House Report 104-873 - SUMMARY OF ACTIVITIES

[House Report 104-873]
[From the U.S. Government Publishing Office]

Union Calendar No. 476
104th Congress Report
HOUSE OF REPRESENTATIVES

2d Session 104-873
_______________________________________________________________________

SUMMARY OF ACTIVITIES

_______

A REPORT

of the

COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

December 31, 1996--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

COMMITTEE ON SMALL BUSINESS

JAN MEYERS, Kansas, Chair
JOHN J. LaFALCE, New York JOEL HEFLEY, Colorado
IKE SKELTON, Missouri WILLIAM H. ZELIFF, Jr.,
NORMAN SISISKY, Virginia New Hampshire
FLOYD H. FLAKE, New York JAMES M. TALENT, Missouri
GLENN POSHARD, Illinois DONALD A. MANZULLO, Illinois
EVA M. CLAYTON, North Carolina PETER G. TORKILDSEN, Massachusetts
MARTIN T. MEEHAN, Massachusetts ROSCOE G. BARTLETT, Maryland
NYDIA M. VELAZQUEZ, New York LINDA SMITH, Washington
CLEO FIELDS, Louisiana FRANK A. LoBIONDO, New Jersey
DOUGLAS ``PETE'' PETERSON, Florida ZACH WAMP, Tennessee
KEN BENTSEN, Texas SUE W. KELLY, New York
WILLIAM P. LUTHER, Minnesota DICK CHRYSLER, Michigan
JOHN ELIAS BALDACCI, Maine JAMES B. LONGLEY, Jr., Maine
JESSE JACKSON, JR., Illinois WALTER B. JONES, Jr.,
JUANITA MILLENDER-MCDONALD, North Carolina
California MATT SALMON, Arizona
EARL BLUMENAUER, Oregon VAN HILLEARY, Tennessee
XAVIER BECERRA, California MARK E. SOUDER, Indiana
JAMES E. CLYBURN, South Carolina SAM BROWNBACK, Kansas
ELEANOR HOLMES NORTON, STEVEN J. CHABOT, Ohio
District of Columbia SUE MYRICK, North Carolina
MAXINE WATERS, California JACK METCALF, Washington
STEVEN C. LaTOURETTE, Ohio
Jenifer Loon, Staff Director
Jeanne M. Roslanowick, Minority
Staff Director

STANDING SUBCOMMITTEES

----------

Subcommittee on Government Programs

PETER G. TORKILDSEN, Masschusetts,
Chairman
GLENN POSHARD, Illinois JOEL HEFLEY, Colorado
CLEO FIELDS, Louisiana SUE MYRICK, North Carolina
JUANITA MILLENDER-McDONALD, CaliforniaUE W. KELLY, New York
JESSE JACKSON, Jr., Illinois DICK CHRYSLER, Michigan
KEN BENTSEN, Texas STEVEN C. LaTOURETTE, Ohio

------

Subcommittee on Procurement, Exports, and Business Opportunities

DONALD A. MANZULLO, Illinois,
Chairman
EVA M. CLAYTON, North Carolina DICK CHRYSLER, Michigan
NORMAN SISISKY, Virginia MATT SALMON, Arizona
FLOYD H. FLAKE, New York SAM BROWNBACK, Kansas
WILLIAM P. LUTHER, Minnesota STEVEN J. CHABOT, Ohio
JESSE L. JACKSON, Jr., Illinois ROSCOE G. BARTLETT, Maryland
EARL BLUMENAUER, OREGON LINDA SMITH, Washington

------

Subcommittee on Regulation and Paperwork

JAMES M. TALENT, Missouri,
Chairman
NYDIA M. VELAZQUEZ, New York FRANK A. LoBIONDO, New Jersey
IKE SKELTON, Missouri ZACH WAMP, Tennessee
DOUGLAS ``PETE'' PETERSON, Florida SUE W. KELLY, New York
KEN BENTSEN, Texas JAMES B. LONGLEY, Jr., Maine
WILLIAM P. LUTHER, Minnesota WALTER B. JONES, Jr., North
Carolina
VAN HILLEARY, Tennessee
MARK E. SOUDER, Indiana

------

Subcommittee on Taxation and Finance

LINDA SMITH, Washington,
Chairwoman
MARTIN T. MEEHAN, Massachusetts JACK METCALF, Washington
KEN BENTSEN, Texas FRANK A. LoBIONDO, New Jersey
JOHN ELIAS BALDACCI, Maine WALTER B. JONES, Jr., North
CLEO FIELDS, Louisiana Carolina
JUANITA MILLENDER-McDONALD, CaliforniaARK E. SOUDER, Indiana
SAM BROWNBACK, Kansas
ROSCOE G. BARTLETT, Maryland
STEVEN C. LaTOURETTE, Ohio

------

LETTER OF TRANSMITTAL

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U.S. House of Representatives
Committee on Small Business
Washington, DC
December 31, 1996
Hon. Robin H. Carle
The Clerk
U.S. House of Representatives
Washington, DC

Dear Ms. Carle:

On behalf of the Committee on Small Business of the House
of Representatives, I am pleased to transmit the attached
Summary of Activities of the Committee on Small Business for
the 104th Congress.
The purpose of this report is to provide a reference
document for the Members of the Committee, the Congress, and
the public, which can serve as a research tool and historic
reference outlining the Committee's legislative and oversight
activities conducted pursuant to Rule X, Clause 1(o) of the
Rules of the House of Representatives. This document is
intended as a general reference tool, and not as a substitute
for the hearing records, reports, and other Committee files.
This report is filed in conformity with the requirements of
Rule XI, Clause 1(d) of the Rules of the House of
Representatives with respect to the activities of the Committee
and in carrying out its duties as stated in the Rules of the
House of Representatives.

Sincerely,

Jan Meyers
Chair

C O N T E N T S

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Page

Chapter 1.--Introduction......................................... 1

1.1 Historical Background................................ 1
1.2 Extracts from the Rules of the House of
Representatives............................................ 3
1.3 Number and Jurisdiction of Subcommittees............. 4
1.4 Disposition of Legislation Referred to the Committee. 4

Chapter 2.--The Small Business Administration.................... 7

2.1 SBA Programs in General.............................. 7
2.2 SBA Business Loans................................... 7
2.3 Disaster Assistance Loans............................ 8
2.4 Small Business Investment Companies.................. 9
2.5 The 8(a) Program..................................... 9
2.6 Surety Bond Guarantees............................... 10
2.7 Small Business Development Programs.................. 10
2.8 Small Business Innovation Research................... 11
2.9 Small Business Technology Transfer................... 11
2.10 Export Assistance................................... 12
2.11 Office of Advocacy.................................. 13

Chapter 3.--Hearings and Meetings Held by the Committee on Small
Business and its Subcommittees, 104th Congress................. 15

3.1 Full Committee....................................... 15
3.2 Subcommittee on Government Programs.................. 18
3.3 Subcommittee on Procurement, Exports and Business
Opportunities.............................................. 19
3.4 Subcommittee on Regulation and Paperwork............. 19
3.5 Subcommittee on Taxation and Finance................. 19

Chapter 4.--Publications of the Committee on Small Business and
its Subcommittees, 104th Congress.............................. 21

4.1 Reports.............................................. 21
4.2 Hearing Records...................................... 21

Chapter 5.--Summary of Legislative Activities of the Committee on
Small Business................................................. 27

5.1 H.R. 937 (H.R. 926, H.R. 9, S. 942, and H.R. 3136);
Public Law No. 104-121..................................... 27
5.2 H.R. 2150 (S. 895), The Small Business Credit
Efficiency Act of 1995; Public Law No. 104-36.............. 33
5.3 H.R. 2715, The Paperwork Elimination Act of 1996..... 36
5.4 H.R. 3158, Pilot Small Business Technology Transfer
Program Extension Act of 1996; Public Law No. 104-208...... 38
5.5 H.R. 3719, The Small Business Programs Improvement
Act of 1996; Public Law No. 104-208........................ 42

Chapter 6.--Summary of Other Legislative Activities of the
Committee on Small Business.................................... 53

6.1 Committee Meetings................................... 53
6.1.1 Organizational Meeting......................... 53
6.1.2 Oversight Agenda for the 104th Congress........ 54

6.2 Budget Views and Estimates........................... 59
6.2.1 Fiscal Year 1996 Budget........................ 59
6.2.2 Fiscal Year 1997 Budget........................ 59
Chapter 7.--Summary of Oversight, Investigations and Other
Activities of the Committee on Small Business and its
Subcommittees.................................................. 63

7.1 Summary of Committee Oversight Plan and
Implementation............................................. 63

7.1.1 Oversight of the Small Business Administration. 63
7.1.2 Financial Programs............................. 64
7.1.3 Procurement Assistance......................... 72
7.1.4 Advocacy....................................... 73
7.1.5 Technology and Research Assistance............. 74
7.1.6 Minority Enterprise Development................ 76
7.1.7 Women-Owned Businesses......................... 77
7.1.8 Office of Inspector General.................... 78
7.1.9 Office of Disaster Assistance.................. 78
7.1.10 Office of International Trade................. 79
7.1.11 Office of Business Initiatives and Training... 82
7.1.12 Federal Procurement........................... 82
7.1.13 Government & Non-profit Competition........... 84
7.1.14 Regulatory Flexibility & Paperwork Reduction.. 85
7.1.15 Government Regulation......................... 87
7.1.16 Taxation...................................... 91
7.1.17 Minimum Wage.................................. 93
7.1.18 Health Insurance.............................. 94
7.1.19 Other Committee Oversight Activities.......... 95

7.2 Summaries of the Hearings Held by the Committee on
Small Business.............................................

97
7.2.1 Overview of Small Business Tax Proposals in the
``Contract With America''.......................... 97
7.2.2 Home Office Deduction.......................... 98
7.2.3 Independent Contractor Status.................. 99
7.2.4 Health Insurance Deductibility for Self-
Employed Individuals............................... 101
7.2.5 Strengthening the Regulatory Flexibility Act... 102
7.2.6 Oversight--SBA 7(a) Lending Program............ 104
7.2.7 Capital Gains Tax Reform and Investment in
Small Business..................................... 105
7.2.8 Paperwork Reduction Act........................ 106
7.2.9 Estate Tax Reform and the Family Business...... 108
7.2.10 Amending the Regulatory Flexibility Act--Past
Performance and the Need for Meaningful Reform..... 109
7.2.11 Capital Gains Tax Reform...................... 110
7.2.12 Overall Review of the SBA..................... 112
7.2.13 Review of the SBA Procurement Assistance
Programs........................................... 113
7.2.14 Review of SBA Business Development Programs... 114
7.2.15 Review of SBA 504 Program..................... 116
7.2.16 SBA's Pilot Microloan Program................. 118
7.2.17 U.S. Small Business Administration's Business
Development Programs............................... 120
7.2.18 Review of the SBIC and SSBIC Programs......... 122
7.2.19 The Small Business Administration of the
Future............................................. 124
7.2.20 SBA Office of Advocacy........................ 125
7.2.21 Small Business Administration Programs and Tax
and Regulatory Issues Impacting Small Business..... 126
7.2.22 Small Business Participation in Federal
Contracting: Assessing H.R. 1670, the ``Federal
Acquisition Reform Act of 1995''................... 131
7.2.23 Reduction of Airline Ticket Sales Commission
and Its Impact on Small Travel Agencies............ 134
7.2.24 The Administration's Initiatives to Reduce
Regulatory Burdens on Small Business............... 136
7.2.25 Assessing the Implementation of Public Law
103-355, the ``Federal Acquisition Streamlining Act
of 1994''.......................................... 138
7.2.26 The Administration and Congressional
Initiatives to Reform OSHA, and their Impact on
Small Businesses................................... 141
7.2.27 Pension Reform and Simplification: A Small
Business Perspective............................... 143
7.2.28 The Impact of Solid Waste Flow Control on
Small Businesses and Consumers..................... 145
7.2.29 SBA's Venture Capital Programs................ 147
7.2.30 Federal Contract Bundling: How Can Small
Business Compete?.................................. 149
7.2.31 The Effects of Superfund Liability on Small
Business........................................... 151
7.2.32 The Internal Revenue Service's Initiatives to
Reduce Regulatory and Paperwork Burdens on Small
Business........................................... 152
7.2.33 The Cost of Federal Regulations on Small
Business........................................... 154
7.2.34 Railroad Consolidation: Small Business
Concerns........................................... 155
7.2.35 The Abuses in the SBA's 8(a) Procurement
Program............................................ 156
7.2.36 Small Business' Access to Capital: Impediments
and Options........................................ 157
7.2.37 Pilot Small Business Technology Transfer
(STTR) Program and Small Business Innovation
Research (SBIR) Program: Assessing the Results of
Public Law 102-654, the ``Small Business Research
and Development Enhancement Act of 1992''.......... 158
7.2.38 The EPA's Progress in Reducing Unnecessary
Regulatory and Paperwork Burdens Upon Small
Business........................................... 160
7.2.39 SBA FY 1997 Budget............................ 162
7.2.40 The Practice of ``Salting'' and Its Impact on
Small Business..................................... 164
7.2.41 The Kemp Commission Recommendations: A Small
Business Perspective............................... 166
7.2.42 Patent Term and Patent Disclosure Legislation. 168
7.2.43 Small Business' Access to Capital: The Role of
Banks in Small Business Financing.................. 169
7.2.44 Music Licensing and Small Business............ 171
7.2.45 Small Business and Entry-Level Employees: How
to Increase Take-Home Pay and Keep America Working. 172
7.2.46 Proposed Reforms of the Small Business
Investment Company Program......................... 173
7.2.47 Small Business Competition for Federal
Contracts: The Impact of Federal Prison Industries. 174
7.2.48 Unfair Competition with Small Business from
Government and Not-For-Profits: Assessing the
Current State of the Problem and the
Recommendations of the 1995 White House Conference
on Small Business.................................. 176
7.2.49 Proposed Reform of the 8(a) Program Through
H.R. 3994, the Entrepreneur Development Program Act
of 1996............................................ 179
7.2.50 OSHA Reform and Relief for Small Business:
What Needs to be Done?............................. 182

7.3 Summaries of the Hearings Held by the
Subcommittee on Government Programs.................. 184

7.3.1 The Impact of Hanscom Air Force Base Upon Small
Business in the New England Region................. 184
7.3.2 Small Business Administration's Small Business
Innovation Research (SBIR) Program................. 185
7.3.3 Small Business Administration Programs to
Assist the New England Fishing Industry............ 187
7.3.4 Small Business Administration's Disaster Loan
Program............................................ 188
7.3.5 U.S. Small Business Administration Low
Documentation Loan Program......................... 189
7.3.6 SBA's LowDoc Loan Program...................... 191
7.3.7 Professional Certification as a Sole Source Bid
Requirement in Federal Contracting................. 193
73.8 The Export Working Capital Program.............. 195
7.3.9 Loan Packaging................................. 196
7.3.10 The Effects of Bank Consolidation on Small
Business Lending................................... 197
7.3.11 H.R. 2715: Paperwork Elimination Act.......... 198
7.3.12 Venture Capital Marketing Association Charter
Act................................................ 199
7.3.13 H.R. 2579: The Travel and Tourism Partnership
Act of 1995........................................ 201
7.3.14 Oversight of the Environmental Protection
Agency's Progress in Reducing Unnecessary Paperwork
Burdens Upon Small Business........................ 202
7.3.15 Oversight of the Department of Labor's
Progress on Reducing Unnecessary Paperwork Burdens
on Small Business.................................. 203
7.3.16 Massachusetts' Request for Disaster Funds from
the SBA............................................ 205
7.3.17 The Government's Solicitation Process and
Whether or Not it is Discriminatory to Small
Business........................................... 206
7.3.18 H.R. 1863: The Employment Non-Discrimination
Act................................................ 208
7.3.19 Oversight of the Food and Drug
Administration's Progress in Reducing Unnecessary
Paperwork Burdens Upon Small Business.............. 209
7.3.20 SBA Programs to Assist Veterans in Readjusting
to Civilian Life................................... 211
7.3.21 FDIC's Handling of Small Business Asset
Foreclosures....................................... 212

7.4 Summaries of the Hearings Held by the Subcommittee on
Procurement, Exports and Business Opportunities............ 214

7.4.1 Export Promotion Programs: How is Small
Business Helped?................................... 214
7.4.2 Small Business Administration's Surety Bond
Guarantee Program.................................. 215
7.4.3 Agriculture Export Promotion Programs: How are
the Small Farmer and Rancher Helped?............... 217
7.4.4 Federal Export Promotion Programs: An Academic
Perspective........................................ 218
7.4.5 Export Promotion: A Business Perspective....... 219
7.4.6 The Export Working Capital Program............. 220
7.4.7 Technologies for Accessing Foreign Markets and
Resources for Export Assistance.................... 220
7.4.8 The Impact of ``Short Supply'' on Small
Manufacturers...................................... 224
7.4.9 The Effectiveness of U.S. Export Assistance
Centers............................................ 225

7.5 Summaries of the Hearings Held by the Subcommittee on
Regulation and Paperwork................................... 228

7.5.1 Joint Hearing on the Impact of Workplace and
Employment Regulation on Business.................. 228
7.5.2 Regulatory Barriers to Minority Entrepreneurs.. 229
7.5.3 OSHA Fall Protection Standard.................. 230
7.5.4 Candidates for the Regulatory Corrections
Calendar........................................... 231
7.5.5 Examining the Issues Surrounding the National
Labor Relations Board's Rulemaking Concerning
Single Location Bargaining Units in Representation
Cases.............................................. 234

7.6 Summaries of the Hearings Held by the Subcommittee on
Taxation and Finance....................................... 237

7.6.1 The Flat Tax and Small Business................ 237
7.6.2 The Burden of Payroll Taxes on Small Business.. 239
7.6.3 Clarifying the Status of Independent
Contractors........................................ 240
7.6.4 Fundamental Tax Changes Needed to Unleash
America's Small Businesses......................... 243
7.6.5 The Effects of Bank Consolidation on Small
Business Lending................................... 247

Appendix

``What a Difference a Year Makes,'' Majority Staff Report, June
4, 1996........................................................ 251

104th Congress Report
HOUSE OF REPRESENTATIVES

2d Session 104-873
_______________________________________________________________________

SUMMARY OF ACTIVITIES

_______

December 31, 1996.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed

_______________________________________________________________________

Mrs. Meyers of Kansas, from the Committee on Small Business, submitted
the following

R E P O R T

SUMMARY OF ACTIVITIES

CHAPTER ONE

INTRODUCTION

This is the eleventh summary report of the standing
Committee on Small Business. The action by the House of
Representatives in adopting House Resolution 988 on October 8,
1974, providing that the Committee be established as a standing
committee, upgraded the Permanent Select Committee on Small
Business by giving the Committee legislative jurisdiction over
small business matters in addition to the oversight
jurisdiction it previously exercised.
The adoption of the House Rules in the 94th through the
104th Congresses confirmed this action and continued the
process begun on August 12, 1941, when, by virtue of House
Resolution 294 (77th Congress, lst session), the Select
Committee on Small Business was created. In January 1971, the
House designated the Select Committee as a permanent Select
Committee; and on October 8, 1974, the 93d Congress,
recognizing the importance of the work performed, provided that
the Committee should thereafter be established as a standing
committee.

1.1 Historical Background

The history of the Select Committee on Small Business from
its inception in 1941 during the 77th Congress through 1972,
the conclusion of the 92d Congress, may be found in House
Document 93-197 (93d Congress, 2d session) entitled, ``A
History and Accomplishments of the Permanent Select Committee
on Small Business.''
The Committee is bipartisan recognition that the nation's
small business people represent a major segment of our business
population and our nation's economic strength. This Committee,
continuing its vital oversight responsibilities, serves as the
advocate and voice for small business as well as the center for
small business legislation.
In recognition of this expanded jurisdiction, the House of
Representatives has established the Committee's membership at
43 Members. The following Members were named to constitute the
Committee in the 104th Congress:

Jan Meyers (R-KS), Chair; Joel Hefley (R-CO); William Zeliff,
Jr. (R-NH); James M. Talent (R-MO); Donald A. Manzullo (R-
IL); Peter G. Torkildsen (R-MA); Roscoe G. Bartlett (R-MD);
Linda Smith (R-WA); Frank A. LoBiondo (R-NJ); Zach Wamp (R-
TN); Sue W. Kelly (R-NY); Dick Chrysler (R-MI); James B.
Longley, Jr. (R-ME); Walter B. Jones (R-NC); Matt Salmon
(R-AZ); Van Hilleary (R-TN); Mark E. Souder (R-IN); Sam
Brownback (R-KS); Steve J. Chabot (R-OH); Sue Myrick (R-
NC); David Funderburk (R-NC) (resigned September 5, 1996);
Jack Metcalf (R-WA); Steven LaTourette (R-OH) (named June
13, 1995); John J. LaFalce (D-NY); Ike Skelton (D-MO)
(named June 13, 1995); Ron Wyden (D-OR) (resigned February
5, 1996); Norman Sisisky (D-VA); Kweisi Mfume (D-MD)
(resigned February 18, 1996); Floyd H. Flake (D-NY); Glenn
Poshard (D-IL); Eva Clayton (D-NC); Martin T. Meehan (D-
MA); Nydia Velazquez (D-NY); Cleo Fields (D-LA); Walter R.
Tucker III (D-CA) (resigned November 20, 1995); Earl F.
Hilliard (D-AL) (resigned June 4, 1996); Douglas Peterson
(D-FL); Bennie G. Thompson (D-MS) (resigned April 22,
1996); Chaka Fattah (D-PA) (resigned March 5, 1996); Ken
Bentsen (D-TX); Karen McCarthy (D-MO) (resigned June 13,
1995); William P. Luther (D-MN); Patrick Kennedy (D-RI)
(resigned December 15, 1995); John Baldacci (D-ME) (named
June 13, 1995); Jesse Jackson, Jr. (D-IL) (named April 22,
1996); Juanita Millender-McDonald (D-CA) (named April 22,
1996); Earl Blumenauer (D-OR) (named June 5, 1996); Xavier
Becerra (D-CA) (named September 17, 1996); James Clyburn
(D-SC) (named September 17, 1996); Eleanor Holmes Norton
(D-DC) (named September 17, 1996); Maxine Waters (D-CA)
(named September 17, 1996).
1.2 Extracts from the Rules of the House of Representatives

EXTRACT FROM RULE X,

RULES OF THE HOUSE OF REPRESENTATIVES

------

RULE X

ESTABLISHMENT AND JURISDICTION OF STANDING COMMITTEES

The Committees and Their Jurisdiction

1. There shall be in the House the following standing
committees, each of which shall have the jurisdiction and
related functions assigned to it by this clause and clauses 2,
3, and 4; and all bills, resolutions, and other matters
relating to subjects within the jurisdiction of any standing
committee as listed in this clause shall (in accordance with
and subject to clause 5) be referred to such committees, as
follows:

* * *

(o) Committee on Small Business
(1) Assistance to and protection of small business,
including financial aid, regulatory
flexibility and paperwork reduction.
(2) Participation of small-business enterprises in
Federal procurement and Government
contracts.

GENERAL OVERSIGHT RESPONSIBILITIES

2. (b)(1) Each standing committee (other than the Committee
on Appropriations and the Committee on the Budget) shall review
and study, on a continuing basis, the application,
administration, execution, and effectiveness of those laws, or
parts of laws, the subject matter of which is within the
jurisdiction of that committee and the organization and
operation of the Federal agencies and entities having
responsibilities in or for the administration and execution
thereof, in order to determine whether such laws and the
programs thereunder are being implemented and carried out in
accordance with the intent of the Congress and whether such
programs should be continued, curtailed, or eliminated. In
addition, each such committee shall review and study any
conditions or circumstances which may indicate the necessity or
desirability of enacting new or additional legislation within
the jurisdiction of that committee (whether or not any bill or
resolution has been introduced with respect thereto), and shall
on a continuing basis undertake future research and forecasting
on matters within the jurisdiction of that committee. Each such
committee having more than twenty members shall establish an
oversight subcommittee, or require its subcommittees, if any,
to conduct oversight in the area of their respective
jurisdiction, to assist in carrying out its responsibilities
under this subparagraph. The establishment of oversight
subcommittees shall in no way limit the responsibility of the
subcommittees with legislative jurisdiction from carrying out
their oversight responsibilities.
(c) Each standing committee of the House shall have the
function of reviewing and studying on a continuing basis the
impact or probable impact of tax policies affecting subjects
within its jurisdiction as described in clauses 1 and 3.

SPECIAL OVERSIGHT FUNCTIONS

* * *

3. (g) The Committee on Small Business shall have the
function of studying and investigating, on a continuing basis,
the problems of all types of small business.
1.3 Number and Jurisdiction of Subcommittees

During the 104th Congress, the Committee on Small Business
authorized the organization of four standing subcommittees. The
Chair and the Ranking Minority Member served as ex officio
members of all subcommittees, without a vote. The jurisdiction
of the four named subcommittees includes the following:

government programs

Small Business Act, Small Business Investment Act, and
related legislation.
Federal Government programs that are designed to assist
business generally.
Small Business Innovation and Research Program.
Opportunities for minority and women-owned businesses.

procurement, exports and business opportunities

Participation of small business in Federal procurement.
Export opportunities.
General promotion of business opportunities.
General economic problems.

regulation and paperwork

Responsibility for, and investigative authority over, the
regulatory and paperwork policies of all Federal
departments and agencies.
Regulatory Flexibility Act.
Paperwork Reduction Act.
Competition policy generally.

taxation and finance

Tax policy and its impact on small business.
Access to capital.
Finance issues generally.

1.4 Disposition of Legislation Referred to the Committee

A total of 41 House bills and 2 Senate bills were referred
to the Committee on Small Business during the 104th Congress.
The Committee reported five bills to the House, each of which
passed the House, and four were enacted as part of broader
legislation. For a summary of the Committee's legislative
activities, refer to Chapter 5 of this report.
The Committee continued to consolidate related measures
amending the Small Business Act and the Small Business
Investment Act of 1958 into omnibus legislation. The major
legislative effort of the first session of the 104th Congress
was H.R. 2150, The Small Business Credit Efficiency Act of
1995. The Senate-passed legislation (S. 895) was reconciled
with the House bill following a conference, and the President
signed the final legislation on October 12, 1995 as Public Law
104-36. A summary of H.R. 2150 can be found in section 5.2 of
this report.
Small business aspects of regulatory reform were considered
by the Committee early in the first session. The Committee
considered and favorably reported H.R. 937, on February 15,
1995. This legislation was subsumed into H.R. 926, the
Regulatory Reform and Relief Act, which was considered and
favorably reported by the Committee on the Judiciary on
February 16, 1995 and passed by the House by a vote of 415 to
15 on March 1, 1995. Under the provisions of House Resolution
101, the provisions of H.R. 926 were incorporated into H.R. 9,
which was passed by the House on March 3, 1995 by a vote of 277
to 141. Similar legislation concerning small business
regulatory reform was considered in the Senate (S. 942) and was
ultimately incorporated into Title III of H.R. 3136, which
passed the House and the Senate on March 28, 1996. The
President signed the bill on March 29, 1996 as Public Law 104-
121. A summary of this legislation can be found in section 5.1
of this report.
Early in the second session of the 104th Congress, the
Committee considered legislation to further reduce the
paperwork burdens imposed on small business by the Federal
government. The Committee considered and favorably reported
H.R. 2715, the Paperwork Elimination Act of 1996, on March 29,
1996. The House passed the bill on April 24, 1996 by a vote of
418 to 0. The legislation was received in the Senate and
referred to the Senate Committee on Governmental Affairs.
Regrettably, it was not further considered. For a summary of
H.R. 2715, refer to section 5.3 of this report.
The Committee also considered legislation to extend the
pilot Small Business Technology Transfer (STTR) Program and
make certain modifications to the STTR Program and the Small
Business Innovation Research (SBIR) Program. The Committee
favorably reported H.R. 3158, the Pilot Small Business
Technology Transfer Program Extension Act of 1996, on March 28,
1996. The provisions of the bill extending the STTR program
were ultimately incorporated into the omnibus consolidated
appropriations legislation (H.R. 4278), which the House and the
Senate passed together with the 1997 Department of Defense
Appropriations Act (H.R. 3610). The President signed the
legislation on September 30, 1996 as Public Law 104-208. A
summary of H.R. 3158 is included in section 5.4 of this report.
During the second session of the 104th Congress, the
Committee learned that the SBA and the Office of Management and
Budget had revised the subsidy rates for the major lending
programs administered by the SBA, resulting in a dramatic
increase in the rates. In an effort to reduce the subsidy rates
and provide continuing improvement for the long-term longevity
of the loan programs, the Committee considered H.R. 3719, the
Small Business Programs Improvement Act of 1996. On July 18,
1996, the Committee favorably reported the legislation, and the
House passed the bill on September 5, 1996 by a vote of 408 to
0. Due to the pending adjournment of the Congress, a majority
of the bill was incorporated into the omnibus consolidated
appropriations legislation. The President signed that
legislation on September 30, 1996 as Public Law 104-208. A
summary of H.R. 3719 can be found in section 5.5 of this
report.
CHAPTER TWO

THE SMALL BUSINESS ADMINISTRATION

The Committee on Small Business has both legislative and
oversight jurisdiction over the Small Business Administration
(SBA), an independent Federal agency chartered in 1953 to
``aid, counsel, assist and protect the interests of small
business.''
During the 104th Congress, the Committee conducted a
program-by-program review of the SBA. The Committee has
attempted to work with SBA to improve its programs
administratively and, when necessary, through legislative
changes. The Committee recommended significant SBA-related
legislation during the 104th Congress, and these bills and
their disposition are described in Chapter 5 of this report.
The major programs administered by the SBA are briefly
described below.

2.1 SBA Programs in General

The SBA operates through 85 district and branch offices and
has a staff of approximately 4,700 permanent employees and a
varying number of temporary disaster employees (as many as
1,600 in 1996). It provides loans and loan guarantees, both for
business purposes and disaster recovery; assistance to small
business in obtaining government contracts; and management and
technical assistance through paid and volunteer staff. It also
administers a surety bond program for contractors unable to
obtain bonds, which are a prerequisite to bidding for, or
performing on, certain contracts. The SBA also serves as an
advocate for all small businesses, conducts economic research,
and monitors the implementation of small business legislation
and programs at other agencies, such as the Regulatory
Flexibility Act and the Small Business Innovation Research
Program. The SBA administers a portfolio of more than 463,000
loans for more than $35.2 billion of which $6.9 billion is
comprised of loans to disaster victims.

2.2 SBA Business Loans

A major function of the SBA is to make capital available
for those small businesses that cannot normally secure
financing in the private sector. In addition to its general
business loan program, SBA has specialized programs to help
businesses owned by socially and economically disadvantaged
individuals, businesses owned by or employing primarily the
handicapped, businesses owned by veterans, and businesses in
need of long-term fixed-asset financing.
Most SBA financial assistance is provided in the form of
guarantees of commercial loans. Such guarantees can be for as
much as 80 percent of loans up to $100,000 and for as much as
75 percent of loans up to the statutory maximum guarantee of
$750,000 in most cases. (Guarantees of up to $1 million can be
approved for certain fixed-asset financings that promote public
policy objectives set forth in the Small Business Act.) The
interest rates on guaranteed loans are negotiated between the
borrower and lender subject in most cases to a maximum of 2\3/
4\ percent above the prime rate. In fiscal year 1995, SBA
approved 55,596 guaranteed loans, the guaranteed portions
totaling $8.3 billion; in fiscal year 1996, the agency approved
45,845 guaranteed loans totaling $7.7 billion.
Certain applicants who cannot obtain commercial loans, even
with a government guarantee, are eligible to apply for SBA
direct loans. Between October 1, 1985 and September 30, 1994,
eligibility for this type of assistance was limited to
qualified businesses owned by individuals with low incomes or
located in areas of high unemployment, Vietnam-era or disabled
veterans, the handicapped or certain organizations employing
them, certain businesses certified under the minority small
business capital ownership development program, and certain
intermediary non-profit lenders who, in turn, make smaller
``microloans'' to their clients. Funding for SBA direct loans
to others was discontinued on October 1, 1985.
Beginning on October 1, 1994 direct loans were limited to
the handicapped and intermediary ``microlenders.'' Direct loans
are in most cases limited to $150,000, and their interest rate
determined by a formula relating to the government's cost of
borrowing. The interest rate for handicapped assistance loans
was 3 percent. In fiscal year 1995, SBA approved 40 direct
participation (part SBA direct, part bank) handicapped
assistance loans for $4 million, and 30 direct loans to
microloan intermediaries totaling $12.9 million. This money was
``relent'' to entrepreneurs in amounts not exceeding $25,000.
In fiscal year 1996 the Administration canceled funding for the
handicapped assistance leaving the microloan program as the
only direct loan program at the SBA. Microloan intermediaries
received 23 loans totaling $9 million in fiscal year 1996.

2.3 Disaster Assistance Loans

The SBA provides loan assistance to disaster victims,
including homeowners, businesses, and non-profit institutions.
When a disaster strikes, it is important that damaged property
be replaced or repaired and businesses be provided with
adequate working capital to facilitate their recovery as
quickly as possible. SBA disaster loans serve this purpose and
minimize disruptions to jobs, business revenues, and taxes. In
so doing, they play a vital role in restoring the economic
health of a disaster-stricken community, often making the
difference in the survival of businesses necessary to that
recovery. During fiscal year 1995, 45,041 disaster loans were
approved for $1.217 billion to businesses, homeowners and
others affected by hurricanes, tornadoes, earthquakes,
flooding, fires and other disasters. During fiscal year 1996,
37,822 disaster loans were approved for $988 million.
2.4 Small Business Investment Companies

There has been a continuing need for venture capital for
new and growing small businesses. Small businesses historically
have been the origin for new technological development and
expansion. An important source of this venture capital has been
SBA's Small Business Investment Company (SBIC) Program.
SBICs supply equity capital and long-term loan financing to
small firms for expansion, modernization, and sound financing
of their operations. They may also provide management
assistance. They are licensed, regulated and, in part, financed
by SBA, but their transactions with small companies are private
arrangements and have no direct connection with SBA. An SBIC
finances small firms in two general ways--through straight
business loans and through venture capital or equity-type
investments. In fiscal year 1995, 181 licensed SBICs provided
their small business clients with $1.09 billion in 868
financings. During fiscal year 1996, 186 SBICs provided $1.17
billion in 1,041 financings.
The SBA also administers the Specialized Small Business
Investment Company (SSBIC) Program, which is similar to the
SBIC program. SSBICs are specialized SBICs that agree to make
investments solely in small business concerns owned and
controlled by socially or economically disadvantaged
individuals. In fiscal year 1995, 93 licensed SSBICs provided
disadvantaged small businesses with $153.5 million in 1,153
financings. During fiscal year 1996, 86 SSBICs provided $101.5
million in 837 financings.
Beginning in fiscal year 1997, the SSBIC program will be
merged into the overall SBIC program, and all existing SSBICs
will become regular SBICs. Under the combined program, each
SBIC, regardless of its size will be required to invest at
least 20 percent of its aggregate dollar investments in smaller
enterprises. A special leverage reserve will be available to
SBICs that invest at least half of their funds in ``smaller
enterprises''--a small business with a net worth of less than
$6 million and a net income of less than $2 million. The
special reserve and the elimination of certain investment
restrictions will enable the smaller SBICs and former SSBICs to
maintain their focus on financing for primarily minority and
women-owned businesses, which tend to be smaller-sized
businesses. A new reserve of debenture funding will also be
available for the smaller SBICs in lieu of the prior funding
mechanism for the SSBICs. The fund will be financed through the
proceeds of the existing preferred stock repurchase program.

2.5 The 8(a) Program

In addition to the financial assistance programs available
to businesses owned by socially and economically disadvantaged
individuals, the SBA also administers a business development
program for such concerns, the Minority Small Business and
Capital Ownership Development Program, pursuant to Section
7(j)(10) of the Small Business Act. Participants in this
program are eligible for the preferential award of Federal
contracts under the authority of section 8(a) of the Small
Business Act, under which the SBA acts as a ``conduit'' by
channeling selected Federal procurement contracts to qualified
firms owned and operated by socially and economically
disadvantaged individuals. In fiscal year 1995, 6,625 new 8(a)
contracts were let to 1,120 businesses for a total of $3.1
billion. When option year awards on previous contracts awarded
pursuant to section 8(a) are included, the total amount was
$6.2 billion. For fiscal year 1996, over 5,400 new contracts
amounting to over $3.6 billion were let to 8(a) firms. The
amount of total awards pursuant to section 8(a) for fiscal year
1996, including options exercised on contracts awarded in prior
years, was not available as of the date of this report.

2.6 Surety Bond Guarantees

Small business contractors and subcontractors who seek
public (and some private) construction jobs are often required
to furnish surety bonds. The SBA provides assistance to such
contractors by extending a guarantee to a surety of up to 90
percent against potential losses in order for the contractor to
obtain bonding more easily. The SBA's bonding assistance
activity is accomplished through the Prior Approval Program or
the Preferred Surety Bond Program. Bid bonds as well as
performance and/or payment bonds may be guaranteed on contracts
up to $1,250,000. The SBA will pay to the surety participating
in the Prior Approval Program 90 percent of a loss incurred if:
(1) the total amount of the contact is $100,000 or less; and
(2) the bond was issued on behalf of a small concern owned and
controlled by socially and economically disadvantaged
individuals. Otherwise, SBA will pay a surety in an amount not
to exceed an administrative ceiling of 80 percent of a loss on
bonds issued to other than disadvantaged concerns in excess of
$100,000. Under the Preferred Surety Bond program, the SBA's
guarantee is limited to 70 percent of the bond amount for all
small businesses on contracts that do not exceed a face value
of $1,250,000. In fiscal year 1995, 23,034 bid bond guarantees
produced 6,800 final bond guarantees for a total contract
amount of over $1.2 billion. In fiscal year 1996, 15,650 bid
bond guarantees produced 4,684 final bond guarantees, resulting
in a total bond guarantee amount of $923 million.

2.7 Small Business Development Programs

The SBA's economic development assistance programs support
SBA loan recipients and other small business owners/managers
through individual counseling, management training, and
publication of guidance materials. These programs are keyed to
furthering the establishment, growth and success of small
business. It is estimated that managerial deficiencies cause
nine out of ten business failures.
The SBA programs can identify management problems, develop
solutions, and help implement and expand business plans. In
addition to its own business development officers, SBA relies
heavily on national organizations such as the 13,000 volunteer
member Service Corps of Retired Executives (SCORE) to expand
its capability for individual counseling.
An important component of SBA's management assistance
capabilities has been the Small Business Development Center
(SBDC) Program. The SBDC program is a cooperative effort by
universities, the Federal government, State and local
governments, and the private sector to provide specialized
management and technical assistance to the small business
community. Originating as a pilot program at one university in
December 1976, the SBDC program has expanded to include 56
operating SBDCs in all 50 States, the District of Columbia,
Puerto Rico and the Virgin Islands as of 1996. Over 900 branch
centers are located throughout the States at colleges,
universities, and local government offices, as well as in
selected locations such as downtown storefronts easily
accessible to small business clients.

2.8 Small Business Innovation Research

The Small Business Innovation Development Act of 1982,
signed into law on July 22, 1982, provides for the
establishment of Small Business Innovation Research (SBIR)
grant programs in all Federal agencies with annual extramural
research and development (R&D) budgets in excess of $100
million. The Act also requires the establishment of annual
goals for small business research awards in all agencies with
R&D budgets in excess of $20 million. The funding level of SBIR
programs is derived from fixed percentages of an agency's R&D
budget.
Through the SBIR program $834 million was awarded to small
firms in fiscal year 1995. For fiscal year 1996, SBIR awards
from the 11 participating agencies are expected to exceed $1.1
billion.
The SBIR program is highly competitive and provides funds
for the feasibility testing of innovative ideas with Phase I
and Phase II funding levels of up to $100,000 and $750,000 per
grant, respectively. A third phase encourages commercialization
of innovations utilizing private follow-on funding, or
government contracts when appropriate. Roughly 38 percent of
all SBIR projects result in commercially successful products.
In fiscal year 1995, 3,085 Phase I awards for $232.1 million
and 1,263 Phase II awards for $601.9 million were approved. For
fiscal year 1996, an estimated 3,500 Phase I awards for
approximately $450 million and an estimated 1,500 Phase II
awards for approximately $800 million will be approved. The SBA
Office of Innovation, Research and Technology monitors the
implementation of this program at each participating agency and
coordinates the SBIR solicitation releases.

