[Senate Report 108-124]
[From the U.S. Government Publishing Office]
Calendar No. 248
108th Congress Report
SENATE
1st Session 108-124
======================================================================
SMALL BUSINESS ADMINISTRATION 50TH ANNIVERSARY REAUTHORIZATION ACT OF
2003
_______
August 26, 2003.--Ordered to be printed
Filed, under authority of the order of the Senate of July 29
(legislative day, July 21), 2003
_______
Ms. Snowe, from the Committee on Small Business and Enterpreneurship,
submitted the following
R E P O R T
[To accompany S. 1375]
The Committee on Small Business and Entrepreneurship, to
which was referred the bill (S. 1375) to provide for the
reauthorization of programs administered by the Small Business
Administration, and for other purposes, having considered the
same, reports favorably thereon with amendments and recommends
that the bill (as amended) do pass.
I. Introduction
The Small Business Administration 50th Anniversary
Reauthorization Act of 2003, introduced by Senator Snowe, and
cosponsored by Senator Kerry, on July 8, 2003, is a bill to
reauthorize most programs at the SBA for Fiscal Years 2004,
2005, and 2006. Additionally, the bill makes changes to various
existing programs and authorizes several new pilot initiatives.
The Committee adopted by unanimous voice vote an amendment by
Senator Snowe, and cosponsored by Senator Kerry, which includes
four amendments proposed by Senators Bayh, Crapo, Landrieu, and
Levin, and the bill was subsequently adopted by a unanimous
vote of 19-0.
The Small Business Administration 50th Anniversary
Reauthorization Act of 2003 is the product of a series of
hearings and roundtable discussions that the Committee held in
2003. Beginning with a hearing on March 18, 2003, the Committee
focused on the issue of contract bundling, which too often
presents insurmountable obstacles to small businesses seeking
to compete in the Federal marketplace for a share of the more
than $200 billion that Federal agencies award in contracts each
year. The hearing examined the President's nine-point plan for
minimizing the effects of contract bundling as well as other
legislation addressing Federal procurement opportunities for
small businesses, including the Small Business Federal
Contractor Safeguard Act (S. 633), introduced by Senator Kerry
on March 17, 2003.
In April, the Committee began its in-depth examination of
the entire spectrum of programs and services offered by the
SBA. In its April 9, 2003, roundtable, the Committee focused on
the SBA's non-credit programs including the Small Business
Development Centers (SBDCs) program, the Service Corps of
Retired Executives (SCORE) program, the SBA's Office of Women's
Business Ownership Programs, the National Women's Business
Council, the Veterans Business Development Program, the Native
American Outreach program, and other entrepreneurial
development programs administered by the SBA. The Committee
heard from a broad cross-section of the small business
stakeholders of these programs as well as from SBA
representatives who oversee these programs.
In addition, the April 9, 2003, roundtable also reviewed
the SBA's government contracting and business development
programs, which include the Prime Contracting and
Subcontracting Programs, HUBZone Program, 8(a) Business
Development Program, and BusinessLINC Program. Stakeholders of
these programs provided important insight to the Committee, and
many of their recommendations were incorporated into the bill.
While the SBA's Small Business Innovation Research (SBIR)
Program and Small Business Technology Transfer Program (STTR)
programs are not facing reauthorization in the current cycle,
the Committee did examine during the April 9, 2003, roundtable
the Technology Rural Outreach Program and Federal & State
Technology Partnership Program (FAST), which are related
programs reauthorized under the bill.
The Committee turned to the SBA's financing programs on
April 30, 2003, in the first of two roundtable discussions. The
Committee heard from lenders, small business stakeholders, and
SBA representatives about the 7(a) Loan Guarantee Program,
which continues to play a vital role in helping small
businesses obtain operating capital. The Committee also heard
from participants in the Microloan program, which provides
capital and technical assistance to microenterprises.
On May 1, 2003, the Committee held the second roundtable on
the SBA's credit programs, focusing first on the 504 Loan
Program. Participants noted that the 504 Loan Program, often
referred to as a ``bricks and mortar'' lending program, has
become a solid economic development tool and helps small
enterprises acquire essential real estate and basic machinery
and equipment. The roundtable also examined the SBA's Small
Business Investment Company (SBIC) program and the New Markets
Venture Capital program. These programs represent important
sources of equity capital for small businesses.
As part of the May 1, 2003, roundtable, the Committee
focused on the SBA Disaster Assistance Loan program. Through
this program, the SBA is the nation's foremost direct lender to
disaster victims. The roundtable participants offered valuable
insight into the program's operations and areas for
improvements.
The Committee completed its series of hearings and
roundtables on SBA reauthorization with a hearing on June 4,
2003, that featured SBA Administrator Hector Barreto. This
hearing provided an additional opportunity for the agency to
respond to issues raised during the previous roundtable
discussions, discuss its legislative package that was submitted
to the Committee for review, and comment on the President's
Fiscal Year 2004 budget submission for the SBA. The hearing
also examined a number of agency management issues including
the SBA's efforts to obtain a clean audit opinion on the
agency's financial statements, implementation of a loan
monitoring system, and workforce transformation plans.
Throughout the hearings and roundtables, the Committee's
objectives have been to single out the SBA programs that are
working well, identify the reasons for their superior
performance, and then apply those principles to programs that
are in need of improvement. The voluminous amount of
information that the Committee has collected through the
hearings and roundtable discussions held this year and in the
previous Congress as well as information received directly from
small business stakeholders has contributed greatly to
achieving that goal and the results are reflected in the bill.
The Committee believes that by providing reasonable
authorization levels, improvements to specific SBA programs,
and several new initiatives, the Small Business Administration
50th Anniversary Reauthorization Act of 2003 provides a sound
foundation for the agency to begin its next 50 years of even
greater service to the nation's small businesses and
entrepreneurs.
II. Description of Bill
TITLE I--GENERAL PROVISIONS
Administration accountability
Since its amendment in 1955, the Small Business Act has
required the SBA to maintain its essential documents and
records and make them available for congressional oversight.
The bill updates Section 10(e) of the Small Business Act to
emphasize that the Administration shall maintain its documents
and records for at least two years and to provide a broader
illustration of the types of documents and records covered by
the section.
In recent years, the Committee has been concerned by the
SBA's failure to make certain documents and records available
when requested. For instance, in 2002, the Committee requested
a copy of the SBA General Counsel's opinion that the agency
identified as the basis for restricting the availability of
economic injury disaster loans in cases of disasters resulting
from floods. Despite numerous requests for a copy of this legal
opinion, the SBA has never made it available for the
Committee's review. Similarly, this year, the Committee
requested the documents on which the SBA based its
determination that the new econometric model, implemented as a
result of Public Law 108-8, could not be applied to loans made
under the Supplemental Terrorist Activity Relief (STAR) Loan
Program. Again, despite a formal and repeated informal follow-
up requests, the documentation was never produced.
In light of these concerns, the Committee included in the
bill clarification that SBA documents and records shall be made
available to the Senate and House Committees for their
inspection and examination. Specifically, the bill provides
that upon the written request of either the Senate or House
Committee, the Administrator or the Inspector General, as
applicable, shall make any documents or records requested
available to the requesting Committee or its duly authorized
representatives within 5 business days of the request.
To discharge its constitutional oversight obligations, the
Committee occasionally requires timely access to certain SBA
documents and records. To the extent that such requests cannot
be satisfied or will be delayed, the Committee expects a
reasonable explanation and designation of a time for completing
the request whenever possible. The Committee does not intend,
however, that this provision jeopardize any on-going
investigation by the SBA Inspector General or any individual's
privacy. Any documents or records requested by the Committee
pursuant to Section 10(e) of the Small Business Act will
continue to be subject to the Committee's rules regarding the
disclosure of confidential information.
It is the Committee's expectation that the agency will work
cooperatively with the Committee to ensure that congressional
oversight of the SBA and its programs can be accomplished in a
thorough, timely, and efficient manner.
Program authorizations
Section 111 of the bill authorizes appropriations for the
SBA's financing programs and certain other programs
administered by the SBA. The SBA's financing programs
reauthorized in this bill include Section 7(a) Guaranteed
Business Loans, Section 504 Certified Development Company
Loans, Microloans, Disaster Assistance Loans, and the Small
Business Investment Company Debentures and Participating
Securities. The New Markets Venture Capital program is already
authorized through Fiscal Year 2006.
The following chart details the funding set out in the bill
for each of the reauthorized SBA programs over the three-year
time frame of the bill. The Committee carefully considered the
Administration's funding request for each program, as well as
recommendations from small business owners, advocacy
organizations representing small businesses and entrepreneurs,
the lending and investment community, and members of the
Committee.
PROGRAM LEVELS FOR SMALL BUSINESS ADMINISTRATION 50TH ANNIVERSARY REAUTHORIZATION ACT OF 2003
[In millions of dollars]
----------------------------------------------------------------------------------------------------------------
Current Budget SBA authorization request Reauthorization bill
Program levels request -----------------------------------------------------------
FY03 FY04 2004 2005 2006 2004 2005 2006
----------------------------------------------------------------------------------------------------------------
7(a)............................ $10,839 $9,300 $16,000 $16,000 $16,000 $16,000 $16,500 $17,000
504............................. 4,500 4,500 5,000 5,000 5,000 5,000 5,250 5,500
SBIC:
Debentures.................. 3,000 3,000 3,000 3,000 3,000 3,000 3,250 3,500
Participating Securities.... 4,000 4,000 4,000 4,000 4,000 4,000 4,250 4,500
Microloan:
Technical Assistance........ 15 15 70 70 70 70 75 80
Direct Loans................ 31.27 20 100 100 100 100 105 110
Guaranteed Loans............ 1.99 2 50 50 50 50 50 50
Delta........................... 22.99 0 500 500 500 500 500 500
Surety Bond Guarantee:
General Program............. 1,672 1,672 6,000 6,000 6,000 6,000 6,000 6,000
Preferred Program........... (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\)
SCORE........................... 5 5 7 7 7 7 7 7
SBDC............................ 89 88 88 88 88 125 130 135
HUBZone Program................. 0 2 10 10 10 10 10 10
SBIR Rural Outreach Program..... 0 (\2\) 2 2 (\2\) 2 2 2
SBIR FAST Program............... 0 3 10 10 (\2\) 10 10 10
Women's Business Centers........ 12.5 12 14.5 14.5 14.5 15 16 17.5
Paul C. Coverdell Drug Free 2 3 3 3 3 5 5 5
Workplace......................
National Women's Business 0.75 0.75 0.75 0.75 0.75 1 1 1
Council........................
Veterans Outreach............... 0.75 0.75 0.75 0.75 (\2\) 1 1.5 2
PRIME........................... 5 0 (\2\) (\2\) (\2\) 15 15 15
----------------------------------------------------------------------------------------------------------------
\1\ Funded at up to 50% of the total.
\2\ No request specified.
Additional authorizations
The bill also includes an extension of the authorization
for the assistance offered through Small Business Development
Centers (SBDCs) to provide small businesses with information
and assistance to establish drug-free workplace programs.
Additionally, the bill extends the current $5 million
authorization for the Paul C. Coverdell Drug-Free Workplace
Program through Fiscal Year 2006. Both programs have made
important contributions in helping small businesses remove
drugs from the workplace.
TITLE II--FINANCIAL ASSISTANCE
7(a) Loan Guarantee Program
The 7(a) program has had a profound effect on the American
economy and on the lives of thousands of small business owners
and employees. During the last 3 years, the SBA 7(a) loan
program has made financing available to more than 39,000 start-
up small businesses and to approximately 99,000 existing small
businesses that received financing for operating and expansion
purposes, all totaling more than $28 billion in the same 3-year
period. Most significantly, this program has helped small
businesses create more than one million new jobs in the last
three years.
On April 30, 2003, the Committee held a roundtable
discussion to review the 7(a) loan program and received
comments and recommendations from small business stakeholders
and lenders participating in the 7(a) program.
Based on the roundtable testimony and information received
directly from program participants, the Committee approved the
increased authorization levels set forth in the bill for the
7(a) Guaranteed Business Loan Program over the next three
fiscal years. This reflects the Committee's recognition that
the number of loans made in the 7(a) program has grown
substantially over the last several years, and the Committee's
belief that the program has a substantial potential for
continued growth, not just in the number of loans made but in
the total lending volume of the program.
The SBA has expressed its interest in continuing to expand
the number of small loans made under the 7(a) program,
particularly through the SBA Express sub-program. While the
Committee agrees that increasing the number of smaller 7(a)
loans is a valid goal for the SBA, the Committee disagrees that
this goal must come at the expense of the number of larger 7(a)
loans. The Committee believes that the 7(a) lenders and the SBA
must work together to determine the true demand from small
businesses for the appropriate mixture of large and small
loans, and allow appropriated funds for the 7(a) program to be
used as the market of small businesses demands.
In addition, the Committee is concerned that the SBA bases
its estimates for the volume of the 7(a) program in future
years solely by measuring the historical levels of the program.
The Committee and the SBA are not tasked with simply
maintaining programs at current levels, but with allowing
programs to grow when that growth is necessary and helpful to
small businesses. By reviewing only historical data to set
future loan levels for the 7(a) program, the SBA provides small
businesses with only a static resource, in contrast to the
growth that the SBA should be encouraging. Instead, the
Committee believes that the SBA should examine the feasability
of implementing a system for estimating loan demand that would
give added weight to recent changes in loan volume, trends in
the economy, and initiatives and program changes that will
affect loan volume.
At the Committee's roundtable, lenders participating in the
7(a) Preferred Lenders Program (PLP) reported frustration at
having to apply for PLP status separately within each SBA
district. This concern is an element of a larger issue: the
difficulties lenders face in complying with varying practices
in each SBA District Office. Lenders have reported that
different SBA District Offices at times resolve similar matters
in different ways, thus adding costs and delays to
participation in the 7(a) program, even though the SBA has
Standard Operating Procedures established for personnel in
District Offices. While the Committee believes that a national
Preferred Lenders Program will successfully address the
inefficiencies and cost of applying for special lending status
in each district and will encourage lending, it is not a
substitute for action by the SBA to ensure its lending
personnel follow uniform policies and procedures. The SBA's
loan programs are complex. To encourage lender participation,
the agency needs to have uniform standards, because that
ultimately serves the best interests of small businesses.
In response to these problems, Section 201 of the bill
directs the SBA to initiate a three-year pilot program in which
PLP lenders can receive authorization to operate in every state
as a National PLP lender if the lender meets criteria
established by the SBA. The bill lays out the general
guidelines for establishing the criteria.
In delineating the types of criteria that would be required
for applicants to be licensed as National PLP lenders, the
Committee does not intend that the SBA will require that
lenders applying to be licensed as a National PLP lender have
made a certain number of loans in any of the specific sub-
programs or pilot programs that are contained within the
overall 7(a) loan program, except for the Preferred Lender
Program. In addition, the Committee does not expect that the
SBA will require that applying lenders have made a certain
number of 7(a) loans greater than or less than a particular
monetary amount, nor that the SBA will set a required average
loan size for applicants.
The bill also states that during the SBA's evaluation of a
lender's application, the SBA may consider comments about the
lender from any SBA District Director or Regional Administrator
relating to the applicant's current performance as a PLP
lender. No such comments are required to be submitted, and when
evaluating an applicant to be a National PLP lender, the SBA
should not delay the approval of the applicant because no
comments, or only a certain number of comments, have been
received from SBA officials. The option was included in the
bill to allow District Directors and Regional Administrators an
opportunity to voice their comments about an applicant, but
those comments are not a necessary requirement of the
application process.
Section 202 of the bill extends the program participation
fees paid by lenders involved in the 7(a) program. Accordingly,
new 7(a) loans will continue to be subject to the existing
fees, which are as follows: for loans that have a total amount
of $150,000 or less, lenders pay a fee of one percent of the
SBA's guarantee amount; for loans with a total amount of more
than $150,000, but equal to or less than $700,000, lenders pay
a fee of 2.5 percent of the SBA's guarantee amount; and for
loans that have a total amount of more than $700,000, lenders
pay a fee of 3.5 percent of the SBA's guarantee amount. In
addition, lenders pay an annual fee for each 7(a) loan of 0.25
percent of the outstanding balance of the guarantee amount. In
effect, this section reauthorizes fees under current law
relating to 7(a) loans. The fees specified in this section will
apply only to loans made after the date of enactment of the
bill.
The Committee also approved a new initiative that
authorizes 7(a) lenders to pool, for sale in the secondary
market for 7(a) loans, loans with varying interest rates.
During the April 30, 2003, roundtable, lenders raised concerns
about the difficulty of pooling loans with varying interest
rates, and the Committee believes that this change will address
the issue by providing lenders with increased flexibility in
grouping loans together for re-sale.
The bill also increases the size of the loans that can be
made under the SBA's Low Documentation (LowDoc) sub-program of
the 7(a) program. By increasing the maximum loan amount from
$100,000 to $250,000, the bill makes the size limit for the
LowDoc program consistent with the maximum loan size permitted
for the SBA Express Loan program. The LowDoc program offers
entrepreneurs a more convenient way to access the 7(a) program,
and has been helpful to small business owners who have
traditionally been less involved with the SBA's loan programs.
For instance, women small business owners have been
frequent participants in the LowDoc program. The SBA reports
that in Fiscal Year 2002, 9,100 LowDoc loans were made, and
3,390 (37 percent) of these were made to women-owned small
businesses. In contrast, only 18 percent of all 7(a) loans in
Fiscal Year 2002 were made to women-owned small businesses. As
a result, the Committee believes that increasing the maximum
size of LowDoc loans will provide traditionally under-served
small business borrowers, such as women-owned small businesses,
a better opportunity to receive the financing they need.
The bill increases the maximum size of the 7(a) loans that
are available to small businesses involved in exporting
products. The Committee believes that increasing the maximum
loan size from $2 million to $2.6 million, with a maximum
guaranteed amount of $1.3 million, will assist small businesses
that are attempting to compete in international markets.
The Committee also increased the maximum size of loans
available under the SBA's Defense Loan and Technical Assistance
(DELTA) program, which is designed to help eligible small
defense-dependent companies to diversify into commercial
markets, from $1.25 million to $2 million, to conform the
maximum size of these loans to the maximum size of general
loans under the 7(a) program.
Finally, the bill includes several sections relating to the
7(a) program that also pertain to other SBA programs (these
provisions appear in the bill under Subtitle G). The first
provision (Section 261) allows small businesses to participate
simultaneously in both the 7(a) and 504 programs by receiving
loans under both programs. In order to ascertain the extent to
which this combination of loans is utilized by small
businesses, the SBA should require that lenders report to the
SBA's fiscal and transfer agent those 7(a) loans that are made
to small businesses that also have 504 loans. In addition, the
fiscal and transfer agent should provide this information to
the SBA so the agency can include it in its annual budget
request and performance plan submitted to Congress.
The second provision (Section 262), conforms the guidance
provided under both the 7(a) and 504 programs regarding the
extent to which small businesses may lease property financed
through SBA programs. The Committee approved this SBA proposal
in order to reduce ambiguities under the current leasing
guidance and to eliminate the potential for inconsistent
results for similar borrowers, one with a 7(a) loan and the
other with a 504 loan.
Section 263 increases the ability of small businesses to
receive investments from an SBIC while also receiving loans
under either the 7(a) or 504 loan programs. While recognizing
that increasing the amount of borrowed and equity capital that
a small business can receive subject to an SBA guarantee may
increase the agency's exposure to loss, the Committee believes
that the additional risk will be small and counterbalanced by
the benefits of expanding available capital for small
businesses. In addition, the bill limits the exposure by
permitting a small business with an SBIC investment to obtain
borrowed capital only from the 7(a) or 504 loan program, but
not both, and by continuing to count 50 percent of the borrowed
capital against the maximum SBIC investment.
Finally, Section 264 directs the SBA to establish an
alternative size standard for the 7(a) program, as it has done
for the 504 program. This concern was raised by lenders at the
Committee's April 30, 2003, roundtable on the 7(a) program, and
the Committee believes this change will greatly simplify the
7(a) program for small businesses.
Microloan Program
The SBA's Microloan program offers loans of up to $35,000
and technical assistance to small businesses. Under the
program, the SBA makes loans and grants to intermediaries, who
then re-loan their loan funds to small businesses and use SBA
grant funds to provide technical assistance, such as managerial
or strategic advice, to small businesses. Microloan lenders
have made over 8,000 loans to existing and start-up small
businesses during the past four years, and these enterprises
have created or retained an estimated 34,000 jobs during that
period.
