[Senate Report 106-422]
[From the U.S. Government Publishing Office]
Calendar No. 838
106th Congress Report
SENATE
2d Session 106-422
======================================================================
SMALL BUSINESS REAUTHORIZATION ACT OF 2000
_______
September 27 (legislative day, September 22, 2000.--Ordered to be
printed
_______
Mr. Bond, from the Committee on Small Business, submitted the following
R E P O R T
[To accompany S. 3121]
The Committee on Small Business reported on original bill
(S. 3121) to reauthorize programs to assist small business
concerns, and for other purposes, having considered the same,
reports favorably thereon without amendment and recommends that
the original bill do pass.
CONTENTS
Page
I. Introduction......................................................1
II. Description of Bill...............................................2
III.Committee Vote...................................................29
IV. Cost Estimate....................................................29
V. Evaluation of Regulatory Impact..................................36
VI. Section-by-Section Analysis......................................36
I. INTRODUCTION
The Small Business Reauthorization Act of 2000 is a
Committee bill to re-authorize most programs at the Small
Business Administration (SBA) for Fiscal Years 2001, 2002, and
2003. In addition, the bill makes changes in several existing
programs, incorporates two bills that have previously passed
the Committee, and authorizes a national small business summit
every four years. The Committee adopted an en bloc amendment by
unanimous consent, and the bill was subsequently adopted by a
unanimous vote of 18-0.
Starting in 1999, the Committee conducted a series of
hearings, roundtable discussions, and forums to address key
small business issues, the operations at the SBA, and most of
the Agency's programs for small businesses. On February 5,
1999, the Committee conducted the first of ten Roundtable
discussions it held in 1999 on key small business issues. The
Roundtables were attended by Members of the Committee on Small
Business and participants from the public who have special
knowledge of the matters being discussed. The Roundtables gave
the Committee the opportunity to explore in depth key issues
and subjects of great interest to the small business community.
The Small Business Reauthorization Act of 2000 has addressed
issues that were highlighted in the Roundtable discussions.
The Small Business Reauthorization Act of 2000 includes the
funding levels for the major credit and non-credit management
assistance programs at the SBA. The details of the funding
levels for the next three fiscal years are set out in chart
form under the chapter, ``II. Description of Bill, Title I:0
Reauthorization of Small Business Programs.''
Three times over the past two decades, the Federal
government has sponsored a national White House Conference on
Small Business. The conferences have been viewed as successful
attempts to highlight the priorities of the small business
community. The Committee has received many recommendations from
past conference participants to hold national small business
conferences on a regular basis. Title II of the Acts includes
the framework for the Quadrennial Small Business Summit Act.
Following Chairman Bond's introduction of S. 1111, the
``National Conference on Small Business Act,'' numerous members
of the small business community and representatives of small
business organizations met before the Committee in a Roundtable
session to discuss the legislation. Title II reflects the
recommendations and changes discussed at the Committee
Roundtable.
In 1996, the Congress adopted the Small Business Regulatory
Enforcement Fairness Act (SBREFA), which is designed to assist
small business confronted with the tidal wave of regulatory
hurdles at Federal agencies. After the Committee's Roundtable
on Oversight of SBREFA on March 16, 1999, Senator Bond and
Senator Kerry introduced ``The Small Business Advocacy Review
Panel Technical Amendments Act of 1999'' (S. 1156). This bill
was subsequently approved by the Committee on May 27 and passed
the full Senate unanimously on September 28, 1999. Although it
has been before the House Committee on Small Business and Ways
and Means since last year, the House of Representatives has not
brought the bill to the full House for a vote.
Consequently,when this Committee marked up the Reauthorization Act of
2000, it included the Senate-passed S. 1156 as a separate title of the
Act to spur action on the bill.
Similarly, the Committee conducted a Roundtable discussion
on SBA's Office of Advocacy on April 21, 1999. A key issue
before the Committee was the threat posed to the independence
of the Office of Advocacy. Since 1993, the staff had been cut
dramatically, and its research budget was stagnant. At the same
time, Congress had imposed significant new responsibilities on
the Office with its passage of SBREFA and amendments to the
Regulatory Flexibility Act (RFA). Following reports about the
dependence of the Office of Advocacy on the SBA Administrator
for budget and staffing and the report from the General
Accounting Office that senior Advocacy staff, although
acceptable to the Chief counsel and not political appointees,
can be hired noncompetitively, which has the potential for
political influence, the Committee marked up and approved the
``Independent Office of Advocacy Act of 1999'' (S. 1346). This
bill was passed unanimously by the Committee on July 15, 1999,
and it was approved by the Senate on November 5, 1999, and has
been pending before the House Small Business Committee. In
order to generate new momentum to pass this important
legislation before Congress adjourns in Fall 2000, the
Committee agreed to include this bill as a separate title to
the Act.
Since the Congress last enacted an omnibus re-authorization
bill for the SBA in 1997, the economic climate and
circumstances surrounding the SBA credit programs have changed.
Consequently, the Committee has approved program changes to
each credit program. Many are technical and minor and are
discussed in the chapter of this report describing the contents
of the bill and in the section-by-section chapter.
It is important to highlight some of the changes in the
bill. For the first time, the Committee is approving a pre-
payment penalty for 7(a) loans repaid during the first three
years after origination. The maximum loan guarantee size for
7(a) and 504 loans is increased from $750,000 to $1,000,000. As
a follow-up to the 1997 SBA re-authorization bill, the
Committee has approved a provision authorizing the SBA to
undertake an expanded check on the criminal histories of loan
applicants through the FBI's National Crime Information Center
computer system.
The Small Business Investment Companies' (SBIC's) Debenture
Program reached a milestone by achieving a credit subsidy
estimate of less than ``0''. In order to insure that the fees
paid by the SBICs on guarantees issued by SBA in FY 2001 and
subsequent years during which the SBIC program has a ``0''
credit subsidy rate, the Committee adopted a provision
directing SBA to reduce the fees paid by SBICs by an amount
necessary to insure the credit subsidy rate does not fall below
zero.
The Microloan program has undergone some significant
amendments approved by the Committee. In particular, the number
of Microloan intermediaries is authorized to grow from 200 to
350 in FY 2003.
The Committee adopted unanimously an amendment offered by
Senator Landrieu to extend the life of the National Women's
Business Council for three years and to increase its annual
authorization from $600,000 to $1,000,000.
Prior to the death of our colleague and fellow Committee
Member, Senator Paul Coverdell, the Committee adopted a two
year extension of the Drug Free Workplace Program, which had
been a long standing priority for the senior Senator from
Georgia.
The Committee also embarked on a new initiative to create a
special presence on Indian Reservations for the Small Business
Development Center program. The Committee approved, for the
first time, the Native American Small Business Development
Center (NASBDC) Network. It is the Committee's intention that
this new program will provide a special, dedicated management
assistance presence on or near Native American reservations
that will be able to provide target management and technical
assistance to one of the neediest segments of our population.
II. DESCRIPTION OF BILL
Title I: Reauthorization of Small Business Programs
Title I of the bill authorizes appropriations for SBA's
business loan programs and certain other SBA programs. Included
among the loan programs are Section 7(a) Guaranteed Business
Loans, 504 Development Company Loans, Microloans, Disaster
Loans, and Small Business Investment Company Debentures and
Participating Securities.
Funding for these SBA programs is detailed in the following
chart. As indicated, the bill is a three year authorization.
The Committee has carefully considered the Administration's
funding request for each program as well as recommendations
from small business owners, individual entrepreneurs, the
lending community, and members of this Committee.
PROGRAM LEVELS FOR SBA REAUTHORIZATION BILL
[In millions of dollars unless otherwise noted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
SBA 3 year authorization request Reauthorization bill
Program Current FY01 budget -----------------------------------------------------------------------------
level FY00 request 2001 2002 2003 2001 2002 2003
--------------------------------------------------------------------------------------------------------------------------------------------------------
7(a) (in billions).............................. $9.8 11.5 $14.5 15 16 $14.5 $15 $16
504 (in billions)............................... 3.5 3.75 5 5.25 5.5 4 4.5 5
SBIC:
Debentures.................................. 800 500 1,000 1,200 1,400 1,500 2,500 3,000
Participating Securities.................... 1,350 2,000 2,000 2,500 3,000 2,500 3,500 4,000
Microloan:
Technical Assistance........................ 23.2 45.0 59 80 100 45 60 70
Direct Loans................................ 29 60 75 80 85 60 80 100
Guaranetted Loans........................... (\1\) 0 40 40 40 50 50 50
Delta........................................... 1,000 0 0 0 0 500 500 500
Surety Bond Guarantee:
General Program............................. 1,800 1,700 2,000 2,000 2,000 4,000 5,000 6,000
Preferred Program........................... ........... ........... ........... ........... ........... (\2\) (\2\) (\2\)
SCORE........................................... 3.5 5.0 5.9 8 8.5 5 6 7
SBDC............................................ 84.5 85 95 95 95 125 125 125
HUBZone......................................... 2.0 5.0 6 6 6 7.5 7.5 7.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Carryover.
2 50% of total.
Title II: Quadrennial Summit on Small Business
The Quadrennial Small Business Summit Act is a revision of
S. 1111, the ``National Conference on Small Business Act.''
Senator Christopher S. Bond introduced the latter bill in the
Senate on May 24, 1999, and it is pending before this
Committee. The Act will create a permanent, independent
commission to carry on the work that the previous White House
Conferences on Small Business have accomplished. The Commission
will conduct national and state small business summit;
delegates from every state will attend these summits. The
Committee revised S. 1111 in response to guidance received from
representatives of small businesses and organizers of prior
conferences. The Committee received substantial input at its
October 1999 Roundtable on S. 1111 (October Roundtable).
The Quadrennial Small Business Summit is designed to focus
the nation's attention on small business in two ways. First,
the Summit will highlight their successes in order to recognize
their accomplishments and contributions to the economy. Second,
the Summit will educate the nation about the obstacles small
businesses face and will devise solutions to their problems.
For example, the Summit will likely identify federal, state,
and local laws or regulations that may be deterrents to
starting a business or hindrances to their growth. The role of
women and minorities as small business owners will be
considered at the Quadrennial Summit as well. ``Running for
delegate, debating the issues, learning the process and systems
within the Executive Branch and the Congress * * * helps [women
small business owners] take their businesses to the next
level,'' explained Terry Neese, a past National President of
the National Association of Women Business Owners, at the
October Roundtable.
Each summit will generate priorities for the small business
community and recommendations on the implementation of these
priorities. The solid attendance and overwhelming success of
the prior conferences in implementing the recommendations
demonstrate the need for continuing conferences. At least 90%
of the 60 legislative and regulatory recommendations generated
at the June 1995 White House conference have been fully or
partially implemented. 20,000 small business owners attended 59
State Conferences, and 2,000 delegates represented them at six
regional meetings that culminated in that National Conference.
For the past sixteen years, small businesses have been the
fastest growing sector of the U.S. economy. When large
businesses were restructuring and laying off significant
numbers of workers, small businesses not only filled the gap,
but their growth actually caused a net increase in new jobs.
Today, small businesses employ over half of all workers in the
United States and generate nearly 55% of the gross domestic
product. Small businesses have played a vital role in the
prosperous economy the U.S. has enjoyed for the past eight
years.
Due to the significant role of small businesses in our
economy, in both rural towns and inner cities, the Committee
believes it is important that the Federal government sponsor a
national summit every four years to highlight the successes of
small businesses, to identify problems that may hinder their
ability to start up and grow, and to focus national attention
on those problems. Because most small businesses do not have
the resources to retain full-time representatives to express
their views to the Federal government, a national summit would
provide the opportunity for small businesses to present their
concerns to the executive and legislative branches. As Senator
Christopher S. Bond noted at the October Roundtable:
They, [the small businesses], are too busy running
their businesses to devote much attention to educating
government officials on what is going well, what is
going poorly, and what needs improvement for the small
business community. The National Conference will give
small businesses an opportunity every four years to
make its mark on Congress and the Executive Branch.
The Quadrennial Small Business Summit would be established
under the provisions in Title II. The national Quadrennial
Summit would occur every four years during the second year
after a presidential election. Delegates from each state will
attend, including the District of Columbia, the Commonwealth of
Puerto Rico and the U.S. Virgin Islands. State Summits for the
delegates in each state will be held prior to the Quadrennial
Summit. The Committee authorizes $5 million to carry out each
Quadrennial Summit.
Summit Participants
Quadrennial Commission on Small Business
Title II would create an independent, bipartisan
Quadrennial Commission on Small Business made up of eight
appointed small business advocates and the Small Business
Administration's Chief Counsel for Advocacy. At least eighteen
months before the Quadrennial Summit on Small Business, the
President will appoint four members to the commission, and the
Majority and Minority Leaders of the Senate and the House of
Representatives will each appoint one. Commissioners should be
distinguished individuals with knowledge and experience in
fields related to small business. The duties of the Quadrennial
Commission are to conduct the Quadrennial and State Summits and
to bring together individuals interested in issues affecting
small businesses. The Quadrennial Commission will appoint an
Advisory Committee of ten persons who were participants at the
previous Quadrennial Small Business Summit, or for the initial
Quadrennial Summit, persons who were participants in the last
White House Conference on Small Business, to advise on rules
and process of the Summits. The Chief Counsel will serve as a
resource for the Quadrennial Commission by providing background
information and other administrative materials.
State delegates
Delegates to the Quadrennial Summit must be owners or
officers of small businesses. The Governors and U.S. Senators
from each state will each name a delegate and alternate
delegate from their respective states. U.S. Representatives
will name a delegate and an alternate from their respective
Congressional districts, and the President will name a delegate
and an alternate from eachstate. The delegates will meet at
meet once prior to the Quadrennial Summit, at their respective State
Summits. However, states having a population of more than 10 million
must meet at least twice prior to the Quadrennial Summit. At these
Summits, delegates will work to identify issues of critical concern to
small businesses. The state delegates may elect leadership, such as a
delegation chairperson, and must also elect three delegates and three
alternate delegates to the Quadrennial Summit. The Quadrennial
Commission will serve as a resource to the state delegates by assisting
with issue development and planning of State Summits.