2.9 Small Business Technology Transfer

2.10 Export Assistance

The SBA is authorized to promote the increased
participation of small businesses in international trade. To
offset some of the inherent disadvantages to successful small
business participation in international trade, the SBA, the
U.S. Department of Commerce, other government agencies, and
private associations work together to identify, inform,
motivate, and provide access to financial assistance for the
small businesses seeking to enter into business transactions
abroad. The goal of the SBA's program is to continue to
facilitate financial assistance and other appropriate
management and technical assistance to small business concerns
that have the potential to become successful exporters.
The SBA's export counseling and training includes one-on-
one counseling through SCORE program volunteers with
significant international trade expertise, access to university
research and counseling, assistance from professional
international trade management consulting firms, referral to
other public or private-sector expertise, free consultation
through the Export Legal Assistance Network (ELAN) program,
which enables small businesses interested in starting export
operations to consult with international trade attorneys from
the Federal Bar Association, and access to publications on
international trade and export marketing.
The SBA's financial export assistance includes several loan
programs depending on the purpose for which the funds will be
used. Exporters may obtain funds for fixed asset acquisition
during start-up or expansion and for general working capital
needs through the general 7(a) loan program. Export Trading
Companies (ETCs) can qualify for SBA's business loan guaranty
program, provided that they are for-profit ETCs and have no
bank equity participation.
The Export Working Capital Program (EWCP) allows a
guarantee on private-sector loans of up to $750,000 for working
capital. The guarantee percentage for loans made in fiscal year
1995 and 1996 was 75 percent (80 percent for loans under
$100,000) and in 1997 the percentage will increase to 90
percent. Loans guaranteed under the EWCP program generally have
a 12-month maturity, subject to two 12-month renewal options.
The loans can be for single or multiple export sales and can be
extended for pre-shipment working capital and post-shipment
exposure coverage, although the proceeds cannot be used to
acquire fixed assets. In fiscal year 1995, the SBA approved 215
guaranteed loans under the EWCP, the guaranteed portions
totaling $75.4 million; in fiscal year 1996, the agency
approved 272 guaranteed loans totaling $97.25 million.
Through the 7(a) loan program, the SBA also offers export
assistance through guarantees of international trade loans,
which provide long-term financing to small businesses engaged,
or preparing to engage, in international trade, as well as
those businesses adversely affected by import competition. The
SBA can guarantee loans up to $1.25 million. In fiscal year
1995, the SBA approved 126 guaranteed international trade
loans, totaling $50 million; in fiscal year 1996, the agency
approved 74 guaranteed international trade loans totaling $19.2
billion.

2.11 Office of Advocacy

The SBA Office of Advocacy was created in 1976, pursuant to
Title II of Public Law 94-305, with various stated ``primary
functions'' and other ``continuing'' duties. The law provides
for the President to appoint a Chief Counsel for Advocacy,
subject to the advice and consent of the Senate. The mandated
mission of the Office of Advocacy is to represent and advance
small business interests before the Congress and other Federal
departments and agencies for the purpose of enhancing small
business competitiveness.
The eleven statutorily prescribed ``primary functions'' of
the Office of Advocacy are: (1) examining the role of small
business in the American economy; (2) assessing the
effectiveness of all Federal subsidy and assistance programs
for small business; (3) measuring the cost and impact of
government regulations on small business and making legislative
and non-legislative recommendations for the elimination of
unnecessary or excessive regulations; (4) determining the
impact of the tax structure on small business and making
legislative and other proposals for reform of the tax system;
(5) studying the ability of the financial markets to meet the
credit needs of small business; (6) determining availability
and delivery methods of financial and other assistance to
minority enterprises; (7) evaluating the efforts of Federal
departments and agencies, business, and industry to assist
minority enterprises; (8) recommending ways to assist the
development and strengthening of minority and other small
businesses; (9) recommending ways for small business to compete
effectively and to expand, while identifying common causes for
small business failures; (10) developing criteria to define
small business; and (11) advising and consulting with the
chairman of the Administrative Conference of the United States
on the amount of fees and other expenses awarded during the
fiscal year year by the Federal government to plaintiffs who
prevail in administrative proceedings before Federal
departments and agencies.
The law also prescribes a number of ``continuing'' duties
of the Office of Advocacy, which include: (1) serving as a
focal point for receiving complaints and suggestions regarding
Federal agency policies and activities that affect small
business; (2) counseling small businesses on problems in their
relationships with the Federal government; (3) proposing
changes in the policies and activities of all Federal
departments and agencies to better fulfill the purposes of the
Small Business Act; (4) representing small business before
other Federal departments and agencies whose policies and
activities may affect small business; and (5) enlisting the
cooperation of others in the dissemination of information about
Federal programs that benefit small business.
In 1980, the Regulatory Flexibility Act (Public Law 96-354)
enlarged the responsibilities of the Office of Advocacy to
include the monitoring of Federal departments' and agencies'
compliance with the Act's requirements, performing regulatory
impact analyses, and making annual reports to Congress. Also in
1980, Public Law 96-302 required the SBA Administrator to
establish and maintain a small business economic data base to
provide Congress and the Administration with information on the
economic condition of the small business sector. The statute
prescribed twelve categories of data and required an annual
report on trends. Although none of these data-base functions
was expressly delegated to the Office of Advocacy by statute,
they have historically been assigned to the office by the SBA
Administrator.
The Office of Advocacy also has Regional Advocates who
monitor small business and regulatory activities at the State
level and disseminate relevant information about small business
issues. In fiscal year 1995, the Office of Advocacy had a
budget of $7.9 million to carry out its statutory and other
activities; in fiscal year 1996, its budget was $4.1 million.
CHAPTER THREE

HEARINGS AND MEETINGS HELD BY THE COMMITTEE ON SMALL BUSINESS AND ITS
SUBCOMMITTEES, 104th CONGRESS

3.1 Full Committee

----------------------------------------------------------------------------------------------------------------
Date Subject & Location
----------------------------------------------------------------------------------------------------------------
January 11, 1995................ Organizational Meeting; Washington, D.C.
January 18, 1995................ Hearing: Overview of Small Business Tax Proposals in the ``Contract with
America''; Washington, D.C.
January 19, 1995................ Hearing: Home Office Deduction; Washington, D.C.
January 19, 1995................ Hearing: Independent Contractor Status; Washington, D.C.
January 20, 1995................ Hearing: Health Insurance Deductibility for Self-Employed Individuals;
Washington, D.C.
January 23, 1995................ Hearing: Strengthening the Regulatory Flexibility Act; Washington, D.C.
January 25, 1995................ Hearing: Oversight--SBA 7(a) Lending Program; Washington, D.C.
January 26, 1995................ Hearing: Capital Gains Tax Reform and Investment in Small Business;
Washington, D.C.
January 27, 1995................ Hearing: Paperwork Reduction Act; Washington, D.C.
January 31, 1995................ Hearing: Estate Tax Reform and the Family Business; Washington, D.C.
February 10, 1995............... Hearing: Amending the Regulatory Flexibility Act--Past Performance and the
Need for Meaningful Reform; Washington, D.C.
February 13, 1995............... Meeting: Oversight Agenda; Washington, D.C.
February 14, 1995............... Markup: H.R. 937, to amend Title V, United States Code, to clarify procedures
for judicial review of Federal agency compliance with regulatory flexibility
analysis requirements, and for other purposes; Washington, D.C.
February 22, 1995............... Hearing: Capital Gains Tax Reform; Washington, D.C.
February 28, 1995............... Hearing: Overall Review of SBA; Washington, D.C.
March 2, 1995................... Hearing: Review of the SBA Procurement Assistance Programs; Washington, D.C.
March 6, 1995................... Hearing: Review of SBA Business Development Programs; Washington, D.C.
March 9, 1995................... Hearing: Review of SBA 504 Program; Washington, D.C.
March 14, 1995.................. Hearing: SBA's Pilot Microloan Program; Washington, D.C.
March 16, 1995.................. Hearing: U.S. Small Business Administration's Business Development Programs;
Washington, D.C.
March 28, 1995.................. Hearing: Review of the SBIC and SSBIC Programs; Washington, D.C.
March 30, 1995.................. Hearing: The Small Business Administration of the Future; Washington, D.C.
April 4, 1995................... Hearing: SBA Office of Advocacy; Washington, D.C.
April 27, 1995.................. Hearing: Small Business Administration Programs and Tax and Regulatory Issues
Impacting Small Business; Overland Park, Kansas.
June 29, 1995................... Hearing: Small Business Participation in Federal Contracting: Assessing H.R.
1670, the ``Federal Acquisition Reform Act of 1995''--Part I; Washington,
D.C.
July 12, 1995................... Hearing: Reduction of Airline Ticket Sales Commission and Its Impact on Small
Travel Agencies; Washington, D.C.
July 18, 1995................... Hearing: The Administration's Initiatives to Reduce Regulatory Burdens on
Small Business; Washington, D.C.
July 20, 1995................... Hearing: Assessing the Implementation of Public Law 103-355, the ``Federal
Acquisition Streamlining Act of 1994''; Washington, D.C.
July 26, 1995................... Hearing: The Administration and Congressional Initiatives to Reform OSHA, and
their Impact on Small Businesses; Washington, D.C.
August 3, 1995.................. Hearing: Small Business Participation in Federal Contracting: Assessing H.R.
1670, the ``Federal Acquisition Reform Act of 1995''--Part II; Washington,
D.C.
August 4, 1995.................. Markup: H.R. 2150, Small Business Credit Efficiency Act of 1995, to amend the
Small Business Act and the Small Business Investment Act of 1958 to reduce
the cost to the Federal Government of guaranteeing certain loans and
debentures, and for other purposes; Washington, D.C.
September 8, 1995............... Hearing: Pension Reform and Simplification: A Small Business Perspective;
Washington, D.C.
September 13, 1995.............. Hearing: The Impact of Solid Waste Flow Control on Small Businesses and
Consumers; Washington, D.C.
September 28, 1995.............. Hearing: SBA's Venture Capital Programs; Washington, D.C.
October 11, 1995................ Hearing: Federal Contract Bundling: How Can Small Business Compete?;
Washington, D.C.
October 19, 1995................ Hearing: The Effects of Superfund Liability on Small Business; Washington,
D.C.
October 25, 1995................ Hearing: The Internal Revenue Service's Initiatives to Reduce Regulatory and
Paperwork Burdens on Small Business; Washington, D.C.
October 31, 1995................ Hearing: The Cost of Federal Regulations on Small Business; Washington,
D.C.\1\
November 8, 1995................ Hearing: Railroad Consolidation: Small Business Concerns; Washington, D.C.\1\
December 13, 1995............... Hearing: The Abuses in the SBA's 8(a) Procurement Program; Washington, D.C.

February 28, 1996............... Hearing: Small Business' Access to Capital: Impediments and Options;
Washington, D.C.

March 6, 1996................... Hearing: Pilot Small Business Technology Transfer (STTR) Program and Small
Business Innovation Research (SBIR) Program: Assessing the results of Public
Law 102-654, the ``small Business Research and Development Enhancement Act of
1992''; Washington, D.C.

March 7, 1996................... Hearing: The EPA's Progress in Reducing Unnecessary Regulatory and Paperwork
Burdens upon Small Business; Washington, D.C.

March 14, 1996.................. Meeting: Budget Views and Estimates; Washington, D.C.

March 21, 1996.................. Hearing: SBA FY 1997 Budget; Washington, D.C.

March 29, 1996.................. Markup: H.R. 2715, Paperwork Elimination Act of 1995, to amend chapter 35 of
title 44, United States Code, popularly known as the Paperwork Reduction Act,
to minimize the burden of Federal paperwork demands upon small businesses,
educational and nonprofit institutions, Federal contractors, State and local
governments, and other persons through the sponsorship and use of alternative
information technologies; H.R. 3158, Pilot Small Business Technology Transfer
Program Extension Act of 1996, to amend the Small Business Act to extend the
pilot Small Business Technology Transfer program, and for other purposes;
Washington, D.C.
April 12, 1996.................. Hearing: The Practice of ``Salting'' and Its Impact on Small Business;
Overland Park, Kansas\2\
April 17, 1996.................. Hearing: The Kemp Commission Recommendations: A Small Business Perspective;
Washington, D.C.
April 25, 1996.................. Hearing: Patent Term and Patent Disclosure Legislation; Washington, D.C.
May 1, 1996..................... Hearing: Small Business' Access to Capital: The Role of Banks in Small
Business Financing; Washington, D.C.
May 8, 1996..................... Hearing: Music Licensing and Small Business; Washington, D.C.
May 15, 1996.................... Hearing: Small Business and Entry-level Employees: How to Increase Take-home
Pay and Keep America Working; Washington, D.C.
June 6, 1996.................... Hearing: Proposed Reforms of the Small Business Investment Company Program;
Washington, D.C.
June 27, 1996................... Hearing: Small Business Competition for Federal Contracts: The Impact of
Federal Prison Industries; Washington, D.C.
July 16, 1996................... Hearing: Unfair Competition with Small Business from Government and Not-For-
Profits: Assessing the Current State of the Problem and the Recommendations
of the 1995 White House Conference on Small Business; Washington, D.C.
July 18, 1996................... Hearing: Unfair Competition with Small Business from Government and Not-For-
Profits: Assessing the Current State of the Problem and the Recommendations
of the 1995 White House Conference on Small Business; Washington, D.C.
July 18, 1996................... Markup: H.R. 3719, Small Business Programs Improvement Act of 1996, to amend
the Small Business Act and the Small Business Investment Act of 1958;
Washington, D.C.
July 31, 1996................... Markup (continued): H.R. 3719, Small Business Programs Improvement Act of
1996, to amend the Small Business Act and the Small Business Investment Act
of 1958; Washington, D.C.
September 18, 1996.............. Hearing: Proposed Reform of the 8(a) Program Through H.R. 3994, the
Entrepreneur Development Program Act of 1996; Washington, D.C.
September 25, 1996.............. Hearing: OSHA Reform and Relief for Small Business: What Needs to be Done?;
Washington, D.C.

----------------------------------------------------------------------------------------------------------------

3.2 Subcommittee on Government Programs

----------------------------------------------------------------------------------------------------------------

3.3 Subcommittee on Procurement, Exports and Business
Opportunities

----------------------------------------------------------------------------------------------------------------

3.4 Subcommittee on Regulation and Paperwork

----------------------------------------------------------------------------------------------------------------

3.5 Subcommittee on Taxation and Finance

----------------------------------------------------------------------------------------------------------------
\1\ Joint hearing with the Senate Committee on Small Business.
\2\ Joint hearing with the Committee on Economic and Educational Opportunities.
\3\ Joint hearing by the Subcommittee on Government Programs and the Subcommittee on Procurement, Exports and
Business Opportunities.
\4\ Joint hearing by the Subcommittee on Government Programs and the Subcommittee on Taxation and Finance.
\5\ Joint hearing with the Subcommittee on Education Training Employment and Housing of the Committee on
Veterans' Affairs.
\6\ Joint hearing with the Subcommittee on Oversight and Investigations of the Committee on Economic and
Educational Opportunities.

CHAPTER FOUR

PUBLICATIONS OF THE COMMITTEE ON SMALL BUSINESS AND ITS SUBCOMMITTEES,
104TH CONGRESS

4.1 Reports

----------------------------------------------------------------------------------------------------------------
House Report No. Title & Date
----------------------------------------------------------------------------------------------------------------
104-49 (Part 1)................. Report to accompany H.R. 937, to amend Title V, United States Code, to clarify
procedures for judicial review of Federal agency compliance with regulatory
flexibility analysis requirements, and for other purposes; February 23, 1995.
104-239......................... Report to accompany H.R. 2150, Small Business Credit Efficiency Act of 1995;
September 6, 1995.
104-269......................... Conference report to accompany S. 895, Small Business Lending Enhancement Act
of 1995; September 28, 1995.
104-520 (Part 1)................ Report to accompany H.R. 2715, Paperwork Elimination Act of 1995; April 16,
1996.
104-850 (Part 1)................ Report to accompany H.R. 3158, Pilot Small Business Technology Transfer
Program Extension Act of 1996; September 26, 1996.
104-750......................... Report to accompany H.R. 3719, Small Business Programs Improvement Act of
1996; August 2, 1996.
104-873......................... Summary of Activities; December 31, 1996.
----------------------------------------------------------------------------------------------------------------

4.2 Hearing Records

------------------------------------------------------------------------
Title, Date &
Serial No. Held by * Location
------------------------------------------------------------------------
104-1.................... Full.................... Independent
Contractor Status;
January 19, 1995;
Washington, D.C.
104-2.................... Full.................... Overview of Small
Business Tax
Proposals in the
``Contract with
America''; January
18, 1995;
Washington, D.C.
104-3.................... Full.................... Tax-Home Office
Deduction; January
19, 1995;
Washington, D.C.
104-4.................... Full.................... Health Insurance
Deductibility for
Self-Employed
Individuals;
January 20, 1995;
Washington, D.C.
104-5.................... Full.................... Strengthening the
Regulatory
Flexibility Act;
January 23, 1995;
Washington, D.C.
104-6.................... Full.................... Oversight--SBA 7(a)
Lending Program;
January 25, 1995;
Washington, D.C.
104-7.................... Full.................... Capital Gains Tax
Reform and
Investment in
Small Business;
January 26, 1995;
Washington, D.C.
104-8.................... Full.................... Paperwork Reduction
Act; January 27,
1995; Washington,
D.C.
104-9.................... Full.................... Estate Tax Reform
and the Family
Business; January
31, 1995;
Washington, D.C.
104-10................... Full.................... Amending the
Regulatory
Flexibility Act--
Past Performance
and the Need for
Meaningful Reform;
February 10, 1995;
Washington, D.C.
104-11................... Full.................... Capital Gains Tax
Reform; February
22, 1995;
Washington, D.C.
104-12................... Government.............. The Impact of
Hanscom Air Force
Base upon Small
Business in the
New England
Region; February
13, 1995; Bedford,
Massachusetts.
104-13................... Full.................... Overall Review of
SBA; February 28,
1995; Washington,
D.C.
104-14................... Full.................... Review of the SBA
Procurement
Assistance
Programs; March 2,
1995; Washington,
D.C.
104-15................... Full.................... Review of SBA
Business
Development
Programs; March 6,
1995; Washington,
D.C.
104-16................... Regulation\1\........... Joint Hearing on
the Impact of
Workplace and
Employment
Regulations on
Business; February
2, 1995;
Washington, D.C.
104-17................... Full.................... Review of SBA 504
Program; March 9,
1995; Washington,
D.C.
104-18................... Full.................... SBA's Pilot
Microloan Program;
March 14, 1995;
Washington, D.C.
104-19................... Full.................... U.S. Small Business
Administration's
Business
Development
Programs; March
16, 1995;
Washington, D.C.
104-20................... Full.................... The Small Business
Administration of
the Future; March
30, 1995;
Washington, D.C.
104-21................... Full.................... Review of the SBIC
and SSBIC
Programs; March
28, 1995;
Washington, D.C.
104-22................... Procurement............. Export Promotion
Programs: How is
Small Business
Helped?; March 29,
1995; Washington,
D.C.
104-23................... Full.................... SBA Office of
Advocacy; April 4,
1995; Washington,
D.C.
104-24................... Procurement............. Small Business
Administration's
Surety Bond
Guarantee Program;
April 5, 1995;
Washington, D.C.
104-25................... Government.............. Small Business
Administration's
Small Business
Innovation
Research (SBIR)
Program; April 6,
1995; Washington,
D.C.
104-26................... Government.............. Small Business
Administration
Programs to Assist
the New England
Fishing Industry;
April 10, 1995;
Gloucester,
Massachusetts.
104-27................... Full.................... Small Business
Administration
Programs and Tax
and Regulatory
Issues Impacting
Small Business;
April 27, 1995;
Overland Park,
Kansas.
104-28................... Procurement............. Agriculture Export
Promotion
Programs: How are
the Small Farmer
and Rancher
Helped?; May 17,
1995; Washington,
D.C.
104-29................... Taxation................ The Flat Tax and
Small Business;
May 18, 1995;
Washington, D.C.
104-30................... Procurement............. Federal Export
Promotion
Programs: An
Academic
Perspective; May
23, 1995;
Washington, D.C.
104-31................... Government.............. Small Business
Administration's
Disaster Loan
Program; May 25,
1995; Washington,
D.C.
104-32................... Regulation.............. Regulatory Barriers
to Minority
Entrepreneurs;
June 7, 1995;
Washington, D.C.
104-33................... Regulation.............. OSHA Fall
Protection
Standard; June 15,
1995; Washington,
D.C.
104-34................... Procurement............. Export Promotion: A
Business
Perspective; June
22, 1995;
Washington, D.C.
104-35................... Taxation................ The Burden of
Payroll Taxes on
Small Business;
June 28, 1995;
Washington, D.C.
104-36................... Full.................... Small Business
Participation in
Federal
Contracting:
Assessing H.R.
1670, the
``Federal
Acquisition Reform
Act of 1995''--
Part I; June 29,
1995; Washington,
D.C.
104-37................... Government.............. U.S. Small Business
Administration Low
Documentation Loan
Program; June 28,
1995; Washington,
D.C.
104-38................... Full.................... Reduction of
Airline Ticket
Sales Commission
and Its Impact on
Small Travel
Agencies; July 12,
1995; Washington,
D.C.
104-39................... Full.................... The
Administration's
Initiatives to
Reduce Regulatory
Burdens on Small
Business; July 18,
1995; Washington,
D.C.
104-40................... Government.............. SBA's LowDoc Loan
Program; July 19,
1995; Washington,
D.C.
104-41................... Full.................... Assessing the
Implementation of
Public Law 103-
355, the ``Federal
Acquisition
Streamlining Act
of 1994''; July
20, 1995;
Washington, D.C.
104-42................... Full.................... The Administration
and Congressional
Initiatives to
Reform OSHA, and
their Impact on
Small Businesses;
July 26, 1995;
Washington, D.C.
104-43................... Taxation................ Clarifying the
Status of
Independent
Contractors--Part
I; July 26, 1995;
Washington, D.C.
104-44................... Government.............. Professional
Certification as a
Sole Source Bid
Requirement in
Federal
Contracting;
August 2, 1995;
Washington, D.C.
104-45................... Taxation................ Clarifying the
Status of
Independent
Contractors--Part
II; August 2,
1995; Washington,
D.C.
104-46................... Full.................... Small Business
Participation in
Federal
Contracting:
Assessing H.R.
1670, the
``Federal
Acquisition Reform
Act of 1995''--
Part II; August 3,
1995; Washington,
D.C.
104-47................... Regulation.............. Candidates for the
Regulatory
Corrections
Calendar; August
23, 1995;
Despares,
Missouri.
104-48................... Full.................... Pension Reform and
Simplification: A
Small Business
Perspective;
September 8, 1995;
Washington, D.C.
104-49................... Government & Procurement The Export Working
Capital Program;
September 7, 1995;
Washington, D.C.
104-50................... Full.................... The Impact of Solid
Waste Flow Control
on Small
Businesses and
Consumers;
September 13,
1995; Washington,
D.C.
104-51................... Full.................... SBA's Venture
Capital Programs;
September 28,
1995; Washington,
D.C.
104-52................... Full.................... Federal Contract
Bundling: How Can
Small Business
Compete?; October
11, 1995;
Washington, D.C.
104-53................... Procurement............. Technologies for
Accessing Foreign
Markets; October
11, 1995;
Washington, D.C.
104-54................... Government.............. Loan Packaging;
October 12, 1995;
Washington, D.C.
104-55................... Full.................... The Effects of
Superfund
Liability on Small
Business; October
19, 1995;
Washington, D.C.
104-56................... Full.................... The Internal
Revenue Service's
Initiatives to
Reduce Regulatory
and Paperwork
Burdens on Small
Business; October
25, 1995;
Washington, D.C.
104-57................... Full\2\................. The Cost of Federal
Regulations on
Small Business;
October 31, 1995;
Washington, D.C.
104-58................... Full\2\................. Railroad
Consolidation:
Small Business
Concerns; November
8, 1995;
Washington, D.C.
104-59................... Full.................... The Abuses in the
SBA's 8(a)
Procurement
Program; December
13, 1995;
Washington, D.C.
104-60................... Taxation................ Fundamental Tax
Changes Needed to
Unleash America's
Small Businesses;
February 9, 1996;
Indianapolis;
Indiana; March 25,
1996; Mentor,
Ohio; April 3,
1996; Seattle,
Washington.
104-61................... Procurement............. Resources for
Export Assistance;
February 13, 1996;
Rockford,
Illinois.
104-62................... Full.................... Small Business'
Access to Capital:
Impediments and
Options; February
28, 1996;
Washington, D.C.
104-63................... Full.................... Pilot Small
Business
Technology
Transfer (STTR)
Program and Small
Business
Innovation
Research (SBIR)
Program: Assessing
the results of
Public Law 102-
654, the ``Small
Business Research
and Development
Enhancement Act of
1992''; March 6,
1996; Washington,
D.C.
104-64................... Full.................... The EPA's Progress
in Reducing
Unnecessary
Regulatory and
Paperwork Burdens
upon Small
Business; March 7,
1996; Washington,
D.C.
104-65................... Regulation.............. Examining the
Issues Surrounding
the National Labor
Relations Board's
Rulemaking
Concerning Single
Location
Bargaining Units
in Representation
Cases; March 7,
1996; Washington,
D.C.
104-66................... Government & Taxation... The Effects of Bank
Consolidation on
Small Business
Lending; March 4,
1996; Boston,
Massachusetts.
104-67................... Full.................... SBA FY 1997 Budget;
March 21, 1996;
Washington, D.C.
104-68................... Government.............. H.R. 2715:
Paperwork
Elimination Act;
March 27, 1996;
Washington, D.C.
104-71................... Full\3\................. The Practice of
``Salting'' and
Its Impact on
Small Business;
April 12, 1996;
Overland Park,
Kansas
104-72................... Full.................... The Kemp Commission
Recommendations: A
Small Business
Perspective; April
17, 1996;
Washington, D.C.
104-73................... Government.............. Venture Capital
Marketing
Association
Charter Act; April
18, 1996;
Washington, D.C.
104-74................... Full.................... Patent Term and
Patent Disclosure
Legislation; April
25, 1996;
Washington, D.C.
104-75................... Procurement............. The Impact of
``Short Supply''
on Small
Manufacturers; May
2, 1996;
Washington, D.C.
104-76................... Full.................... Music Licensing and
Small Business;
May 8, 1996;
Washington, D.C.
104-77................... Government.............. H.R. 2579: The
Travel and Tourism
Partnership Act of
1995; May 6, 1996;
Newburyport,
Massachusetts.
104-78................... Full.................... Small Business'
Access to Capital:
The Role of Banks
in Small Business
Financing; May 1,
1996; Washington,
D.C.
104-79................... Full.................... Small Business and
Entry-level
Employees: How to
Increase Take-home
Pay and Keep
America Working;
May 15, 1996;
Washington, D.C.
104-80................... Government.............. Oversight of the
Environmental
Protection
Agency's Progress
in Reducing
Unnecessary
Paperwork Burdens
upon Small
Business; May 30,
1996; Washington,
D.C.
104-81................... Full.................... Proposed Reforms of
the Small Business
Investment Company
Program; June 6,
1996; Washington,
D.C.
104-82................... Government.............. Oversight of the
Department of
Labor's Progress
on Reducing
Unnecessary
Paperwork Burdens
on Small Business;
June 26, 1996;
Washington, D.C.
104-83................... Full.................... Small Business
Competition for
Federal Contracts:
The Impact of
Federal Prison
Industries; June
27, 1996;
Washington, D.C.
104-84................... Government.............. Massachusetts'
Request for
Disaster Funds
from the SBA; July
10, 1996;
Washington, D.C.
104-85................... Government.............. The Government's
Solicitation
Process and
Whether or Not It
is Discriminatory
to Small Business;
July 15, 1996;
Danvers,
Massachusetts.
104-86................... Full.................... Unfair Competition
with Small
Business from
Government and Not-
For-Profits:
Assessing the
Current State of
the Problem and
the
Recommendations of
the 1995 White
House Conference
on Small Business;
July 16, 1996;
Washington, D.C.
104-87................... Government.............. H.R. 1863: The
Employment Non-
Discrimination
Act; July 17,
1996; Washington,
D.C.
104-88................... Government.............. Oversight of the
Food and Drug
Administration's
Progress in
Reducing
Unnecessary
Paperwork Burdens
Upon Small
Business; July 24,
1996; Washington,
D.C.
104-90................... Procurement............. The Effectiveness
of U.S. Export
Assistance
Centers; July 25,
1996; Washington,
D.C.
104-91................... Government\4\........... SBA Programs to
Assist Veterans in
Readjusting to
Civilian Life;
July 31, 1996
Washington, D.C.
104-92................... Full.................... Proposed Reform of
the 8(a) Program
Through H.R. 3994,
the Entrepreneur
Development
Program Act of
1996; September
18, 1996;
Washington, D.C.
104-93................... Full.................... OSHA Reform and
Relief for Small
Business: What
Needs to be Done?;
September 25,
1996; Washington,
D.C.
104-94................... Government.............. FDIC's Handling of
Small Business
Asset
Foreclosures;
September 25,
1996; Washington,
D.C.
------------------------------------------------------------------------
*Full: Full Committee on Small Business.
Government: Subcommittee on Government Programs.
Procurement: Subcommittee on Procurement, Exports and Business
Opportunities.
Regulation: Subcommittee on Regulation and Paperwork.
Taxation: Subcommittee on Taxation and Finance.

\1\ Joint hearing with the Subcommittee on Oversight and Investigations
of the Committee on Economic and Educational Opportunities.
\2\ Joint hearing with the Senate Committee on Small Business.
\3\ Joint hearing with the Committee on Economic and Educational
Opportunities.
\4\ Joint hearing with the Subcommittee on Education Training Employment
and Housing of the Committee on Veterans' Affairs.

CHAPTER FIVE

SUMMARY OF LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL BUSINESS

During the 104th Congress, 41 House bills and 2 Senate
bills were referred to the Committee on Small Business. The
Committee reported five bills to the House, each of which
passed the House, and four were enacted into law as part of
broader legislation.

5.1 H.R. 937 (H.R. 926, H.R. 9, S. 942, and H.R. 3136); Public
Law No. 104-121.

H.R. 926:
February 14, 1995................. Referred to House Committee on the
Judiciary.
February 16, 1995................. Committee Consideration and Mark-up
Session Held.
February 16, 1995................. Ordered to be Reported (Amended) by
Voice Vote.
February 23, 1995................. Reported to House (Amended) by House
Committee on the Judiciary Report
No. 104-48.
February 23, 1995................. Placed on Union Calendar No. 25.
February 27, 1995................. Committee on Rules, by Voice Vote,
Granted an Open Rule Providing 90
Minutes of Debate; Making in Order
the Committee on the Judiciary
Amendment in the Nature of a
Substitute as an Original Bill;
Giving Priority Recognition to
Members who have Pre-Printed their
Amendments in the Congressional
Record Prior to their
Consideration; Providing One Motion
to Recommit With or Without
Instructions.
February 27, 1995................. Rules Committee Resolution H. Res.
100 Reported to House.
February 28, 1995................. Rule Passed House.
March 1, 1995..................... Called up by House by Rule.
March 1, 1995..................... Committee Amendment in the Nature of
a Substitute Considered as an
Original Bill for the Purpose of
Amendment.
March 1, 1995..................... House Agreed to Amendments Adopted
by the Committee of the Whole.
March 1, 1995..................... Passed House (Amended) by Yea-Nay
Vote: 415-15 (Record Vote No. 187).
March 3, 1995..................... Received in the Senate.
March 3, 1995..................... Referred to Senate Committee on
Governmental Affairs.
March 3, 1995..................... Pursuant to the Provisions of H.
Res. 101 the House Incorporated the
Text of this Measure, as Passed by
the House, into H.R. 9.

H.R. 9:
January 4, 1995................... Referred to Committee on Ways and
Means
January 24, 1995.................. Committee on Ways and Means Hearings
Held.
January 25, 1995.................. Committee on Ways and Means Hearings
Held.
January 26, 1995.................. Committee on Ways and Means Hearings
Held.
February 1, 1995.................. Committee on Ways and Means Hearings
Held.
January 4, 1995................... Referred to House Committee on
Commerce.
January 13, 1995.................. Referred to Subcommittee on Energy
and Power.
January 13, 1995.................. Referred to Subcommittee on Health
and Environment.
January 13, 1995.................. Referred to Subcommittee on
Commerce, Trade, and Hazardous
Materials.
February 1, 1995.................. Joint Hearings Held by the
Subcommittee on Health and
Environment and by the Subcommittee
on Commerce, Trade and Hazardous
Materials.
February 2, 1995.................. Joint Hearings Held by the
Subcommittee on Health and
Environment and by the Subcommittee
on Commerce, Trade and Hazardous
Materials.
February 2, 1995.................. Subcommittee on Commerce, Trade, and
Hazardous Materials Discharged.
February 3, 1995.................. Subcommittee on Energy and Power
Discharged.
February 3, 1995.................. Subcommittee on Health and
Environment Discharged.
February 7, 1995.................. Committee on Commerce Consideration
and Mark-up Session Held.
February 8, 1995.................. Committee Consideration and Mark-up
Session Held.
February 8, 1995.................. Ordered to be Reported (Amended) by
the Yeas and Nays: 27-16.
February 15, 1995................. Reported to House (Amended) by House
Committee on Commerce Report No.
104-33 (Part I).
January 4, 1995................... Referred to House Committee on
Government Reform and Oversight.
January 11, 1995.................. Referred to Subcommittee on National
Economic Growth, Natural Resources
and Regulatory Affairs.
January 4, 1995................... Referred to House Committee on the
Budget.
January 4, 1995................... Referred to House Committee on
Rules.
January 4, 1995................... Referred to House Committee on the
Judiciary.
January 4, 1995................... Referred to House Committee on
Science.
January 31, 1995.................. Committee Hearings Held on Title
III, Risk Assessment and Cost/
Benefit Analysis for New
Regulations.
February 2, 1995.................. Committee Hearings Held on Title
III, Risk Assessment and Cost/
Benefit Analysis for New
Regulations.
February 8, 1995.................. Committee Consideration and Mark-up
Session Held.
February 8, 1995.................. Ordered to be Reported (Amended) by
Voice Vote.
February 15, 1995................. Reported to House (Amended) by House
Committee on Science Report No. 104-
33 (Part II).
February 9, 1995.................. Rereferred to the House Committee on
Small Business for Titles V, VI and
Section 4003.
March 3, 1995..................... Called up by House by Rule.
March 3, 1995..................... The House struck all after Section 1
and inserted in lieu thereof the
provisions of a text composed of 4
divisions: (1) H.R. 830; (2) H.R.
925; (3) H.R. 926; and (4) H.R.
1022, as each bill was passed by
the House.
March 3, 1995..................... Motion to Recommit with Instructions
Failed in House by Yea-Nay Vote:
180-239 (Record Vote No. 198).
March 3, 1995..................... Passed House (Amended) by Yea-Nay
Vote: 277-141 (Record Vote No.
199).
March 9, 1995..................... Received in the Senate.
March 9, 1995..................... Referred to Senate Committee on
Governmental Affairs.

S. 942:
June 16, 1995..................... Referred to Senate Committee on
Small Business.
February 28, 1996................. Committee on Small Business Hearings
Held.
March 6, 1996..................... Committee Consideration and Mark-up
Session Held.
March 6, 1996..................... Ordered to be Reported (Amended).
March 6, 1996..................... Reported to Senate (Amended) by
Senate Committee on Small Business.
March 6, 1996..................... Placed on Senate Legislative
Calendar under General Orders.
Calendar No. 342.
March 15, 1996.................... Measure laid before Senate.
March 15, 1996.................... Considered by Senate.
March 19, 1996.................... Passed Senate (Amended) by Yea-Nay
Vote: 100-0 (Record Vote No. 43).
March 22, 1996.................... Referred to House Committee on the
Judiciary.
March 22, 1996.................... Referred to House Committee on Small
Business.
March 22, 1996.................... Referred to House Committee on
Rules.
March 28, 1996.................... For Further Action See H.R. 3136.

H.R. 3136:
March 21, 1996.................... Referred to Committee on Ways and
Means.
March 21, 1996.................... Referred to House Committee on the
Budget.
March 21, 1996.................... Referred to House Committee on
Rules.
March 21, 1996.................... Referred to House Committee on the
Judiciary.
March 21, 1996.................... Referred to House Committee on Small
Business.
March 21, 1996.................... Referred to House Committee on
Government Reform and Oversight.
March 25, 1996.................... Referred to Subcommittee on
Government Management, Information
and Technology of the Committee on
Government Reform and Oversight.
March 27, 1996.................... Rules Committee Resolution H. Res.
391 Reported to House.
March 27, 1996.................... Committee on Rules Granted, by Voice
Vote, a Closed Rule Providing for
the Consideration in the House of
the Bill as Modified by the
Amendment Designated in the Report
of the Committee on Rules on the
Resolution; Waiving All Points of
Order Against Consideration of the
Bill Except Section 425(a) of the
Budget Act (Unfunded Mandate Point
of Order); Providing that if the
Clerk has, Before March 30, 1996,
Received a Message From the Senate
that the Senate has Adopted the
Conference Report on S. 4, the Line
Item Veto Act, then the Clerk Shall
Delete Title II (the Line Item Veto
Act) From the Engrossment of the
Bill (Unless Amended), and the
House Shall be Considered to Have
Adopted the Conference Report.
March 28, 1996.................... Rule Passed House.
March 28, 1996.................... Called up by House by Rule.
March 28, 1996.................... On motion to table the motion to
appeal the ruling of the chair
agreed to by recorded vote: 232-185
(Roll no. 99).
March 28, 1996.................... Motion to Recommit with Instructions
Failed in House by Yea-Nay Vote:
159-256 (Record Vote No. 101).
March 28, 1996.................... Passed House (Amended) by Recorded
Vote: 328-91 (Record Vote No. 102).
March 28, 1996.................... Received in the Senate.
March 28, 1996.................... Passed Senate by Unanimous Consent.
March 28, 1996.................... Cleared for White House.
March 29, 1996.................... Presented to President.
March 29, 1996.................... Signed by President.
March 29, 1996.................... Became Public Law No. 104-121.
------------------------------------------------------------------------

Reason for Legislation

The Regulatory Flexibility Act (RFA) requires agencies to
review any new rules and regulations they promulgate and
determine whether they will have a significant economic impact
on a substantial number of small entities. If they will have a
significant impact, agencies are required to conduct a
regulatory flexibility analysis detailing the impact and
explaining why a less burdensome rule was not available. If the
agency determines that there will be no significant impact, the
agency is allowed to certify that conclusion and no further
analysis is required. Unfortunately, the lack of judicial
review prohibits legal challenges to such determinations or
challenges to flawed regulatory flexibility analyses. This
makes agency compliance with the RFA essentially voluntary as
Federal regulators face no judicial action for failure to
comply. As a result, the RFA needs to be amended to allow
judicial review so that enforcement ``teeth`` exist in the law.
The RFA also directs the Chief Counsel for Advocacy of the
Small Business Administration (SBA) to monitor RFA compliance.
However, that ability has been limited. Legislative changes
must be implemented to improve the cooperation between Federal
agencies and the SBA Chief Counsel for Advocacy and encourage
regulators to minimize the impact of their rules and
regulations on small entities prior to adoption.
Finally, the RFA, as passed in 1980, grants the SBA Chief
Counsel for Advocacy the authority to appear as amicus curiae
in court cases involving review of Federal rules. The Chief
Counsel's ability to exercise this authority, however, has been
severely limited, hampering the Chief Counsel's ability to
represent small business in Federal court. As a result,
legislation is necessary to reaffirm the authority provided in
1980 for the Chief Counsel to speak out on behalf of small
business.

Hearings

The Committee on Small Business held two hearings on the
Regulatory Flexibility Act. The first hearing, held on January
23, 1995, focused on the need for strengthening the RFA. (For
further information on this hearing, refer to section 7.2.5 of
this report). The second hearing, held on February 10, 1995,
examined the past performance of the RFA and the need for
meaningful reform. (For further information on this hearing,
refer to section 7.2.10 of this report). Both hearings also
considered the relevant provisions concerning RFA reform
contained in Title VI of H.R. 9, one of the bills making up the
``Contract with America.''

Summary of Legislation

Judicial Review

Section 1 of H.R. 937 would amend Section 611 of Title V of
the United States Code to allow and clarify the procedures for
judicial review of agency compliance with the RFA. Section 611
as it currently exists prohibits court challenge of an agency
determination of the applicability of the RFA and prohibits
court review of any regulatory flexibility analysis prepared
under the Act, unless it is conducted in the context of the
review of a rule made on an independent basis. Judicial review
of certification under the Act is completely barred. In
practice, this prohibition on judicial challenges has allowed
agencies to ignore the letter and spirit of the RFA.
The primary features of the new judicial review provision
in the bill are: (1) a small entity can only seek judicial
review arising from a final rule; (2) the judicial review can
be for either a wrongful certification that the rule will not
have a significant economic impact on a substantial number of
small entities or a flawed or totally absent final regulatory
flexibility analysis; (3) the small entity seeking judicial
review must do so within 180 days of the effective date of the
final rule. However, if some other provision of law requires a
lesser time for judicial review of a final agency rulemaking
action, then the lesser time prevails; and (4) agencies will be
allowed a short period (90 days) in which to correct regulatory
flexibility defects (after that time, a reviewing court can
stay the operation of the rule or provide whatever relief it
deems appropriate).

Earlier Involvement in the Rulemaking Process by the SBA Chief
Counsel for Advocacy.