The bill includes increases in the authorization levels for
the loan and technical assistance components of the program
over the next three Fiscal Years to meet the demand for small
loans and to continue serving populations with the least access
to capital. The Committee expects that the microloan program
will demonstrate a continued contribution to business owners
and employees who seek to establish or grow small businesses,
particularly in areas that have suffered from severe economic
distress.
At the Committee's April 30, 2003, roundtable discussion,
the Committee heard from several participants in the microloan
program on the program's successes and areas for improvement.
These comments and written testimony provide the basis for
provisions included in the bill to improve the Microloan
program.
Specifically, the Committee heard about the need for
intermediaries in certain parts of the country that are
currently not served, or are under-served, by the microloan
program. To increase the reach of microloan intermediaries to
more areas, the bill includes several provisions that seek to
expand access to the program.
First, the bill alters the eligibility requirements for an
entity to be licensed as a microloan intermediary, and thus
eligible to receive loans and grants from the SBA. Currently,
to be licensed as an intermediary an entity must have at least
one year of institutional experience in providing loans to
small businesses and at least one year of institutional
experience in providing technical assistance to small
businesses. To enable newly established entities to become
microloan intermediaries, the bill allows an entity to be
licensed if it has a full-time employee on staff with at least
three years of experience in making microloans; the entity
would also have to establish that it has at least one year of
experience in providing technical assistance to small
businesses. It is not the Committee's intent to lower the
standards of quality for entities that are licensed as
intermediaries, but rather to permit access for entities that
are new to the program and have employees with demonstrated
experience and ability.
The bill also increases, from 25 percent to 30 percent, the
amount of a technical assistance grant that a microloan
intermediary can use to contract out technical assistance to a
third-party. One incentive that intermediaries have to perform
their technical assistance functions well is that the
intermediaries must repay their loans to the SBA. The quality
of the technical assistance the intermediaries provide to small
businesses correlates to the success of the businesses, and to
the businesses' ability to repay their loans to the
intermediary. Third-party technical assistance providers do not
have this concern, as they do not receive direct loans from the
SBA.
The Committee was concerned that removing any ceiling on
the percent of grant funds that an intermediary could contract
out to a third-party technical assistance provider would
increase the occurrence of situations in which the entity
providing technical assistance to small businesses does not
have the additional incentive that is provided by the need to
repay a loan to the SBA. The Committee recognizes, however,
that there is a need for certain technical assistance, like
legal, accounting, and tax advice, which intermediaries are not
able to provide directly. Accordingly, the bill provides
additional flexibility for intermediaries to contract with
third parties in such cases.
As part of an amendment offered by the Chair and Senator
Kerry, the Committee included in the bill an increase in the
percentage of technical assistance that an intermediary may
provide to potential borrowers, rather than actual borrowers,
from 25 percent to 30 percent. The Committee believes that this
change will provide more flexibility to intermediaries in
deciding how to allocate their technical assistance. The
Committee recognized, however, that completely eliminating the
limitation on the use of technical assistance for potential
borrowers could have the negative effect of reducing the amount
of technical assistance that must be devoted to those small
businesses that have actually entered the microloan program as
borrowers, rather than merely explored the possibility of
receiving a microloan.
The bill also amended the Small Business Act to allow
intermediaries to make revolving-term loans or longer fixed-
term loans to small businesses. Currently, intermediaries may
only make ``short-term'' loans with fixed terms, which
restricts the ability of microlenders to structure loans that
meet the needs of certain small enterprises.
The bill makes a change to the Small Business Act to
indicate that microloan intermediaries that have a microloan
portfolio with an average loan size of not more than $10,000
can receive an interest rate lower than the normal rate
extended by the SBA to intermediaries; previously, the statute
provided that an intermediary had to have an average loan size
of not more than $7,500 to receive a reduced interest rate.
The Small Business Act currently requires the SBA to use a
portion of its annual appropriation for microloans and
microloan guarantees to provide one or more technical
assistance grants to microlending organizations and national
and regional nonprofit organizations to ``procure technical
assistance for intermediaries participating in the Microloan
Program to ensure that such intermediaries have the knowledge,
skills, and understanding of microlending practice necessary to
operate successful microloan programs.'' The bill adds to the
Small Business Act a requirement that the SBA report, in its
annual budget request and performance plan to Congress, on the
SBA's performance of this requirement.
Finally, the bill requires the SBA to develop a subsidy
model for the microloan program, to be used in the Fiscal Year
2005 budget, that improves on the current subsidy model.
Participants in the microloan program have reported to the
Committee that the current model is subject to unnecessary
fluctuations and results in inaccurate subsidy rates for the
program.
Lender oversight
The effectiveness of the SBA's oversight of the lenders
participating in SBA lending programs, and its oversight of the
loan guarantees for which the SBA is responsible, is an issue
of primary importance to this Committee. On multiple occasions,
the Committee has requested that the General Accounting Office
(GAO) assist the Committee in its oversight of the SBA by
conducting analyses that identify issues of concern in the
SBA's oversight of its lenders, its loan portfolio, and its
information technology management, as well as other areas.
These analyses have been valuable to the Committee as it
developed this bill. For instance, in a December 2002 report
(Small Business Administration: Progress Made but Improvements
Needed in Lender Oversight, GAO-03-90, Dec. 9, 2002), the GAO
identified ways in which the SBA needs to improve its lender
oversight process to measure adequately the financial risk
lenders pose to the SBA.
In roundtables held on April 30, 2003, and May 1, 2003, the
Committee heard from the GAO and the SBA concerning some of the
issues the GAO identified regarding the SBA's lender oversight.
Moreover, the SBA's Office of the Inspector General (OIG) has
conducted audits of the SBA's lending programs, which have
resulted in important recommendations for improving these
programs and the SBA's oversight of them. The Committee is
confident that the excellent work of the GAO and the OIG will
continue to assist the Committee as it works with the SBA
regarding the SBA's lender oversight functions.
The Committee believes that new provisions in the bill will
aid the SBA in improving its lender oversight programs. First,
Section 102 of the bill transfers the operations of the SBA's
Office of Lender Oversight (OLO) from the Office of Capital
Access (OCA) to the office of the agency's Chief Operating
Officer (COO). Since the OCA is tasked with increasing the
SBA's total number of loans, and promoting the loan programs
generally, it should not be responsible for operating the OLO,
which is charged with overseeing the lenders affiliated with
the SBA and for identifying improper risks in the SBA's loan
portfolios. The OLO's task, at times, is to restrain lenders or
lending practices. The Committee believes that this transfer
will lessen the possibility of a conflict of interest. Outside
the scope of the OCA, the OLO will be able to concentrate
exclusively on lender oversight.
In discharging its responsibilities under the COO, the OLO
may at times make recommendations with which the OCA does not
concur. In such circumstances, the Committee expects that the
COO and the Associate Deputy Administrator for the OCA will
resolve any disagreements directly, with the Administrator
being the final arbiter in any such case.
The bill also allows the SBA to charge fees to 7(a) lenders
for lender examinations, and use these fees solely to fund
examinations and review activities. This change, suggested by
the SBA, will provide the agency with the ability to cover
costs associated with oversight and review of these lenders'
portfolios. The SBA will set reasonable fee levels based upon
the size of the lenders' portfolios being reviewed, and the
time necessary to review the portfolios. In determining these
fees, the Committee expects that the SBA will consult with
lenders and consider comparable fee structures charged by
financial regulatory agencies. This change is, in part, a
response to the analysis of the GAO, which identified as
problematic examination fee structures that, by paying set fees
per review, appeared to reward examiners for completing their
lender reviews as quickly as possible. The Committee
anticipates that this provision will improve the SBA's ability
to conduct adequate reviews of its lenders' portfolios.
The bill also provides the SBA with additional oversight
authority with respect to two types of lenders--Small Business
Lending Companies (SBLCs) and Non-Federally Regulated SBA
Lenders (NFRLs). SBLCs are defined as non-depository financial
institutions that only make loans under Section 7 of the Small
Business Act. NFRLs are defined as financial institutions that
make loans under Section 7 of the Small Business Act, are not
SBLCs, and are not regulated by the Farm Credit Administration,
the Federal Financial Institutions Examination Council, the
Board of Governors of the Federal Reserve System, the Office of
the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, or the National
Credit Union Administration.
The bill delineates in the Small Business Act the SBA's
right to assert enforcement and supervisory authority over
SBLCs and NFRLs. This authority includes the ability to issue
cease and desist orders, impose civil money penalties, and
remove officers and directors who are acting in an unsafe and
unsound manner. The enforcement language gives the SBA various
mechanisms to address substantive and technical violations that
do not warrant court action or revocation of an SBLC's or
NFRL's lending authority. The language also provides notice
requirements and other due process protection for the lenders.
Providing the SBA with the authority to regulate SBLCs and
NFRLs will aid the SBA's lender oversight efforts by allowing
the SBA some degree of influence over lenders who are not
otherwise fully regulated by financial regulatory agencies.
The Committee believes that these provisions, as well as
continued oversight by the Committee and diligence by the SBA,
will aid the agency in conducting a more effective lender
oversight program.
Disaster Assistance Loan Program
The Disaster Assistance Loan Program is the SBA's largest
direct lending program. Disaster loans are the primary form of
Federal assistance for non-farm, private-sector disaster
losses. The disaster loan program is the only form of SBA
assistance that is not limited to small businesses.
The SBA makes two types of disaster loans. Physical
disaster loans provide funds for the permanent rebuilding and
replacement of uninsured disaster damages to privately-owned
property. These loans are available to homeowners, renters,
non-profit organizations, and non-farm businesses of all sizes.
Economic injury disaster loans provide working capital to small
businesses, until normal operations resume, after a disaster.
Economic injury loans are restricted to small businesses.
The bill clarifies a note within Section 7(c)(6) of the
Small Business Act to confirm the existence of a $1.5 million
maximum amount per loan for disaster loans to entities that are
identified as major sources of employment for their area. The
Committee expects that this clarification will not change the
standard that the SBA employs, but will simply place that
standard within the statute.
In addition, the bill includes the substantive provisions
of the Small Business Drought Relief Act of 2003 (S. 318),
introduced by Senator Kerry, which was passed by the Senate on
April 1, 2003. This section of the bill clarifies the SBA's
authority to provide emergency assistance, through disaster
loans, to non-farm-related small businesses that have suffered
substantial economic harm from drought. Currently, in cases of
drought, the SBA takes the position that it is only authorized
to provide disaster loans to businesses whose revenue is tied
to farming and agriculture. The Committee believes that the
agency's interpretation of current law results in the exclusion
of a large number of businesses, including businesses in the
tourist industry, that can be adversely affected by droughts.
This section includes in its definition of ``disaster'' below-
average water levels in the Great Lakes or any other body of
water in the country that is used for commercial purposes.
Finally, the bill reauthorizes and extends the SBA's
Disaster Mitigation pilot program, which offers pre-disaster
loans, under the SBA's disaster loan program, to small business
borrowers. Small businesses may borrow up to $50,000 to protect
their property by taking specific measures to mitigate against
potential damage from a future disaster. This pilot program was
originally authorized in 2000 for a five year period from
Fiscal Year 2000 through Fiscal Year 2004. Because the pilot
program was only recently implemented by the SBA and because
the agency's current authorization only extends through
September 30, 2003, the Committee reauthorizes this pilot
program for four years, through Fiscal Year 2006, instead of
the original five years, to be consistent with the three-year
reauthorization cycle. By reauthorizing the pilot program, the
Committee believes that the SBA should implement the program in
order to provide sufficient time to test the efficacy of this
pilot and determine if disaster mitigation will decrease the
need for actual Disaster Assistance Loans, as originally
envisioned.
504 Loan Program
The 504 Loan program assists small businesses in financing
real estate, as well as investments in machinery and equipment.
In the past three years, the SBA has approved guarantees for
more than 15,000 new loans through the 504 Loan program--almost
3,000 for new business start-ups and more than 12,000 for
existing small businesses. The total number of jobs created and
retained as a result of these loans was 325,471 during the
three-year period.
The bill makes significant changes to the 504 loan program
to improve its efficiency for existing participants and to
encourage its usage by more small businesses. The Committee
believes the changes will simplify the program and render it
more accessible to small enterprises.
Of primary importance, the bill extends, through Fiscal
Year 2006, fees paid by the borrowers, the first mortgage
lenders, and the Certified Development Companies (CDCs) under
the 504 program. These fees cover the subsidy rate of the
program, and therefore the program requires no appropriations.
The fees are as follows: The first mortgage lender pays a one-
time up-front fee of 0.5 percent of the amount of the first
mortgage. The CDC pays an annual fee of 0.125 percent of the
outstanding amount of each debenture authorized after September
1996. In addition, the borrower pays an annual fee based on the
outstanding amount of the debenture. The exact amount of this
fee, which can be up to 0.975 percent per year, is determined
by SBA in order to maintain a zero subsidy rate for the
program.
The bill also amends the Small Business Investment Act of
1958 (SBIA) to address overcapitalization in the loan loss
reserve accounts of Premier Certified Lenders (PCLs).
Overcapitalization in these accounts reduces the funds
available for PCLs to lend to small businesses. The bill
adjusts loan loss reserve requirements to allow PCLs to have
more capital available for loans, while maintaining sufficient
reserves, as required by law, to cover loan losses.
Under current law, upon making a loan, a PCL has two years
to make payments into a loan loss reserve account that equals
one percent of the loan's initial exposure. For example, if a
PCL makes a $1 million loan that amortizes over ten years, the
PCL must have contributed $10,000 into its loan loss reserve
after two years. Despite the fact that this loan would be
amortizing over the next eight years, the PCL must maintain
$10,000 in its loan loss reserve for the duration of the loan.
The bill allows PCLs to utilize their capital better by
providing that, after two years, PCLs need only retain in their
loan loss reserve one percent of a loan's outstanding exposure.
This result should make more capital available to PCLs and
thereby enable PCLs to make more loans to small businesses and
create more jobs.
Additionally, the bill provides PCLs with an option to
operate under a newly established loan loss reserve program.
PCLs that elect to participate would maintain in their loan
loss reserve accounts at least $100,000, plus additional funds
necessary to protect the government adequately from risk of
loss. The calculation of the appropriate levels for lenders'
respective loan loss reserves will be performed by an
independent accounting firm approved by the SBA. PCLs that
elect to participate in this program will be defined as
``qualified high loss reserve PCLs.''
The bill also requires the SBA to contract with another
Federal agency, or with a member of the Federal Financial
Institutions Examination Council, to study the extent to which
statutory requirements have caused overcapitalization in PCLs'
loan loss reserves, and identify alternatives for establishing
and maintaining loss reserves sufficient to protect the Federal
government from risk of loss. The Committee believes that
amending the existing reserve requirement, offering PCLs a new
reserve option, and studying the causes of overcapitalization
will help to remedy the problem of overcapitalization in loan
loss reserves, thus allowing PCLs to make more loans to small
businesses.
In light of rising costs of real estate and fixed assets
since the last reauthorization in 2000, the bill authorizes the
SBA to increase its maximum 504 loan guarantee from $1 million
to $1.5 million for general 504 program loans, and from $1.3
million to $2 million for loans that achieve a ``public policy
goal.'' The nine public policy goals currently identified by
the statute are: rural development; expansion of exports;
expansion of minority business development; business district
revitalization; enhanced economic competition; restructuring
because of Federally-mandated standards or policies; changes
necessitated by Federal budget cutbacks; expansion of small
businesses owned and controlled by veterans; and expansion of
small businesses owned and controlled by women. An amendment
proposed by Senator Bayh to increase the maximum loan guarantee
size for manufacturing loans, from $2 million as initially
proposed to $4 million, was also approved by the Committee.
The Committee believes that these increased loan limits
will assist qualifying small businesses in obtaining needed
capital. The manufacturing sector, in particular, should
benefit from an increase in the SBA's maximum loan guarantee
amount for manufacturing loans. Manufacturers will have a
greater opportunity to engage in larger, more expensive
projects that will help them expand their operations and,
ultimately, hire more employees. It is also the Committee's
hope that increasing access to long-term fixed-rate loans to
manufacturers will improve the competitiveness of U.S.
manufacturers.
The bill also updates the SBIA's job creation standards for
small businesses that receive 504 loans. Since 1990, the SBA
has required that small businesses receiving 504 loans certify
that, for each $35,000 that the SBA guarantees, the small
business is creating one job. The standard is amended by
requiring non-manufacturing small businesses to create one job
per $50,000 in SBA guarantees. Pursuant to the amendment
proposed by Senator Bayh and approved by the Committee, the
standard for loans made for manufacturing purposes is raised to
a requirement that such a loan create one job per $100,000 in
SBA guarantees.
The Committee believes that the changes in the job creation
requirements will give lenders more flexibility in making
loans, allow more small businesses to qualify for loans, and
enable existing 504 participants additional operating
flexibility. Quickly escalating costs in the manufacturing
industry justify granting manufacturing entities less
restrictive job creation standards. The bill also provides for
a waiver process, either for CDCs that temporarily do not meet
the job creation requirements, or for projects that do not meet
the job creation levels but that achieve an economic
development goal, as detailed in the statute.
In addition to expanding the size of 504 loans, the bill
also addresses the complexities of obtaining such a loan.
Section 246 of the bill requires the SBA to develop a
simplified application for the 504 loan program. Participants
in the Committee's roundtable on May 1, 2003, discussed the
fact that CDCs spend an inordinate amount of time processing
SBA application forms for 504 program loan guarantees. The
amount of paperwork that is required for 504 loans is far
greater than for comparable loans in other programs or in the
private sector.
While a substantial amount of paperwork may always be
necessary for real estate-based loans, participants in the 504
program have called for the SBA to develop simplified forms and
a quicker processing system. Progress toward the latter goal is
being made, in part, by the SBA's current pilot program to
centralize loan processing, but improvements for the entire
program must still be made. Simplifying the application forms
and process would reduce the time CDCs spend processing loans,
thus enabling them to provide more loans to small businesses
and to provide them more quickly.
Accordingly, the bill requires the SBA to develop and make
available to CDCs, within 180 days of the enactment of this
legislation, a shorter, more concise, and simplified
application for 504 program loan guarantees of not more than
$400,000. Furthermore, the SBA must develop a similarly
simplified application that will be available for 504 program
loan guarantees of all sizes within 270 days of the enactment
of this legislation.
The legislation does not specify how the SBA should
simplify the application and reduce paperwork. However, the
Committee strongly urges the agency to work with the trade
association of 504 lenders, the National Association of
Development Companies (NADCO), to comply with the bill's
requirements in a meaningful way. The Committee also urges the
SBA to expedite this process by utilizing the SBA's study on
streamlining the application process, completed in the late
1990s, rather than duplicating those efforts and expenses.
Recognizing the critical need for child care in the United
States, the bill includes a pilot program to allow small non-
profit child-care providers to participate in the 504 program.
The section incorporates the provisions of the Child Care
Lending Pilot Act of 2003 (S. 822), which Senator Kerry
introduced on April 8, 2003.
At its May 1, 2003 roundtable, the Committee heard from
participants in the child-care industry regarding the shortage
of affordable child care in the United States. This new three-
year pilot program responds to that shortage by enabling CDCs
to make 504 loans to qualifying non-profit child-care
providers. The pilot program will be available through Fiscal
Year 2006.
While neither the SBA nor its specific loan programs are
designed to serve non-profit entities, the Committee believes
that non-profit child-care providers warrant special
consideration because the industry is unique and the shortage
is so severe in many states. The Committee recognizes that
child care can be extremely difficult to obtain. In addition,
in order to qualify for certain types of Federal assistance for
low income families, a child-care provider may be required to
organize as a non-profit, rather than a for-profit, entity,
which can have a negative impact on the entity's ability to
obtain necessary capital. Whereas most service industries are
made up of for-profit businesses, in many states a significant
portion of child care is delivered through non-profits, and in
the neediest communities non-profits are often the only child-
care providers. For example, the following states have high
percentages of non-profit child-care providers: Oregon (79
percent), Michigan (86 percent), Iowa (77 percent), Ohio (62
percent), and Massachusetts (90 percent). The Committee
recognizes that entrepreneurs and employees, particularly
women, cite a lack of child care for their children as a
substantial obstacle to their ability to be more actively
involved in the small business sector of the economy.
Accordingly, the Committee believes it appropriate to
authorize a pilot program to determine whether the 504 loan
program could serve as a useful means to deliver capital to
child-care providers, without changing the general nature of
the 504 program. The Committee notes, too, that permitting non-
profit child-care providers to participate in the 504 program
is not completely unprecedented, as the SBA's microloan program
has permitted loans to be made to non-profit child-care
providers since 1997.