Title III: Small Business Involvement in Government Regulation
The Small Business Advocacy Review Panel Technical
Amendments Act of 1999, which was originally introduced as S.
1156, clarifies and amends certain provisions of law enacted as
part of the Small Business Regulatory Enforcement Fairness Act
of 1996. The Act passed the Senate unanimously on September 28,
1999, and was referred to the Committees on Small Business and
Ways and Means in the House of Representatives. The Committee
decided to include the Act as a separate title in this
legislation in order to spur action by the Congress on this
very important bill.
Title III focuses on Section 244 of the Small Business
Regulatory Enforcement Fairness Act of 1996, which amended
chapter 6 of title 5, United States Code (commonly known as the
Regulatory Flexibility Act or SBREFA). As a result, each
``covered agency'' (which under current law are only OSHA and
EPA) is required to convene a Small Business Advocacy Review
Panel (panel) to receive advice and comments from small
entities. Specifically, under Section 609(b), each covered
agency is to convene a panel of Federal employees, representing
the Office of Information and Regulatory Affairs within the
Office of Management and Budget, the Chief Counsel of Advocacy
of the Small Business Administration, and the covered agency
promulgating the regulation. The Panel receives input from
small entities prior to publishing an Initial Regulatory
Flexibility Analysis for a proposed rule with a significant
economic impact on a substantial number of small entities. Not
later than 60 days after the panel is convened, it must produce
a report containing comments from the small entities and the
panel's own recommendations. The report is provided to the head
of the covered agency, who reviews it and, where appropriate,
modifies the proposed rule, initial regulatory analysis, or the
decision on whether the rule significantly impacts small
entities. The panel report then becomes a part of the
rulemaking record.
In 1996, SBREFA expressly included the Internal Revenue
Service (IRS) under the Regulatory Flexibility Act and directed
it to conduct and publish Initial and Final Regulatory
Analyses. However, the Treasury Department has interpreted the
law essentially to exclude the Treasury Department and the IRS
from being covered. Title III clarifies which interpretative
rules involving the Internal Revenue Code would be subject to
compliance with SBREFA and the Regulatory Flexibility Act. In
addition, the IRS would be required under Title III to convene
a Small Business Advocacy Review Panel for rules that would
have a significant economic impact on a substantial number of
small entities in the same way as OSHA and EPA have been doing
since SBREFA went into effect. The Committee is confident that
the IRS will be able to implement the panel process as required
under the bill without jeopardizing tax administration, just as
OSHA and EPA have been able to implement the process without
sacrificing their policy objectives.
Specifically, Title III strikes the language in Section 603
of title 5 that included IRS interpretative rules under the
Regulatory Flexibility Act, ``but only to the extent that such
interpretative rules impose on small entities a collection of
information requirement.'' The Treasury Department has
misconstrued this language in two ways. First, the Treasury
Department determined that the Regulatory Flexibility Act does
not apply unless the IRS imposes a requirement on small
businesses to complete a new OMB-approved form. In so doing,
the IRS has failed to consider theburdens imposed on small
business taxpayers of complying with new IRS regulations. Second, in
the limited circumstances where the IRS has acknowledged imposing a new
reporting requirement, the Treasury Department has limited its analysis
of the impact on small businesses to the burden imposed by any new tax
form with which a taxpayer must comply, as opposed to the burden
imposed by the new regulators requirement and the new form. As a
result, the Treasury Department and the IRS have made Regulatory
Flexibility Act compliance unnecessary and duplicative of compliance
with the Paperwork Reduction Act. To address this problem, Title III
revises the fifth sentence in Section 603 to read as follows:
In the case of an interpretative rule involving the
internal revenue laws of the United States, this
chapter applies to interpretative rules (including
proposed, temporary and final regulations) published in
the Federal Register for codification in the Code of
Federal Regulations.
The remaining provisions of the bill address the mechanics
of convening a panel, the selection of the small entity
representatives invited to submit advice and recommendations to
the panel, and the publication of the panel reports.
This Title would lengthen, by 30 days, the time that small
entity representatives, participating in the panel process,
have to review the usually technical and voluminous materials
to be considered during panel deliberation. The Committee is
concerned that this task would be almost impossible for the
average small businessperson who spends most of his or her time
actually running a business. For those small business owners
who would like to participate but do not have a great deal of
time to review technical data, the bill requires OSHA, EPA and
IRS to prepare detailed summaries of background data and
information, if a small entity representative requests that
they do so.
Title III would also allow a small entity representative to
make an oral presentation to the panel. The Committee is aware
that many small entity representatives expressed a desire to
make oral presentations, and learned that this opportunity was
not available. This legislation would make it clear that
agencies are to provide this opportunity.
Many small entities have expressed their interest in
reviewing the panel report before the rule is proposed. This
Title would require the panel report, including any written
comments submitted by the small entity representatives, to be
printed in the Federal Register with the proposed rule, or as
soon as practicable, but no later than 180 days after the date
the head of the agency receives the report.
THE ROLE OF THE CHIEF COUNSEL FOR ADVOCACY IN PANEL SELECTIONS
The role of the Chief Counsel for Advocacy in the selection
of small entities to serve on the panels is enhanced by
specifying that the selections are to be made by the agency
promulgating the regulation ``in consultation'' with the Chief
Counsel. The original language of S. 1156 required that the
Chief Counsel ``concur'' with the agency's selections. During
its consideration of S. 1156 in July 1999, the Committee
adopted Senator Wellstone's recommendation that the language be
changed to ``consultation with.'' The Committee realizes that
it is the agency that convenes these panels and appoints the
small entity representatives who will participate. The
Committee wishes to emphasize the importance of consultation
between covered agencies and the Chief Counsel for Advocacy on
the selection of small entity representatives for a panel. The
Committee intends for covered agencies to view the Chief
Counsel as a resource for identifying small entity
representatives and for covered agencies to accommodate
reasonable suggestions from the Chief Counsel for panel
participants.
DEFINITION OF A SMALL ENTITY REPRESENTATIVE
The bill also expands the definition of a small entity
representative to make clear that an organization that
``primarily represents the interests of one or more small
entities'' may participate in the Panels. ``[W]hat we are being
told by [an agency] * * * often is that trade association
representatives cannot participate in the panels * * * well,
small business * * * cannot send people to Washington on a
regular basis,'' noted Robin Wiener, Executive Director of the
Institute of Scrap Recycling Industries at the Committee's
March 1999 Roundtable on Oversight of the Regulatory
Flexibility Act and the Red Tape Reduction Act. Through another
amendment offered by Senator Wellstone, this expansion was
clarified to provide that only those organizations that
``primarily'' represent small businesses would qualify to
participate in the panel process. This amendment addressed a
concern that organizations that are dominated by large entities
could have been considered small entity representatives under
the original bill language. The Committee intends for
organizations whose primary mission is the advocacy of
individual small entities, or whose membership is restricted to
individual small entities, to be included as possible small
entity representatives. The Committee does not intend this to
include organizations whose primary purpose is to advocate on
behalf of businesses generally irrespective of size,
organizations that advocate on behalf of members of a
particular industry regardless of the size of those members, or
those whose membership includes entities other than individual
small entities. Individuals representing ``primarily'' small
entities are also permitted to participate in the panel
process.
The Committee's intention is to ensure that the small
entities and small businesses that are affected by regulations
from OSHA, EPA, and IRS have the opportunity to participate
directly in the rulemaking process at the point when their
views can have the most effect. In short, the bill is intended
to continue and expand on the early success that this process
has held for small businesses with EPA and OSHA. As Senator
Wellstone said during the markup on March 21, 2000: ``A SBREFA
panel is the best opportunity, perhaps the only opportunity,
for real world small business owners to directly influence the
federal rule making process. Trade groups and business
associations have ample access already. I believe my amendment
will keep SBREFA process focused on small businesses, which is
where it should be focused.''
Title IV: Office of Advocacy of the Small Business Administration
The Independent Office of Advocacy Act (S. 1346) was
approved by the Committee on July 15, 1999, and later passed
unanimously by the Senate. Since that time, the bill has been
pending before the House Committee on Small Business. The
Independent Office of Advocacy Act provides for an effective,
independent advocate for small business within the Federal
government, unrestricted by the views or policies of the Small
Business Administration (SBA/Agency) or any other agency. The
bill is designed to make the Office of Advocacy and the Chief
Counsel for Advocacy a full, independent advocate within the
Executive Branch acting on behalf of the small business
community. The Committee adopted this bill for a second time as
Title IV of the Small Business Reauthorization Act of 2000 in
order to spur action in the House of Representatives. The
Committee believes it is a critical and necessary step if the
Office of Advocacy is to improve its effective representation
of small business interests.
Title IV will strengthen the Office of Advocacy's
uniqueness within the Executive Branch. The Chief Counsel for
Advocacy will continue to be a wide-ranging advocate, whose
office will be funded by a separate appropriations account.
This financial independence will increase the Chief Counsel's
freedom to take positions contrary to the Administration's
policies toward small business and to advocate change in
government programs and attitudes as they impact small
business.
The Title for the first time sets forth the statutory
independence for the Office of Advocacy and provides the Office
with separate financial resources, so that it can be a truly
independent advocate for the small business community. The
Office of Advocacy ``[has] to be not only the watchdog, * * *
but occasionally, when necessary, * * * a pit bull. And to be
the pit bull, you have to be respected. You have to be feared.
For prestige you need funding, you need the independence, and
you need the research expertise,'' asserted one representative
of small business at the Committee's April 1999 Roundtable on
the Office of Advocacy (April Roundtable). In addition to the
statement of the Office's independence, the bill provides for a
separate authorization to fund the Office of Advocacy. As
designed in this bill, its annual budget would be a separate
account in the SBA budget, similar to the separate account for
the Office of Inspector General. SBA is directed to provide
appropriate and adequate office space at the SBA headquarters
and its field office locations, together with equipment, office
supplies, and communications facilities and services as are
necessary to support the requirements of the Office of
Advocacy.
Each appropriation request submitted by the Administration
to the Congress would also provide for the number of full-time
employees who would work within the Office of Advocacy. The
Chief Counsel for Advocacy would not need the approval of the
SBA Administrator to hire staff. The Title continues the
practice of allowing the Chief Counsel to hire individuals
critical to the mission of the Office of Advocacy without going
through the normal competitive procedures directed by federal
law and the Office of Personnel Management (OPM).
Section 404 sets forth in detail the functions of the
Office of Advocacy as intended by the Congress. The Chief
Counsel will manage the Office of Advocacy. The Chief Counsel
will be appointed by the President from civilian life, with the
advice and consent of the Senate and without regard to the
person's political affiliation. To be eligible for the
position, the nominee cannot have served in any position at SBA
during the preceding five years of the appointment.
Because of the independent nature of the office, the
Committee established the office so that the incumbent Chief
Counsel would not feel that his or her job were in jeopardy by
taking a position critical of or in opposition to an
Administration initiative. To strengthen this position, the
bill provides that the President must notify the Congress 30
days in advance before removing the Chief Counsel from office.
Seciton 404 sets forth the primary functions of the Office
of Advocacy, which the Committee views as wide-ranging the
comprehensive, as are the needs and problems confronting small
businesses nationwide. ``[T]he small business community, * * *
truly want[s] to see, * * * the independence established so
that we have that advocate, that voice, that clout that we can
lean upon,'' commented Bennie Thayer, President of the National
Association for the Self-Employed, at the April Roundtable. In
setting forth the responsibilities of the Office of Advocacy,
the Committee intends for the Office to serve as a focal point
to receive complaints, criticisms and suggestions concerning
the policies and programs of the federal government that affect
small businesses.
The Committee believes that the authority enunciated in
Section 404 is significant, and it included a specific
subsection (g), ``Information From Federal Agencies,'' to
enable the Office and the Chief Counsel to carry out its
responsibilities. Basically, the Committee directs each Federal
agency to provide to the Chief Counsel all information that the
Chief Counsel believes is necessary to carry out the
responsibilities of the Office of Advocacy.
In addition, Section 404 spells out special powers that are
conferred on the Chief Counsel. With respect to those
individuals who are considered necessary to carry out the
duties of the Office, the Chief Counsel may hire and terminate
employment without regard for the civil service laws and
regulations. This section is intended to include the regular
staff of the office of Advocacy and such consultants and
experts that the Chief Counsel may choose to hire on a
temporary or intermittent basis. The hiring authority rests
with the Chief Counsel. Nothing in the Act should be
interpreted to require that the Chief Counsel obtain the
approval, concurrence or review by the SBA Administrator or any
other person within the Administration. The authority of the
Chief Counsel to hire staff, consultants and experts will be
limited by the personnel ceiling and the appropriations
approved annually by the Congress.
The bill requires and authorizes the Chief Counsel to
submit certain reports to the President and the Congress,
including an annual report on the Regulatory Flexibility Act.
The Committee believes strongly that the Office of Advocacy
should continue to be independent and not submit reports nor
publications for review by the Administration before they are
released. In order for the Committee to carry out its
responsibilities on behalf of the small business community, it
is important that it receive regular reports from the Chief
Counsel that have not been submitted to the Office of
Management and Budget or any other Federal department or agency
for editing and/or approval.
The bill authorizes such sums as are necessary to carry out
the responsibilities of the Office of Advocacy. ``[W]ithout a *
* * separate independent budget * * * the office of Advocacy is
in big trouble and is totally at the whim of the [SBA]
administrator. Which means effectively it has no
independence,'' observed Denny Dennis, Senior Research Fellow
at the National Federation of Independent Business, at the
April Roundtable. The amounts appropriated to the Office should
remain available until spent and should not be constrained by
fiscal year limitations. This subsection is intended to give
the Chief Council the flexibility to respond to matters that
come before the Office of Advocacy without the pressures of
obligating funds, perhaps prematurely, prior to the end of a
fiscal year.
