[Senate Report 107-4]
[From the U.S. Government Publishing Office]
Calendar No. 21
107th Congress Report
SENATE
1st Session 107-4
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SMALL BUSINESS AND FARM ENERGY EMERGENCY RELIEF ACT OF 2001
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March 21, 2001.--Ordered to be printed
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Mr. Bond, from the Committee on Small Business, submitted the following
R E P O R T
[To accompany S. 295]
The Committee on Small Business, to which was referred the
bill (S. 295) to provide emergency relief to small businesses
affected by significant increases in the prices of heating oil,
natural gas, propane, and kerosene, and for other purposes,
having considered the same, reports favorably thereon and
recommends that the bill, as amended, do pass.
I. PURPOSE
The purpose of the Small Business Energy Emergency Relief
Act of 2001 is to provide emergency relief, through affordable,
low-interest Small Business Administration Economic Injury
Disaster Loans (EIDLs), and loans through the Department of
Agriculture's Emergency Loan Program, to small businesses and
small farms that have suffered direct economic injury, or are
likely to suffer direct economic injury, from the significant
increases in the prices of heating oil, propane, kerosene,
natural gas or electricity.
II. NEED
Many small businesses are dependent upon heating oil,
propane, kerosene, natural gas or electricity, because they
sell or distribute the product, because they use it to heat
their facilities, or because they use it for other purposes
necessary to operate their business. According to the
Department of Energy, the cost of heating oil nationally
climbed 72 percent from February 1999 to February 2000, the
cost of natural gas climbed 27 percent from September 1999 to
September 2000 and 59% over the past year,\1\ and the cost of
propane climbed 54 percent from January 2000 to January 2001.
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\1\ Washington Post, March 16, 2001.
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While these national fluctuations capture the larger market
trends, they do not demonstrate how some localities have been
even harder hit by unpredictable and sudden price spikes
because of a greater dependence on a single fuel, insufficient
inventories, distribution problems and other reasons.
Last year in New England, for example, the threat of a
relatively common cold winter snap put such serious pressure on
the insufficient supply of heating oil that Massachusetts
declared a state of emergency. With consumers at the mercy of a
market, in which demand was up and supply was down, the price
of heating oil soared. In a matter of weeks, the average price
per gallon of heating oil fuel went up 60 percent, from $1.12
to $1.79. In rural California, businesses are facing doubling
propane prices. Prices have risen 96 percent, from about $1.20
in February 2000 to $2.35 per gallon this February.\2\
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\2\ Washington Post, February 25, 2001.
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When operating costs rise gradually, small businesses have
time to plan and adjust their pricing and operations
accordingly. Rapid shifts in operating costs, however, can
disrupt a small company's business plans causing short-term
cash flow difficulties. Such volatility can make planning month
to month as difficult as planning year to year.
For those small businesses in danger of suffering, or
suffering from, significant economic injury caused by crippling
increases in the costs of heating fuel or electricity, they
need access to capital to mitigate or avoid serious losses.
However, commercial lenders typically will not make loans to
these small businesses because they often don't have the
increased cash flow to demonstrate the ability to repay the
loan.
To exacerbate the situation, banks have tightened their
lending to small businesses by 45 percent over the past three
months. According to the Federal Reserve Board's quarterly
survey on lending practices that was released February 5, 2001,
banks surveyed said they have tightened credit to small
businesses, particularly on riskier loans, by making borrowing
more expensive and requiring customers to have less outstanding
debt. They have changed their lending policies because they are
concerned about ``a less favorable or more uncertain economic
outlook . . . and a reduced tolerance for risk.'' While the
banks say that only a handful of borrowers canceled their plans
under the stricter lending policies, the Committee believes
that the Federal Reserve Board's survey reinforces the need for
this legislation.
To mitigate the adverse impact on our nation's 24 million
small businesses,\3\ the Small Business and Farm Energy
Emergency Relief Act of 2001 would expand the EIDLs at the
Small Business Administration and the Emergency Loans at the
Department of Agriculture so that small businesses that suffer
direct economic injury by, or are likely to suffer direct
economic injury by, significant increases in the prices of
heating oil, propane, kerosene, natural gas, or electricity are
eligible to apply for those loans.
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\3\ According to the SBA's Office of Advocacy, there are 24.8
million small businesses in this country.