While the primary intention of the bill is to strengthen
agency compliance with the Regulatory Flexibility Act, it is
also intended to require agencies to work more closely with the
SBA Chief Counsel for Advocacy, who is charged with monitoring
compliance with the Act, during the drafting of new rules.
Section 2 of H.R. 937 would amend Section 612 of Title V of
the United States Code to require that, when an agency is
drafting a new rule, the agency must provide the SBA Chief
Counsel for Advocacy with an advance copy of the rule 30 days
before publishing a general notice of proposed rulemaking in
the Federal Register pursuant to the Administrative Procedures
Act. An exception to the advance notification approach is made
in the bill for draft proposed rules of certain banking
agencies.
The purpose behind Section 2 of the bill is to attempt to
involve the SBA Chief Counsel for Advocacy in securing agency
compliance with the Act at the earliest possible time and to
allow agencies to benefit from the Chief Counsel's views before
the proposed rule is in the public domain.

Authority of the SBA Chief Counsel for Advocacy to Appear as
Amicus Curiae.

Section 3 of H.R. 937 is a ``sense of Congress'' provision
reaffirming the provisions contained in 5 U.S.C. Sec. 612(b).
The RFA currently gives the SBA Chief Counsel for Advocacy
authority to file amicus briefs in litigation involving Federal
rules. In the history of the RFA, this authority has only been
utilized once, in the 1986 case of Lehigh Valley Farmers. At
that time, the Justice Department indicated that this amicus
authority was unconstitutional because it would impair the
ability of the Executive branch to fulfill its constitutional
functions. After considerable friction between the Department
of Justice and the SBA Chief Counsel for Advocacy, the Chief
Counsel eventually withdrew the amicus brief filed in the
Lehigh Valley Farmers case.
The ability to appear as amicus curiae is important to the
ability of the SBA Chief Counsel for Advocacy to represent the
interests of small businesses in the rulemaking process.
Furthermore, if the bill were to become law with its provision
to permit judicial review of agency compliance with the RFA,
the importance of the SBA Chief Counsel's ability to file
amicus briefs will be magnified.

Final Legislation

Several of the regulatory revisions, which began in H.R.
937, were included in the Small Business Regulatory Enforcement
Fairness Act of 1996 (Title III of H.R. 3136), which became
part of the Federal debt-extension legislation. Title III of
the Act contained five subtitles designed to provide regulatory
relief for small business.

Regulatory Compliance Simplification.

Subtitle A requires agencies to publish easily understood
guides to assist small businesses in complying with regulations
and provide informal, non-binding advice about regulatory
compliance. The subtitle creates permissive authority for Small
Business Development Centers to offer regulatory compliance
information to small businesses and to establish resource
centers of reference materials. The agencies are directed to
cooperate with the States to create guides that fully integrate
Federal and State requirements on small businesses.

Regulatory Enforcement Reforms.

This subtitle creates a Small Business and Agriculture
Regulatory Enforcement Ombudsman at the SBA to give small
businesses a confidential means to comment on and rate the
performance of agency enforcement personnel. It also creates
Regional Small Business Regulatory Fairness Boards at the SBA
to coordinate with the Ombudsman and to provide small
businesses a greater opportunity to come together on a regional
basis to assess the enforcement activities of the various
Federal regulatory agencies.
The subtitle also directs all Federal agencies that
regulate small businesses to develop policies or programs
providing for waivers or reductions of civil penalties for
violations by small businesses under appropriate circumstances.

Equal Access to Justice Act Amendments.

The Equal Access to Justice Act (EAJA) provides a means for
prevailing small entities to recover their attorneys fees and
costs in a wide variety of civil and administrative actions
between small entities and the government. This subtitle amends
the EAJA to allow small entities to recover the fees and costs
attributable to a demand by the agency that is excessive and
unreasonable under the facts and circumstances of the case.
While the small entity would not be required to prevail in the
underlying action, the final outcome of the action must be to
require payment of an amount substantially less than what the
agency originally sought to recover. The amendment also
increases the maximum hourly rate for attorneys fees under the
EAJA from $75 to $125.

Regulatory Flexibility Act Amendments.

Subtitle D of the Act gives teeth to enforcement of the RFA
by specifically providing for judicial review of selected
portions of the Act in order to make agencies accountable for
their failure to comply with the Act's requirements.
Additionally, the subtitle enlarges the scope of the rules to
which the RFA applies by defining a rule to include
interpretative rules involving the Internal Revenue laws.
The subtitle also establishes a small business advocacy
review panel, which will provide small business participation
in the rulemaking process. For proposed rules with a
significant economic impact on a substantial number of small
entities, the Environmental Protection Agency and the
Occupational Safety and Health Administration would have to
collect advice and recommendations from small businesses to
better inform those conducting the agencies' regulatory
flexibility analyses on the potential effects of a rule.

Congressional Review of Agency Rulemaking.

Subtitle E of the Act provides an expedited procedure
whereby Congress may review rules to determine whether they
should be amended or halted prior to taking effect. Each agency
will be required to submit to Congress a copy of each new rule,
along with a report describing its contents. If a rule is a
``major rule'' (i.e., one with an annual effect on the economy
of $100 million or more, or similar effect), the effectiveness
of the rule is stayed for 60 days in order to allow Congress to
act on the proposed rule. Non-major rules will not be stayed
but may be subject to the review process.
In the event that Congress does not believe that the rule
should take effect, each chamber must pass a joint resolution
of disapproval, which then must be signed by the President. The
subtitle creates an expedited procedure for consideration of
the joint resolution in the Senate, which continues in effect
for 60-session days after receipt of the rule from the agency.

5.2 H.R. 2150 (S. 895), The Small Business Credit Efficiency
Act of 1995; Public Law No. 104-36.

S. 895:
June 8, 1995...................... Referred to Senate Committee on
Small Business.
July 13, 1995..................... Committee Consideration and Mark-up
Session Held.
July 13, 1995..................... Ordered to be Reported (Amended).
August 5, 1995.................... Reported to Senate (Amended) by
Senate Committee on Small Business
Report No. 104-129.
August 5, 1995.................... Placed on Senate Legislative
Calendar under General Orders.
Calendar No. 166.
August 11, 1995................... Measure laid before Senate.
August 11, 1995................... Passed Senate (Amended) by Voice
Vote.
September 12, 1995................ Considered by Unanimous Consent.
September 12, 1995................ House Struck All After the Enacting
Clause and Substituted the Language
of H.R. 2150. Agreed to Without
Objection.
September 12, 1995................ Passed House (Amended) by Voice
Vote.
September 12, 1995................ A similar measure H.R. 2150 was laid
on the table without objection.
September 12, 1995................ House Insisted upon its Amendments.
September 12, 1995................ House Requested a Conference.
September 12, 1995................ The Speaker appointed conferees:
Mrs. Meyers, Mr. Torkildsen, Mr.
Longley, Mr. LaFalce, and Mr.
Poshard.
September 26, 1995................ Senate disagreed to the House
amendments by Voice Vote.
September 26, 1995................ Senate agreed to request for
Conference.
September 26, 1995................ The Senate appointed conferees: Sen.
Bond, Sen. Burns, Sen. Coverdell,
Sen. Bumpers, and Sen. Nunn.
September 27, 1995................ Conference Held.
September 27, 1995................ Conferees agreed to file conference
report.
September 28, 1995................ Conference report H. Rept. 104-269
filed.
September 28, 1995................ Senate agreed to the conference
report by Voice Vote.
September 29, 1995................ House Agreed to Conference Report by
Unanimous Consent.
September 29, 1995................ Cleared for White House.
October 3, 1995................... Presented to President.
October 12, 1995.................. Signed by President.
October 12, 1995.................. Became Public Law No. 104-36.
------------------------------------------------------------------------

Reason for Legislation

The estimated subsidy rate for the 7(a) program in 1995 was
2.74 percent, allowing the Small Business Administration (SBA)
to offer a total of $7.8 billion of loan guarantees with
appropriated funds of $215.1 million. Similarly, the estimated
subsidy rate for the 504 program was 0.57 percent for 1995,
permitting a total of $1.4 billion in loan guarantees with
appropriated funds of $8 million. The Committee became aware of
increasing demand for small business credit, which placed
significant burdens on the SBA lending program as then
structured. In addition, the SBA drastically reduced the size
of 7(a) loans that it could guarantee, from $750,000 to
$500,000, and imposed other administrative restrictions in
order to continue to offer credit assistance to the small
business community.
H.R. 2150 was designed to lower the credit subsidy rates
for the SBA's two largest small business loan guarantee
programs, the Section 7(a) guaranteed business loan program and
the Section 504 Certified Development Company program. The bill
accomplished this by restructuring the 7(a) program and
increasing the fees in both programs. The Committee anticipated
that the bill would reduce the subsidy rate for the 7(a)
program to 1.06 percent and eliminate the subsidy rate for the
504 program, making it self-funding.

Hearings

The Committee held two hearings to review the current
structure of both the 7(a) and 504 programs and their ability
to meet small business credit needs. On January 25, 1995, the
Committee held a hearing on the 7(a) program in order to
clarify the reasons for the shortfall in program funds. (For
further information on this hearing, refer to section 7.2.6 of
this report). On March 9, 1995, the Committee held a hearing on
the 504 program and its funding needs. (For further information
on this hearing, refer to section 7.2.15 of this report).

Summary of Legislation

Fee for Loans Sold on Secondary Market.

Section 2 of H.R. 2150 amends Section 634(g)(4)(A) of Title
15 of the United States Code to increase the annual fee charged
to lenders who sell the guaranteed portion of their loans on
the secondary market. The fee would increase from 0.4 percent
of the outstanding principal balance of the guaranteed portion
of the loan to 0.5 percent. In addition, Section 3(b) of the
bill establishes a 0.4 percent annual fee on the outstanding
principal of all guaranteed loans that are not sold into the
secondary market.

General Business Loans.

Section 3(a) of H.R. 2150 reduces and simplifies the level
of guarantee offered through the 7(a) program. Section
636(a)(2) of Title 15 of the United States Code is amended to
change the guarantee percentage to no more than 80 percent of
the total amount of loans up to $100,000 and no more than 75
percent of all loans above $100,000. This will alter the
current system in which loans under $155,000 are guaranteed up
to 90 percent; loans over $155,000 are guaranteed up to 85
percent; and loans from Preferred Lenders are guaranteed up to
70 percent.
Section 3(b) of the bill increases the guarantee fees
charged on guaranteed loans. The current fee is 2 percent of
the guaranteed portion of all loans. Under the bill, the fees
would increase to 2 percent of the gross amount of any loans
below $250,000; 2.5 percent of any loan between $250,000 and
$500,000; and 3 percent of any loan above $500,000. Section
3(c) of the bill also ends the practice of allowing lenders to
keep one half of the guarantee fees on loans under $50,000 or
loans under $75,000 made in rural areas.

Modifications to Development Company Debenture Program.

Section 4(a) of H.R. 2150 amends section 502(2) of the
Small Business Investment Act by increasing the total loan
amount available from $750,000 to $1,250,000. Section 4(b) of
the bill amends Section 697(b)(3) of Title 15 of the United
States Code by adding a \1/8\ of 1 percent fee to the cost of
any loans made by a Certified Development Company under the 504
loan program. This fee is to be passed on directly to the SBA
and is to be used solely to offset the cost of the program.

Conference Agreement

Under the conference agreement, a flat 0.5 percent fee is
established, which will be charged to all lenders participating
in the 7(a) program on the outstanding principal balance of
their 7(a) loans. The conference agreement also reduced and
flattened the guarantee percentage for all loans--for loans up
to $100,000 dollars, the guarantee percentage is lowered to 80
percent and for all loans over $100,000, the guarantee is 75
percent. Finally, the conference agreement established a tiered
fee structure for the guarantee fee paid by the borrower. The
borrower will pay a 3 percent fee on the first $250,000 of a
loan; a 3.5 percent fee on the portion of the loan between
$250,000 and $500,000; and 3.875 percent for the portion which
exceeds $500,000.
With respect to the 504 program, the conference agreement
follows H.R. 2150 and imposed a new fee of \1/8\ of 1 percent
of the outstanding principal balance of the loan. This fee is
to be paid by the borrower. The conference agreement left the
maximum amount for a 504 loan at $1 million.

5.3 H.R. 2715, The Paperwork Elimination Act of 1996.

Legislative History
------------------------------------------------------------------------
Date Action
------------------------------------------------------------------------
December 5, 1995.................. Referred to the House Committee on
Small Business
December 5, 1995.................. Referred to Subcommittee on
Government Programs of the
Committee on Small Business.
December 5, 1995.................. Referred to the Committee on
Government Reform and Oversight.
December 11, 1995................. Referred to Subcommittee on National
Economic Growth, Natural Resources
and Regulatory Affairs of the
Committee on Government Reform and
Oversight.
March 27, 1996.................... Subcommittee on Government Programs
Hearings Held.
March 29, 1996.................... Subcommittee on Government Programs
Discharged.
March 29, 1996.................... Committee Consideration and Mark-up
Session Held.
March 29, 1996.................... Ordered to be Reported in the Nature
of a Substitute by Voice Vote.
April 3, 1996..................... Committee on Government Reform and
Oversight Waives Jurisdication and
Defers to the House Committee on
Small Business.
April 16, 1996.................... Reported to House (Amended) by House
Committee on Small Business Report
No. 104-520 (Part I).
April 23, 1996.................... Rules Committee Resolution H. Res.
409 Reported to House.
April 23, 1996.................... Committee on Rules Granted, by Voice
Vote, an Open Rule Providing One
Hour of General Debate; Making in
Order an Amendment in the Nature of
a Substitute Recommended by the
Committee on Small Business for the
Purpose of Amendment Under the Five-
minute Rule; Providing One Motion
to Recommit, With or Without
Instructions.
April 24, 1996.................... Rule Passed House.
April 24, 1996.................... Called up by House by Rule.
April 24, 1996.................... Committee Amendment in the Nature of
a Substitute Considered as an
Original Bill for the Purpose of
Amendment.
April 24, 1996.................... House Agreed to Amendments Adopted
by the Committee of the Whole.
April 24, 1996.................... Passed House (Amended) by Yea-Nay
Vote: 418-0 (Record Vote No. 130).
April 25, 1996.................... Received in the Senate.
April 25, 1996.................... Referred to Senate Committee on
Governmental Affairs.
------------------------------------------------------------------------

Reason for Legislation

As part of the continuing efforts to enable the Federal
government to take advantage of the Information Age, the
Committee on Small Business recognized the need to encourage
and monitor the progress of Federal agencies in their efforts
to utilize new ``information technology'' to reduce the public
costs and burdens of meeting the Federal government's
information needs. The legislation also addresses the need for
small businesses, taxpayers, and others with access to
computers and modems to be able to use them when dealing with
the Federal government. As a result, the bill is intended to
amend chapter 35 of title 44, United States Code, popularly
known as the Paperwork Reduction Act, to minimize the burden of
Federal paperwork demands upon small businesses, educational
and non-profit institutions, Federal contractors, State and
local governments, and other persons through the sponsorship
and use of alternative information technologies.

Hearings

On March 27, 1996, the Subcommittee on Government Programs
of the Committee on Small Business held a hearing on H.R. 2715
to examine the need for legislation to permit the use of new
information technologies in meeting the Federal government's
information demands and the effect of such legislation on small
business. (For further information on this hearing, refer to
section 7.3.11 of this report).

Summary of Legislation

Purposes.

Section 2 of H.R. 2715 stresses that the intention of the
legislation is to advance the use of alternative information
technologies and, in so doing, decrease the burden of paperwork
demands imposed by the Federal government. The intended
beneficiaries of the legislation are small businesses,
educational and non-profit institutions, Federal contractors,
State and local governments, and others. Small businesses,
which face a disproportionate burden in complying with Federal
regulations, are especially targeted by the legislation.

Authority and Functions of the Director of the Office of
Management and Budget.

Section 3(a) of H.R. 2715 describes the responsibilities of
the Director of the Office of Management and Budget (OMB) to
oversee the acquisition and use of information technology and
compels the Director to consider alternative information
technologies when working with agencies to develop strategies
to reduce paperwork burdens. Section 3(b) of the bill directs
the Director of OMB to promote the use of electronic
submission, maintenance, and disclosure as an option for
entities complying with the regulations of Federal agencies.
The section complements and is added to section 3504(h) of the
Paperwork Reduction Act, which outlines the Director's
obligations to advance the use of information technology.

OMB Report.

Section 4 of H.R. 2715 supplements the requirement that the
Director of OMB, in consultation with other Federal agencies,
provide a progress report on the status and success of efforts
to advance information resources management. The bill requires
that the report include the extent to which the paperwork
burden on small businesses and individuals has been relieved as
a result of the use of electronic submissions, maintenance, or
disclosure of information as a substitute for paper.
Federal Agency Responsibilities.

Section 5(a) of H.R. 2715 requires the Federal agencies,
when it is appropriate, to provide respondents with the option
of maintaining, submitting, or disclosing information
electronically when complying with Federal regulations. Section
5(b) of the bill states that each agency must certify and
report on the extent to which it has considered and relieved
the burdens of paperwork, particularly on small businesses and
individuals, by enabling the optional use of electronic
maintenance, submission, or disclosure of information. Section
5(c) of the bill amends section 3506(c)(3)(J) of the Paperwork
Reduction Act to specify that, when certifying and reporting on
information technologies used to collect information, Federal
agencies must also consider the ability of respondents to
maintain, submit, and disclose information electronically.

Public Information Collection Activities.

Section 6 of H.R. 2715 prohibits agencies from collecting
information until they have first published a notice in the
Federal Register describing how the information may, if
appropriate, be electronically maintained, submitted or
disclosed by a respondent.

Responsiveness to Congress.

Under the bill, when responding to Congress annually or at
other times, the Director of OMB must report on how the
collection of information by electronic means has affected
regulatory burdens on small businesses and other persons. The
report must specifically include any instances in which the
maintenance, submission, or disclosure of information
electronically, as opposed to with paper, increased regulatory
burdens. It should specifically identify such instances that
involve the collection of information by the Internal Revenue
Service.

Effective Date.

The provisions of H.R. 2715 would take effect on October 1,
1997.

5.4 H.R. 3158, Pilot Small Business Technology Transfer Program
Extension Act of 1996; Public Law No. 104-208.

H.R. 4278:
September 28, 1996................ Passed House pursuant to Unanimous
Consent Agreement Following the
Passage of H.R. 3610.
September 30, 1996................ Measure laid before Senate by
Unanimous Consent.
September 30, 1996................ Received in the Senate, read twice.
September 30, 1996................ Passed Senate by Yea-Nay Vote: 84-15
(Record Vote No. 302).
September 30, 1996................ Cleared for White House (together
with H.R. 3610).
September 30, 1996................ Presented to President.
September 30, 1996................ Signed by President.
September 30, 1996................ Became Public Law No. 104-208.
------------------------------------------------------------------------

Reason for Legislation

The pilot Small Business Technology Transfer (STTR) Program
was established by Title II of Public Law 102-564, the Small
Business Research and Development Enhancement Act of 1992, and
authorized for an initial three-year demonstration, beginning
in fiscal year 1994. Building upon the established model of the
Small Business Innovation Research (SBIR) Program, the pilot
STTR Program provided the statutory basis for structured
collaborations between small technology entrepreneurs and non-
profit research institutions, such as universities or
Federally-funded Research and Development Centers (FFRDCs) to
foster commercialization of the results of Federally-sponsored
research. Title I of Public Law 102-564 provided a multi-year
extension of the SBIR Program, extending it through fiscal year
2000. This 1992 extension of the SBIR Program was the third,
and longest, since that Program's creation in 1982. Unless
reauthorized, the pilot STTR program would have terminated on
September 30, 1996.
The SBIR Program and pilot STTR Program both seek to
stimulate technological innovation and increase private-sector
commercialization of innovations derived from basic research as
well as more mission-oriented advanced research and development
undertaken by Federal agencies. Both programs assure that small
business is not excluded from the extramural research and
development (R&D) activities conducted by Federal agencies;
that is, those undertaken through private-sector sources, and
often dominated by Federally-supported research institutions
such as universities and FFRDCs. To assure a baseline of small
business participation and to maintain stable funding for
technology commercialization, both the SBIR Program and the
pilot STTR Program require a participating Federal agency to
reserve a small percentage of its external R&D budget for each
program. Both the pilot STTR Program and the basic SBIR Program
use a highly competitive three-stage process that is designed
to identify and nurture only the most promising technology
innovations, seeking to move them to full commercialization,
under the technical and entrepreneurial leadership of small
business owners. The two programs differ, however, in one
fundamental aspect: under the pilot STTR Program, a small
business must collaborate with a non-profit research
institution, such as a university or FFRDC.
The STTR Program enjoys broad support among its private-
and public-sector participants, and the Small Business
Administration (SBA) and the General Accounting Office (GAO)
have urged that the pilot STTR Program be continued. In
addition, a recommendation regarding both the SBIR Program and
the pilot STTR Program was ranked 13th by the delegates to the
1995 White House Conference on Small Business. The
recommendations call on Congress and the President to ``expand,
improve and make permanent the SBIR/STTR programs.'' A
recommendation ranked 6th by the delegates to the 1980 White
House Conference on Small Business was instrumental in the
enactment of the initial authorization for the SBIR Program in
1982. Similarly, a recommendation ranked 14th by the delegates
to the 1986 White House Conference on Small Business was used
to propel the enactment of Public Law 102-564.
H.R. 3158 extends the pilot STTR Program through September
30, 2000, and puts the expiration of STTR on the same timetable
as the most recent extension of SBIR Program. This extension
will facilitate concurrent oversight and future legislative
consideration of these related small business technology
programs by Congress and provide an additional four years to
assess more conclusively the value of the pilot STTR Program.

Hearings

The Committee held a hearing on March 6, 1996 to assess the
implementation of Public Law 102-564, the Small Business
Research and Development Enhancement Act of 1992, which
improved and expanded the SBIR Program and authorized the pilot
STTR Program. Testimony was received from small business
participants in both the pilot STTR Program and the established
SBIR Program. Two of these small business witnesses expressed
support on behalf the U.S. Chamber of Commerce and National
Small Business United. The SBA also expressed support for
extension of the pilot STTR Program on behalf of the
Administration. Similarly, GAO's representatives recommended
extension of the pilot STTR Program to provide a longer period
for evaluation, but were complimentary of STTR in their
preliminary assessments of the Program.

Summary of Legislation

Program Extension.

Section 2 of H.R. 3158 extends the pilot STTR Program,
authorized by Section 9(n) of the Small Business Act, through
September 30, 2000. The proposed program extension provides for
the expiration of the pilot STTR Program at the same time as
the Small Business Innovation Research (SBIR) Program,
initially authorized in 1982 and most recently reauthorized in
1992 by Title I of Public Law 102-564.
This section also provides for a \1/10\ of 1 percent
increase in the percentage of extramural research budgets
dedicated to awards under the pilot STTR Program, from 0.15
percent to 0.25 percent, by those agencies participating in the
program. Only those Executive agencies with an annual
extramural research budget of $1 billion or more are required
to reserve at least the specified percentage for exclusive
competition among proposals from small businesses collaborating
with non-profit research institutions, such as universities or
FFRDCs. The proposed percentage would remain constant during
the entire four-year term of the program extension.

Assessment by the Comptroller General.

Section 3(a) requires the GAO to monitor the implementation
of both the extension of the pilot STTR Program and the on-
going SBIR Program, specifying the matters to be assessed.
Section 3(b) specifies that the GAO assessment address
implementation of both the SBIR Program and the STTR Program
over a four-year period, covering fiscal year 1995 through
fiscal year 1999. Section 3(c) requires that a report be
submitted by not later than February 1, 2000. The report is to
include summaries of previous GAO reports relating to the SBIR
Program and the STTR Program as well as any reports by the SBA,
any of the sponsoring agencies, or others that would be helpful
during consideration of the reauthorization of both programs
during fiscal year 2000.

Interagency Task Force on Commercialization.

Section 4(a) establishes an interagency task force on
fostering commercialization of the results of projects being
undertaken by small businesses through the SBIR Program and the
pilot STTR Program. The Administrator of the SBA (or a
designee) is given the responsibility of leading the effort.
Section 4(b) establishes the purposes and objectives of the
work of the interagency task force.
Section 4(c) specifies the Executive agencies to be
represented on the interagency task force, including:
representatives of the SBA Office of the Chief Counsel for
Advocacy, the five Executive departments or agencies having the
greatest dollar value of awards under the SBIR Program during
fiscal year 1995, the five Executive departments or agencies
participating in the pilot STTR Program in fiscal year 1995,
and the President's Office of Science and Technology Policy.
The SBA Administrator may invite participation by
representatives of other Executive agencies, and the subsection
requires the interagency task force to consult closely with
representatives of the small business community and others in
the private sector.
Section 4(d) requires the SBA Administrator to give notice
of the work of the interagency task force, invite public
participation, and announce any schedule of public meetings.
The subsection also makes explicit that the interagency task
force should seek public participation throughout its work.
Section 4(e) requires the interagency task force to submit a
report of its work, including recommendations for appropriate
legislative and administrative actions, to the Senate and House
Committees on Small Business by March 1, 1999.

Technical Correction.

Section 5 corrects an erroneous cross-reference in Section
9(e) of the Small Business Act, which authorizes the SBIR
Program.

Final Legislation

Provisions extending the pilot STTR Program through
September 30, 1997 were included in the omnibus consolidated
appropriations legislation (H.R. 4278), which the House and the
Senate passed together with the 1997 Department of Defense
Appropriations Act (H.R. 3610) at the end of the 104th
Congress. The remaining provisions of the bill were not
enacted.

5.5 H.R. 3719, The Small Business Programs Improvement Act of
1996; Public Law No. 104-208.

Legislative History
------------------------------------------------------------------------
Date Action
------------------------------------------------------------------------
H.R. 3719:
June 26, 1996..................... Referred to House Committee on Small
Business.
July 10, 1996..................... Committee Consideration and Mark-up
Session Held.
July 18, 1996..................... Committee Consideration and Mark-up
Session Held.
July 18, 1996..................... Ordered to be Reported (Amended) by
Voice Vote.
August 2, 1996.................... Reported to House (Amended) by House
Committee on Small Business Report
No. 104-750.
August 2, 1996.................... Placed on Union Calendar No. 396.
September 4, 1996................. Rules Committee Resolution H. Res.
516 Reported to House.
September 4, 1996................. Committee on Rules Granted, by Voice
Vote, an Open Rule Providing One
Hour of General Debate; Waiving All
Points of Order Against
Consideration of the Bill for
Failure to Comply with Clause
2(1)(2)(B) of Rule XI (requiring
roll call votes to be printed in
the committee report); Waiving
Points of Order Against the
Committee Amendment in the Nature
of a Substitute for Failure to
Comply with Clause 5(a) of Rule XXI
(prohibiting appropriations in an
authorization measure); Providing
One Motion to Recommit, With or
Without Instructions.
September 5, 1996................. Rule Passed House.
September 5, 1996................. Called up by House by Rule.
September 5, 1996................. Committee Amendment in the Nature of
a Substitute Considered as an
Original Bill for the Purpose of
Amendment.
September 5, 1996................. House Agreed to Amendments Adopted
by the Committee of the Whole.
September 5, 1996................. Passed House (Amended) by Yea-Nay
Vote: 408-0 (Record Vote No. 406).
September 6, 1996................. Received in the Senate.
September 28, 1996................ For Further Action See H.R. 4278
(H.R. 3719 was largely subsumed
into H.R. 4278).
H.R. 4278:
September 28, 1996................ Passed House pursuant to Unanimous
Consent Agreement Following the
Passage of H.R. 3610.
September 30, 1996................ Measure laid before Senate by
Unanimous Consent.
September 30, 1996................ Received in the Senate, read twice.
September 30, 1996................ Passed Senate by Yea-Nay Vote: 84-15
(Record Vote No. 302).
September 30, 1996................ Cleared for White House (together
with H.R. 3610).
September 30, 1996................ Presented to President.
September 30, 1996................ Signed by President.
September 30, 1996................ Became Public Law No. 104-208.
------------------------------------------------------------------------

Reason for Legislation

In October of 1995, the President signed into law Public
Law 104-36, the Small Business Lending Enhancement Act of 1995,
which was designed to lower the subsidy rate of the 7(a) and
504 loan programs, which are administered by the Small Business
Administration (SBA), in an effort to reduce substantially the
cost of the programs to the taxpayers. The subsidy rate for the
7(a) program was decreased by approximately 60 percent, from
2.74 percent to 1.06 percent. The subsidy rate for the 504
program was reduced to zero, effectively making it a self-
financing loan program. The legislation was drafted and passed
relying on estimates and information provided by the Office of
Management and Budget (OMB) and the SBA. (For further
information on this legislation, H.R. 2150, refer to section
5.2 of this report).
Under Public Law 104-36, the SBA was to be able to operate
its loan programs at a significantly reduced cost. As a result,
fewer funds were appropriated for the 7(a) program, and no
funds were appropriated for the 504 program in fiscal year
1996. With an appropriation of $114.5 million for the 7(a)
program (which would produce a lending level of $11 billion)
and demand for fiscal year 1996 estimated to be approximately
$8.75 billion, a carryover of approximately $22.5 million will
result for fiscal year 1997 (assuming a subsidy rate of 1.06
percent).
In March of 1996, on the eve of the release of the
President's Fiscal Year 1997 Budget, the Committee learned for
the first time that the subsidy rate for the 7(a) and 504
programs had been recalculated and had increased significantly.
The recalculation was the result of an SBA and OMB study of
portfolio performance in the programs over the past 13 years.
The result was an estimated subsidy rate for the 7(a) program
of 2.68 percent, almost the same rate as prior to the enactment
of Public Law 104-36. In the case of the 504 program, the
increase was more than twelve-fold, from the fiscal year 1996
estimated rate of 0.57 percent (prior to the enactment of
Public Law 104-36) to an estimated rate of 6.85 percent for
fiscal year 1997.
The Administration's ``solution'' to the fiscal crisis, as
embodied in the President's Budget, was simply to request more
money and deny any responsibility for creating or contributing
to this situation. The Administration also proposed converting
the 504 program into a direct lending program. In contrast,
H.R. 3719, the Small Business Programs Improvement Act of 1996,
makes a number of changes to the SBA's lending programs and
implements management changes designed to make the programs
more efficient and thereby reduce the subsidy rates.

Hearings

The Committee held a hearing on March 21, 1996, to review
the President's fiscal year 1997 budget for the SBA and to
examine the reasons behind the substantially increased subsidy
rates. (For further information on this hearing, refer to
section 7.2.39 of this report). The Committee also held a
series of meetings with the SBA, OMB, and various private-
sector lending partners to try and identify the problems, and
causes thereof, that contributed to the dramatic increase in
the subsidy rates for the major SBA lending programs. The major
problems identified included the need for better data
collection in order to correct problems at an earlier date, and
the existence of significant management problems in the SBA's
liquidation practices, which contribute greatly to the high
subsidy rates.

Summary of Legislation

Comprehensive database.

Section 102 of H.R. 3719 amends the Small Business Act to
require that the SBA establish a comprehensive and fully
integrated computer database to track the performance of the
7(a), 504, and disaster assistance loan programs, and stratify
and identify loan underwriting problems.

Section 7(a) Loan Program Reforms.

Section 103(a) of H.R. 3719 amends the Small Business Act
to specify that Preferred Lenders shall have full authority to
collect on, and liquidate loans that they made to small
businesses without having to obtain prior written approval of
the SBA for routine activities.
Section 103(b) of the bill clarifies Section 7(a)(19) of
the Small Business Act regarding the Certified Lender Program
and also institutes new authority for Certified Lenders to
begin performing liquidation of SBA guaranteed loans subject to
the approval of the Administration. The section also requires
that loans under the low documentation loan program (LowDoc) be
made only through Certified and Preferred Lenders or lenders
with significant small business lending experience.
Section 103(c) of the bill provides that the SBA may not
establish a pilot program or initiative in the 7(a) program
that exceeds 10 percent of the loans guaranteed in the 7(a)
program during that year. Section 103(d) of the bill amends the
Small Business Act to allow banks, as well as non-banks, to
securitize the non-guaranteed portion of SBA loans. Section
103(e) establishes procedures to reduce the servicing fees or
accrued interest paid to a lender for the period of time
between the default of a loan and the payment on the guarantee.
Section 103(f) of the bill requires the SBA to report on
its progress with centralizing loan-servicing functions.
Section 103(g) of the bill requires the SBA to issue a Request
for Proposals to implement its standard review program for
Section 7(a) Preferred Lenders.
Section 103(h) of the bill provides that the Administrator
shall issue a solicitation and award a contract, through full
and open competition, for an independent study and
comprehensive report on the status of the 7(a) and 504 loan
programs. The report shall compare information with the subsidy
model for the programs as prepared by OMB.
Section 103(i) of the bill calls for a study by the GAO to
compare the costs of liquidating loans both privately and
through the SBA.

Disaster Loan Program.

Section 104(a) of H.R. 3719 changes the interest rate on
disaster assistance loans to a rate equal to three-fourths of
the rate for a Treasury instrument of a similar duration.
Section 104(b) of the bill provides for a pilot project to be
conducted on a competitive basis, to contract with private
sector entities to service and liquidate a total of 25,000
randomly chosen disaster loans. Section 104(c) of the bill
provides for expansion of the definition of disaster to include
the closure of customary fishing waters by government action,
regulatory or otherwise.

Microloan Program.

Section 105(a) of H.R. 3719 amends the Small Business Act
to decrease the maximum amount an intermediary may receive
through technical assistance grants. Section 105(b) of the bill
requires the SBA to either implement the Microloan Guarantee
Pilot Program or issue a report on why the agency is unable to
implement it.

Small Business Development Centers.

Section 106 of the bill provides clear authority for the
Associate Administrator for Small Business Development Centers
to establish a comprehensive certification and eligibility
review program for Small Business Development Centers.

Miscellaneous authorities to Provide Loans and Other Financial
Assistance.

Section 107 of H.R. 3719 eliminates several provisions for
programs that are either redundant or are no longer being
funded or implemented.

Small Business Competitiveness Program.

Section 108 of H.R. 3719 extends the Small Business
Competitiveness Demonstration Program through fiscal year 2000.
In addition, the section requires the SBA to submit a detailed
report on the program, complete with the procurement statistics
on the program from 1992 through 1995, within 60 days of
enactment. The bill also provides clarification of the small
businesses eligible under the pilot program.

Amendment to the Small Business Guaranteed Credit Enhancement
Act of 1993.

Section 109 of H.R. 3719 repeals section 7 of the Small
Business Guaranteed Credit Enhancement Act of 1993 and
eliminates the sunset of the fee on the sale of guaranteed
loans on the secondary market.

1998 Authorizations.

Section 110 of H.R. 3719 reauthorizes the Small Business
Administration and its programs through fiscal year 1998.

Level of Participation for Export Working Capital Loans

Section 111 of H.R. 3719 restores the 90-percent guarantee
level for Export Working Capital Loans, which was reduced to a
maximum of 75 percent (80 percent for loans under $100,000) in
Public Law 104-36.
Modifications to the 504 program.

Section 202(a) of H.R. 3719 modifies the contribution
required from a small business for receipt of a 504 loan.
Start-up small businesses and borrowers seeking financing for a
special purpose building, must put a minimum of 15 percent
down, instead of the minimum of 10 percent as required under
current law. Section 202(b) of the bill amends Section
503(b)(7)(A) of the Small Business Investment Act to increase
the \1/8\ of 1 percent fee that the borrower pays on the annual
outstanding balance to 13/16 of 1 percent. Section 202(c) of
the bill amends Section 503(d) of the Small Business Act to
include two new fees for this program; a one-time, up-front fee
of \11/2\ of 1 percent on the total participation of the first
mortgage holder, and a \1/8\ of 1 percent annual servicing fee
collected from Development Companies that will be passed
through to the SBA.

Required Actions Upon Default.

Section 203(a) of the bill instructs the SBA to take action
on defaulted loans within a certain time frame in order to
speed recoveries and liquidations. Within 45 days of a missed
payment, the SBA must act to bring the loan current or get a
deferral agreement. Within 65 days of a missed payment and
absent a deferral, the SBA must start to accelerate (foreclose)
on the loan. Section 203(b) of the bill prohibits the SBA from
paying late fees or prepayment penalties on defaulted loans. It
also prohibits the SBA from paying any ``default interest
rate'' on a defaulted loan.

Loan Liquidation Pilot Program.

Section 204 of H.R. 3719 requires the SBA to develop and
implement a pilot program in which Certified Development
Companies (CDCs) will have the authority to liquidate their own
loans. This responsibility will be delegated only to a select
number of the most experienced and active CDCs.

Registration of Certificates.

Section 205 of H.R. 3719 amends the Small Business Act and
the Small Business Investment Act to allow SBIC and 504
development company debentures and securities to be registered
electronically.

Preferred Surety Bond Guarantee Program.

Section 206 of H.R. 3719 amends the surety bond program to
give new applicants expeditious responses to their
applications. It also requires that the SBA police the use of
the program to ensure that participant companies are using
their bonding authority and authorizes the removal of program
participants who do not use their authority adequately.

Final Legislation

The vast majority of the provisions contained in H.R. 3719
were included in the omnibus consolidated appropriations
legislation (H.R. 4278), which the House and the Senate passed
together with the 1997 Department of Defense Appropriations Act
(H.R. 3610) at the end of the 104th Congress. The final
language included in the omnibus appropriations legislation
contained several changes and some additional provisions from
H.R. 3719.

Comprehensive database.

The final legislation includes the provisions of H.R. 3719
that establish a comprehensive and fully integrated computer
database to track the performance of the 7(a), 504, and
disaster assistance loan programs, and stratify and identify
loan underwriting problems.

Section 7(a) Loan Program Reforms.

The 7(a) Loan Program is modified under the final
legislation to specify that Preferred Lenders shall have full
authority to collect on, and liquidate loans that they made to
small businesses without having to obtain prior written
approval of the SBA for routine activities. In addition,
Certified Lenders are permitted to begin performing liquidation
of SBA guaranteed loans subject to the approval of the
Administration. The section also requires that LowDoc loans be
made only through Certified and Preferred Lenders or lenders
with significant small business lending experience.
The provision in H.R. 3719 prohibiting new pilot programs
or initiatives in the 7(a) program from exceeding 10 percent of
the loans guaranteed by the 7(a) program during that year is
also included in the final language.
The bill also incorporates the various report provisions
from H.R. 3719 that: (1) requires the SBA to report on its
progress with centralizing loan-servicing functions; (2)
instructs the SBA to issue a solicitation and award a contract
for an independent study and comprehensive report on the status
of the 7(a) and 504 loan programs, including a comparison to
the subsidy model for the programs as prepared by OMB; and (3)
requests the GAO to compare the costs of liquidating loans both
privately and through the SBA.

Securitization of the Non-guaranteed Portion of 7(a) Loans.

The final legislation provides that securitization of the
non-guaranteed portion of 7(a) loans will continue under
current practices until regulations are issued by the SBA that
permit both bank and non-bank lenders to undertake
securitization subject to certain terms and conditions,
including the maintenance of appropriate reserve requirements
and other safeguards necessary to protect the safety and
soundness of the 7(a) program. If the SBA fails to promulgate
these final regulations by March 31, 1997, the authority to
sell the non-guaranteed portion of 7(a) loans will be suspended
for all lenders until a final regulation is published.

Disaster Loan Program.

The pilot loan-servicing program for disaster loans is
expanded to include up to 30 percent of the residential loan
portfolio, and commercial loans are excluded from the pilot
program. The section of H.R. 3719 that would have changed the
interest rate on disaster assistance loans to a rate equal to
three-fourths of the rate for a Treasury instrument of a
similar duration was excluded from the final legislation,
thereby leaving the interest rate on disaster assistance loans
unchanged.
Microloan Program.

The final legislation excludes the sections of H.R. 3719
that decrease the maximum amount an intermediary may receive
through technical assistance grants and that require the SBA to
either implement the Microloan Guarantee Pilot Program or issue
a report on why the agency is unable to do so. The final
legislation did contain language that allows the SBA to lend
funds to intemediaries in excess of the statutory limit if
unused appropriated funds are available in the fourth quarter
of a fiscal year.

Small Business Development Centers.

The final bill provides clear authority for the Associate
Administrator for Small Business Development Centers to
establish a comprehensive certification and eligibility review
program for Small Business Development Centers.

Miscellaneous authorities to Provide Loans and Other Financial
Assistance.

The provisions of H.R. 3719 that eliminate several SBA
programs that are either redundant or are no longer being
funded or implemented are included in the final bill.

Small Business Competitiveness Program.

The Small Business Competitiveness Demonstration Program is
extended under the final legislation through fiscal year 1997.
In addition, the legislation includes the provisions requiring
the SBA to submit a detailed report on the program, complete
with the procurement statistics on the program from fiscal
years 1991 through 1995, not later than February 28, 1997.

Amendment to the Small Business Guaranteed Credit Enhancement
Act of 1993.

The final legislation repeals section 7 of the Small
Business Guaranteed Credit Enhancement Act of 1993 and
eliminates the sunset of the fee on the sale of guaranteed
loans on the secondary market.

Small Business Technology Transfer Program.

The Small Business Technology Transfer (STTR) program is
extended through September 30, 1997. (For further information
on legislative action with respect to the STTR program, refer
to section 5.4 of this report).

