spent on other items. that i what happened. i was also there for the signing

of the balanced budget act in 1997. we had four years of surplus. i did what i could. i appreciate the call. i think he is a part of the problem. peter, everybody needs to take a haircut on this. it is a shared sacrifice. these are tough issues. io not think you can pass a balanced budget of any kind unless there is a feeling of a shared sacrifice. that is the problem of doing it piecemeal. it is not a sure thing. you look at where the retirements are and the fact that 22 democrat seats are up. i think they can pick up three or four seats. nothing isutomatic. " we have seen -- what we have

seen, elections where people are going one way or the other in block because they are not happy with anybody. traditionally, when presidents to get reelected, congress gets reelected. 1972, nixon carried 49 states. the year due but uaid an incumbent, democrats picked up senate seats in that year. you take a look at 1984, virtually nothing in that election as well. host: what happened in to the fore with president bush? didn't he poughkeepsie to in the congress? guest: they picked up three seats but five of them were texas in his district. basically, it stayed where it was. but i am talking about massive

landslides. these were huge republican landslides that did not bring in republican congress's. regime changes, 1980, 2008 -- those intended to bring in the coat tails. there are exceptions. kennedy was elected in a very close race. we could have a lengthy discussion. by and large, if voters are happy, they re-elect the president, the reelect the congress, they do not ge the president what he wants. mitch daniels would be an excellent president. he is the total package. intellectually, from an experience point of view, he is the anti-obama in the sense that he is not charismatic. but he is on performance and has done very, very well in the

indian act. he understands the budget, foreign policy, a very class guy. host: this tweet -- guest: the texas budget has its own issues right now. i think the governor is taking himself out of the presidential consideration. texas has a a dynamic economy. ifou take a look at job growth in this country, but it has huge budget is used right now. i don't think he is interested. host: tampa, you are on the air. caller: it is like a breath of fresh air to listen to you. the republicans have become so extreme over the last several years that it just makes me crazy to hear how they are not reasonable. they shun science.

if you care about the climate or pollution, they try to make two out to be crazy. -- they tried to make you outo be crazy. it is an issue. we are not allowed to even address it as republicans. guest: we ough to be looking at these issues. republicans have a different way of addressing these issues. instead of cap and trade, there are other ways to address these issues. the epa started under richard nixon. i think we got a bad rap on that. both parties are to some extent just a collection of interest groups. we joinhe parties to advance their interests. sometimes, the interest groups speak a little bit louder than the party as a whole, but i

think there are a lot the republicans who are interested in the environment. and what we are always nervous about boris huge mandate that do not make any -- what we are always nervous about our future mandates. these are conversations worth having. the inability of republicans and democrats to get across the table and say we have a problem and to argue the thing out and come up with a solution. instead, they read their talking points and kick the can down the road ando on to the next issue. if there is wanting to take away from this morning, i would say we cannot continue to do that on the buet cycle. time is running out. nobody knows if it is tomorrow, or three years from now, but we 10-yearave a five-o- or span to get this figured out.

it is not easy. everybody is going to take a hit on this. host: finally, this tweet -- guest: nothing. ron paul brings a lot of energy to it. ron is out of the traditional mainstream of were the party is. i enjoy serving with ron in the house. i find him to be very engaging and intellectual on this. one of the few members to vote the way that he wanted to vote. party leaders could not twist his arm. i found ron pollack refreshing and i consider him a friend -- i found ron paul refreshingnd i consider him a friend.

mitt romney is the front runner right now. but it is a long way to go. front runners get attacked,

>> good morning, everyone. i would like to ca our meeting to order this morning. and i would like to thank all of our witnesses for joining us this morning. particularly, our witnesses on the second panel who are going to be bringing real life testimony to the issues that we are looking at and reviewing this morning. as many of you know, this week is national small business week. president john kennedy started this tradition in 1963 to recognize the contributions of small businesses to the economic vitality of our country. the following year, president johnson awarded the first small businessman of the year. i underline the word businessman of the year, to mr. berkeley

bedell. he was from spirit lake, iowa. he was president of berkeley company, a manufacturer of fishing lines. his business was started in the bedroom -- in his workshop, while he was still in high school at the time. president johnson said that mr. bedell represented millions of american small businesses, who as st. paul wrote, were not slothful in business but fehr vant in spirit. that would be romans 1211. while times have changed since then, i believe it's still our responsibility as policy makers to lift up these entrepreneurs that are not slothful in business but are fehr vantn spirit. that's the purpose of today's aring. we want to recognize the 27.2 million small businesses in america that are struggling to recover from the great recession. more specifically, we'll hear from our federal government, how our federal government is implementing the small business

jobs act passed last year with the help of many members of this committee. this legislation has been touted as a single most important piece of legislation in decades for small business. let me just mention a few other things and i recognize senator shaheen who is here for her opening statement in just a moment. i do want to put a few things into this record. last congress, the 111th congress, the committee heard compelling testimony from small business owners from across the country struggling to keep their lights on, their doors open and stretching to keep valuable employees on the payroll. many business owners could not yet conventional bank loans. others saw substantial reductions in their existing lines of credit. still others had cutting edge products but did not see an opportunity to contract with the federal government. the results were alarming. since 2008, small business firms accounted for between 64 and 80% of all the net job losses in our

country. that is beginning to reverse. we're excited about that, and we'll hear more about that today. to address these issues, i'm proud to have led the senate efforts to enact the small business jobs bill of 2010. the bill was signed into law by president obama on september 27th. the jobs act provided many things. support to small business in many important ways. providing 12 billion in immediate tax relief. increasing access to capital by increasing sba loan limits and establishing the small business lending fund and strengthening core programs of the small business administration which resulted in more money for counseling services for small business development centers, increased export opportunities and provided a more level playing field for small busisses looking for opportunities to contract with the federal government. first the jobs act included multiple tax cuts effective for 2010 that provided incentives

for small businesses to make new investments in property and real estate and expand their operations. for example, small business owners who bought new equipment in 2010, the jobs act included enhanced expensing provisions that allowed the immediate write off of the first 500,000 of tangible personal property and up to 250,000 for certain investments in real estate. also, for the first time ever, self-employed business owners could deduct 100% of the cost of health insurance for payroll tax purposes. in my me state of louisiana alone, there were over 234,000 self-employed individuals eligible for this tax break. altogether, the bill included over 12 billion in tax cuts for small businesses at a time when they needed them the most. next, the job acts focused on th major hurdle limiting small business growth.

thatas the lack of access to capital. in particular, the jobs act continued, vital programs from the american recovery and reinvestment act which spurred lending to small businesses. it eliminated the bowers fees, increasing the federal government guaranty on sba loans from 75% to 90%. at the time r bill passed, these provisions had already supported 30 billion in lending to more than 70,000 businesses since 2009. the extension of these recovery act provisions in our bill allowed an additional 1,500 businesses to receive more than 750 million in loans. in addition, the act permanently raised the maximum loan size from sba's two largest programs, and the maximum 405 loan size from 1.5 to . 5.5illion.

these were extraordinary accomplishments. in addition, the treasury department was tasked with implementing two new programs designed to support private sector lending to creditworthy small business. the small business lending fund makes billions of dollars in capital available to roughly -- which is several thousand healthy community banks in our country. we'll hear more about that today from mr. don graves and from the honorable marie johns. this partnership could leverage billions of dollars in additional lending to small firms. treasury has already received applications from 700 banks for roughly $10 billion. that's encouraging. we're makingprogress. let me say just a few more things. the small business credit initiative whi was pushed by several members of our committee, much to my joy, will support at least 50 billion in

new lending by strengthening state small business programs. i know senator hagen is going to be particularly happy, because there are really wonderful opportunities that will be shared today from that part of the country. under the jobs act, key hancements were made to enhance and improve sba programs. as we know, only 1% of small businesses export, with 95% of the world's consumers outside of the united states, it's important that this committee took the opportunity to strengthen our export programs. we're going to hear some testimony today about how that is working. our bill improd sba export financing programs by significantly increasing the maximum size of export loans a by expanding the network of sba export finance specialist that counsel exporters can help th

underwrite the loans. it created a state trade and export program which provides 60 million in grants in states to bolster their programs. in closing -- let me say one other thing before closing. in addition to all of the things that i mentioned, this bill also increased enhancements to the small business contracting program. the federal government has over $500 billion a year available for purchases of goods and services. we're opening up opportunities for small business, women-owned businesses, hub zones and service disabled veterans to participate in that ogram. in closing, i just wa to highlit a couple of provisions. i give you one example in closing, of how this specifically worked for a business in louisiana. baker sales is a small business that operates in louisiana. it's operated for many years.

when the construction slump occurred, it saw its sales drop by 20%. when the deepwater horizon explosion happened and the moratorium was put in effect, its sales were lower. they had been in business 30 years. they imported steel products and so them within a 2000 mile range. they wanted to export but it was simply a pipe dream. last march, however, they received assistance from the regional director of the u.s. commercial service staff in new orleans to travel to panama to identify potential clientses. baker sales lacked the capital to make these investments. when the collateral and collections were in panama, they couldn't enforce, in the event something went south on this, but with this new program, baker sales received $3 million from a 7a loan that helped them to secure the contracts in panama, expand their export

opportunities and give them a path forward out of what has been a very difficult economic time for them. they've hired two additional employees and they expect to expand sales in the future. so today, we will hear some additional success stories like baker sales. i'm proud of the work that this committee has done and we're going to get some testimony from our key witnesses about what more we can do to improve the outlook for small businesses in america today. let me turn it over to my ranking member, senator snowe and then we'll receive opening statements from senator shaheen as well. >> thank you, chair landrieu, for holding this hearing here today to examine the implementation of small business jobs act of 2010. i think it's fitting that we would be exploring the implementation of this legislation at a time which is coinciding with national small business week that highligh and celebrates the accomplishments rightfully of

our nation's nearly 30 million small firms. now perhaps more than ever, we will rely on small businesses to lead us out of our continued economic problem as they have done time and time in the fact. i appreciate the fact we have small business administrator marie johns and deputy assistant secretary don graves for updating us. i especially want to thank our small business witnesses for offering their perspective as well. as ranking member, i certainly know firsthand, there's no more urgent emperative than job creation. our nation has endured 27 straight months with unemployment at 8% or above. last month, unemployment once again reverted to an unacceptably high 9%. we cannot allow these persistently high levels of unemployment to become the new normal. it is essential that we focus on bolstering our economy and creating jobs.