Since there is a sitting Chief Council for Advocacy who has
been reviewed and approved by the Committee and the full
Senate, it is the intention of the Committee that the incumbent
will continue to serve subject to the requirements of this
bill, once enacted.
Title V: Credit Programs
sec. 501 section 7(a) program
The committee has been concerned that the availability of
smaller 7(a) guaranteed business loans has not been keeping
pace with the demands of the small business community. In 1994,
SBA initiated the LowDoc pilot loan program to make loans of
$100,000 and less more readily available. In 1995, the Congress
established a guarantee level of 80% for LowDoc loans. As
requested in the Administration's 2001 Budget, during
consideration of H.R. 2615 in the House of Representatives, the
80% guarantee was extended up to loans of $150,000. The
Committed joins with the House action to increase the size of
the LowDoc loans. In addition, the Committee agreed to increase
the guaranteed percentage from 80% to 85% in anticipation that
small business lenders will be more willing to focus on the
smaller sized loans.
In 1988, the Congress acted to establish the maximum 7(a)
loan guarantee amount at $750,000. In order to keep up with
inflation, the Committee bill increases the maximum guaranteed
amount to $1 million. Although a strict inflationary increase
in the maximum guaranteed amount would be closer to $1.25
million, the Committee believes it is prudent to limit the
increase to $1 million, which will leave sufficient resources
in the program for smaller loans.
The Committee bill also establishes a ceiling on the
maximum loan size of $2 million. It has been reported to the
Committee that the 7(a) guarantee has been used in conjunction
with large loans in excess of $2 million. Under the Federal
Credit Reform Act of 1991, appropriated subsidy dollars are
used based on the gross amount of the loan. In these cases, the
SBA loan guarantee is a relatively small portion of the loan,
and the Committee has questioned whether these loans meet the
``credit elsewhere'' standard for 7(a) loans and whether this
is a good use of appropriated subsidy dollars. Therefore, the
Committee agrees with the House of Representatives and has
approved a ceiling of $2 million for the gross amount of a 7(a)
loan.
In an effort to reduce the size of the credit subsidy rate,
in 1997 congress adopted a provision to reduce SBA's liability
for accrued interest on 7(a) loans that are in default. Section
501 deletes this provision since the intended savings from this
provision have failed to materialize.
For the past three years, the Committee has received
reports about the increased number of early prepayments of
large, long term SBA-guaranteed 7(a) loans. Previously, as the
result of an increase in prepayments, the credit subsidy rate
was adjusted upwards for Fiscal Year 1998. Subsequently, the
number of prepayments continued to climb. In some cases, it has
been reported to the Committee that some small businesses were
using the 7(a) program for short term bridge financing, when
the program is designed to help small businesses obtain long
term credit at a reasonable interest rate. The effect of early
prepayments is to reduce the availability of long term 7(a)
loans to small businesses that cannot obtain credit elsewhere.
The prepayment penalty approved by the Committee would
assess a fee to the borrower forearly prepayment of any 7(a)
loan with a term of 15 years or more. A penalty or fee will be assessed
against any prepayment in excess of 25% of the outstanding amount of
the loan during any of the first three years after disbursement. Five
percent will be assessed in the first year, three percent in the second
year, and one percent in the third year. If a prepayment in excess of
25% is made, the penalty will be assessed against the entire
outstanding balance of the loan.
In 1995, Congress increased the guarantee fees charged to
7(a) borrowers in order to reduce the credit subsidy rate for
the 7(a) program. The Committee agrees with provision,
suggested by SBA and adopted by the House of Representatives,
which simplifies the guarantee fee schedule. For loans totaling
$150,000 or less, the guarantee fee would be two percent of the
guarantee amount; for loans greater than $150,000 but less than
$700,000, the fee would be three percent; and for loans of
$700,000 or more, the guarantee fee would be three and \1/2\
percent. In addition, the Committee approved a new provision
designed to be an incentive for lenders to focus more on
smaller loans. This provision allows a lender to retain 25% of
the guarantee fee for loans of $150,000 or less.
In 1997, Congress approved a new provision for the 504
Certified Development Company program which allows borrowers to
lease out 20% of the property being financed so long as the
remaining 80% is occupied by the borrower. The Committee
approved a similar provision for 7(a) borrowers. This new
provision permits the property to be financed with a 7(a) loan
20 percent or less of the business space will be rented to
tenants with the borrower occupying the remaining space.
In December 1999, the Inspector General cited the failure
of the SBA to require criminal history background checks in its
loan program to be one of ten most serious management
challenges facing the Agency. Studies indicate that borrowers
who do not disclose past criminal histories have higher rates
of default on SBA loans than those who either disclose their
records or have no criminal histories. Since SBA does not have
statutory authority to perform routine background checks, the
IG reports that losses on SBA loan programs are higher than
necessary.
The Small Business Reauthorization Act of 1997 (P.L. 105-
135) authorized, but did not mandate, that SBA undertake an
expanded check on criminal histories of loan applicants. Absent
a specific legislative requirement to check the applicants'
criminal histories, the IG has informed the Committee the SBA
will not be granted the access by the FBI to the National Crime
Information Center which can check on the applicant's criminal
history.
According to the SBA IG, verification of the criminal
history of all business loan applicants would allow SBA to:
(1) Detect fraudulent loan applications early in the
approval process;
(2) Reduce the Government's losses by preventing
fraudulent loans from being disbursed; and
(3) Provide a heightened level of deterrence through
increased enforcement actions.
The SBA IG reports there is no other effective, efficient
method available to achieve these goals while allowing for the
uninterrupted flow of the loan process. In response to the
convincing case made by the SBA IG, the Committee included a
provision directing SBA to conduct criminal background checks
on all loan applicants through the FBI's National Crime
Information Center computer system.
sec. 502. small business investment companies
The provisions adopted in Section 502 generally make some
technical improvements to the operations of the SBIC Program.
Under current law, national banks, member banks of the Federal
Reserve, and nonmember insured banks as permitted by State law
are allowed to invest in SBICs. The Committee approved a
provision to allow any Federal savings association to make
similar investments in SBICs.
The Committee also approved a provision to clarify the what
is meant by the term ``long-term'' as found in Section 103 of
the Small Business Investment Act. It is the Committee's
understanding that the SBI has construed ``long term'' to mean
a minimum of five years for all SBIC investments other than
those made to ``disadvantaged businesses,'' when ``long term''
is construed to mean four years. The Committee believes the
Agency's interpretation of ``long-term'' to be overly
restrictive. Under the Generally Accepted Accounting Principles
(GAAP), the accounting principles that govern business commerce
in the United States, the term ``long-term'' is defined as any
period of time greater than one year. Therefore, the Committee
has adopted a definition of ``long-term'' to be a period of
time of not less than one year.
The President's FY 2001 budget request for SBA, as amended,
included a ``0'' credit subsidy rate for the SBIC Debenture
program. The Committee has been informed by SBA staff that the
income generated by fees paid by the SBICs to SBA will actually
exceed the amounts needed to fund the reserve account required
under the Federal Credit Reform Act of 1990 (2 U.S.C. 661a).
The Committee believes it is important that the SBICs should
not be required to pay more in fees than is necessary to bring
the credit subsidy rate to ``0''. Therefore, the Committee
adopted a provision, similar to the one it adopted for the 504
Development Company Program in 1996, which directs the SBA to
reduce the annual fee paid by the SBIC from 1 percent to the
amount necessary to reduce the credit subsidy rate to ``0''.
The new provision applies to the SBIC Debenture and
Participating Securities programs.
The Committee approved a technical change that permits a
qualifying SBIC to make a quarterly tax distribution any time
during the applicable calendar quarter. Under current law,
SBICs may make prioritized payment distributions, profit
distributions, and other optional distributions on any date
with prior SBA approval. Tax distributions, however, may only
be made at the end of calendar year quarters. The SBIC
community has informed the Committee that the practical impact
of this restriction is that SBICs are forced to delay otherwise
permitted interim distributions (including tax distributions)
to the end of a quarter or split their distributions into two
distributions. Postponing an entire distribution to the end of
a quarter has negative cash flow and internal rate of return
(IRR) implications. Consequently, most SBICs decide to split
their distributions, making tax distributions at the end of the
calendar quarter, while making all other distributions at any
timeduring the quarter. Splitting distributions requires the
preparation, submission, and SBA review of two sets of documents. The
result is an inefficient use of time and resources by SBA and the
SBICs.
Sec. 503. Microloan Program
This section makes programmatic and technical changes to
the Small Business Administration's microloan program to make
it more flexible to meet credit needs, more accessible to micro
entrepreneurs across the nation, and more streamlined for
lenders to make loans and provide management assistance. The
Committee is very supportive of this program and worked with
industry and the SBA to develop these changes.
Congress created the microloan program as a pilot in 1991
(Public Law 102-140) to reach very small businesses that were
not being served by traditional lenders of SBA's credit
programs. Often minorities, women, and low-income individuals,
these microentrepreneurs needed very little money to launch a
business, but they could not get loans because they were
considered unreliable or risky borrowers by traditional credit
markets. Their often weak or non-existent credit histories or
limited business experience caused traditional commercial
lenders to shy away from making such loans. To fill this credit
need, the Microloan program was designed to provide loans to
non-profit intermediary lenders, who in turn provide fixed-rate
loans of not more than $25,000, and on average, loans less than
$10,000, to very small businesses. In addition, lending
intermediaries receive an annual grant from the SBA to provide
on-going technical assistance to small businesses. The
technical assistance is fundamental to this program because it
teaches microentrepreneurs how to manage a successful business,
and running a successful business is key to loan repayment.
As industry experts and micro borrowers have testified
numerous times, the link between financing and technical
assistance is critical to the success of micro enterprise, in
general, and the SBA microloan program, in particular. The low
default rates of loans are evidence of the tremendous success
of this program. Since the first microloan was made in 1992,
the Federal government has had only one default in its loans to
the intermediary loan providers. Equally impressive, the
lending intermediaries have had losses of only three to five
percent from small businesses, and the losses are fully covered
by the mandatory loss reserve that each intermediary must
maintain. Because of this successful track record, in 1997 the
Congress voted to transform the Microloan program from a
demonstration program to a permanent part of the array of SBA
credit assistance programs.
There are currently 156 intermediaries and 19 non-lending
technical assistance providers in the SBA Microloan Program. To
date, the lending intermediaries have made 10,230 loans worth
some $105 million. The SBA reports that for every microloan,
1.7 jobs are created. The average loan to a microentrepreneur
is about $10,000, with interest rates averaging 11 percent and
an average term of 39 months.
Microentrepreneurs range from the single mother on public
assistance, who borrows a few hundred dollars to buy sewing
equipment and supplies to start her own alterations shop, to a
mechanic who borrows a few thousand dollars to buy tools to
start a repair shop.
Across the country, microloans and technical assistance are
working, assisting individuals with the tools to successfully
start and manage their own businesses. The SBA's Massachusetts
Small Business Person of the Year for 2000 more than proves
that. Lowell Gray of Lynn, Massachusetts obtained a $25,000 SBA
microloan when his business needed it most and turned a small
software company into Shore.net--an Internet service provider--
with 85 employees. He recently sold it for an astounding $43
million. In Kansas City, Missouri, the Center for Business
Innovation (KC-CBI) is about to make its second loan to a
microentrepreneur who was in poverty when she applied for her
initial loan. Two years after her initial microloan, her
revenues have gone from less than $20,000 to $90,000 per year,
and she is ready to expand her business.
Since the microloan program was started in 1991, it has
grown from 35 to 156 intermediaries. The market has also
changed. Thus, as the Committee reviewed the program for
reauthorization, it worked with trade associations representing
microlenders, the Small Business Administration, and individual
microlenders to craft legislation that would meet market needs
and foster the success of the program.
Chief among those changes, in large part to reflect
inflation, is increasing the maximum loan amount and average
loan sizes. The maximum loan amount would increase from $25,000
to $35,000; the average loan size for each intermediary's
portfolio would increase from $10,000 to $15,000. For
speciality lenders, those making smaller loans and receiving
additional technical assistance to make them, this legislation
would raise their average loan size from $7,500 to $10,000.
According to Mary Mathews of the Association for Enterprise
Opportunity (AEO), who participated in a Committee Roundtable
entitled ``SBA's SBIC and Microloan Programs'' on May 12, 1999,
and represented the 500 members of AEO, Congress should raise
the maximum loan size of $25,000 because it is not worth as
much today as it was in 1991, when the amount was established.
In fact, according to an economist at the SBA's Office of
Advocacy, the value of $25,000 in 1991 is worth only $20,200
today. Said another way, if a borrower took out a $25,000 loan
in 1991, and wanted to have the same purchasing power today as
then, he or she would need to borrow $31,000. Separately, the
National Association of SBA Microloan Intermediaries (NASMI)
urged the Committee to increase the limit. The Committee
concurs that the limits should be increased to $35,000 to
accommodate inflation and market changes.
This section also makes the program more flexible. First,
it eliminates the requirement that intermediaries make ``short-
term'' loans. This change will allow intermediaries greater
latitude in developing microloan products by offering their
borrowers revolving lines of credit, such as for seasonal
contract needs. Second, this bill broadens the eligibility
criteria for intermediaries. Instead of requiring
intermediaries to have one year of experience making microloans
to startup, newly established or growing small businesses and
providing technical assistance to its borrowers, this
legislation would deem a prospective intermediary eligible if
it has equivalent experience. Third, it raises the threshold
for the comparable credit test from $15,000 to $20,000. Since
1991, intermediaries have been allowed to make loans greater
than $15,000, and not for more than $35,000, only if the
borrower demonstrated that it was unable to get comparable
credit, at comparable rates, from another lender. Fourth, it
eliminates the restriction on how much technicalassistance
funding an intermediary can use for pre-loan assistance. Currently,
intermediaries are limited to using 25 percent of their technical
assistance funds to assist prospective borrowers. This change endorses
using the judgment of the lender to allocate technical assistance
appropriately. Fifth, it increases the percentage of technical
assistance grant funds that an intermediary can use for subcontracting
technical assistance. Currently, intermediaries can only subcontract 25
percent, and this legislation would raise it to 35 percent.