The Committee stresses, however, that it does not intend to
expand the SBA's loan programs to other types of non-profit
entities in the future. The fundamental purpose of the SBA is
to foster profitable small businesses and the entrepreneurs who
start them. In order to ensure that this pilot program does not
impede the ability of for-profit businesses to access capital
through the 504 loan program, the bill limits the pilot program
to seven percent of the number of 504 loans guaranteed in any
year.
Moreover, the Committee recognizes that in some
circumstances, 504 loans to certain non-profit child-care
providers could be based on collateral that may be difficult
for the lender to access. In light of that potential, the bill
requires that the collateral provided for a loan be owned
directly by the child-care provider. The loan also must be
personally guaranteed, and the borrower must have sufficient
cash flow from its normal operations to both make its loan
payments and pay for customary operating expenses. Furthermore,
the bill directs the General Accounting Office to provide to
Congress a comprehensive report analyzing the pilot program, as
the program nears the end of its three-year pilot period.
As noted previously, loans that achieve one of nine
``public policy'' goals enumerated in the statute, can be
larger in amount than regular 504 loans. One such public policy
goal is rural development. The SBA currently classifies rural
areas as those jurisdictions that have less than 20,000
residents and are not in an urbanized area adjacent to a
jurisdiction with more than 20,000 residents. In contrast, the
definition of ``rural'' used by the U.S. Department of
Agriculture (USDA) is based on jurisdictions with more than
50,000 residents. As a result, a rural area may qualify for
benefits under USDA programs, but not under those offered by
the SBA.
The bill eliminates this disparity by modifying the SBA's
definition of ``rural'' to include jurisdictions that have less
than 50,000 residents. The Committee believes that this change
will expand the number of small businesses in non-urban areas
that are eligible for the ``public policy'' 504 loans.
Additionally, conforming to the USDA's definition of ``rural''
will eliminate any potential confusion inhabitants of rural
areas could encounter when interacting with both the SBA and
the USDA.
Finally, the bill includes several sections relating to the
504 program that also pertain to other SBA programs (these
provisions appear in the bill under Subtitle G). Section 261
allows small businesses to participate simultaneously in both
the 504 and 7(a) programs by receiving loans under both
programs. In order to ascertain the extent to which this
combination of loans is utilized by small businesses, the SBA
should require that lenders report to the SBA's fiscal and
transfer agent those 7(a) loans that are made to small
businesses that also have 504 loans. In addition, the fiscal
and transfer agent should provide this information to the SBA
so the agency can include it in its annual budget request and
performance plan submitted to Congress.
The second provision, Section 262, conforms the guidance
provided under both the 504 and 7(a) programs regarding the
extent to which small businesses may lease property financed
through SBA programs. The Committee approved this SBA proposal
in order to reduce ambiguities under the current leasing
guidance and to eliminate the potential for inconsistent
results for similar borrowers one with a 504 loan and the other
with a 7(a) loan.
Section 263 increases the ability of small businesses to
receive investments from an SBIC while also receiving loans
under either the 504 or 7(a) loan programs. While recognizing
that increasing the amount of borrowed and equity capital that
a small business can receive subject to an SBA guarantee may
increase the agency's exposure to loss, the Committee believes
that the additional risk will be small and counterbalanced by
the benefits of expanding available capital for small
businesses. In addition, the bill limits the exposure by
permitting a small business with an SBIC investment to obtain
borrowed capital only from the 504 or 7(a) loan program, but
not both, and by continuing to count 50 percent of the borrowed
capital against the maximum SBIC investment.
Surety Bond Program
Under the SBA's Surety Bond Guarantee Program, the SBA may
guarantee bid, payment, and performance bonds for eligible
small contractors for contracts of up to $2 million. The SBA
may provide sureties up to a 90 percent guarantee to issue
bonds on behalf of small businesses.
Currently, the SBA does not guarantee bonds for any
contract with a total value greater than $2 million. The bill
clarifies that the SBA may guarantee bonds for specific
contracts of $2 million or less when the total range of
affiliated contracts exceeds $2 million, or has the potential
to exceed $2 million. The surety's bond liability, however, may
not exceed $2 million.
The reason for this modification involves circumstances
under which a small business seeks bonding for a sub-contract
award on an Indefinite Delivery Indefinite Quantity (IDIQ)
contract, or similar contract, when the value of the entire
contract is larger than $2 million. A small business that
receives an award on an IDIQ that is $2 million or less, may be
denied a bonding guarantee by the SBA under the current law
because the value of the entire contract exceeds the $2 million
threshold. In these circumstances, the bill makes it clear that
the SBA may provide a bonding guarantee to the small business.
Even if the contract's total value exceeds $2 million, the SBA
may guarantee bonding if a small business's specific award does
not exceed $2 million, the surety's bond liability does not
exceed $2 million, and the SBA judges the contract
satisfactory.
The Committee is particularly interested in the manner in
which the SBA promotes, advertises, and manages both the
Preferred Surety Bond Guarantee Program and the Surety Bond
Guarantee Program. These programs bear significant potential to
assist small businesses to compete more effectively in a
difficult economy, and the Committee is concerned by reports
that the SBA is not adequately promoting the programs or
maximizing their usefulness. The Committee believes that the
SBA should work with contracting officers in all government
agencies to ensure that they understand the SBA's surety bond
program and that, when appropriate, contract solicitations
should be structured in a way that permits small businesses to
participate fully in the bid process.
In addition, the Committee believes it is important that
the SBA ensure that these programs are managed by personnel
with adequate training and experience to understand the
circumstances under which small businesses bid for contracts
and attempt to obtain surety bond guarantees. Finally, the
Committee is also concerned by reports that the SBA's surety
bond guarantee approval process has increased from a few days
to up to 2 weeks; clearly, the SBA must provide small
businesses with a quick and efficient approval process.
Pilot program for guarantees on pools of non-SBA loans
Section 265 of the bill authorizes the SBA to develop a
three-year pilot program for providing a partial guarantee on
pools of loans that are not otherwise guaranteed by the SBA.
The SBA's budget request and performance plan for Fiscal Year
2004, submitted in February 2003, reported that the SBA was
considering such a proposal. The proposal was also discussed at
the Committee's roundtable on April 30, 2003. At the
roundtable, the SBA reported that it had been exploring this
type of program, but the agency was uncertain if it had the
authority to develop and implement such a program, absent
legislative authorization. The Committee has consulted with the
SBA and with participants in the small business financing
industry to determine the program's appropriate elements. The
bill authorizes, but does not require, the SBA to develop the
program if the SBA determines that it can be practically
implemented.
If the program is undertaken, financial firms approved by
the SBA would pool loans not individually guaranteed by the
SBA. These pooling entities would then issue securities
offering returns based upon the returns from the loans in the
pool. The securities would be rated by a rating agency and sold
to private investors.
The pooling entity would also offer a partial ``first-
loss'' guarantee to investors on the securities' returns. If
the loans had insufficient returns to pay the expected returns
on the securities, the pooling entity's guarantee would be the
first guarantee called into performance to pay investors. The
SBA would issue partial, not complete, ``second loss''
guarantees on the return from the securities, but not on
individual loans within the pool. The pooling entities'
guarantees would have to be completely exhausted before the
SBA's guarantees would be called upon. The Committee intends
that the SBA's guarantees would be funded entirely by fees
charged to the private investors, with no appropriations to be
made for the program. The program, if implemented, will sunset
at the end of Fiscal Year 2006 unless it is reauthorized by
Congress.
The rationale for this proposal is to increase effective
liquidity for small businesses, and for community banks, by
improving the quality and amount of loans available to small
businesses. The pooling structure is based on similar
arrangements for home mortgages, credit card loans, and car
loans, which have active secondary markets based upon their
pooling and securitization. The dual guarantee structure, and
the quality of the loans involved, should allow substantially
all of the securities issued for each pool to be rated as
investment grade. The Committee believes that this program
would allow lenders, including community banks, to benefit from
the increased liquidity of small business loans and to utilize
capital that is otherwise locked into existing loans, and
therefore to provide better terms on loans to small businesses,
as well as to make more small business loans.
The Committee has received statements of support for the
pilot program from representatives of small businesses that
believe the program could improve access to capital, and could
improve the terms of obtained capital, for many small
businesses, particularly those without significant real estate
property to use as collateral. Financial firms currently
involved in the pooling and securitization of SBA 7(a) and 504
loans have also expressed their support for the program, and
have opined that it will increase small businesses' access to
effective capital.
The Committee has addressed many specific comments about
the program by adding elements to the bill. As noted, the SBA's
guarantees are intended to be funded entirely by fees paid by
private investors, and will only be needed if the pooling
entities' guarantees are fully exhausted. It is the Committee's
expectation that the types of loans that will be included in
the pools will be unlike the loans currently made in other SBA
programs. The Committee realizes that the SBA must craft the
program's details, and the bill gives the SBA the flexibility
to develop a program that is feasible and that will produce
additional lender capital for many small businesses, without
negatively affecting other small businesses.
The bill also requires three separate types of reports: (1)
The SBA must provide to the Committee and to the Committee on
Small Business of the House of Representatives a report
detailing the pooling program before it is implemented, and
wait 50 days after submitting the report before implementing
the program; (2) the SBA must file with the Congress, in the
SBA's Budget Request and Performance Plan, an annual report
about the program's performance; and (3) the GAO is required to
study the program, if implemented, and report on the program's
performance, including any effects the program may have on the
504 or 7(a) programs, before calendar year 2006.
In light of concerns raised by Senator Pryor, the Committee
agreed that as the bill moved to consideration by the Senate,
the Chair would work with Senator Pryor and other Members of
the Committee to address such issues and ensure that the
pooling proposal provides the greatest benefit to small
businesses in need of capital while limiting risk to the
Federal government.
New Markets Venture Capital Program
Several participants at the Committee's May 1, 2003,
roundtable described their experience with the New Markets
Venture Capital (NMVC) program and offered recommendations for
improving the program. Based on these recommendations and other
information received by the Committee, the bill sets a standard
time of two years for conditionally approved NMVC companies to
satisfy their requirements for final approval. This change will
give conditionally approved NMVC companies two years to raise
$5 million in private capital. By raising $5 million in private
capital, NMVC companies become eligible for matching funds
provided by the Federal government.
The current statute gives the SBA the discretion to allow
up to two years for NMVC companies to satisfy the private-
capital matching requirement. In the past, the SBA has set the
time limit for raising private capital at various lengths;
currently, the SBA has set the limit at two years.
Establishing the time standard at a full two years will
provide NMVC companies more certainty in meeting their private-
capital obligations as well as granting potential investors in
aspiring NMVC companies a longer time-frame in which to
evaluate the NMVC companies and assess the merits of an
investment.
Additionally, the bill changes the definition of ``low-
income geographic area'' used in the NMVC program to conform
the definition more closely to the equivalent term used in the
New Markets Tax Credit (NMTC) program. Many investors
participate in both the NMVC and NMTC programs, and a uniform
definition will improve coordination between the two programs,
where applicable. The change will increase the flexibility that
NMVC companies have in choosing small businesses in which to
invest, by significantly broadening the definition of those
areas in which investment is permitted under the NMVC program.
Small Business Investment Company Program
The Small Business Investment Company (SBIC) Program
provides equity capital, long-term loans, debt-equity
investments and management assistance to small businesses,
particularly during their growth stages. SBICs are privately
owned and managed, profit-motivated companies, investing with
the prospect of sharing in the success of the funded small
businesses as they grow and prosper.
There are now 443 licensed SBICs, and these SBICs have made
more than 16,000 investments in small businesses since the
start of Fiscal Year 1999, with a total value of almost $17
billion. That is critical long-term or ``patient'' capital for
small businesses that has led to the creation and retention of
approximately 481,000 jobs during this period.
At the May 1, 2003 roundtable, the Committee discussed the
SBIC program and heard from representatives of SBICs as well as
from the SBA. In preparing this bill, the Committee worked with
participants in the SBIC industry to develop appropriate
changes to the current program. The bill contains several
provisions that are intended to strengthen the program and
improve the ability of SBICs to provide equity financing to
small enterprises.
Specifically, Section 281 provides SBICs with additional
flexibility for handling funds prior to investments in small
businesses by allowing SBICs to invest such funds in additional
types of securities. Currently, SBICs holding cash, prior to
investing in a small business, are only permitted to invest
directly in obligations of the United States, obligations
guaranteed by the United States, or in certificates of deposit
maturing within one year or savings accounts that are in
institutions insured by the Federal Deposit Insurance
Corporation or the Federal Savings and Loan Insurance
Corporation. The bill modifies this requirement to permit SBICs
to invest in securities, mutual funds, or instruments, which
themselves invest solely in the obligations that are currently
permitted. For instance, under the bill SBICs will be able to
invest in mutual funds that, in turn, invest in the government-
backed obligations already authorized for SBICs. The Committee
believes that this modification will provide SBICs with greater
flexibility and a wider range of short-term investment options.
Section 282 changes the maximum amount of the fee paid to
the SBA by SBICs that use participating securities backed by
the SBA. The Committee recognizes that this fee is necessary to
maintain a zero subsidy for the SBIC program. The bill provides
that, for each participating securities SBIC, the SBA may
charge a fee of up to 1.7 percent of that SBIC's outstanding
SBA-backed leverage. The annual fee for each SBIC that uses
debenture-backed financing will remain unchanged.
Section 283 changes the formula by which a participating
securities SBIC may distribute its profits, after it has repaid
accrued prioritized payments and tax distributions, to a
formula based on the SBIC's ratio of outstanding SBA-backed
leverage to total private capital as measured at the time of
distribution (whether or not the private financing has actually
been paid into the fund). The change will result in the SBA
receiving a greater percentage of distributions than is now the
case and result in the outstanding leverage of SBICs making
distributions under this section being repaid faster than under
current law.
The Committee believes that this change will allocate the
distributions from the SBICs in accordance with the ratio of
financial risk each party bears at the time of distribution.
Private capital commitments are binding in favor of the SBA,
and may be ``called'' by the SBA, until the SBA has been paid
its outstanding leverage upon completion of the fund. On the
other hand, the only money at risk for the SBA at the time the
distributions are made is the amount of SBA-guaranteed leverage
that is actually outstanding at the time.
Section 263 of the bill removes some of the restrictions
that small businesses face if they attempt to secure financing
that simultaneously involves the SBIC program and either the
7(a) or 504 loan programs. The SBA's regulations currently
prohibit an SBIC from having more than 20 percent of its
privately-raised funds invested in any one small business. The
SBA counts a small business' 7(a) and 504 loans against this 20
percent limit for any SBIC that owns more than 20 percent of
the small business, by requiring a guarantee of all or a
portion of the 7(a) or 504 loans. This provision will modify
the restriction so that, for an SBIC with an investment in a
particular small business, only 50 percent of the SBA loan
amount will be counted by the SBIC in determining the SBIC's 20
percent limit for any one portfolio company. A small business
must elect whether to use the benefit of this calculation for
either its 7(a) or 504 loan. It cannot use the benefit for both
a 7(a) and 504 loan. While recognizing that increasing the
amount of borrowed and equity capital that a small business can
receive subject to an SBA guarantee may increase the agency's
exposure to loss, the Committee believes that the additional
risk will be small and counterbalanced by the benefits of
expanding available capital for small businesses.
Small Business Intermediary Lending Pilot Program
The Committee included in the bill an amendment, proposed
by Senator Levin, to authorize a new three-year pilot program
in which the SBA may make loans to local non-profit lending
intermediaries, and the intermediaries can then re-loan the
funds to small businesses. The program seeks to address the
capital needs of start-up and expanding small businesses that
require flexible capital but may not be eligible for private or
public venture capital. The pilot program is aimed at
businesses that desire larger loans than can be provided under
the SBA's Microloan program and that, for a variety of reasons,
including lack of sufficient collateral, are unable to secure
the credit with practicable terms through conventional lenders,
even with the assistance of the 7(a) or 504 loan programs.
Through this pilot program, the SBA is authorized to make
one percent, 20-year loans, on a competitive basis, to up to 20
non-profit lending intermediaries around the country, with a
maximum amount of $1 million per loan. Intermediaries will not
pay any fees or provide any collateral for their loans. Each
20-year loan will capitalize a revolving loan fund through
which the intermediary will make loans of between $35,000 and
$200,000 to small businesses. These subordinated-debt loans
will be more flexible in collateral and general underwriting
requirements than the SBA's other lending programs. In
addition, intermediaries will assist their borrowers in
leveraging the SBA funds to obtain additional capital from
other sources. The pilot will test the impact of this program
on job creation in rural and urban areas, especially among
under-employed individuals.
Unlike the SBA Microloan Program, the intermediaries will
receive no technical assistance grants. All administrative
costs or technical support provided to small business borrowers
will be covered by the interest-rate spread between the lending
intermediary's one percent loan from the SBA and the interest
rate on loans made to the small business borrowers, the rate
for which will be set by the intermediary.
This program design has been utilized successfully in a
similar program at the U.S. Department of Agriculture (USDA)
that has provided loans to non-profit lending intermediaries
since 1985. Under that program, no intermediaries have
defaulted on their loans from the USDA, which are made at one
percent and have terms of 30 years, and only two percent of
intermediaries are currently delinquent on their loans. Unlike
the USDA's program, which is limited to rural areas, the pilot
will serve both urban and rural regions.
This pilot is designed to reach small businesses that 7(a)
lenders will not reach due to the perceived higher risk of
these businesses. Many states are fortunate to have a healthy
network of community based, non-profit intermediary lenders
that are experienced and successful in meeting the needs of
small businesses. This pilot program will give them additional
tools to stimulate the economy by creating jobs--including jobs
for low income individuals--and by facilitating new lending and
investing in businesses.
TITLE III--ENTREPRENEURIAL DEVELOPMENT PROGRAMS
The Committee's focus on the SBA's Entrepreneurial
Development Programs began with a clear objective--to ensure
that the investments in these programs would create a return to
the economy through successful business ownership and job
creation. A priority for the Committee was to review all of the
SBA's Entrepreneurial Development Programs to assess usage,
value and cost effectiveness based on data provided in the
agency's Budget and Performance Report for Fiscal Year 2002.
The result revealed the programs that work well and identified
the need for program improvements and the introduction of new
programs.
The potential users of entrepreneurial development programs
and services include not only 25 million small business owners
across the country, but also the millions of Americans who are
looking at small business ownership as an alternative to the
``traditional workplace'' where corporate America once offered
life-long futures for workers. Each year, there are 3 to 4
million new small businesses started and one quarter of
existing small business owners intend to form another small
business. These numbers, and the individuals behind the
numbers, generate 32 percent of total business wealth in the
country today. These statistics set the mark for the SBA to
provide the best possible programs and services through its
Regional and District Offices, its internet-based programs, and
network of resources partners--the Small Business Development
Centers, the Service Corps of Retired Executives, the Women's
Business Centers, and the Veterans Outreach Programs.
The SBA's Office of Entrepreneurial Development performs
program development, oversight duties, and administers program
delivery through its District Offices and agency funded
resource partners. The non-credit program offices include: the
Office of Business Initiatives (Business Information Centers,
SCORE, Drug-Free Workplace and e-Business Institute), the
Office of Small Business Development Centers, the Office of
Women's Business Ownership, the Office of Native American
Affairs, and the agency's Business Information Services (Answer
Desk and Publications). The agency's internet programs and
services include: the SBA Website, Internet Small Business
Classroom, Internet U.S. Business Advisor, and Internet
BusinessLaw.gov. Also included as a non-credit program is the
Office of Veterans Business Development, which reports to the
Administrator as prescribed under Public Law 106-50.
One of the agency's most successful initiatives is the
Business Information Centers (BICs) Program. The Committee
emphasizes the significance of the BIC program to encourage the
agency to continue to support and maintain this valuable
program and to consider using this model to expand the agency's
reach to entrepreneurs in urban and rural areas. Individuals
considering small business ownership, as well as established
small business owners, find that the BIC's products provide the
level of self-help reference tools and computer workstations
necessary to improve the process of making informed business
decisions.
Aided by counseling services and workshops provided by the
Service Corps of Retired Executives or the Small Business
Development Centers, the BIC is a concept that the SBA should
make a cornerstone in any transformation plans. The agency has
placed the BIC product in several off-site locations, not
within agency District Offices and not supported by Federal
government facilities, locations that have proven to be more
accessible to entrepreneurs. The agency must review its present
policy of not allocating funds to support the off-site
locations of the BICs to maintain the integrity of the program.