the best way to spur economic growth is to empower our nation's small businesses. whether reducing regulatory burdens, increasing access to capital, supporting pro growth tax policies or encouraging exporting, we must continue to seek ways to create a better climate for small businesses across the country. it is with this in mind that we developed a framework for the jobs act through a series of small business bills. the act includes as the chair as indicated many of the committee's long standing priorities. for instance, increasing the maximum loan limits for thesba, 7a and micro loan programs. it expands export technical assistance and trade promotion. it includes tax measures like those to permit general business credits to be carried back five years and taken against the alternative minimum tax. unfortunately, i had serious misgivings about the treasury small business lending fund that was included in the legislation

on the floor. i was particularly concerned by congressional budget office wanting while analyzing the lending fund with the most comprehensive methodology, it could cost taxpayers more than $6.2 billion. furthermore, lack week, the treasu inspector neral's office issued a report on the implementation othe lending fund which you suggests that the program is tepid at best. according to the report, treasury expects to distribute only one-half to two-thirds of the authorized $30 billion. as of april 18th, only 626 lending institutions out of more than 7,000 nationwide had applied to participate in the initiative. only $9.2 billion in funding had been requested. moreover, thtop recipients, otherwise known as the troubled asset relief program, requested 64% of that the.2 billion. these institutions would

essentially be paying off one taxpayer funded credit card t.a.r.p. with another in the form of the lnding fund to obtain lower interest rates without restrictions like those on executive compensation. the report revealed that t.a.r.p. recipients are not expected to get much additional capital beyond their t.a.r.p. investment balances, placing in doubt how much new lending will actually take place. so this begs the question, isn't this lending fund proving to largely be a t.a.r.p. refinancing program? it's obvious, been demonstrated that there has not been great interest in the initiative and i know the administration is extending the deadline for applications from march 31st to may 16th of this year. i would like to explore that with you, mr. graves, concerning those issues. while i clearly have concerns with the lending fund in particular, i hope that we can have a constructive dialogue with respect to its implementation but also the outcomes occurring with all the other initiatives incorporated

in this legislation that ultimately became law last fall. i'm eager to hear about the desired effects of these initiatives because it is critically important in e final analysis to ensure that we have the efficiencies and the effectiveness of these programs and th they are producing results. we've got to turn this economy around. we've got to create jobs. i know we created 244,000 jobs last month. but we have to continue at that rate for every month for five years in order to achieve the prerecession levels of unemployment of 2007. i think that that underscores the challenge before us as a country. that's why many of these initiatives in this act, i think, are going to be very good in terms of working in that direction. we have to make sure it's done well and it's implemented efficiently so we can achieve the results more immediately than otherwise is being felt on main street in america. i want to thank our witnesses here today. i want to thank the chair for

convening this hearing. >> senator aheen. >> thank you. chair landrieu and rankg member snowe for holding the hearing today on the implementation of the small business jobs act. it's fittinghat we're doing it during small business week. the jobs act was a very important effort to help small businesses that create two-thirds of the jobs in this country. we all know there's more work to do because too many small businesses are still struggling with access to credit. i unfortunately can't stay to hear your testimony, but i did want to raise two issues that i hope you will address. first of all, both senators landrieu and snowe have talked about the export provisions in the ne legislation. in new hampshire, we think those are critical. we've got to give small businesses access to international markets to help them grow. and i think new hampshire is one of the 53 states that has

applied for funding through the state trade and export promotion program, so clearly, there's a lot of interest, and i think the role that sba can play in coordinating the export efforts across the federal government will really be critical. the second provision that i wanted to call your attention to has to do with the 504 refincing provisions. my understanding is only 20 loans have been approved since the passage of the bill, and these are provisions, as we all know, that will be very important in giving businesses access to working capital. so anything that can be done to help facilitate those loans, i think, will be very important. so thank you very much for being here. i look forwa to reading your testimony, and hope you will give real consideration to moving on those two provisions.

>> okay. why don't we go right into the testimony from administrator marie johns and mr. don graves. >> good morning. chair landrieu, forgive me, ranking member snowe and shaheen and members of the committee. as has been cited a time or two, this is national small business week, it's a week we empower small businesses that drive our economy, keep america competitive and importantly create jobs. the sba is hosting a three day conference here in washington, d.c. where we're honoring small business owners with awards. small business persons, chair landrieu of the year, and more. these small business owners and others like them have gotten a big boost from the small business jobs act. since the passage of the jobs act in september 2010, the sba has worked hard to implement the

many provisions that affected our programs. the jobs act affected all of sbab's largest programs including our support for access for capital, small business contracting, counseling and training and exporting. some of these provisions were quick fixes a easy to implement. others take more time, but res assured that sba is working diligently to implement every provision as soon as possible. to begin with almost immediately, the agency began making loans with a temporary increased guarantee and reduced fees authorized by the jobs act. this helped us put $12 billion in loans into the hands of small businesses at a time when they needed that lending support more than ever. second, the jobs act also raised limits on our loan sizes from $2 million to $milli. this increased size will help manufacturers, exporters and other small busisses. for example, great falls marketing in auburn, maine received approval of a $2.6

million loan for purchase of an existing business. they anticipate creating 80 jobs as a result. the jobs act contained 19 provisions making it easier for small businesses to compete for and win more of the $500 billion federal contracts awarded each year. for instance, the law reaffirmed the equal treatment or parody across federal contracting programs. this meant when awarding contracts that are set aside for small businesses, contracting officers are free to choose among businesses owned by women and service disabled veterans as well as businesses participating in the hub zone. the sba quickly implemented the repeal of the competitiveness demonstration program which will help small sinesses compete for contracts in areas such as construction, landscaping and pest control. third, the jobs act also provided funds for counseling and training which included $50 million in grants for our small business development centers

aroundhe country. all of this money is out of the door and going to fund innova innovative funds such as regional innovation clusters and support for young entrepreneurs. the fourth way the act is helping small businesses is through increased support for exporting. the jobs acted raised the size limits to $5 million and export express loans to $500,000 that also made the export express program permanent. and chair landrieu already has cited the great success of baker sales in louisiana as one of the examples of how these tools have been put to use by small companies and creating jobs. at the same time, sba is reviewing and evaluating the first year proposals for the trade trade and export promotion grants pilot which will fund $30 million to state programs this year to increase exporting. as we implement provisions of

the jobs act, we have continuously sought input from small business owners, lenders and other stake holders. the sba's jobs act tour visited ten cities with three more planned in the very near future. at each tour stop, top officials are sharing information on how small business owners can take advantage of the jobs act as well as talking with them about what works, what we can build on what needs to be improved going forward. the response to the jobs act tour has been overwhelmingly positive. in the surveys conducted after each tour stop, 92% of the respondents felt they had a chance to give input to the sa sba on its programs. 94% of respondents learned new, valuable information about sba programs and 95% of respondents thought they would be able to use the information they lrned to help their business. we had over 1900 attendees thus far and are expecting 2600 at

the end of the tour. thank you for this opportunity to discuss the small business jobs act. i'm happy to take your questions. >> thank you very much. mr. graves? >> good morning, chair landrieu, ranking member snowe and other members of this commtee. thank you for the opportunity to be here today, along with my colleague, marie johns. i'm grateful to discuss our efforts to create the opportunities for small businesseso thrive. sml businesses are vital to our economic growth. small firms employ approximately half of all americans, and are responsible for two-thirds of net job creation. that's why supporting the economic conditions in which small businesses and entrepreneurs can thrive through improving lending conditions, tax incentives has been and will continue to be a top priority. the administration also recognizes the unique hardships faced by small business today. through no fault of their own, these businesses have borne much of theurden from the financial

crisis. in the aftermath of that crisis, small businesses have been faced with aa cycle of decreased customer demand. with no other options many have been forced to downsize and lay off workers. to help them recover, last september, president obama signed into law the small business jobs act, the most important comprehensive piece of business legislation in over a decade. certainly the both of you in this room were inrumental and thank you so much for your work on that. i commend you for that work and we're excited to continue to implement that legislation. since the bill was signed into law, treasury has been hard at work implementing two of the programs crucial that were part of that small business jobs act. the small business lending fund and the state small siness credit initiative to help small businesses access affordable credit in order to expand and create jobs. the jobs act contained eight small business tax cuts, part of 17 small business tax cuts the

president signed into law that provide additional tax relief to help small businesses invest and create jobs. at treasury, i oversee the state small business credit initiative and lending fund. the credit initiative is a $1.5 billion credit program to support lending for small businesses by strengthening capital access programs, loan guaranty and loan participation programs. and other innovative small business initiatives. as a result of the financial crisis and state budget shortfalls, many of these programs have been cut back at the moment they're needed the most. the state small business credit initiative was intended to help reverse that trend. as a result of the good work of my treasury colleagues, 48 states, the district of columbia d all five territories have notified treasury they intend to participate in this program. we've received 13 applications from states thus far that would collectively leverage over $3.2 billion in lending to small

businesses. treasury has approved allocations to north carolina for $46 million and california for $169 million. and their programs have utilized the fundso increase lending to small businesses in those states. allocations for vermont and missouri have been approved and missouri reports that applications to its state small business credit initiative program, state run venture capitafund has totalled $50 million exceeding the fund's initial capacity. additional approvals for hawaii and indiana were announced earlier this week. the second program i oversee is the small busess lending fund, providing capital to institutions with assets over $10 million. it provides capital through treasury purchases of preferred stock or debt instruments from each bank. since banks leverage the capital, the small business lending fund will increase lending to small businesses in an amount that is multiples of the catal provided to

participating banks, helping to expand and crete new jobs. the interest rate banks pay to treasury helps incent them to lend to small businesses in need of financing. the rate will be reduced as the bank increases its lending to small businesses ensuring the benefits only go to banks that use capital to extend additional credit. i'm pleased to report, we've received 02 applications and total requests for $10.1 billion in funding. we expect to complete these in the next few weeks and complete the fundings in june. we believe the fund will have an impact towards small business lending across the country which will help create jobs and grow the economy. we're looking ahead to identify and address challenges facing small businesses that will be important to overcome to build a competitive economy. in march, treasury co-hosted a

party that had business leaders and academics to draw additional attention troubles facing small businesses, reducing barriers to their success and find new ways for the private and public sector to work together. with that, let me thank you again for the opportunity to be here today and reiterate how appreciative i am of this committee's work and the commitment to america's small business. i'm happy to answer any questions yomay have. >> thank you very much. we'll have a first round of questions by the members. we've been joined by senator cardin from maryland. we appreciate him being with us this morning. before i want to get into the questions, i want to submit things for the record that i found quite encouraging. one is a document i received about a couple of weeks ago from the vistage confidence first quarter report. it's the largest survey of ceo. this is a for profit company operated for many years.