Level of Participation for Export Working Capital Loans

The final legislation incorporates the section of H.R. 3719
that restores the 90-percent guarantee level for Export Working
Capital Loans.

Modifications to the 504 program.

The final bill modifies the contribution required from a
small business for participation in a 504 loan such that start-
up small businesses and borrowers seeking financing for a
special purpose building, must put a minimum of 15 percent
down, instead of the minimum of 10 percent as required under
current law. The bill also allows the fee that the borrower
pays on the annual outstanding balance to be up to \15/16\ of 1
percent as needed to bring the overall program subsidy rate to
zero. Two new fees are also added for the 504 program; a one-
time, up-front fee of \1/2\ of 1 percent on the total
participation of the first mortgage holder, and a \1/8\ of 1
percent annual servicing fee collected from Development
Companies that will be passed through to the SBA.

Required Actions Upon Default.

The final legislation includes the section of H.R. 3719
that instructs the SBA to take action on defaulted loans in
order to speed recoveries and liquidations. Accordingly, within
45 days of a missed payment, the SBA must act to bring the loan
current or get a deferral agreement; and within 65 days of a
missed payment and absent a deferral, the SBA must start to
accelerate (foreclose) on the loan. The legislation prohibits
the SBA from paying late fees or prepayment penalties on
defaulted loans and prohibits the SBA from paying any ``default
interest rate'' on a defaulted loan.

Loan Liquidation Pilot Program.

The SBA is required under the final legislation to develop
and implement a pilot program in which CDCs will have the
authority to liquidate their own loans. This responsibility
will be delegated only to a select number of the most
experienced and active CDCs.

Registration of Certificates.

The final bill allows SBIC and 504 development company
debentures and securities to be registered electronically.

Preferred Surety Bond Guarantee Program.

The surety bond program is amended under the final
legislation to give new applicants expeditious responses to
their applications. It also requires that the SBA police the
use of the program to ensure that participant companies are
using their bonding authority and authorizes the removal of
program participants who do not use their authority adequately.

Sense of Congress.

The final legislation includes a sense of Congress that the
subsidy models prepared by the OMB for SBA loan programs tend
to overestimate potential risks of loss and overemphasize
historical losses that may be anomalous and that do not truly
reflect the success of the loan program. This section of the
bill also mandates the independent study provided under section
103(h) of the bill in order to improve the ability of the OMB
to reflect the budgetary implications of the SBA's loan
programs more accurately.

Small Business Investment Company Program.

The small business provisions included in the omnibus
legislation also include a number of improvements to the Small
Business Investment Company (SBIC) program, which were inserted
by the Senate based on S. 1784. These provisions restructure
the SBIC program to incorporate several vital changes to the
program, which are effective upon enactment of the legislation.
First, the minimum capital requirements for new license
applicants are increased. New applicants for debenture licenses
must have $5 million in private capital; new applicants for
participating security licenses must have $10 million in
private capital. The SBA, however, is permitted to approve a
participating security applicant if it has between $5 and $10
million, given a sound investment plan. All existing licensees
are fully grandfathered allowing existing licensees to
refinance or borrow additional leverage.
The final legislation also changes two fees paid by SBICs.
SBICs will pay an annual charge of 1 percent on the value of
all outstanding leverage granted after the effective date, and
the non-refundable up-front fee, which is currently 2 percent,
is increased to 3 percent of new leverage amounts. These fees
will greatly reduce the subsidy cost of the program, enabling
Congress to provide more venture capital funding for small
business than ever before.
A number of changes to enhance the safety and soundness of
the SBIC program are also included in the final legislation.
The SBA must ensure that each license applicant maintains
diversification between the management and ownership of the
SBIC. The SBA must also regulate SBICs closely to (1) ensure
that they do not incur excessive third-party debt; (2) ensure
that no SBIC receives leverage when it is under capital
impairment; and (3) require each SBIC to adopt valuation
criteria set forth by the SBA to establish the values of loans
and investments of each SBIC, subject to an annual review by an
independent certified accountant.
The SBA is also required to submit to the Senate and House
Committees on Small Business a detailed plan to expedite the
orderly disposition of all licensee assets currently in
liquidation. The final legislation contains provisions to speed
up the processing of applications for business entities seeking
an SBIC license, and a requirement that the SBA provide an
applicant with a status report within 90 days of filing the
application.

Specialized Small Business Investment Company Program.

Under the final legislation, section 301(d) of the Small
Business Investment Act of 1958 is repealed, and the
Specialized Small Business Investment Company (SSBICs) program
is merged into the SBIC program, with all existing SSBICs
becoming regular SBICs. Currently, SSBICs are restricted to
investing in socially or economically disadvantaged businesses,
most of which are owned by women and minorities. Merging the
programs will address the SSBICs' historic objection that the
restriction hinders their ability to grow like other SBICs.
The legislation removes certain investment restrictions and
creates a special leverage reserve available only to SBICs that
invest at least half of their funds in ``smaller enterprises,''
which are defined as small businesses with individual net worth
of less than $6 million and a net income of less than $2
million. These provisions will enable smaller SBICs, especially
the former SSBICs, to maintain their focus on financing for
primarily minority and women-owned businesses, which tend to be
smaller-sized businesses, without any specific restrictions
that might negatively affect the ability to seize investment
opportunities.
The new reserve of debenture funding for smaller SBICs is
also established in lieu of the prior funding mechanism for the
SSBICs. The fund will be financed through the proceeds of the
existing preferred stock repurchase program. The availability
of this special pool of leverage, along with leverage available
to all SBICs, will substantially increase access to capital for
minority and women-owned business investments.
The legislation also requires that each SBIC, regardless of
its size, invest at least 20 percent of its aggregate dollar
investments in smaller enterprises. This new focus is designed
to ensure that the smaller businesses continue to obtain full
benefit of the SBIC program from all its participants.
CHAPTER SIX

SUMMARY OF OTHER LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL
BUSINESS

6.1 Committee Meetings

6.1.1 organizational meeting

On January 11, 1995, the Committee on Small Business held
an organizational meeting. The primary purpose of the meeting
was the consideration of the Committee rules for the 104th
Congress. The Members of the Committee considered a draft set
of rules to govern the Committee operations and a number of
revisions were incorporated. First, an additional seat was
added for the Minority to each of the subcommittees. Second,
proposed rule 12(b) was modified to allow the salaries of the
Minority staff to be set independent of Majority staff
salaries. In prior Congresses, the Minority staff salaries
could be no higher than those of the Majority staff. Third, the
Committee decided that jurisdiction over the 8(a) program
administered by the Small Business Administration would rest
with the Subcommittee on Government Programs as opposed to the
Subcommittee on Procurement, Exports and Business
Opportunities.
A discussion on the use and issuance of subpoenas by the
Committee also occurred. Under the rules, a subpoena may be
issued by the Chair of the Committee with notification to the
Ranking Minority Member, or by the Chair of a subcommittee with
the approval of a majority of the subcommittee members. The
Committee decided, as in prior Congresses, that the approval of
the Ranking Minority Member was not required for a subpoena to
be issued. There was also a discussion on the new rule for the
104th Congress that prohibits proxy voting. As a result of the
new rule, rolling quorums for Committee votes were also
prohibited.
Once the Committee had completed its review and
modification of the draft rules, a voice vote was taken, and
the rules were adopted.
The Chair explained the process for Committee assignments
and introduced the Subcommittee Chairmen and the Ranking
Subcommittee Members. The Subcommittee on Government Programs
was chaired by Peter Torkildsen and the Ranking Member was
Glenn Poshard. The Subcommittee on Procurement, Exports, and
Business Opportunities was chaired by Donald Manzullo and the
Ranking Member was Eva Clayton. The Subcommittee for Regulation
and Paperwork was Chaired by Jim Talent and the Ranking Member
was Ron Wyden. The Subcommittee on Taxation and Finance was
chaired by Linda Smith and the Ranking Member was Martin
Meehan.
The meeting concluded with the distribution of a hearing
schedule for the first nine hearings of the Committee and a
review of the procedures that the Committee would follow when
conducting hearings (e.g., the Chair and Ranking Minority
Member would make opening statements with all other Members
permitted to submit written statements for the record;
questioning of the witnesses would be conducted under the five
minute rule, with Members offering questions in the order of
appearance at the hearing).

6.1.2 oversight agenda for the 104th congress

On February 13, 1995, the Committee on Small Business met
to consider its oversight agenda for the 104th Congress. One of
the new provisions in the House Rules requires that each
Committee adopt a plan of oversight activities and forward that
plan to the Committees on Government Reform and Oversight and
House Oversight by February 15th of the first year of the
Congress.
The Committee's draft oversight plan included a three-
pronged agenda: First, a top-to-bottom review of the Small
Business Administration (SBA) and its programs; second, efforts
to implement a common sense tax code for small business; and
third, actions to lighten the regulatory burden on small
business. After reviewing the draft plan, the Chair explained
that the purpose behind the agenda was to lay out an overall
plan for the Committee, with the understanding that some aspect
of the agenda may be referred to the subcommittees. The Chair
also noted that the agenda would not preclude oversight or
investigation of additional matters as the need arose. With the
Committee's broad oversight jurisdiction, the Chair pointed out
that any issue affecting small business, from minimum wage to
health insurance, could be addressed in a Committee or
subcommittee hearing.
The Committee considered a number of amendments to the
oversight plan. Mr. LaFalce offered amendments on the following
issues: specialized small business investment companies, the
preferred surety bond guarantee programs, procurement from very
small businesses, participation of the handicapped in set-aside
contracts, debenture prepayment penalties, and women-owned
businesses. After discussion of the amendments, a motion was
made to accept the amendments en bloc, and the amendments were
agreed to by a vote of 14 to 11.
Mr. Mfume proposed two additions to the agenda regarding
Federal procurement programs designed to promote minority-
business development and access to capital and credit for
minorities and small businesses operating in distressed
communities. After the Chair noted that the amendments were too
detailed for the agenda, Mr. Mfume revised his amendments to
add the phrase, ``and other Federal programs to promote
minority business development to include access to capital and
credit,'' to the minority-enterprise development section of the
agenda. The agreement was agreed to by a voice vote.
Mr. Manzullo offered an amendment on behalf of himself, Mr.
Hilleary, Mr. Longley, Mr. Brownback, Mr. Salmon, Mr. Chabot,
Mr. Chrysler, Mr. Funderburk, Mr. Wamp, Ms. Kelly, and Mr.
Metcalf, that would add the following to the first part of the
oversight plan concerning the top-to-bottom review of the SBA:
``The Committee will conduct hearings on every program in the
Small Business Administration to determine its effectiveness
and whether it should be continued.'' A debate followed
concerning the scope of the amendment and whether it was within
the jurisdiction of the Committee, and constitutionally
permitted, to determine if SBA programs should be continued.
The Chair noted that under the House Rules, the Committee has
both the legislative and oversight jurisdiction to review SBA
programs and make recommendations on which programs should be
continued or eliminated. Mr. Mfume pointed out that some of the
SBA programs had been created by Executive Order, and he
maintained that Congress, not the Executive Branch, had
jurisdiction over them. Following the debate, the amendment was
agreed to by voice vote.
The Committee then turned to the approval of the oversight
plan together with the various amendments previously adopted by
the Committee. Upon a voice vote, the oversight plan, as
amended, was adopted.
The text of the oversight plan follows:

OVERSIGHT PLAN FOR THE COMMITTEE ON SMALL BUSINESS
104TH CONGRESS
U.S. HOUSE OF REPRESENTATIVES
Congresswoman Jan Meyers, Chair

Rule X, clause 2(d), of the Rules of the House requires
each standing Committee to adopt an oversight plan for the two-
year period of the Congress and to submit the plan to the
Committees on Government Reform and Oversight and House
Oversight not later than February 15 of the first session of
the Congress.
This oversight plan of the Committee on Small Business
includes areas in which the Committee expects to conduct
oversight activity during the 104th Congress. However, this
agenda does not preclude oversight or investigation of
additional matters as the need arises.

OVERSIGHT OF THE SMALL BUSINESS ADMINISTRATION

The Committee will conduct hearings on every program in the
Small Business Administration to determine its effectiveness
and whether it should be continued.

FINANCIAL PROGRAMS

The Committee will conduct hearings on the effectiveness
and efficiency of the SBA's financial programs. Particular
emphasis is to be placed on the economic benefits of these
programs to the small business community versus their cost to
the taxpayer.

(a) General Business Loan Program

Following on a hearing conducted in January, 1995, the
Committee will investigate current shortfalls and study
proposed program modifications that have been put forward by
the Administration and others. Oversight will also focus on the
underlying need for the program, and the root causes of credit
shortages in the small business sector. (Winter, 1995)

Certified Development Company Program

Oversight activities will focus on the recent restructuring
of the certified development company and its effect on business
development efforts. The Committee will also ascertain if there
are any improvements that can be made to the program. (Winter,
1995)

Small Business Investment Company Program

Oversight will focus on the new participating securities
program and the new licensees that have entered the program.
The Committee will also investigate current program management
activities and efforts that have been made to stem losses in
the program and stabilize the program's portfolio.
Hearings will also investigate possibilities for
privatization of the SBIC program and other modifications that
might serve to continue access to venture capital for the small
business community. (Winter/Spring, 1995)

Specialized Small Business Investment Company Program

Oversight will focus on the Specialized Small Business
Investment Company Program which delivers venture capital to
socially or economically disadvantaged small businesses,
including the benefits it has provided to the assisted firms,
the economy, and to State and local governments, as well as to
the Federal Government.
Particular attention will be given to a report anticipated
from a blue ribbon commission which has been appointed by the
SBA.
The Committee will also investigate reports of misuse of
the Specialized Small Business Investment Companies and what
actions have been taken to prevent further abuses. (Winter/
Spring, 1995)

Microloan Program

The Committee will conduct hearings concerning the
expansion and progress of this innovative program. Hearings
will focus on the effectiveness of this program in providing
seed capital to start-up small businesses and in alleviating
economic hardship in rural and urban areas. The Committee will
also investigate the progress of the guarantee-based microloan
pilot program, and its possible extension. (Winter, 1995)

Surety Bond Guarantee Program

The Committee, in conjunction with legislatively mandated
reports, will investigate the effectiveness of this program in
providing bonding capability to underserved sections of the
construction community. Oversight will also focus on the need
for recent infusions of capital to the Surety program account.
The Committee will also examine the effectiveness of, and
benefits provided by, the Preferred Surety Bond Guarantee
Program which sunsets on September 30, 1995. (Winter/Spring,
1995)

Debenture Prepayment Penalty Relief

The Committee will review the adequacy of Title V of the
Small Business Administration Reauthorization and Amendments
Act of 1994 (Public Law 103-403) to provide some relief to
participants in the now defunct section 503 development company
program. Legislation enacted last year authorized and
subsequently provided $30 million to mitigate against
prepayment penalties under this program.

PROCUREMENT ASSISTANCE

The Committee will examine the effectiveness of the SBA's
procurement assistance activities. Hearings will focus on the
Certificate of Competency program and its effectiveness in
protecting small business contractors.
The Committee will also investigate the Natural Resources
assistance program and the effectiveness of the procurement
center representatives, particularly in the area of contract
bundling.
The Committee will also examine the Agency's progress in
implementing a pilot program included in the Small Business
Reauthorization and Amendments Act of 1994 (Public Law 103-403)
to allow very small businesses to participate in Federal
procurement programs.
The Committee will also examine the extent to which
organizations of the handicapped have been permitted to
participate in small business set-aside contracts under section
15 of the Small Business Act. The Small Business Administration
Reauthorization and Amendments Act of 1994 (Public Law 103-403)
authorized such organizations to participate during fiscal year
1995 only in an aggregate amount of contracts not to exceed $40
million. (Winter/Spring, 1995)

ADVOCACY

The Office of Advocacy provides small business with an
effective voice inside the government. The Committee will
conduct hearings on how to strengthen this voice and make sure
the Chief Counsel for Advocacy continues to effectively
represent the interests of small business. (Winter/Spring,
1995)

TECHNOLOGY AND RESEARCH ASSISTANCE
Small Business Innovation and Research

The Small Business Innovation and Research (SBIR) program
aids small business in obtaining Federal research and
development funding for new technologies. In conjunction with
statutorily mandated reports from the General Accounting
Office, the Committee will monitor the progress of this
program. Oversight will focus on the ability of this program to
develop new, marketable technologies, and compare the
effectiveness of the 2 percent of Federal research dollars
directed to the SBIR program with the commercial applications
resulting from the other 98 percent of Federal R&D spending.
(Spring, 1995)

Small Business Technology Transfer

The Small Business Technology Transfer program
authorization will expire on September 30, 1995. Committee
oversight will focus on the program's success at helping small
business access technologies developed at Federal laboratories
and put that knowledge to work. (Spring/Summer, 1995)

MINORITY ENTERPRISE DEVELOPMENT

The Committee will conduct hearings on the history and
effectiveness of the 8(a) program and other Federal programs to
promote minority business development, including access to
capital and credit. Recent administrative changes will be
investigated along with several recent legislative proposals.
(Winter/Spring, 1995)

WOMEN-OWNED BUSINESSES

The Committee will continue its active involvement in
encouraging the development of women-owned small businesses,
and its oversight of relevant Federal programs including the
activities of the statutorily-created Office of Women's
Business Ownership; the implementation of the newly established
government-wide 5 percent procurement goal; and the
establishment and activities of the new Interagency Committee
and National Women's Business Council. (Spring 1995 through
Fall 1996)

OFFICE OF INSPECTOR GENERAL

The Committee will conduct hearings and investigations
regarding the effectiveness of the Inspector General's office
at the SBA. The Committee's efforts will center on the IG's
ability to effectively monitor the myriad financial programs at
the agency. (Summer, 1995)

OFFICE OF DISASTER ASSISTANCE

In declared disasters the SBA is the little-known hero that
helps business owners and homeowners put their communities back
together. Committee oversight will focus on recent increases to
the disaster loan limits and their effect on rebuilding ravaged
communities. The Committee will also study the Administration's
proposals for improving the subsidy rate and cost-effectiveness
of the disaster assistance program. (Spring, 1995 through
Spring, 1996)

OFFICE OF ECONOMIC RESEARCH

The Committee will investigate the activities of the Office
of Economic Research and its work product. We will consider the
value of the research provided, and coordination with the
research of other Federal agencies. (Spring, 1995)

OFFICE OF INTERNATIONAL TRADE

The Committee will conduct oversight concerning the new
Export Assistance Centers initiative. Committee investigations
will center on the effectiveness of SBA's small business export
efforts. (Spring, 1995)
The Committee also intends to determine the extent of
efforts at other agencies to serve the small business
community's trade and export needs. In particular, the
Committee will investigate efforts to provide financing for the
small business community in export markets and the efforts or
lack of effort to aid small business in overcoming foreign
trade barriers. (Spring, 1995 through Summer, 1996)

OFFICE OF BUSINESS INITIATIVES AND TRAINING

The Committee will explore the agency's commitment to these
business development programs and their interrelation with the
SBA's other program efforts. Investigations and hearings will
center on the amount and types of assistance provided and their
relationship to the changing business environment.
The Committee will also investigate small business
assistance programs at the other Federal agencies to determine
their effectiveness and the need for coordination between the
agencies. These hearings will cover the activities of the Small
Business Development Centers, Business Information Centers,
SCORE, and the Small Business Institute program. (Winter/
Spring, 1995)

FEDERAL PROCUREMENT

The Committee will examine the changes in Federal
procurement since the last Congress. The Federal Acquisition
Streamlining Act instituted sweeping changes in the way the
government will purchase goods and services. The Committee will
investigate the implementation of these changes and the effect
they are having on small businesses involved in government
contracting. (Fall, 1995 through Fall, 1996)
The Committee will also be conducting hearings concerning
any new proposals that would affect opportunities for small
business in Federal procurement.

GOVERNMENT & NON-PROFIT COMPETITION

The Committee will be conducting hearings and
investigations of the extent to which non-profit organizations
and the Federal government itself compete with small business.
Our focus will include activities in both the private sector
and government procurement. (Winter, 1996)

REGULATORY FLEXIBILITY & PAPERWORK REDUCTION

The Committee will continue its oversight of agency
implementation of the Regulatory Flexibility Act and Paperwork
Reduction Act. This oversight will include implementation of
any future amendments to these Acts. (Winter 1995 through Fall
1996)

GOVERNMENT REGULATION

The Committee will continue to investigate the regulatory
agenda of the various Federal agencies and the impact of
regulations, both specific requirements and the cumulative
effect of regulations, on the small business community.
(Winter, 1995 through Fall, 1996)

TAXATION

The Committee will continue to conduct oversight hearings
into common sense reduction of the tax burden on small
business. These hearings will include not only the fiscal but
the paperwork burden of the Federal tax system and Federal
enforcement efforts. (Winter, 1995 through Fall, 1996)

MINIMUM WAGE

The Committee will be conducting hearings on proposals to
increase the minimum wage and on the restoration of the minimum
wage exemption for certain small businesses. These hearings
will focus on the economic impact of these proposals
particularly regarding inflation and job creation. (Spring/
Summer, 1995)

HEALTH INSURANCE

The Committee will be considering new proposals for
improving access to the health care system for small business
owners and their employees. We will also focus on the economic
impact of expanding the health insurance deduction for the
self-employed and related self-insurance issues. (Spring, 1995
through Spring, 1996)
6.2 Budget Views and Estimates

Pursuant to Section 301(c) of the Congressional Budget Act
of 1974, the Committee prepared and submitted to the Committee
on the Budget its views and estimates on the fiscal year 1996
and fiscal year 1997 budget with respect to matters under the
Committee's jurisdiction.

6.2.1 fiscal year 1996 budget

On March 7, 1995, the Committee submitted its views and
estimates on the fiscal year 1996 budget. The Committee
emphasized that the SBA provides important services to the
small business community, and as part of the continuing efforts
to reduce the Federal deficit, the Committee committed to
working towards that goal with regard to expenditures under its
jurisdiction. While the President's fiscal year 1996 budget
request represented a 5.3 percent reduction from the SBA's
fiscal year 1995 appropriation, the Committee planned, as an
initial goal, to identify spending reductions amounting to at
least an additional 10 percent over the President's request.
The Committee noted that it was beginning the task of
identifying programs within SBA that are in need of reform or
have outlived their purpose, with the goal being a total review
of the SBA. The Committee noted that the review will be a
bipartisan and total small business effort that will include
all viewpoints. In the end, the entire small business community
will benefit from a leaner and stronger SBA.

6.2.2 fiscal year 1997 budget

On March 14, 1996, the Committee submitted its budget views
and estimate on the fiscal year 1997 budget. The Committee did
not have the benefit of the President's fiscal year 1997 budget
submission, which had not been filed in February as is
customary, or final appropriations figures for fiscal year
1996. As a result, the Committee's views and estimates were
based on the funding provided in the Conference report for H.R.
2076, the FY 1996 Commerce, Justice, State, the Judiciary, and
Related Agencies Appropriations Act.
In general, the Committee recommended a 10 percent
reduction in appropriated funds for the SBA in fiscal year
1997. The Committee made specific recommendations with respect
to four areas: (1) assistance programs, (2) financial programs,
(3) Office of the Inspector General, and, (4) disaster loans.

Assistance Programs.

The Committee noted that the SBA has been successful in
providing a number of programs that benefit and assist small
businesses financially throughout the country, including the
Office of Advocacy and the various management assistance
programs. The Committee found, however, that there were
programs that had either outlived their usefulness or become
ineffective. The Committee expected that no further funding
would be provided to programs that were not funded in the 1996
Conference Report for H.R. 2076, such as the Small Business
Institute (SBI) or the Natural Resources Development Program.
In addition, the Committee supported lifting the prohibition on
Small Business Centers (SBDC), which has prevented them from
charging reasonable fees to clients, when appropriate. It was
believed that such fees would help provide much needed revenue
for the SBDC program.

Financial Assistance Programs.

The Committee recommended with regard to the general
business loan programs that all SBA loan programs operate on a
guaranteed basis rather than as direct loans. Recalling that it
acted in 1995 to lower the subsidy rate of the 7(a) and 504
programs, the Committee believed that no budget increase would
be necessary and that any carryover should be applied to
maintain the programs. The Committee also recommended that any
increases in the subsidy rates for these programs, which may
require increased appropriations, should be offset by reduction
in the SBA's salaries and expenses account.
With respect to the Small Business Investment Company
(SBIC) Program, the Committee recommended the implementation of
changes designed to enhance program safety and soundness and
also to reduce the subsidy rate of the program. The Committee
found that SBIC liquidation practices were not efficient and
recommended new methods of portfolio management, including
contracting out all liquidation activities. The Committee
believed that the SBIC program levels could be maintained
without additional appropriations through subsidy rate
reductions.

Disaster Loan Program.

The Committee was concerned by the shortfalls in the SBA's
disaster loan program both in terms of salaries and expenses
and in loan funding. The Committee suggested that the SBA
immediately begin a program of privatization of loan servicing
and liquidation functions and recommended that 40 percent of
the loan portfolio be privatized, which is expected to result
in a 10 percent savings over previous appropriations. It was
emphasized that the cost of this program must be reduced but
without burdening the victims of natural disasters.

Office of the Inspector General.

The Committee recommended an increase to $10 million for
fiscal year 1997 funding for the Office of the Inspector
General. The Committee believed that the fiscal year 1996
Conference Report level of $8.5 million was far below that
needed to police adequately an agency with a multi-billion
dollar lending authority.

Minority Views.

The Minority members of the Committee submitted their views
and estimates on the SBA fiscal year 1997 budget. Like the
majority, the Minority members were concerned by the lack of an
Administration budget submission and final fiscal year 1996
appropriations for the SBA and the difficulty inherent in
formulating budget views and estimates without such
information. The Minority also noted that if the SBA receives
the funding for all of fiscal year 1996 that was proposed in
H.R. 2076, it will constitute a budget cut of more than one-
third from the prior year. The Minority believed that such a
deduction was excessive and that with the advancements realized
by the small business community in recent years, SBA's programs
need to be expanded and additional appropriations need to be
made, or at a minimum the budget should be frozen at current
levels.
The Minority was also concerned about the Committee's
recommendation that funding be shifted from the SBA's salaries
and expenses account to the program accounts rather than
appropriating additional funds or reconsidering the amount of
fees imposed on borrowers. The Minority noted that there may be
ways to improve the delivery of SBA programs and urged the
Committee to explore those options.
CHAPTER SEVEN

SUMMARY OF OVERSIGHT, INVESTIGATIONS AND OTHER ACTIVITIES OF THE
COMMITTEE ON SMALL BUSINESS AND ITS SUBCOMMITTEES

7.1 Summary of Committee Oversight Plan and Implementation

Pursuant to a new rule adopted by the 104th Congress, the
Committee on Small Business adopted on February 13, 1995 an
oversight agenda for the two-year period of the Congress. (For
a discussion of the Committee's consideration of the oversight
agenda and final agenda, refer to section 6.1.2 of this
report). Rule X, clause 2(d), of the Rules of the House of
Representatives also requires that each Committee summarize its
activities undertaken in furtherance of the oversight agenda as
well as any additional oversight actions taken by the
Committee.
In the following portions of this section 7.1, each
provision of the oversight agenda is separately set forth and
is followed by a discussion of the related Committee hearings
and legislative or other activities. A summary of each hearing
conducted by the Committee appears in section 7.2 of this
report and summaries of each subcommittee hearing appear in
sections 7.3 through 7.6 of this report. An overview of the
Committee's legislative activities appears in chapter 5 of this
report.

7.1.1 oversight of the small business administration

The Committee will conduct hearings on every program in the
Small Business Administration to determine its effectiveness
and whether it should be continued.

From the outset of the 104th Congress, the Committee held a
number of hearings to examine each program administered by the
Small Business Administration and evaluate whether particular
programs should be continued, reformed, or eliminated. The
Committee's hearings began with an overall review of the SBA on
February 28, 1995 and also included a hearing dedicated to the
future of the SBA on March 30, 1995. (For further information
on these hearings, refer to sections 7.2.12 and 7.2.19 of this
report). In addition, the Committee and its subcommittees held
hearings on specific SBA programs, which are summarized below
with respect to the relevant portion of the Committee's
oversight agenda.
Legislatively, the Committee marked up and favorably
reported two pieces of legislation, H.R. 2150 and H.R. 3719,
which were designed to address specific weaknesses in
particular SBA programs as well as to promote greater
efficiency within the agency. The relevant portions of these
legislative efforts are discussed below with the corresponding
section of the Committee's oversight agenda. In addition, the
Committee considered one other bill, H.R. 3158, which was
designed to extend and improve the Small Business Innovation
and Research and the pilot Small Business Technology Transfer
programs. This legislation is discussed in section 7.1.5 of
this report.

7.1.2 financial programs

7(a) General Business Loan Program.

The Committee began the 104th Congress with a hearing
dedicated to the SBA's 7(a) general business loan program. The
Committee heard testimony from agency and small business
witnesses who agreed that the 7(a) program has been a vital
tool for small business growth and development. The agency
witnesses noted that the number and size of 7(a) loans had been
rising consistently and stressed that with the heavy demand for
7(a) loans, the agency would run out of guarantee authority by
the Summer of 1995. As a result, the agency administratively
capped the maximum loan guarantee at $500,000 rather than the
statutory maximum of $750,000.
The witnesses representing the small business community and
the 7(a) lenders testified that the 7(a) program is critical
for many small businesses seeking operating capital, especially
those in the start-up phase. These panelists also emphasized
that the 7(a) program is an important and successful example of
how a public/private-sector partnership should operate. In
general, the panels urged the Committee to continue and, if
possible, expand the program. (For further information on this
hearing, refer to section 7.2.6 of this report).
The Subcommittee on Government Programs also held hearings
on the 7(a) program, with a particular emphasis on the pilot
low documentation, or LowDoc, program. The witnesses at these
hearings generally praised the pilot program, which was
designed to reduce the SBA paperwork to a two-page application
for borrowers seeking loans of $100,000 or less. Concerns were
raised, however, about the rising subsidy rate for the overall
7(a) program and lack of information about the overall
performance of LowDoc loans, which have become a significant
portion of the overall 7(a) portfolio. A witness from the
Office of Management and Budget (OMB) testified that the
administration had decided against developing a separate
subsidy rate for the LowDoc loans. (For further information on
these hearings, refer to sections 7.3.5 and 7.3.6 of this
report).
The Subcommittee on Government Programs also examined
current developments involving loan packaging, which generally
involves 7(a) loans. At its hearing on October 12, 1995,
witnesses testified about increasing incidents of fraud and
abuse by loan packagers. The Subcommittee also received
testimony on various proposals to reduce such incidents and
better regulate the loan-packaging industry. The SBA witnesses
reviewed their efforts to investigate improper activities by
loan packagers and prevent fraud in the industry. (For further
information on this hearing, refer to section 7.3.9 of this
report).
In the Summer of 1995, the full Committee considered
legislation designed to address the increasing subsidy rate in
the 7(a) program and reduce the overall costs of the program to
the American taxpayer. Under the conference agreement to H.R.
2150, a flat 0.5 percent fee was established, which will be
charged to all lenders participating in the 7(a) program on the
outstanding principal balance of their 7(a) loans. The
conference agreement also reduced and flattened the guarantee
percentage for all loans--for loans up to $100,000 dollars, the
guarantee percentage was lowered to 80 percent and for all
loans over $100,000, the guarantee was reduced to 75 percent.
Finally, the conference agreement established a tiered fee
structure for the guarantee fee paid by the borrower. The
borrower will pay a 3 percent fee on the first $250,000 of a
loan; a 3.5 percent fee on the portion of the loan between
$250,000 and $500,000; and 3.875 percent for the portion which
exceeds $500,000. (For further information on this legislation,
refer to section 5.2 of this report).
At the beginning of the second session of the 104th
Congress, the Committee learned that the subsidy rate for the
7(a) program had been recalculated by the SBA and the OMB and,
as a result, had nearly doubled from the estimates that the
Committee relied upon in its consideration of H.R. 2150. At a
hearing on March 21, 1996, the SBA Administrator came before
the Committee to explain the surprising increase in the subsidy
rate for the program. He attributed much of the increase to the
results of a comprehensive study of the 7(a) loan portfolio
that OMB had recently completed. Despite repeated inquires by
Committee members about the specific details of the study and
the actual calculation of the subsidy rate, the SBA witnesses
were unable to provide satisfactory answers. The SBA's answer
to the problem was to request additional appropriations for the
program without addressing the underlying reasons for the
increase in the subsidy rate. (For further information on this
hearing, refer to section 7.2.39 of this report).
In response to the alarming increase in the subsidy rate
for the 7(a) program, the Committee marked up and favorably
reported H.R. 3719, in July of 1996. After passing the House,
this legislation was largely incorporated into the omnibus
consolidated appropriations legislation that was signed into
law at the end of September, 1996. The final legislation
contained a number of provisions that addressed problems that
the Committee had identified in the 7(a) program. While the
Committee avoided adding additional fees on the borrowers or
lenders in the program after the increases included in H.R.
2150, the legislation focused extensively on improving the
liquidation results of 7(a) loans by allowing more private-
sector involvement. In particular, the legislation gives
Preferred Lenders full authority to collect on, and liquidate,
loans that they made to small businesses without having to
obtain prior written approval of SBA for routine activities.
Certified Lenders are also permitted to begin performing
liquidation of SBA guaranteed loans subject to the approval of
the Administration. The legislation also establishes procedures
to reduce the servicing fees or accrued interest paid to a
lender for the period of time between the default of a loan and
the payment on the guarantee.
The legislation addresses the potential risks associated
with the SBA's LowDoc loans by requiring that LowDoc loans be
made only through Certified and Preferred Lenders or lenders
with significant small business lending experience. In
addition, for all future pilot programs or initiatives in the
7(a) program, the legislation prohibits the pilot program or
initiative if it exceeds 10 percent of the loans guaranteed in
the 7(a) program during that year.
The legislation contains several reporting requirements and
a comprehensive database designed to monitor loan liquidation
and the subsidy rate for 7(a) loans. (For further information
on this legislation, refer to section 5.5 of this report).

Certified Development Company Program.

The Committee held a hearing on March 9, 1995 to examine
the performance of the SBA's 504 loan program. The agency and
small business witnesses agreed that the 504 program is vital
for small businesses seeking to acquire or expand their
facilities given the frequent lack of long-term, fixed-rate
capital available to the small business sector of the economy.
The small business witnesses also provided the Committee with
considerable anecdotal evidence of the program's success. (For
further information on this hearing, refer to section 7.2.15 of
this report).
In response to concerns about the overall cost of the
program, the Committee marked up and favorably reported H.R.
2150. Through a new fee of one-eighth of 1 percent of the
outstanding principal balance of the loan imposed on the
borrower, the Committee expected to reduce the subsidy rate for
the 504 program to zero and make the program essentially self-
funding. (For further information on this legislation, refer to
section 5.2 of this report).
At the Committee's March 21, 1996 hearing on the SBA's
budget submission for fiscal year 1997, the Committee learned
that the subsidy rate for the 504 program, as recalculated by
the SBA and OMB, had risen from 0 to 6.85 percent. As with the
7(a) program, the SBA Administrator was unable to a provide
satisfactory explanation for the increase, and one small
business witnesses concluded that the exceedingly high loss
rate is due either to inadequate collateral or to poor or
inattentive handling of liquidation once the loan goes into
default. The agency's answer to the problem was to convert the
504 program into a direct lending program, an alternative that
met with considerable opposition from the Committee. (For
further information on this hearing, refer to section 7.2.39 of
this report).
The Committee addressed the 504 program's subsidy rate in
H.R. 3719, the relevant provisions of which were included in
the omnibus consolidated appropriations legislation that was
enacted at the end of September, 1996. This legislation
modifies the contribution required from a small business for
participation in a 504 loan such that start-up small businesses
and borrowers seeking financing for a special purpose building,
must put a minimum of 15 percent down, instead of the minimum
of 10 percent as required under current law. The bill also
increases the fee that the borrower pays on the annual
outstanding balance to a maximum of \15/16\ of 1 percent as
needed to bring the overall program subsidy rate back to zero.
For fiscal year 1997, this fee will be \13/16\ of 1 percent.
Two other new fees were also added for the 504 program; a one-
time, up-front fee of \1/2\ of 1 percent on the total
participation of the first mortgage holder, and a \1/8\ of 1
percent annual servicing fee collected from Development
Companies that will be passed through to the SBA.
The Committee also included provisions in the final
legislation that were designed to improve the loan liquidation
results under the 504 program. Specifically, the legislation
instructs the SBA to take action on defaulted loans within
specific time periods in order to speed recoveries and
liquidations. The bill also prohibits the SBA from paying late
fees or prepayment penalties on defaulted loans and prohibits
the SBA from paying any ``default interest rate'' on a
defaulted loan.
Finally, the legislation requires the SBA to develop and
implement a pilot program in which Certified Development
Companies (CDCs) will have the authority to liquidate their own
loans. This responsibility will be delegated only to a select
number of the most experienced and active CDCs. (For further
information on this legislation, refer to section 5.5 of this
report).

Small Business Investment Company Program.

The Committee held three hearings during the 104th Congress
that focused specifically on the SBA's Small Business
Investment Company (SBIC) program. At two hearings during the
first session of the Congress, the Committee heard testimony
about the benefits that SBICs represent in terms of providing a
vital source of capital for many small businesses. Witnesses at
these hearings, however, also identified a number of problems
with the SBA's oversight, examinations, licensing, and
liquidation activities with respect to the program. (For
further information on these hearings, refer to sections 7.2.18
and 7.2.29 of this report).
The Subcommittee on Government Programs also held a hearing
on April 18, 1996 to evaluate H.R. 2806, ``The Venture Capital
Marketing Association Act,'' introduced by Chairman Peter
Torkildsen (R-MA). The bill is designed to privatize the SBIC
program, through a government-sponsored enterprise called the
Venture Capital Marketing Association (Vickie Mae). The
witnesses at the hearing were supportive of the legislation,
and several panelists contended that establishing Vickie Mae
would lower costs to the government of administering the
program, enhance the safety and soundness of SBICs by ensuring
a stable flow of capital, and increase the capital available to
small businesses by releasing funds currently restricted by
government appropriations. (For further information on this
hearing, refer to section 7.3.12 of this report).
In the Summer of 1996, the Committee held a hearing to
continue its review of the program and assess legislation that
was introduced in the Senate that would reform the SBIC
program. The witnesses at this hearing noted that some
improvements had been made in the program, and they generally
supported the Senate legislation, including the increased fees
and the efforts to expand the availability of debenture
funding. The witnesses also agreed with the Committee's desire
to ensure the stability of the program. (For further
information on this hearing, refer to section 7.2.46 of this
report).
The small business provisions that were included in the
omnibus consolidated appropriations legislation at the end of
the 104th Congress included a number of improvements to the
Small Business Investment Company (SBIC) program. In general,
these provisions restructure the SBIC program to incorporate
several vital changes, which are effective upon enactment of
the legislation. First, the minimum capital requirements for
new license applicants are increased, while all existing
licensees are fully grandfathered allowing existing licensees
to refinance or borrow additional leverage.
The final legislation also changes two fees paid by SBICs.
SBICs will pay an annual charge of 1 percent on the value of
all outstanding leverage granted after the effective date, and
the non-refundable up-front fee is increased to 3 percent of
new leverage amounts. These fees will greatly reduce the
subsidy cost of the program and allow additional venture
capital funding for small business.
A number of changes to enhance the safety and soundness of
the SBIC program were also included in the legislation. The SBA
must ensure that each license applicant maintains
diversification between the management and ownership of the
SBIC. The SBA must also regulate SBICs closely to (1) ensure
that they do not incur excessive third-party debt; (2) ensure
that no SBIC receives leverage when it is under capital
impairment; and (3) require each SBIC to adopt valuation
criteria set forth by the SBA to establish the values of loans
and investments of each SBIC, subject to an annual review by an
independent certified accountant.
The legislation also addressed the disposition of SBIC
assets that are in liquidation. Under the bill the SBA is
required to submit to the Senate and House Committees on Small
Business a detailed plan to expedite the orderly disposition of
these assets. (For further information on this legislation,
refer to section 5.5 of this report).
Specialized Small Business Investment Company Program.