Another program change this section makes addresses the
need for more non-lending technical assistance providers (TA
providers). Current law limits the number of TA providers to 25
nationally, with a maximum of one per state. In a 1996 Report
to Congress, SBA provided data indicating that for every dollar
granted under the non-lending technical assistance program,
approximately five dollars were leveraged from the private
sector. At the request of the Administration, this Committee
agrees to increase the number of TA providers to 55 from 25 so
that there can be one in each state and in the District of
Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and
American Samoa. In addition, again to reflect inflation and
increased costs, the Committee is raising the maximum grant
amount to each TA provider from $125,000 to $200,000.
On numerous occasions, from a microloan field hearing in
Boston in 1998 to the Committee's microloan roundtable in 1999,
industry has underscored the need to make the program more
accessible to more borrowers across the country, whether they
live in a rural or urban area. Right now, there are 156
intermediaries out of the 200 Congressionally authorized. Three
states--Alaska, Louisiana and Wyoming--do not have any
intermediaries, though they are working to find appropriate
participants. While inadequate appropriations for technical
assistance are partially to blame for the inability of the
program to grow and add intermediaries, the industry groups,
local economic development leaders and the SBA have asked
Congress to expand the program. This bill not only increases
the appropriation for direct mircoloans and technical
assistance for each of the next three years to allow the
program to expand, but it also takes a balanced approach to
increasing the number of intermediaries authorized. Starting in
FY2001, SBA would be authorized to fund 250 intermediaries, in
FY2002 it could fund 300, and in FY2003 it could fund 350. This
allows SBA to make this program available nationwide.
Lastly, as Congress expands the program and increases the
number of lending intermediaries around the country, we want to
make sure that new intermediaries have the benefits of lessons
learned by other more experienced lending intermediaries.
Because the micorlending industry is still very young, there
are few sources of conventional training available to
prospective and new intermediaries. According to the National
Association of SBA Microloan Intermediaries, experienced SBA
microlenders are called upon frequently to assist new
intermediaries in addressing issues with their loan fund, from
financial management and marketing to targeting loan funds
effectively to a population or business sector. While these
experienced intermediaries do their best to respond to the
needs of their colleagues, they currently lack the resources to
respond effectively and efficiently to the growing needs of the
field. This section addresses that need and includes an
amendment offered by Senator Snowe, and agreed to by unanimous
consent, to establish a peer-to-peer mentoring program for SBA
intermediaries and organizations seeking to become microlending
intermediaries. Specifically, SBA would be allowed to use up to
$1 million of annual appropriations for technical assistance
grants to subcontract with one or more national trade
associations of SBA microlending intermediaries to provide
peer-to-peer mentoring. The Committee strongly supports this
concept, because it will help make the program available
nationwide. While maintaining its high quality and low loss
rates.
Sec. 504. Small Business Lending Company Fees
The SBA initiated in FY 1999 an annual examination of each
Small Business Lending Company (SBLC). SBA has currently
licensed 14 SBLCs to make loans under the 7(a) guaranteed
business loan program. Each SBLC is approved to originate 7(a)
loans under SBA's Preferred Lenders Program. In order to help
defray the cost of conducting the annual examinations, the
Committee approved a provision that requires each SBLC to
reimburse SBA for the cost of the annual examination. SBA is
directed to use the fees paid by the SBLCs to pay for the cost
of the examinations and other oversight expenses.
Sec. 505. Surety Bonds
The SBA recommended to the Committee that it increases the
maximum size of surety bond that can be guaranteed by SBA from
$1.25 million to $2 million. In April 1986, the Congress
approved an increase in the maximum size from $1 million to
$1.25 million. In the intervening 14 years, inflation has
eroded the effectiveness of this limit on the guarantee size.
Therefore, the Committee adopted the recommendation to increase
the surety limit up to $2 million for each individual contract.
In addition, the Committee approved an extension of the
Preferred Surety Bond Program through September 30, 2003.
Sec. 506. Development Company Debentures
At the request of the SBA, the Committee approved a
technical amendment clarifying the minimum interest rate to be
charged on 504 debentures that are guaranteed by the Federal
government.
Title VI: HUBZone Program
The HUBZone program aims 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 relatively 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, business has been reluctant
to move into these areas. It simply has not been profitable,
without a customer base to keep them operating.
The HUBZone Act 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 its regular customer base, a
Federal contract can help it stabilize its revenues and remain
profitable. This gives small business a chance to get a
foothold and provides jobs to these areas. New business and new
jobs mean new life and hope for these communities.
Since the HUBZone Act was adopted in the Small Business
Reauthorization Act of 1997, the Small Business Administration
has been implementing the program. On March 22, 1999, SBA began
accepting applications from interested firms. Experience to
date has revealed several difficulties with implementation,
which the Committee has sought to rectify in this legislation.
Subtitle A--HUBZones in Native America Act
One such problem was an unintended consequence of wording
in the 1997 legislation that inadvertently excluded Indian
Tribal enterprises and Alaska Native Corporations from
participation. The definition of ``HUBZone small business
concern'' specified that eligible small businesses must be 100%
owned and controlled by U.S. citizens. This provision sought to
insure that HUBZone benefits, financed by the American
taxpayer, should be available only for U.S. beneficiaries.
However, since citizens are ``born or naturalized'' under
the fourteenth Amendment, ownership by citizens implies
ownership by individual flesh-and-blood human beings. Corporate
owners and Tribal government owners are not ``born or
naturalized'' in the usual meanings of those terms. Thus, the
Small Business Administration found that it had no authority to
certify small businesses owned wholly or partly by Alaska
Native Corporations and Tribal governments.
Since Native American communities were always intended to
benefit from HUBZone opportunities, the Committee has included
language to make such firms eligible. On many reservations,
particularly the isolated ones, the only investment resources
available are the Tribal governments. Excluding those
governments from investing in their own reservations means, in
practical terms, excluding those reservations from the HUBZone
program entirely. Similarly, Alaska Native Corporations have
corporate resources that are necessary to make real investments
in rural Alaska and to provide jobs to Alaska Natives who
currently have no hope of getting them.
The Committee was guided by three broad principles in
crafting this legislation. First, no firm should be made
eligible solely by virtue of who it is. For example, Alaska
Native Corporations will not be eligible solely because they
are Alaska Native Corporations. Instead, Alaska Native
Corporations and Indian Tribal enterprises should be eligible
only if they agree to advance the goals of the HUBZone program:
job creation and economic development in the areas that need it
most.
Second, the Committee sought to make the HUBZone program
conform to existing Native American policy. The Committee is
aware of controversy over whether to change Alaska Native
policy so that Alaska Natives exercise governmental
jurisdiction over their lands, just like Tribes in the Lower 48
States do on both their reservations and trust lands. However,
that issue is outside this Committee's jurisdiction. The Alaska
Native Claims Settlement Act (ANCSA) of 1971 deliberately
refrained from creating Alaska Native jurisdictions in Alaska,
and this Committee's legislation is intended to conform to
existing practice in ANCSA.
The third principle underlying this bill is that Alaska
Natives and Indian Tribes should participate on as even a
playing field as possible. Exact equivalence is not possible
because the Federal relationship with Alaska Natives differs
significantly from the relationship with Indian Tribes, and
also because Alaska is a very different State from the Lower
48. However, ANCSA provided that Alaska Natives should be
eligible to participate in Federal Indian programs ``on the
same basis as other Native Americans.''
Subtitle B--Other HUBZone provisions
Subtitle B contains several technical changes to clarify
interpretive issues concerning the original HUBZone Act, as
well as new language to correct an unforeseen situation
regarding procurement of commodities. This subtitle also
includes new language to reiterate more explicitly the
Committee's position on the relationship of the HUBZone program
to other contracting programs. Ffinally, subtitle B makes a
further amendment to the categories of eligible HUBZone firms,
to include the HUBZone program as one of the tools Community
Development Corporations can use in rebuilding their
communities and neighborhoods.
The Committee's bill includes a technical correction to the
definition of ``qualified census tract.'' It also makes two
major substantive changes to the definition of ``qualified
nonmetropolitan county.''
First, the definition is clarified to ensure that
nonmetropolitan counties in the HUBZone program are those that
were considered to be such as of the time of the last decennial
(10 year) census. The HUBZone program relies on census tracts
selected in metropolitan areas based on the last census, so
that a metropolitan county--in order to have such census
tracts--must have been considered metropolitan at that time. A
nonmetropolitan county may be eligible as a HUBZone based on
income data collected during the census or on unemployment data
produced annually by the Bureau of Labor Statistics.
During the ten-year period between each census, some
counties become so integrated into the commercial activities of
a metropolitan area that they are moved from the
nonmetropolitan category to the metropolitan category. Such
counties would become ineligible for HUBZone participation.
They would not have been metropolitan counties at the time of
the last census, so no qualified census tracts would have been
selected there. They would also no longer be nonmetropolitan
counties, so the income and unemployment tests available to
such counties would no longer apply. Thus, counties that change
from nonmetropolitan to metropolitan, in the period between
each census, would become ineligible until the next census is
taken. The Committee corrects this problem by freezing, for
HUBZone purposes, the categories of metropolitan and
nonmetropolitan counties as they stood at the time of the last
census.
The second major change to the definition of ``qualified
nonmetropolitan county'' is the addition of a grandfathering
clause. Because of Labor Statistics (BLS) issues new county-
level unemployment data annually, nonmetropolitan counties may
shift into and out of eligibility on a yearly basis. The
Committee believes that this type of movement is too fluid for
a program that should be stable in its first few years.
Companies will be confused about the merits of the program if
firms lose and gain eligibility from year to year. A company
will not want to invest in such a county only to have it
suddenly become ineligible, due to new BLS data, before the
company has even had the opportunity to recoup its investment
by participating in the HUBZone program.
The Committee legislation seeks to stabilize this situation
by looking at the unemployment picture over a three-year period
for nonmetropolitan counties. It also provides that companies
in such a county will have a one-year period to pursue HUBZone
opportunities and wrap up its activities under the program,
after such a county becomes ineligible due to new BLS data. A
similar one-year period is provided for changes that may result
due to enactment of this legislation.
Commodities procurement
In 1999, the Committee became aware of potential
implementation problems in HUBZone procurements of certain
commodities, particularly food-aid commodities purchased by the
Department of Agriculture (USDA), that could lead to unintended
and anti-competitive results. Because bids for commodities
generally tend to fall within a narrow range of prices, the 10%
price evaluation preference that currently exists could be
overwhelmingly decisive. In such purchases, a handful of
HUBZone firms could secure significant portions of these
markets. This, in turn, could prompt other vendors to abandon
these markets, thus reducing USDA's vendor base and reducing
competition. These are results that would be contrary to the
goals set forth in Sec. 2 of the Small Business Act. The
Committee notes that this may not be as true for processed
commodities as for raw commodities, since processing introduces
other variables that could increase the range of costs and,
therefore, the range of bids.
To prevent irreparable harm to USDA's vendor base until the
matter could be addressed more comprehensively in this
legislation, Chairman Bond sponsored a proviso in the Fiscal
2000 Agriculture Appropriations Act. As adopted in the
conference report, Sec. 751 of that Act limited the price
evaluation preference to 5% for up to half of the total dollar
value of each commodity in a particular tender (solicitation).
It also prohibited contract awards to a HUBZone firm that would
be of such magnitude as to require the firm to subcontract to
purchase the commodity being procured, since such a scenario
would simply allow these firms to purchase commodities from
subcontractors and in turn sell them to the Government at
inflated prices.
The legislation reported by this Committee seeks to address
this issue on a more permanent basis. The Committee is aware
that USDA relies upon a complex computer program to evaluate
commodities bids, and thus the Committee seeks to set a long-
term policy that will not require frequent and expensive
changes to this software. Although the Committee legislation
reduces the level of HUBZone program incentives that otherwise
would be available under the HUBZone Act, this bill still seeks
to ensure substantial awards to HUBZone concerns, while
protecting existing incentives available to other types of
small business concerns. The Committee intends that these
incentives help commodities procurements contribute their fair
share toward achieving the Government-wide goal of 23% of prime
contract dollars to small business concerns, but without the
anti-competitive effects of awarding overwhelming shares of the
market to HUBZone firms.
Relationship to other contracting preferences
In 1997, when this Committee considered legislation to
create the HUBZone program, the prospective impact of that
program on existing small business programs was a very
controversial issue. This Committee was then, and is now
committed to advancing the interests of all types of small
businesses, and accordingly sought to ensure that the HUBZone
program would not compete with other contracting incentives,
particularly the 8(a) program. As we stated in our report on
the legislation:
It should be noted that the HUBZone Program is not
designed to compete with SBA's 8(a) Program. One of the
amendments adopted by the Committed during its markup
of this legislation places a HUBZone small business
concern at the same level of contracting preferences as
an 8(a) small business concern. The bill, as amended,
gives the procuring agency's contracting officer the
flexibility to decide whether to target a specific
procurement requirement for the HUBZone Program or the
8(a) Program. Small Business Reauthorization Act of
1997, Senate Report 10-62, at 26.
The Committee is concerned that SBA has misinterpreted the
intent of the committee and has created, through regulatory
means, an order of precedence that places the 8(a) program
ahead of the HUBZone program in all cases. In February 25,
2000, correspondence to the Chairman, the Administrator stated
that this was necessary to protect the 8(a) program, and she
noted that protecting the 8(a) program had been a condition of
her endorsement of the HUBZone legislation in 1997.
The Committee shares the Administrator's commitment to
protecting the 8(a) program andunderstands the concerns of the
minority contracting community. For this reason, the Committee adopted
language in 1997 to allow contracting officers the flexibility to
decide which program is appropriate for a prospective opportunity. The
Committee not only pledged to protect the 8(a) program but also
incorporated that pledge into specific legislation to give force to
that commitment.
It is the strong belief of the Committee that contracting
officers are ideally situated to carry out this mandate.