they polled their members that represent businesses from 5 million to 50 milln, some are smaller, some are larger, that's their average member basically. the wonderful outcome is that % of these ceos stated that compared to a year ago, overall economic conditions in the u.s. from their perspective have improved. 54% of the ceos expect the firm's total number of employees will increase during the next 12 months. 47% said the best way the government can help create jobs is expand access to capital. and 76% anticipated their firm's sales revenues will increase. i wanted toubmit that to the record. i think that is one evidence - one piece of evidence that suggests we're moving in the right direction, although we have many challenges ahead. the second is a document about

the unemployment rate. i think that it's important for us to understand the facets of the unemployment rate which we don't always by just talking about the averages. but the rate for individuals 25 years or older is only 7.6%. it's higher than we would like, but it's 7.6%. interestingly, unployment rate for workers with a college or graduate degree is only 4.5% in our country today. unemployment rates for high school is 9.7. with some college or an associate degree, it's 7.5, but unemployment rates for workers with less than a high school diploma is 14.6%. while this committee can lower the unemployment rate by the work that we do, passing laws and new programs and policies, to help get small businesses up

and operating, some of these challenges are structural. in terms of how ts country is either investing or not wise in the workforce to provide them the skills they need to create jobs. so while i will, as chair of this committee, take a good bit of responsibility to end this recession, i would suggest that the cmmittees of education, the committees of health and welfare and education have a similar challenge in bringing these numbers down. i think that the administration understands that and it's why they have a broad array of programs to end this recession, not just small business bills, but we're doing our part. let me start with the question to you, mr. graves, because as a strong supporter of the small business lending fund, which is a new and innovative approach, 700 banks have applied. that's less than about 20% of

those that are eligible. as you know, i intended for all the community banks to be eligible but we've run into some difficulty there because of some restrictions in parts of the law. however, about 3,700 c corporation community bankses are eligible, yet only 20% have applied for funding. that's about 600 banks. one way to look at it is that's 600 banks more than there was a year ago that have access for money to lend. can you explain why treasury has not made your investment decisions yet? when can some of these banks anticite receiving the green light from you all? there are several in louisiana that are actually quite excited about this opportunity? can you shed some light on this for us? >> we have worked very quickly to try to get these two new

programs that treasury is implementing under the small business jobs act up and running. we worked expeditiously. we have a very strong team we've put together to stand up these two new offices within treasury to get these programs off the ground. i think it's important to remember that while we're moving as quickly as we can on those programs, it's important and in fact you requed us to ensure that we balance both the speed with which we get the programs implemented with the need to ensure that we're making prudent investment decisions and protecting the taxpayers' dollars. so we have instituted a fairly robust, very robust system of reviewing potential investments, ensuri that every institution that applies meets the eligibility criteria that we then consult with federal banking agencies and in some cases the state regulators when appropriate, and then treasury

performs its own individual assessment on the financial standing of that institution and its aability to participate in the program. once we make our approval decision, we then will let the banks know and they will be able to close within 30 days of receiving that approval. we have conducted a signifint amount o outreach with community banks all around the country. wee conducted more than 30 webinars, teleconferences across the country. we have a dedicated web page and a call center with our small business lending fund team. we talk th community banks all across the country every day of the week. we look forward to announcing our first round of funding very soon. in fact, i expect within the next few weeks, we will be making those decisions for the institutions and we will be getting some closings beginning in june. >> okay.

i'm going to ask you, not right now, but in a few minutes, your response to some of the gao report findings that just came out on this program. but let me ask marie johns, mrs. johns, if you could put the chart up, the 39 programs that were either created or enhanced under the small business jobs act of 2010, most of them are completed by your agency, and you were the implementer for this, i understand, and most of them have been completed. but there are two particularly, there are 28 provisions that have been completed. that's 72%. nine provisions in the process of being completed and two provisions that are not complete. the two understand that are fought complete are the export assistance centers and one on contracting policy. can you comment on why the delay on those two particular programs? or do you have any comments about that at this time? >> yes, chair landrieu.

thank you for the question. i also want to thank you for your leadership on the small business jobs act and to rankg member snowe, we greatly appreciate your support. many of the provisions that made their way into this act. export -- overall, i'm ver proud of the way that the sba has moved forward to implement the provisions. we took this role very seriously, because we know that small businesses were waiting for these critical tools to be in their hands so they could grow their businesses and create jobs. as far as the export provisions are concerned, a lot of work has been done. very shortly, we will be naming a new associate administrator for the office of international trade. individuals have been hired in additional trade counselors have been hired in two of the usiacs around the country.

the process is ongoing and there's a requisition out for additional hiring. that process is well under way. we have provided reports to this committee regarding travel and other -- >> the contracting policies seem to be slow in being implemented. >> the contracting policies are -- first of all, one of the primary contracting policies that the bill advanced was the clarification of parody, regarding parody, that provision in the bill immediately gave contracting officers across the government clear signal, clarified rule so that they had a much more available at their hand in order to meet the government's 23% contracting goal for small businesses, because as you know, prior to the small business jobs act, there was confusion about owur programs lined up, but the

parity issue in the small business jobs act resolved that so that was an important provision under contracting. as far as other of the contracting provisions in the act, as you know, the contracting process is not immediate. that is not a process the sba owns and we can't stand up those new provisions on our own. weave to go through a process through the federal acquisition council and it takes time. we are moving apace. many of those provisns are poised to become effective in the very near future. >> thank you. my time has expired. senator snowe? >> mr. graves, with respect to t the treasury lending program, first of all, the 702 institutions that are now participating in the program, how many loans have actually been issued? >> we've actually not made investment decisions on any of

those 700 institutions that have applied, so no loans yet have come from capital that comes out of the program, butart of the -- the deadline for this program was september 27th, and we expect that all applications that meet the eligibility criteria will have been aapproved by september 27th, so we'll get those dollars out the door to the community banks so they can do the business of supporting small businesses. >> so it would be this fall, i mean when small businesses could actually receive the actual dollars? >> that's a good question. we believe that, beginning within the next few weeks, dollars will begin to go out the door to community banks and that those banks will en lend based on the incentives based on the small business jobs. >> based on what i was saying in my opening comment, ultimately

what it suggests is that there's going to be minimal new small business lending that you can actually -- very few new institutions will be participating in the program. in fact, as i understandit, it's only about, i think $3 billion that would represent new institutions. only $3.3 billion. is that true? >> you know, it's a good question, because a number of people have asked that of us as well before. it's important to remember that this legislation -- that this program is not a t.a.r.p. program. i just want to make that clear at the outset. any institution that meets the eligibility criteria, regardless of whether they are a t.a.r.p. institution or a nont.a.r.p. institution is eligible to apply and participate. the other thing that i would say is that th isn't a program to

assist cpb banks. in fact, there's no opportunity forn institution to decrease their interest rate without increang the amount of small business lending that they do. >> i guess the threshold you're using as a standard, they only have to increase it by 2.5% i mean essentially. they can exchange, you know, what they're receiving under t.a.r.p. for this at a lower interest rate, and they only have the increase their small business lending by 2.5%. that's just a minimal increase frankly. you are replacing one with the other. the objective isn't to assist the t.a.r.p. recipients but the net effect is that it is happening. so i think tat's the point here, is that are we ju turning over the same money now benefiting those who have already received, you know, a

great benefit from the united states government that we like to invite other institutions into the fray to expand the loan portfolios among banks and other entities that can issue these loans. i guess that's my concern, and i think it's one that needs to be addressed. from what i understand, is that the t.a.r.p. recipients seeking investments that exceed the remaining t.a.r.p. balances by only 10 to 30%, so it really does beg the question of how much new lending will actually occur under this program? if they meet the 2.5% loan increase in lending. >> i share your concern. in fact, no cbp institution will get to an interest rate of 1% unless they increase their lending to 10%, just like any other institution that participates in the program. the program was really meant to, as i understand it, to increase small business lending.

it's really to t capital out to small businesses all across e country. >> the question is how that happens. i'm just not -- from what i'm understanding, it's not exactly happening with the maximum effect? that's the problem here, because of the perverse incentives it's created in the program. for example, you know, from 2008 to 2010, lending institutions, small business lending declined by 9.2% to $652 billion, the second lowest since 2005-2006. the latest index shows that small business lending in march of this year already increased by 12% compared to a year ago. you're using an exceptionally low benchmark, four quarters, june 2010 to incentivize banks when in fact the small business lending is already occurring

without this program having been implemented yet. that's the problem. >> would you like me to answer? >> yes. >> i think it's important to remember that the baseline that was set in the legislation was do so because it was really oking as a means to increase small business lending from where we were as you suggest, just last year at the low water mark in recent years. if institutions were given a baseline that was significantly higher, those institutions would not participate in the program. so what we're trying to do is incentivize banks to increase their lending, giving them all the tools at their disposal. giving them the capital they need so they can get the dollars to all the small businesses around the country that are looking for capital. >> just a follow-up. i know my time expired, but if they have maintained the 12% trend that's already occurring,

they can lock in on the interest rate of 1%. that's the point. that's the incentive for them to transfer from one program to another, the t.a.r.p. program to this progr. >> thank you. >> let me thank senator landrieu and snowe for this hearing. one of the most important responsibilities of this commtee is oversight. it's one thing to pass laws but it's another sure those have th intended effect. i know that's sometimes hard work for the committeeto do and applaud our work of this committee. the legislation, the small business jobs act had many important provisions. . i was a little late getting here today because i was attending a conference from our small business centers, development centers on export activity. and that was one of the major issues in this legislation. and we're making some progress on export activities. we also had tax credits, i think

it's important for us to understand how they're working. but the first point that's been mentioned here, this bill was aimed at proving access to credit. we need to get better answers. this was a major initiative. some of us would've preferred this money going into direct loans. and we were told, no, this is going to be the incentive to get the community banks more interested in making loans to small businesses. and this was a large commitment to federal resources. so we need better answers. we need to know how much is getting out there. i'm a little disappointed it's taken this long. many of us thought this would get out a lot quicker and there'd be more interest. so i just want to support the questions that have been asked by our two leaders. we need to have better information to this committee as to how this program i working. and the question senator snow asked as to whether this is just what would've happened and we're