The Committee held three hearings that focused on the
Specialized Small Business Investment Company (SSBIC) program
during the 104th Congress. At the first two hearings on March
28 and September 28, 1995, the Committee received testimony,
primarily from the General Accounting Office (GAO), about
continuing oversight and management weaknesses within the SSBIC
program. These problems were underscored by a number of well-
publicized failures of SSBICs and allegations of mismanagement
and improper activities.
The GAO also testified before the Committee on its
investigation of the SBA's 3-percent stock buy-back program,
under which SSBICs are permitted to repurchase their preferred
stock from the SBA at a significant discount from the face
value of the stock. The GAO informed the Committee that based
on preliminary data, 15 SSBICs have participated in this
program, and they have repurchased preferred stock with a par
value of $41 million from SBA for only $14 million, resulting
in a significant loss to the government. (For further
information on these hearings, refer to sections 7.2.18 and
7.2.29 of this report).
In the Summer of 1996, the Committee continued its
assessment of the SSBIC program and evaluated legislation
introduced in the Senate that would significantly modify the
program. At a hearing on June 6, 1996, witnesses expressed
support for the legislation's proposal to merge the SSBIC
licensees into the SBIC program. One witness cautioned,
however, that for smaller SBICs, alternative sources of
financing should be sought and protections should be included
for existing SSBICs.
The industry witnesses also addressed the SSBIC's 3-percent
preferred stock repurchase program. The witnesses responded to
concerns that the program permitted significant forgiveness of
SSBIC debt to the SBA by allowing SSBICs to repay only about 35
percent of their stock value. The witnesses noted that the
SSBICs were paying what was agreed to be a fair market price,
and pointed out that the stock had no mandatory repayment term.
(For further information on this hearing, refer to section
7.2.46 of this report).
A number of provisions affecting the SSBIC program were
included in the omnibus consolidated appropriations legislation
in September, 1996. In particular, the final legislation merges
the SSBIC and the SBIC programs, with all existing SSBICs
becoming regular SBICs. This provision was designed to address
the SSBICs' historic objection that the program restrictions
hinder their ability to grow like other SBICs.
The legislation also removes certain investment
restrictions and creates a special leverage reserve available
only to SBICs that invest at least half of their funds in
smaller enterprises. These provisions will enable the smaller
SBICs to maintain their focus on financing for primarily
minority and women-owned businesses, which tend to be smaller-
sized businesses, without any specific restrictions that might
negatively affect the ability to seize investment
opportunities.
A new reserve of debenture funding for these smaller SBICs
was also established in lieu of the prior funding mechanism for
the SSBICs. The fund will be financed through the proceeds of
the existing preferred stock repurchase program. The
availability of this special pool of leverage, along with
leverage available to all SBICs, will substantially increase
the access to capital for minority and women-owned business
investments.
Finally, the legislation requires that each SBIC,
regardless of its size, invest at least 20 percent of its
aggregate dollar investments in smaller enterprises, which is
designed to ensure that smaller businesses continue to obtain
full benefit of the SBIC program from all its participants.
(For further information on this legislation, refer to section
5.5 of this report).

Microloan Program.

On March 14, 1995, the Committee held a hearing to review
the SBA's Microloan Demonstration Project. The witnesses
expressed the belief that the program is an important tool for
meeting the needs of the smallest of small businesses in the
most efficient and cost effective way. It was also emphasized
that the program accomplishes this goal while leveraging the
Federal dollars loaned by requiring the intermediary lenders to
come up with matching capital. The small business
representatives also expressed broad support for the program
and provided the Committee with anecdotal evidence of its
success.
The witnesses also identified areas for improvement within
the Microloan program including: minimizing the expense of
micro lending; reducing the risk of micro lending as compared
to general business lending; incorporating and leveraging more
effectively primary SBA resources; and addressing the fact that
the current initiative will never generate sufficient funds to
meet the level of demand. (For further information on this
hearing, refer to section 7.2.16 of this report).
Pursuant to its legislative jurisdiction, the Committee
approved two changes to the Microloan program. First, Section
105(a) of H.R. 3719 amends the Small Business Act to decrease
the maximum amount that an intermediary may receive through
technical assistance grants. Second, Section 105(b) of the bill
requires the SBA to either implement the Microloan Guarantee
Pilot Program or issue a report on why the agency is unable to
do so. (For further information on this legislation, refer to
section 5.5 of this report).

Surety Bond Guarantee Program.

The full Committee reviewed the status of the SBA's Surety
Bond Guarantee Program as part of its overall consideration of
the SBA of the future on March 30, 1995. At the hearing, the
SBA Administrator noted the benefits that the program provides
for qualifying small businesses and testified that the agency
plans to consolidate the surety bond delivery system with its
government contracting oversight operations. (For further
information on this hearing, refer to section 7.2.12 of this
report).
The Subcommittee on Procurement, Export and Business
Opportunities also held a hearing on April 5, 1995 to examine
in greater detail the efficacy of the program and areas for
improvement. The witnesses generally agreed that the Surety
Bond Guarantee Program was critical to small businesses seeking
to participate in many Federal contracts. The SBA witnesses
noted the success of the program in guaranteeing more than
218,000 bonds for more than $21 billion in contracts for small
businesses. The witnesses also noted that the pilot Preferred
Surety Bond Guarantee Program enables the SBA to provide a
reduced guarantee to participating sureties in exchange for the
sureties having authority to issue, monitor and service bonds
without SBA's prior approval.
The industry witnesses stressed the importance of the SBA's
Surety Bond Program and offered several recommendations for
improving the program, including an increase in the maximum
bond size allowable under the program; extension of the pilot
Preferred Surety Bond Guarantee Program; a requirement that
bond underwriters disclose fully the basis for denying a surety
bond and the actions that the applicant must take in order for
the bond to be approved; and amendment of the Miller Act to
improve the payment rights for subcontractors and suppliers
through payment bonds. (For further information on this
hearing, refer to section 7.4.2 of this report).
The full Committee addressed the Surety Bond Guarantee
Program legislatively in Section 206 of H.R. 3719, which amends
the surety bond program to give new applicants expeditious
responses to their applications. It also requires that the SBA
police the use of the program to ensure that participant
companies are using their bonding authority and authorizes the
removal of program participants who do not use their authority
adequately. (For further information on this legislation, refer
to section 5.5 of this report).
Debenture Prepayment Penalty Relief.

During the 104th Congress, the Committee monitored the
implementation of the debenture prepayment penalty relief
provisions that were included in the Small Business
Administration Reauthorization and Amendments Act of 1994. This
legislation authorized the appropriation of $30 million to
enable small businesses with 503 loans or small business
investment companies with similar debenture debt to prepay or
refinance those loans with a reduced penalty for early
prepayment. The prepayment penalty that was a condition of the
original loan agreement was so high that it often surpassed the
amount owed on the loan and was prohibiting small businesses
from taking advantage of reduced interest rates. Repayment
under the terms of the legislation was completed by the end of
fiscal year 1995. By the end of the 104th Congress, 706 small
businesses had prepaid or refinanced 503 loans with an
outstanding principal balance totaling $117,072,580. None of
the small business investment companies eligible elected to
participate because their remaining balance was too small to
make the option feasible.

7.1.3 procurement assistance

The Committee held a hearing on March 2, 1995 to review the
activities of the SBA's procurement assistance to small
business. The witnesses at this hearing noted the expansion of
SBA's procurement assistance efforts and that small business
has a significant voice in the government procurement process
through the various Procurement Center Representatives in the
Government Contract Division at the SBA. The panel also
addressed the benefits that the Small and Disadvantaged
Business Offices provide to small business. Several of the
panelists also gave anecdotal testimony about the success of
the SBA's government contracting programs. (For further
information on this hearing, refer to section 7.2.13 of this
report).
The Committee also held a hearing in the Fall of 1995
specifically to examine the trend in the Clinton Administration
of bundling contracts to the exclusion of small businesses.
This hearing focused on two instances of contract bundling. The
first involved an effort by the General Services Administration
(GSA) to consolidate air-freight contracts by raising the
minimum requirements that private air-freight carriers must
meet in order to qualify for government-contracted business.
The proposal raised the requirements to a level so high that
there was little chance that small businesses competing in the
government procurement process could have complied. The
proposal would have made the GSA the sole negotiator and
contractor for 67 government agencies and departments and would
have covered almost all of the U.S. government's heavy air-
freight business.
The second instance of contract bundling involved a
proposal by the Military Traffic Management Command (MTMC) to
consolidate its $1.1 billion per year personal property program
under which household-goods movers and forwarders are hired to
move military families who have been transferred from one
military installation to another. The proposal would have
abolished, rather than modified and improved, the existing
procurement procedures specifically developed for that
industry. (For further information on this hearing, refer to
section 7.2.30 of this report).
Following the hearing and significant follow up by the
Chair and Committee staff, the GSA withdrew their proposal
concerning air-freight contracts. In addition, the Committee
saw some progress in reaching a compromise between MTMC and the
household-goods movers and forwarders with respect to contracts
for moving the property of military families.
The Subcommittee on Government Programs also held a hearing
on professional certification as a sole-source bid requirement
in Federal contracts. At its August 2, 1995, hearing, the
Subcommittee received testimony from witnesses who gave
anecdotal evidence of the problems faced by small businesses
that are affected by the sole-source bid requirements in
government contracting. Witnesses also testified that
certification requirements have become very pervasive either as
a condition of employment, directly or indirectly, or as a
condition of doing business. Additionally, even though
certification is for individuals, it is often the case that a
company cannot do business unless it has certified individuals
on its payroll. (For further information on this hearing, refer
to section 7.3.7 of this report).

7.1.4 advocacy

* * *

As part of its overall review of the SBA, the Committee
held a hearing on April 4, 1995 to focus specifically on the
SBA's Office of Advocacy and the offices under its auspices,
including the Office of Economic Research. The current and
former Chief Counsels for Advocacy emphasized that one of the
great strengths of that office is its greater degree of
independence than most other Federal officials. As a result,
the Chief Counsel has the opportunity to truly be the
``independent advocate'' for small business. They noted that
one of the most significant challenges facing small business is
to help policy makers at all levels of government understand
that small business is a driving force in the economy. The
witnesses maintained that the Office of Advocacy is well placed
to assist small businesses in achieving that goal. The small
business witnesses agreed that the Office of Advocacy serves an
important purpose in furthering the policies that nurture the
small business and entrepreneurial sector of the economy.
Both the agency and small business witnesses offered a
number of suggestions for strengthening and expanding the role
of the Office of Advocacy and its Chief Counsel. The
suggestions ranged from giving the Chief Counsel for Advocacy
greater authority to prevent burdensome regulations on small
business to enhancing the economic research functions of the
Office and expanding its mission of commenting on proposed
regulations. (For further information on this hearing, refer to
section 7.2.20 of this report).
On October 31, 1995, the Committee also held a joint
hearing with the Senate Committee on Small Business to examine
the report to Congress by the Chief Counsel for Advocacy of the
SBA requested under section 613 of Public Law 103-403 on ``the
impact of all Federal regulatory, paperwork, and tax
requirements upon small business.'' The sole witness for the
hearing was the SBA's Chief Counsel for Advocacy who maintained
that the regulatory burden on businesses has leveled off as a
percentage of the gross domestic product. He noted that the
biggest increase in burden, however, has been in environmental
regulations. The next largest increase is in process
regulation, which is basically paperwork and involves the
Internal Revenue Service and payroll and Social Security
records. According to the Chief Counsel, social regulation
costs such as Occupational Safety and Health Administration
(OSHA) and worker safety rules have not increased
significantly. (For further information on this hearing, refer
to section 7.2.33 of this report).
While the Committee did not consider legislation that
directly affects the Office of Advocacy, members of the
Committee worked diligently to ensure that the Office received
continued funding during the 104th Congress. These efforts were
especially important for fiscal year 1996 when a proposal was
made to eliminate the appropriation for the Office.

7.1.5 technology and research assistance

Small Business Innovation and Research.

The full Committee and its Subcommittee on Government
Programs held hearings in the first and second sessions of the
104th Congress on the Small Business Innovation and Research
(SBIR) program. The Subcommittee found at its hearing, held on
April 6, 1995, that the small business community rated their
experience with the SBIR program as favorable. The witnesses
noted that the program has been instrumental in helping many
small businesses begin operations and in some cases assisting
existing small businesses to expand their exports. The
government witnesses also noted that the SBIR program
contributes one of the highest returns to taxpayers and
redirects money to small businesses that might otherwise have
gone to large firms, universities, and Federal government labs
that are far less efficient, far less innovative, and less able
to commercialize their technologies. Despite the general praise
for the SBIR program, several witnesses expressed concerns
about the program including the documentation and accounting
system requirements, which can be overly burdensome for small
businesses. Two witnesses also suggested that a fraction of
SBIR set-aside funds be used to provide commercialization
assistance to SBIR awardees and to support administrative costs
of the program's operation. (For further information on this
hearing, refer to section 7.3.2 of this report).
The full Committee hearing, held on March 6, 1996, also
found wide-spread praise for the SBIR program. The witnesses
provided additional anecdotal evidence of the program's
success, and emphasized the vital role that the program plays
in the high-technology sector of the small business community
and in the nation's research agenda, ensuring a flow of
innovative new products and services to the American
marketplace. In addition, the panelists stressed the need for
the program to be continued and at current funding levels. (For
further information on this hearing, refer to section 7.2.37 of
this report).
Legislatively, the Committee favorably reported H.R. 3158
on March 29, 1996. This bill would have called on the General
Accounting Office to monitor the implementation of the SBIR
program over a four-year period, covering fiscal year 1995
through fiscal year 1999 and to submit a report on its finding
by February 1, 2000. The bill also would have established an
interagency task force on fostering commercialization of the
results of projects being undertaken by small businesses
through the SBIR program. Unfortunately, the provisions of H.R.
3158 concerning the SBIR program were not included in
legislation that was signed into law. (For further information
on this legislation, refer to section 5.4 of this report).

Small Business Technology Transfer.

As part of its hearing on the SBIR program on March 6,
1996, the Committee examined the success of the pilot Small
Business Technology Transfer (STTR) program. Overall, the
witnesses testified that the pilot STTR program had been very
beneficial for small businesses, and the GAO report on the
program found that participating agencies rated highly both the
quality and commercial potential of the proposals and have not
found any evidence that the pilot STTR program was competing
for quality proposals with the SBIR program.

Witnesses from the small business community provided
numerous examples of success stories from the pilot STTR
program and the critical role that the program plays in
fostering the transfer of technology to the marketplace. They
expressed concern that the contribution to the nation's economy
and defense from the resulting technologies and products would
not have been possible without small business participation in
the STTR program. For these reasons, the witnesses urged the
Committee to reauthorize the pilot program, which was set to
expire at the end of fiscal year 1996. (For further information
on this hearing, refer to section 7.2.37 of this report).

The Committee's consideration of H.R. 3158 included several
provisions concerning the pilot STTR program. Primarily, the
bill would have reauthorized the pilot STTR program through
September 30, 2000, placing it on the same authorization time
frame as the SBIR program. The bill would also have provided a
\1/10\ of 1 percent increase in the percentage of extramural
research budgets dedicated to awards under the pilot STTR
program.

In addition, the bill would have called on the GAO to
monitor the implementation of the program during the extension
and submit a report by February 1, 2000. Under the bill, the
interagency task force on fostering commercialization of the
results of projects being undertaken by small businesses
through the SBIR program would also have covered projects in
the pilot STTR program.

Provisions extending the pilot STTR program through
September 30, 1997, were included in the omnibus consolidated
appropriations legislation (H.R. 4278), which the House and the
Senate passed together with the 1997 Department of Defense
Appropriations Act (H.R. 3610) at the end of the 104th
Congress. The remaining provisions of the bill were not
enacted. (For further information on this legislation, refer to
section 5.4 of this report).

7.1.6 minority enterprise development

The Committee held three hearings to review the SBA's 8(a)
Business Development Program. The 8(a) program was originally
created to assist businesses owned by individuals who are
socially and economically disadvantaged. The Committee's
objective for the hearings was to examine the program's
continuing efficacy and ability to meet its statutory
objectives as well as to review reports of fraud and abuse
within the program.

During the Committee's hearings on March 6, 1995, December
13, 1995, and September 18, 1996, the witnesses focused on a
number of problems with the 8(a) program. Specifically, the
hearings focused on charges that the program offers opportunity
to only a relative few well-to-do individuals at the expense of
the majority of persons whom the program was designed to
assist. The witnesses at the hearings also pointed out that a
number of companies have remained in, and have taken advantage
of, the program long after they have become successful and
self-sustaining, that most companies do not become self-
sufficient by the time they leave the program, and that the
program is laden with fraud and abuse. In reviewing these
charges, the Committee heard testimony from the General
Accounting Office, the SBA and its Office of the Inspector
General, and numerous small business owners. (For further
information on these hearings, refer to sections 7.2.14,
7.2.35, and 7.2.49 of this report).
In addition to the full Committee's inquiries into the 8(a)
program, the Subcommittee on Regulation and Paperwork held a
hearing to discuss the impact of Federal regulation on minority
entrepreneurship. The witnesses agreed that because many small
businesses are owned by and employ a large percentage of
minorities, Federal regulations and taxes are said to fall
disproportionately on minorities. The witnesses also emphasized
that government programs such as welfare and minority set-
asides are solutions for the symptoms of poverty among
minorities, but do not go to the root of the problem, which is
a lack of economic opportunities provided to minorities because
small businesses are stifled with high taxes and oppressive
regulations. (For further information on this hearing, refer to
section 7.5.2 of this report).

7.1.7 women-owned businesses

As part of its overall review of the SBA's programs, the
Committee evaluated the various outreach efforts by the agency
including the Women's Business Ownership Program. The witnesses
agreed that the program was an important part of SBA's efforts
to promote small business ownership by women and served to
provide important resources for starting and operating small
firms. (For further information on this hearing, refer to
section 7.2.17 of this report).
The Committee also focused on a number of issues that
directly affect the ability of women to start and continue
their own businesses. For example, the Committee held a hearing
dedicated to the home-office deduction and the 1993 Supreme
Court case that drastically narrowed its availability. At that
hearing, the witnesses, all of whom were women, testified to
the importance of the home-office deduction for the smallest of
small businesses that do not have the capital to acquire office
space outside the home. (For further information on this
hearing, refer to section 7.2.2 of this report).
Similarly, the Committee held individual hearings on the
deductibility of health-insurance costs by the self-employed,
which is a significant issue for women business owners, and
access to capital for small businesses. At the latter hearings,
the Committee heard testimony concerning the particular
difficulties of women business owners who seek debt and equity
capital to start or expand their business. (For further
information on these hearings refer to sections 7.2.4, 7.2.36,
and 7.2.43 of this report).

7.1.8 office of inspector general

During both sessions of the 104th Congress, the Committee
undertook several investigations of alleged misconduct by
employees of the SBA and by certain program participants. In
each investigation, the Committee called on the Office of the
Inspector General to conduct internal reviews and
investigations of the particular matter. The Committee
monitored the work product of the Office and evaluated it in
comparison to the results of staff investigations and those of
other outside investigative sources. Overall, the Committee
found the efforts of the Inspector General and his staff to be
satisfactory.
The Committee also endeavored to ensure that the Office of
the Inspector General received adequate funding in both fiscal
year 1996 and 1997 in order to carry out its responsibilities
to the fullest extent.

7.1.9 office of disaster assistance

During the 104th Congress, the Committee held hearings on
the overall management of the SBA. Testimony at these hearings
and investigations and research by Committee staff showed that
the disaster loan program continues to provide prompt and
effective aid to areas of the country struggling to rebuild
after the onset of disasters. The hearings on the SBA's budget
also revealed that the subsidy rate for the disaster loan
program dropped during fiscal years 1995 and 1996. The single
largest component of the disaster assistance loan program's
subsidy rate is the difference between the interest rate on the
loans (capped at 4 percent in most cases) and the cost of
borrowing money for the government (currently at 5.25 percent).
The narrowing of this spread due to lower interest rates has
significantly reduced the subsidy rate. Loss rates in the
program remained within acceptable limits given the nature of
the loan portfolio, and the Committee received reports and
testimony from the Inspector General concerning fraud and abuse
and found that the SBA had responded adequately.
Representative Torkildsen, Chairman of the Subcommittee on
Government Programs held three additional hearings specifically
on the disaster assistance program. The first of these hearings
focused on the overall functioning of the disaster program and
mirrored the full Committee's findings. While testimony
revealed that the program has an excellent ability to respond
quickly and efficiently, suggestions were developed for
administrative efforts to decrease loan processing time and
reduce the threshold level for assistance eligibility. The
other two hearings dealt specifically with problems facing the
fisheries industries in New England due to a dramatic and
disastrous decline in groundfish stocks. The Subcommittee heard
extensive testimony from small business owners and local
government officials regarding the plight of the fisheries
industry in New England. The Committee also developed evidence
of mismanagement of the fisheries by regulatory agencies. While
the SBA expressed a desire to be of assistance, SBA officials
testified that the conditions in the area could not be
construed as a disaster. (For further information on these
hearings, refer to sections 7.3.3, 7.3.4, and 7.3.16 of this
report).
Legislatively, the Committee acted to pass several
improvements to the disaster assistance program as part of H.R.
3719. Recognizing the need to continue to reduce program costs
whenever possible, the Committee proposed a pilot loan-
servicing program for disaster loans that would test
privatization of the servicing of 10 percent of the disaster
loan portfolio. Due to its similarity to residential mortgage
portfolios, the Committee believed that current commercial
providers might effectively service the disaster portfolio. The
Committee also examined an Administration suggestion to
increase the interest rate structure for disaster loans from
its current level of one-half the rate of similar government
securities (but not more than 4 percent) to the full rate of
similar government securities. The Committee felt that such a
steep increase would be unwise in light of the nature of
lending in disaster stricken areas, but agreed to an increase
to three-fourths of the rate of similar government securities.
Finally, the Committee accepted an amendment by Mr. Torkildsen
expanding the definition of a disaster to include fisheries
closed by government regulation.
The disaster assistance program provisions of H.R. 3719
were included in the final version of the omnibus
appropriations legislation with some modification. The pilot
disaster loan servicing program was expanded to 30 percent of
the loan portfolio but restricted to residential loans. Mr.
Torkildsen's amendment to provide disaster assistance to the
New England fisheries was amended slightly to incorporate
technical definitions. The modified version of the
Administration's interest rate increase was omitted in the
final version of the legislation. (For further information on
this legislation, refer to section 5.5 of this report).

7.1.10 office of international trade

The Committee's international trade activities were
conducted through its Subcommittee on Procurement, Exports and
Business Opportunities, which held a series of eight hearings
on the subject of increasing small business exports. The first
hearing on March 29, 1995, centered on the various Federal
export-promotion programs. The export-promotion divisions of
the International Trade Administration (ITA) of the Department
of Commerce (including Trade Development, International
Economic Policy, and the U.S. & Foreign Commercial Service),
the Small Business Administration (SBA), the Overseas Private
Investment Corporation (OPIC), and the Trade Development Agency
(TDA) provided the Subcommittee with information on the various
export-promotion programs and the availability of their
benefits to small businesses. (For further information on this
hearing, refer to section 7.4.1 of this report).
The second hearing on May 17, 1995, focused almost
exclusively on agriculture export-promotion programs. The
Subcommittee received testimony from the Foreign Agricultural
Service (FAS) of the U.S. Department of Agriculture and
private-sector witnesses concerning the importance of
agricultural exports and some of the obstacles that exists for
small business. The Subcommittee also heard from John
Frydenlund of the Heritage Foundation, who is a key opponent of
these programs. (For further information on this hearing, refer
to section 7.4.3 of this report).
The third hearing, on May 23, 1995, allowed individuals not
directly connected with any of these programs to present an
academic critique of the Federal export-promotion programs,
including the costs and benefits of these programs and the need
for these programs in an era of immense foreign competition to
the country's exporters. Following this hearing, the
Subcommittee held a hearing on export promotion from the small
business perspective. On June 22, 1995, four small to medium-
sized businesses testified before the Subcommittee about
Federal export-promotion programs and how they benefited their
companies and increased job growth in their communities. In
addition, the Subcommittee heard testimony about how a public-
private sector partnership between the Federal government and a
local college has helped disseminate trade information to
resource-poor small businesses. (For further information on
these hearings, refer to sections 7.4.4 and 7.4.5 of this
report).
The fifth hearing, which was a joint hearing with the
Committee's Subcommittee on Government Programs, on September
7, 1995, focused on the problems of trade finance with an
emphasis on the potential problems with a change in the
guarantee rate for the Export Working Capital Program at the
SBA, which is part of the SBA's 7(a) loan program. At that
time, small business exporters were able to obtain a 90-percent
guarantee for pre-export working capital for deals under
$750,000 through the SBA. For export sales above that amount,
the Export-Import Bank of the United States (Eximbank) had a
harmonized program also with the 90-percent guarantee level.
(For further information on this hearing, refer to section
7.4.6 of this report).
In October of 1995, a comprehensive bill to reduce the
guarantee rate for all SBA loan programs to 80 percent for
loans below $100,000 and 75 percent for loans above $100,000
was enacted into law, thus placing a temporary disparity
between the export-financing programs administered by the SBA
and Eximbank. The guarantee rate for export working capital
loans was restored to 90 percent in the legislation that was
included in the omnibus consolidated appropriations legislation
in September of 1996. (For further information on both
legislative changes, refer to sections 5.2 and 5.5 of this
report).
Two subsequent hearings on October 11, 1995 and February
13, 1996 focused on technologies for accessing foreign markets.
These hearings allowed representatives from the Federal
government and the private sector to demonstrate technologies
designed to assist small businesses in obtaining timely and
concise information at relatively low cost about overseas
markets and foreign customers. The final Subcommittee hearing,
on July 25, 1996, examined the effectiveness of the newly
opened U.S. Export Assistance Centers (USEACs). This hearing
permitted the GAO and the Inspector General of the Department
of Commerce to present their findings and allow a response from
the Federal agencies that are part of the USEAC system
(Commerce, SBA, and Eximbank). (For further information on
these hearings, refer to section 7.4.7 and 7.4.9 of this
report).
In addition to its series of hearings on trade, the
Subcommittee also held a hearing on the ``short supply''
problem in the anti-dumping laws facing small manufacturers. On
May 2, 1996, the Subcommittee heard from both the Congressional
proponent and the opponent of H.R. 2822, legislation to provide
discretion to the Department of Commerce to waive anti-dumping
duties for up to one year when it can be demonstrated that the
long-term survivability of a U.S. business is in jeopardy
because it cannot find at a competitive price certain goods
subject to anti-dumping orders. No further legislative action
was taken on H.R. 2822 during the 104th Congress. (For further
information on this hearing, refer to section 7.4.8 of this
report).
In addition to its hearings, the Subcommittee took an
active interest in the ``Made in USA'' labeling issue. The
Subcommittee protested proposed changes by the Federal Trade
Commission that would have weakened the ``Made in USA''
labeling standards through regulatory changes. The FTC
ultimately agreed to slow the regulatory change to seek more
public comment. The Subcommittee also requested and received a
comprehensive report from the GAO on the impact of defense
offsets on the U.S. manufacturing base. This GAO report helped
set the stage for the Administration to include an entire
chapter in the 1996 National Export Strategy report to Congress
outlining areas in which the Executive Branch will undertake to
negotiate in multilateral forums with the country's trading
partners to reduce this practice. Finally, on November 30,
1995, the Subcommittee held an open briefing, along with the
Subcommittee on International Economic Policy and Trade and the
Subcommittee on Asia and the Pacific of the House Committee on
International Relations, on the potential U.S. export
opportunities to the Three Gorges Dam project along the Yangtze
River in the People's Republic of China. This forum allowed
specific companies, along with trade, environmental, and
engineering experts, to comment on the worthiness of this
immense project and the decision by Eximbank to deny export-
credit assistance to any U.S. company seeking to sell products
to the Three Gorges Dam project, which effectively put American
companies out of the competition for these export sales.

7.1.11 office of business initiatives and training

The Committee held a hearing on March 16, 1995 to review
the SBA's Business Development Programs. In particular, the
hearing focused on the Service Corps of Retired Executives
(SCORE), the Small Business Development Centers (SBDCs), the
Small Business Institutes (SBIs); the Office of International
Trade; the Office of Women's Business Ownership, and the Office
of Veterans Affairs.
The witnesses generally agreed that the SBA's business
development programs are very beneficial for small business
growth and development, and they provide small business owners
with significant resources either for free or for a small
affordable fee. Several witnesses offered suggestions for
improving the programs, including such things as better
coordination between the SBA and the Export-Import Bank of the
United States to encourage exports. (For further information on
this hearing, refer to section 7.2.17 of this report).
Legislatively, the Committee favorably reported H.R. 3719,
which provides clear authority for the Associate Administrator
for Small Business Development Centers to establish a
comprehensive certification and eligibility review program for
Small Business Development Centers. These provisions were
included in the omnibus consolidated appropriations legislation
enacted in September of 1996.

7.1.12 federal procurement

The Committee held several hearings on legislation
concerning Federal procurement and, in particular, its effect
on small business. On June 29, 1995, the Committee on Small
Business held the first in a series of two hearings on H.R.
1670, the Federal Acquisition Reform Act of 1995 (FARA). The
first hearing was to provide representatives of small business
an opportunity to assess the potential impact of H.R. 1670 on
their ability to compete for Federal contracts. On August 3,
1995, the Committee held a second hearing to assess the impact
of H.R. 1670, as reported by the Committee on Government Reform
and Oversight on July 27, 1995.
Witnesses at the June 29, 1995 hearing testified that H.R.
1670 would reduce the number of participating government
contractors by replacing ``full and open competition'' with a
standard based on ``maximum practicable competition.''
Witnesses testified that the maximum practicable competition
clause would give government officials too much power over
business decisions and that anything less than full and open
competition would artificially restrain trade and hurt smaller
companies disproportionately.
At the August 3, 1995 hearing, witnesses testified that the
government must put forth an effort to achieve vigorous
commercial-style competition, and the bureaucracy that is
preventing the government's ability to serve the taxpayer must
be ended. According to the witnesses there is an extreme
distrust in the current system toward front-line contracting
and program professionals and a complete lack of faith in their
ability to use common sense and good judgment to make sound
business decisions in the best interest of the taxpayer. The
witnesses also stated that the Federal government has a
fiduciary responsibility to follow rational procedures, as
opposed to the often arbitrary procedures established by
contracting officers. (For further information on these
hearings, refer to section 7.2.22 of this report).
On July 20, 1995, the Committee held a hearing to assess
the implementation of Public Law 103-355, the Federal
Acquisition Streamlining Act of 1994 (FASA), and its effect on
small firms seeking to market supplies, services, and
construction to the government. The witness representing the
GAO reviewed three elements of the on-going implementation of
FASA. First, they provided an assessment of the status of the
proposed and final implementing regulations to be promulgated
by the Executive Branch in accordance with FASA's statutory
schedule. They also provided the Committee with a preliminary
assessment of FACNET's implementation and its use by the
Federal procuring agencies and the vendor community. Finally,
the GAO's testimony provided a status report on the
implementation of FASA's new authority regarding micro-
purchases and the use of the IMPACT Purchase Card.
The witness representing the SBA's Office of Advocacy made
a number of observations about the implementation of FASA and
its potential impact on small firms seeking to market to the
Federal government. First, the SBA Chief Counsel for Advocacy
testified that while FASA made the most sweeping changes to the
Federal procurement process in 10 years, FASA's specific
effects, especially on small firms, cannot be assessed until
its implementation regulations are in place given the
substantial discretion accorded to the regulation writers. He
also noted that the Office of Advocacy was applying steady
pressure on the FASA regulation drafters to force their fullest
compliance with the Regulatory Flexibility Act. In addition, he
discussed his concerns about the implementation of FACNET,
which he noted was proceeding quite slowly with very few
procurement opportunities available through the system, and he
emphasized that some of the provisions of FASA remained
potentially dangerous to future small business participation.
Finally, he urged the Committee to give the fullest
consideration to the recommendations of the delegates to the
1995 White House Conference on Small Business and to the
concerns being expressed by many groups within the small
business community. (For further information on this hearing,
refer to section 7.2.25 of this report).

7.1.13 government & non-profit competition

The Committee held two hearings on unfair competition by
government and non-profit organizations against small
businesses. The first hearing, held on June 26, 1996, dealt
with the Federal Prison Industries (FPI) and its competition
with small manufacturers. The witnesses provided the Committee
with substantial anecdotal evidence that FPI's super-
preference, which forces many government agencies to buy from
FPI rather than the private-sector, has prevented many small
companies from competing for government business. The witnesses
also noted that FPI's prices have not been competitive with
industry prices and maintained that FPI's quality of products
and contract performance in delivering products does not match
that of the private sector. In defense of the current system,
the FPI witnesses asserted that FPI is performing an important
function of providing work for inmates at Federal correctional
institutions. The small business witnesses stressed that in
many cases their survival depends on FPI being required to
compete on a level playing field with all businesses for
government contracts. (For further information on this hearing,
refer to section 7.2.47 of this report).
The Committee also held two days of hearings on the general
topic of competition with small businesses by government and
not-for-profit organizations. On July 16 and 18, 1996, the
Committee heard from a number of witnesses about the current
status of unfair government competition with small business,
the ineffectiveness of existing administrative restraints, and
the current status of various legislative proposals being
advanced in the 104th Congress. These witnesses also gave
anecdotal evidence of commercial activities being undertaken by
an array of Federal agencies to the detriment of small firms.
The witnesses also provided the Committee with anecdotal
evidence of the devastating effect of unfair competition by
government-sponsored entities, in particular the National
Industries for the Severely Handicapped (NISH) and the National
Industries for the Blind (NIB). The witnesses raised concerns
about a number of practices by these organizations including:
potential unfair pricing, underutilization of persons with
disabilities, and excessive subcontracting to selected for-
profit companies in order to be able to meet their contractual
performance obligations to the government. (For further
information on these hearings, refer to section 7.2.48 of this
report).
7.1.14 regulatory flexibility & paperwork reduction

The Committee held four hearings regarding the Regulatory
Flexibility Act and the Paperwork Reduction Act. These hearings
focused on the effect of those laws since their enactment and
the history of government compliance with their provisions.
On January 23, 1995, the Committee on Small Business held a
hearing on strengthening the Regulatory Flexibility Act (RFA).
The consensus of the witnesses was that Congress must put some
``teeth'' into the RFA. In addition, testimony indicated that
the SBA's Office of Advocacy was being hindered by its
inability to represent small business as an amicus curiae in
judicial proceedings. More specifically, the witnesses
recommended reforming the Paperwork Reduction Act, imposing a
six-month moratorium on new regulations, strengthening private-
property rights protection, allowing for a cost-benefit
analysis and/or risk assessment, establishing a regulatory
budget, and ``sun setting'' regulations. There was also support
among the panelists for the provisions in H.R. 9, which would
allow for judicial review of Federal agencies' regulatory
decisions and their indirect effect on small business. The bill
would also increase the role and authority of the SBA's Office
of Advocacy in reviewing and improving regulations. Several
witnesses focused on specific agencies, such as the
Occupational Safety and Health Administration (OSHA), and the
burdens that their regulations represent to small businesses.
(For further information on this hearing, refer to section
7.2.5 of this report).
On February 10, 1995, the Committee on Small Business held
a second hearing on the RFA. While the first hearing focused on
legislation to strengthen the Act, this hearing was designed to
provide the Committee with a historical perspective. In
particular, the witnesses were asked to examine specific areas
in which the RFA has worked as well as ways to improve the Act.
The witnesses provided the Committee with historical background
on the RFA and offered several suggestions, including judicial
review of regulations. The testimony highlighted the inability
of the RFA to provide small business with an effective means of
enforcement of agency compliance. Evidence presented to the
Committee showed that agency compliance was at best perfunctory
and at worst deliberately insufficient. (For further
information on this hearing, refer to section 7.2.10 of this
report).
Hearings on the Paperwork Reduction Act (PRA) were held by
both the full Committee and its Subcommittee on Government
Programs. The full Committee held a hearing on January 27, 1995
focusing on agency compliance with the provisions of the PRA
and agency information gathering efforts. At that hearing, the
Committee heard from Sally Katzen, Administrator of Office of
Information and Regulatory Affairs (OIRA), Office of Management
and Budget (OMB). Ms. Katzen testified that the current 5-
percent goal per year in paperwork reduction is important to
have as a goal, but that a fixed number would not be
constructive. She also emphasized the need to use technology to
make government more efficient. While she could not provide the
Committee with the number of cases in which her office had
disapproved of agencies' paperwork requests, she testified that
the number had gone down and that the decline was likely due to
agencies better understanding what OMB expects.
The small business witnesses at the hearing testified that
they were pursuing the goal of overhauling the Federal
regulatory process, which would result in more efficient
rulemaking and greater, less expensive, compliance. The
witnesses expressed solid support for Title V of H.R. 9. In
addition, the witnesses endorsed the concept of adding a cost-
benefit analysis to the PRA, since it has been generally
required with respect to regulatory burdens but not paperwork
burdens. (For further information on this hearing, refer to
section 7.2.8 of this report).
On March 27, 1996, the Subcommittee on Government Programs
held a hearing to discuss H.R. 2715, the Paperwork Elimination
Act. The bill, introduced by Chairman Torkildsen (R-MA), would
minimize the burden of Federal paperwork demands upon small
businesses, educational and non-profit institutions, Federal
contractors, State and local governments, and other persons
through the use of alternative information technologies,
including electronic maintenance, submission, or disclosure of
information as a substitute for paper. OIRA Administrator Sally
Katzen provided the Subcommittee with the Administration's
position on H.R. 2715. While supporting the intent of the
legislation as an effort to reduce paperwork burdens and
modernize government, the Administration had reservations about
its necessity and requirements. Ms. Katzen claimed that the
Administration was already doing its part to reduce paperwork
burdens by complying with the PRA, and she questioned the
timing of the Paperwork Elimination Act, citing that too many
departments and agencies do not have the technological
capability to comply with its requirements.
Two witnesses representing small businesses testified about
the benefit that the small business community would receive
from the passage of the Paperwork Elimination Act. In
particular, one witness noted that individuals in the health-
care industry have been significantly burdened by Federal
paperwork demands. The witness maintained that this burden
could be significantly reduced if regulators allowed compliance
by alternative technological means. The other witness testified
that the technology needed to comply with this legislation
exists and using it could save at least $22 billion in mailing,
receiving, rekeying, and routing costs. The two SBA witnesses
testified that small businesses face tremendous burdens in
terms of paperwork mandated by the Federal government, and
noted that the SBA was making efforts to disseminate
information electronically via the Internet. In addition, they
testified that the SBA was conducting outreach and training
activities to inform small businesses about the Federal
government's transition from a paper-based procurement program
to an electronic-based system. (For further information on this
hearing, refer to section 7.3.11 of this report).
The Subcommittee on Government Programs also held a series
of hearings to evaluate the extent to which various Executive
Branch departments and agencies were complying with the PRA. In
particular, the Subcommittee focused on the Environmental
Protection Agency, the Department of Labor, and the Food and
Drug Administration. At each hearing, the Subcommittee received
testimony from the Administration concerning the initiatives
that the department or agency was undertaking and from
representatives of the small business community concerning the
effectiveness of these efforts. In general, the consensus of
the small business community was that the Administration was
making some progress in reducing the paperwork burdens imposed
on small business but considerable ground remains to be
covered. (For further information on these hearings, refer to
sections 7.3.14, 7.3.15, and 7.3.19).
Legislatively, the Committee acted to remedy the
deficiencies in the Regulatory Flexibility Act through H.R.
937. The provisions of this legislation would add judicial
review of RFA determinations, strengthen the amicus authority
of the SBA, and close a loophole in the law that allows the
Internal Revenue Service to avoid any RFA compliance. The bill
was marked up by the Committee on the Judiciary and then by the
Committee on Small Business. Final passage was delayed until
the Regulatory Flexibility Act provisions were included in the
Small Business Regulatory Enforcement Fairness Act of 1996,
Title III of H.R. 3136, which became Public Law 104-121. This
legislation included five sections on small business regulatory
relief including the judicial review provisions from H.R. 937,
the establishment of regional regulatory fairness boards, and a
Regulatory Ombudsman at the SBA. (For further information on
this legislation, refer to section 5.1 of this report).
Revisions to the PRA were included in Title V of H.R. 9,
which were ultimately incorporated into H.R. 830. H.R. 830
passed the House on March 10, 1995 as an amendment to S. 244
and was enacted as Public Law 104-13 on May 22, 1995. Pursuant
to the Committee's legislative jurisdiction over Title V of
H.R. 9, it submitted a report of its findings at the
Committee's hearings to the Committee on Government Reform and
Oversight. These findings were incorporated in House Report
104-37, which accompanied H.R. 830.
The Committee also marked up H.R. 2715, the Paperwork
Elimination Act of 1995, which was designed to encourage
Federal agencies to increase opportunities for small businesses
to complete forms and respond to requests for information
electronically. The bill was marked up and favorably reported
by the Committee on March 29, 1996, and passed the House on
April 24, 1996, by a unanimous vote. Unfortunately, Senate
action on this legislation was not completed before the
adjournment of the 104th Congress. (For further information on
this legislation, refer to section 5.3 of this report).