Contracting officers are the ones who carry out the various
procurement goals and track their progress as the year
proceeds. If a contracting officer discovers that his or her
purchasing center or procurement office, as well as the agency
overall, is falling behind on its share of the 5% SBD goal (of
which 8(a) is a part), he or she must have the flexibility to
place new contracting opportunities in the 8(a) program to
ensure the goal is met. Likewise, if the contracting officer
discovers that his or her agency is falling behind on the
HUBZone goal, he or she needs the flexibility provided by law
to award new contracting opportunities through the HUBZone
program.
The Committee believes it is inappropriate for SBA to
deviate from an approach that was stated in our Committee
report and reflected in the statutory language adopted by both
Houses of Congress and signed by the President. To create an
order of precedence that places either 8(a) or the HUBZone
program ahead of the other is to limit the discretion of the
contracting officer as provided by law. The Committee believes
the real threat to 8(a) and to the HUBZone program, as well as
to other small business contracting initiatives, comes from
contract bundling and acquisition streamlining.
Accordingly, the Committee has included language to
explicitly state that 8(a) and the HUBZone program are on a
level playing field in terms of contracting preference. The
Committee does not consider this to be a change in the law, but
merely a restatement of existing law.
The Committee has also included language to ratify SBA's
regulations to place first priority on firms eligible for both
the 8(a) and HUBZone programs. If a firm qualifies for both
programs, and a contract is awarded instead to a firm that
qualifies for only one program, the firm that qualifies for
both has arguably been denied the advantages of one of the
programs to which it is statutorily entitled. The Committee
strongly concurs with SBA's position on HUBZone 8(a) concerns
and gives it statutory force through this legislation.
Community development corporations
For reasons similar to the problems preventing HUBZone
program participation by Indian Tribal enterprises and Alaska
Native Corporations, small businesses owned by Community
Development Corporations were also inadvertently made
ineligible by the original HUBZone Act language. The Committee
has included language to correct this problem. As with Tribal
enterprises and Alaska Native Corporations, addressed in
Subtitle A of this Title, Community Development Corporations
are not made automatically eligible. These firms must agree to
advance the job-creation goals of the HUBZone program.
Specifically, as other businesses must do, these enterprises
must maintain their principal office in a HUBZone and employ
35% of their workforce from one or more HUBZones.
The Committee has also included technical corrections to
Sec. Sec. 8(d)(4)(D) and 3(p)(5)(C) of the Small Business Act.
Title VIII: National Women's Business Council Reauthorization
Senator Landrieu offered an amendment, which was
unanimously adopted by the Committee, to re-authorize the
National Women's Business Council for three years, from FY 2001
to 2003, and to increase the annual appropriation from $600,000
to $1 million. The increase in funding will allow the Council
to: support new and ongoing research; produce and distribute
reports and recommendations prepared by the Council; and create
an infrastructure to assist states in developing women's
business advisory councils, coordinate summits and establish an
interstate communication network.
The increase will also be used to assist Federal agencies
meet the procurement goal for women-owned businesses
established by Congress in 1994 under section 15(g) of the
Small Business Act. By law, Federal agencies must strive to
award women-owned small businesses at least 5 percent of the
total amount of Federal prime contract dollars. The Committee
feels strongly that Federal agencies should meet the five-
percent goal, and it supports the Council's plan to expand its
efforts to increase the percentage of prime contracts that go
to women-owned businesses. Based on current data, women are not
receiving awards proportionate to their presence in the
economy. For example, women-owned businesses make up 38 percent
of all small businesses,\1\ yet women-owned businesses received
only 2.42 percent of the $189 billion in Federal prime
contracts in FY1999.\2\
---------------------------------------------------------------------------
\1\ Research from the National Foundation for Women Business Owners
(NFWBO) Women-Owned Businesses, Top 9 Million in 1999 (1999), Economic
clout increases as employment, revenues grow.
\2\ Federal Procurement Data System, Reporting on Annual
Procurement Preference Goaling Achievements--Part II.
---------------------------------------------------------------------------
According to the National Foundation for Women Business
Owners, over the past decade the number of women-owned
businesses in this country has grown by 103 percent to an
established 9.1 million firms. They generate almost $3.6
trillion in sales annually and employ more than 27.5 million
workers. With the impact of women-owned businesses on our
economy increasing at an unprecedented rate, Congress relies on
the Council to serve as its eyes and ears as it anticipates the
needs of this burgeoning entrepreneurial sector. Since it was
established in 1988, the Council, which is bi-partisan, has
provided important unbiased advice and counsel to Congress.
This bill allows the Council to continue to perform its
duties at the level it has done so far, as well as expand its
activities to support initiatives that are creating the
infrastructure for women's entrepreneurship at the state and
local level.
Title VIII: Miscellaneous Provisions
SEC. 801. NATIVE AMERICAN SMALL BUSINESS DEVELOPMENT CENTERS
Accompanying the FY 2001 budget request was an SBA request
to establish Native American Small Business Development Center
(NASBDC) Network. The purpose of the request is to stimulate
the economies of Native American reservations through the
creation and expansion of small business ownership. The NASBDC
would be modeled after SBA's Small Business Development Center
(SBDC) Program, and funding would be provided from a separate
line item.
As a group, the nearly 2 million Native Americans are among
the poorest in the United States. Unemployment averages 45%
among Native Americans who live on or near reservations. The
poverty rate is more than three times the national average, and
the median household income is less than two-thirds the
national average. Many Native American households lack such
basic necessities as telephones, electricity, running water and
indoor plumbing. The reservations and surrounding communities
are overwhelmingly rural and geographically isolated. The more
than 555 Federally recognized Tribes are extraordinarily
diverse in language, culture, land base and natural resources.
The Committee believes that small business ownership is one
of the most important economic development tools for Native
Americans. The NASBDC Network is needed because a strong small
business management and technical assistance base needs to be
established to help Native Americans take advantage of the
benefits stemming from small business ownership. In the past,
SBA has been hampered by the lack of culturally appropriate
vehicles to deliver this type of service. Frequently, SBA has
been confronted by barriers, such as the vast distances and
widely dispersed reservations populations that have hampered
its ability to deliver its programs.
The NASBDC Network would not duplicate the SBDC Program.
Rather, it will complement the successful SBDC model. Under the
Committee's bill, SBA would be authorized to fund one Native
American business or economic development organization or a
tribal organization which will distribute funds to service
centers. The service centers will provide business management
and technical assistance in a cost-effective and culturally
tailored manner. All service centers will be located on or near
Native American reservations. The creation of this culturally
appropriate and site-specific device creates the bridge to
bring SBA and SBA-sponsored services to Native American
communities. The Committee believes the NASBDC has the
potential to stimulate reservation economies through the
creation and expansion of small businesses.
SEC. 802. COSPONSORSHIP
As a means of leveraging the scarce resources at SBA, the
Agency engages in a variety of cosponsorships with public and
private sector organizations. Current statutory language refers
only to training as a permitted cosponsored activity with for-
profits entities. SBA defines training as beinglimited to
narrower topics of interest to relatively small numbers of business
owners or those in certain types of businesses. There are, however,
broader business-related topics, such as the effective use of
technology, e-commerce, exporting/importing, about which all small
businesses should be informed and educated.
The SBA has recommended that the terms ``information and
education'' be added to the types of assistance that can be
provided to small businesses. SBA believes this change will
give it the flexibility in the types of assistance that can be
provided to small businesses. The Committee agreed with the
SBA's recommendation, concluding that while traditional
training in these areas may also be offered, the need to reach
broader audiences with timely, updated information and
education is vital to the success of the largest number of
small businesses.
Sec. 803. FRAUD AND FALSE STATEMENTS
This section would ensure that a false statement made to
the SBA, in connection with an SBIC activity, would have the
same penalty as making a false statement to an SBIC. 18 U.S.C.
1014 does not mention SBA; however, it makes it a crime to make
a false statement or report to an SBIC. This technical change
would make it clear that it would be a criminal violation of 18
U.S.C. 1014 to make a false statement to SBA in connection with
SBIC activity, with more severe penalties under this section
than are granted under 15 U.S.C. 645(a) or 18 U.S.C. 1001,
which are criminal statutes used for false statements made in
most SBA assistance programs. The Committee believes the
greater penalties under this section are more appropriately
imposed for the greater loss often occasioned when the SBA and
the public suffer a loss under the SBIC program. Additionally,
this amendment would enable the courts to assess civil
penalties for such violations pursuant to 12 U.S.C.
1833a(c)(1).
Sec. 804. FINANCIAL INSTITUTION CIVIL PENALTIES
This technical amendment seeks to insure that individuals
who make false statements to SBICs and/or SBA are subject to
the civil penalties set forth under the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 12
U.S.C. 1833a, which permits the imposition of monetary fines
for violations, or conspiracies to violate, certain criminal
statutes, including 18 U.S.C. 1001. For purposes of FIRREA, 18
U.S.C. 1001 must involve a false statement made to a Federally
insured financial institution, or, if Section 804 becomes law,
to a Federal lending agency or a Federal guarantor, including
SBA.
Sec. 805. VERY SMALL BUSINESS PROGRAM
This section would extend the Very Small Business Program
pilot. The pilot program is targeted at firms seeking to do
business with the Federal government with 15 or fewer employees
and with less than $1 million in annual receipts. To date, SBA
has had insufficient experience and data to evaluate the
program, which SBA failed to implement until March 4, 1999,
more than four years after Congress enacted the program. The
Committee anticipates that new reporting requirements set forth
in the Federal Procurement Data System will provide SBA with
sufficient data to evaluate the program over the next three
years.
Sec. 806. SDB
The Federal Acquisition Streamlining Act of 1994 (P.L. 103-
355; 15 U.S.C. 644 note) establishes procurement procedures to
help small business concerns owned and controlled by socially
and economically disadvantaged individuals to meet certain
Federal procurement goals. The procurement procedures are
scheduled to terminate on September 30, 2000. The Committee
approved an extension of the program for three years, through
September 30, 2003.
Sec. 807. SUBCONTRACTING PREFERENCE FOR VETERANS
This section would clarify that service-disabled veterans
are on the same preference level as small disadvantaged
businesses (SBDs) and women-owned small businesses for Federal
contracting opportunities. When the Congress enacted the
Veterans Entrepreneurship and Small Business Development Act
(P.L. 106-50), it was not absolutely clear that the contracting
preferences were to apply specifically to service-disabled
veterans. The Committee intends for this section to clear up
any misunderstandings that might remain.
Sec. 808. SIZE STANDARDS
Section 808 establishes a new size standard of 200
employees for fresh fruit and vegetable packing houses. The SBA
currently classifies fresh fruit and vegetable packing houses
as being primarily engaged in the wholesale distribution of
fresh fruits and vegetables (Standard Industrial Classification
(SIC) code 5148), which has a 100-employee size standard. This
standard can be increased to 125 employees when it applies to a
labor surplus area. Senator Dianne Feinstein of California
brought this matter to the attention of the Committee. She
explained that the fresh fruit and vegetable packing houses are
labor intensive businesses, which use a substantial numbers of
employees during the harvest seasons, and they are not similar
to warehouse distribution businesses. The Committee agreed with
Senator Feinstein's request for help and approved a the new
size standard.
Sec. 809. DRUG-FREE WORKPLACE PROGRAM
In 1998, the Congress enacted the Drug-Free Workplace
Demonstrate Program under the leadership of Senator Paul
Coverdell of Georgia. The purpose of the program is to provide
financial and technical assistance to small business concerns
seeking to establish a drug-free workplace program. The law
authorized $10 million in FY 1999 and 2000. Section 809 extends
the Drug-Free Workplace Program for FY 2001 and 2002 and
authorizes $10 million for the two year period.
III. COMMITTEE VOTE
In compliance with rule XXVI(7)(b) of the Standing Rules of
the Senate, the following votes were recorded on March 21,
2000.
A motion by Senator Bond to adopt the amendment offered by
Senator Landrieu to extend the authorization of the National
Women's Business Council for Fiscal Years 2001, 2002, and 2003
passed by a unanimous voice vote.
A motion by Senator Kerry to adopt the amendment offered by
Senator Snowe to provide peer-to-peer assistance under the
Microloan program passed by a unanimous voice vote.
A motion by Senator Bond to adopt the Small Business
Reauthorization Act of 2000 as amended, to re-authorize the
programs of the Small Business Administration, and for other
purposes, was approved by a unanimous 18-0 recorded vote, with
the following Senators voting in the affirmative: Bond, Kerry,
Burns, Coverdell, Bennett, Snowe, Enzi, Fitzgerald, Crapo,
Voinovich, Abraham, Levin, Harkin, Lieberman, Wellstone,
Cleland, Landrieu, and Edwards.
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, July 25, 2000.
Hon. Christopher S. Bond,
Chairman, Committee on Small Business,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for the Small Business
Reauthorization Act of 2000.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Mark Hadley
and Megan Carroll (for federal costs), and Shelley Finlayson
(for the state and local impact).
Sincerely,
Steven Lieberman
(For Dan L. Crippen, Director).
Enclosure.
Small Business Reauthorization Act of 2000
Summary: The bill would authorize appropriations for fiscal
years 2001 through 2003 for the Small business Administration
(SBA) and would make a number of changes to SBA loan programs
and programs that involve preferences for government
contracting.
Assuming appropriation of the necessary amounts, CBO
estimates that implementing this legislation would cost about
$3.7 billion over the 2001-2005 period. Of this total, about
$600 million is from amounts specifically authorized in the
bill for SBA programs--primarily for administrative expenses.
The remaining $3.1 billion would be primarily for the subsidy
costs of SBA loan programs.
These costs include $227 million over the 2001-2005 period
for agencies other than SBA to carry out programs that would be
reauthorized by the bill. Implementing the changes to the
HUBZone program contained in the bill would also increase costs
to other federal agencies, by several million dollars a year,
but we cannot estimate the impact of those changes.
CBO estimates that enacting the bill also would result in
an increase in direct spending of $28 million in fiscal year
2000 for the cost of modifying loan guarantees. Because the
bill would affect direct spending, pay-as-you-go procedures
would apply.