giving incentives that community banks are not needed or whether we really have leverage of new activity. it's a question we need answered. so i'm going to askur leadership here to follow up and make sure we get information in this committee to make sure that we are accomplishing what we intended to do. i want to talk about another part of the small business jobs act. and that was to improve government opportunities for small businesses. i helped draft a provision in the small business jobs act that requires federal contracting officials to complete small business training before receiving certification. there is a real concern as to whether the procurement officers in our agencies have a bias towards existing relationships with contractors, mainly large businesses, to the exclusion of opportunities for small businesses in our community. and that this committee wanted

to do something about that by requiring that the contracting officers have greater sensitivity to the -- not only the letter, but the spirit of our law to engage smaller companies. there was also a second prision added that requires reports to congress dealing with better known disadvaage businesses. can i ask either of you or both of you if you can give us a status as to how the implementation of those provisions are working and how you intend to comply with your requirements on keeping us informed as to the progress being made in regards to those targeted small businesses? >> good morning, senator. we are also grateful for your support of this important piece of legislation for our small businesses. our government contracting organization works regularly with contracting officers across

the federal agencies, we meet on a regular basis, monthly, actually. in addition we have a senior level effort focused on contracting and ensuringacross federal agencies that at the deputy secretary level that those individuals are aware of what the contracting goals are across the different certification programs that the sba manages. and they understand how their agencies need to organize and to ensure that information flows so they are also able to focus on meeting their particular goals for federal contracting. >> are they bringing the employees in responsible for train sng. >> yes. we are working with the federal acquisitions institute and the defense acquisition institute to develop a curriculum for contracting officers that will be an enhancement to the training work we're already doing on a regular basis. >> and wt is time frame for being able to implement this training curriculum? >> within the next few months.

>> can you be more specific? >> probably in the september/october time frame. >> and will all contracting officers be required to go through this training? >> yes, that is the -- >> how long will it take for the contracting officers to be able to get the benefit of this new curriculum? >> senator, i don't know the end date. we've not established an end date. the focus has been getting the curriculum in place and getting the training. and we have a commitnto the training as long as it takes. >> i think my office and i think the committee may also be interested in reviewing the curriculum you are changing and the time schedule for contracting officers in which agencies you anticipate being the first and the time schedule necessary toet all contracting officers up to speed. >> certainly. >> with this new curriculum. >> be happy to. >> and the reports to congress

that are required, i take it you'll meet the deadlines and get us information as the specific progress being made with better known disadvantaged businesses. >> yes, senator, we will. >> one more question, getting back to credit. there was a second part initiative other than the sba guarantees, we also provided funds to state gornments who had programs dealing with credit. i know what's being done in maryland, but i would ask our commite be kept informed that you provide to us the specific activities that have been generated by states as a result of the additional resources made available to federal level -- my reason for asking that, madame chairman is following up on senator snow's part. i'd like to see if you could the relative activities generated by our partnerships with the states versus the additional money so we can see where we're getting the most activity for the resources. so if you could make that information available to us, it

tells us where we need to put our attention. >> i thank you. senator, you raised several excellent points. and our next panel that will have specific information about how those state programs are working. but i want to remind everyone that one of the reasons we couldn't do direct lending is because of the strong opposition from the minority party. they would not approve of direct lending from the sba. so in order to get money out to small businesses with that not being an option, the only option we really had was to work either with state programs, regional programs, or the community banks. so we will see. we've crafted something, we hope it works. we're not sure it will. that's what this hearing is about. i myself as a lead architect of this bill are interested to see. because there were different views on both sides of the aisle, we didn't have all options available to us, but we did the best we could. t me ask a question and we'll

go through a second round and get to our second panel. one of the things i was most interested in. and i'm not sure we were able to be successful, was giving some relief for debt refinancing for the commercial real estate section. we wrote a section in the bill entitled small business access to capital trying to provide some relief refinancing. our understanding, however, is that there has been minimal usage of this program. we're hearing from banks that the rules that are written which we think might be much more narrow than what our law intended is not helping to provide the relief that we had hoped for. so mr. graves, do you have any comments about this particular section? or ms. johns? >> yes, senator. i'd be happyo respond. the 504 commercial refinancing initiative was a new program for us.

and in every instance with a new progm, we're always balancing two key objectives. that is getting the program into the hands of small businesses as soon as possible, but also ensuring that we are delivering the program in a way that ensures we're good stewards of the federal resources. and sohose are the objectives that we were balancing as we rolled out the 504 re-fi. once we put the initiative into the marketplace, we also are constantly gauging how the market is responding. and in the case of 504 refi, it became clear to us that we needed to take a second look at -- pardon me, opening up the provisions of the 504 re-fi to include more businesses, and that we have done. we have made a mid-course correction. the comment period on the change has just closed. we made sure that we contacted all of the industry assiations and talked with them and we're in close contact as we were

developing the mid course correction. and so we're very -- we're looking forward to getting the new 2.0 version of the program in place. and we're sure we'll see some -- >> because this is very, very, very important. many, many, many small businesses have seen, of course, the value of their buildings that they own or their, you know, commercial collateral basically decline. but they still have fairly strong balance sheets. and a refinancing opportunity could really help them. and if it's done correctly, it will work. and if not, it's going to be another missed opportunity for businesses out there. and contribute to the spiralling down of this market. so again, our committee can't do everything in this regard. but this is a very special initiative. please keep us posted as to how. and if the it's the language of the law that's preventing you, i wod be open to some modifications. but hopefully you can take the

language as it was written and implement the rules so it actually works and people can take advantage of it. and one more question, then i'll turn it over to senator snow for her second. let me see. the jobs act we talked about this, but it's worth repeating again. the state trade and export promotion grant pilot program, can you provide the committee with an update on the status of this program. specifically how many of the 56 eligible states have submitted applications for this particular program. >> yes, senator. i would be happy to do that. we have received applications from 53 of the 56 eligible. and in fact, as we speak, there is an inner disciplinary team of reviewers o are meeting at the sba. theyave been there all week. we compile a team of folks from around the agency to bring various expertise to the review process.

in addition, we also sought out reviewers from other federal agencies. so we have a reviewer from xm bank, from the department of commerce because we wanted to have the strongest possible team. so they're hard at work this week and intend to complete their work by the end of the week. so we are very eager to make these selections, get these proposals, the proposals back out to the states. >> just finally as i turn it over, i want to be very clear that i agree with the senator that the oversight of this committee is very important. we've tried instead of sitting he here, we've tried many different things. we're noin the process of evaluating, what works well, what's not working, but you can't stand still in a situation like this and do nothing. you must move forward aggressively. so we've started new regional programs, export proams, partnerships with our community

banks. we did everything but direct lending because we were blocked from doing so. but we could potentially revisit that later on. but let's see what's working. and then make the adjustments as we go forward. but getting capital into the hands of main street businesses, not businesses on wall street, not big multicorporations that have many ways to access capital, but main street businesses remain our goal to drive down these unemployment rates and provide opportunity for the american dream. >> may i make one mment in respse? i just want to assure the members of the committee that at the sba we share your sense of urgency on that and the notion of constantly looking at how the programs as we get them out into the hands of small businesses, we are constantly looking at how those programs are being received and what tweaks -- what mid-course corrections we need to make. as we did in the 504 re-fi we ted quickly toward that. i am out, i'm traveling

regulay -- since the first of the year, i've been to over half of o regions talkg to hundreds literally hundreds of small business owners asking them abouthe small business act. we've had a smallusiness jobs act tour, 13 cities planned, we were down to the last two cities. we are out and about talking regularly to small businesses and seeking their input on how we can do -- what we're doing better, how we can make these programs work more effectively for them. so i want to assure the members of the committee that we share your sense of urgency. >> we appreciate the effort. and we're going to be looking for some verclear results as the weeks and months unfold. setor snow? >> thank you, chair landrieu. just to follow up on the issue of direct lending. the administration opposed direct lending, as well. essentially dinot want to become a bank. a big difference between guaranteeing loans than it is to write and be directly involved

in issuing those loans. in fact, there's an article right here that "new york times," today is march 10th, wh won't the sba lend directly to small businesses? it's an indication that the government would have to stand up in his words a massive bureaucracy and it'd take too long, you'd be frustrated. there's a point to legitimate issues there in direct lending. and in any event, i think the point is here now is that we have to get into the oversight issues and to make sure that this program is working. i do have strong concerns about on the t.a.r.p. side. and i've already indicated that to you. one other issue, i've introduced a bill on a couple of issues concerning the lending program, but one i wanted to raise with you today because you may already be addressing it is that my bill would prevt the treasury from issuing a loan to any institution that has been deemed by its regulator to be unhealthy.

that entities regulator. what would you be doing in that regard? do you get reports? how do you evaluate those who are seeking loans under this program if their regulator deems them to be unhealthy. you're not prohibited from continuing to issue those loans. >> thank you for that question, ranking member snowe. we share your concerns about ensuring every investment made in an institution is done so in an institution that is healthy, that has the financia wherewithal to increase lending to small businesses. in fact, as i mentioned at the beginning, we've implemented a very stro and robust system of reviewing every application that comes from a community bank. each institution has an initial eligibility assessment performed by the treasury team. then we conduct a consultation with the federal banking

regulator of the institution. in some cases where it's appropriate, we conduct a consultation with the state regulator, as well. and then treasury has its own internal investment team that conducts a separate, independent analysis and evaluation of each and every one of those applications that comes back to us from the federal banking regulators before we make any decision to make an investment in a community bank. really what we're trying to do is make sure while we're trying to get these dollars out the door and support small businesses, we want to make sure that we make prudent investment decisions and do our very best to protect the american taxpayer. >> thank you. >> thank you. >> administrator johns, one of the issues i wanted to explore with you some expressed interest in increasing the loans. it would crowd out sll borrowers. what's your response to that? i know that according to the most recent data, 60% of the

agencies, loans have been under $150,000, and over 80% have been under $350,000. it appears the small ans have been growing faster than the larger loans. but can you comment on this issue? because clearly we want to make sure tt smaller entities -- smaller businesses are having access to these loans. and it looks like it's certainly possible that it's occurring. but i'd like to hear comments. >> actually, there is no indication of crowding out effect. in fact, i'm sure we have shown you data that there was a major spike inending at the end of the year. that was as a result of the fact that there was much pent up demandor the 90% guarantee. so there was a lot of activity at the end of the year. that spike was not due, pardon me, to the larger loasize. in fact, our data shows that