7.1.15 government regulation

During the 104th Congress, the Committee conducted a series
of hearings on the Clinton Administration's initiatives to
reduce regulatory burdens on small business. Beginning with a
hearing on July 17, 1995, the Committee sought a progress
report on implementing President Clinton's March 1, 1995
directive to all Executive Branch departments and agencies to
cut obsolete regulations, reduce red tape, work cooperatively
with those being regulated, and negotiate instead of dictate.
The Administration witnesses testified about the efforts that
the various departments and agencies were undertaking to comply
with the Executive Order and reduce the burdens on small
businesses.
The small business witnesses provided the Committee with an
opposing view point. In particular, the National Federation of
Independent Business testified that its members have indicated
that despite the Administration's claims that the agencies'
have changed their focus toward assisting rather than
penalizing small businesses, NFIB members continue to see
significant problems especially with the Occupational Safety
and Health Administration (OSHA) and the Environmental
Protection Agency (EPA), not to mention the Internal Revenue
Service, which poses the most significant burdens for most
small businesses. Another small business advocate noted that
while a change in policy with regard to regulation of small
businesses would be helpful, what is really needed is a change
in the process of enforcing those regulations.
The panelists also offered a number of suggestions for
improving regulatory reform efforts including providing better
guidance to Federal agencies on exactly what is expected from
the regulators and providing agency performance standards as a
means of improving the process of helping small businesses to
comply with existing regulations rather than continuing the
history of enforcement actions. Witnesses from the General
Accounting Office also urged the Committee to utilize the
Government Performance and Results Act (GPRA) to its fullest
extent as a tool for focusing on the particular outcomes that
each agency is charged with achieving. (For further information
on this hearing, refer to section 7.2.24 of this report).
The Committee's series on regulatory reform also included
individual hearings designed to examine the reform efforts of
specific agencies. The Committee held two hearings on the
Occupational Safety and Health Administration (OSHA). At the
first hearing on July 26, 1995, the Committee heard testimony
from the OSHA Administrator about his efforts to reinvent the
agency through such initiatives as the Maine 200 program,
bringing common sense to agency regulations, and measuring
performance based on reductions in worker injuries and deaths
as opposed to the number of violations found and penalties
imposed. The Committee also heard testimony on legislative
proposals designed to reform OSHA on a statutory level.
The small business witnesses at the hearing stressed that
compliance with OSHA's relations represents a greater burden
for small businesses than for large business, in part due to
the fact that small businesses typically have fewer employees
to review, monitor, and implement the voluminous amount of
regulations concerning worker safety. While the witnesses
generally congratulated OSHA for its efforts to be more
consultative and less confrontational, they were also
supportive of legislation as a means of reinforcing the
organizational changes that the Administration pledged to
implement. (For further information on this hearing, refer to
section 7.2.26 of this report).
Nearly a year later, on September 25, 1996, the Committee
held a second hearing on OSHA to evaluate the progress made to
date and determine areas for continued improvement. The
witnesses noted that OSHA continues to be one of the least-
liked regulatory agencies in Washington due to a disjointed
approach to enforcement and confusing, burdensome standards
among other agency practices. In addition, the witnesses
continued to favor legislation to reform OSHA, since, as one
witness pointed out, there can be no guarantees that the next
OSHA Administrator will maintain the policies set forth in the
``Reinventing OSHA'' initiative. With regard to specific reform
provisions, several witnesses were supportive of the
requirement that OSHA and other Federal agencies perform a
cost/benefit analysis on regulations prior to their
promulgation to ensure that the regulations do not impose
unnecessary or duplicative burdens on the small business
community. (For further information on this hearing, refer to
section 7.2.50 of this report).
The Subcommittee on Regulation and Paperwork also held two
hearings on workplace regulations. Beginning with a hearing on
February 2, 1995, the Subcommittee examined from a broad
perspective the impact of workplace and employment regulations
on small business. At this hearing, the Subcommittee heard
testimony concerning the detrimental effects of direct and
indirect government regulations on small businesses, including
minimum wage requirements, payroll and income taxes, and
workplace safety rules. The Subcommittee also received a number
of recommendations for easing these burdens, including
reviewing all current regulations using cost-benefit analyses;
providing information on regulations in ``plain English'';
reporting the cost of regulations; providing sunset
requirements that would require regulations to be reviewed
periodically before they are extended; placing the burden of
proof on those who want to pass new regulations; and
individualized regulatory requirements for businesses. (For
further information on this hearing, refer to section 7.5.1 of
this report).
At a subsequent hearing, the Subcommittee focused in
particular on the new OSHA fall-protection standard, which
lowered the fall-protection threshold from 16 feet to 6 feet.
While the Administration witnesses testified that the fall
protection threshold would prevent more injuries to workers and
reduce workers' compensation payments without having a
disproportionately adverse impact on small businesses, the
small business witnesses agreed that this new standard would
not only cost more money than anticipated, but would also
result in more accidents. (For further information on this
hearing, refer to section 7.5.3 of this report).
The full Committee also held hearings to examine the
regulation-reduction efforts of the IRS and the EPA. At a
hearing on October 25, 1995, the IRS Commissioner explained
some of the programs that the IRS had been developing to
streamline procedures for the small business owner. The small
business witnesses stressed the need for much more to be done
both by the IRS and the Congress. They maintained that the tax
code is so convoluted and difficult to understand that it needs
to be thrown out and totally rewritten from scratch. In
addition, the small business witnesses testified that reforms
in the Regulatory Flexibility Act, the Taxpayer Bill of Rights,
and the Paperwork Reduction Act must be passed to further
enhance the process. The small business witnesses, however,
opposed the final rule promulgated to implement the 1995
Paperwork Reduction Act given its public-protection exemption
for the IRS. (For further information on this hearing, refer to
section 7.2.32 of this report).
At the Committee's hearing on the EPA, the Administration
witnesses noted that the EPA was half-way toward the reduction
of its paperwork burden by 20 million hours, which EPA
Administrator Carol Browner promised in March of 1995, with the
implication being that the EPA would satisfy the 10-percent
reduction goal established by the 1995 Paperwork Reduction Act.
In particular, the witnesses noted the EPA's implementation of
a new, streamlined, universal waste rule, less cumbersome Toxic
Release Inventory reporting for small businesses, plans for
cutting the frequency of Clean Air Act reports, and plans for
phasing-in an electronic reporting system for discharge
monitoring reports. The General Accounting Office (GAO)
provided written testimony for the hearing and reported that
while EPA claimed to have identified 18 million of the 20
million hours of its promised reduction, it was not likely to
meet its actual reduction goals because of double counting and
overstating of accomplishments. GAO predicted an increase in
the EPA paperwork burdens for fiscal year 1996 as opposed to a
decrease.
The small business witnesses overwhelmingly stressed that
small businesses fear environmental regulatory agencies. They
noted that these perceptions will not change simply as a result
of policy pronouncements or shifts in attitude--concrete
actions over time will be necessary to convince small business
that the EPA is serious about changing its enforcement
mentality. Several witnesses stressed that EPA regulations
often prevent small businesses from being innovative and
creating more environmentally conscious and economically
efficient business practices. Small business owners also
experience frustration in dealing with ever-changing
regulations in many industries imposed on them by the EPA and
State counterparts. Other witnesses stressed the importance of
minimizing cost and avoiding duplication and complexity of
regulatory compliance. (For further information on this
hearing, refer to section 7.2.38 of this report).
In addition to its hearings on the initiatives of specific
Executive Branch agencies, the Committee and two of its
subcommittees held several hearings on various regulatory
issues. The full Committee held a joint hearing with the Senate
Committee on Small Business on October 31, 1995 to review the
report issued by the Chief Counsel for Advocacy on the cost of
Federal regulations on small business. The report was ordered
by section 613 of Public Law 103-403 and was to include
findings on ``the impact of all Federal regulatory, paperwork,
and tax requirements upon small business.'' The Chief Counsel
reported that the regulatory burden had leveled off as a
percentage of the gross domestic product and that two
regulatory costs had actually gone down over the last two
decades: the economic efficiency cost and the economic transfer
cost. The biggest increase in burden, however, has been in
environmental regulations. The next largest increase is in
process regulation, which is basically paperwork and involves
the Internal Revenue Service and payroll and Social Security
records. Social regulation costs such as Occupational Safety
and Health Administration (OSHA) and worker safety rules had
not increased significantly, according to the Chief Counsel.
(For further information on this hearing, refer to section
7.2.33 of this report).
The Committee also held a hearing on the effects of
Superfund liability on small businesses on October 19, 1995.
The witnesses at this hearing reviewed the Administration's
efforts to address the problems with Superfund and the
initiatives designed specifically to benefit small businesses.
Other witnesses at the hearing testified about the failure of
Superfund to cleanup hazardous waste sites, and the need to
eliminate the system of retroactive liability. (For further
information on this hearing, refer to section 7.2.31 of this
report).
The Subcommittee on Regulation and Paperwork held a hearing
to identify regulation candidates for the House's new
corrections calendar, which sets aside one morning every month
to discuss regulations that face non-partisan opposition in an
effort to eliminate regulations that are outdated or otherwise
fail to achieve their purpose without having to go through the
normal, laborious procedures required in passing legislation in
the House. The Subcommittee received recommendations concerning
FDA regulations governing the approval of new medical devices;
regulations limiting the amount of water expelled per flush of
a toilet; wetland-protection regulations; motor-carrier-safety
regulations; and various tax regulations. (For further
information on this hearing, refer to section 7.5.4 of this
report).
Finally, the Subcommittee on Government Programs held a
hearing to examine whether unrestricted government requests for
proposals are discriminatory toward small business. The small
business witnesses at this hearing provided anecdotal evidence
that contract solicitations by Federal government agencies
often include requirements that preclude or limit small
business participation in the bid process. (For further
information on this hearing, refer to section 7.3.17 of this
report).

7.1.16 taxation

The Committee held a wide array of hearings on tax issues
affecting small businesses. The Committee began the 104th
Congress with an overview of the tax proposals included in the
``Contract with America.'' The Committee also held hearings on
individual provisions in the Contract including the reduction
of the capital-gains tax rate; modification of the estate tax
system, especially with regard to family-owned businesses; and
restoration of the home-office deduction. Overall, the
Committee heard testimony from dozens of small businesses
stressing the need for meaningful tax reform in order to reduce
the economic costs on small businesses as well as the
compliance costs of the tax system, which have risen
dramatically in recent years. The witnesses also generally
embraced the tax provisions contained in the Contract as a
first step toward achieving overall tax reform. (For further
information on these hearings, refer to sections 7.2.1, 7.2.2,
7.2.7, 7.2.9, 7.2.11, and 7.2.21).
The Committee also held a hearing in September of 1995 on
pension reform and simplification from the perspective of small
business. The small business representatives and government
witnesses overwhelmingly supported the various legislative
proposals designed to ease the regulatory burdens of pension
administration and encourage small businesses to offer pension
benefits to their employees. (For further information on this
hearing, refer to section 7.2.27 of this report).
Although the Committee does not have legislative
jurisdiction over tax issues affecting small business, members
of the Committee actively promoted the legislation implementing
the tax provisions of the Contract and the pension-reform
proposals. In particular, these members were successful in
having the capital-gains tax reduction, estate tax reform,
increase in small business equipment expensing, S corporation
reform, pension reform, and restoration of the home-office
deduction included in the Balanced Budget Act of 1995 as passed
by the House. While the final version of that legislation
included these same provisions, except for the home-office
restoration, the bill was vetoed by President Clinton in
December of 1995.
The Committee also focused on the deductibility of health
insurance by the self-employed and held a hearing on that issue
on January 20, 1995. The witnesses stressed that the expiration
of the deduction for health insurance costs by the self-
employed in 1994 was a major set-back for the small business
community and the deduction needs to be restored. (For further
information on this hearing, refer to section 7.2.4 of this
report). In response to these pleas, Chairwoman Jan Meyers (R-
KS) introduced legislation to make the deduction permanent and
increase it to 30 percent. In April of 1995, H.R. 831 was
signed into law making the deduction permanent and increasing
it to 30 percent. The Committee saw a further increase to the
deduction in August of 1996 when H.R. 3103 was signed into law
raising the deduction limit to 80 percent over a ten year
period.
The clarification of the definition of independent
contractors was also the focus of several hearings by the full
Committee and its Subcommittee on Taxation and Finance. At
three hearings, the full Committee and Subcommittee heard
testimony about the lack of consistent rules for the
classification of workers as either employees or independent
contractors and the vigorous and often unreasonable enforcement
activities of the Internal Revenue Service in this area.
Overall, the small business witnesses were very supportive of
legislative proposals for correcting the ambiguity in the
definition and stressed the need for swift action to reduce the
economic and compliance costs on small businesses. (For further
information on these hearings, refer to sections 7.2.3 and
7.6.3 of this report).
While legislation that completely addressed the independent
contractor issue was not enacted during the 104th Congress, the
Committee saw the inclusion of procedural changes beneficial to
small business included in the Small Business Job Protection
Act (H.R. 3448). In addition, the Chairs of both the full
Committee and the Subcommittee on Taxation and Finance
submitted extensive comments to the Internal Revenue Service on
its proposed training manual for handling issues involving the
classification of workers.
On a related topic, the Subcommittee on Taxation and
Finance held a hearing on June 28, 1995 on the burden of
payroll taxes on small business. The small business witnesses
testified that the burden of payroll taxes falls excessively on
small businesses. The witnesses maintained that payroll taxes
are the greatest inhibitors to increased expansion and job
creation because employers who are faced with payroll taxes
must either raise prices, lower wages, or lay-off workers. (For
further information on this hearing, refer to section 7.6.2 of
this report).
Finally, the full Committee and its Subcommittee on
Taxation and Finance dedicated a number of hearings to tax
reform and the recommendations of the National Commission on
Economic Growth and Tax Reform, also known as the ``Kemp
Commission.'' The Subcommittee began these efforts with a
hearing on May 18, 1995 to discuss how a flat tax might affect
small businesses. At this hearing, the witnesses reviewed and
evaluated the various proposals for tax reform and focused
especially on the flat tax proposals introduced in both Houses
of Congress. (For further information on this hearing, refer to
section 7.6.1 of this report).
Following the release of the Kemp Commission's final report
in January of 1996, the Subcommittee conducted a series of
three field hearings across the country and received extensive
testimony about the defects in the current tax code and the
need to replace it with a new tax system that is fairer,
simpler, and less burdensome on small businesses. The witnesses
at these field hearings also embraced the recommendations of
the Kemp Commission that the new system must: (1) promote
economic growth; (2) be fair and treat all persons equally; (3)
be simple enough for anyone to understand; (4) be neutral (tax
consequences should not be the prime factor in an individual's
or business' economic decision-making); (5) be visible (special
loopholes and benefits should not be hidden from view in a tax
system); and (6) be stable (taxpayers should be able to plan
their lives without the rules changing every year). The full
Committee completed the series with a hearing on April 17, 1996
at which three commissioners from the Kemp Commission testified
about their findings and the effects of tax reform on small
business. (For further information on these hearings, refer to
sections 7.6.4 and 7.2.41 of this report).

7.1.17 minimum wage

The Committee held a hearing on May 15, 1996, to assess
from an economic and small-business point of view, how a
proposed increase in the Federal minimum wage would affect
small businesses' ability to provide jobs. The Committee also
explored alternatives to an increase in the minimum wage that
would boost take-home pay and encourage employers to offer more
job opportunities. In addition, the hearing focused on the
Small Business Job Protection Act, which included several
provisions that were designed to help increase the productivity
of small businesses and promote opportunities for expansion.
The small business witnesses generally agreed that an
increase in the minimum wage would be extremely detrimental to
small business and would lead to the loss of jobs. The
witnesses embraced alternatives to increasing the minimum wage,
such as earned-income tax credits or payroll tax credits, which
they stressed would better target the demographic groups in
need of assistance. In addition, the costs of such targeted
income redistribution through the tax code would be borne by
the society as a whole rather than levied on a particular
segment of the industry, namely, small businesses. (For further
information on this hearing, refer to section 7.2.45 of this
report).
Following the hearing, on May 23, 1996, the House
considered and approved legislation that would increase the
minimum wage by $0.90 over a two-year period. This legislation
was coupled with a package of small business incentives
designed to offset the detrimental effects of the minimum-wage
increase on small business. The legislation was signed into law
on August 20, 1996, as Public Law 104-188.

7.1.18 health insurance

As one of its first oversight activities, the Committee
held a hearing on January 20, 1995, to consider the importance
of the deduction for health-insurance costs by the self-
employed. The witnesses noted that the 25-percent tax deduction
for health-insurance costs for self-employed individuals was
enacted by the Tax Extension Act of 1991 and expired on June
30, 1992. The deduction was extended for an additional year in
the Omnibus Budget Reconciliation Act of 1993 through December
31, 1993. The deduction was not renewed after its expiration.
The witnesses agreed that health-care benefits are a
necessity for small businesses and their employees. They
stressed, however, that there is a great disparity between
large companies, which generally can deduct 100 percent of
their health-insurance costs, and small businesses, which
historically have been able to deduct up to 25 percent and as
of the date of the hearing none of their health-care costs. As
a result, many small businesses are unable to offer their
employees health-care benefits simply because of the costs
involved. The panel stressed that companies would be more
likely to provide benefits for their employees if they were
able to offset these health-care costs with a tax deduction at
some level, ideally 100 percent. (For further information,
refer to section 7.2.4 of this report).
Following the hearing in April of 1995, H.R. 831 was signed
into law making the health-care deduction permanent and
increasing it to 30 percent. A further increase to the
deduction occurred in August of 1996 when H.R. 3103 was signed
into law, and the deduction limit will rise to 80 percent over
a ten year period.

7.1.19 other committee oversight activities

Current Developments.

Throughout the 104th Congress, the Committee held a number
of hearings to address developments that affected small
businesses. For instance, the Committee held a hearing on July
12, 1995 to examine the effects on small travel agencies of the
cap placed on airline ticket sales commissions by the major
airlines. In 1995, the Committee also held hearings to review
the effects of solid waste ``flow control'' on small businesses
and consumers and the impact of the recent trend of railroad
mega-merges on small business. In the Spring of 1996, the
Committee held a joint hearing with the Subcommittee on
Employer-Employee Relations of the Committee on Economic and
Educational Opportunities to examine the union organizing
practice know as ``salting'' and to assess its effects on small
business. (For further information on these hearings, refer to
sections 7.2.23, 7.2.28, 7.2.34, and 7.2.40 of this report).
The Subcommittee on Government Programs also held a number
of topical hearings beginning with a February 13, 1995 hearing
on the importance of Hanscom Air Force Base to small businesses
in the New England region. In 1996, the Subcommittee held a
hearing to examine how the Federal Deposit Insurance
Corporation was handling small business asset foreclosures and
a joint hearing with the Subcommittee on Education Training
Employment and Housing of the Committee on Veterans' Affairs to
evaluate programs administered by the Small Business
Administration that assist veterans in readjusting to civilian
life. (For further information on these hearings, refer to
sections 7.3.1, 7.3.20, and 7.3.21 of this report).
The Subcommittee on Regulations and Paperwork held a
hearing on March 7, 1996, to examine the ramifications of the
National Labor Relations Board's proposed rule concerning
single location bargaining units in labor representation cases.
Also in March of 1996, the Subcommittee on Taxation and Finance
held a joint field hearing with the Subcommittee on Government
Programs to assess the effects of bank consolidations on small
business lending. (For further information on these hearings,
refer to sections 7.5.5 and 7.6.5 of this report).

Intellectual Property.

The Committee held two hearings to examine intellectual
property rights and the particular concerns of small
businesses. On April 25, 1996, the Committee held a hearing on
patent term and patent disclosure issues. The hearing focused
on two pending legislative proposals: H.R. 359, introduced by
Congressman Dana Rohrabacher (R-CA), and H.R. 1733, introduced
by Congressman Carlos Moorhead (R-CA). On May 8, 1996, the
Committee held a hearing on music licensing and small business,
which examined the issues in light of pending legislation, H.R.
789, introduced by Congressman James Sensenbrenner (R-WI),
which would exempt certain smaller businesses from licensing
fees for music that is aired on radio or television, which the
business uses for background only without separate charge to
the customers. (For further information on these hearings,
refer to sections 7.2.42 and 7.2.44).

Access to Capital.

In the Spring of 1996, the Committee held two hearings on
small business' access to capital. The first hearing, held on
February 28th, focused on the overall impediments and options
that small businesses face when seeking to raise capital. The
witnesses noted that the primary source of capital available to
small businessmen and women continues to be bank lending. The
Committee pursued the banking aspect of capital access in a
hearing on May 1, 1996, and received testimony from two Federal
regulatory agencies as well as several banks that focus
significantly on small business lending. (For further
information on these hearings, refer to sections 7.2.36 and
7.2.43 of this report).

Proposed Legislation.

The Subcommittee on Government Programs held two hearings
to examine legislation pending in the 104th Congress that
affects small businesses. On May 6, 1996, the Subcommittee held
a field hearing to assess the effects of H.R. 2579, the Travel
and Tourism Partnership Act of 1995, on the New England region
and the country as a whole. Later, on July 17, 1996, the
Subcommittee held a hearing on H.R. 1863, the Employment Non-
Discrimination Act, and its impact on the small business
community. (For further information on these hearings, refer to
sections 7.3.13 and 7.3.18 of this report).

Committee Investigations.

As part of its general oversight jurisdiction, the
Committee undertook several investigations concerning
allegations of wrongdoing by various personnel at the SBA. In
addition, the Committee investigated reports of improper
activities by certain business entities licensed by the SBA or
participating in SBA programs. At the time of the filing of
this report, a number of these investigations were still on-
going.
7.2 Summaries of the Hearings Held by the Committee on Small
Business

7.2.1 overview of small business tax proposals in the
``contract with america''

Background

On January 18, 1995, the Committee on Small Business held a
hearing to provide an overview of small business tax proposals
in H.R. 9, part of the legislation to enact the ``Contract with
America.'' This was the first in a series of hearings to look
at the Contract with America and what its provisions mean for
small business. The witnesses were asked to give broad overall
impressions of the Contract's provisions for small business and
how they would be helpful. The witnesses were also asked to
address any concerns and problems for small business that are
not covered in the Contract and how they would recommend that
Congress address those problems and concerns.

Summary

The hearing was comprised of two panels, and the witnesses
for the first panel included: John Motley, National Federation
of Independent Business (NFIB); John Satagaj, Small Business
Legislative Council (SBLC); and Karen Kerrigan, Small Business
Survival Committee. The first panel emphasized the need for
less taxation and regulation of small businesses. There was
support for the Contract's proposal to clarify the home-office
deduction and its S-corporation provisions. Because of the
Contract's small business perspective, this panel gave it a
grade of ``B plus.''
In particular, NFIB testified that many parts of the
Contract with America, including the tax provisions, are
supported by small-business owners according to its polls. NFIB
indicated that the criteria it uses to judge the value of
changes in the tax code include the following principles: keep
it simple, cash flow is key, capital formation is needed for
growth, and any tax cut needs to promote economic growth so the
economy as a whole can grow. SBLC noted four provisions of H.R.
9 that were of interest to its members: capital gains tax
relief, expansion of the direct expensing provision for small
business under section 179 of the Internal Revenue Code, estate
taxes relief, and restoration of the home-office deduction. In
addition, NFIB and SBLC testified that they have developed a
proposal for a fair classification of individuals as
independent contractors or employees.
Witnesses for the second panel included: Ron Cohen, Cohen &
Company, representing National Small Business United (NSBU);
Alson Martin, Attorney, representing Small Business Council of
America (SBCA); Ronald Sandmeyer, Jr., Sandmeyer Steel Company,
representing the National Association of Manufacturers (NAM);
and John Wharton, Miller and Long, representing the Associated
Builders and Contractors (ABC).
SBCA expressed support for most, but not all, of the
Contract with America. Specifically, its members supported:
raising the estate and gift tax exemption, expanding the
Individual Retirement Account and creating the American Dream
Savings account, correcting the ``marriage penalty,''
establishing tax-exempt ``Medisave'' accounts through which the
uninsured could pay for health insurance, allowing a per child
tax credit of $500, providing long-term capital-gains tax
relief, clarifying the home-office deduction, increasing
allowable write-offs for new equipment, simplify the tax
system, allowing employee stock ownership plans to be
established by subchapter S corporations, and simplifying the
pension and ERISA rules. NAM recommended that any tax cuts
enacted as part of the Contract should be fully funded by
offsetting spending reductions and urged the Committee not to
lose sight of overhauling the Federal tax structure after the
completion of the Contact with America.
ABC stressed that the Committee should take a serious look
at the effects that some of the tax burdens are having on the
construction industry and small businesses in every industry.
In particular, ABC recommended that the lookback rule under the
percentage-of-completion method for calculating annual income
for long-term contracts should not apply to small contractors
given the burdens that it imposes and its revenue neutrality to
the Treasury. ABC also stressed the need for reform of the S-
corporation rules. NSBU testified that the Contract with
America was silent on several important small business issues:
the rising cost of payroll taxes, S-corporation reform, and
inequitable treatment of the health-care deduction between the
self-employed and corporations. Overall, most of the panel gave
the Contract a grade of ``B'' with respect to its small
business proposals.
For further information on this hearing, refer to Committee
publication number 104-2.

7.2.2 home office deduction

Background

On January 19, 1995, the Committee on Small Business held a
hearing on restoring the home-office deduction. This was the
second in a series of hearings devoted to tax policy and small
business. Home offices are popular among small businesses
because they make sense for businesses, families, and
individuals. The hearing was designed to focus on the ability
of taxpayers to deduct expenses relating to a home office that
is used in the course of business. The hearing was also
intended to explore the current limitations imposed by the
Internal Revenue Service and the U.S. Supreme Court in
Commissioner v. Soliman, 113 S.Ct. 701 (1993).

Summary

The hearing was comprised of two panels, and the witnesses
for the first panel included: Wayne Allard (R-CO), Member of
Congress; and Kweisi Mfume (D-MD), Member of Congress.
Congressman Mfume introduced legislation to try to restore the
deduction for home offices for small business in order to
encourage the start-up of home-based businesses. Congressman
Allard agreed with Congressman Mfume and added that the home-
office deduction is both pro-family and helps our economy.
The second panel included: Beverly Williams, Williams
Associates--Desk Top Publishing; Sandra Hanlon, Hanlon and
Associates, representing the Bureau of Wholesale Sales
Representatives; Carolyn Hennige, Creative Tutors; and Debra
Lessin, D.J. Lessin and Associates, representing the National
Association of Women Business Owners (NAWBO) and the Illinois
Women's Economic Development Summit.
Ms. Williams expressed concerns with regard to local zoning
and safety regulations and their effect on the home-office
deduction. The Supreme Court's ruling in Soliman requires that
a taxpayer must satisfy two tests before he or she may claim a
deduction for expenses relating to a home office: (1) the
customers/clients of a home-based business must physically
visit the home office, and (2) the business must be generated
from within the home office itself and not from transactions
that occur outside the home office. Ms. Williams testified that
local zoning regulations often prevent many owners from seeing
clients in the home. In addition, home-based business owners
may feel uncomfortable having total strangers in their homes.
Both of these factors indicate that the Soliman decision
precludes many home based businesses from claiming a deduction.
Ms. Hanlon pointed out that as the costs of conducting
business continue to rise, and technology makes it easier to
conduct business from the home, more businesses are moving back
to the home office. Ms. Lessin testified that the requirements
imposed by the Supreme Court's Soliman decision are short
sighted and ignore the way that business is conducted today. In
addition, she testified that the decision caught off guard many
small business owners who had incorporated the effects of the
home-office deduction into their economic planning.
Each of the small-business owners who testified expressed
support for section 12003 of H.R. 9, the ``Contract with
America,'' which would restore the home-office deduction to its
congressionally intended form.
For further information on this hearing, refer to Committee
publication number 104-3.

7.2.3 independent contractor status

Background

On January 19, 1995, the Committee held a hearing on
clarification of the status of independent contractors. This
was the third hearing in a series devoted to tax policy and
small business. The hearing focused on problems associated with
the classification of workers as either employees or
independent contractors by the Internal Revenue Service and was
designed to look at the broad range of views on how best to
classify workers.
In response to the intensity with which the Internal
Revenue Service had pursued independent-contractor audits in
the early 1970s, Congress dealt with the independent contractor
issue beginning with the Revenue Act of 1970, which was
modified in the early 1980s. Throughout its review of this
issue, Congress found that classification of workers was
extremely divisive and complicated. Currently, the most
difficult problem remains the lack of a clear definition of
what constitutes an independent contractor.

Summary

The hearing was comprised of two panels, the first of which
included: Cheryl M. Bass, American Professional Temporaries,
Inc. and American Professional Home Health Inc.; Claudia Hill,
National Association of Enrolled Agents; James Parmelee,
Advertising Consultant and Freelance Writer, representing the
National Association for the Self-Employed (NASE); Marc S.
Wagner, H.D. Vest Financial Services; and Craig Willett, CPA,
Willett and Associates, representing the National Federation of
Independent Business (NFIB).
In general, the panel agreed that because of the intensity
with which the IRS conducts independent-contractor audits,
Congress needs to take steps to clarify the status of workers
especially for small business persons who are frequently faced
with this issue. Mr. Parmelee, who testified both as an
independent contractor and representative of NASE, indicated
that NASE's 320,000 small business owners have long supported
the clarification of independent-contractor status. Other
witnesses, including Ms. Bass, testified that legislation is
particularly necessary to curb the IRS' intentional abuse of
the independent-contractor designation in order to resolve many
cases in favor of classifying workers as employees.
Members of the Committee and the witnesses generally agreed
that the existing system is not achieving an equitable result
with respect to classifying workers. In addition, Mr. Willett
drew the Committee's attention to section 530 of the Revenue
Act of 1978, which provides a ``safe harbor'' for businesses
that have consistently treated and reported certain workers as
independent contractors. Mr. Willett pointed out, however, that
the criteria under Section 530 do not completely address the
needs of NFIB's members. As a result, in 1991 NFIB developed a
new, clearer safe-harbor proposal to prevent inadvertent
reclassification of a worker who is currently considered an
independent contractor.
The second panel included: Ronald Baker, BGM Industries,
representing the Building Service Contractors Association
International (BSCAI); Brickford Faucette, Perimeter
Maintenance Corp.; Keith R. Fetridge of Aronson, Fetridge,
Wiegle, and Stern, representing the Associated General
Contractors of America (AGC); Wayne Kaufman, United Homecraft,
Inc., representing the National Association of the Remodeling
Industry (NARI); and Don Owen, P&P Contractors, representing
the Associated Builders and Contractors (ABC).
The second panel echoed many of the same sentiments
expressed by the first panel and agreed that independent
contractors are an extremely valuable resource to the small
business contracting community. Witnesses also emphasized that
worker misclassification is an old issue for both the IRS and
employers. In fact, Mr. Fetridge testified that AGC has been
working with the IRS for over three years to resolve
differences related to the twenty-factor common law test that
the IRS uses to classify workers in order to arrive at more
simplified classification criteria.
Mr. Kaufman illustrated the current climate for small
businesses by discussing an audit that the State of Missouri
undertook on his remodeling company in which every person that
the company treated as an independent contractor was
reclassified by the State as an employee. After the State
imposed its fines, the IRS learned of the State's audit and
fined the company an additional $3,000. The other witnesses
concurred with Mr. Kaufman's concerns about audits and
emphasized the damaging consequences of misclassifications
mistakes. The panel agreed that Congress should provide small
business and the IRS with clear guidelines on how to determine
who is and who is not an employee. Toward these ends, Mr.
Kaufman testified that NARI is working with a coalition headed
by NFIB and Small Business Legislative Counsel to develop a new
independent contractor ``safe harbor'' test that will be simple
to understand and implement.
For further information on this hearing, refer to Committee
publication number 104-1.

7.2.4 health insurance deductibility for self-employed
individuals

Background

On January 20, 1995, the Committee on Small Business held a
hearing on the deductibility of health insurance by self-
employed individuals. This was the fourth in a series of
hearings devoted to tax policy and small business. The 25
percent health-insurance tax deduction for the self-employed
was enacted by the Tax Extension Act of 1991 for the period
ending on June 30, 1992. The deduction was extended for an
additional year in the Omnibus Budget Reconciliation Act of
1993 for the period from July 1, 1992 to December 31, 1993. The
deduction has been extremely important for small business
owners, although in 1994, after its expiration, the deduction
was not renewed. By extending the health deduction one year at
a time, small-business owners were often not able to make
necessary business planning decisions. As a result, Chairwoman
Meyers introduced a bill to restore the deduction retroactively
and to make the deduction permanent. Similarly, Congressman
Earl Pomeroy introduced a bill to extend the deduction to 100
percent.

Summary

The hearing was comprised of a single panel, which
included: Richard Enmeier, Marrick Company, representing the
National Association for the Self-Employed (NASE); Jeanie
Morrissette, Homestead Construction Company, representing the
National Association of the Remodeling Industry (NARI); Lisa
Sprague, Manager of Employee Benefits, Small Business Center
for the U.S. Chamber of Commerce; Betty Stehman,
Entrepreneurial Services, Inc., representing the National
Association of Home-based Businesses (NAHB); and Craig Willett,
Willett and Associates, representing the National Federation of
Independent Business (NFIB). Overall, the panel agreed that
health-care benefits are a necessity for small businesses and
their employees. In addition, the panel stressed that companies
would be more likely to provide better benefits for their
employees if they were able to deduct 100 percent of the
associated costs as is the case for C corporations.
Research that Ms. Stehman prepared for her testimony
revealed that 80 percent of all businesses in the United States
are classified as small or home-based. As a result, 80 percent
of all businesses are not able to deduct 100 percent of their
medical-insurance costs as a business expense. Ms. Morrissette
offered as an example her company, Homestead Construction
Company, which provides health insurance to its shareholders,
including Ms. Morrissette and her husband and one employee.
Because the company is structured as an S corporation, the
health-insurance benefits that Ms. Morrissette receives
constitutes income to her resulting in the imposition of State
and Federal taxes on value of this benefit. She, along with the
National Association of the Remodeling Industry, testified that
health-care insurance is an issue of importance to small
business because of its significant cost to the business and
the inequity in the treatment of the deductibility of health-
care costs among C corporations, small businesses that are
organized as S corporations, partnerships, and sole
proprietorships.
Mr. Enmeier agreed with the other members of the panel that
small business owners need the 25 percent health-care deduction
and should be permitted to claim 100 percent of the cost of
these benefits. Mr. Willett, as a small business owner and CPA,
added that small business owners pay approximately 30 percent
more than larger companies for similar health-care benefits. He
was encouraged to hear that the Committee on Ways and Means
planned to implement a 25 percent deduction for health-care
insurance retroactive to January 1, 1994, although he would
rather see 100 percent deductibility for small business.
Ms. Sprague testified that the Chamber of Commerce counts
among its members 215,000 businesses, 96 percent of which have
fewer than 100 employees and 71 percent of which have fewer
than 10 employees. Ms. Sprague noted that the 25 percent
health-care deduction for the self-employed was adopted in 1986
and was renewed annually until 1994. On behalf of the Chamber,
Ms. Sprague asked the Committee to advocate for the 25 percent
deduction to be restored retroactively to January 1, 1994 and
for 100 percent deductibility to be phased-in over the near
term.
For further information on this hearing, refer to Committee
publication number 104-4.

7.2.5 strengthening the regulatory flexibility act

Background

On January 23, 1995, the Committee on Small Business held a
hearing on strengthening the Regulatory Flexibility Act (RFA).
With the enactment of RFA in 1980, Congress established the
principle that small businesses are unique and that regulators
could no longer promulgate rules and regulations without
considering the effect on small businesses as well as less
burdensome alternatives. Regulatory relief and flexibility were
dominant themes at the 1980 White House Conference on Small
Business, and the delegates and participants at that conference
advocated the passage of legislation to lighten the regulatory
burdens imposed on small business. While RFA has met with some
success, its primary weakness is its lack of an enforcement
mechanism. As a result, the requirements of RFA are often
ignored by some agencies.

Summary

The hearing was comprised of one panel, which included:
Jere Glover, Chief Counsel for Advocacy, U.S. Small Business
Administration (SBA); Jack Faris, President and CEO, National
Federation of Independent Business (NFIB); Charles ``Rusty''
Griffiths, Jr., Binghamton Slag Roofing Company, Inc.,
representing the National Roofing Contractors Association
(NRCA); James P. Carty, Vice President for Small Manufacturers,
National Association of Manufacturers (NAM); Robert Pool,
Homestyle Publishing; and Lee Taddonio, Vice President of TEC/
Pennsylvania Small Business United, representing National Small
Business United (NSBU).
The consensus of the panel was that Congress must put some
``teeth'' into RFA. The witnesses testified that small business
owners want the government off their backs and out of their
pockets. More specifically, NFIB recommended reforming the
Paperwork Reduction Act, passing H.R. 450, which would include
a six-month moratorium on new regulations, strengthening
private-property rights protection, allowing for a cost-benefit
analysis and/or risk assessment, establishing a regulatory
budget, and ``sun setting'' regulations.
Mr. Griffiths focused on the asbestos standard, which is
administered by the Occupational Safety and Health
Administration (OSHA) and apply to the roofing industry. As Mr.
Griffiths pointed out, the roofing industry consists of many
small businesses that lack the resources and expertise to cope
with OHSA's complicated standard, and NRCA emphasized the need
for judicial review of the asbestos standard. Requiring OSHA to
comply with RFA would help prevent arbitrary and burdensome
regulations like the asbestos standard from adversely effecting
small roofing companies as well as other small businesses.
Mr. Carty reminded the Committee that Federal agencies are
not solely at fault; Congress needs to look at the laws that
have been passed, and those that are under consideration, to
assess their effect on the business community. NAM also
suggested that one Federal agency, such as the SBA, be charged
with ensuring that the other agencies are complying with RFA.
He also pointed out that the Federal Trade Commission (FTC) was
in the process of reviewing its regulations and asking specific
questions of small business owners concerning the effects of
FTC regulations on small business, and other agencies should be
required to do the same type of review.
Several witnesses discussed H.R. 830, introduced by
Congressman Thomas Ewing (R-IL) in the 103rd Congress, which
would have provided regulatory reform and helped small
business. Mr. Pool testified that the threat of judicial review
could improve the seriousness with which RFA is treated by
Federal agencies and improve the efficiency of the law. There
was also general support among the panelists for the provisions
in H.R. 9, which relate to the Regulatory Flexibility Act and
would allow for judicial review of Federal agencies' regulatory
decisions and their indirect effect on small business. H.R. 9
would also increase the role and authority of the SBA's Office
of Advocacy in reviewing and improving regulations.
For further information on this hearing, refer to Committee
publication number 104-5.

7.2.6 oversight--sba 7(a) lending program

Background

On January 25, 1995, the Committee on Small Business held
an oversight hearing on the SBA's 7(a) General Business
Guarantee Loan Program. The 7(a) program provides for $7.8
billion in small business loans, most of them for amounts under
$100,000, to small businesses unable to obtain financing and
credit from other sources. The 7(a) program is a significant
aid to what is widely considered small business' greatest
obstacle, the access to capital.

Summary

The hearing was comprised of two panels, the first of which
included: Philip Lader, Administrator, U.S. Small Business
Administration (SBA), accompanied by Patricia Forbes, Deputy
Administrator for Economic Development, SBA, and John Cox,
Associate Administrator for Financial Assistance, SBA. Mr.
Lader testified that in 1991 the average size of a loan under
the 7(a) program was $231,000. In contrast, for 1995, the SBA
projected that the average loan will be $139,000. In addition,
the number of loans was on the increase while the size of the
loan was declining. Mr. Lader also testified that the 7(a)
program had a current loss rate of 1.3 percent, which compares
favorably with the 1 to 1.5 percent rate experienced by
commercial lenders. When asked if he had put a cap on loans
under the 7(a) program, Mr. Lader explained that the SBA had
been approving loans in the amount of $38 million per day, and
given the increased demand for 7(a) loans, the SBA would run
out of guarantee authority by July, 1995. Mr. Lader testified
that, as a result, he had administratively capped 7(a) loans at
$500,000 instead of the statutory limit of $750,000 per loan.
The witnesses for the second panel included: James Maguire,
Overhead Door Company; Paul Mayhew, SBA Officer; Deryl Shuster,
President, Emergency Business Capital; Timothy Terry,
President, Terry and Associates; and Anthony Wilkinson,
President, National Association of Government Guaranteed
Lenders (NAGGL). Mr. Terry testified that it is virtually
impossible to find a lender who will lend to a small business
startup, which is why the 7(a) program is so important. If a
new business has a good business plan and a supportable sale
forecast, the SBA will support the business and provide the
guarantee for the bank to provide the loan. Mr. Terry
mentioned, however, that there was some concern in the small
business community about the limited SBA personnel available to
review loan applications.
Two witnesses were associated with NAGGL and testified that
NAGGL members make over 70 percent of all the 7(a) loans
annually. They reminded the Committee of the conclusions made
by former SBA Administrator Saiki that the 7(a) program is an
excellent example of how a public/private-sector partnership
should be structured and even though it is a Federal government
program, it should be held to a high standard. The witnesses
assured the Committee that NAGGL is very serious about finding
ways to reduce the subsidy rate for the 7(a) program while
continuing to respond to as many potential borrowers as
possible.
To illustrate a successful case involving a 7(a) loan, Mr.
Maguire testified about the experience that his firm, the
Overhead Door Company, had had with the program. Mr. Maguire
stressed that without his company's SBA loan in 1993, he would
not be in business today. As a result of the loan, he was able
to restructure the company's financing and reduce the monthly
debt payments, which enabled him to increase annual sales to $6
million in 1994. Since obtaining the loan, the company has paid
down the balance by $90,000 and increased staff from 15 to 87
employees.
For further information on this hearing, refer to Committee
publication number 104-6.

7.2.7 capital gains tax reform and investment in small
business

Background

On January 26, 1995, the Committee on Small Business held
an additional hearing on the small business incentives in the
Contract With America focusing on the capital-gains tax
reduction. The Contract provision would reduce the capital-
gains tax rate by 50 percent across the board and would index
the value of capital asset for inflation to prevent the tax
from being levied on illusory gains, which are created largely
as a result of inflation.