The SBA is one of the smallest Federal government agencies
but has the greatest potential customer base. In general, the
agency's entrepreneurial programs and services are broad and
diverse, developed to meet the special needs of small
businesses. The Committee recognizes the tremendous challenge
of preparing tomorrow's small business owners and the need to
offer stability to established small businesses facing every
possible challenge--from lack of financing to the inability to
handle rapid growth. So, with this three-year reauthorization
bill, the programs contained in Title III address the needs and
concerns brought to the Committee's attention by small business
owners, small business advocates and organizations, and the
SBA.
Office of Entrepreneurial Development
Service Corps of Retired Executives
The Service Corps of Retired Executives (SCORE) has grown
to more than 800 service delivery locations, providing training
and free counseling through its 10,500 volunteer members to
almost a half million entrepreneurs last year. The projected
costs for providing SCORE services in Fiscal Year 2002 was $30
per client--the most cost effective of all SBA funded programs.
In recognition of the increasing need for services provided by
SCORE, the Committee believes that SCORE should receive the
full authorized funding level of $7 million for Fiscal Years
2004, 2005, and 2006.
In order to clarify that SCORE should continue to have
office space and paid personnel to support its Headquarters in
Washington, D.C., Section 8(b)(1)(B) of the Small Business Act
was amended. SCORE operates as a volunteer organization and
leverages gifts and contributions to provide its counselors
with the tools and technology they need to better serve
entrepreneurs. Therefore, Section 8(b)(1)(B) was amended to
allow SCORE to manage the gifts and contributions that the
organization receives.
Cosponsorship authority
In the Small Business Reauthorization Act of 2000, at the
request of the SBA, the Committee provided broader
cosponsorship authority in order to expand the types of
assistance that could be provided to small businesses to
include ``information and education.'' At that time, the agency
believed that this change would provide the flexibility in the
types of assistance it could provide to small businesses. Since
1980, the agency has used the cosponsorship authority to
leverage its limited resources with public and private partners
in the delivery of programs and services. Although Congress has
amended the authority in past reauthorization bills, the agency
proposed much broader authority for the next six Fiscal Years.
Based on concerns resulting from a report prepared by the
SBA Office of Inspector General, issued August 26, 2002, the
Committee concluded that further review of the agency's
cosponsorship authority and gift authority is necessary before
additional provisions are granted. The report was performed at
the request of the Administrator to review allegations of
fiscal improprieties involving gift acceptance and
cosponsorship authority. The review concluded that the
activities in question were not managed in accordance with the
SBA and Federal policies and procedures. However, the events
were not considered ``cosponsorships'' as defined by the Small
Business Act.
Since the cosponsorship authority is critical to the
agency's ability to conduct marketing and outreach activities
that assist entrepreneurs and promote the agency's programs and
services, the Committee will continue to work with the agency
to identify actions necessary to clarify the intent, purpose
and practice of the cosponsorship and gift authorities so that
the agency can perform in a manner that is without question and
does not place participating agency personnel in jeopardy of
abusing the process unknowingly. In addition, the Committee
believes that any changes to the cosponsorship authority should
include adequate protections against abuse in order to protect
the agency, small businesses, and taxpayers. A major concern
related to the SBA's request involved the handling of cash
contributions and disbursements for purchases, the purchase of
apparel for agency employees, and the payment of expenses
incurred by agency personnel with donated funds.
The bill extends the existing authority for the Fiscal
Years 2004, 2005, and 2006, without additional amendments to
provide the Committee with the opportunity to work with the
agency to ensure that the cosponsorship authority and gift
authority have adequate protections against possible abuse, as
well as avoid the appearance of abuse.
Small Business Development Centers Program
Since 1980, the Small Business Development Centers (SBDCs)
have been essential in the delivery of counseling assistance
and educational programs to prospective and existing small
business owners through their 58 host sites and more than 1,100
sub-centers, which employ more than 5,000 professional and
clerical personnel. The SBDC program assists more than half of
the entrepreneurs that SBA reports serving each year.
Therefore, its value goes well beyond the actual projected
``return on investment''--each Federal dollar invested in
counseling produced a $2.80 return in tax revenue in Fiscal
Year 2002, and created or retained 132,000 jobs in the United
States.
Section 101(c) of the bill provides funding authorization
for the SBDC program in the amount of: $125 million in Fiscal
Year 2004, $130 million in Fiscal Year 2005, and $135 million
in Fiscal Year 2006, which will allow the SBDC network to meet
the growing demand for its business education programs and
counseling assistance nationwide. In addition, the SBDCs also
participate in Federal grants administered by the agency to
fund: the Drug Free Workplace Program; BusinessLINC Program;
and the Federal and State Technology Partnership and Rural
Outreach Programs.
The Committee elected not to accept the Administration's
proposal to restructure the SBDC program as a result of concern
for the communities presently served by the program. The
Committee does, however, support the need for greater oversight
of program participants and the need to open the program to
growth and diversity. The Committee encourages the Association
of Small Business Development Centers to consult with the
agency to develop a uniform level of quality and accountability
for all SBDCs participating in this program. As well, the
agency's oversight duties must adhere to the highest level of
programmatic and financial review to ensure that the SBDC
participants meet the agency's requirements as defined in
Section 21 of the Small Business Act.
A privacy requirement, proposed by Senator Crapo, amends
Section 21(c) of the Small Business Act to protect client
information by prohibiting the disclosure of client information
(including the name, address, telephone and facsimile numbers,
and e-mail address) without the written consent of the client.
The provision is modeled after a section of the Kerry-Ensign
Small Business Regulatory Assistance Act, S. 1255. In addition,
the bill changes the use of the word ``certification'' to
``accreditation'' for purposes of the SBDC program to
distinguish the agency's certification programs and the
Association of SBDCs accreditation program for SBDCs.
A new program under Section 112(c)(3) of this bill was
added to provide grants to eligible SBDCs to deliver portable
small business assistance on a temporary basis in communities
experiencing severe economic challenge as a result of industry/
military base downsizing or closing or other major events
(other than natural disasters) that increases job loss or
causes small business instability. The change would enable the
SBDC program to be more flexible in creating programs and
services that provide assistance to small businesses challenged
by a particular economic crisis, or displaced workers seeking
to take skills and transform them into a small business.
While the bill reserves $1 million of the SBDC appropriated
funds for the portable small business assistance program, it is
not the intention of the Committee to disrupt the current
funding formulas of appropriated funds for the SBDC program.
Based on the need for SBDCs to have the flexibility to respond
temporarily to communities in distress, the Committee
encourages the SBA to move forward with this program as
appropriate.
PRIME reauthorization and transfer to the Small Business
Act
PRIME (Program for Investment in Microentrepreneurs) was
created in 1999 when the PRIME Act was incorporated and amended
in the Gramm-Leach-Bliley Act as part of the U.S. Department of
the Treasury's Community Development Financial Institutions
Program, but the conferees chose to have the program
administered by the SBA. However, the statutory provisions were
never moved to the Small Business Act. The bill reauthorizes
PRIME and transfers the statutory provisions pertaining to this
program from the Riegle Community Development and Regulatory
Improvement Act of 1994 to the Small Business Act.
Additionally, the bill adds a data collection provision
that is intended for grantees that provide training and
technical assistance to disadvantaged entrepreneurs. Under
PRIME, the SBA provides grants to intermediaries, which use the
PRIME grants to (1) train other intermediaries to develop
microenterprise training and services programs; (2) research
microenterprise practices; or (3) provide training and
technical assistance to ``disadvantaged entrepreneurs.'' For
continued evaluations and awarding of grants, the
Administration should continue to evaluate all grantees as it
has under regulations set forth in 13 CFR Part 119.
In keeping with Section (e)(4) ``Diversity,'' the Committee
reminds the SBA that PRIME is intended to serve very low-
income, or otherwise disadvantaged entrepreneurs, wherever they
may live. Any criterion applied to determine grants made under
this Act should not discriminate against urban, rural or
suburban applications, as long as they meet the service
standards outlined therein. The income status of potential
clients--not their location--is to serve as the criteria for
reviewing applications for PRIME funding.
In Fiscal Years 2001 and 2002, PRIME grants were issued in
the total amounts of $15 million and $5 million, respectively.
For Fiscal Year 2003, the estimated level of PRIME grants is
approximately $5 million. The bill authorizes $15 million to be
available for PRIME grants for Fiscal Years 2004, 2005, and
2006.
Women's Small Business Ownership Programs
During the course of the Committee's hearings, roundtables,
and discussion groups, witnesses and participants identified
the following: the lack of SBA programs that meet the needs of
existing small businesses; great concern for pilot
sustainability grants program for the Women's Business Center
Program; the need for specific research to be conducted by the
National Women's Business Council; and the limited
opportunities for Federal government contracts for women. In
general, women business leaders expressed their frustration
with the agency, the lack of results from all agency programs
and services for existing women business owners, the inactivity
of the National Women's Business Council and Interagency
Committee on Women's Business Enterprise, and the lack of
connection with the ``real world problems'' facing women
entrepreneurs on a day-to-day basis.
These concerns led to the introduction of two key pieces of
legislation by Senator Snowe in 2003, the Women's Small
Business Programs Improvement Act (S. 1154) and the Women's
Business Centers Preservation Act of 2003 (S. 1247), the latter
being cosponsored by Senator Kerry. Measures addressed in these
bills were incorporated and perfected for reauthorization
purposes. S. 1154 addressed the need to improve the broad
spectrum of programs and services for women entrepreneurs, and
S. 1247 was introduced to offer a stop-gap measure to stabilize
Women's Business Centers operating under the Pilot
Sustainability grant program.
Small Business Administration Office of Women's Business
Ownership
The bill provides authority for the SBA's Office of Women's
Business Ownership to develop and make available new programs
and services for established women owned businesses addressing
issues in the areas of women in manufacturing, technology,
professional services, retail and product sales, travel and
tourism, international trade and Federal government
procurement. The Committee expects that these new programs and
services will be developed in consultation with the National
Women's Business Council, the Interagency Committee on Women's
Business Enterprise, and representatives of the women's
business centers associations.
The bill also directs the SBA to conduct training for
District Office Women Business Ownership Representatives
(existing personnel who are responsible for marketing and
outreach activities) and District Office Technical
Representatives (existing personnel who are responsible for
grant programmatic and financial oversight duties) and to
provide resources for the District Offices to carry out their
responsibilities.
Women's Business Center Program
The Women's Business Center Program, established in 1988,
provides long-term training and counseling to encourage small
business ownership through more than 80 non-profit
organizations. The Women's Business Center program has been
well received by recipient users and has become a unique
resource for women entrepreneurs--proving to be of great
benefit to the SBA in its quest to serve greater numbers of
entrepreneurs. Therefore, the Committee has questioned the
agency actions in support of opening new centers in new
locations before stabilizing established centers through
continued funding opportunities. The SBA has stated that after
initial funding, the centers should be able to provide services
independent of the grant program. However, since a requirement
of the Women's Business Center program is to conduct outreach
and long-term assistance to the underserved markets on a ``no-
fee'' basis, it would be difficult for a center to become self-
sufficient. The Committee supports the agency's positioning
itself to first meet the obligations of renewal grant funding
for productive centers before creating new centers.
Under the bill, beginning in Fiscal Year 2004, the Women's
Business Centers program will operate on a permanent basis
replacing the Pilot Sustainability Grants Program. Existing
Women's Business Centers will be eligible to submit proposals
every three years as they graduate from existing grant awards.
To avoid a repetition of unexpected and unannounced actions by
the SBA in the future that may create a detrimental impact on
the delivery of programs and services, the bill clearly sets
forth the process and criteria that the agency must follow in
administering the women's business center grant program. This
process should include a review of SBA's evaluation criteria
that centers must produce an annual 10 percent increase in
client growth and SBA guaranty loans.
To improve this process, the bill directs the agency to
streamline and reduce the reporting requirements and costs of
the centers recognizing the limited grant award and limited
human resources within the centers. All of the eligible
associations that represent Women's Business Centers (WBCs)
will also have an opportunity to consult with the SBA Office of
Women's Business Ownership for the purpose of developing
training programs for centers and recommendations to improve
the policies and procedures governing the operations and
administration of the program.
National Women's Business Council
The National Women's Business Council was created by the
Women's Business Ownership Act of 1988 to serve as an advisory
body to the President, the Congress and the SBA. Its members
came from the public and private sectors, and was so
constituted to respond to criticism of the Interagency
Committee's inactivity. By separating from the Interagency
Committee, the Council was better able to focus on its advisory
mission. The 1997 Small Business Reauthorization Act provided
for improved reporting duties and Council appointments. The
2000 Small Business Reauthorization Act increased the annual
authorized appropriation from $600,000 to $1 million to allow
the Council to broaden its scope in research and reports,
establish advisory councils, conduct conferences, and establish
an interstate communication network.
To build upon the foundation previously established for the
Council, the Committee incorporated the Administration's and
Council's requests to change its research formula and
establishes a 30 percent allocation of appropriated funds for
specific research. In addition, the bill provides the Council
with the authority to create a clearinghouse on women's
business ownership. In addition, through the establishment of
three new subcommittees, the bill enables the Council to share
common issue areas with the SBA's Office of Women's Business
Ownership and the Interagency Committee on Women's Business
Enterprise that include manufacturing, technology, professional
services, retail and product sales, travel, international
trade, procurement and Federal contracting. The bill also
provides the Council with the same cosponsorship authority as
the SBA in order for it to expand research and program
activities for women-owned small businesses.
To ensure the Council's continuity and independence, the
bill clarifies membership representation. The Council has 15
members representing small businesses and small business
organizations, with the Chairperson appointed by the President,
six members representing women's business organizations, and
the remaining eight members appointed by the SBA Administrator
based upon recommendations of the Chair and Ranking Members of
the Committee and the Committee on Small Business of the House
of Representatives. Of these eight ``party-affiliated''
members, four are to come from the same political party as the
President and four are not to be of the President's party.
In response to the Committee's concern about the
appointment process for Council members, Senator Landrieu
proposed an amendment, which was adopted by the Committee, to
establish fairness in the appointment of Council members as a
result of an imbalance in membership representation between the
two political parties for almost two years. The amendment calls
for equal representation of the two political parties in the
process of appointing members to fill vacant seats on the
Council and requires the Administrator to report to Congress on
vacancies that remain unfilled for more than 30 days. The
report must cite in detail the status of all vacancies,
identifying the type of vacancies, the process the Council will
follow, and the notice of any anticipated delays in filling the
vacancies.
Interagency Committee on Women's Business Enterprise
In 1977, an interagency task force was formed, and by
Executive Order 11213, in May 1979, the task force was re-named
the Interagency Council. In 1988, the Women's Business
Ownership Act (Public Law 100-533) replaced the Interagency
Council with a joint public-private sector National Women's
Business Council. The SBA Reauthorization and Amendment Act of
1994 (Public Law 103-403) revised the Interagency Council's
structure again, returning to all public-sector participants to
comprise an expanded Interagency Committee on Women's Business
Enterprise.
In 1994, by separating the private-sector Council from the
public-sector Interagency Committee, it was thought that the
Council would be the pro-active force to inspire action by the
Interagency Committee. The 1997 Reauthorization Act,
incorporated a requirement that representatives on the
Interagency Committee report directly to the head of their
agency on the Interagency Committee's activities. There is no
funding authorization provided under current law to support the
activities on the Interagency Committee. Nor are there clear
directives on the operations and interaction of the Federal
agency and department representatives.
Currently, the Interagency Committee includes
representatives from Departments of Commerce, Defense,
Education, Energy, Health & Human Services, Labor,
Transportation, and Treasury, the SBA, General Services
Administration, Office of Federal Procurement Policy, National
Aeronautics and Science Administration, Environmental
Protection Agency, the Federal Reserve, and the Executive
Office of the President.
The Federal agencies and departments represented on the
Interagency Committee allocate existing personnel and resources
to support participation on the Interagency Committee. The
Interagency Committee is required to submit an annual report to
the President and Congress, through the SBA, but there is no
record of the annual reports being prepared or forwarded to the
President and Congress for the past three years. In addition,
the President has not appointed a Chairperson to carry out the
mission of the Interagency Committee, and therefore, the
Interagency Committee is inactive.
To reactivate the Interagency Committee so that it can
accomplish its intended mission, the bill directs the SBA
Deputy Administrator to assume temporarily the responsibilities
of the Interagency Committee Chair if vacant until the
President makes an appointment. This action provides for the
continuity of activities and avoid periods of inactivity. The
bill also provides operational direction for the Interagency
Committee by requiring that the Interagency Committee conduct
three official meetings each year to plan upcoming Fiscal Year
activities; track year-to-date agency contracting goals; and
evaluate Fiscal Year progress and begin the report process.
The bill also establishes, as a subcommittee to the
Interagency Committee, a policy advisory group consisting of
representatives from the SBA, the Department of Commerce, the
Department of Labor, the Department of Defense, the Department
of the Treasury, two individuals and two organizations that are
members of the National Women's Business Council. The Committee
believes that the policy advisory group will return the
Interagency Committee to a mix of public/private members to
provide the support and direction so badly needed to revive the
intent of the Interagency Committee.
Office of Native American Affairs
The Small Business Administration Office of Native American
Affairs began operations in Fiscal Year 2003 to implement the
agency outreach program for Native American communities on or
near Tribal lands. The initiatives underway will pave the way
for the programs and services established in the bill, which
incorporate the Native American Small Business Development Act
(S. 1126), introduced by Senator Johnson and cosponsored by
Senators Kerry and Smith. Specifically, the bill establishes
three small business assistance programs to provide
entrepreneurial development opportunities for Native Americans.
Section 322 provides financial assistance (grants, without
a matching requirement, contracts, or cooperative agreements)
to Tribal Governments and Tribal Colleges through five-year
projects to provide financial, management, and marketing
education, including appropriate training and counseling. The
bill authorizes funding for training and technical assistance
to Native-American businesses through the Tribal Governments
and Tribal Colleges, including Alaska Native Corporations and
Native Hawaiian Organizations.
The bill also establishes two pilot programs. The first is
a four-year program offering two to four-year grants to provide
culturally tailored business development training and other
services to Native Americans and small businesses owned small
businesses. The second is a four-year pilot program for
American Indian Tribal Assistance Centers to provide assistance
to prospective and current owners of small business concerns
located on or near tribal lands. Both pilot programs sunset in
Fiscal Year 2007.
Office of Veterans Business Development
Congress established the Office of Veterans Business
Development through Section 201 of Public Law 106-50. The
office is responsible for the formulation, execution and
promotion of policies and programs of the SBA that provide
assistance to small businesses owned and controlled by veterans
and service-disabled veterans. The office works closely with
the local SBA field offices to provide small business support
and has implemented initiatives designed to increase agency
outreach targeting veteran entrepreneurs.
The bill extends the SBA's responsibility for the Office of
Veterans Business Development through Fiscal Year 2006. The
bill also increases the authorized funding level for Office of
Veterans Business Development to carry out the outreach
programs for veterans to $1 million for Fiscal Year 2004, $1.5
million for Fiscal Year 2005, and $2 million for Fiscal Year
2006.
The Advisory Committee on Veterans Business Affairs was
also established by Public Law 106-50, to serve as an
independent source of advice and policy recommendation to the
SBA Administrator, the SBA Associate Administrator of Veterans
Business Development, the Congress, the President, and other
policy makers. The Advisory Committee reviews, coordinates and
monitors plans and programs developed in the public and private
sector that affect the ability of small business concerns owned
and controlled by veterans to secure financing and access to
markets. The bill extends the SBA's responsibility for the
activities of the Advisory Committee on Veterans Business
Affairs through Fiscal Year 2006.
The Outreach Grants for Veterans Program is based on Public
Law 105-135, which instructed the SBA to do comprehensive
outreach to veterans. Public Law 106-50 more clearly defined
the scope of the outreach activities. The Committee understands
that the grant program that the SBA has planned for Fiscal
Years 2004 through 2006 will include the establishment of
Veteran Outreach Centers (presently in New York, Florida and
Texas) in each SBA region. The grant program, as funds are
available, would provide for training programs for veterans
entrepreneurs for small business start-up and expansion. The
program would also fund local veteran business councils to work
with District Offices and SBA resource partners (e.g., Small
Business Development Centers, Women Business Centers, Service
Corps of Retired Executives) to develop and conduct programs
and services to veterans.
The bill includes a proposal by the Administration to
clarify previously enacted statutory changes to the Small
Business Act to reflect that veterans shall have full
consideration in all SBA programs. Specifically, the provision
includes in the definition of ``veterans'' the term ``members
of a reserve component of the Armed Forces.''