really just 3% of our loans are in the larger loan sizes between the $2 million and $5 million. and that has been very consistent over the course o time since the passage of the small business jobs act. so the notion of crowding out effect has not at all occurred. >> that's great. also as you know, the loan guarantees, we reduce the borrows, fees, and lender fees, and that's not goingto reoccur in this economic climate. do you think that will discourage lending at all? i mean, you think it's going to have any affect on loans? >> well, certainly that was -- those were initiatives that were very well received by the market. but we are still continuing to see general uptick in loans. and the other reality is that the small business needs for capital are not monolithic. yes, we have businesses that need the higher loan limits,

which is why it was an important provision in the jobs act. but we als have small businesses who have reacted very ll to the increase in microlending. so we have businesses who need -- small businesses need capital across the spectrum from the relatively small dollar loans in the microlending space to the small $5 million available through the 7-a program. so what we are charged to do as an agency is making sure we're looking across that spectrum and continuing to identify gaps that may still exist and to keep this committee apprised of that and to seek your help in addressing those. >> thank you. >> thank you. >> senator? >> thank you, again. thank you both of our witnesses. and i didn't mean to get into a debate on direct loans. but if i might just point out two points. first, sba does make direct loans in emergency situations. number two, when there's a 90%

guarantee of the sba loans, in other words taxpayers in line for 90% of these loans, seems to me making it 100%, we can have direct accountability when you're dealing with a third party bank, it's much more difficult for us to get the results that we want out quickly. that was my point on it. but i am very proud of the small business jobs bill. and i really do congratulate senator landrieu. i was at caucus meetings when you're trying to get floor time, and there's no stronger advocate on behalf of smaller businesses and doing our work and senator landrieu. and it's notasy to get the floor time to get the bill passed. and this is a major bill, major new tools available to help small businesses. and we're very proud of this bill. but our responsibility's oversight. and to make sure that every dollar made available is used to the maximum advantage to create jobs. and that's through small businesses.

and i come back to procurement. and i know i represent the people of maryland. and because of maryland's location we have a lot of government agencies located here. and we have a lot of small businesses that depend upon government procurement. so it's of great interest to the people of maryland. there has been documented abuses by agencies. and one of the things we've been able to do in this committee is to support the sba and give it the tools. it was this committee -- i serve on the budget committee. it was a directresult of senator landrieu and senator snowe's efforts that we are able to expand the budget. and that gave the sba the tools so you could be the advocate for small businesses within the administration. we know agencies at times want comfortable relationships who they're alreaddoing businesses with. so they bundle small contracts could be given to small

companies into large contracts which only large companies can compete. and we want you there fighting on behalf of small businesses saying, no, don't bundle these contracts and elbow out small companies from being prime contractors. because we know in the prime contract subcontract relationships there are abuses there also. better off to get small companies really into the game. so we do put a lot of confidence in the sba being there as the advocate on the behalf of small businesses taking up the fight in the cabinet room and within the administration. so the curriculum you're developing for training we see as a major step forward. and i just urge you as you implement this law that you bring in the small companies and listen to their stories as to their experiences with the department of defense or with the department of agriculture, all the agencies of government. because there are horror stories out there as they try to get

through the mine fields of getting their fair share of the procurement work of government. so i appreciate your response as it relates to the curriculum, training sessions, et cetera. but it's also going to take the sba as an advocate to fight. in the relationships they have with large contractors where we've got to get small business in the door there. thank you, senator cardin. i have to say to you, i couldn't agree with you more about the importance of the sba's role as the voice of small business. we take very seriously and wear very proudly that mantle of being the advates of small businesses within the government and beyond. and as far as my personal commitment, i've been involved in small business issues long before i have had the honor to serve in this administration in this role. and i'm a local person. and a lot of pple have my phone number. so i'm regularly taking phone

calls on a saturday. people stopping me at church, small business owners. i know a lot of them talkg about issues and giving feedback on how our agency can work more effectively. so believe m you have my 150% commitment. and that's why i do make it a point of talking to small businesses whenever possible. we've got to know how these programs are really playing on the field and so at we're prepared to make adjustments as we need to and that's what we do. >> thank you. you're going to be getting more calls. i'm looking at six i picked up this morning. >> hand them over. >> i'm taking this case work myself. so i'll be contacting -- >> we'll be happy to come to your office d get you an update. >> thank you very much. and the contracting of small business has no stronger advocate than senator cardin. and thank goodness for him. i thank you. i have one question, but i'm going to ask for a response in writing about the tax pvisions in the small business lending

bill to treasury can supply this in writing. when will you be able to provide an analysis of whether small businesses were able to take full advantage of the tax prisions in the bill? i know that some small businesses have not yet filed their returns and do a delayed filing in october. but i'll ask -- i'll submit that to you and you can respond in writing. >> we'd be happy to do so. >> thank you all very much. i appreciate it. and we'll move to the second panel now. thank you. as they are moving to save time, let me begin introducing our second panel. we'll be hearing directly from small business owners. from their view and perspective how this new bill is helping them or providing opportunity. 'll also be hearing from the association of the self-employed, and the vice president of a rural progm from north carolina. so first, let me introduce eric

blenderman, a founder and owner of a highly rated new york city restaurant. he's currently constructing with the help of an sba 504and a second raund. restaurant. so we're looking fward to hearing his testimony this morning. this association represents the interest of america's smallest businesses. employing themselves. one person. she is a new yorker. and finally, patrick woody, vice president for north carolina's rural center. at the rural center, he oversees capacity building programs in the area of infrastructure, business development, workforce development. we're very interested to hear

this morning mr. woody, howne of our state programs that many of us supported so whole heartedly how it's working. >> thank you, chairman, members of the committee for inviting me to testify this morning about issues pertaining to implementation of the small business job act of 2010. to understand, i think, how the small business job act has impacted main street and specifically my restaurant in new york city, i think it's important to get a little bit of background around where my restaurantame from. it's a small business success story that was conceived initially after the tragedy of september 11th in new york city. and those trouble times, my business partner and i turned our attention from grieving to reconstructing. i was then a 27-year-old kid focusing on financial models, preparing the business plan, otherwise taking the business

sidesteps to turn our broad ideas into reality. the chef, of course, focused on the artistic side. i went to the place that had the money, banks. i would leave my day job at my law firm, go to the teller at hsbc, chase, bank of america, you name it, in my best business suit say to the teller i was a small business owner, here was my partner and we were looking for about $500,000 to open up a restaurant in new york city with no experience, no capital, and nos a sets. fortunately afr being turned away by just about every bank up and down manhattan, wall street, 5th avenue, 6th avenue, you name it. i persisted with a consortium of other banks, one called the new york business development corporation. the purpose is to provide creative underwriting solutions for non-traditional lending risks. the category into which we

clearly fell. because of the relationship with the united states small business administration and conventional bas, they were able to mentor me through what was a complicated and difficult sba lending process. but th their assistance, i was able to procure a $500,000 sba 7-a term loan, a $50,000 small business development loan, and was able open and construct. in terms of public/private rtnership, the lending packa worked exactly as designed. my partner and i used funds to renovate a restaurant that had gone bankrupt as a result of september 11th and nvted it. now more than seven years after opening, we employ approximately 35 individuals, generate hundreds of thousands of dollars in city, state, federal tax revenue every year. of course, all good stories must come to an end.

but from our small business, that ending is unclear because despite our successes, our continued existence is bounded by the terms of our commercial lease. which has less than three years left before it expires. more over, despite my best efforts to arrive with business terms, we have not been able to extend that lease because of various economic conditions that the landlord has placed as a condition of lease renewal. enter the small business stimulus package of 2010. the small busines stimulus package of 2010 was initially put to vote in july of 2010, which was around the time that the chef and i had located an alternative location within which to either open up a sister restaurant to my current restaurant or to relocate my current restaurant should the time arise that relocation is required. about that time, i began approaching the nybdc once again

to request financial assistance, not to lease the property, although the property was available to lease, but to purchase it outright. to attain what i call a forever home. that place that i would have the ability to sit there and manage my business in perpetuity without ever having to run the risk of being thrown out from my place of establishment because of rent increases, other conditions, or various other provisions which could attach as a result of a leasing relationship. and unfortunately, i was told by the nybdc that although we were a credit-worthy business and we were qualified to obtain lending through various programs, the sba's lending limit of $2 million prohibited us from purchasing that property outright or conducting our expansion plans. in addition, the sba informed me that the requested fancing package was going to resultin a total of nearly $60,000 in lending fees, which for a small

business like a restaurant owner is a very large sum of money. notwithstanding the nybdc courted aggressively, many lenders, citibank, hsbc, and others, and we ultimately decided oncitibank, which was the recipient of troubled asset funding. and were able to obtain to permit construction. broken down in the form of a 504 sba loan, $1.5 million from citibank, and a further 7-a loan in the span of $420,000. the importance of this expansion to my business cannot be understated. the sba 504 program has allowed me to buy this outright. because we work on tight margins, we would've never been able to purchase this property but for the existence of the small business stimulus package.

cond, the collective terms will result in my restaurant paying thousands of dollars less a month than i currently pay in fixed costs for my existing restaurant. most importantly, we are in the process within the next 90 days of hiring 65 new people to staff and run my new restaurant. importantly, these benefits do not just appeal to me as a business owner, but the city and state. in addition, each of my 65 anticipated employees will pay federal, state, and local taxes and contribute their fair share to social security, medicare, medicaid, and related entitlement ograms. payments to the hundreds of food vendors, beverage, and other vendors who serve my restaurant which include locals and others provide additional revenue for local federal and state.