Summary

The hearing was comprised of a single panel, which
included: Dr. John Goodman, President and CEO, National Center
for Policy Analysis (NCPA); Sydney Hoff-Hay, President and
Executive Director, Lincoln Caucus and Member, Board of
Directors, Small Business Survival Committee (SBSC); Pete
Linsert, Martek Biosciences Corp., accompanied by Chuck Ludlam,
Esq., Vice President for Government Relations, Biotechnology
Industry Organization (BIO); Paul Pryde, Pryde and Company; and
Alan Sklar, CPA, Gleeson, Sklar, Sawyers, and Cumpata LLP.
While the witnesses generally had varying points of view on
the issue of capital-gains taxes, the panel agreed that there
should be some form of reduction or elimination of the tax
levied on capital gains. Dr. Goodman, testified that NCPA was
supportive of the proposal in the Contract With America to cut
the capital gains tax rate in half and to index capital gains,
which he believed would benefit both taxpayers and the Federal
government. These sentiments were echoed by the witnesses
representing the biotechnology industry, although BIO continues
to support a targeted capital-gains incentive that would
supplement an across-the-board capital-gains incentive.
Similarly, Mr. Hoff-Hay testified that SBSC fully supports
eliminating the capital-gains tax and stressed that the
Contract With America proposal is the most pro-growth, pro-
American-dream step taken by the new Congress.
The importance of reducing the capital-gains tax was
underscored by Mr. Pryde who operates a consulting firm
specializing in capital and business formation issues. Mr.
Pryde testified that according to research on capital-access
problems of small and minority-owned firms to reduce
joblessness in the Hispanic and African American communities,
there needs to be an increase in the number of minority-owned
business, which tend to hire more minority workers. To
encourage the development of minority-owned business and
increase minority hiring, Mr. Pryde testified that capital
needs to be more accessible to these emerging enterprises. He
also recommended that Congress strengthen Sections 1044 and
1202 of the Internal Revenue Code, which govern the rollover of
certain gains into Specialized Small Business Investment
Companies and the exclusion of gain from the sale of certain
small business stock.
The final panelist, Alan Sklar, also favored reducing the
capital-gains tax rate as an incentive for investment in small
businesses. He recommended that Congress adopt a ``small
business investment incentive act'' to correct the illusory
aspects of Section 1244 of the Internal Revenue Code, which
govern the treatment of certain losses on the sale of small
business stock. Mr. Sklar testified that such legislation would
create an inducement for investors to provide needed capital to
the small business community as well as provide a tax deduction
for certain investments in small business.
For further information on this hearing, refer to Committee
publication number 104-7.

7.2.8 paperwork reduction act

Background

On January 27, 1995, the Committee on Small Business held a
hearing on reducing the paperwork burdens on small business.
The Paperwork Reduction Act (PRA), enacted in December of 1980,
consolidated control over Federal agencies' paperwork
requirements and compliance enforcement efforts within the
Office of Management and Budget (OMB) through a newly created
Office of Information and Regulatory Affairs (OIRA.) The
Director of OMB is empowered to review all Federal agency
paperwork requirements and reject those that are inappropriate,
impose a budget limitation of each agency's total paperwork
burdens, and assign an OMB control number to each approved
paperwork requirement. Small business is the group identified
to benefit the most from the reforms contained in PRA.
The hearing was designed to explore the issues surrounding
the paperwork reduction provisions in Title V of H.R. 9, the
Job Creation and Wage Enhancement Act of the Contract With
America. These provisions were modeled upon H.R. 2995, ``the
Paperwork Reduction Act of 1993,'' which was introduced during
the 103rd Congress in an effort to require Federal agencies,
before they impose paperwork burdens, to determine the true
cost of these requirements on small businesses and weigh the
burdens against the expected benefits.

Summary

The hearing was comprised of two panels. The first panel
included a single witness: Sally Katzen, Administrator, Office
of Information and Regulatory Affairs, Office of Management and
Budget (OMB). Ms. Katzen initially reviewed the legislative
history of PRA and then discussed the Administration's efforts
to comply with the Act. In addition, Ms. Katzen testified that
the current 5-percent goal per year in paperwork reduction is
important to have as a goal, but she indicated that to impose a
fixed number legislatively would not be constructive. She also
emphasized the need to use technology to make Government more
efficient. Finally, Ms. Katzen could not state the number of
cases in which her office had disapproved of agencies'
paperwork requests, but she testified that the number had gone
down in recent years. She indicated that the decline was likely
due to the fact that agencies are getting better at
understanding what OMB expects. Ms. Katzen also indicated that
the Treasury Department accounts for 75 to 80 percent of the
paperwork burden.
The witnesses for the second panel included James P. Carty,
Vice President for Small Manufacturers, National Association of
Manufacturers (NAM); Guy Courtney, President and CEO, The
Machaira Group; William Koeblitz, President and CEO, Med
Center, Inc., accompanied by Nancy Fulco, Manager, Regulator
Policy, U.S. Chamber of Commerce, and David Voight, Director,
Small Business Center, U.S. Chamber of Commerce; Dr. David
Massanari, a private practitioner; and Dr. Victor Tucci, Three
Rivers Health and Safety.
Several witnesses testified on behalf of the U.S. Chamber
of Commerce, which has undertaken efforts to ensure a sound
Federal regulatory infrastructure that is fair and conducive to
business growth and job creation and that does not subject
industry or the public to unreasonable regulatory costs and
burdens. These witnesses testified that the Chamber is pursuing
the goal of overhauling the Federal regulatory process, which
would result in more efficient rulemaking and greater, but less
expensive, compliance by regulated entities. The Chamber also
strongly supports efforts to provide more reasonable
regulations. The witnesses testified that Title V of H.R. 9
would strengthen OIRA's responsibilities under the original
PRA, but H.R. 9 fails to include the corresponding provisions
that would strengthen the PRA responsibilities of each agency.
Dr. Massanari provided the Committee with the health-care
industry's perspective and testified that Federal regulatory
activity and its paperwork burden are challenging health-care
providers' ability to provide attentive, cost-efficient service
to their patients. A physician's practice is a small business,
and the Federal government regularly makes demands on doctors
for more information and documentation, which increases
overhead. Dr. Massanari also offered several recommendations
for strengthening the Paperwork Reduction Act's ability to hold
Federal agencies accountable for paperwork burdens that they
impose on the medical community.
In general, the panel expressed solid support for Title V
of H.R. 9. In addition, the witnesses endorsed the concept of
adding a cost-benefit analysis to the PRA, since it has been
generally required with respect to regulatory burdens but not
paperwork burdens. Mr. Carty testified that while NAM strongly
supports Title V of H.R. 9, the bill's current goal of reducing
paperwork burdens by 5 percent should be raised to 10 percent.
For further information on this hearing, refer to Committee
publication number 104-8.

7.2.9 estate tax reform and the family business

Background

On January 31, 1995, the Committee on Small Business held
an additional hearing on tax reform and the Contract With
America, with a particular focus on the estate tax and its
effects on the family business. Estate taxes are a critical
issue for small business owners who want to build a business
and leave something for their children and families. In
addition, the continuity of a business into the second and
third generation of a family is vital to the American economy
and an important aspect of our American society. Section 12001
of H.R. 9, the Job Creation and Wage Enhancement Act, contains
a provision that would address this important issue by
increasing the estate and gift tax exclusion from its current
$600,000 to $750,000.

Summary

The hearing was comprised of two panels, the first of which
included: Lee William McNutt, Jr., President, Collin Street
Bakery, representing the National Federation of Independent
Business; Diemer True, True Companies, Chairman of the Board,
U.S. Business and Industrial Council; Harold Apolinsky, Sirote
& Permutt, representing the Small Business Council of America
(SBCA); Joseph Bracewell, Chairman, Century National Bank; and
Robert Spence, President, Pacific Lumber and Shipping.
There was a general consensus among the first panel that
the Contract With America provisions increasing the estate and
gift tax exclusion would greatly benefit small businesses.
Current estate-tax rates impose an often overwhelming burden on
small family-run businesses, and many contend that the small
amount of revenue generated by this tax does not justify the
long-term damage that it has on small businesses. In the long
run, the estate tax results in less economic activity, loss of
jobs, and prevention of the continuity and fulfillment of the
American dream of owning your own business and passing it on to
your children. The panel recognized that exempting business
assets from estate taxation would remove a tremendous
governmental burden imposed on small family businesses.
Mr. Apolinsky reminded the Committee that the 1986 White
House Conference on Small Business recommended eliminating
estate and gift taxes on the transfer of small business assets
to family members. He also noted that only 30 percent of
family-owned businesses are passed on to a second generation,
and then only 13 percent make it to the third generation. Mr.
Apolinsky testified that the Federal estate tax, which can be
as high as 55 percent, is the primary cause of this low rate of
handing small businesses down to succeeding generations. In
addition, the panel agreed that the best thing that Congress
could do to help family businesses grow and provide new jobs
would be to repeal completely the estate and gift tax.
The witnesses on the second panel included: Raymond Arth,
President, Phoenix Products, representing National Small
Business United (NSBU) and the Council of Small Enterprises;
Harry S. Bell, President, South Carolina Farm Bureau
Federation; Patty DeDominic, President, PDQ Personnel Services,
Inc., representing the National Association of Women Business
Owners (NAWBO); Mark Vorsatz, Chairman, Estate and Gift Tax
Committee of the American Institute of Certified Public
Accountants (AICPA); and Chandler Noerenberg, Vice President,
Washington Farm Forestry Association.
The members of the panel overwhelmingly supported the
provision in H.R. 9 that would raise the non-taxable portion of
an estate from the current $600,000 level to $750,000. Several
witnesses also praised the provisions of the bill that would
index the exemption for inflation. Additionally, the witnesses
offered a number of other suggestions to the Committee. Mr.
Arth testified that small businesses are eager to find more
innovative and equitable ways to allow the continuation of
family businesses. NSBU also supports another proposal, not in
the Contract With America, that would specifically exempt
family-owned businesses from the estate tax. Mr. Bell testified
that the farming industry has advocated for many years that the
estate tax should be abolished and that the annual gift-tax
exemption per donee should be increased from $10,000 to
$20,000. Ms. DeDominic also raised the issue of valuation of
small businesses under the estate and gift tax, which is
extremely important to small business and the NAWBO membership.
Mr. Vorsatz testified that family-owned businesses have
many special problems and circumstances that should be given
special consideration. He mentioned, for example, that transfer
taxes frequently cause a tremendous financial strain on a small
business. The AICPA recommended a number of technical and
procedural changes to help small business owners deal with the
burdens imposed by the estate tax. Finally, Ms. Noerenberg
proposed a National Family Enterprise Preservation Act of 1995,
which, she testified, would offer estate-tax relief to more
that 98 percent of the country's family-owned farms and
businesses.
For further information on this hearing, refer to Committee
publication number 104-9.

7.2.10 amending the regulatory flexibility act--past per-
formance and the need for meaningful
reform

Background

On February 10, 1995, the Committee on Small Business held
a second hearing on the Regulatory Flexibility Act (RFA). While
the first hearing (held on January 23, 1995) focused on current
legislation designed to strengthen the Act, this hearing was
designed to provide the Committee with a historical perspective
on the RFA. In particular, the witnesses were asked to examine
specific areas in which the RFA has worked as well as ways to
improve the Act in the areas in which it has not accomplished
its intended purpose.

Summary

The hearing was comprised of two panels with witnesses from
various Federal agencies. The first panel included: Jere
Glover, Chief Counsel for Advocacy, U.S. Small Business
Administration (SBA), and Frank Swain, former SBA Chief Counsel
for Advocacy and currently with the firm of Baker & Daniels.
Both witnesses provided the Committee with historical
background on the RFA and offered several suggestions.
Specifically, Mr. Swain urged that it is time to change the RFA
so that if an agency fails to meet the standards for how a rule
affects small business, the agency could be taken to court and
made to justify that its regulation is not arbitrary and
capricious. In addition, Mr. Glover testified that the RFA
requires agencies to go back and do a periodic review of their
regulations and look at the impact on small business. When the
RFA was originally enacted, agencies were given 10 years in
which to perform the review. Mr. Glover testified, however,
that virtually no agency has complied.
The witnesses for the second panel included: Richard
Roberts, Commissioner, Securities and Exchange Commission; John
Spotila, SBA General Counsel; and Christian White, Director,
Bureau of Consumer Protection, Federal Trade Commission (FTC).
Like the first panel, the witnesses focused largely on
suggestions for improving the RFA, including those included in
pending legislation such as Title VI of H.R. 9. While the
panelists generally recognized the need for judicial review as
a means of enforcement for the RFA, one witness stressed that
Congress should limit any new judicial remedy to avoid another
class of unnecessary, unlimited, and unproductive litigation.
There was also considerable concern about the proposal for
agencies to notify the SBA Chief Counsel for Advocacy at least
30 days before publishing a notice of a proposed rulemaking.
The requirement could extend the time period required for
providing much needed rules and regulations as well as impose
additional cost on the agencies and regulated businesses.
For further information on this hearing, refer to Committee
publication number 104-10.

7.2.11 capital gains tax reform

Background

On February 22, 1995, the Committee on Small Business held
a hearing on the capital-gains tax reduction provisions in H.R.
9, which included many of the provisions of the Contract with
America. On January 26, 1995, the Committee heard from several
small business and economic development specialists regarding
the need for investment in small business and how this could be
enhanced through special tax treatment for capital gains. For
this hearing, expert economic witnesses were asked to comment
on the capital-gains tax reduction provisions in H.R. 9 and
provide the Committee with their assessment of whether reducing
the capital-gains tax rate would be a cost effective way to
spur investment in economic growth. Additionally, the witnesses
were asked to examine whether an across-the-board cut in
capital gains taxes would stimulate investment in all areas of
the small business community or whether a more targeted
incentive would be required.

Summary

The hearing was comprised of two panels, the first of which
included: Henry Aaron, Brookings Institute; Sheldon Friedman,
Department of Economic Research, American Federation of Labor-
Congress of Industrial Organizations (AFL-CIO); Gary Robbins,
President, Fiscal Associates; and Norman B. Ture, Institute for
Research on the Economics of Taxation. A majority of the first
panel supported the capital-gains tax reduction provisions
included in H.R. 9. Witnesses noted that both of the principal
features of the proposed capital-gains tax reform--reduction in
marginal tax rates applicable to capital gains and the
inflation adjustment to the basis of capital assets--would
contribute to moderating the destructive income-tax bias
against savings and would be a strong first step toward the
complete elimination of tax on capital gains. Witnesses also
emphasized that in order to promote economic growth in the
United States--increased wealth for American taxpayers--
requires an increase in domestic investment, which can only be
accomplished if the savings level is also increased.
In contrast, the AFL-CIO strenuously opposed any further
cuts in tax preferences accorded to capital gains. From labor's
perspective, the capital-gains tax reduction provisions of H.R.
9 would have a severely negative effect on the Federal budget
and would not stimulate productive investment, economic growth,
or the creation or retention of jobs. Concern was also raised
about the cost of the capital-gains tax reduction and the
corresponding revenue effects. Witnesses noted that the larger
the revenue loss attributed to capital gains, the greater the
spending reductions that will have to be made somewhere else,
making passage of the capital-gains tax reduction more
difficult.
The second panel included the following witnesses: Dr. Jane
Gravelle, Senior Specialist in Economic Policy, Congressional
Research Service (CRS); Dr. Richard Rahn, Small Business
Survival Committee; and J.D. Foster, Executive Director and
Chief Economist, Tax Foundation. Witnesses on the second panel
noted that a reduction in the capital-gains tax can affect
small business in several ways. First, the capital-gains tax
has a serious effect on the ability of a small business to
begin and expand. Without the availability of capital, small
businesses would have little chance of starting operations, and
as the business succeeds, the capital-gains tax can have
limiting effect on the business' ability to sell assets or
stock in the company in order to obtain additional capital for
expansion. On a broader level, a reduction in the capital-gains
tax could cause interest rates to rise as capital is diverted
into equities. In addition, a generally available capital gains
provision could undermine the effect of the existing 50-percent
exclusion for gains on new stock issues of small firms, which
was enacted in 1993. One witness also noted that indexing of
capital assets would be beneficial, although it would not offer
significant relief for most small businesses.
The panelists offered differing opinions as to whether
capital-gains tax relief should be targeted specifically toward
small businesses. Suggestions for targeting capital-gains tax
reductions included expansion of the present small-business
stock exclusion, providing a lifetime dollar exclusion with
respect to capital gains, and permitting averaging of capital-
gains recognition. The witnesses cautioned, however, that
targeting capital-gains tax relief may increase the
administrative complexity of the tax system considerably. Other
witnesses stressed that a reduction in the capital-gains tax
should be across the board and treat all taxpayers as evenly
and fairly as possible.
For further information on this hearing, refer to Committee
publication number 104-11.

7.2.12 overall review of the sba

Background

On February 28, 1995, the Committee on Small Business held
the first in a series of hearings on the overall review of the
Small Business Administration. The purpose of this hearing was
to give a broad review the SBA's programs and operations. The
Committee undertook the hearing as part of its oversight
jurisdiction in an effort to examine the success of current SBA
programs as well as opportunities for efficiency among the
programs and initiatives.

Summary

The hearing was comprised of one panel, which included
three past SBA Administrators: Eugene Foley, who served as SBA
Administrator under both Presidents Kennedy and Johnson; Vernon
Weaver, who administered the SBA under President Carter; James
Sanders, who served President Reagan at the SBA; and Barry
Baldwin, Head of Research, Small Firms in the U.K., Small
Business Bureau.
Mr. Foley discussed the financial programs at SBA and the
importance of access to capital for small businesses. He also
gave a short history of the SBA starting with the
Reconstruction Finance Corporation (RFC) initiated by President
Hoover in 1931, which was designed to help businesses during
the Depression. The program existed until 1953 and was not
restricted to small business. President Eisenhower turned the
RFC into the Small Business Administration in 1953 and limited
the program to small businesses.
Mr. Weaver listed some common complaints and misconceptions
about the SBA. He testified that the agency should not be
abolished, although some programs should be merged with others,
while other programs could be eliminated. He also expressed the
belief that most of the management assistance efforts
undertaken by SBA should be privatized. Mr. Weaver also
advocated that all SBA direct-lending programs should be
eliminated, and he stressed the importance of the SBA Office of
Advocacy.
Mr. Sanders testified primarily about two programs at SBA.
He applauded the SBA's efforts with the disaster assistance
program, although he expressed his belief that the program
belongs under the administration of the Federal Emergency
Management Agency (FEMA). Mr. Sanders also testified that the
8(a) program is one of the biggest sources of scandal at SBA,
and the program needs to be revamped.
Mr. Baldwin brought to the panel the perspective of the
British government's efforts to assist small business through
the Small Business Bureau, in London, England. Mr. Baldwin
testified that in the late 1970's the small firms in England
had been in long-term decline. In contrast, the British found
that small business in the U.S. was viewed as the foundation of
national security and free enterprise. He noted that
historically, in contrast to the American Small Business Act
under which the Federal government had a legal obligation to
aid, counsel, assist and protect small businesses, the British
government provided no support for small business. Mr. Baldwin
indicated that the British continue to recognize the role of
the SBA and the commitment of the agency to the success of
American small businesses. Today the British government remains
committed to the smaller firms and is confident that they will
form a dynamic and growing part of the British economy
throughout the 1990s and into the 21st century.
For further information on this hearing, refer to Committee
publication number 104-13.

7.2.13 review of the sba procurement assistance pro-
grams

Background

On March 2, 1995, the Committee on Small Business held the
second in a series of hearings on the overall review of the
Small Business Administration (SBA). The purpose of this
hearing was to continue with the top-to-bottom review of the
SBA's programs and focus particularly on the SBA's Procurement
Assistance programs.

Summary

The hearing was comprised of two panels, the first of which
included: Philip Lader, Administrator, SBA, accompanied by Mary
Jean Ryan, Senior Finance Executive, SBA, Patricia Forbes,
Senior Finance Executive, SBA, Robert Neal, Associate Deputy
Administrator, SBA, Robert Stillman, Associate Administrator
for Investment, SBA, Marty Teckler, Deputy General Counsel,
SBA, Doris Freedman, Associate Administrator for Disaster
Assistance, SBA, and Douglas Criscitello, Deputy Administrator
for Management and Administration, SBA.
At the outset, Administrator Lader reviewed the SBA's
current loan portfolio, which he stated included 137,000 loans
and financings of almost $23 million with a loss rate of 1.3
percent. The average size of the loans has gone from $250,000
down to $139,000. In addition, he noted that there were 250,000
current loans in the disaster loan portfolio totaling $5.5
billion. Administrator Lader also outlined his program for
reinventing the SBA, which includes four areas of focus: (1)
access to capital including the 7(a) loan and SBIC programs;
(2) emphasis on education and training primarily through the
Small Business Development Centers (SBDCs) and the Business
Information Centers (BICs); (3) the SBA's role in advocacy and
contract opportunities for small business; and (4) the ``SBA
nobody knows,'' which includes the disaster assistance program.
The second panel included: Robert Neal, Associate Deputy
Administrator, Government Contracting and Minority Enterprise
Development Program, SBA, accompanied by Debra Libow,
Procurement Center Representative, Robert Moffitt, and Thomas
Dumar, Esq.; Anthony DeLuca, Small and Disadvantaged Business
Officer, Department of the Air Force; Colette Nelson, Small
Business Legislative Council; James Lee, Southeastern Lumber
Manufacturer's Association; and Dona O'Bannon, National
Association of Women Business Owners (NAWBO).
The second panel focused on the SBA's government
contracting programs. Mr. Neal testified that these programs
have an annual budget of $20 million and 250 employees, 7
percent of the SBA's work force, are assigned to this area. In
1994, the SBA's government contracting programs saved the
taxpayer almost $220 million, ten times what it costs to run
the program. Ms. Libow noted that small business has a
significant voice in the government procurement process through
the various Procurement Center Representatives in the
Government Contract Division at the SBA. Mr. Neal offered as an
example of the procurement assistance that the SBA provides for
small businesses the Certificate of Competency (COC) program.
He explained that the COC program is an appeal process for
small businesses that are rejected for an award of a government
contract based on a contracting officer's doubts about the
company's ability to perform satisfactorily.
The panel also addressed the benefits that the Small and
Disadvantaged Business Offices (SADBUs) provide to small
business. Mr. DeLuca, a SADBU with the Department of the Air
Force, emphasized the efforts that his office has made to
expand the information available on Federal contracting
opportunities for small business, especially through electronic
media. Mr. DeLuca suggested that the Committee explore options
for allowing contracting agencies more latitude in awarding
advance payments and urged support for the Mentor-Protege
program, which he testified has been very successful in helping
small minority businesses.
Several of the panelists also gave anecdotal testimony
about the success of the SBA's government contracting programs.
In particular, Ms. O'Bannon praised the SBA programs and
congressional goals for promoting women-owned businesses, in
part through Federal contract awards.
For further information on this hearing, refer to Committee
publication number 104-14.

7.2.14 review of sba business development programs

Background

On March 6, 1995, the Committee on Small Business held a
hearing on the Small Business Administration's 8(a) Business
Development Program. This hearing is one in a series on the
top-to-bottom review of the SBA. The 8(a) program was
originally created to assist businesses owned by individuals
who are socially and economically disadvantaged. The
Committee's objective for the hearing was to examine the
program's continuing efficacy and ability to meet its statutory
objectives as well as to review reports of fraud and abuse
within the 8(a) program.

Summary

The hearing was comprised of two panels. The witnesses for
the first panel included: Robert Neal, Associate Deputy
Administrator, Government Contracting and Minority Enterprise
Development, Small Business Administration (SBA), accompanied
by Herbert Mitchell, Associate Administrator for Minority
Enterprise Development, SBA; Judith England Joseph, Director,
Housing and Community Development Issues, Division of
Resources, Community, Economic Development Division, General
Accounting Office (GAO); Ralph Thomas, Associate Administrator,
National Aeronautics and Space Administration (NASA); Fernando
Galaviz, Vice Chairman, National Federation of 8(a) Companies;
and Walter Sorg, past Director of the Office of Minority
Business, U.S. Department of Commerce.
Members of the panel noted that the SBA's Office of
Minority Enterprise Development currently assists small,
disadvantaged business in developing the capacity to compete
successfully in the mainstream economy. Mr. Sorg provided the
Committee with some history and testified that in March of
1969, President Nixon signed an Executive Order establishing
minority business as a national priority. The mission was to
confirm every citizen's right to participate in the America
enterprise system as a business owner. Currently, there are
5356 certified firms in the 8(a) program, and while several
witnesses stressed the need for reform within the program,
evidence continues to indicate that there is still a need for
assistance to small disadvantaged businesses.
Ms. Joseph reviewed the SBA's progress in implementing key
changes that were designed to make the 8(a) program a more
effective business-development initiative. She expressed
concern, however, that many firms nearing the end of their
program terms are still dependent on 8(a) contracts. These
firms often leave the program without an adequate base of non-
8(a) contracts, raising doubts about the firms' viability for
success. Participants in the 8(a) program are required to
develop business plans that include objectives for future 8(a)
and non-8(a) contracts in an effort to plan for the day when
they graduate from the 8(a) program. Ms. Joseph noted that the
SBA is supposed to review the business plan of each firm in the
8(a) program annually.
Mr. Thomas provided the Committee with the perspective of a
Federal agency that provides contracts to 8(a) companies. He
testified that NASA has doubled its awards to small
disadvantaged businesses in the last five years. In addition,
NASA has doubled its subcontracting dollars to small
disadvantaged businesses in the last four years. As a result,
the 8(a) program represents one-fourth of NASA's total dollars
going to small disadvantaged businesses. Mr. Thomas noted that
NASA's increased participation in the 8(a) program was the
result of the agency's efforts to integrate small disadvantaged
businesses fully into NASA's competitive base of contractors.
On behalf of the National Federation of 8(a) Companies, Mr.
Galaviz offered specific recommendations to improve the 8(a)
program. In particular, he stressed that the SBA needs to make
a greater effort to educate new participants in the 8(a)
program concerning the responsibilities and obligations of a
government contractor. He also recommended that Federal
programs similar to 8(a) that are aimed at small disadvantaged
businesses could be consolidated in order to help cut costs of
running the Federal government. Mr. Galaviz also recommended
that firms who are currently participating in the 8(a) program,
as well as graduates, should be encourage to provide mentoring
for other small firms.
The second panel included: Melvin Clark, President,
Metroplex Corp.; Lloyd Parker, President and CEO, Contract
Services, Inc.; Joe Gomez, President and Owner, Gomez Electric;
Arnold O'Donnell, Vice President, O'Donnell Construction; Kemma
Walsh, President, Lake Michigan Contractors, Inc.; Robert
McCallie, President, McCallie Associates, Inc.; and Nancy
Archuleta, President, MEVATEC Corp.
Several members of the panel were either current
participants or graduates of the 8(a) program. These witnesses
generally agreed that the program was a valuable tool for
eligible small businesses that enables them to compete better
in the marketplace. The witnesses, however, stressed that
problems within the program need to be addressed. Specifically,
the current high business failure rate among graduates of the
8(a) program should be reversed, and one witness recommended a
postgraduate program to address this issue. Other problem areas
within the program identified by the witnesses include:
insufficient review by the SBA of applicants' background to
ascertain their level of expertise; SBA's failure to enforce
the two-years-in-business requirement; prevalence of contract
awards outside the business area of expertise; failure of the
program to provide competitive bidding; inadequate enforcement
by the SBA of the required level of competitive work and 8(a)
work; and participation in the program by firms not in need.
In contrast, two witnesses testified that the 8(a) program
should be eliminated. These witnesses stressed that the SBA's
efforts should be refocused towards guaranteeing the equality
of opportunity rather than mandating the conformity of results
to predetermined levels. In addition, these witnesses
emphasized that the anti-competitiveness of the program and its
use of sole-sourced contracts was detrimental to small
businesses and should be halted.
For further information on this hearing, refer to Committee
publication number 104-15.

7.2.15 review of sba 504 program

Background

On March 9, 1995, the Committee on Small Business held a
hearing on the Small Business Administration's 504 Program.
Through the 504 program small businesses access financing for
capital improvement--often referred to as ``bricks and mortar
work''--through a unique cooperative effort among bankers, non-
profit certified development companies, and the Small Business
Administration (SBA). Historically, this cooperative effort,
coupled with a requirement for job creation, has made the 504
program a solid tool for economic development and a program
that has required little maintenance. Recent developments in
the program include legislation considered in the 103rd
Congress to streamline the 504 program loan-approval process.
In addition, the SBA recently decertified a number of CDCs
under their Associate Development Company Initiative.

Summary

The hearing was comprised of one panel, which included:
Mary Jean Ryan, Associate Deputy Administrator for Economic
Development, SBA, accompanied by Doug Criscitello, Deputy
Associate Deputy Administrator for Management and
Administration, SBA, John Cox, Associate Administrator for
Financial Assistance, SBA, and LeAnn Oliver, Acting Director,
Office of Rural Affairs and Economic Development, SBA; Kenneth
Lueckenotte, Executive Director, Rural Missouri, Inc., and
President, National Association of Development Companies
(NADCO); A. Jeffrey Donaldson, Vice President, Northwest
National Bank; Katharine Delahaye Paine, CEO, The Delahaye
Group, Inc.; William Ruettgers, President, Southern Cast, Inc.;
John Jensen, former owner of a Motel 60 in Centerville, Iowa;
and Michael Kehoe, President of Kehoe Ford.
The witnesses on the panel representing the SBA testified
that the 504 Program is vitally important because it provides
long-term fixed-rate financing typically for buildings and
heavy equipment acquired by small businesses. This program
exists and needs to exists because the private market does not
adequately provide financing for these purposes. The SBA
witnesses stressed that banks typically do not undertake this
type of lending because they frequently are unable to make
long-term and fixed-rate loans. The 504 program is cost
effective and there is a significant return on every dollar
spent in the program. In an effort to achieve additional
efficiencies, the SBA is currently implementing two new
initiatives, such as the Accredited Lenders Program and the
Premier Certified Lenders Program.
The small business witnesses also expressed support for the
504 program, noting that it enables certified development
companies to finance businesses that are starting up,
expanding, and relocating. Mr. Lueckenotte testified that the
efficiency of the program is demonstrated by the fact that for
every dollar of appropriated Federal funds, $400 of private
capital is created in the marketplace. In addition, the program
has financed 20,000 businesses and created over 350,000 jobs.
Mr. Lueckenotte testified that NADCO has been working with the
SBA to make the program more efficient, mainly through the
creation of the Premier Certified Lenders Program as well as
efforts to streamline and automate the program. Mr. Donaldson
also expressed the belief that the 504 Program served a
valuable role in providing capital to assist credit-worthy
small businesses that would have not qualified for commercial
real estate loan without the program. In addition, he noted
that banks use the 504 program to enhance bank liquidity, since
their portion of the 504 loans can be sold into the secondary
market.
Other small business witnesses provided the Committee with
anecdotal evidence of the program's success and the additional
jobs that small businesses are able to create as a result of
financing under the 504 program. In contrast, one witness, Mr.
Jensen, testified that he was financially ruined because a
competing motel was able to start operations with financing
from the 504 program, leaving Mr. Jensen without the ability to
compete due to a loss of jobs and customers.
For further information on this hearing, refer to Committee
publication number 104-17.

7.2.16 sba's pilot microloan program

Background

On March 14, 1995, the Committee on Small Business held a
hearing to review the Small Business Administration's Microloan
program. Created in October, 1991, the Microloan Demonstration
Project is a pilot loan program that is based on a partnership
between the Small Business Administration (SBA), non-profit
lending intermediaries, and technical assistance providers. The
SBA provides loans to the intermediaries, which in turn make
loans up to $25,000 to the small business borrowers. The loans
made by SBA provide the basis for a revolving fund managed by
the intermediary. In addition to the lending function, the
Microloan program also makes grants for technical assistance
available to small business borrowers. Recently, the program
was expanded to increase the number of intermediaries from 35
to 101. The number of technical assistance providers was also
increased, along with the aggregate amount of SBA funding
available to intermediaries. In addition, a pilot guarantee
program for microloans was signed into law in 1994. The purpose
of the hearing was to examine the Microloan pilot project in
order to determine if it has fulfilled its stated mission of
providing very small loans to small businesses--loans that
would otherwise not have been available through conventional
lending sources.

Summary

The hearing was comprised of two panels, the first of which
consisted of program managers from the SBA including: Patricia
Forbes, Associate Deputy Administrator for Economic
Development, SBA, accompanied by John Cox, Associate
Administrator for the Office of Financial Assistance, SBA, Jody
Raskind, Financial Assistant, Office of Financial Assistance,
SBA, and Mike Curren, Budget Office, SBA. The witnesses
testified that the Microloan Demonstration Project was off to a
good start. In 1992, the SBA funded 35 intermediaries to
provide microloans and technical assistance in 30 States; there
are now 101 intermediaries in 48 States. Forty-three percent of
the borrowers are women-owned businesses, 36 percent are
minority-owned businesses, 12.5 are veteran-owned businesses,
15 percent are manufacturers, and over 27 percent of the
microloans have gone to retail establishments.
The panel expressed the belief that the Microloan
Demonstration Program is an important tool for meeting the
needs of the smallest of small businesses in the most efficient
and cost effective way. As evidence of the program's
efficiency, the witnesses pointed to the fact that the program
is designed to leverage the Federal dollars loaned to the
intermediary lenders by requiring them, a prerequisite to
qualification, to come up with a 15 percent cash match. The
match can come from local communities as long as it is non-
Federal money and is set aside as a loan loss reserve as each
microloan is made.
The second panel was comprised of lenders, technical
assistance providers, and a microloan borrower. The witnesses
included: Scott Daugherty, Executive Director, North Carolina
Small Business Development Center; Ellen Golden, Coastal
Enterprises, Inc.; Etienne LaGrand, Women's Initiative for
Self-Employment; Joe Martinez, Economic Development Director,
Chicanos Por La Causa; Robert Schall, President Self-Help
Venture Fund; and Matt Toolan, President, Grade A T.E.M.P.S.
Each witness expressed broad support for the continuation
of the Microloan program. In particular, the witnesses
representing the certified development company lenders
testified that by coordinating the provision of technical
assistance with the availability of financing and delivering
both services through intermediaries that are experienced in
micro-enterprise development, the Microloan program responds to
the needs of micro-enterprises for technical as well as
financial support. In addition, because the intermediaries are
locally based, they can respond to particular needs of small
businesses in a particular geographic area. The witnesses also
noted that the program fosters a broad partnership among the
SBA, the local Small Business Development Centers (SBDCs), the
minority development centers, banks, and local municipalities.
Small businesses often have little or no access to capital from
lending institutions since many banks shy away from lending
small amounts of money, in large part because small firms
frequently have little collateral to secure a loan. As a result
of the Microloan program, financing is being made available to
many small businesses that might not otherwise be in business
today.
As the owner of a small business that has received a
microloan, Mr. Toolan gave the Committee anecdotal evidence of
the program's success. After being turned down for private bank
loans due to a lack of collateral, in 1992 Mr. Toolan turned to
the North Carolina Small Business Technology and Development
Center and was introduced to the Self-Help Credit Union, which
loaned him $5,000 for start-up costs of a new office. Without
the loan, Grade A T.E.M.P.S. would have closed their doors in
1992. In March, 1993, Mr. Toolan received an additional $2,000
loan from Self-Help, and as a result of the microloan
financing, the revenue of Grade A T.E.M.P.S. increase 81
percent in 1993 over 1992. In addition, the company was able to
expand its operations to include a permanent placement service
and human resources consulting. Mr. Toolan testified that his
company is proof that the Microloan program has a tremendous
impact on the businesses that it helps.
The panel also identified areas for improvement within the
Microloan program including: minimizing the expense of micro-
lending; reducing the risk of micro-lending as compared to
general business lending; incorporating and leveraging more
effectively primary SBA resources; and addressing the fact that
the current initiative will never generate sufficient funds to
meet the level of demand.
For further information on this hearing, refer to Committee
publication number 104-18.

7.2.17 u.s. small business administration's business devel-
opment programs

Background

On March 16, 1995, the Committee on Small Business held a
hearing on the Business Development Programs of the U.S. Small
Business Administration (SBA). The purpose of this hearing was
to examine each of the SBA's Business Development Programs and
evaluate whether they are providing the best service for the
best price. The Business Development Programs include the
Service Corps of Retired Executives (SCORE), the Small Business
Development Centers (SBDCs), the Small Business Institutes
(SBIs); the Office of International Trade; the Office of
Women's Business Ownership, and the Office of Veterans Affairs.
These programs generally deliver services through workshops,
seminars, one-on-one counseling, as well as publications and
the SBA's electronic bulletin board.

Summary

The hearing was comprised of one panel. The witnesses
included: Mary Jean Ryan, Associate Deputy Administrator for
Economic Development, SBA, accompanied by Jeanne Sclater,
Assistant Administrator for International Trade, SBA, Monika
Edwards Harrison, Associate Administrator for Business
Initiatives, SBA, Johnnie Albertson, Associate Administrator/
SBDC, SBA, Leon Bechet, Assistant Administrator for Veterans
Affairs, SBA, and Betsy Myers, Assistant Administrator, Women's
Business Ownership, SBA; Alexander Balc, President and Owner,
C.S. Johnson Company; E. Martin Duggan, Small Business
Exporters Association; Lee Borland, CSP, President, Security
Press; Gregg S. Poorman, Poor Man Distributors; Amy DeLouise,
President, Take Aim Productions; Sergeant Major Mickey Ehlo,
USMC, Retired; and Lavern Hicks, President, Goode Computer
Service, Inc.
The witnesses from the SBA reviewed the various program
comprising the SBA's business development efforts. They noted
that SCORE is an association of 13,000 business executives who
volunteer their time and expertise to counsel small businessmen
and women. The SBDCs are in 940 locations around the country
and provide counseling and training on a wide range of topics
primarily for established small businesses. The Women's
Business Ownership program is designed to help women business
owners with everything from loans to procurement. The Business
Information Centers (BICs) offer the latest in computer
hardware and software and an extensive business library. There
are 14 existing BICs and 38 others are expected in the near
future.
The SBA witnesses also testified that the Business
Development Programs focus on one of the four major components
of the SBA, education and training. Often training is the
critical link for a business to access capital or can be the
difference between success and failure. The SBA, through its
wide network of offices and national resource partners, offers
a broad range of business education and training programs,
which are offered either for free or for a small affordable
fee. These programs are good examples of the SBA's public-
private partnerships at work. Many of these programs operate
through the use of volunteers, such as SCORE, and many require
significant matching funds and leverage very substantial
amounts of corporate investment.
The SBA witnesses provided the Committee with an example of
how an individual actually receives service through the SBA's
Business Development Programs: a person can go into a BIC and
actually take a business planning guide down from the shelf and
find one for a particular business, such as an ice cream shop.
The plan may not fit all the individual's needs but it helps
get a business owner or potential owner started. If an idea
looks feasible, a small business owner can get further
assistance through a BIC or SCORE with such issues as cash
management and cash-flow projections.
The witnesses from the small business community expressed
strong support for the SBA Business Development Programs and
offered several suggestions for improvement. Mr. Balc testified
that his company had benefited greatly from the SBA's Export
Working Capital Program, which guarantees export loans. Mr.
Balc suggested two ways to improve the program: First, the
cooperative effort between the SBA and the Export-Import Bank
needs to be improved in order to minimize the need for small
business owners to have to deal with two different sets of
rules and organizations with respect to export financing.
Second, he suggested that the focus of the export programs
needs to be more entrepreneurial as opposed to the strict
regime that banks tend to follow.
Mr. Duggan testified about the SBA's international business
development efforts. He noted that the SBA's International
Trade Office lacks the focus, commitment, training, and
experience necessary to assist aspiring or even seasoned
exporters. In the area of promotion, SBA has no recognition
overseas and yet promotes trade missions that clearly could be
better organized and promoted by the International Trade
Association at the Department of Commerce.
Two witnesses testified to the merits of the SBDC program.
Mr. Borland explained his experience with SBDCs and attributed
much of the success of his four businesses to the guidance he
received from the local SBDC. He also noted that current data
indicates that businesses that received SBDC assistance grew at
twice the rate of the non-SBDC-counseled businesses. Mr. Ehlo
also testified about the benefits of SBDC assistance and the
Veterans Entrepreneurial Training (VET) Program, in which he
participated. He emphasized that the VET Program is a
successful way to provide veterans with the tools they need to
operate a small business and compete in a changing economy.
The small business witnesses also testified about several
other SBA programs that are viewed as very beneficial to small
businesses. In particular, Mr. Poorman commended the SBI
program and credited the management counseling that he received
through the program to the success of his business. Ms.
DeLouise praised the SBA's Women Business Ownership Program and
indicated that it had enabled her to advance significantly her
business as well as assist her in handling management issues
such as creating a business plan, producing her own financial
statements, handling payroll, and expanding her marketing
efforts. Lastly, Ms. Hicks testified about the substantial
assistance that her business had received through the SCORE
program.
For further information on this hearing, refer to Committee
publication number 104-19.