TITLE IV--SMALL BUSINESS PROCUREMENT OPPORTUNITIES
Prime contracting
The Committee believes that the growth of the small
business share of Federal procurement continues to be too slow.
Twenty five years ago small businesses received 22.5 percent of
the dollars spent by the Federal government for goods and
services. In Fiscal Year 2002, small firms received
approximately 22.6 percent.
The Small Business Act requires small businesses to have
the maximum practicable opportunity to participate in the
performance of Federal government contracts. In 1997, the
Congress directed the President to increase the goal to 23
percent from 20 percent of the Federal government's prime
contract dollars to be awarded to small businesses for each
fiscal year. The SBA is responsible for coordinating goals with
Federal agencies to ensure that the Federal government achieves
the 23 percent goal.
The Committee believes measures that hold agency officials
more accountable for their performance will result in a larger
Federal contracting share for small businesses. Accordingly,
the bill requires the head of an agency, upon request, to
provide a complete report to the agency's congressional
appropriators on the agency's small business utilization. In
addition, the bill directs agency officials to communicate to
subordinate employees the importance of achieving small
business goals. It further directs agencies to include in the
annual performance evaluation for agency officials, a factor
that measures the success of that official in small business
utilization.
The SBA Procurement Center Representatives (PCRs) monitor
Federal agency procurement activity to ensure that (1)
appropriate steps are taken to provide contract awards to small
businesses, (2) agencies meet their small business contracting
goals, and (3) proposed contracts that could involve
consolidated procurement requirements are identified and
resolved. PCR responsibilities include: reviewing proposed
acquisitions and recommending alternative procurement
strategies; identifying qualified small business sources;
conducting reviews of small business programs at Federal
contracting activities to ensure compliance with small business
policies; counseling small businesses; and sponsoring and
participating in small business conferences and training.
The number of PCRs, however, has shrunk dramatically in the
last 10 years. The SBA Administrator testified before this
Committee on March 18, 2003, that 47 PCRs represent the SBA at
255 department and agency contracting offices across the
country. Of the approximately 2,200 Federal contracting
offices, PCRs are only able to cover 11.6 percent. These 255
contracting activities award approximately half of the total
Federal contracts each year.
The Committee believes that the failure to maintain
sufficient levels of PCRs diminishes the SBA's ability to carry
out its statutory mandate. Reports prepared by the GAO disclose
that the SBA is struggling to accomplish its mission and lacks
the assurances that PCRs were reviewing proposed acquisition
strategies to identify barriers to small business
participation. The GAO also concluded the number of PCR-
recommended small business set-asides has declined by more than
half in the last ten years.
More importantly, the Committee recognizes that acquisition
is a technical discipline that requires knowledge and
experience to manage effectively; therefore, tasking these
responsibilities to other SBA employees as a part-time function
will not address insufficient staffing levels. The Committee
believes that locating a PCR in the small business community
and at buying activities across the country improves the
ability of these individuals to advocate and effectively assist
in the procurement of contracts for small business.
The bill requires that the SBA allocate sufficient
resources to provide for at least one PCR in each state, in
addition to at least one PCR at each major procurement center.
In determining the extent of program expansion, the Committee
reviewed the current PCR staffing levels by state. The
Committee also reviewed the total dollar value of contract
awards by purchase office to determine which procurement
centers represented a significant portion of the total Federal
procurement budget. The Committee determined that a minimum of
25 additional resources would be necessary to ensure that there
are no less than one PCR at each major procurement center and
no less than one PCR for each state.
It further clarifies that these individuals shall be
independent of, and have responsibilities distinct from,
Breakout Procurement Center Representatives and Commercial
Market Representatives. Many small businesses that still are
not able to sell to the Federal government rely on these
individuals to help them navigate through the complicated
procurement processes.
Small business participation ensures competition. Failure
to use competition not only results in higher prices but also
deprives Federal agencies and the general public of the
benefits of a broader industrial base. The Committee recognizes
that small businesses offer innovative and creative solutions
to Federal agencies trying to carry out their governmental
functions, which then take advantage of these innovations to
deliver better quality products and services to the general
public.
Since the enactment of the Federal Acquisition Streamlining
Act (FASA) in 1994, Federal agencies are increasingly relying
on contracts and acquisition services offered by other
agencies, specifically, the GSA Federal Supply Schedule and
government-wide acquisition contracts, to purchase goods and
services. FASA included an amendment to the Small Business Act
that created an exclusive reservation for small businesses
consisting of contracts valued at more than $2,500 but not more
than $100,000.
Although GAO reports indicate that the level of small
business participation on multiple award contracts is growing
and is relatively higher than the share small businesses
receive on non-multiple award contracts, small businesses have
testified before the Committee that they invest time and effort
and incur costs to negotiate multiple award and multi-agency
contracts successfully with the General Services Administration
or an executive agent managing a government-wide acquisition
contract, and they never reap the benefit of an order placed
against that contract.
Therefore, to ensure small businesses are provided a fair
opportunity to be considered for orders on multiple award
contracts, the bill establishes a government-wide goal for
participation by small businesses of the dollar value of awards
placed against multiple award contracts, including Federal
Supply Schedule, at not less than 23 percent. In addition, to
protect small businesses further, the bill reserves orders on
multiple award schedules valued at more than $2,500 but not
more than $100,000 for small business. The Committee believes
this amendment emphasizes the Committee's original intent in
establishing a small business reserve.
Contract bundling
During the last several years, Congress has focused on
streamlining procurement processes to improve the Federal
government's capacity to acquire goods. These procurement
reforms included provisions to facilitate the increased use of
certain types of contracts. The Federal Acquisition
Streamlining Act of 1994 codified the authority of agencies to
enter into task-or delivery-order contracts with multiple firms
for the same or similar products and services known as multiple
award contracts. Information technology acquisition reforms of
the Clinger-Cohen Act of 1996 provided for the use of multi-
agency contracts and government-wide acquisition contracts.
In Fiscal Year 2002, more than 40 agencies spent
approximately $20 billion on the General Services
Administration's (GSA) schedule contracts, a more than 200
percent increase since 1997. With new regulations adopting
rules for ``co-operative'' purchasing use of information
technology schedules by state and local governments, the GSA
expects total sales to double over the next several years.
Reports by the GAO, however, disclose that some
organizations that represent small businesses are concerned
that these contract types can diminish the ability of small
businesses to compete for Federal contracts because they could
potentially consolidate multiple agencies' requirements or call
for performance over a wide geographic area.
The Committee believes stronger action is needed to address
the problem of contract consolidation. In pursuing operational
efficiencies, Federal agencies are making decisions, including
contract consolidation, that block small business access to the
Federal marketplace and the opportunity to compete.
As far back as 1983, the GAO determined that consolidated
procurements have the potential for limiting prime contract
awards to small business and may not always result in the
lowest cost to the Government. Contract bundling continues to
threaten small business. In the last ten years, the number of
small businesses receiving new contract awards has declined by
more than 50 percent.
According to a recent study for the SBA's Office of
Advocacy, conducted by Eagle Eye Publishers, Fairfax, VA, for
every 100 bundled contracts awarded, small businesses lose an
average of 60 contracts; and, for every $100 awarded on a
``bundled'' contract, there is a $33 decrease to small
business. At $109 billion in Fiscal year 2001, bundled
contracts cost small business $13 billion.
On March 18, 2003, small businesses and SBA officials
testified before the Committee on the detrimental effects of
contract bundling, specifically, the lost opportunity cost of
choosing among fewer firms, with fewer ideas and innovations,
to deliver goods and services at lower prices. This is a
defense readiness issue--by forcing agencies to continue to
look to small business sources, we ensure that the nation
maintains a greater industrial base.
By taking legislative action on this issue, the Committee
ensures that small businesses continue to have access to
Federal contracts and a fair opportunity to compete for those
contracts.
Several studies have pointed to weaknesses in the current
definition. The current term ``bundling of contract
requirements'' means consolidating two or more of an agency's
requirements for supplies or services, previously provided or
performed under separate smaller contracts, into a solicitation
for a single contract that is likely to be unsuitable for small
business because of the (a) diversity, size, or specialized
nature of the elements of the performance specified (e.g., too
many units for one small firm); (b) the aggregate dollar value
of the contract is larger than a small business can handle
financially; (c) the geographical dispersion of the contract
performance sites (e.g., having to perform a service in both
New Jersey and California, which a small business may not be
able to do); or (d) any combination of the factors described in
(a), (b), and (c).
This definition has led to implementation problems because
it does not account for all circumstances in which contracts
can be bundled together, and the prerequisite that it be
unsuitable for award to a small business concern. The
definition excludes new requirements. This definition also
excludes multiple award contracts, which are contracts awarded
under the GSA Multiple Award Schedule Program. Multiple award
contracts include any indeterminate delivery or quantity
contracts that are awarded to more than one firm.
In addition, some Federal agencies have interpreted the
requirement that a bundled contract is one that is ``unsuitable
for award to a small business concern'' to mean that if a small
business could submit an offer on a contract, it is not, by
definition, bundled. Because current law permits small
businesses to team together to perform a bundled contract, and
still be considered a small business, it is nearly impossible
for a contract ever to be ``unsuitable for award to a small
business concern.''
In light of the foregoing, the bill replaces the term
``bundling of contract requirements'' with ``consolidation of
contract requirements,'' which means the use of a solicitation
to obtain offers for a single contract or a multiple award
contract to satisfy two or more requirements of a Federal
agency.
The Committee believes that the new definition will
eliminate the issues with the current definition leaving room
for interpretation by the Federal agencies and will close the
loopholes in the current definition pertaining to multiple
award contracts. Moreover, it replaces the current definition
standard, concerning the diversity, size, specialized nature of
the elements of the performance specified, aggregate dollar
value, and the geographical dispersion of consolidated
requirements, with the following more meaningful standard.
Under the bill, a contract is consolidated if the total cost of
the contract for which the offers are now solicited is greater
in cost than the cost of the previously awarded individual
contracts.
The bill builds on the amendment offered by Senator Collins
to the Fiscal Year 2004 Senate Department of Defense
Reauthorization bill. That amendment established policy for
Department of Defense contract processes only. The Committee
has built on the amendment's definition language so that it
applies government-wide.
The bill also alters the current requirements under the
Small Business Act regarding procurement strategies when a
contract is consolidated to include a threshold level for
triggering the economic research requirements of the Small
Business Act. The Committee intends for agency heads, before
they proceed with an acquisition strategy that could lead to a
consolidated contract, to continue to conduct market research
to determine whether consolidation is necessary and justified.
The bill also includes language limiting the authority of
Federal agencies to execute such an acquisition strategy that
includes consolidated requirements with a total value in excess
of $2 million ($5 million for Department of Defense) unless the
agency demonstrates that the consolidation is necessary and
justified based on market research and identifies any
alternative contracting approaches that would involve a lesser
degree of consolidation.
Previously, agencies were required to provide a written
determination and findings to the SBA Administrator for each
consolidation strategy, regardless of dollar value. The bill
raises the dollar threshold for this requirement, which is
intended to target contracting actions that would most likely
involve contract consolidation.
For Federal agency contracts that contain consolidated
requirements with a total value in excess of $5 million ($7
million for Department of Defense), the bill directs agencies
to conduct a more extensive analysis of the benefits to be
derived from contract consolidation. This analysis includes a
rationale for not choosing alternative strategies that would
reduce or minimize the scope of the consolidation. The
Committee recognizes that an infinite number of alternative
strategies may exist and intends for Federal agencies to
evaluate reasonable alternative strategies that offer
substantial benefit.
An amendment proposed by Senator Crapo, which was approved
by the Committee, requires the GAO to study the feasibility of
establishing alternative thresholds based on industry
categories.
The Committee recognizes that successful small business
procurement strategies implemented on an ad hoc basis are very
difficult to institutionalize. A better approach is to identify
best practices and adopt them uniformly to synchronize the
process. Therefore, the bill also requires the SBA to include
in their annual contract bundling report to the Congress a new
section on best practices for maximizing small business prime
and subcontracting opportunities. The Committee intends for the
SBA to disseminate these examples to all departments and
agencies in the Federal government.
The Committee believes that the contract bundling
provisions included in the bill will do more to ensure that
small businesses have access to the Federal marketplace while
at the same time ensuring fiscal responsibility in government.
Subcontracting
Advocates of contract bundling allege that denying small
businesses access to prime contracts can be offset by ensuring
that such firms receive more subcontracts from the large firms
that are awarded the prime contracts. The Committee notes,
however, that the success of the small business subcontracting
program depends solely upon the voluntary good faith effort of
Federal prime contractors. And, while many large prime
contractors have taken the existing subcontracting policies
seriously, the Committee has received numerous reports from
small businesses that some prime contractors continue to treat
them unfairly. Additionally, there is little incentive for
prime contractors to award subcontracts to small businesses.
Small businesses testified at a hearing before the
Committee on March 18, 2003, that prime contractors used them
to create competitive subcontracting plans, helping the prime
contractor win a contract, only to have the prime contractor
not follow through with its subcontracting plan commitments
once the contract was awarded. If prime contractors are able to
continue to submit data on their subcontracting efforts but are
not held accountable for the accuracy of that data, they will
be tempted to submit incomplete or misleading information.
As a result, the Committee believes more aggressive action
is needed to increase the small business subcontracting share
of Federal prime contracts. Therefore, the bill makes several
changes to the Small Business Act that hold prime contractors
responsible for the validity of subcontracting data and impose
penalties for false certifications of past compliance with
small business subcontracting.
The bill imposes penalties on prime contractors that
falsify data in reports they file with Federal agencies. These
penalties mirror current penalties for entities that
misrepresent their status as a small business concern, a
qualified HUBZone small business concern, a small business
concern owned and controlled by socially and economically
disadvantaged individuals, or a small business concern owned
and controlled by women in order to obtain Federal contracts
and subcontracts included in Section 8(d) of the Small Business
Act, which are fines not more than $500,000, imprisonment for
not more than ten years, or both. The bill also authorizes
contracting officers to withhold prime contractor payment until
the prime contractor provides the agency with complete and
accurate subcontracting reports.
To prevent prime contractors from taking advantage of small
business subcontractors, the bill requires large prime
contractors to certify that they will use small business
subcontractors in the amount and quality used in preparing
their winning bid or proposal unless such firms no longer are
in business or can no longer meet the quality, quantity or
delivery date. If non-compliance with a subcontracting plan is
found to constitute a material breach of contract by the
contracting officer, these provisions require the contracting
officer to refer the case to the Inspector General of the
affected agency for investigation into the extent of criminal
activity or fraud. This review does not prevent the contracting
officer to use the tools available to correct this material
breach.
The bill also requires the SBA to share subcontracting
compliance review data with Federal contracting officers and to
update a national centralized government-wide database with
prime contractor past performance specifically related to
subcontracting plan compliance.
The Committee intends for Federal contracting officers to
use this data to provide prime contractors with an incentive to
increase small business subcontracting opportunities. The bill
includes amendments to Section 8(d), which provide for the
consideration of proposed small business participation as
subcontractors and suppliers as part of the process of
selecting among competing offerors for any contract award that
includes significant opportunity for subcontracting. In
addition, the bill calls for recognition of a prime
contractor's past performance in supporting small business
subcontracting participation in other Federal contracts.
Responding to concerns raised by small business interest
groups at the April 9, 2003, roundtable discussion concerning
the amount of time it takes to receive payment for work
performed on Federal subcontracts, the bill includes a
provision that directs the SBA to develop and implement a pilot
initiative, similar to the Navy/Marine Intranet contract direct
payment to subcontractors program, to test the feasibility of
allowing direct payments to subcontractors.
Contracting opportunities for women-owned small businesses
Both the Congress and the Administration have expressed
concern about the continued disparity between the number of
women-owned small businesses in the economy and the extent of
the government's contracting with them. The Federal Acquisition
Streamlining Act of 1994 established a government-wide goal for
participation by women-owned small businesses in procurement
contracts of not less than five percent of the total value of
all prime and subcontract awards for each year. Federal agency
progress towards increasing contracting for women-owned small
businesses has been slow, and the goal has never been reached.
In 2000, Congress passed legislation to allow for certain
small business procurement set-asides for women-owned
businesses. The legislation required the promulgation of
regulations to help implement these new set-asides. The
legislation, however, conditioned the regulations on a study to
be conducted by the SBA to identify the disparate treatment of
women in various procurement industries. This study would then
serve as the basis for the regulations governing set-asides for
women-owned small businesses. The Committee understands that
the SBA has completed a study; however, the study has never
been officially released.
In order to achieve the original goal of improving
contracting opportunities for women-owned small businesses, the
bill reassigns responsibility for the study to the GAO. The
Committee expects that the GAO can expeditiously and
impartially report the results of its review and analysis and
enable the SBA to move forward with the regulations authorized
in 2000.
Historically Underutilized Business Zone (HUBZone) Program
The Historically Underutilized Business Zone (HUBZone)
program was designed to direct portions of Federal contracting
dollars into areas of the country that in the past have been
out of the economic mainstream. HUBZone areas, which include
qualified census tracts, poor rural counties, and Indian
reservations, often are out-of-the-way places that the stream
of commerce passes by, and thus tend to be in low or moderate
income areas. These areas can also include certain rural
communities and tend generally to be low-traffic areas that do
not have a reliable customer base to support business
development. As a result, businesses have been reluctant to
move into these areas. It simply has not been profitable,
without a customer base to keep them operating.
The HUBZone program seeks to overcome this problem by
making it possible for the Federal government to become a
customer for small businesses that locate in HUBZones. While a
small business works to establish a regular customer base, a
Federal contract can help it stabilize its revenues and
maintain profitability.
In past years, the HUBZone Program has encountered issues
relating to the statutory requirement that a HUBZone firm be
entirely owned and controlled by individual U.S. citizens. This
requirement means that all HUBZone applicants need to be owned
by human beings and not business entities. Exceptions for
Alaska Native Corporations, Indian tribal governments and
community development corporations were added by Title VI of
the Small Business Reauthorization Act of 2000. A corporate
entity with an ownership stake in a small business
automatically disqualifies an otherwise eligible firm from
participation in the HUBZone program.
In general, a small business that is successful enough to
attract institutional investment is one that the Committee
believes should be eligible for the HUBZone program because
such a firm has the wherewithal to make a difference in the
distressed communities that the program seeks to reinvigorate.
Accordingly, the bill modifies the ownership requirements for
HUBZone small businesses to include any small business
investment company, specialized small business investment
company, New Markets Venture Capital company, or other similar
investment company, provided such ownership does not exceed 15
percent of the small business concern.
The Committee recognizes the economic ramifications of
military base closures and that the HUBZone program can harness
the strength and the creativity of the private sector by
providing incentive for small businesses to relocate to areas
suffering such ramifications. Therefore, the Committee intends
that military bases that close after the date of enactment of
this act, be designated as HUBZones in order to attract small
businesses to areas affected by base closure where there are
customers and a skilled workforce. The Committee believes that
new business and new jobs created through HUBZone small
businesses mean new life for areas affected by base closure.
TITLE V--MISCELLANEOUS
Minority Small Business Capital Ownership Development Program
The Small Business Act authorizes the 8(a) Program, which
is intended to help eligible small socially and economically
disadvantaged businesses compete in the American economy
through business development activities.
Believing it essential to further the success of the 8(a)
Program, Congress made three major legislative attempts--in
1978, 1980, and 1988--to improve the SBA's administration of
the 8(a) program and to emphasize business development aspects.
Changes to the program enabled 8(a) firms to receive
management, technical, financial and other services tailored to
their specific needs.
Reports prepared by the General Accounting Office disclose
that the SBA has continued to emphasize business management
skills instead of contracting opportunities. For example, since
Fiscal Year 1996, SBA has devoted 40 to 50 percent of its $2.6
million management and technical assistance training budget
under Section 7(j) to executive education for 8(a) firms. The
8(a) Business Development Mentor-Protege Program, which
encourages private-sector relationships with mentors, is
designed to help 8(a) firms compete more successfully for
contracts through assistance, such as financial, technical, and
management assistance provided by mentors. As of July 2003, the
SBA has more than 200 mentor-protege agreements in place.
To reflect this shift in program emphasis and achieve
consistency with the program purpose, the bill includes an SBA
proposal to change the name of the Office of Minority Small
Business Capital Ownership Development to the ``Office of
Business Development.''