these have begun accruing despite the fact we are under construction as we're using our funds to employ dozens of architects, electricians, plumbers, and dozens of others. it should be measured by the cash flow and profitability. i believe the same metrics should be used to utile the small business package of 2011. as businesses tak advantage of this, this committee should analyze whether they're contributing to economic expansion, creating new revenue streams for government entities, and repaying their debt with interest and without deult. if on balance the net sum of loans made to the stimulus package of 2010 achieves these objectives, i think the united states will have benefitted great through from it. i'm confident we will meet these objectives, and i'm grateful and thankful for the passage o this bill. thank you for your time this morning and i apologize for having run slightly over. >> that's okay. with a testimony like that, you can run a half an hour over your time. it's music to my ears to hear

how helpful our efforts have been h h h h you and your restaurant. but i want to say h extraordinarily pleased i am that you took your time to come to this committee to share your story of fighting so hard to create a business in the united states of america. i c only say it should not have been that difficult. and i can only say how tragic, shameful, and ultimately destructive it is when a gentleman with your credentials, which i want to read into the reco. you then graduated with distinction in international law from the university of oxford, yet as you testified you went to every bank on 5th street, 6th street, and beyond to try to get a loan to start a business and you were turned down. so my question to those listening is if a gentleman with a degree of distinction from oxford can't get a loan from the united states banking system,

how is it possible for 99% or 100% of the kids that i represent or young people in the state of louisiana who don't go to oxford. how is it possible for them to start a business? that is why this committee presses the envelope for new and innovative ways to get capital into the hands of young americans who we spent millions of dollars literally educating, but yet our system falls so short on giving them the opportunity to start business. as long as i chairhis committee, we're going to continue to push open this door. >> thank you, chair, thank you, ranking member, and members of the committee for allowing the national association for the self-employed to testify here today on behalf of our 200,000 members and the 22 million self-employed americans worldwide. we're here today to talk about

the implementation of the small business jobs act. and the next steps we must take to improve and expand upon the vital benefits it offered to america's smallest businesses. with the current economic dialogue so focused on jobs, it's important to note that our members and the 22 million americans that are self-employed are not solely temporary freelanc workers between permanent jobs. it means you have created a job for yourself. self-employed businesses successfully provide for families, contribute to their local communities, and these jobs are just as valuable to the economy as anffice or a factory job. and these businesses are just as essential as their larger counterparts. despite accounting for 78% of all small businesses in the united states and collectively contributing close to $1 trillion every year,he dynamic self-employed community is too often misunderstood and underrepresented in the policy fashion for small business. our nation's lawmakers and regulatory agencies commonly

craft policy geared toward the tiny sliver of the business population that is corporate america. the narrow policy focus on the small percentage of businesses is why the small business jobs act was so crucial to our community. this legislation included key provisions that benefitted the vast majority of crobusinesses and provided much-needed bottom line tax savings to the self-eloyed. for years, the nasc has been working to allow a key disparity is the treatment of health insurance costs. the self-employed do not receive a business deduction for health insurance costs causing these businesses to pay more in payrollaxe than all other bunesses. with the passage of the small siness jobs act, the self-employed were allowed to deduct their 2010 health insurance costs from the self-employment tax on their 2010 tax return. what did thi one-year deduction mean for someone who is self-employed? based on the average hlth insurance costs out there in the

individual market, the one-year deduction in this bill saved self-employed business owners approximately $968 in taxes. and depending upon their cost of coverage, many businesses save more money. member michael kagan of maine is owner of m. kagan and associates, a self-employed biotech consultant. he saved in taxes due to the one-year deduction in the small business jobs act. and he used that money to reinvest in office automation and help grow his business. timothy doyle from louisiana, an electrical contractor saved $730 savings from this one-year deduction and put that money to pay for his next two months of health insurance premiums. and in this diicult economic time, this deduction in the small business job act helped business owners lower their tax liability or provided them with a substantial refund that could be used to reinvest in their

business. best of all, this deduction, though temporary put the self-employed, america's smallest businesses on the same playing field as other businesses for the first time. the question now should be whether we extend this benefit and how we better implement it for the future. the nac strongly supports leveling the playing field permanently. we undstand, though, in this difficult fiscal climate that an immeate permanent solution may be difficult to achieve. however, we strongly feel that this deduction should be extended at least for a two-year period. should an extension pass, we urge congress to encourage the irs to reink the approach in implementing this vital deduction. the method the irs used was very confusing and not the standard approach for a business deduction. they created a new line, line three in form 1040 schedule se, the form utilized to calculate self-employment tax to allow self-employed taxpayers to take

this deduction. it would be preferable and a lot less confusing to taxpayers to include this deduction on form 1040 schedule c in part two, which incorporates all business expenses. self-employed taxpayers had to carefully read the directions for a schedule to take advantage of this one-year tax deduction since deductions are not typically on this form. further more, because the bill was passed so late in the year, it left little time for the irs to prode guidance to stake lders and taxpayers on this deduction. an extension of this critical deduction for the self-employed community needs to be passed as soon as possible in order to allow the irs to be able to put this on the 2011 tax form and give stake holders the ability to educate business owners on how to take advantage of this benefit. in the current climate, policy makers on both sides of the aisle have been struggling to find ways to stimulate the economy while efforts have been notable and helpedome industry sectors, only the small business jobs act has helped america's smallest businesses.

america's self-employed have long asked for the same opportunistic seed as their larger counterparts. they seek no more than the same benefits that big business receive. so we encourage lawmakers to extend the key provisions in the small business jobs act. thank you. >> thank you very much. >> thank you, chair landrieu, ranking member snowe, and members of the committee for this opportunity to report to you on north carolina's implementation of the north carolina capital access program. i'm vice president of rural development programs for the rural economic development center. for more than 20 years, our non-profit organization has implemented sound chick strategies to improve the quality of life. typically, the rural center works in 85 of north carolina's 100 coties. the north carolina capital access program is the exception. at the request of north carolina's governor, beverly perdue, they are leading the statewide effort to spur new

business investment. while the state small business credit initiative offers states the flexibility of using their allocation to boost small business lending. north carolina has elected to invest its full allocation in e capital access program or nc cap. the rural center has a 14-year history of operating this program. in 1994, north carolina was one of the first states outside of michigan to adopt a cap program. enrolled 850 loans totally $103 million in creating or retaining more than 27,000 jobs. this was accomplished with an allocation of 3.6 million from state appropriations and other sources. today thanks to the small business jobs act. nc cap has been launched on a larger scale. they will receive $46 million that enable up to $800 million to over 10,000 businesses in our state. nc cap is a voluntary loan loss

reserve portfolio insurance program. eligible lending institutions, banks, cdfis and federally ensured credit unions elect whether to participate. the program allows the bank to mitigate the risk with the small business lending. for loans enrolled in the program the borrower and/or lender pays a fee of 2% or 7%. it's deposited into that loan loss reserve account. as more loans are enrolled, the reserve pool grows. in the event of a default on an nc cap loan, the lender may draw down the reserve pool to cover the loss. lenders are solely responsible for underwriting the loans and defining terms. loans may be used to buy land, construct, or renovate buildings, purchase equipment, or provide working capital. why does north carolina believe in this program? first, it's cost effective. for every $1 we invest, investor will tpically loan $20 to small businesses. second, it's non-bureaucratic.

paperwork is minimal and seamless to the borrower. not only do we draw upon our own experience, but more than 30 states have successfully operated cap programs. last december, north carolina joined michigan as the first two states to apply under the state's small business credit initiative. in february and early march, the rural center held 11 briefing centers across north carolina to roll out the program. these briefing sessionsrew hundreds of participants including banks, other lenders, technical assistance providers and small business owners. today, 26 lenders, including 23 banks, two cdfis and one credit union have enrolled in nc cap. these 26 lenders represent % of all branch bank locations in the state giving the program statewide coverage. another 15 lenders are in the process of signing up and we continue to recruit others. our staff has made face to face contact with each of north carolina's 130 banks as well as our credit unions and cdfis.

north carolina enrolled the first loan in the country usin the federal allocation. at this early stage, we have 16 loans enrolled, including loans for restaurants, logging, and air cargo business. we anticipate a rapid escalation in enrollments. and in the next three weeks, we will embark on a statewide publity campaign. thleadership of several important partners is noteworthy. setokay hagan who gave her support to this legislation, our governor who seized the opportunity afforded to our state by the state all business credit initiative, bb & t president and ceo kelly king who embraced and promoted the program to his fellow ceos, as a former chairman of our board of dictors, kelly was instrumental in bringing the progm to north carolina originally. we also appreciateur partners at the north carolina department of commerce and the sbtdc and in the state small business credit initiative office at u.s.

treasury. they've been very responsive to our needs and helping to ensure the success of our efforts. our state has suffered severe losses from the recent recession. now as we began to see signs of an improving economy, this new program finding its legs. it couldn't be happening at a better time to stimulate the business and job growth we desperately need. thank you. >> thank you so much. i'm so excited to hear about your success. and also senator levin was very instrumental having some experience in michigan, of course. so let me ask you this too, again for the record. what happened in north carolina between 2007 and 2011? did the program go away? >> the program did go away for a period of about four years.

>> and despite its success? >> well, despite its success, our primary funder had become the golden leaf foundation. and the real reason it went away was as it came time to raise the third round of capital for the program, their priority is investing in tobacco dependent and economically distressed counties. and about 2/3 of total loans were being made in the 15rban counties in noh carolina. and just their priority as a funder did not -- it did not meet their funding priorities. therefore, we did much to the disappointment of several of the banks that participated, we shut down the program for a period of four years. we began looking early in2010 as this opportunity looked like legislation was taking place that might include a provision like the state small business credit initiative. we started looking very early on at this as an opportunity to start to restart nc cap on a much larger scale. scale was one of the issues with

the earlier rogram. we had a very small amount of capital. banks are very reluctant to -- even though it's a great tool, it works very well for them. it's difficult to get banks to invest heavily in a program if they're not sure how long it's going to be around. the authorization if the staff will remind me for our program is five years for this? what is our authorization? five years. so we hope that will give you some stability for the start- of this. and we are really going to be looking at how this works. because we are just desperate, literally, to find models that work for people like mr. blinderman who couldn't do more in terms of what america expects its young people to do other than going to school, graduating

at the top of their class, getting the extraordinary degrees. yet, when they go out to start a business, there's no capital for them to start. and we wonder why this recession is, you know, why we're having difficulty putting in our rearview mirror. so we're trying it all. all of the above. and i'm excited about the program in north carolina and potentially we could have a field hearing there at an appropriate time to really showcase what you all are doing. and we're anxious to hear what miigan is doing, as well. let me ask, you testified you're happy for the smallest businesses in america to be on a level playing field with the largest. and you realize the financial constraints that we're under. what do estimate it would cost to try to put these small businesses on an equal playing field? what are the most recent estimates? and do you have any suggestions about how we might step into that over time for the record?