The legislation contains an intergovernmental mandate as
defined in the Unfunded Mandates Reform Act (UMRA), but CBO
estimates that states would incur no cost to comply with this
mandate. Thus, the threshold established by the act ($55
million in 2000, adjusted annually for inflation) would not be
exceeded. In general, the bill would benefit state, local, and
tribal governments, and any costs to such governments would be
incurred voluntarily. The bill contains no new private-sector
mandates as defined in UMRA.
Major Provisions: Title I would establish the maximum
amounts of small business loans to be made by SBA in 2001,
2002, and 2003. It also would authorize appropriations for the
Service Corps of Retired Executives (SCORE), technical
assistance grants to recipients of microloans, and certain
activities of the Small Business Development Centers (SBDCs).
Title I would authorize such sums as may be necessary for the
disaster loan program and for administrative expenses necessary
to carry out the Small Business Act and the Small Business
Investment Act.
Title III would require the Internal Revenue Service (IRS)
to convene panels, prior to publishing regulations (including
interpretive rules), to analyze the potential impact of those
regulations on small businesses.
Title IV would authorize the appropriation of such sums as
may be necessary for the Office of Advocacy within SBA.
Title V would make a number of changes in SBA's credit
programs. It would:
establish prepayment penalties and authorize
SBA to guarantee a higher percentage of certain general
business loans,
require SBA to reduce the annual fee paid by
borrowers under two Small Business Investment Company
(SBIC) programs if the subsidy cost of those programs
would otherwise be less than zero, and
require small business lending companies to
pay the costs of examinations by SBA.
Title VI would expand the HUBZones program to allow more
businesses and communities within Indian reservations or in
Alaska to participate in the program.
Title VII would extend the provisions of the Federal
Acquisition Streamlining Act of 1994 that provide federal
contracting preferences to qualified small disadvantaged
businesses, and would authorize SBA to conduct criminal
background checks on borrowers or lenders.
Estimated cost to the Federal Government: The estimated
budgetary impact of implementing the bill's provisions is shown
in Table 1. CBO estimates that the bill would result in outlays
of $3.7 billion over the 2001-2005 period; nearly all of that
amount is for SBA spending that is subject to appropriation.
The estimatedoutlays do not include additional costs for
expanding the HUBZones program, which could total several million
dollars a year. CBO has insufficient information on how this provision
would be implemented to estimate these costs. The costs of this
legislation fall within budget functions 370 (housing and commerce
credit) and 450 (community and regional development).
TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF THE SMALL BUSINESS REAUTHORIZATION ACT OF 2000
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------
2000 2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
Small Business Administration:
SBA Spending Under Current Law:
Estimated Authorization Level 1......................... 861 0 0 0 0 0
Estimated Outlays....................................... 865 298 70 24 0 0
Changes to SBA Spending:
Estimated Authorization Level........................... 0 1,131 1,207 1,253 11 12
Estimated Outlays....................................... 0 736 1,096 1,202 414 74
SBA Spending Under the Bill:
Estimated Authorization Level........................... 861 1,131 1,207 1,253 11 12
Estimated Outlays....................................... 865 1,034 1,166 1,226 414 74
Other Agencies:
Estimated Authorization Level 2............................. 0 48 49 51 52 53
Estimated Outlays........................................... 0 30 40 47 51 52
Total Additional Spending Under the Bill
Estimated Authorization Level............................... 0 1,179 1,256 1,304 63 65
Estimated Outlays........................................... 0 766 1,136 1,249 465 126
CHANGES IN DIRECT SPENDING
Estimated Budget Authority...................................... 28 0 0 0 0 0
Estimated Outlays............................................... 28 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
\1\ The 2000 level is the amount appropriated for SBA for that year.
\2\ In addition to the amounts shown in the table, CBO expects that Title VI (HUBZones program) would impose
costs on agencies other than the SBA but we cannot estimate those costs.
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted by the end of fiscal year 2000 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
of the bill unrelated to SBA--primarily those affecting
government procurement--also would add to the cost of
implementing the legislation.
Small Business Administration. The bill would reauthorize
all of the programs of SBA through 2003. In addition, the bill
would provide separate authority for the Office of Advocacy and
for existing programs to assist businesses owned by Native
Americans. Based on information from SBA and historical
spending patterns for the agency, CBO estimates that these
authorizations, if funded, would result in outlays of about
$3.5 billion (including about $2.2 billion for loan programs)
over the 2001-2005 period.
Loan Programs. The bill would authorize SBA to guarantee
loans and make direct loans to businesses totaling about $23
billion in 2001, $26 billion in 2002, and $28.6 billion in
2003. It would authorize the agency to make an indefinite
amount of disaster loans over the 2001-2003 period. Table 2
shows the loan levels 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
appropriation of the subsidy costs and administrative costs for
operating credit programs. (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 provide an explicit
authorization for either the subsidy or administrative costs
for the guaranteed, direct, or disaster loans.
The estimated subsidy rate for the different types of
business loans and loan guarantees offered by SBA ranges from
zero to about 9 percent. Most are 2 percent or less and the
average is 1.1. percent, based on the past performance of these
loans. Based on historical data for these loan programs and
incorporating program changes required by this bill, CBO
estimates that the subsidy costs for the authorized levels of
guaranteed and direct business loans would be $264 million in
2001, $298 million in 2002, and $326 million in 2003.Based on
recent administrative costs for SBA's loan programs, CBO estimates that
the administrative costs for the business loan programs would be about
$134 million in fiscal year 2001, $138 million in fiscal year 2002, and
$142 million in fiscal year 2003.
TABLE 2.--ESTIMATED SBA LOAN LEVELS, SUBSIDY COSTS, AND ADMINISTRATIVE COSTS
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------
2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
Authorized Loan Levels
Guaranteed and Direct Business Loans.......................... 23,110 26,130 28,650 0 0
Disaster Loans................................................ 871 885 900 0 0
Loan Subsidy Costs
Guaranteed and Direct Business Loans:
Estimated Authorization Level............................. 264 298 326 0 0
Estimated Outlays......................................... 170 270 303 103 6
Disaster Loans:
Estimated Authorization Level............................. 174 177 180 0 0
Estimated Outlays......................................... 87 158 178 90 18
Loan Administration Costs
Guaranteed and Direct Business Loans:
Estimated Authorization Level............................. 134 138 142 0 0
Estimated Outlays......................................... 134 138 142 0 0
Disaster Loans:
Estimated Authorization Level............................. 141 145 150 0 0
Estimated Outlays......................................... 141 145 150 0 0
----------------------------------------------------------------------------------------------------------------
Assuming that demand for SBA's disaster loans over the next
three years will be at the average historical rate for the past
six years, adjusted for inflation, CBO projects that SBA would
make disaster loans totaling about $871 million in 2001, $885
million in 2002, and $900 million in 2003 and that
administrative costs for the disaster loan program would be
about $141 million in 2001, $145 million in 2002, and $150
million in 2003. The estimated subsidy rate for disaster loans
is about 20 percent based on the historical performance of
these loans.
Non-Credit Programs. The bill would provide specific
authorizations of appropriations for SBDCs, SCORE, technical
assistance for recipients of SBA microloan, quadrennial small
business summits, the women's business council, the drug-free
workplace program, and various programs to benefit businesses
owned by Native Americans. CBO estimates that outlays from
these authorizations would total $592 million over the next
five years.
Examination fees. Section 505 would require small business
lending companies to pay the costs of any examination 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, by $1 million annually over the 2001-2005 period.
Background Checks. Section 706 would authorize SBA to
conduct criminal background checks on borrowers or lenders
participating in SBA's loan programs using the National Crime
Information Center computer system at the Federal Bureau of
Investigation (FBI). The FBI charges $24 for each check. Based
on information from SBA, we expect the agency would pursue
about 25,000 background checks in 2001. CBO estimates
implementing this section would cost $0.6 million in that year.
As SBA raises the number of background checks, annual costs
would rise gradually to about $3 million by 2005.
Other Programs. In addition, the bill would authorize such
sums as may be necessary to cover SBA's costs of carrying out
the Small Business Act and the Small Business Investment
Company Act. CBO estimates that the general administrative
costs to carry out these acts would be $223 million in fiscal
year 2001, $231 million in fiscal year 2002, and $241 million
in fiscal year 2003, assuming appropriation of the necessary
amounts. (The estimate of general administrative costs excludes
the program-specific administrative expenses for business and
disaster loans.) Finally, the bill would authorize the
appropriation of such sums as may be necessary for the Office
of Advocacy within SBA. Based on information from SBA, CBO
estimates that the office will spend $6 million to $7 million
annually.
Price Preferences. Title VII would extend the provisions of
the Federal Acquisition Streamlining Act of 1994 that provide
federal contracting preferences to qualified small
disadvantaged businesses. Under the price preferences
provision, small disadvantaged businesses may be deemed the
lowest bidder for certain federal contracts if their price is
not more than 10 percent greater than the lowest bidder. Small
disadvantaged businesses received federal contracts worth about
$6 billion in 1999. Based on the experience of a similar
program within the Department of Defense, CBO expects the total
value of contracts awarded using price preferences would be
about $1.2 billion each year over the 2001-2005 period, and the
preference would add an average of about three percent to the
cost of the contracts. CBO estimates this provision would cost
about $150 million over the 2001-2005 period.
HUBZones Program. Title VI would expand the HUBZones
program, which provides federal contracting set-asides and
preferences to qualified small businesses located in certain
economically distressed, urban and rural communities. Title VI
would allow more businesses and communities within Indian
reservations and Alaska to participate in the program and could
cost several million dollars a year. CBO cannot estimate how
much those changes may increase spending, however, because we
do not know how many more communities would participate in the
program or what administrative resources would be required to
carry it out.
Regulatory Review Panels. Title III would require the IRS
to convene panels to analyze the potential impact of
regulations on small businesses prior to publication. We expect
that the bill would apply to about 50 IRS regulations each
year. Based on this number of regulations and the experiences
of similar panels at the Environmental Protection Agency and
the Occupational Safety and Health Administration, CBO
estimates that implementing Title III would cost the IRS about
$13 million in 2001 and similar amounts in subsequent years.
Annual costs would rise gradually to about $16 million by 2005.
Direct spending
Title V would modify the expected cost of the guarantees
SBA has provided for existing loans. According to OMB's
Circular A-11, Preparation and Submission of Budget Estimates:
``If the modification is mandated in legislation, the
legislation itself provides the budget authority to incur the
subsidy cost obligation (whether explicitly stated or not).''
As a result, CBO estimates that the bill would increase direct
spending by a total of $28 million in the year of enactment
through changes in SBIC programs and SBA's general business
program.
Small Business Investment Companies. Through two SBIC
programs, SBA guarantees 10-year loans made to venture capital
firms. To offset the subsidy cost of those guarantees, SBA
charges venture capital firms that participate in the program a
fee of 1 percent of the loan amount each year, resulting in
receipts of about $50 million a year. Section 503 would require
SBA to reduce the 1 percent fee if the subsidy cost of those
programs would otherwise be less than zero.
For fiscal year 2000, the Administration estimates that the
subsidy rate is 1.8 percent for one of the SBIC programs and
zero for the other. If, in the future, SBA determines the
subsidy cost of either of these loan guarantees to be less than
zero (that is, a ``negative subsidy''), section 503 would
require the agency to reduce the fees. CBO estimates that there
is about a 15 percent chance that the subsidy rate for these
programs could be less than zero, so enacting this provision
would cost $50 million by eliminating the possibility for a
negative subsidy for the guarantees that are outstanding under
these programs. This cost represents the present value of fees
that could be eliminated by the bill and the likelihood that
the fees would have to be reduced. Such fees would otherwise be
collected annually over the remaining term of the loan
guarantees.
General Business Guarantees. Section 501 would establish
penalties for the prepayment of guaranteed loans during the
first three years that the loans are outstanding. In addition
section 501 would eliminate a provision of law that allows SBA
to pay interest on guaranteed general business loans that have
defaulted at a rate 1 percent less than the borrower's interest
rate between the time of default and the time SBA purchases the
loan. Section 508 would allow SBA to guarantee up to 85 percent
of the balance of a loan if the balance is not more than
$150,000. Section 508 also would simplify and reduce fees SBA
charges under the general business guarantee program. CBO
estimates that these provisions would result in no net change
in the subsidy associated with new loans, because the increased
cost from lowering the guarantee fees would be offset by the
new prepayment penalties.
Borrowers of existing loans have already paid the guarantee
fee but would be subject to prepayment penalties under section
501. Based on information from SBA, we anticipate that about
$33 billion of loans approved since 1997 will be outstanding
near the end of fiscal year 2000. We estimate that borrowers
would prepay about $1.3 billion within three years of receiving
their loans, and that prepayment penalties would reduce the
subsidy costs of existing general business guarantees by about
$22 million.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. CBO
estimates the bill would increase direct spending by $28
million in the year of enactment because it would modify the
subsidy costs of existing loans and loan guarantees.
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
----------------------------------------------------------------------------------------------------------------
Changes in outlays................. 28 0 0 0 0 0 0 0 0 0 0
Changes in receipts................ 0 0 0 0 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Estimated impact on state, local, and tribal governments:
The legislation contains an intergovernmental mandate as
defined in UMRA because it would preempt state statute of
limitations laws as they relate to certain enforcement actions
brought by SBA under the Small Business Investment Act of 1958.
This mandate would impose no costs on state, local, or tribal
governments because it is narrow and because it would not
require states to take any action.
The bill also would authorize appropriations for SBA's
programs for fiscal years 2001 through 2003, some of which
would directly benefit state, local, and tribal governments.
For example, the bill would expand the HUBZones program to
target assistance to Native American and tribally-owned small
businesses. In addition, the Small Business Development Center
program provides funds to state and local governments, public
and private institutions of higher education, and state-
chartered development corporations to establish and operate
small business development centers. Any costs associated with
providing matching funds to participate in SBA programs are
voluntary and expected to be minimal.
Estimated impact on the private sector: This bill would
impose no new private-sector mandates as defined in UMRA.