Extension of authority for technology assistance programs
The SBA's primary small business technology assistance
programs are the Small Business Innovation Research (SBIR)
Program and Small Business Technology Transfer Program (STTR)
programs. Through the SBIR program, ten Federal agencies, which
have annual external research and development requirements of
more than $100 million, reserve 2.5 percent of their research
and development requirements for award to small businesses. In
its 20-year history, small technology firms have submitted more
than 250,000 proposals, which have resulted in over 60,000
awards worth more than $12 billion.
Similarly, under the STTR program, five agencies with
annual external research and development budgets of more than
$1 billion reserve 15 percent of these requirements for award
to collaborative efforts between small businesses and non-
profit research institutions. The STTR Program awards $70
million annually to small businesses.
While both the SBIR and STTR programs are currently
authorized through Fiscal Years 2008 and 2009, respectively,
and are therefore not addressed in the bill, two related
programs are reauthorized by the Committee. The Small Business
Innovation Research Rural Outreach Program provides grants to
approximately 25 states to increase participation in the SBIR
Program. Recognizing the important contribution that this
program makes for small business innovation and research, the
bill provides for authorization for the program through Fiscal
Year 2006.
The bill also provides authorization for the Federal and
State Technology Partnership program (FAST) through Fiscal Year
2006. FAST is a competitive grants program, that allows each
state to receive funding in the form of a grant to provide an
array of services in support of the Small Business Innovation
Research and Small Business Technology Transfer programs.
During its April 9, 2003, roundtable, the Committee
received comments and concerns from a wide range of
participants and supporters of these programs about the SBA's
Office of Technology that oversees them. According to the
agency, the Office of Technology has seen a reduction in
staffing and funding while its responsibilities relating to
monitoring and administering these programs have significantly
increased.
Specifically, the SBIR program has grown from providing $44
million in grants in Fiscal Year 1983 to $1.5 billion in Fiscal
Year 2002, and the STTR program has grown from $18 million in
Fiscal Year 1994 to $91 million in Fiscal Year 2002. Despite
doubling and tripling in program volume and responsibilities,
the staff resources have been cut from 10 to five employees,
and the budget over the past ten years has been cut from almost
$900,000 to $280,000.
Because the programs overseen by the SBA's Office of
Technology are too important to the development of innovations
in this country, the Committee urges the SBA to evaluate
carefully the staffing, travel and other resources required by
the Office of Technology as well as the status of the office
within the agency. If the Office of Technology is to ensure the
continued success of the SBIR, STTR, Rural Outreach, and FAST
programs, the agency must recognize the importance of the
office and dedicate sufficient resources for it to carry out
its responsibilities.
III. Committee Vote
In compliance with rule XXVI(7)(b) of the Standing Rules of
the Senate, the following votes were recorded on July 10, 2003.
A motion by Senator Snowe to adopt the amendment offered by
her and Senator Kerry to reauthorize the Program for Investment
in Micro-Entrepreneurs (PRIME) and to increase the amount of
technical assistance grant funds that Microlenders can use to
assist potential borrowers passed by unanimous voice vote.
The Chair also included in this amendment the following
four proposals:
(1) Senator Bayh's amendment to increase the amount
that manufacturers could borrow through the 504 loan
program and to increase the job creation requirement
for loans to manufacturers.
(2) Senator Crapo's amendment to add a GAO study on
the feasibility of setting contract bundling thresholds
according to industry categories rather than fixed
dollar amounts;
(3) Senator Landrieu's amendment to improve the
process for filling vacancies on the National Women's
Business Council; and
(4) Senator Levin's amendment to establish a Small
Business Intermediary Lending Pilot Program.
A motion by the Chair to adopt the Small Business
Administration 50th Anniversary Reauthorization Act of 2003 as
amended, to reauthorize the programs of the Small Business
Administration, and for other purposes, was approved by a
unanimous 19-0 recorded vote, with the following Senators
voting in the affirmative: Snowe, Kerry, Bond, Burns, Bennett,
Enzi, Fitzgerald, Crapo, Allen, Ensign, Coleman, Levin, Harkin,
Lieberman, Landrieu, Edwards, Cantwell, Bayh, and Pryor.
IV. 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 discussed in the
following letter from the Congressional Budget Office.
U.S. Congress,
Congressional Budget Office,
Washington, DC, August 1, 2003.
Hon. Olympia J. Snowe,
Chairman, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
Dear Madam Chair: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 1375, the Small
Business Administration 50th Anniversary Reauthorization Act of
2003.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Melissa
Zimmerman.
Sincerely,
Robert A. Sunshine
(For Douglas Holtz-Eakin, Director).
Enclosure.
S. 1375--Small Business Administration 50th Anniversary Reauthorization
Act of 2003
Summary: S. 1375 would authorize appropriations for fiscal
years 2004 through 2006 for the Small Business Administration
(SBA) and would make a number of changes to SBA loan programs,
programs that support entrepreneurship, and programs that
involve preferences for small businesses in government
contracting.
Assuming appropriation of the necessary amounts, CBO
estimates that implementing S. 1375 would cost about $3 billion
over the 2004-2008 period. About $1.6 billion of this amount is
the estimated subsidy and administrative cost of continuing SBA
credit programs, and $1.3 billion would be for other SBA
programs and activities. The remaining $0.1 billion is for
provisions related to federal procurement activities. Enacting
this bill would not have a significant effect on direct
spending or revenues.
S. 1375 contains no intergovernmental or private-sector
mandates as defined by the Unfunded Mandates Reform Act (UMRA).
Any costs incurred by state, local, or tribal governments would
be the result of complying with conditions of federal grants.
The bill would authorize $2 million per year for pilot programs
run by the Office of Native American Affairs (ONAA) over the
2004-2007 period.
Major Provisions: Title I would set the maximum amounts of
small business loans that could be guaranteed by SBA in 2004,
2005, and 2006. It also would authorize the appropriation of
funds for the Service Corps of Retired Executives (SCORE), for
technical assistance grants to recipients of microloans, and
for certain activities of the Small Business Development
Centers (SBDCs). Title I would authorize the appropriation of
such sums as may be necessary for the diaster loan program and
for administrative expenses to carry out the Small Business Act
and the Small Business Investment Act.
Title II would make a number of changes to SBA's loan
guarantee programs. It would require SBA to:
Collect fees from business-lending companies
sufficient to offset the cost of financial examinations
by SBA;
Reduce the initial and annual fees paid by
prospective borrowers under the 7(a) loan program;
Develop and implement a new subsidy model
for the microloan program by 2005; and
Establish a new pilot program at SBA to
guarantee pools of conventional small business loans.
Title III would reauthorize the Program for Investment in
Microentrepreneurs through 2006, reauthorize and amend several
Women's Small Business Ownership Programs, create grant
programs for Native American business development, and
reauthorize SBA's Outreach Grants for Veterans.
Title IV would authorize appropriations for the HUBZone
program for 2004 through 2006.
Title V would extend the authorization of appropriations
for the Federal and State Technology Partnership and Rural
Outreach Programs through 2006.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 1375 is shown in Table 1. The costs of
this legislation fall primarily within budget function 370
(commerce and housing credit).
TABLE 1.--SPENDING SUBJECT TO APPROPRIATION UNDER S. 1375
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------
2003 2004 2005 2006 2007 2008
----------------------------------------------------------------------------------------------------------------
SBA Spending Under Current Law:
Estimated Authorization Level 1....................... 765 0 0 0 0 0
Estimated Outlays..................................... 917 225 67 11 4 0
Changes to SBA Loan Programs:
Estimated Authorization Level......................... 0 536 549 561 0 0
Estimated Outlays..................................... 0 322 505 539 210 27
Changes to Noncredit Programs:
Estimated Authorization Level......................... 0 441 457 484 5 5
Estimated Outlays..................................... 0 190 307 411 241 141
Subtotal, Changes to SBA Spending:
Estimated Authorization Level......................... 0 977 1,005 1,045 5 5
Estimated Outlays..................................... 0 512 812 951 452 168
SBA Spending Under S. 1375:
Estimated Authorization Level 1....................... 765 977 1,005 1,045 5 5
Estimated Outlays..................................... 917 737 879 962 456 168
Changes to Federal Procurement Spending:
Estimated Authorization Level......................... 0 23 23 23 23 23
Estimated Outlays..................................... 0 14 23 23 23 23
Total Changes to Spending Under S. 1375:
Estimated Authorization Level......................... 0 1,000 1,028 1,068 28 28
Estimated Outlays..................................... 0 526 835 974 475 191
----------------------------------------------------------------------------------------------------------------
1 The 2003 level is the amount appropriated for SBA operations for that year.
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted near the beginning of fiscal year 2004 and
that the necessary amounts will be appropriated by the start of
each fiscal year. Outlay estimates are based on historical
spending rates for existing or similar programs.
Spending subject to appropriation
Most of the bill's budgetary effects would come from
reauthorizing existing SBA programs and would consist primarily
of the subsidy costs of direct and guaranteed loans. Provisions
affecting government procurement also would add to the cost of
implementing the legislation.
Small Business Administration. The bill would reauthorize
most of the programs administered by SBA through 2006. Based on
information from SBA and historical spending patterns for the
agency's programs, CBO estimates that implementing those
provisions would cost $2.9 billion (including about $1.6
billion for loan programs) over the 2004-2008 period.
Loan Programs. The bill would authorize SBA to guarantee
loans and make direct loans to businesses worth up to $29
billion in 2004, $30 billion in 2005, and $31 billion in 2006.
By comparison, the authorized loan level for 2003 is $29
billion, and in 2002, the agency's direct and guaranteed loans
were worth about $15 billion. S. 1375 would authorize the
agency to make an indefinite amount of disaster loans over the
2004-2006 period. Table 2 shows the loan levels that would be
authorized by the bill for SBA's guaranteed and direct business
loans and CBO's estimate of the amounts of disaster loans, as
well as the estimated subsidy cost and administrative expenses
for those loans.
The Federal Credit Reform Act of 1990 requires an
appropriation of the subsidy costs and administrative costs
associated with loan guarantees and direct loan program
operations. (The subsidy cost is the estimated long-term cost
to the government of a direct loan or loan guarantee,
calculated on a net present-value basis, excluding
administrative costs.) The bill does not specify an explicit
authorization for either the subsidy or administrative costs
for the guaranteed, direct, or disaster loans, and CBO
estimated these amounts based on historical information about
the operation of those programs.
The estimated subsidy rates for the different types of
business loans and loan guarantees offered by SBA ranges from
zero to about 9 percent. Based on historical data for those
loan programs and incorporating minor program changes required
by this bill, CBO estimates that the subsidy costs for the
authorized levels of guaranteed and direct business loans would
be $189 million in 2004, $195 million in 2005, and $200 million
in 2006.
Based on the current administrative costs for SBA's loan
programs, CBO estimates that the administrative costs for the
business loan programs would be $132 million in fiscal year
2004, $136 million in fiscal year 2005, and $140 million in
fiscal year 2006.
TABLE 2.--ESTIMATED SBA LOAN LEVELS, SUBSIDY COSTS, AND ADMINISTRATIVE COSTS UNDER S. 1375
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------
2004 2005 2006 2007 2008
----------------------------------------------------------------------------------------------------------------
Authorized Loan Levels
Guaranteed and Direct Business Loans............................... 28,650 29,905 31,160 0 0
Disaster Loans..................................................... 815 815 815 0 0
Loan Subsidy Costs
Guaranteed and Direct Business Loans:
Estimated Authorization Level.................................. 189 195 200 0 0
Estimated Outlays.............................................. 99 181 188 87 4
Disaster Loans:
Estimated Authorization Level.................................. 114 14 114 0 0
Estimated Outlays.............................................. 57 103 114 57 11
Loan Administration Costs
Guaranteed and Direct Business Loans:
Estimated Authorization Level.................................. 132 136 140 0 0
Estimated Outlays.............................................. 94 126 135 38 7
Disaster Loans:
Estimated Authorization Level.................................. 101 104 107 0 0
Estimated Outlays.............................................. 72 96 103 29 5
----------------------------------------------------------------------------------------------------------------
\1\ These are estimated loan levels, based on the historical experience of SBA's Disaster Loan Program.
For this estimate, CBO assumes that demand for SBA's
disaster loans would be near the average historical rate for
the past four years, excluding loans authorized to be made by
the Small Business Investment Company Amendments Act of 2001
immediately following the terrorist attacks of September 11,
2001. We estimate that SBA would make disaster loans worth $815
million a year over the 2004-2006 period. Over the last four
years, loan volume for the regular disaster loan program has
ranged from about $760 million to $870 million. CBO estimates
that the administrative costs for the disaster loan program
would be $101 million in 2004, $104 million in 2005, and $107
million in 2006. The estimated subsidy rate for disaster loans
is about 14 percent, based on the historical performance of
those loans.
Noncredit Programs. The bill would authorize the
appropriation of funds for noncredit programs that support
small businesses and other SBA activities, most of which the
agency does under current law. CBO estimates that continuing
those activities would require the appropriation of $1.3
million over the 2004-2008 period. Of that amount, the bill
would specifically authorize the appropriation of $763 million
for SBDCs, SCORE, technical assistance for recipients for SBA
microloans, the women's business council, the drug-free
workplace program, the HUBZone program, and various other SBA
programs designed to benefit businesses owned by Native
Americans and veterans over the 2004-2006 period.
Fees for 7(a) Loans. Section 202 would permanently reduce
the initial loan fee and the annual fees that borrowers pay
under the 7(a) program. In 2001, the fees associated with loan
guarantees under the 7(a) program were temporarily reduced by
the Small Business Investment Company Amendments Act of 2001.
Based on information provided by the Administration, CBO
assumes for this estimate that the reduced fees would only
apply to loans made in 2004 and after, and would not affect
loans made before those fees were reduced in 2001. The
estimated subsidy rate set by the Administration for fiscal
year 2003 for the 7(a) program is about 1 percent. That subsidy
estimate considers the lower fees that are temporarily in
place. Thus, CBO estimates that permanently reducing the fees
would not change the current subsidy rate for the 7(a) program.
By permanently lowering the 7(a) program fees, this
provision would increase the subsidy rate from what it would
otherwise be if the temporary reduction in fees were allowed to
expire. Because the number of 7(a) loan guarantees that the SBA
can issue in any year is limited by the amount of the subsidy
appropriation, the agency would be able to guarantee fewer
loans when the subsidy rate increases.
Interest Rate on Microloans. Under current law, SBA
microloans of $7,500 or less are eligible to receive an
interest rate reduction of 75 basis points below the interest
rate for direct loans in the microloan program. Section 211
would increase the maximum loan amount eligible for the
interest rate reduction to $10,000. Because more loans could
receive a lower interest rate under the bill, CBO expects that
this provision would lead to a minor increase in the subsidy
rate for the microloan program. Because of the small volume of
such loans, however, we estimate that the increased cost of
this provision would be less than $500,000 a year.
Examination Fees. Section 221 would require small business
lending companies to pay the costs of financial examinations
performed by SBA. Based on the amount SBA currently spends to
examine small business lending companies, CBO estimates this
provision would increase collections, which are an offset to
discretionary spending for those examinations, by $3 million a
year over the 2004-2008 period.
Pilot Program for Guarantees on Pools of Non-SBA Loans. A
common financial practice among commercial lenders and firms
that issue securities is to pool together large collections of
individual conventional and government-guaranteed loans. Such
loan pools are used to create asset-backed securities (ABSs).
The sale of such ABSs give lenders access to capital from the
secondary loan marketplace to fund new loans. Section 265 would
authorize a three-year pilot program that would enable the SBA
to guarantee pools of conventional small business loans (that
is, loans not guaranteed by SBA). Under the bill, the SBA would
guarantee a portion of the timely payments of scheduled
principal and interest due on the pooled loans that back those
securities in exchange for a fee paid by the issuers of those
ABSs. CBO estimates that SBA would charge the lenders or
issuers of the ABSs a fee of about 20 basis points to cover the
estimated subsidy cost associated with the program. Without
such a fee, SBA would require appropriations of about $2
million over the next three years to cover the estimated
subsidy cost of the program.
This legislation does not specify a particular structure
for the new SBA pilot program. CBO consulted firms involved
with small business credit to understand how this program might
work. There are many ways to structure such a program, and for
this estimate, CBO assumes that the lender or issuer of the
ABSs would assume a first-loss position and SBA would assume a
second-loss position. That is, the lenders or issuers of the
securities would realize losses before SBA would be called upon
to make good on its guarantee. (In contrast, a typical SBA loan
guarantee would cover 75 percent of any loss associated with
the underlying loan.) SBA has not decided how the risk shares
would be allocated for this program. To estimate the subsidy
cost associated with this program, CBO assumes that the first-
loss position would cover the first 5 percent of the loss and
that SBA would cover the next 20 percent of the loss. If SBA
were to cover a smaller portion of the loss, estimated subsidy
costs would be lower than this estimate. Alternatively, if SBA
were to cover a greater portion of the loss, estimated subsidy
costs would be greater than we have estimated here.
Over the past 10 years, there have been about 40 commercial
issues involving the securitization of conventional small
business loans, totaling about $4 billion. (The largest
offering by a single issuer was about $590 million in 1999.) In
contrast, the SBA reports that in 2001 the outstanding balance
on all small business loans totaled $460 billion. Industry
analysts that CBO consulted anticipate that the demand for a
secondary market for conventional small business loans would be
relatively small. Small business loans are often profitable for
lenders, and as a result, many lenders prefer to hold such
loans in a portfolio rather than sell them. Moreover, such
loans are not always the best candidates for pooling into
securities because as a group they are not homogenous, and
small business lenders do not currently adhere to a standard
set of underwriting guidelines, creating some additional
underlying risk for the firm issuing an ABS consisting of small
business loans.
This legislation would limit the number of entities that
could participate in the program to no more than five lenders
or issuers. Given this limitation on the number of participants
and information that suggests only modest demand for ABSs
backed by conventional small business loans, CBO estimates that
over the next three years, SBA would provide guarantees for
ABSs worth about $1 billion.
Under credit reform procedures, funds must be appropriated
in advance to cover the subsidy cost of loan guarantees,
measured on a present-value basis. Under this legislation, SBA
would be required to charge a fee that would cover--in whole or
in part--the cost of the credit subsidy for SBA's guarantee on
the pools of small business loans. CBO estimates that the
subsidy rate for this pilot program as outlined above would be
about 0.2 percent if no fees were charged to lenders or the
issuers of securities. Furthermore, CBO estimates that if SBA
charged an up-front fee of about 20 basis points, this
estimated subsidy cost would be offset and no additional
appropriations would be required. If, however, the participants
in the pilot program would not be willing to pay such a fee,
CBO estimates that the SBA would require appropriations of
about $2 million over the next three years to cover its cost of
expected losses under a $1 billion guarantee program.
Additionally, if SBA implements the risk share differently, the
program could be more costly and appropriations greater than $2
million would be required.
Small Business Intermediary Lending Pilot Program. Section
293 would authorize the SBA to make direct loans of up to $20
million over the 2004-2006 period for the new Small Business
Intermediary Lending (SBIL) program. The new program would be
similar to the existing direct loans made under the microloan
program but would feature lower interest rates, a longer loan
duration, and a longer grace period. CBO estimates that the
subsidy rate for the SBIL would be about 30 percent, or around
three times the subsidy rate for direct loans under the
microloan program. We estimate that the subsidy cost for the
authorized amount of SBIL loans would be about $6 million over
the 2004-2006 period.
Procurement Center Representatives. Section 401 would
expand the use of the federal procurement center representative
(PCR) program. Under the bill, the program would operate at
each major federal procurement center and in each state. The
PCR program helps small businesses obtain federal contracts.
According to SBA, there are 255 major federal procurement
centers. The PCR program currently operates at 47 of those
centers. CBO estimates that expanding the program to operate at
each major procurement center and in each state would cost $23
million a year.
Direct Spending and revenues
Premier Certified Lenders Program. Certified Development
Company (CDC) loans, also known as section 503 and 504 loans,
provide small businesses with long-term, fixed-rate financing
for the purchase of land, buildings, and equipment. The Premier
Certified Lenders Program allows a participating CDC the
authority to review and approve loan requests and to foreclose
litigate, and liquidate loans made under the program. Under
current law, CDCs can qualify as Premier Certified Lenders
(PCLs) if, among other requirements, they agree to pay 10
percent of SBA's potential loss on a defaulted 504 loan. A PCL
must hold 10 percent of this potential loss (i.e., 1 percent of
the total loan) in a reserve for the life of the loan.