>> you know, beguagain, this one-year tax provision was a good start. it will allow us to see the efctiveness of this deduction. again, it's up to the business owner to take full advantage of the deduction. i do think we would get better utilization if the irs more effectively implemented the deduction as mentioned putting that deduction on schedule c where all other business expenses currently lie. there are 23 million self-employed americans who qualify for this particular tax benefit. and again, in ter of qualifications, they simply have to be self-employed, schedule c filer, and they have to purchase their own health coverage. so anyone who meets this qualification should take advantage ofhis. in terms of cost, this bill, you know, we for years have promoted legislation to address this inequity permanently, and the bill has been scored at $2

billion to $2.5 billion a year over ten years. again, it's in complete correlation to the number of self-employed people out there purchasing tir own health care. so the smaller the number of self-employed out there purchasing health coverage, the less people qualify for the deduction, the more people qualify for the deduction which would address how much it costs. but again, at the end of the day, why is it okay for the smallest businesses out there to pay more into the tax, you know, more in revenue, more in taxes than larger businesses? why is it okay that a large business gets to deduct their health care costs that workers of large businesses gets to pay for those health care costs with pre-tax dollars, but someone who is a one-person business, self-employed, who needs the most assistance has to pay more in payroll tax than anyone else. it's a fairness issue. and in this economy, that money is even more important because every little bit counts. >> thank you. and finally, mr. blinderman,

your story is exactly what we had hoped for when we passed the small business bill. could you restate for the record what you think your business in terms of its contribution to the local economy, in terms of taxes that you're paying employees. you mentioned something about suppliers. would you state for the record the far reach of your successful small business? >> i think to answer that question, it's best to understand the model of my existing restaurant. currently we have 35 employees, and we generate over $3 million per year in gross revenue. of that is fully taxable as income as an llc pass through to all the owners and investors of the restaurant. in addition, all of our 35 employees are paid on the books in the restaurant industry, people are aware that often times tpped employees are paid out in cash each night, that don't happen. everyone receives the cash that

comes in each night or credit cards, it's deposited to the banks, funneled through our payroll company, payroll taxes are deducted, medicare, medicaid, social security, our payroll averages between $23,000 to $28,000 per week. translating those numbers into a bigger restaurant that will employ more people. our projected revenues nservatively if we're able to meet our numbers would generate anywhere from, again, $3.2 million to $3.7 millionore revenue, which would be fully taxable by federal, state, local authorities. in addition, if you take the $23,000 to $28,000 we spend in payroll each and every week, you can effectively double that and perform the calculations to determine social security, medicare, medicaid, and other entitlements which will be deducted in addition to other taxes.

i think most importantly, though, are the trickle down effects for our suppliers and vendors. it is built upon a model of sustainability and organic cuisine. which back in the day before it was a buzz word has been open for seven years. we source all our ingredients as much as possible within 150 miles of new york city. farmers who wouldn't otherwise be able to meet the new york restaurant environment, fisherman, growers and others, it's a revenue weill nsistently transfer over whetr we're buying meat, poultry, fish, or vegetables in addition to our wine purveyors, and our other vendors, our glass purveyors, cloth purveyors, our laundry needs, and all of the various her entiti that go into servicing a full-service fine dining restaurant. so that's the benefits th i think one can expect. and those are the benefits already achieved at mas

farmhouse, which again, was a success story. >> thank you so much. and i want to submit for the record, i think that would be an excellent way to close. your time was very much appreciated. with a list of over 40 businesses. we could've filled this panel with hundreds of success stories of businesses just like yours and programs statewide and regional programs that are stepping up to respond to the new provisions in this act. so i'm going to submit for the record just a list of 40 businesses that we know of that have benefitted eight jobs, 18 jobs, 40 jobs, 10 jobs. and i could go through this list, hundreds of jobs created. but we're not going to rest on our laurels. we're going see what's working until this recession is in the rearview mirror. thank you all very much. we appreciate your advocacy on behalf of yourself and the organizations that you

represent. and this meeting's adjourned.

>> benjamin netanyahu will be in washington today. coming up next, arizona senator john mccain and then president obama talks about u.s. policy in the middle east. we'll continue the conversation on the middle east on this morning's "washington journal." some members of congress have threatened to cut aid to pakistan following suspicions that almosts of security forces may have harbored osama bin laden. today a discussion on u.s. relations with pakistan and the future of that country. it is hosted by asia society and the u.s. institute of peace.

>> the c-span networks provide coverage of politics, public affairs, nonfiction books and american history. it is all available to you on television, radio, online and on social media networking sites. find our content any time through c-span's video library. we bring our resources to your community. it is washington your way. the c-span networks, now available more than 100 million homes. created by cable. provided as a public service. >> next remarks from arizona senator john mccain on the u.s. role in the middle east. he talks about the death of osama bin laden and the situation in libya and syria. his remarks at the u.s. institute of peace are about 30 minutes.

>> we want to welcome all to our new home. we have been here just a little over two months now and we're just getting a feeling for some of the remarkable things that you can do in this space. this great hall has a resonance that i think has moved us all a great deal. i got to tell you at an earlier event, there was a children's choir up on the lower bridge there that sang chief justice william rehnquist mass choirs to the construction people who built this place. so we're just finding this is a remarkable piece of architecture. behind all of those drop screens, you can't see. we have a staff being paid overtime of course for the work they do.

the site of the navy's first observatory. back in 1996, i approached an undersecretary of the navy, richard dancey and inquired about whether we could build a facility at the site. the secretary said if the institute can keep us out of just one war, you will have more than justified the deal.

well, it is often hard to prove something you have prevented, but we do feel a deep obligation given use of this historic site in this dramatic architecture to fulfill our congressional charter, which is to focus on preventing, managing and resolving international conflicts by political means so so the deadly violence and war, not the outcomes of the many conflict situations which we know exist all around the world. in the years since the institute's creation in 198 4, we have become an active andive partner in many organizations and individuals in the peace building field. sthearnl includes the u.s. navy. today the institute is working on the ground in iraq and afghanistan.

our 70'ses are enabling american troops to redeploy while leaving behind more stable political environments thus saving lives and saving money in the process. we helped the two communities develop ground rules for greater collaboration even as we have supported navy relief operations most recently in haiti. the institute is active on the ground across the arab world working with reformers, political groups, nonviolent opposition, interfaith reconciliation and the promotion of justice. if there is nonviolent political

change as has occurred in tunisia and egypt, it pres the need to commit military forces as unfortunately we're seeing now in libya. again, an example where we can't say preventive action makes an obvious difference. these are just a few examples of the institute's applied programs. i don't want to take more time from our primary speaker but let me just say that too today's event is one of a series to honor our 61th secretary of state. dean atchison. why? a phrase we associate with him is present at the creation. he served the truman administration from the end of world war ii to the onset of the cold war. he helped create institutions

and policies that got us through decades of confrontation with the soviet union. the truman doctrine, the marshall plan and the onset of the nato alliance. today we're in another period of profound change and challenge in international affairs and we need wleersd the foresight and skill of dean atchison to help us create and adapt our institutions and policies to this new era. our keynote speaker today, senator john mccain's record of public service truly exceptional. he understands first hand, the

power, the uses and the limitations of america's military. he understands the importance of diplomacy and civilian support for peace building efforts. he understands the importance of political reconciliation as was so evident in his support for normalizing relations with vietnam. today one of our greatest foreign policy challenges is figuring out how to deal with the turmoil and political transitions now underway in the arab world. we're truly honored to have mr. mccain speak with us today. senator mccain. [applause] >> thank you. thank you. thank you, dick. thank you very much.

thank you for that kind introduction and thank you for this surprise of the -- it is always wonderful to see them and i think many of you may know i have two sons, one who is a navy pilot and the other who was enlisted in the marine corps and served in iraq, a tour of duty in anbar province. there is a certain amount of competition between the navy and the marine corps as you know. probably the best line i heard from my son jim who said you know, dad, the marine corps is part of the department of the navy. the men's department. [laughter]

conflict is directly relevant to and supportive of our men and women in uniform. i want to thank dick for acknowledging this event and my remarks tonight were planned in advance to have speech of the state department today. it is impossible to upstage any president, especially one as eloquent as president obama. so anyone who is tempted to see a conspiracy in this evening's program has a far higher estimation of my speech-making prowess than i do and a far lower estimation of dick solomon's estimation than is appropriate. i think i certainly got a nicer

venue. [applause] i'm deeply honored to have the opportunity to deliver the lecture. i'm a great admirer of acheson. as a career legislator, i'm not supposed to have any kind words for him. here is how he described his interactions with congress. he wrote, we learn to bear the irrelevant with more than patience as it ate up precious time. those who assert that i do not suffer fools gladly do less than justice for these anguishing hours. you know, a lot of things change, but some things never change. i'm especially honored to speak with you this year on the 10th

anniversary of the attacks on september 11 2001 and i'm very pleased that osama bin laden won't be around to mark the occasion. the president deserves the credit he is receiving for that superb achievement and i especially commend him for ordering a raid rather than simply turning bin laden's commound into a smoldering crater. that took courage. the president's decision spared many innocent lives. preserved an intelligence windfall and gave us the certainty that bin laden is dead. this is a major setback for the global terrorist movement. it is another recent development that could prove to be a real death blow. i'm referring to the arab spring. the massive uprisings for

freedom and justice that have swept across the middle east and north africa this year. perhaps the most remarkable thing about this movement, it is not about us. though millions of people have taken to the streets in protest, passionately, often filled with outrage, i don't care not recall seeing one american flag burned nor can i recall seeing one israeli flag burned. instead the demonstrations have been a demand for human dignity. in this way, the arab spring is a the profoundest refeud united nation imaginable for everything that osama bin laden ever stood for. it should also put to rest the claim heard over the past decade . unlike people everywhere else, arabs are not ready, not capable.