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The loans authorized by this legislation are made directly
from the Small Business Administration and the Department of
Agriculture, rather than through lenders who are working in
partnership with the Small Business Administration to make
government guaranteed loans and who are often reluctant to make
loans for these purposes. In fact, according to the SBA, it
cannot identify any loans originated under its 7(a) guaranteed
business loan program that were made last year to help small
businesses trying to cope with the energy spikes.
SBA defines substantial economic injury as the inability of
a business to meet its obligations as they mature and to pay
its ordinary and necessary operating expenses. Lack of profit
or loss of anticipated sales alone is not sufficient to
establish substantial economic injury. Some indicators of
economic injury are larger than normal volume of receivables, a
lower sales volume, slow inventory turnover, and the
development of delinquencies in trade payables, current
accruals and debt repayments.
SBA's economic injury disaster loans give affected small
businesses necessary working capital until normal operations
resume, or until they can restructure or change their business
to address the market changes, in order to meet financial
obligations a small business owner could have met had the
disaster not occurred.
This legislation really gets at helping those who have
nowhere else to turn. The Committee feels strongly that the
SBA's mission is to help small businesses succeed and improve
their access to affordable loans. The Committee recognizes that
the Agency's existing disaster loan program is an appropriate
way to assist small businesses struggling with the energy price
spikes. As such, it is justified an obligatory to make sure
this program is available to such small businesses.
The Committee recognizes that the SBA Disaster Loan Program
and the USDA Emergency Loan Program were initially established
to help individuals, small businesses and farms recover from
natural disasters, such as floods, tornadoes, or fires.
However, there are precedents for extending the SBA Economic
Injury Disaster Loan program for severe disruptions other than
natural disasters. For example, the SBA authorized the loans to
help small businesses hurt by riots in the late 1960s and early
1990s, and to help small businesses hurt by the Mexican Peso
devaluation and currency exchange freezes in 1983.
Building on the SBA's Disaster Loan program so that small
businesses, adversely affected by spikes in heating fuel and
electricity prices, are eligible to apply for economic injury
loans complements our efforts last year. Last year Congress
encouraged the SBA to market aggressively its government
guaranteed loan programs, such as the 7(a) program, through the
press and its lending partners to small businesses that might
need access to credit to make it through the energy problems.
The SBA did this, and the Committee urges SBA and its lending
partners to continue to publicize and provide guaranteed loans
to affected small businesses. It creates a comprehensive
approach to helping small businesses across the nation get the
assistance they need.
The Committee also wants to emphasize that this is a
responsible way to help small businesses and small farms. By
providing assistance in the form of loans which are repaid by
the small businesses and small farms to the U.S. Treasury, the
SBA and USDA disaster loan programs help reduce the Federal
emergency and disaster costs, compared to other forms of
disaster assistance, such as grants.
III. COMMITTEE INTENT
The Small Business and Farm Emergency Energy Relief Act of
2001 is designed to provide emergency relief, through
affordable, low-interest Small Business Administration Economic
Injury Disaster Loans (EIDLs), and loans through the Department
of Agriculture's Emergency Loan Program, to small businesses
that have suffered direct economic injury, or are likely to
suffer direct economic injury, from the significant increases
in the prices of heating oil, propane, kerosene, natural gas or
electricity.
The Committee included small businesses that ``are likely''
to suffer substantial economic injury because one goal of this
legislation is to mitigate the losses to a small business.
Rather than waiting until a small business has already suffered
and is in serious economic trouble, the Committee wants small
businesses to get assistance when there is an anticipated need.
The purpose of the legislation is, to the extent possible, to
keep small businesses healthy, maintain stable tax bases stable
and retain jobs. It should be sufficient for a small business
to show need through circumstances such as a projected
inability to cover operating costs because the heating fuel
bills are consuming both cash flow and reserves. The Committee
urges the SBA to be as responsibly creative and generous as
possible in assisting relevant small businesses applying for
these economic injury disaster loans.
The Committee also wants to make clear that, consistent
with the SBA's Economic Injury Disaster Loan program and USDA's
emergency loan program, the loans are intended to help small
businesses directly affected by the sharp and significant
increase in the price of heating fuels; if not for the economic
injury caused by the energy price spikes, the small businesses
and small farms could meet their ordinary obligations. The
loans are not intended to help with indirect impact, such as
higher prices in inventory, which were raised to cover the
higher cost of production or the higher cost of transporting
the product.