Estimate prepared by: Federal Costs: Mark Hadley and Megan
Carroll. Impact on State, Local, and Tribal Governments:
Shelley Finlayson. Impact on the Private Sector: Patrice
Gordon.
Estimate approved by: Robert A. Sunshine, 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
Title I: Authorizations
See the table with the program levels included in Part II
of this report.
Title II: Quadrennial Small Business Summit
Section 202. Definitions
This section defines key words and terms included in the
title.
Section 203. National And State summits on Small Business
This section states that a national Quadrennial Summit on
Small Business will occur every four years during the second
year after a presidential election. Prior to the Quadrennial
Summit, there will be State Summits for the delegates in each
state.
Section 204. Purposes of quadrennial summits
This section sets forth the reasons for having a
Quadrennial Summit on Small Business.
Section 205. Summit participants
Subsection (a) directs the Quadrennial Commission to
conduct Quadrennial and State Summits to bring together
individuals interested in issues affecting small businesses.
Subsection (b) sets forth the procedures for selecting
delegates to the State and Quadrennial Summits. A delegate must
be an owner or officer of a small business. The Governors and
U.S. Senators will each appoint a delegate and alternative
delegate from their respective states. U.S. Representatives
will each appoint a delegate and alternate from their
respective congressional districts, and the President will
appoint a delegate and alternate from each state. The delegates
will be able to conduct meetings and will attend a State Summit
in their respective states before the Quadrennial Summit is
held.
Subsection (c) describes the role of SBA's Chief Counsel
for Advocacy with respect to the Summit.
Subsection (d) explains that the delegates will be
responsible for their own expenses and will not be reimbursed
from appropriated funds.
Subsection (e) directs the Quadrennial Commission to
appoint an Advisory Committee of 10 persons who were
participants at the last preceding Quadrennial Summit.
Subsection (f) states that all State and Quadrennial
Summits will be open to the public and no fee greater than $15
can be charged to people who wish to attend a summit.
Section 206. Quadrennial Commission on Small Business
Subsection (a) authorizes the establishment of a
Quadrennial Commission on Small Business.
Subsection (b) defines the membership of the Quadrennial
Commission, which numbers nine in total. It will include the
SBA Chief Counsel for Advocacy, 4 members appointed by the
President, 2 members from the Senate (1 majority, 1 minority),
and 2 members from the House of Representatives (1 majority, 1
minority). The appointments will be made 18 months before the
opening date of the Quadrennial Summit and will expire six
months after the Quadrennial Summit has concluded.
Subsection (c) sets forth the election of a Chairperson.
Subsection (d) permits the Quadrennial Commission to enter
into contracts with public agencies, private organizations,
academic institutions, and independent, nonpartisan
organizations to carry out the State and Quadrennial Summits.
Subsection (e) directs the Quadrennial Summit to consult
with the Office of Advocacy at SBA, Congress, and Federal
agencies in carrying out the State and Quadrennial Summits.
Subsection (f) requires that the Quadrennial Commission
submit a report to the Chairperson and Ranking minority Members
of the Senate and House Committees on Small Business within 6
months after the conclusion of the Quadrennial Summit.
Subsection (g) establishes a quorum of 4 members of the
Quadrennial Commission for purposes of transacting business.
Subsection (h) requires the Quadrennial Commission to hold
its first meeting within 20 days after the appointment of all
members and at least every 30 days thereafter.
Subsection (i) states that vacancies on the Quadrennial
Commission will be filled in the same manner as the original
appointments were made.
Subsection (j) authorizes the Quadrennial Commission to
hire an Executive Director and the staff necessary to conduct
the State and Quadrennial Summits.
Subsection (k) authorizes the Quadrennial Commission to
reimburse its members for travel expenses, including per diem.
Section 207. Authorization of appropriations; availability of funds
This section authorizes $5 million to cover all expenses
incurred under this Title. It states that funds from SBA may
not support the Quadrennial Summit unless specifically
earmarked for that purpose.
Title III: Small Business Involvement in Government Regulation
Section 302. Findings and purposes
This section sets forth Congressional findings on the
impact of regulations on small businesses and the early
successes of the Small Business Regulatory Enforcement Fairness
Act.
Section 303. Ensuring full analysis of potential impacts on small
entities of rules proposed by certain agencies
This section clarifies the process for selection of the
small entity representatives and the timing of the panel's
activities. Small entity representatives affected by the draft
proposal are to be identified by the covered agency in
consultation with the Chief Counsel for Advocacy. The number of
days provided for this process is extended from 15 to 30 days.
Small entity representatives may request the opportunity to
present their comments orally. The panel is to be convened not
earlier than 30 days after the covered agency transmits
information to the identified small entity representatives.
Once the Panel has convened, it has up to 60 days to review the
small business comments and to report to the head of the
covered agency. The panel report is to be printed in the
Federal Register within 180 days after the date the agency head
receives the report or as part of the publication of the notice
of proposed rule making, whichever is earlier.
Section 304. Definitions
This section expands the definition of a ``covered agency''
to include the Internal Revenue Service. Currently, only EPA
and OSHA are included. The definition of a ``small entity
representative'' eligible to participate on a Panel is also
specified as a small entity, or an individual or organization
that ``primarily represents the interests of 1 or more small
entities.''
Section 305. Collection of information requirement
This section deletes language that limited the scope of IRS
interpretative rules covered by The Regulatory Flexibility Act.
It amends Section 601 to strike the definitions for
``collection of information'' and ``recordkeeping.'' Also, the
section amends the fifth sentence in Section 603(a) to read:
In the case of an interpretative rule involving the
internal revenue laws of the United States, this
chapter applies to interpretative rules (including
proposed, temporary and final regulations) published in
the Federal Register for codification in the Code of
Federal Regulations.
Section 306. Effective date
This section provides that the Act will be effective 90
days after the date of enactment.
Title IV. Independent Office of Advocacy
Section 402. Findings
This section describes the need for an effective,
independent advocate for small business within the Federal
government that is not restricted by the views or polices of
the Small Business Administration (SBA/Agency) or any other
agency. This section also sets forth the important role the
Office of Advocacy plays in providing research, information and
its expertise on small business matters to the Congress and the
Executive Branch.
Section 403. Purposes
Subsection 1 states that the purpose of the Act is to
ensure that the Office of Advocacy has the statutory
independence and adequate financial resources to be an advocate
for small businesses.
Subsection 2 requires the Office of Advocacy to keep the
Senate and House Small Business Committees and the SBA
Administrator informed on matters of importance to small
businesses.
Subsection 3 provides that there will be a separate
authorization for the Office of Advocacy.
Subsection 4 states that the Office of Advocacy will
continue to monitor Agency compliance with the Regulatory
Flexibility Act and will report annually to the Congress.
Subsection 5 states that the purpose of the Act is to enhance
the role of the Office of Advocacy in the panel review process.
Section 404. Office of Advocacy
Subsection (a) sets forth a new Section 32 of the Small
Business Act (15 U.S.C. 631, et seq.) describing the Office of
Advocacy.
Subsection (a) of Section 32 of the Small Business Act
defines the terms ``Chief Counsel'' and ``Office'' as used in
Section 32. Subsection (a) sets forth a new Section 32 of the
Small Business Act (15 U.S.C. 631, et seq.) describing the
Office of Advocacy.
Subsection (b) of Section 32 establishes within SBA the
Office of Advocacy and designates the Chief Counsel for
Advocacy to manage the Office. This subsection sets forth the
restrictions on who may be nominated by the President to serve
as Chief Counsel. Subsection (b) also requires SBA to submit a
separate budget request each year for the Office of Advocacy.
Subsection (c) of Section 32 describes the primary
functions of the Office of Advocacy.
(1) The Office shall examine the role played by small
business within the U.S. economy;
(2) Directs the Office to assess the effectiveness of
Federal subsidy and assistance programs;
(3) The Office is directed to measure the direct
costs of regulation on small business;
(4) Determine the impact of the U.S. tax system on
small businesses;
(5) Study the ability of the private sector to meet
the credit needs of small business and determine the
impact of government demands for credit on small
businesses;
(6) Determine the availability of credit and
management assistance to small businesses;
(7) Evaluate the efforts of Federal agencies and the
private sector to help minority-owned and women-owned
small businesses;
(8) Make recommendations to help in the development
and strengthening of minority and women-owned small
businesses;
(9) Directs the Office of Advocacy to make
recommendations to help small businesses expand to
their full potential and to assess any common reasons
for small businesses' successes and failures;
(10) Assess the benefits of developing a set of
criteria to be used to define small businesses;
(11) Make recommendations to correct issues and
regulations harmful to small business;
Subsection (d) of Section 32 describes additional functions
of the Office of Advocacy. It will serve as a focal point for
receipt of complaints, criticisms and suggestions concerning
the policies and programs of the Federal government that affect
small businesses. The Office will counsel small businesses on
how to resolve their difficulties with the Federal government.
The Office will represent the interests and views of small
businesses before other Federal agencies, and it will encourage
both private and public entities to disseminate information
about services and programs for small businesses. Lastly,
Subsection (d) directs the Office of Advocacy to carry out its
responsibilities under the Regulatory Flexibility Act.
Subsection (e) of Section 32 outlines the staff and powers
of the Office of Advocacy. The Chief Counsel has the authority
to hire staff for the Office of Advocacy and is exempt from the
standard civil service laws governing competitive hiring.
Subsection (f) of Section 32 directs SBA to provide the
Office of Advocacy with adequate office space in the
headquarters and field offices. SBA shall also provide
equipment, office supplies, and communications facilities and
services as are necessary.
Subsection (g) of Section 32 allows the Chief Counsel to
obtain from each Federal agency such information as needed to
carry out the responsibilities of the Office of Advocacy.
Subsection (h) of Section 32 directs the Chief Counsel to
submit an annual report on Agency compliance with the
requirements of the Regulatory Flexibility Act. Further, the
Chief Counsel can prepare and submit to the President and
Congress such reports as he or she deems necessary. Consistent
with current practice, in no case shall a report from the
Office of Advocacy be submitted in advance to OMB for approval
or Administration clearance.
Subsection (i) of Section authorizes to be appropriated
such sums as are necessary for the Office of Advocacy.
A new Subsection (c) permits the incumbent Chief Counsel
for Advocacy to continue to serve in that position after date
of enactment of this Act in accordance with the requirements of
Section 32 of the Small Business Act.
Title V. Credit Programs
Section 501. Section 7(a) program
Subsection (a) increases the guarantee percentage on loans
of $150,000 or less to 85%. The 80% guarantee level currently
extends only to loans of $100,000 or less. The purpose of this
change is to encourage banks to increase the availability of
small loans.
Subsection (b) increases the maximum guarantee amount to $1
million from $750,000. The maximum gross loan amount is capped
at $2 million. The largest loan would be one of $2 million
which would be eligible for a guarantee of 50%. The maximum
size loan with a 75% guarantee would be $1.33 million.
Subsection (c) removes the provision added in 1996 that
reduced the SBA's liability for accrued interest on a loan in
default.
Subsection (d) will permit a lender to assess a fee to the
borrower for early prepayment of any loan with a term of 15
years or greater. Early prepayment is defined as any voluntary
prepayment.
Section 502. Small Business investment companies
Subsection (a) of Section 502 would permit any Federal
Savings Association to make investments directly in Small
Business Investment Companies (SBICs).
Subsection (c) would amend the Small Business Investment
Act of 1958 to establish a statute of limitations for SBC
liquidations that is consistent with the laws governing FDIC
and RTC bank liquidations.
Subsection (d) would permit the SBA to suspend or remove
officer, directors, employees, agents, or other participants in
the management or conduct of an SBIC who are involved in
violations of the Small Business Investment Act of 1958.
Subsection (e) defines ``long term'' when used in
connection with equity capital or loan funds invested in small
businesses to be a period of one year or more.
In addition, subsection (e) provides that when the credit
subsidy rate for the SBIC Debenture or Participation Securities
program falls below zero, the one percent annual fee paid by
the SBIC on the outstanding Debenture or Participating Security
will be reduced by such an amount so that the credit subsidy
rate is zero. SBA is not authorized to collect fees that cause
the credit subsidy rate to fall below zero.
Subsection (e) would permit qualifying SBICs to make a
quarterly tax distribution at any time during the applicable
calendar quarter. Under current law, tax distribution may be
made only at the end of calendar quarters.
Section 503. Microloan program
Subsection (a)(1) increase the maximum loan amount from
$25,000 to $35,000.
Subsection (a)(2) raises the average loan size from $7,500
to $10,000 for speciality micro lenders, who make smaller loans
and receive additional technical assistance to make them. This
is consistent with increasing the maximum loan amount.
Subsection (a)(3) eliminates the requirement that
intermediaries make ``short-term'' loans. This change will
allow intermediaries greater latitude in developing microloan
products by offering their borrowers revolving lines of credit,
such as for seasonal contract needs.
Subsection (a)(4) broadens the eligibility criteria for
intermediaries. Instead of requiring intermediaries to have one
year of experience making microloans to startup, newly
established or growing small businesses and providing technical
assistance to its borrowers, this legislation would deem a
prospective intermediary eligible if it has ``equivalent''
experience.
Subsection (a)(5) raises the threshold for the comparable
credit test from $15,000 to $20,000.
Subsection (a)(6) eliminates the restriction on how much
technical assistance funding an intermediary can use for pre-
loan assistance. Currently, intermediaries are limited to using
25 percent of their funds to assist prospective borrowers. This
change allows an intermediary to allocate as much technical
assistance as appropriate.
This subsection also increase the percentage of technical
assistance grant funds that an intermediary can use to
subcontract out technical assistance. Currently, intermediaries
can only subcontract 25 percent, and this legislation would
raise this limit to 35 percent.
Subsection (a)(7) increases the number of non-lending TA
providers from 25 to 55 so that there can be one in each state
and in the District of Columbia, Puerto Rico, the U.S. Virgin
Islands, Guam, and American Samoa. This subsection also raises
the maximum annual grant amount to each non-lending TA provider
from $125,000 to $200,000 to reflect inflation and increased
costs.