not fit for democracy. we didn't initiate it or leave its. the arab spring should be a clarifying event for the united states. it is now clear that in the decades since the september 11 attack the old regional order in the middle east has been in a steady state of collapse and now many of the last remaining pillars have either fallen or badly shaken. this should certainly give us pause. if history teaches us anything, it is that revolutionary moments like this one always have the seeds of chaos and conflict sewn within them and indeed, we can already see the dark forces of sectarian strife, religious radicalism, regional powers lurking in the background eager to exploit this hopeful moment for their own sinister ends. we cannot be paralyzed by this

change. instead, we must work to shape it. in the last few months, i have visited nine one countries in the middle east and north africa and the west bank. among the people i have met, there is definitely a degree of skepticism, even a certain amount of anger toward the united states. many of them believe that we stuck too long with the rulers they were trying to overthrow. but this does not mean that they want america to be neutral or non-aligned. to the contrary. they want american leadership and they want us on their side for their cause, but not dictating to them, but supporting them and assisting them. i believe this arab spring is the most consequential geopolitical event since the end of the cold war, perhaps since the fall of the of theman empire and it is an opportunity -- it is an opportunity for the united states to better align our

interests and our values in a region where they have often diverged. it is an opportunity to rebuild the bipartisan consensus that existed in this country just a few years ago, that promoting human rights and democracy in the middle east, it is not knowledge our moral interests, but also in our strategic interests. just as dean acheson joined forces were arthur and haven berg , supporting free peoples, this is a moment that calls for similar national unit. that is moment that we must clearly define what we stand for, not just what we are against. in short, this is a moment when america must lead. the question for us now is what will be the contours of the new regional order in the middle

east and how can we support our friends and allies in building it. i will submit to you that we should focus our efforts on four strategic objectives. the first is a peaceful change of regimes that to reconcile will be hostile to the democratic regional order that we seek to build. these are regimes that are incompatible with a freer, more peaceful middle east. at the top of the list is the current government of iran. it should be clear for all to see that the iranian regime has no plans to bargain away its nuclear weapons programs. furthermore, it is using this threatening pursuits to further hedge ambitions in the region. iran operates a network of terrorist approximaties and military intelligence forces that use every means to destabilize our friends, disrupt

democratic transitions. though the arab sprining is a repudiation of iran's goal, iran is doubling its efforts to seek chaos at this time. that is why our efforts should squeeze iran through the toughest sanctions we can muster and speed up the moment when the -- is able to peacefully change the regime and know they have our moral storr. in addition to -- our moral support. in addition to iran, there is syria. i know some have entertained the view that bashar al-assad is a reformer. at this point, with tanks torresing cities across the country, after people have been detained and disappeared,

signaling oppression from the rulers of iran and with the death toll closing in on 1,000 civilians, to believe that despite all of this, that bash santa barbara a reformer is an exercise in gross self-deception. lest we forget, this is a regime that has the blood of u.s. troops and countless iraqi civilians on its hands that serves as a main gate way for a reigning influence and weapons. that is a major state sponsor of hamas and hezbollah in the region. it is seeking to divert attention away from its own internal unrest by attacking israel's borders. for those worried about what might follow assad, i would just ask how can it be worse?

indeed, the strategic impact of regime change in syria could be enormous. it could blunt iran's reach. distinguish hezbollah's access to money and arms and reinforce lebanon's independence. we must do all that we can short of military action to help the syrian revolution succeed. i demend president from posting additional -- commend the president from posting additional sanctions. i would urge the administration to continue ratcheting up the pressure in concert with the e.u. and very importantly turkey. the president should also call publicly for bashar al-assad to go. just as he did with mubarak and gaddafi. finally, we must seek regime change in libya, which may not be the stated intent ornateo's military intervention but it is

certainly furthering -- of nato's military intervention. i would like to see a more decisive course of action. that's why i have called for getting america's unique strike aircraft back into the fight. destroy gaddafi's command and control. that's why i have urged the administration to recognize the council in benghazi as the legitimate voice of the libyan people and that's why i want to see a greater u.s. role in providing support to the opposition including money, and the facilitation of arms. in fact, my colleagues and i will soon finalize legislation to transfer billions of dollars in gaddafi's frozen assets to the libyan opposition. nevertheless, i still hear it said that we should continue the any of this because we don't

know who the opposition is and that they could be al qaeda. this is just willful ignorance. i visited benghazi last month where i met with the opposition. their prime minister got a doctorate at the university of pittsburgh. their finance minister was recently teaching economics at the university of washington in seattle. some are former members of gaddafi's government who broke with him when he began slaughtering the libyan people. others are lawyers, doctors, activist who is fought gaddafi in the courts. young libyan americans who have returned to help. if these people are al qaeda, my friends, then i am a liberal democrat. but one thing is for certain. the surest way to get al qaeda in libya is through a stalemate. ultimately, my trip to benghazi left me optimistic about the future of a free libya. an amazing experiment in home

grown civil society is occurring in the liberated parts of that country. media outlets and other institutions are being built from scratch. gaddafi has left the country little. much in the way of frozen assets more than $100 billion to pay for future reconstruction. all of this makes me hopeful that libya is well positioned for a democratic transition, which is all the more reason to increase our efforts to get gaddafi out as quickly as possible. as we work to support democratic revolutions in iran, syria and libya, our next objective should be to consolidate democratic transitions in countries where they have already begun. especially in tunisia and egypt. tunisia is where the arab spring started and that is strategically important for

democracy to succeed there. egypt of course is the heart and soul of the arab world. for egypt to emerge as a successful democracy would be a game-changer in the middle east. it would become the anchor of stability in a new kind regional order. not surprisingly, both tunisia and egypt have significant challenges to overcome in their democratic transitions. both countries have a huge amount of work to do if they are to hold free, fair, inclusive and competitive elections in a few months. the stakes of which are vitally important as a benchmark of democratic process. both countries are facing an explosion of political activity. tunisia now has 65 registered parties which will make it harder for secular groups to compete with better organized religious ones. finally both countries, and this is very important, are facing

serious short-term economic difficulties as a result of their revolutions. their tourism sectors have been shocked. when senator lieberman and i visited in february, we stayed in a huge hotel. they were the only ones there. similarly when i visited the pyramids a few weeks ago in cairo, the place was deserted. it is the economies of these countries that will largely determine their political fortunes. expectations in tunisia and egypt are sky-high. everyone expects the benefits of democracy to come quickly and all at once. many fear what will happen if these expectations are not met. as one women's rights activist told me in tunisia, it is not the first election we worry about. it is the second election. these young people appreciate our assistance with their elections but what they want

most from america is our investment, our support in creating jobs. for this reason, i strongly support the new economic assistance initiatives that the president announced today. from debt forgiveness to the announcement of free enterprise funds to reconstruction and development. i worked with senator kerry to draft legislation for many of these new initiatives and they can make an important difference. but ultimately, no one should expect congress to pass a marshall plan for the middle east. these new members were elected to cut spending, not to increase foreign assistance. like it or not, that's just a fact. so if we're going have -- help countries like tunisia and egypt to grow their economies, we will have to be more innovative. have free trade agreements with

egypt and tunisia and explore new ideas and find creative ways for the support of our private sector. it is in this spirit that i'll be teaming up with jeff immelt of g.e. to go egypt and tunisia next month. our goal is to reinforce the message that greater economic reform can lead to greater foreign investment. beyond tunisia and egypt there is another country that can and should continue toe merge as a pillar of stability. iraq. i traveled to baghdad a few weeks ago. their system continues to take two steps forward and one step back. but it is largely going in the right direction. the key decision now is whether we will keep a small military

presence in the country beyond this year. the goal of such a presence would be to help the iraqi security forces fill critical gaps in their capabilities such as intelligence, sovereign si and instability operations along the arab-kurd faultline. an example that people of different faiths and ethnicities can live together in peace in the heart of the middle east. the third objective i would propose is perhaps the hardest of all. some of our most important security partners, governments that share our strategic interests but not always our democratic values, to embrace every lucianry reform -- evolutionary reforms. if the arab spring teaches us anything, it should be this.

when people have no voice in their political systems, their demands will only grow more radical and eventually they will take these grievances into the streets. while it is difficult for regimes with long habit s of to begin loosening their grip on power, i don't believe there is no sustainable alternative -- i believe there is no sustainable alternative. ultimately, this is the best way to stabilize their regimes, protect our interests, and enhance our partnership. some some of our friends have embraced this fundamental bargain. the king of jordan. the king of morocco. the sultan. looking at reform agendas and the challenge for them is following through on the pains taking but essential work of implementation. some of our other close friends, however, are in a more

challenging position. bahrain. rather than further crackdowns on the shia population, which inflamed sectarian tensions across the region, the kingdom might consider initiating new political reforms. this country is committed to our partnership with bahrain as well as their gulf neighbors. the final objective we must pursue is the division of two states. israel and pal -- palestine, living side by side in peace. it has gotten more complicated. there are still a lot of

questions to be answered about the composition and platform. whatever the outcome, a palestinian unity government must state that it recognizes the existence of israel because the end of the conflict, the end of the occupation and the creation of a palestinian state will only come as a result of negotiations between the parties, not unilateral declarations at the u.n. though the arab spring has not been about israel, there are those like syria and iran that want to make it is about israel in order to distract attention from their own failings. i worry how a stalled or deteriorating situation between palestinians and israelis might play in the new democratic politics of the middle east and i'll be eager to hear from prime minister netanyahu when he comes into town next week. the four objectives i have,

changing earnt american regimes, consolidating new temperature sis, reform pro american au -- temperature sis -- democracies. one that is beneficial to our interests. aligned to our values and consistent with the aspiration of people across the region. however, there is need for some straight talk. even under the best circumstances, a democratic middle east is going to be a very and more challenging place to navigate than the region we have been accustomed to. this is how a jordanian official described the difference. for years, he said the united states has paid whole sail for its policy in the -- wholesale for its policy in the middle east. now you will have to pay retail.

it will not be easy. we will confront new political actors, particularly islamists who are not inclined to do us any favors and who prefer to keep america at arms length. many will be hostile to our interests and at times our values. but through it all, we should judge future governments in this region not by the nature of the people and groups that compose them, but based on their actions and policies. respect the universal rights of all of their people? do they abide by the rule of law? do they uphold democratic practices and processes? do they honor their international agreements? do they foster peace and security? ultimately a more democratic middle east and north africa will be the one in which more countries are willing to go their own way, to do their own thing, to reject our advice.

we can't change that. but the important thing is these will be their decisions. they will have a choice in the matter. it is the people of the broader middle east who'll at last be determining their own destiny. we may not like the decisions the free peoples will make but we must recognize that it is this freedom, this dignity to choose and govern ones self that it is a true choice to lasting stability in the world and the ultimate remedy for radicalism. osama bin laden got to witness the beginning of the new era that he fought so hard to destroy. he got to witness his fellow arabs and muslims, the very people he tried so hard to convert to his twisted way of thinking, rising up by the millions to reclaim their

dignity and seize justice for themselves, not through mass murder and self-destruction but through political freedom, economic opportunity, and peaceful democratic change. this could be the death fell in for that brand of noble terrorism that attacked us 10 years ago. i for one am happy that osama bin laden got to hear it just before a team of american heroes ended his wretched life. thank you very much. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> we