Sections 242 and 243 would have two effects on the
requirements for loss reserves under the PCL Program. First,
the provisions would change the loss-reserve requirement from 1
percent of the total value of the loan to 1 percent of the
total loan outstanding. PCLs would be allowed to withdraw any
funds from their loss reserves in excess of this amount.
Second, certain PCLs would have the option to maintain an
alternate loss-reserve level based on risk rather than a fixed
percentage. The amount of the reserve would be determined by an
independent, SBA-approved auditor. under the two provisions, if
a PCL chooses this option, it must pay 15 percent of SBA's
total loss on defaulted CDC loans.
Under current law, the Administrator SBA must adjust an
annual fee on CDC loans to produce an estimated subsidy rate of
zero at the time the loans are guaranteed. Enacting sections
242 and 243 could affect the subsidy rates for previous cohorts
of CDC loans. Decreasing the loss reserve requirement for PCLs
would cause SBA to collect a smaller amount of recoveries if a
small business defaults on a loan and a PCL is unable to pay
its portion of SBA's total loss. However, increasing the
required loss coverage to 15 percent for PCLs that opt to
maintain a loss-reserve level base on risk would increase SBA's
recoveries on defaulted CDC loans. It is unclear if, taken
together, those effects would increase or decrease the average
subsidy costs for previous CDC loans. However, CBO estimates
that the net result of those two effects would not have a
significant impact on direct spending.
Civil Penalties. Sections 222 and 223 of the bill would
authorize SBA to impose civil penalties on small business
lending companies and SBA lenders that are not federally
regulated. Such penalties are recorded in the budget as
revenues. CBO expects that any increase in civil penalties
resulting from the enactment of S. 1375 would be insignificant.
Intergovernmental and private-sector impact: S. 1375
contain non intergovernmental or private-sector mandates as
defined by UMRA. The intergovernmental impacts, primarily
benefits, would be on tribal governments. Title III, the native
American Small Business Development act, would establish ONAA
would create and administer Native American Business Centers
and provide grants and other assistance to tribal governments
and businesses owned and operated by Native Americans.
Previous estimate: On June 5, 2003, CBO transmitted a cost
estimate for H.R. 923, the Premier Certified Lenders Program
Improvement Act of 2003, as ordered reported by the House
Committee on Small business on May 22, 2003. Provisions of that
bill are similar to sections 242 and 243 of S. 1375, and the
estimated costs for those provisions are the same.
Estimated prepared by: Federal Costs: Melissa E. Zimmerman,
Julie Middleton, Susanne Mehlman, Lisa Cash Driskill, Matthew
Pickford, and Matthew Schmit. Impact on State, Local, and
Tribal Governments: Sarah Puro. Impact on the Private Sector:
Cecil McPherson.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
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. Section-by-Section Analysis
Section 1. Short title; table of contents
The short title of the bill is the Small Business
Administration 50th Anniversary Reauthorization Act of 2003.
Sec. 2. Effective date
The provisions of the bill shall be effective on October 1,
2003.
Subsection (b) provides that unless otherwise stated, the
Administrator shall publish proposed regulations to carry out
the provisions of the bill within 180 days of enactment and
final regulations not later than 300 days after the date of
enactment.
TITLE I--GENERAL PROVISIONS
Subtitle A--Administration Accountability
Sec. 101. Document retention and investigations
Section 101(a) updates Section 10(e) of the Small Business
Act to emphasize that the Administration shall maintain its
documents and records for at least two years and to provide a
broader illustration of the types of documents and records
covered by the section.
In addition, this section clarifies that such documents
shall be available to the Committee and the Committee on Small
Business of the House of Representatives for their inspection
and examination. Specifically, the section provides that upon
the written request of either Committee, the Administrator or
the Inspector General, as applicable, shall make any documents
or records requested available to the requesting Committee or
its duly authorized representatives within 5 business days of
the request. This section further provides that if a document
or record cannot be made available within such time frame, the
Administrator or the Inspector General, as applicable, shall
provide the requesting Committee with a written explanation
stating the reason that each document or record requested has
not been provided and a date certain for its production.
Sec. 102. Management of the Small Business Administration
Section 102 transfers the responsibility for operating the
SBA's Office of Lender Oversight from within the Office of
Capital Access to the office of the Chief Operating Officer of
the SBA.
Subtitle B--Authorizations
Sec. 111. Program authorization levels
Section 111 provides authorization levels for Fiscal Years,
2004, 2005, and 2006 for the individual SBA programs.
(See Chart of Program Levels in Section II of the report
above).
Sec. 112. Additional reauthorizations
(a) Drug-Free Workplace Program Assistance
Section 112(a) amends Section 21(c)(3)(T) of the Small
Business Act by extending through October 1, 2006, the
assistance through Small Business Development Centers (SBDCs)
to provide small businesses with information and assistance to
establish drug-free workplace programs.
(b) Paul C. Coverdell Drug-Free Workplace Program
Section 112(b) amends Section 27(g)(1) of the Small
Business Act by extending the program for the Fiscal Years
2004, 2005 and 2006 at the authorized funding levels of $5
million each Fiscal Year.
(c) Small Business Development Centers Program
Section 112(c) amends Section 21(a)(4)(C) of the Small
Business Act to authorize the Small Business Centers Program
for: $125 million in Fiscal Year 2004; $130 million in Fiscal
Year 2005; and $135 million in Fiscal Year 2006.
Section 112(c)(3) reserves $1 million of appropriated funds
in Fiscal Year 2004, 2005, and 2006 to provide temporary SBDC
assistance in communities experiencing severe economic
challenge as a result of industry/military base downsizing or
closing that result in an increase of job loss or small
business instability. Grants of $100,000 or less will be
administered by the SBA.
TITLE II--FINANCIAL ASSISTANCE
Subtitle A--7(a) Loan Guarantee Program
Sec. 201. National Preferred Lenders Pilot Program
Section 201 amends Section 7(a) of the Small Business Act
by directing the SBA to operate a three-year pilot program in
which participants in the 7(a) Preferred Lenders Program (``PLP
program'') would be authorized to operate as a preferred lender
in any state or SBA district if the lender meets eligibility
criteria established by the agency. Currently, PLP lenders have
to apply for separate authorization in each SBA district in
which they operate.
This section also enumerates eligibility criteria to be a
National PLP lender, including: (i) demonstrated proficiency in
the PLP program for at least 3 years; (ii) annual loan
approvals of a minimum number of PLP loans to be determined by
the SBA, but excluding SBAExpress loans; (iii) operation by the
lender in at least 5 states or 10 SBA districts; (iv)
centralized loan approval, loan servicing, and loan liquidation
functions and processes that are satisfactory to the SBA, and
(v) consideration of any comments about the lender that may be
received from an SBA District Director or Regional
Administrator.
Sec. 202. Extension of program participation fees
This section makes permanent the two-year reduction of
borrowers' and lenders' fees enacted as part of PL 107-100. For
borrowers, it reduces one-time fees on loans of up to $150,000
from 2 to 1 percent, and for loans of $150,000 to $750,000 it
reduces the fee from 3 to 2.5 percent. For lenders, it reduces
the annual guarantee fee from 0.5 to 0.25 percent. This fee is
paid on the outstanding balance of the loan guarantee.
Sec. 203. Loans sold in secondary market
Currently, the Small Business Act permits lenders to sell
the guaranteed portion of their 7(a) loans to investment firms,
which package groups or ``pools'' of 7(a) loans and then sell
shares of those pools to other private investors. Section 203
amends Section 5(g) of the Small Business Act to allow loan
pools to be comprised of loans with varying interest rates; the
pool's interest rate would reflect the weighted average
interest rate of such loans. Section 203 requires that the SBA
prescribe the maximum amount of variation in the loan
characteristics in order to enhance marketability of the pool.
Sec. 204. Clarification of eligibility for veterans
This provision clarifies that all veterans, not just
service-disabled veterans, are eligible to receive 7(a) loans.
Sec. 205. Enhancement of Low Documentation Loan Program
The SBA's Low Documentation (``LowDoc'') Program allows
small businesses to apply for 7(a) loans using a simplified
one-page application form, and to receive a response from the
SBA within a few days. Section 205 increases the maximum size
of a LowDoc loan from the current $100,000 to $250,000. Under
current laws, loans under the general 7(a) program that are
less than or equal to $150,000 generally receive a guarantee
rate of 85% from the SBA (with the exception of Express loans),
and loans above $150,000 have a guarantee rate of 75%. The
change in the maximum LowDoc loan size will not effect those
guarantee rates.
Sec. 206. Increased loan amounts for exporters
Section 206 increases the maximum size of the 7(a) loan
that an exporter may receive. The section provides that a small
business that is involved in exporting products may receive an
SBA guarantee of up to $1.3 million on a 7(a) loan under the
SBA's Export Working Capital Program (``EWCP'') (instead of the
current maximum SBA guarantee of $1 million) and have a total
loan size of $2.6 million (instead of the current maximum loan
size of $2 million). In order to conform the size of the
guaranteed portion of an EWCP loan to that of a loan under the
SBA's International Trade Loan (``ITL'') Program, the section
also increases the maximum SBA-guaranteed portion of an ITL
Program loan from $1.25 million to $1.3 million.
Subtitle B--Microloan Program
Sec. 211. Microloan program improvements
Section 211 makes several changes to the Microloan program.
Section 211(a) permits an entity to be licensed as a microloan
intermediary even if that entity does not have institutional
experience as a microloan lender or technical assistance
provider, provided that the new microloan intermediary hires a
full-time employee with at least three years of experience
making microloans and the intermediary has at least one year of
experience providing intensive marketing, management, and
technical assistance to its borrowers.
Section 211(b) makes a change to the Small Business Act to
provide that microloan intermediaries that have a microloan
portfolio with an average loan size of not more than $10,000
can receive an interest rate lower than the normal rate
extended to intermediaries; previously, the statute provided
that an intermediary had to have an average loan size of not
more than $7,500 to receive a reduced interest rate.
Section 211(c) increases the amount of technical assistance
grants that an intermediary can contract out to a third-party
technical assistance provider from 25 percent to 30 percent.
Section 211(d) allows intermediaries to make revolving-term
loans or longer fixed-term loans to small businesses;
previously, intermediaries were only allowed to make ``short-
term'' loans with fixed terms.
Section 211(e) requires the SBA to make an annual report to
Congress about the SBA's performance of the current statutory
obligation to use microloan funds to assist intermediaries'
training.
Section 211(f) requires the SBA to develop and implement a
subsidy model for the microloan program to be used in the
Fiscal Year 2005 budget that is more accurate than the model
currently in use.
Section 211(g) increases the amount of a technical
assistance grant from the SBA that an intermediary can devote
to potential borrowers, rather than actual borrowers, from 25
percent of the grant to 30 percent.
Subtitle C--Lender Oversight
Sec. 221. Examination and review fees
Section 221 authorizes the SBA to charge and retain fees
from lenders participating in the 7(a) program for the cost of
the SBA's annual examinations of the lenders and any necessary
follow-up actions. The fee levels will be set by the SBA after
consultation by the SBA with lenders, and will be based upon
the size of the lenders' loan portfolios being reviewed.
Sec. 222. Enforcement authority for Small Business Lending Companies
and Non-Federally Regulated SBA Lenders
Section 222 provides the SBA with specific enforcement and
supervisory authority over Small Business Lending Companies
(``SBLCs'') and Non-Federally Regulated SBA Lenders, as now
defined in new Section 223, including the ability to issue
cease and desist orders, impose civil money penalties, and
remove officers and directors who are acting in an unsafe and
unsound manner. The enforcement language gives the SBA various
mechanisms to address substantive and technical legislative and
regulatory violations that do not warrant court action or
revocation of an SBLC's or Non-Federally Regulated SBA Lender's
lending authority. All mechanisms incorporate notice and other
due process protections for the regulated entity.
Sec. 223. Definitions for Small Business Lending Companies and Non-
Federally Regulated SBA Lenders
Section 223 codifies the definitions of the Small Business
Lending Companies (``SBLCs'') and Non-Federally Regulated SBA
Lenders over which the SBA is now statutorily authorized to
assert supervisory and other regulatory authority (see Section
222). SBLCs are defined as non-depository financial
institutions that only make loans under Section 7 of the Small
Business Act. The definition for Non-Federally Regulated SBA
Lenders identifies those entities as financial institutions
that make loans under Section 7 of the Small Business Act, are
not SBLCs, and are not regulated by the Farm Credit
Administration, the Federal Financial Institution Examination
Council, the Board of Governors of the Federal Reserve System,
the Office of the Comptroller of the Currency, the Federal
Deposit Insurance Corporation, the Office of Thrift
Supervision, or the National Credit Union Administration.
Subtitle D--Disaster Assistance Loan Program
Sec. 231. Conforming amendment for Disaster Assistance Loan Program
Current law allows businesses that are major sources of
employment for a particular area to receive disaster loans
``larger than $500,000,'' with a clarification in a note to the
Small Business Act that such loans cannot exceed $1.5 million.
Section 231 makes the conforming change to the Small Business
Act to codify the $1.5 million loan ceiling for these entities.
Sec. 232. Disaster relief for small business concerns damaged by
drought
Section 232 clarifies that SBA disaster assistance loans
may be made to farm-related as well as non-farm-related small
businesses that have suffered substantial economic harm from
drought. The definition of ``disaster'' for the purpose of this
section includes below-average water levels in the Great Lakes
or any other body of water in the country that is used for
commercial purposes.
Sec. 233. Disaster Mitigation Pilot Program
Section 233 reauthorizes and extends to Fiscal Year 2006 a
pilot program authorized in 2000 to offer pre-disaster loans,
under the SBA's disaster assistance loan program, to small
business borrowers in disaster-prone areas, such as areas with
frequent floods or tornadoes. A small business receiving a loan
under the program can use the loan proceeds to mitigate the
damage that may occur to the business from a future disaster.
Subtitle E--504 Loan Program
Sec. 241. Extension of user fees
Section 241 extends through fiscal year 2006 the 504
program fees paid by the borrower, the first mortgage lender,
and the Certified Development Company (CDC) under the 504
program. These fees cover the subsidy rate of the program, and
therefore the program requires no appropriations. The fees are
as follows: The first mortgage lender pays a one-time upfront
fee of 0.5 percent of the amount of the first mortgage. The CDC
pays an annual fee of 0.125 percent of the outstanding amount
of each debenture authorized after September 1996. In addition,
the borrower pays an annual fee based on the outstanding amount
of the debenture. The exact amount of this fee, which can be up
to 0.975 percent per year of the outstanding balance of the
loan, is determined by SBA in order to maintain a zero subsidy
rate for the program.
Sec. 242. Amortized loan loss reserve fund
This section allows a CDC to withdraw money from its loan
loss reserve as the borrower pays down the loan, so that the
amount in the reserve is always proportionate to the ratio of
CDC liability and the outstanding amount of the loan guarantee.
Sec. 243. Alternative loss reserve for certain premier certified
lenders
Section 243 permits lenders in the 504 Loan Program that
are Premier Certified Lenders (``PCLs'') to elect to operate
under a newly established loan loss reserve system based upon
risk. PCLs that elect to operate under the new system will be
required to maintain in their loan loss reserve accounts at
least $100,000, as well as any additional amount necessary to
allow the lender to meet its obligations to protect the Federal
government from risk of loss. Such PCLs will also be required
to assume greater exposure on the loans, increasing their
responsibility from 10 percent to 15 percent for any losses.
The provision also requires that the analysis of the
appropriate level for each lender that elects the new loss
reserve calculation will be done by an independent accounting
firm approved by the SBA.
Subsection (d) requires the SBA to contract with another
Federal agency, or with a member of the Federal Financial
Institutions Examinations Council, to study the extent to which
statutory requirements have caused overcapitalization in PCLs'
loan loss reserves, and to identify alternatives for
establishing and maintaining loss reserves sufficient to
protect the Federal government from risk of loss. This report
shall be delivered to the Committee and to the Committee on
Small Business of the House of Representatives not later than
180 days after the enactment of this Act.
Sec. 244. Debenture size
Section 244 amends Section 502 of the Small Business
Investment Act of 1958 (``SBIA'') to increase the maximum
potential size of a loan made to a small business by a
Certified Development Company (CDC). New subparagraph (b)(2)(A)
increases the maximum loan guarantee amount (now $1,000,000) to
$1.5 million under the general CDC program. New subparagraph
(b)(2)(B) increases the maximum loan guarantee amount (now
$1,300,000) to $2 million if the project being funded is
directed towards one of the nine categories enumerated as
public policy goals in Section 501(d)(3): rural development;
expansion of exports; expansion of minority business
development; business district revitalization; enhanced
economic competition; restructuring because of Federally
mandated standards or policies; changes necessitated by Federal
budget cutbacks; expansion of small businesses owned and
controlled by veterans; and expansion of small businesses owned
and controlled by women.
In addition, for small business loans that will be used for
manufacturing, this section increases the maximum size of the
SBA's guarantee to $4 million.
Sec. 245. Job creation or retention standards
The Small Business Act grants the SBA discretion to set a
job creation test for small businesses that receive 504 loans.
Since 1990, the SBA has required that small businesses
receiving 504 loans certify that, for each $35,000 guaranteed
by the SBA, the small business is creating or retaining one
job. Section 245 modifies that standard so that the small
business must create or retain one job for each $50,000
guaranteed by the SBA. For loans that will be used for
manufacturing, however, this section requires that the small
business create or retain one job for each $100,000 guaranteed
by the SBA.
Sec. 246. Simplified applications
Section 246(a) requires the SBA to develop and make
available to Certified Development Companies (CDCs) that make
504 loans, within 180 days of the enactment of this
legislation, a shorter, more concise, and simplified
application form for 504 program loan guarantees of $400,000 or
less. Subsection (b) requires the SBA to develop and make
available to CDCs, within 270 days of the enactment of this
legislation, a similarly improved application for all 504
loans.
Sec. 247. Child Care Lending Pilot Program
Section 247 provides for a new pilot program under which
non-profit child-care providers may qualify for loans under the
504 loan program. The pilot program is limited to 7 percent of
the number of loans guaranteed annually under the 504 loan
program. The section also requires the General Accounting
Office to submit a report on the pilot program to the Committee
and to the Committee on Small Business of the House of
Representatives by March 31, 2006.
Sec. 248. Definition of rural area
For purposes of the rural development public policy goal
that allows larger loans to be made under the 504 loan program,
Section 248 amends the SBIA by defining the term ``rural'' as
any area other than a city or town that has a population of
greater than 50,000 inhabitants and other than an urbanized
area adjacent to such a city or town. This change conforms the
definition used by the 504 loan program to that used by the
U.S. Department of Agriculture (USDA) for purposes of certain
programs administered by the USDA.
Subtitle F--Surety Bond Program
Sec. 251. Clarification of maximum surety bond guarantee
Section 251 clarifies that the SBA's $2 million limit on
surety bonds applies to the bond guarantee and not the contract
size.
Sec. 252. Authorization of Preferred Surety Bond Guarantee Program
Section 252 extends the authority of the SBA to administer
the preferred surety bond guarantee program through Fiscal Year
2006.
Subtitle G--Miscellaneous
Sec. 261. Coordination of SBA loans
Section 261 allows a small business to participate
simultaneously in both the 7(a) and 504 loan programs up to the
maximum loan limit in both programs.
Sec. 262. Leasing options for 7(a) and 504 borrowers
Section 262 simplifies the guidelines for leasing a portion
of property financed with an SBA 7(a) or 504 loan. Existing
legislation requires that 60 percent of the space must be used
by the small business and allows for 20 percent to be leased on
a long-term basis. The statute is silent on the remaining 20
percent. This section clarifies that the entire 40 percent can
be leased out and allows it to be leased on a short-term or
permanent basis.
Sec. 263. Calculation of financing limitation for small business
investment companies
Section 263 eases some of the restrictions that small
businesses with investments from Small Business Investment
Companies (``SBICs'') face when attempting to obtain loans
through the SBA's 7(a) or 504 programs. The SBA's regulations
currently prohibit an SBIC from having more than 20 percent of
the SBIC's privately raised funds invested in any one small
business. The SBA counts a small business's 7(a) and 504 loans
against this 20 percent limit for any SBIC investment. This
section modifies the restriction so that, for an SBIC with an
investment in a particular small business, only 50 percent of
the small business's 7(a) or 504 loan values will be counted by
the SBIC in determining the SBIC's 20 percent limit. A small
business must elect whether to use this calculation for its
7(a) or 504 loan; it may not apply to both types of loans.
Sec. 264. Establishing alternative size standard
Section 264 enables the SBA to establish an alternative
size standard for small businesses, for use in the 7(a) program
as well as the 504 program, that considers a business's net
worth and net income. This provision will simplify the 7(a)
lending process and provide small businesses with a streamlined
procedure for determining if they are eligible for 7(a) loans.