The Committee also recognizes the Administration's concern
that the scope of this legislation regarding the authority to
declare a disaster could be misinterpreted to apply to the
entire SBA Disaster Loan program. That is not the intent of the
Committee. The Committee intends for the disaster declaration
authority in this legislation to be limited to the purposes of
this legislation, which is economic injury caused by the sharp
and significant increase in the price of heating oil, natural
gas, propane, kerosene or electricity.
Chairman Bond included a provision in the substitute
amendment that limits to two years the operation of the loan
programs authorized by the legislation and requires the
Administrator of the Small Business Administration and the
Secretary of the Agriculture to issue separate reports on the
effectiveness of the program authorized under this legislation.
The Committee intends to use the reports to evaluate the
efficiency and effectiveness of these programs, to determine
whether the programs need improvements, and to determine if
they merit re-authorization or should sunset after two years,
as currently set forth in the legislation.
The Committee intends for this assistance to be available
to small businesses and small farms not just for future energy
problems that could arise over the next two years, but also for
parts of 2000 and early 2001, regardless of when Congress
passes the legislation and the President signs it into law. The
Committee included these times frames within the scope of the
legislation because the data shows that the prices began to
spike in June 2000 for electricity and in November 2000 for
heating fuels.
IV. COMMITTEE VOTE
In compliance with rule XXVI(7)(b) of the Standing Rules of
the Senate, the following votes were recorded on February 28,
2001. A motion by Senator Bond to adopt the substitute
amendment by Senator Kerry to the Small Business Energy
Emergency Relief Act of 2001 passed by unanimous voice vote. A
motion by Senator Kerry to adopt the Small Business Energy
Emergency Relief Act of 2001 was approved by an 18-0 recorded
vote, with the following Senators voting in the affirmative:
Bond, Kerry, Burns, Bennett, Snowe, Enzi, Fitzgerald, Crapo,
Allen, Ensign, Levin, Harkin, Lieberman, Wellstone, Cleland,
Landrieu, Edwards, and Cantwell.
V. EVALUATION OF REGULATORY IMPACT
In compliance with rule XXVI(11)(b) of the Standing Rules
of the Senate, it is the opinion of the Committee that no
significant additional regulatory impact will be incurred in
carrying out the provisions of this legislation. There will be
no additional impact on the personal privacy of companies or
individuals who utilize the services provided.
VI. CHANGES IN EXISTING LAW
In the opinion of the Committee, it is necessary to
dispense with the requirement of section 12 of rule XXVI of the
Standing Rules of the Senate in order to expedite the business
of the Senate.
VII. COST ESTIMATE
In compliance with rule XXVI(11)(a)(1) of the Standing
Rules of the Senate, the Committee estimates the cost of the
legislation will be equal to the amounts indicated by the
Congressional Budget Office (CBO). The CBO cost analysis was
not completed at the time the Committee Report was filed, and
it will be submitted for the official record just as soon as it
is received by the Committee.
VIII. SECTION-BY-SECTION
Section 1. Sets forth the short title of the bill, the
``Small Business and Farm Energy Emergency Relief Act of
2001.''
Section 2. Delineates the Congressional findings and the
need for the legislation.
Section 3. Amends the Small Business Disaster Loan Program
so that small businesses adversely impacted by the sharp and
significant price increases of heating fuels are eligible to
apply for Economic Injury Disaster Loans.
Subsection (A) designates the four types of heating fuels
(heating oil, natural gas, propane, and kerosene) covered by
the legislation and gives the Administrator of SBA the
authority, in consultation with the Secretary of Energy, to
define the meaning of ``sharp and significant increase'' in the
price of the covered heating fuels. While SBA is knowledgeable
about and experienced in efficiently making disaster loans to
small businesses, the Department of Energy (DoE) is
knowledgeable about issues related to energy. Together they are
expected to develop a definition of ``sharp and significant
increases'' that captures conditions that could have an adverse
impact on small businesses and cause financial hardship that
could justify the need for economic injury disaster loans.
Though the Committee defers to the SBA and DoE to define this
term, the Committee does not intend for businesses to be
eligible for economic injury disaster loans if the price of
energy increases in consecutive years and the second year's
increase is relatively negligible or minimal. Small businesses
should be able to budget for the latter year and therefore
should not need a loan to maintain adequate working capital to
meet their obligations in the second year.
Subsection B gives the Administrator of SBA the authority
to make Economic Injury Disaster Loans to small businesses that
have suffered or are likely to suffer substantial economic
injury as the result of a sharp and significant increase in the
price of heating fuel or electricity.