Subsection (a)(8) increase the average loan size for each
intermediary's portfolio from $10,000 to $15,000.
Subsection (a)(9) increases the number of intermediaries
authorized to 250 in FY2001, to 300 in FY2002, and to 350 in
FY2003. The increases are designed to allow SBA to make this
program available nationwide.
Subsection (a)(10) establishes a peer-to-peer mentoring
program for SBA intermediaries and organizations seeking to
become microlender intermediaries. Specifically, SBA would be
allowed to use up to $1 million of annual appropriation for
technical assistance grants to subcontract with one or more
national trade associations of SBA microlender intermediaries
to provide peer-to-peer mentoring.
Sec. 504. Small Business Lending Company fees
This section directs Small Business Lending Companies
(SBLCs), which are non-banking lending institutions that are
licensed and regulated by the SBA, to pay the full of the
annual examination performed by SBA and each SBLC. When the
SBLC pays the money to SBA, it can be spent by SBA to offset
the cost of the examination and to perform other program
oversight.
Sec. 505. Surety bonds
This section increases from $1,250,000 to $2,000,000 the
maximum contract amount that can be guaranteed under the Surety
Bond Guarantee Program. It also extends the sunset date for the
Preferred Surety Bond Guarantee Program to September 30, 2003.
Sec. 506. Development Company debentures
This section clarifies that the minimum interest rate for
504 debentures must be acceptable to the Secretary of the
Treasury.
Title VI. HUBZone Program
Subtitle A--HUBZones in Native America
Section 1. Short title
Subtitle A of the bill is dubbed the ``HUBZones in Native
America Act of 2000.'' This short-title emphasizes the
geography-based nature of the HUBZone program, directing
contracting opportunities to the areas that need economic
development assistance.
Section 602. HUBZone Small Business concern
The bill amends the definition of ``HUBZone small business
concern'' to include small businesses owned by one or more
U.S.. citizens (current law), Alaska Native Corporations and
their subsidiaries, joint ventures, and partnerships, as
defined under the Alaska Native Claims Settlement Act (ANCSA)
of 1971, and small businesses owned by one or more Indian
Tribal governments. Some Tribal governments have also created
companies to do their business for them, so they can waive
sovereign immunity against those companies without waiving it
against the Tribe itself. Small businesses owned by these
companies would also be eligible.
Section 603. Qualified HUBZone Small Business concern
Subsection (a) amends the definition of ``qualified HUBZone
small business concern'' to indicate what each of the ``HUBZone
small business concerns'' must do in order to advance the goals
of the program and be qualified. Each type of firm added to the
definition of ``HUBZone small business concerns'' has a
corresponding obligation imposed on it to be ``qualified.''
They have to maintain some kind of nexus to a HUBZone to
participate.
Small businesses in general must have a principal office in
a HUBZone designated area, and 35% of their employees must
reside in a HUBZone. Alaska Native Corporations and their
subsidiaries would need to meet at least one of the following
criteria: (a) maintain a principal office in an Alaska HUBZone;
(b) engage at least 35% of the employees working on a contract
awarded through the HUBZone program to perform their work in an
Alaska HUBZone; or (c) hire at least 35% of their workforce
from Alaska HUBZone residents or from an Alaska Native Village.
Tribal enterprises would be required to have 35% of their
employees performing a HUBZone contract either reside within an
Indian reservation or within any HUBZone adjoining a
reservation. This allows Tribal enterprises to use a place-of-
performance standard similar to Alaska Native Corporations.
However, it is slightly more restrictive than the rule that
applies to small businesses in general, whose employees may
come from any HUBZone to meet the 35% threshold. Since Tribal
enterprises are government-owned entities (owned wholly or
partly by Tribal governments), this provision limits their
scope to the reservations governed by their respective owners.
Subsection (b) of this section is the ``HUBZone Pilot
Program for Sparsely Populated Areas.'' This subsection
attempts to address concerns that small businesses in Alaska,
like Alaska Native Corporations, are likely to face
insurmountable practical problems that prevent their
participation in the HUBZone program even if they are eligible
on paper. Population patterns and lack of infrastructure make
it unlikely that Alaska small businesses will be able to meet
the regular requirements of a principal office in a HUBZone and
35% of their employees resident in a HUBZone. Thus, the bill
includes a three-year pilot program extending to Alaska small
businesses the same participation standards that would apply to
Alaska native Corporations. it also makes sense
administratively for all of Alaska to have the same set of
basic rules for all program participants.
However, since this does represent a relaxing of the
current HUBZone criteria, the pilot program has a cap in order
to prevent abuse. If the share of small business contract
dollars awarded to Alaska were to double its current level, as
a percentage of the small business dollars awarded to the
nation as a whole, the pilot would shut down for the next
fiscal year. The Committee believes that if Alaska's share were
to double during the course of the pilot program, that would
indicate the rules had been relaxed too much.
Finally, subsection (c) is a technical correction directing
the SBA Administrator to put certified firms onto the List of
Qualified Small Business Concerns. Current law requires the
Administrator to certify firms and also to maintain a list of
firms, but does not direct that firms be placed onto the list
once their eligibility has been certified.
Section 604. Other definitions
The Committee appreciates the counsel of the Committee on
Indian Affairs in designing the definition of ``Indian
reservation,'' which refers generally to the definition of
``Indian country'' at 18 U.S.C. Sec. 1151, with exceptions.
Since reservation and trust areas are deemed Hub Zones without
any explicit test of economic need, a Tribe could otherwise
purchase a plot of land in a prosperous area, have it placed
into trust status, and have it deemed a HUBZone. Using scarce
economic development resources like the HUBZone program, on
areas that are already developing without such assistance, is
not the highest and best use of those limited resources. The
Committee intends to direct HUBZone benefits away from such
areas and toward areas of greater need. However, this
definition would still allow Tribes to continue current
practices of trying to acquire lots, within their reservations,
to eliminate the ``checkerboard'' pattern of reservations that
have plots within them not owned by the Tribe.
The definition of ``Indian reservation'' provides a special
rule for Oklahoma, which was all reservation at one time. If
all of Oklahoma were to be deemed a HUBZone, the program
benefits would flow to businesses in their current locations,
without requiring job creation in distressed areas of Oklahoma.
To avoid this problem, the definition focuses the HUBZone
program on Oklahoma lands currently in trust or eligible for
trust status under existing regulation.
Subtitle B--Other HUBZone Provisions
Section 611. Definitions
Subsection (a) corrects the reference in the definition of
``qualified census tract,'' to refer to Internal Revenue Code
section 42(d)(5)(C)(ii).
Subsection (b) clarifies the definition of ``qualified
nonmetropolitan county'' to provide that counties will be
deemed metropolitan or nonmetropolitan according to their
classification at the time of the last decennial census. It
also stabilizes the selection of qualified nonmetropolitan
counties according to their unemployment numbers, by looking at
three years of data rather than one year. Finally, this
subsection grandfathers for a one-year period those firms
located in areas that become ineligible under the program due
to changes in their economic statistics or to the changes
adopted in this legislation.
Section 612. Eligible contracts
This provision limits the application of the HUBZone price
evaluation preference for purchases of commodities. It intends
to protect existing small business set-asides and programs used
in commodity purchases. However, the provision also seeks to
use the HUBZone price evaluation preference to ensure that
commodities contracts contribute their fair share toward
achievement of the Government-wide goal of 23% of prime
contract dollars to small business concerns, by ensuring
substantial HUBZone firm participation where possible.
This section also includes language to ratify SBA's
existing regulations awarding priority to contractors that are
eligible for both 8(a) and the HUBZone program. This practice
tends to encourage use of both programs. The language prohibits
any rulemaking, either by SBA or in the FAR, to create an
automatic preference for firms eligible only for one of the two
programs, to keep the programs from competing with each other.
The Committee does not view this latter prohibition as a new
policy, but merely as a restatement of the Committee's
intentions as expressed during consideration of the HUBZone Act
in 1997.
Section 613. Correction of HUBZone reference
In adopting the HUBZone Act in 1997, the Congress made a
series of technical and conforming changes to the Small
Business Act, to ensure that various provisions applicable to
several small business programs were also made applicable to
the HUBZone program. (See Sec. 603 of the Small Business
Reauthorization Act of 1997, 111 Stat. 2592 at 2631.) This
section makes a comparable change that was inadvertently
omitted in the 1997 legislation.
Section 614. Community development
This provision further amends the definitions of ``HUBZone
small business concern'' and ``qualified HUBZone small business
concern,'' as amended by sections 602 and 603 of this
legislation, to allow Community Development Corporations to
participate in the HUBZone program. Participating firms will be
required to maintain a principal office in a HUBZone and to
hire 35% of their employees from HUBZones.
Section 615. Reference correction
This is a technical correction. During adoption of the
HUBZone Act in 1997, subclauses (IV) and (V) were redesignated
as items (aa) and (bb) attached to subclause (III) of section
3(p)(5)(A)(i). This provision makes subparagraph (C) conform to
this change.
Title VII. National Women's Business Council Reauthorization
Section 702: Duties of the Council
Subsection 9a) specifies the duties of the National Women's
Business Council. In addition to its duties under existing law,
the bill directs the Council, among other things, to provide
advice and counsel to the President and Congress on economic
matters important to women business owners, promote
implementation of policy agenda, initiatives and
recommendations issued at the 1998 National Women's Economic
Forum, assist Federal agencies in meeting the 5% women's
procurement goal under the Small Business Act, and support new
and ongoing research.
Subsection (b) concerns the Council's interaction with the
Interagency Committee on Women's Business Enterprise. It does
not amend existing law.
Subsection (c) concerns Council meetings. It does not amend
existing law.
Subsection (d) sets out the deadline, contents and
recipients of the Council's recommendations and reports.
Subsection (e) permits the Administrator to submit separate
views or recommendations along with the Council's
recommendations or reports.
Section 703: Membership of the Council
This section removes the expired deadlines for the
President to appoint Council members that provided guidance
when the Council was first established. Those guidelines are
now obsolete.
Section 704: Repeal of procurement project; State and local economic
networks
This section removes the expired project procurement
requirements authorized by P.L. 105-135 to study Federal
contracting to women-owned businesses. The reports have already
been completed and submitted to Congress and the President
(``Statistical Study on Federal Government Contracting: Women-
Owned Business,'' published in 1998, and ``Best Practices
Guide: Contractingwith Women, published in 1999.) This
subsection also directs the Council to work with government officials
and business leaders to develop the infrastructure for women's business
enterprise.
Section 705: Studies, other research, and issue initiatives
Subsection (a) sets out the Council's authority and
permissible purposes to conduct studies, research and
initiatives.
Subsection (b) sets out the contract authority for the
studies, research and initiatives.
Section 706: Authorization of appropriations
This section authorizes an appropriation increase from
$600,000 to $1 million to carry out this section for each FY
2001-2003. $550,000 shall be available to carry out Sections 4
and 5. The Council must review and approve its operating budget
before it obligates or expends any funds authorized under this
section.
Title VIII. Miscellaneous Provisions
Section 801. Native American Small Business Development Centers
This section establishes the Native American Small Business
Development Center (NASBDC) Network. Subsection (a) defines the
terms used in this section.
Subsection (b) authorizes the SBA to establish the NASBDC
Network and a Tribal Electronic Commerce Small Business
Resource Center and sets forth the purpose of the Network.
Subsection (c) explains that the services that are to be
provided by the NASBDC Network include management and technical
assistance, electronic commerce information, and other services
normally provided by the regular Small Business Development
Center program.
Subsection (d) sets forth the matching requirement in order
for a NASBDC to receive a contract, grant or cooperative
agreement. With limited exception, the NASBDC must obtain one
non-Federal dollar for each four Federal dollars in the first
and second years of the term of the assistance, one non-Federal
dollar for each three Federal dollars in the third and fourth
years, and one non-Federal dollar for each Federal dollar in
the fifth and succeeding years.
Subsection (e) authorizes $3,000,000 for FY 2001 and each
subsequent fiscal year. In addition, $500,000 is authorized in
FY 2001 and each subsequent fiscal year to fund the
establishment and implementation of one Resource Center.
Section 802. Cosponsorship
This section is primarily a technical re-wording of the
existing cosponsorship authority at the SBA. The section adds
the terms ``information and education'' to the types of
assistance that can be provided to small businesses, which will
give SBA more flexibility in the types of assistance it can
provide to small businesses.
Section 803. Fraud and false statements
This section would ensure that a false statement made to
the SBA, in connection with an SBIC activity, would carry the
same penalty as making a false statement to an SBIC.
Section 804. Financial institution civil penalties
This section would ensure that individuals who make false
statements to an SBIC or the SBA are subject to civil penalties
set forth under the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA).
Section 805. Very Small Business Program
This section would extend the sunset date for the Very
Small Business Program to September 30, 2003.
Section 806. SDB
This section would extend until September 30, 2005, the
Federal procurement procedures to help obtain the contracting
goals for small business concerns owned and controlled by
socially and economically disadvantage individuals.
Section 807. Subcontracting preference for veterans
This section would establish that service-disabled veterans
are on the same preference level as Small Disadvantaged
Businesses (SDBs), women-owned small businesses, and HUBZone
concerns for Federal contracting opportunities.
Section 808. Size standards
Subsection (a) would replace the reference to the Standard
Industrial Classification (SIC) industry classification system
with the new North American Industry Classification System
(NAICS).
Subsection (b) would increase the agricultural size
standard to $750,000 from $500,000.
Subsection (c) would create a new size standard of 200
employees for fresh fruit and vegetable packing houses.
Subsection (d) would require an agency that wishes to
prescribe a different size standard to publish its intent as
part of a proposed rule. Currently, the agency must first seek
public comment through an Advanced Notice of Proposed
Rulemaking before publishing a proposed rule. This subsection
would eliminate the need to first seek public comment through
an Advanced Notice of Proposed Rulemaking.
Section 809. Drug-Free Workplace Program
This section would extend the small business Drug-Free
Workplace Program for fiscal years 2001 and 2002.