It will also conform the standards used by the 7(a) and 504
programs.
Sec. 265. Pilot program for guarantees on pools of non-SBA loans
Section 265 authorizes the SBA to develop a three-year
pilot program in which financial firms, after being licensed by
the SBA, could create ``pools'' of conventional (i.e., non-SBA)
loans made to small businesses and issue securities (which
would offer returns based upon the returns from the loans in
the pools), and sell these securities to investors. Under the
pilot program, the SBA would be permitted to issue partial
guarantees on the pools themselves, rather than on individual
loans. The SBA's guarantees will be in a ``second loss''
position, meaning that the private investors would suffer
losses before any SBA guarantee applied. Fees from the loan
pools will be placed into reserve accounts, which will fund the
SBA's guarantee costs. The section also requires the GAO to
study the pilot program and analyze its results, and requires
the SBA to report its plan for the program to the Committee and
the Committee on Small Business of the House of Representatives
before implementing the program.
Subtitle H--New Markets Venture Capital
Sec. 271. Time frame for raising private capital
Section 271 requires the SBA to provide each conditionally
approved New Markets Venture Capital company with two years to
raise its matching private capital. Currently, the statute
grants the SBA the discretion to allow up to two years for the
matching private capital to be raised.
Sec. 272. Definition of low-income geographic area
Section 272 amends the Small Business Investment Act of
1958 to modify the definition of ``low-income geographic area''
as it relates to metropolitan areas to provide more conformity
between the SBA's New Markets Venture Capital program and the
New Markets Tax Credit program. Specifically, the statute
currently provides that ``low-income geographic area'' means,
in the case of population census tracts or equivalent areas
that are within a particular metropolitan area, a census tract
or area with (1) a poverty rate of at least 20 percent, (2) a
substantial population of low-income individuals and an
inadequate access to investment capital, and (3) 50 percent or
more of the households in that census tract having an income
equal to less than 60 percent of the area median gross income.
This section modifies the last element of the definition, so
that the census tract or equivalent area qualifies as a ``low-
income geographic area'' if the first two criteria are met and
the census tract or area has a median household income that
``does not exceed 80 percent of the greater of the statewide
median household income or the metropolitan area median
household income.''
Subtitle I--Small Business Investment Company Program
Sec. 281. Investment of excess funds
Section 281 authorizes Small Business Investment Companies
(``SBICs'') to invest funds being held as cash in additional
types of securities. SBICs holding cash prior to investing in a
small business are currently only permitted to invest directly
in obligations of the United States or obligations guaranteed
by the United States, or in Federally insured savings accounts.
This section would permit SBICs to invest in instruments that
themselves invest in the obligations that are currently
permitted (e.g., mutual funds that invest only in U.S. Treasury
bonds).
Sec. 282. Maximum prioritized payment rate
Section 282 increases from 1.38 percent to 1.7 percent the
maximum amount of the fee paid by SBICs to the SBA, which is
needed to maintain a zero subsidy rate for the program. The
annual fee for each SBIC that uses bond-backed (debenture)
financing will not change, but the annual fee for each SBIC
that uses participating securities backed by the SBA will be up
to 1.7 percent of that SBIC's outstanding SBA-backed leverage.
Sec. 283. Improved distribution requirements
Section 283 allows SBICs using SBA-backed participating
securities to increase the distributions that they make from
their securities to investors, including the SBA, so long as
the principal the SBA provided to the SBIC is first repaid to
the agency.
Subtitle J--Small Business Intermediary Lending Pilot Program
Sec. 291. Short title
The short title for this subtitle is the ``Small Business
Intermediary Lending Pilot Program Act of 2003.''
Sec. 292. Findings
This section provides findings for the pilot program
detailed in Section 293.
Sec. 293. Small Business Intermediary Lending Pilot Program
Section 293 creates a new pilot program for the SBA to
provide long-term loans to intermediaries, which would then re-
loan these funds to small businesses in loan amounts of between
$35,000 and $200,000. This pilot program is intended to assist
small businesses that need loans larger than those available
through the Microloan program but, due to a lack of
conventional collateral, are unable to secure credit through
conventional lenders, even with the assistance of SBA's 7(a)
Loan Guarantee program. The pilot is also intended to create
employment opportunities for low-income individuals. This
section requires the SBA to provide reports about the pilot
program to the Committee and the Committee on Small Business of
the House of Representatives.
TITLE III--ENTREPRENEURIAL DEVELOPMENT PROGRAMS
Subtitle A--Office of Entrepreneurial Development
Sec. 301. Service Corps of Retired Executives
Section 301(a) amends Section 8(b)(1)(B) to confirm that
space and personnel support would be provided to the Service
Corps of Retired Executives (SCORE) Headquarters in Washington,
D.C. to oversee the program.
Section 301(a)(3) amends Section 8(b)(1)(B) to allow SCORE
to manage the gifts and contributions that the organization
receives.
Section 301(c) extends the SBA's current cosponsorship
authority for the Fiscal Years 2004, 2005, and 2006.
Sec. 302. Small Business Development Centers Program
Section 302(a) changes the word ``certification'' to
``accreditation'' in Sections 20(a)(1) and 21(k) to distinguish
the Association of Small Business Development Centers (SBDCs)
accreditation programs based on examinations of small business
development centers from the agency's certification programs.
Section 302(b) protects the privacy of SBDC clients by
prohibiting the disclosure of client information without the
client's written consent, unless it is required by a Federal or
state agency or for a SBA audit.
Sec. 303. PRIME reauthorization and transfer to the Small Business Act
Section 303 reauthorizes the Program for Investment in
Microentrepreneurs (``PRIME''), and transfers the statutory
language for PRIME to the Small Business Act. PRIME is a
program to provide grants to intermediaries that use the funds
to (1) train other intermediaries to develop microenterprise
training and services programs, (2) research microenterprise
practices or (3) provide training and technical assistance to
disadvantaged entrepreneurs. This section adds a data
collection provision and reauthorizes the program at $15
million for Fiscal Years 2004, 2005 and 2006.
Subtitle B--Women's Small Business Ownership Programs
Sec. 311. Office of Women's Business Ownership
This section incorporates the Women's Small Business
Programs Improvement Act of 2003 (S. 1154) with additional
provisions.
Section 311 amends Section 29(g) of the Small Business Act
by directing the SBA Office of Women's Business Ownership
(OWBO) to develop new programs and services for women-owned
businesses. This section also requires the OWBO to consult with
the associations representing the Women's Business Centers, the
National Women's Business Council, and the Interagency
Committee on Women's Business Enterprise when development such
programs and services.
This section requires that training be provided for SBA
District Office personnel responsible for carrying out the
agency's programs designed to benefit women-owned businesses.
Section 311 also requires the Administration to improve the
Women's Business Center grant process and the programmatic and
financial oversight process.
Sec. 312. Women's Business Center Program
This section pertains to the Women's Business Centers
program, replacing the five-year grant program and pilot
Sustainability Program (which sunsets at the end of Fiscal Year
2003) with a permanent grant program that can be renewed at
three-year intervals.
Section 312 authorizes that the Administration to make
four-year initial grants and three-year renewal grants of not
more than $150,000 per year to Women Business Centers. This
section also sets forth the grant procedures, criteria and
requirements of the grant applicant, existing Women's Business
Centers, and the SBA.
Section 312(a) also provides a transition rule for Women
Business Centers funded by a sustainability grant and provides
a one-year extension for sustainability grants scheduled to
expire not later than June 30, 2005.
Section 312(b) authorizes $500,000 in Fiscal Year 2004 for
supplemental sustainability grants to Women's Business Centers
with a limitation of $125,000 in grant funding for the grant
period beginning on July 1, 2003 and ending on June 30, 2004.
The Fiscal Year authorizations for the Women's Business Center
program set out in this section are: $15 million for Fiscal
Year 2004; $16 million for Fiscal Year 2005; and $17.5 million
for Fiscal Year 2006.
Section 312(c)(1) recognizes the existence and activities
of associations of women's business centers, which are defined
in Section 312(a) as an organization that represents not less
than 30 percent of the women's business centers participating
in the Administration's Women's Business Center Program.
Sec. 313. National Women's Business Council
Section 313(a) amends Section 406 of the Women's Business
Ownership Act of 1988 by providing the National Women's
Business Council with cosponsorship authority.
Section 313(b) clarifies membership representation on the
Council so that a small business represented on the Council can
change the individual representing the business after
consultation with the chairperson of the Council.
Section 313(c) establishes committees under the direction
of the chairperson on manufacturing, technology, professional
services, travel, tourism, product and retail sales,
international trade, and Federal procurement and contracting.
Section 313(d) provides authority for the Council to serve
as a clearinghouse for information on small business owned and
controlled by women.
Section 313(e) amends Section 410(a) of the Women's
Business Ownership Act of 1988 by changing the Council's
research allocation from $550,000 to 30 percent of appropriated
funds.
Sec. 314. Interagency Committee on Women's Business Enterprise
Section 314(a) amends Section 403(b) of the Women's
Business Ownership Act of 1988 by providing that the Deputy
Administrator of the SBA shall serve as the acting chairperson
for the Interagency Committee on Women's Business Enterprise in
the event that a chairperson has not been appointed.
Section 314(b) establishes a policy advisory group to
assist the chairperson in developing policies and programs, and
defines the composition of the policy advisory group.
Section 314(c) creates subcommittees to reflect the
committees established for the National Women's Business
Council, establishes the duties, and states activities of the
Interagency Committee.
Sec. 315. Preserving the Independence of the National Women's Business
Council
Section 315 addresses the membership of the National
Women's Business Council and the procedure for the replacement
of vacancies in order to maintain the independence of the
National Women's Business Council.
Section 315(c) amends Section 407(f) of the Women's
Business Ownership Act of 1988 by requiring an equal number of
members appointed to serve on the Council represent each of the
two major political parties. This section also requires that if
a vacancy is not filled, or if an imbalance of party-affiliated
members exists on the Council, a report must be submitted
within 10 days to the Committee and the Committee on Small
Business of the House of Representatives.
Subtitle C--Office of Native American Affairs
Sec. 321. Short title
The short title for this title of the bill is the Native
American Small Business Development Act.
Sec. 322. Native American Small Business Development Program
Section 322 provides financial assistance (grants, without
a matching requirement, contracts, or cooperative agreements)
to Tribal Governments and Tribal Colleges through five-year
projects to provide financial, management, and marketing
education, including appropriate training and counseling.
Sec. 323. Pilot programs
Establishes two pilot programs. The first program awards
two to four-year grants to provide culturally tailored business
development training and other services to Native Americans
owned small businesses. The second is a four-year pilot program
for American Indian Tribal Assistance Centers to provide
assistance to prospective and current owners of small business
concerns located on or near tribal lands. The pilot programs
sunset in Fiscal Year 2007.
Subtitle D--Office of Veterans Business Development
Sec. 331. Advisory Committee on Veterans Business Affairs
Section 331 amends Section 33(h) by extending SBA's
responsibility for the Advisory Committee on Veterans Business
Affairs through Fiscal Year 2006; amends Section 203(h) of
Public Law 106-50 by extending SBA's responsibility for the
outreach activities of the Advisory Committee on Veterans
Business Affairs through 2006.
Sec. 332. Outreach grants for veterans
Section 332 amends Section 8(b)(17) by expanding the grant
program to apply to all veterans, including service disabled
veterans and members of a reserve component of the Armed
Forces. The SBA Outreach Program for Veterans was established
by Public Law 105-135 and the scope of the outreach activities
is more clearly defined in Public Law 106-50.
Sec. 333. Authorization of appropriations
Section 333 authorized funding for the SBA's Office of
Veterans Business Development to carry out the outreach
programs for veterans as follows: $1 million for Fiscal Year
2004, $1.5 million for Fiscal Year 2005, and $2 million for
Fiscal Year 2006. This gradual increase will enable the SBA to
expand programs and assistance for veterans nationwide.
TITLE IV--SMALL BUSINESS PROCUREMENT OPPORTUNITIES
Sec. 401. Contract consolidation
Section 401(a) replaces the definition of ``bundled''
contracts with ``consolidation of contract requirements'' to
mean the use of a solicitation to obtain offers for a single
contract or a multiple award contract to satisfy two or more
requirements previously provided or performed, or of a type
that is capable of being provided or performed by small
business for that department or agency under two or more
separate contracts smaller in cost than the total cost of the
contract for which the offers are solicited.
Section 401(b) amends Section 15(e) of the Small Business
Act and complements the intent of the original contract
bundling legislation. It sets forth the procedures to be
followed by Federal agencies and the SBA with regard to
consolidation-of-contract requirements.
This section also limits the authority of Federal agencies
to execute an acquisition strategy that includes a
consolidation-of-contract requirement with a total value in
excess of $2 million ($5 million for the Department of Defense)
unless the agency demonstrates that the consolidation is
necessary and justified based on market research. In addition,
agencies must identify alternative contracting approaches that
would involve a lesser degree of consolidation of contract
requirements.
When an agency contemplates a consolidated procurement
above $5 million ($7 million for the Department of Defense),
this section requires the agency to conduct a more extensive
review that includes the estimated benefits of the proposed
consolidated contract requirements and how such benefits were
calculated. Additionally, this section requires an agency to:
(1) assess the specific impediments to participation by small
business concerns as prime contractors that will result from
the consolidation; (2) specify actions designed to maximize
small business participation as prime contractors, including
provisions that encourage small business teaming; (3) specify
actions designed to maximize small business participation as
subcontractors (including suppliers) at any tier under the
contract or contracts that may be awarded to meet the
requirements; and, (4) identify alternative strategies that
would reduce or minimize the scope of consolidation and justify
the rationale for not choosing the alternatives.
Section 401(c) modifies Section 15(p)(4)(B) of the Small
Business Act to require the SBA to collect procurement
strategies that have been successful in maximizing small
business prime and subcontracting opportunities. It requires
the SBA to include in its annual contract bundling report to
the Congress a section that identifies and describes these best
practices.
Section 401(d) amends Section 15(l) of the Small Business
Act to provide for at least one Procurement Center
Representative (PCR) in each state. In addition, this section
directs the Administration to ensure there is not less than one
PCR assigned at each major procurement center. This subsection
also clarifies that these individuals shall be independent of
and have responsibilities independent from those of SBA
Breakout Procurement Center Representatives and Commercial
Market Representatives.
Section 401(e) makes technical corrections to Section 15(k)
of the Small Business Act, and Section 401(f) makes conforming
amendments to Section 15(p) of the Small Business Act.
Section 401(g) requires the GAO to conduct a study by June
30, 2004, of the feasibility of establishing contract
consolidation thresholds based on industry categories.
Sec. 402. Agency accountability
Section 402 makes numerous changes that hold agencies
accountable for small business utilization goals. Subsection
(a) amends Section 15(g)(2) of the Small Business Act to
require agency heads to identify, in their strategic plan and
their annual budget submission to Congress, a specific portion
of their budget requests that will be awarded to small
businesses; and, to report on these amounts as part of the
Government Performance and Results Act (GPRA) in their Annual
Performance and Accountability reports.
Additionally, the head of an agency may also be required to
provide a complete report to the agency's congressional
appropriators on the agency's small business utilization at the
next appropriations cycle.
This section also directs agency senior procurement
executives to communicate to subordinate employees the
importance of achieving small business goals. In addition, it
directs agencies to include in the annual performance
evaluation for senior procurement and program office employees,
a factor that measures the success of that senior executive in
small business utilization.
For agencies that fail to achieve their small business
achievement goals, this section would permit, where
appropriate, a percentage of the performance bonus for that
agency's senior procurement and program office employees to be
withheld.
Section 402(b) amends Section 15(k)(3) of the Small
Business Act to ensure that all Directors for the Office of
Small and Disadvantaged Business Utilization report to the head
of the agency.
Section 402(c) amends Section 10(d) of the Small Business
Act to require, in addition to the Department of Defense, all
Federal agencies represented on the President's Management
Council to submit annual small business achievement reports to
the Committees and the Committee on Small Business of the House
of Representatives showing the amount of funds appropriated
that have been expended, obligated, or contracted to be spent
with small business.
Sec. 403. Small business participation in prime contracting
Section 403(a) amends Section 15(g) of the Small Business
Act to establish a government-wide goal for participation by
small businesses of the dollar value of awards placed against
multiple award schedule contracts at not less than 23 percent.
Subsection (b) amends Section 15(j) of the Small Business
Act to ensure that the small business reserve threshold is
adjusted for any increase to the simplified acquisition
threshold. This subsection further amends Section 15(j) to
include Federal Supply Schedule orders within the small
business reserve.
Sec. 404. Small business participation in subcontracting
Section 404(a) makes several changes that hold prime
contractors responsible for the validity of subcontracting
data. It amends Section 8(d)(6) of the Small Business Act to
require the chief executive officer of large prime contractors
to certify the accuracy of the firm's subcontracting report
under penalty of law. It also requires large prime contractors
to certify that they will use small business subcontractors in
the amount and quality used in preparing their winning bid or
proposal unless such firms no longer are in business or can no
longer meet the quality, quantity or delivery date.
Subsection (b) amends Section 16(f) of the Small Business
Act to impose penalties for false certifications of past
compliance with small business subcontracting.
Sec. 405. Evaluating subcontract participation in awarding contracts
Section 405 amends Section 8(d) of the Small Business Act
to provide for the consideration of proposed small business
participation as subcontractor and suppliers as part of the
process of selecting among competing offerors for any contract
award that includes significant opportunity for subcontracting.
It also provides for recognition of a prime contractor's past
performance in supporting small business subcontracting
participation in other Federal contracts.
This section requires the SBA to share subcontracting
compliance review data with Federal contracting officers and to
update a national centralized government-wide database with
prime contractor past performance specifically related to
subcontracting plan compliance.
It also requires contracting officers to withhold prime
contractor payment until the prime contractor provides the
agency with complete and accurate subcontracting reports.
If a subcontracting violation is found to constitute a
material breach of contract, this section requires such
material breaches to be referred to the Inspector General of
the affected agency for investigation.
Sec. 406. Direct payments to subcontractors
Section 406 amends Section 8(d) of the Small Business Act
to establish a pilot program in certain agencies to test direct
payment to small business subcontractors. This program shall
remain in effect until September 30, 2006.
Sec. 407. Women-owned small business industry study
Section 407 amends Section 8(m)(4) to direct the GAO to
conduct a study by December 31, 2003, to identify industries in
which small businesses owned and controlled by women are
underrepresented with respect to Federal procurement.
Sec. 408. HUBZone authorization
Section 408 amends Section 31(d) of the Small Business Act
to extend authorization of funding levels for the HUBZone
program through Fiscal Year 2006.
Sec. 409. Definition of HUBZone; treatment of certain former military
installation lands as HUBZones
The section amends Section 3(p) of the Small Business Act
to designate military installations undergoing closure as
HUBZones.
Sec. 410. Definition of HUBZone small business concern
Section 410 amends Section 3(p) of the Small Business Act
to modify the ownership requirements for HUBZone small
businesses to include any small business investment company,
specialized small business investment company, New Markets
Venture Capital company, or other similar investment company,
provided such ownership does not exceed 15 percent of the small
business concern.
Sec. 411. Acquisition regulations
Section 411 establishes a deadline for procurement
regulations to be issued no later than 180 days after the date
of the enactment of this bill.
TITLE V--MISCELLANEOUS
Sec. 501. Minority small business capital ownership development program
Section 501(a) amends Sections 4(b), 7(j) and 8(a) of the
Small Business Act to change the name of the office from the
``Office of Minority Small Business Capital Ownership
Development'' to the ``Office of Business Development.''
Section 501(b) makes conforming amendments to the Small
Business Act to reflect the above name change.
Section 501(c) amends Section 8(a)(20)(A) of the Small
Business Act to change the requirement for 8(a) firms to report
on fees paid to consultants, attorneys, accountants, etc. from
the current semi-annual to an annual basis.
Sec. 502. Extension of authority for technology assistance programs
Section 502(a) amends Section 9(s)(2) of the Small Business
Act to extend the Rural Outreach Program authorization through
Fiscal Year 2006.
Subsection (b) amends Section 34 of the Small Business Act
to extend the program authorization for the Federal and State
Technology Partnership Program through Fiscal Year 2006.
Sec. 503. BusinessLINC report to Congress
Section 503 modifies Section 8(n) of the Small Business Act
to require the Administration to report annually on the
effectiveness of the Program.