Subsection C requires that all economic injury disaster
loans made for the purposes described in this legislation be
made at the same interest rate of existing economic injury
disaster loans. SBA Disaster Loans are made at interest rates
of 4 percent or less.
Subsection D, with one exception, caps each economic injury
disaster loan to a small business at $1.5 million. However,
consistent with existing law, if a small business is a major
source of employment in its surrounding area, the Administrator
of SBA has the discretion to waive the cap.
Subsection E requires that a disaster be declared in one or
more states, or portions of states, in order for the SBA to be
able to make such Economic Injury Disaster Loans, and so sets
forth the terms for declaring a disaster. There are three ways
for a disaster to be declared under this legislation. The
President may declare a disaster. The SBA Administrator may
declare a disaster. Or, in lieu thereof, a governor may certify
to the SBA Administrator that small businesses in the state
have suffered economic injury caused by a sharp and significant
increase in the price of heating fuel or electricity and that
financial assistance is not available to those businesses
elsewhere in the area on reasonable terms. Once SBA receives
the certification, in accordance with existing practice, the
SBA Administrator will evaluate the certification and
mayauthorize the Agency to make loans under this program.
The disaster declaration authority in this legislation
would be limited to the purposes of this legislation, which is
economic injury caused by the sharp and significant increase in
the price of heating oil, natural gas, propane, kerosene or
electricity.
Subsection F allows small businesses approved for EIDLs
under this program to use the loan proceeds not only for
working capital, as required under the existing program, but
also for capital to convert their systems from using heating
fuel or electricity to those using renewable or alternative
energy sources, such as fuel cells or wind energy. Small
businesses cannot qualify for these loans solely to convert
their systems. They must demonstrate they have suffered
economic injury and must make clear in their application that
they intend to use the proceeds for both purposes.
Section 4. Amends the emergency loan program in the
Consolidated Farm and Rural Development Act (Act) (7 U.S.C.
1961(a)) at the U.S. Department of Agriculture (USDA) to make
disaster loans available to small farms and small agri-
businesses that suffer or are likely to suffer economic injury
due to sharp and significant increases in the prices of the
heating oil, natural gas, propane, kerosene or electricity, or
inputs derived from energy sources. This is necessary because
only non-farm small businesses are eligible for SBA's Economic
Injury Disaster Loans. The Act authorizes the President or the
Secretary of Agriculture to declare a disaster.
Section 5. Directs the Administrator of the SBA and the
Secretary of Agriculture, within 30 days of the date of
enactment, to publish any guidelines deemed necessary to
implement the two programs established by this legislation. The
Committee believes that prompt implementation is necessary to
address the needs of small businesses, small farms, and small
agri-businesses, that are suffering from the soaring costs of
heating fuels or electricity.
Section 6. Requires the Administrator of the SBA and the
Secretary of the Agriculture to each issue reports on the
effectiveness of the program authorized under this legislation.
Their reports should be sent to the Committees on Small
Business of the Senate and the House of Representatives not
later than 18 months after the date on which they publish their
respective implementing guidelines required by this
legislation. At the same time, the report from the USDA should
be submitted to the Committees on Small Business of the Senate
and the House of Representatives as well as the Committee on
Agriculture, Nutrition, and Forestry of the Senate and to the
Committee on Agriculture of the House.
Section 7. Establishes the effective and sunset dates of
the programs authorized under this legislation. It also
establishes the dates for determining when sharp and
significant increases in the prices of heating fuels and
electricity can be used for program eligibility.
At the SBA, the program shall operate for two years after
the Agency publishes the final implementing guidelines. The
legislation establishes separate time frames for purposes of
determining the beginning of the price increases of heating
fuel and electricity. For heating fuels (heating oil, natural
gas, propane, or kerosene), the Administrator of the SBA must
consider data covering the period since November 1, 2000; for
electricity, the Administrator of the SBA must consider data
covering the period since June 1, 2000.
This means that small businesses that have suffered, or are
likely to suffer, economic injury caused by the sharp and
significant increases in the price of heating fuel that started
on or after November 1, 2000, shall be eligible to apply for
these loans. Similarly, small businesses experiencing, or
likely to experience, economic injury by the sharp and
significant price increases of electricity that started on or
after June 1, 2000, shall be eligible to apply for these loans.
At the USDA, the program shall operate for two years after
the Department publishes the final implementing guidelines. For
declaring a disaster caused by the price increases of heating
fuels (heating oil, natural gas, propane, or kerosene),
electricity, or input costs, the Secretary of USDA must
consider covering the period since June 1, 2000.