7.2.18 review of the sbic and ssbic programs

Background

On March 28, 1995, the Committee on Small Business held a
hearing on the Small Business Investment Company (SBIC) and
Specialized Small Business Investment Company (SSBIC) Programs.
Originated under the Small Business Investment Act of 1958,
SBICs are venture capital companies that use private funds
supplemented with government leverage to provide financing for
small businesses, which have historically lacked long-term
capitalization. In 1972, the program was expanded to include
Specialized Small Business Investment Companies, which provide
financing to businesses owned by socially or economically
disadvantaged persons who have had difficulties participating
in the economic mainstream.
As of the date of the hearing, SBICs and SSBICs represented
$4 billion in a total venture capital industry that has over
$37 billion in assets under management. The SBIC industry has
not been free of problems, however. Over the years, a series of
well-publicized failures and overall difficulties have led to
changes in the program. For instance, Congress created the
Participating Securities Program in 1991, which is designed to
provide patient capital for the SBICs and cure a mismatch
between financing and investments. In addition, management
changes were implemented, transferring auditing functions from
the Inspector General's Office back to the Investment Division
of the Small Business Administration (SBA). Despite these
efforts, problems have continued to arise in the SBIC and SSBIC
Programs. As of the hearing date, 192 SBICs were in liquidation
and approximately $523 million of government leverage was at
risk. In addition, during the previous year the Committee
received a GAO report documenting the misuse of an SSBIC in
Arkansas by wealthy individuals connected to the White House.
The hearing was designed to investigate the
Administration's initiatives for overcoming these problems and
to review the current state of the SBIC and SSBIC Programs.
Witnesses were asked to consider a number of specific issues
with respect to the SSBIC program, such as financial returns,
budget issues, and the SBA program management.

Summary

The hearing was comprised of one panel, and the witnesses
included: Mary Jean Ryan, Associate Deputy Administrator for
Economic Development, SBA, accompanied by Robert Stillman,
Associate Administrator, Investment Division, SBA, and Marty
Teckler, Deputy General Counsel, SBA; Will Dunbar, Chairman,
National Association of Small Business Investment Companies
(NASBIC); James Hoobler, Inspector General, SBA; Terry Jones;
Chairman, National Association of Investment Companies (NAIC);
William Thomas, President Capital Southwest Corporation; and
Jim Wells, Associate Director of Housing and Community
Development Issues, General Accounting Office (GAO).
The SBA witnesses testified that part of the
Administration's reinvention initiative included a proposal for
restructuring the SBA and a directive that SBA study the
concept of privatizing the SBIC program. The study will also
focus on additional ways to improve the program and to further
decrease the program's costs. The SBA witnesses also reviewed
the programs, noting that the SBIC program is designed to
increase the availability of equity capital and long-term debt
as well as to fill a gap that other SBA loan programs do not
address. The program is funded primarily through investments by
the private sector, leaving the cost to the U.S. Government at
approximately $11 for every $100 of the guaranteed leverage.
Ms. Ryan expressed her belief that the program had been
strengthened by the new requirement that 30 percent of the
private capital raised by the SBIC must come from investors who
are unrelated to the SBIC's management.
The two industry witnesses emphasized that the programs are
essential to many small businesses given that long-term capital
is of critical importance and it often takes many years to
build a company from the early stages to the point where it can
financially self-sustain itself. The witnesses provided the
Committee with anecdotal evidence of the programs' success and
effects on participating small businesses. One witness
testified that as a result of the SBIC Program's effectiveness,
it had now served its purpose, and this is an appropriate time
to either phase out the program or privatize it.
Mr. Wells testified that the GAO has started a
comprehensive assessment of the investment programs at SBA,
including the agency's oversight, examinations, licensing, and
liquidation activities. He gave several examples of the
problems that currently exist with SBA's oversight of the
program, especially with respect to liquidations. Mr. Wells
also testified that the GAO is investigating the SBA's 3-
percent stock buy back program, under which SSBICs are
permitted to repurchase their preferred stock from the SBA at a
significant discount from the face value of the stock. While
the investigation is not complete, Mr. Wells noted that as of
the date of the hearing, 15 SSBICs have participated in this
program, and they have repurchased preferred stock with a par
value of $41 million from SBA for only $14 million.
For further information on this hearing, refer to Committee
publication number 104-21.

7.2.19 the small business administration of the future

Background

On March 30, 1995, the Committee on Small Business held a
hearing to explore the future of the U.S. Small Business
Administration (SBA). On Monday, March 27, 1995, the Clinton
Administration unveiled a plan to reduce spending in several
independent agencies including the SBA. The plan for
streamlining the SBA, entitled, Stretching Taxpayers Dollars,
proposes significant program changes in the primary SBA loan
programs--the 7(a) and 504 loan programs--and reductions in the
field office structure of the agency. The Administration
estimates that the plan will reduce the SBA budget by 29
percent from the original fiscal year 1996 request and save
approximately $1.2 billion over five years. The purpose of the
hearing was to have the SBA Administrator explain in detail the
Administration's streamlining plan for SBA.

Summary

The hearing was comprised of a single panel, which
included: Philip Lader, Administrator, SBA, accompanied by
Cassandra Pulley, Deputy Administrator, SBA. Mr. Lader gave an
overview of how critical small business is to the U.S. economy
and a brief summary of SBA programs. He testified that the
Administration's proposal for streamlining the SBA would
include the following features with the goal of reducing the
government's cost of small business financing, while serving
more customers: (1) the SBA intends to consolidate its field
operations by making greater use of public/private
partnerships; (2) the SBA will continue to rely on effective
Small Business Development Centers (SBDCs) to provide technical
assistance to business owners; (3) the SBA intends to
centralize its loan processing to achieve economics of scale
and use current technology and has consolidated most of the
business loan servicing for its loan portfolio into two
locations; (4) the SBA plans to consolidate the surety bond
delivery system with its government contracting oversight
operations; (5) the SBA intends to relocate more headquarter
functions to field operations; and (6) the SBA intends to
explore alternatives for streamlining the Small Business
Investment Company (SBIC) program, including the possibility of
privatization.
Mr. Lader concluded that the Administration's proposal
reflects a dedication to small business and a commitment to
maximizing taxpayers dollars. He indicated that the Agency will
continue to build on the progress it has made in improving
customer service and programs, as well as enhancing efficiency,
reducing regulatory and paperwork burden, and increasing small
business access to capital.
For further information on this hearing, refer to Committee
publication number 104-20.
7.2.20 sba office of advocacy

Background

On April 4, 1995, the Committee on Small Business held a
hearing on the SBA's Office of Advocacy. The hearing was the
last in a series that focused on a top-to-bottom review of the
Small Business Administration's programs and policies.
The Office of Advocacy was created in 1976 and is headed by
the Chief Counsel for Advocacy who is a Senate confirmed,
presidential appointee. The Office of Advocacy was designed to
serve as a small business ombudsman advocating the interests of
small business throughout the Federal government. In that
capacity, the Office has played an important role in pursuing
legislative and regulatory solutions for problems faced by the
Nation's small businesses. The Office of Advocacy also serves
the important function of monitoring Federal agency compliance
with the Regulatory Flexibility Act (RFA).

Summary

The hearing was comprised of two panels. The first panel
included the current and former SBA Chief Counsels for
Advocacy: Jere Glover, Chief Counsel for Advocacy at the Small
Business Administration; Milton D. Stewart, former SBA Chief
Counsel for Advocacy (Carter Administration); Frank Swain,
former SBA Chief Counsel for Advocacy (Reagan Administration);
and Thomas Kerester, former SBA Chief Counsel for Advocacy
(Bush Administration).
The current and three former SBA Chief Counsels for
Advocacy reviewed the purpose and operation of the Office of
Advocacy and its importance to the small business community.
The Office of Advocacy is the only part of SBA that is not
focused on programs. Rather, it is policy oriented, and was
created to handle the broader policy and regulatory issues,
both inside the government and in the private sector. In
addition, Congress designed the Chief Counsel position to have
a significantly greater degree of independence than most other
Federal officials. As a result, the Chief Counsel has the
opportunity to truly be the ``independent advocate' for small
business.
The witnesses also stressed that the Office of Advocacy has
and must continue to foster recognition of the link between the
success of small business and the prosperity of the country as
a whole. One of the greatest challenges facing small business
is to make policy makers at all levels of government understand
that small business is a driving force in the economy. The
witnesses maintained that the Office of Advocacy is well placed
to assist small businesses in achieving that goal.
The current and former Chief Counsels also offered several
suggestions to the Committee for strengthening the Office of
Advocacy and its ability to promote the interests of small
business. One witness urged that the Chief Counsel of Advocacy
be given authority to put a hold on burdensome regulations
until Advocacy has given a final stamp of approval, which would
help reduce the negative effects of retroactive legislation and
any regulations with unreasonable effective dates. Another
recommendation was to establish a small business forms review
committee to monitor the ever-changing tax and other forms and
reports, which small business must file with the Federal
government. The witnesses also stressed the need for increased
information flow to small business on a timely basis.
The second panel consisted of leading representatives from
the small business community, including: John Galles,
President, National Small Business United; Karen Kerrigan,
President, Small Business Survival Committee; John Satagaj,
President, Small Business Legislative Council; Bennie Thayer,
President, National Association for the Self-Employed; and
David Voight, Director, Small Business Center, U.S. Chamber of
Commerce. The panelists shared their views on Advocacy's
mission, its history, how it might be improved, and its future
as an important and independent voice for small business
throughout the Federal government.
The general consensus of all the witnesses on the second
panel was that the Office of Advocacy serves an important
purpose in furthering the policies that nurture the small
business and entrepreneurial sector of the economy. The
witnesses offered a number of suggestions for strengthening and
expanding the role of the Office of Advocacy and its Chief
Counsel. In particular, it was recommended that the Chief
Counsel be given more authority as well as autonomy within the
Administration in order to effectuate the Office's mission. The
witnesses also stressed the need for the Office of Advocacy to
focus creatively on the future for small business in order for
small business to be more proactive instead of reactive to
economic and regulatory changes. The Committee was urged to
enhance the economic research functions of the Office and to
expand its mission of commenting on proposed regulations.
For further information on this hearing, refer to Committee
publication number 104-23.

7.2.21 small business administration programs and tax
and regulatory issues impacting small
business

Background

On April 27, 1995, the Committee on Small Business held a
field hearing in Overland Park, Kansas, on the programs
administered by the Small Business Administration (SBA) and tax
and regulatory issues effecting small business. Small business
plays a vital role in the economy of this region, as well as
across the country, and the overwhelming majority of new jobs
are created by small businesses. At the beginning of the 104th
Congress, the Committee on Small Business held a number of
hearings on the SBA's small business programs and received
testimony from the Administration as well as small businesses
and advocacy groups representing a cross section of the
country. At this hearing, the Committee received testimony from
the small business owners of Kansas and Missouri in order to
provide a local perspective, and the witnesses were asked to
evaluate which SBA programs worked and which ones needed
improvement. The witnesses were also asked to focus on tax and
regulatory burdens imposed on small business and ways that
Congress can seek to eliminate or at least reduce those
burdens.

Summary

The hearing was comprised of six panels with each panel
focusing on different SBA programs as well as tax and
regulatory burdens on small enterprises. The first panel
examined small business financing programs and included: Keith
Cowen, President, Airport Systems International, Inc.; Don
Sladek, Coast to Cost Hardware; Bill Goble, Snack-eze
Convenience Store; Caroline Salyer, Santa Fe Optical, Inc.;
Jerry Darnell, Avis Furniture Company; Bill Reisler, Kansas
City Equity Partners; Gary Thomas, Guaranty Bank & Trust; Rob
Park, Commerce Bank; and Deryl Schuster, Emergent Business
Capital.
The first panel discussed small business financing from
both the borrowers and lenders perspectives. The witnesses
testified about the SBA's lending programs and provided the
Committee with anecdotal evidence as to the success of these
programs and their importance to small businesses. Two
witnesses reviewed their experience with the 504 loan program,
which is designed to provide long-term debt financing for small
businesses that seek to expand their physical premises. The
witnesses noted that their 504 loans allowed them to construct
their own buildings, which enabled them to construct facilities
that met their particular needs and avoid paying high rents.
Witnesses also testified about the benefits of the SBA's 7(a)
loan program, which is designed to provide working capital for
small enterprises on a shorter term than the 504 program. While
the witnesses were generally very supportive of the program,
several suggested changes that would improve the program. One
witness also testified about the SBA's small business
investment company (SBIC) program, which provides venture
capital to small businesses. The witness emphasized the
critical role that SBIC capital played in the initial
development of his company.
The small business lenders on the first panel were also
very supportive of the SBA's financing programs. Mr. Reisler of
Kansas City Equity Partners, an SBIC, testified that recent
changes to the SBIC program have improved the program and moved
towards lowing its cost to the Federal government. He
attributed much of the improvement to the new licensing
criteria, stringent monitoring of SBICs after being licensed,
the increased capital requirement, and the participating
securities. The two witnesses representing local banks
testified from the lender's perspective about the benefits of
the 504 loan program and the critical role of long-term
financing for small businesses. They also noted that the 7(a)
and low documentation (or LowDoc) programs have been very
beneficial to small businesses with respect to shorter-term
working capital. The witnesses also offered a number of
suggestions for improving the SBA lending programs. With regard
to the 504 program, steps should be taken to increase the turn-
around time on application approvals. In the 7(a) program, the
guarantee percentage should not be changed and the maximum
guarantee amount should be reduced from $750,000 to $500,000.
The witnesses also recommended that the certified and preferred
lending status program be continued and evaluated on an annual
or every other year basis.
The second panel focused on the SBA's small business
development programs. The witnesses included: Mike O'Donnell,
Director, Small Business Development Center, University of
Kansas; Winston Joe Sowers, CPS; Ana Riojas, Riojas
Enterprises, Inc.; Randee Brandy, Center for Technology and
Business Development, Central Missouri State University at
Warrensburg; Richard Hunt, Rockhurst College, Small Business
Institute; Don Stevenson, Kansas City District Manager, SCORE;
and Jan Ilames, Owner, American Balloon Factory.
Two of the witnesses represented local Small Business
Development Centers (SBDCs). Over the last five years the
amount of small businesses seeking assistance from SBDCs has
increased dramatically, in one case over 700 percent. The SBDCs
provide a wide variety of assistance to small business owners
from developing a business plan to marketing and cash-flow
management. SBDC funding comes from State and local sources
subject to Federal matching funds. To improve the SBDC program,
the witnesses recommended that they leverage existing
resources, utilize new technology, and increase services to
small business through program revenue such as a nominal
consultation fee. Two other witnesses on the panel testified
about the Small Business Institute (SBI) and the Service Corps
of Retired Executives (SCORE) programs, which are two of the
three consultation programs administered by the SBA, the other
being the SBDC program. The SBI program handles special
projects for the small businesses that the business owners
cannot handle in-house or cannot afford to contract out to a
professional consultant. SBIs serve over 6,000 small businesses
a year with an average of 120 hours per client on a no-charge
basis except for special services like mailings. Based on local
surveys of SBI clients, the value of SBI consultations to small
businesses range from $2,000 to $10,000. The SCORE program uses
retired executives who volunteer their time to the program to
counsel business owners. By providing consultation programs for
existing business owners and those contemplating a new business
venture, the program is able to impart the knowledge and
experience of retired executives to small firms at a low cost
to the government.
The small business witnesses on the panel provided the
Committee with anecdotal evidence of the value of the SBA's
business development programs. Two witnesses testified about
their experience with local SBDCs, and commended the program
for providing training on survival and business-planning skills
as well as programs designed to improve efficiency, increase
profits, and reduce overhead. One witness suggested that the
Committee consider expanding the scope of the SBDC program in
order to assist more small business owners and recommended that
the SBDCs be permitted to charge minimal consultation fees of
$10 or $15 per hour to finance the expansion of the program.
Another small-business witness testified about the benefits
that she received from the SBA programs as a minority business
owner. She noted that small minority and women-owned businesses
often have a difficult time competing against large
corporations, and the SBA programs help level the playing
field.
The third panel examined SBA programs from a regional
perspective, and included a single witness: Bruce Kent, SBA
Regional Administrator, Kansas City, Missouri. Mr. Kent
testified that the SBA has aggressively moved forward in the
area of better access to capital for small business owners and
has been working with the Certified Development Companies to
improve the 504 loan program. He also testified that the LowDoc
program is helping small businesses with access to capital by
easing the application process for loans under the 7(a)
program, with LowDoc constituting approximately 56 percent of
the SBA's loan approvals in 1995. Mr. Kent noted that the
Kansas City Regional Office is attempting to expand its
activities, despite staff reductions, and is working closely
with the SCORE program and the SBDCs to leverage the benefits
of these consultation activities.
The fourth panel focused on tax issues affecting small
businesses. The witnesses included: Al Martin, Shook, Hardy, &
Bacon; Dennis Parker, Independent Telecommunications Network,
Inc.; Linda Gill Taylor, Of Counsel, Inc. The panel reviewed
the current tax burdens imposed on small businesses and
emphasized the need for meaningful reform of the tax system.
The witnesses offered a number of recommendations to the
Committee. One witness focused largely on estate tax reform and
noted that at a minimum, the estate tax needs to be revised, if
not repealed completely. In addition, the current $600,000
exemption from the estate and gift tax should be raised to at
least $1 million per person, although the increase to $750,000
in the Contract with America is a step in the right direction.
The exemption from estate and income taxation for retirement
plans should be restored, and the generation-skipping tax
should also not be applied to retirement plans.
The witnesses also recommended a broad range of tax reforms
to assist small business, the most important of which was to
simplify the tax laws. Small businesses have a difficult time
keeping up with the constantly changing tax laws and
regulations, which requires monetary and personnel resources
that are not always available to small firms. On a more
specific level, the witnesses urged Congress to restore the
investment tax credit so that small businesses can compete
effectively with larger businesses. Alternatively, the
equipment expensing provision under Section 179 of the Internal
Revenue Code should be expanded. In addition, the deduction for
business meals and entertainment should be restored to 100
percent, and the availability of Employee Stock Ownership Plans
(ESOPs) should be extended to S corporations. Witnesses also
emphasized that the complexities of the payroll tax deposit
system must be addressed by Congress and simplified so that
small businesses can comply without incurring substantial
burdens and costs.
The fifth panel addressed the regulatory and paperwork
issues affecting small business. The witnesses on this panel
included: Chuck Vogt, All Star Awards and Ad Specialties; Dan
Wright, Mid-America Signal; Ben Griffith, Central Cooperatives,
Inc.; and Greg Shuey, Tensortech Corporation. The witnesses
testified that Congress should concentrate on creating a
stable, positive economic climate that will foster the
country's free enterprise system and enable it to reach its
fullest potential. A number of examples of oppressive
regulatory burdens on small business were brought to the
Committee's attention, but particular emphasis was placed on
the regulations promulgated by the Occupational Safety and
Health Administration (OSHA), the Environmental Protection
Agency (EPA), and the Internal Revenue Service (IRS). The
witnesses testified that the amount of paperwork and the
potential penalties are often oppressive for small businesses
with few employees and resources that can be dedicated to all
of the compliance burdens that the government imposes on
businesses. In some cases, these burdens can force a small firm
out of business. One witness emphasized the need for cost-
benefit analysis to be applied when regulations are implemented
and reviewed to make sure that the regulations achieve their
intended purpose at a reasonable cost to the regulated parties.
The final panel was designed as an open forum, and the
witnesses included: William Miller, Building Erection Services
of Olathe, Kansas, representing the American Subcontractors
Association; Ernest Fleischer, Blackwell, Sanders Law Firm;
Judy Burngen, Former Rockhurst College SBDC Director; Patty
Klinko, Center for Business Innovation; John Halsey, IBT
Reference Laboratory; and Clyde McQueen, Full Employment
Council of Kansas City, Kansas. The six witnesses on this panel
presented testimony on a wide variety of small-business issues.
Mr. Miller expressed his support for the recently passed
Paperwork Reduction Act of 1995 and reminded the Committee that
another powerful tool to combat unnecessary regulatory and
paperwork is the proposed amendments to the Regulatory
Flexibility Act (RFA). Although the RFA, was enacted in 1980,
Federal agencies have failed to implement it fully. Mr. Miller
noted that the Department of Labor leads the way in oppressive
regulations for small business, namely the OSHA regulation
governing worker-safety standards. He stressed that the most
effective way to achieve the goal of occupational safety should
be performance-based prevention and education rather than
enforcement-driven tactics like fines.
The effects of burdensome regulations on small business
were exemplified by another panelist, Mr. Halsey, who testified
about the recent regulatory activities of the Food and Drug
Administration (FDA). Mr. Halsey noted that the majority of the
medical device industry is made up of small businesses and is
an important contributor to the national economy in terms of
both domestic products as well as exports. The overzealous
regulation by the FDA poses a significant threat to the
industry, for the FDA regulates too many products that do not
need to be regulated. In addition, it currently takes too long
for the FDA to approve new products, and the FDA's export
certification program is in need of improvements if small
businesses are to expand their export activities. On a related
issue, Mr. Fleischer testified that the Congress should adopt a
Truth in Government Act that would permit citizens to challenge
enforcement actions by the government. He maintained that every
law passed by Congress should provide a means by which a
citizen can seek the reversal of an adverse action by the
government.
Two panelists provided additional testimony on the SBA's
business development programs. Ms. Burngen stresses the
benefits and importance of the SBDC program and emphasized that
the program greatly leverages Federal funds by requiring
contributions from State and local governments. She recommended
that Congress combine the SBDC program with the SCORE and SBI
programs, the Women's Business Development Program, and the
Minority Business Development Administration, which is managed
by the Department of Commerce. She also recommended that SBDCs
be permitted to charge a fee for the services they provide and
that the SBDC's reporting requirements be modified to focus on
economic impact rather than the number of businesses visiting
the centers. Ms. Klinko testified about the SBA's Microloan
Program, which fills an important capital gap for small
businesses by providing loans from as low as $500 to a maximum
of $25,000. An important part of the Microloan Program is the
technical assistance that is made available as part of each
loan. Ms. Klinko urged the Committee to retain the technical
assistance aspect of the program since it has proven to be a
significant benefit to small businesses needing assistance with
such projects as setting up an accounting system, hiring
personnel, preparing cash flow projections, marketing, and
direct mailings.
The final panelist addressed the issue of child labor laws.
Mr. McQueen testified that under current rules young people
between the ages of 14 and 15 can only work 25 hours a week
without the employer being fined. As a result, many employers
will not hire individuals between 14 and 15 years old, which
reduces the number of jobs available for this age group. Mr.
McQueen maintained that the law should be changed to permit
individuals in this age group to work up to 40 hour per week.
For further information on this hearing, refer to Committee
publication number 104-27.

7.2.22 small business participation in federal contract-
ing: assessing h.r. 1670, the ``federal
acquisition reform act of 1995''

Background

On June 29, 1995, the Committee on Small Business held the
first in a series of two hearings on H.R. 1670, the Federal
Acquisition Reform Act of 1995. The first hearing was to
provide representatives of small business an opportunity to
assess the potential impact of H.R. 1670 on their ability to
compete for Federal contracts. Many of the provisions of the
bill would fundamentally change the Federal procurement
process, making it substantially less open and fair and could
present obstacles to small business participation. The bill
proposed to abandon the standard of ``full and open
competition,'' established by the landmark Competition in
Contracting Act of 1984. H.R. 1670 would repeal, as
duplicative, the very provisions of the Small Business Act that
ensure adequate notice of contracting opportunities and
adequate time for small firms to fashion an offer.
On August 3, 1995, the Committee held a second hearing to
assess the impact of H.R. 1670, as reported by the Committee on
Government Reform and Oversight on July 27, 1995. While the
reported bill had addressed some of the concerns raised by
small business and others, H.R. 1670 still sought to eliminate
the practice of ``full and open competition,'' while appearing
to keep the words in the statute. There are many provisions
that would empower contracting officers to preclude small firms
from competing for contracts and to eliminate them earlier from
consideration for awards, if they were permitted to compete
initially.

Summary

The June 29, 1995, hearing was comprised of two panels, the
first of which included: Jere W. Glover, Chief Counsel for
Advocacy, U.S. Small Business Administration (SBA), accompanied
by Jim O'Connor, Chief Counsel for Procurement Policy, SBA, and
Kay Ryan, Deputy Counsel, SBA; Amy Erwin, Procurement Technical
Assistance Program, George Mason University, representing the
Association of Government Marketing Assistance Specialists;
William F. Blocher, Jr., a small businessman; and James E.
Lewin, Jr., Vice-President, Government Affairs, Sprint.
Mr. Glover testified that H.R. 1670 would reduce the number
of participating government contractors by replacing ``full and
open competition'' with a standard based on ``maximum
practicable competition.'' He further said that small
businesses received three times more contracts under the
competitive process than they did under any non-competitive
process and that only 4 percent of non-competitive contracts
over $25,000 go to small businesses.
Other witnesses testified that H.R. 1670 would prove a
hindrance to small business. One witness stated that the
maximum practicable competition clause would give government
officials too much power over business decisions and that
anything less than full and open competition artificially
restrains trade and hurts the smaller companies
disproportionately. Overall, witnesses believed that a
streamlined process that will save taxpayer dollars would be
appropriate, but if the implementation is not done carefully,
the small business community will be severely damaged in the
process.
The second panel of the June 29th hearing included: Tom
Frana, President, Vion Corporation; Gerry Nowak, President,
Meridian Construction, representing the Associated Builders and
Contractors; Matthew S. Forelli, President, Precision Gear,
Inc.; and Aleta Robinson Wilson, Past Chairperson, National
Association of Minority Business. The panelists testified that
by repealing the standard of ``full and open competition,''
government agencies would be encouraged to exclude those
companies that have not already demonstrated their abilities,
thereby prohibiting new participants from entering the market.
One problem, a witness noted, is that government contracting
officers do not clearly define their needs and/or allow less
than fully qualified vendors to compete. It is believed that
this may be the reason that the government receives and
evaluates too many bids from unqualified vendors.
Another witness stated that the current standard of ``full
and open competition'' has been a proven method of assuring
equal access for all qualified contractors and has made it
possible for construction contractors to gain entry and build a
resume in Federal work. Efforts to reform the Federal
procurement system should not only benefit the Federal
purchasing agents or the large companies that receive the
majority of the contracts, but should strengthen the
opportunities for local and small businesses, and certainly
should not impose further obstacles for these companies to
enter the Federal market.
The August 3, 1995, hearing was also comprised of two
panels. The first panel included: Marshall J. Doke, Esq.,
McKenna & Cuneo; Ronald W. Berger, Associate General Counsel,
U.S. General Accounting Office (GAO); Steven Kelman,
Administrator for Federal Procurement Policy, Office of
Management and Budget; Kevin Johnson, Contracting Officer,
Internal Revenue Service; Jere W. Glover, Chief Counsel for
Advocacy, SBA; and Derek J. Vander Schaaf, Deputy Inspector
General, Department of Defense.
Several witnesses testified that while the government must
put forth an effort to achieve vigorous commercial-style
competition, the bureaucracy that is preventing the
government's ability to serve the taxpayer must be ended. One
witness stated that there is an extreme pathological distrust
in the current system toward front-line contracting and program
professionals and a complete lack of faith in their ability to
use common sense and good judgment to make sound business
decisions in the best interest of the taxpayer. The witness
went on to say that because of the fear of discretion, endless
paper trails are created.
The SBA witness testified that while the amendments to H.R.
1670 are an improvement over the original bill, they do not
reach far enough to mitigate the serious concerns of the small
business community. Mr. Glover stated that while the words
``maximum practicable competition'' are gone, the current
standard of ``full and open competition'' is diluted. The
revised bill would require the government to obtain competition
that provides open access and promotes efficiency in fulfilling
the government's procurement process.
The second panel of the August 3rd hearing included: E.
Colette Nelson, Chair, Small Business Working Group on
Procurement Reform; Edward J. Black, President, Computer and
Communications Industry Association, accompanied by David S.
Cohen, Esq., Cohen & White; Matthew S. Forelli, President,
Precision Gear, Inc., representing American Gear Manufacturers
Association; Edward Hammond, President, K.C. Bobcat, Inc.,
representing North American Equipment Dealers Association,
accompanied by John Mullenholz, Counsel to the Association; and
Thomas R. Gunerman, President and CEO, Intersurgical, Inc.,
representing the Health Industry Manufacturers Association.
Small business witnesses on the second panel were strong
opponents of the Federal Acquisition Streamlining Act of 1994
(FASA) and H.R. 1670. They testified that the Federal
government has the same fiduciary responsibility to follow very
rational procedures and not arbitrary procedures established by
a contracting officer. Witnesses testified that they believe
that H.R. 1670, as then drafted, has serious flaws that will
jeopardize the ability of small- and medium-sized firms to
compete fairly for Federal procurement contracts. It was also
noted that H.R. 1670, in its revised form, increased the
potential for the use of other than competitive procedures
under two broad new exceptions: ``not appropriate'' or ``not
feasible.'' Under the bill, these new conditions were left to
the regulators to define.
One witness representing the Health Industry Manufacturers
Association stated that members of his organization do not
object to most of the other reforms in FASA, only to the
implementation of a cooperative purchasing program without
complete information on its broad effects. He stated that under
a one-size-fits-all concept, it becomes extremely difficult to
structure a single contract that will meet the needs of the
Federal, as well as State and local, buyers. The witness went
on to describe the concerns of the health-care industry with
regards to H.R. 1670.
For further information on these hearings, refer to
Committee publication numbers 104-36 and 104-46.

7.2.23 reduction of airline ticket sales commission and
its impact on small travel agencies

Background

On July 12, 1995, the Committee on Small Business held a
hearing on the reduction of airline ticket sales commission and
its impact on small travel agencies. The purpose of this
oversight hearing was to review the situation faced by many
small travel agencies in which the commissions provided by many
airlines had been capped. In February 1995, many airlines
placed a cap on the commission paid to travel agents for the
sale of domestic airline tickets. Under the cap, the maximum
commission for the sale of a ticket over $500 is $50 for a
round-trip ticket and $25 for a one-way ticket. Previously, the
commission was 10 percent of the total cost of each ticket
sold. The reduction in commission has been a hardship for many
travel agencies, and some of these small businesses, which
average annual airline ticket sales of $1.7 million per year
and have an average of five employees, have been forced to lay
off employees or close their doors completely.
On March 3, 1995, the American Society of Travel Agents
(ASTA) filed a lawsuit against six major airlines, Delta,
American, Northwest, U.S. Air, United, and Continental,
alleging price fixing. The Committee held the hearing to allow
the travel and tourism industry, an important industry to
thousands of small businesses, to testify about the perceived
effect of the airline industry's actions on their economic well
being. The hearing was also designed to give the Committee a
better understanding of the travel agent industry and its
relationship with the airline industry.

Summary

The hearing was comprised of one panel, which included: Dan
Bohan, CEO, Omega World Travel, Inc.; David Edgell,
Commissioner of Tourism, U.S. Virgin Islands; Jeanne Epping,
President and CEO, American Society of Travel Agents (ASTA);
Mary Hogan, former owner, Hogan Travel; Lauraday Kelley,
President, Association of Retail Travel Agents; and J. Diane
Panegasser, CTC, Travel Trends, Ltd. The Air Transport
Association was also invited to testify but declined. In
addition, TWA was invited but was unable to testify before the
Committee.
The panel provided the Committee with considerable
background on the industry and commission situation, noting
that the airlines and travel-agency industry have been tightly
intertwined since the inception of both industries. The
airlines have always controlled the relationship and continue
to do so, which is evidenced by the fact that any travel agency
seeking to sell airline tickets must obtain the approval of the
particular carrier through the Airline Reporting Corporation
(ARC). ARC is wholly owned by the airlines, and they determine
the standards applicable to travel agents. In addition, every
travel agency must utilize one or more of the computer systems
that the airlines own. For instance, all ticketing, boarding
passes, and itineraries must be done through the computerized
reservation system (CRS). One witness noted that, although the
airlines were deregulated in 1978 and the Civil Aeronautics
Board (CAB) no longer exists, most of the systems that were in
place prior to deregulation are still with the industry today.
The panel also noted that consumers seem to favor the use
of travel agents, with travel agents making up 60 percent of
the airline ticketing in 1978, and over 80 percent at the time
of the hearing. Witnesses also testified that 10 percent
commission on ticket sales was reached 14 years ago and has
been in effect until Delta Airline's announcement of the new
commission cap on February 9, 1995. Shortly thereafter, all the
major airlines followed suit with a few exceptions. The
witnesses pointed out, however, that all the major airlines
continue to pay the 10 percent commission to Canadian travel
agents when they book tickets in the United States. In
addition, the Scheduled Airline Ticket Office (SATO), which
handles ticketing for the Federal government, pays over 9
percent and continues to do that without caps.
The panel emphasized that the new cap will have a
detrimental effect on the travel-agent industry. Prior to the
new caps, travel agents worked on a 1 to 2 percent net profit
with very low salaries and benefits. The consensus of the panel
was that the many small travel agencies will not be able to
make a profit under the new caps and will be forced out of
business. In addition, the witnesses cautioned that the caps
could have a broader impact on more than just the travel
agencies--a loss of travel agencies and jobs will result in
reduced spending within the overall small business community as
well as a reduction in tax base. For instance, Dr. Edgell
testified that the commission caps have had a detrimental
effect on the hotel bookings in the U.S. Virgin Islands so much
so that one hotel has responded by offering to pay the lost
commission to travel agents along with their normal hotel
commission. Dr. Edgell also noted the disparity in the
airline's treatment of the U.S. Virgin Islands and Puerto Rico
as domestic destinations while the other U.S. Commonwealths are
considered international.
The witnesses offered a number of suggestions with respect
to the commission caps and asked for the Committee's
consideration. In particular, one witness recommended low
interest small business loans that are easy and fast to obtain
in order to help some of the adversely affected agencies. Mr.
Bohan suggested that the Justice Department should investigate
SATO's unfair and anticompetitive price fixing and boycotting
activities and urged that SATO be dismantled. He also advocated
that the Defense Department not consolidate its travel
management awards into giant contracts for which only a few
companies would be able to bid.
For further information on this hearing, refer to Committee
publication number 104-38.

7.2.24 the administration's initiatives to reduce regu-
latory burdens on small business

Background

On July 18, 1995, the Committee on Small Business held a
hearing to examine the Administration's initiatives to reduce
regulatory burdens on small business. This hearing was one in a
series of oversight hearings on what was happening to reduce
paperwork and regulatory burdens upon small business. The
Administration was asked to provide a progress report on
implementing the President's March 1, 1995, directive to all
executive departments and agencies to cut obsolete regulations,
reduce red tape, work with the grassroots, and negotiate
instead of dictate. As part of cutting obsolete regulations,
the President asked the department and agency heads for a list
of regulations that should be eliminated or modified, which was
to be delivered to him by June 1, 1995. As of the date of the
hearing, no list had been sent to the President.

Summary

The hearing was comprised of three panels, the first of
which included: Sally Katzen, Administrator, Office of
Information and Regulatory Affairs (OIRA), Office of Management
and Budget (OMB); Jere Glover, Chief Counsel for Advocacy; U.S.
Small Business Administration (SBA); Mark Isakowitz, Director
of Federal Government Relations, House, National Federation of
Independent Businesses (NFIB); and John Paul Galles, President,
National Small Business United (NSBU).
The Administration witnesses testified about the steps that
the Administration was taking to ease the regulatory and
paperwork burdens on small businesses. Ms. Katzen noted that
the government was scrapping 16,000 pages of the Code of
Federal Regulations and injecting common sense into the rest,
with a particular focus on the Environmental Protection Agency
(EPA) and the Occupational Safety and Health Administration
(OSHA). The EPA is implementing changes to focus on assisting
small businesses to clean up environmental hazards rather than
on historical practices of assessing fines. Ms. Katzen also
submitted a report on OSHA entitled, ``The New OSHA:
Reinventing OSHA, Reinventing Worker Safety and Health.'' The
report is based on OSHA's experience in the Maine 200 program,
in which OSHA went to companies with the highest workers
compensation claims and offered to work with the companies to
correct unsafe conditions, instead of fine them. The results
showed far fewer worker injuries and have prompted OSHA to
expand the program on a nationwide basis.
Mr. Glover noted that regulatory-reform recommendations
received the most votes of all the recommendations at the 1995
White House Conference on Small Business. He stressed that the
Regulatory Flexibility Act (RFA) is the strongest tool to
attack the cumulative burden of regulation on small business
and provides an excellent road map on how the government should
treat small business in rule-makings, although some questions
remain unresolved with regard to the compliance procedures
under the Act. Mr. Glover testified that the most important
measure of success in reducing regulatory burdens is the
dollars saved by small business, which is also the hardest to
measure. Other measurements, such as reducing the number of
pages of regulations in the Federal Register and the Code of
Federal Regulations and lowering the burden-hours of paperwork
required, all go to identify burden. Regulatory reform is not
just regulatory reduction, but crafting better, more efficient
regulations and must focus on small business. Mr. Glover opined
that continued vigilance by Congress, OIRA and the Office of
Advocacy will help in removing regulatory burdens for small
business.
The small business witnesses on the panel testified about
the success of the Administration in reaching its goals with
regard to regulatory reform. Mr. Isakowitz testified that NFIB
has surveyed its members, and the results indicate that small
businesses do not see any improvement in the regulatory
environment created by the Federal government. NFIB's members
indicated that despite the Administration's claims that the
agencie's have changed their focus towards assisting rather
than penalizing small businesses, they continue to see
significant problems especially with OSHA and EPA, not to
mention the Internal Revenue Service, which poses the most
significant burdens for most small businesses. Both small
business witnesses expressed their supports for regulatory
reform legislation. Mr. Galles noted that while a change in
policy with regard to regulation of small businesses would be
helpful, what is really needed is a change in the process of
enforcing those regulations.
The second panel included Rep. Tom Delay (R-TX) who
testified that he wanted to see the shackles of regulatory
burden, which had been imposed by the Federal government,
removed from small business. Regulations affect small
businesses disproportionately to larger businesses. Besides the
incredible number of hours, money, and effort spent filling out
forms and complying with these regulations, small businesses
feel an even bigger effect on lost profit. Small business
owners spend a least a billion hours a year filling out
government forms at an annual cost of $100 billion, according
to SBA. Mr. Delay noted that despite the good intentions of the
Administration, there is little evidence that any reduction in
the regulatory burden is taking place. He called on the
Congress and the Administration to examine why the agencies are
not complying with the President's Executive Order and
determine whether they are fulfilling the requirements of the
Paperwork Reduction Act.
The third panel included: Jeff Joseph, Vice President,
Domestic Policy, U.S. Chamber of Commerce; C. Boyden Gray,
Chairman, Citizens for a Sound Economy; Mike Baroody, Vice
President, Public Affairs, National Association of
Manufacturers (NAM); and L. Nye Stevens, Director of Federal
Management and Work Force Issues, General Accounting Office
(GAO), accompanied by Curtis Copeland, Assistant Director, GAO.
The small business witnesses on the panel stressed the need
for regulatory reform in order to reduce the burdens imposed on
small businesses. Witnesses noted two issues that are at the
center of the regulatory debate: First, the interaction of
Federal agencies with the private sector must be examined along
with the subsequent level of and need for the regulations and
paperwork requirements. Second, some standard of accountability
to which the agencies will be held must be established.
The witnesses also echoed the testimony of the small
business witnesses on the first panel, stressing that the
regulatory burdens are not being reduced. Instead, they
continue to grow, and State and local regulations add to the
overall burden. Mr. Joseph testified that according to the
Chamber of Commerce's surveys: 67 percent of the Chamber's
members said that Federal regulations require them to purchase
additional equipment; 72 percent had to modify their
facilities; and 72 percent spend up to 25 hours a month filing
out forms required by the government. Mr. Baroody also
testified that many times a small busines's compliance costs
with respect to Federal regulations exceeds its pretax profits,
a result that demonstrates the destructive nature of
regulations on small business.
The panel also offered several suggestions to the Committee
for improving regulatory reform efforts. Congress must make
tough decisions about public policy choices, giving better
guidance to Federal agencies on exactly what is expected from
the regulators. The regulated community must also be a better
participant in the process, voicing its views loud and clear.
Finally, Federal agencies themselves must be prepared to answer
for both the intended and unintended consequences of their
actions and their failure to follow the rules. Witnesses also
stressed the need for agency performance standards as a means
of improving the process of helping small businesses to comply
with existing regulations rather than continuing the history of
enforcement actions. The GAO witnesses urged the Committee to
utilize the Government Performance and Results Act (GPRA) to
its fullest extent as a tool for focusing on the particular
outcomes that each agency is charged with achieving. GPRA will
also enable Congress to examine whether the regulatory burdens
imposed by the agency are necessary for achieving the
particular outcome.
For further information on this hearing, refer to Committee
publication number 104-39.

7.2.25 assessing the implementation of public law 103-
355, the ``federal acquisition
streamlining act of 1994''

Background

On July 20, 1995, the Committee on Small Business held a
hearing to assess the implementation of Public Law 103-355, the
``Federal Acquisition Streamlining Act of 1994'' (FASA), and
its effect on small firms seeking to market supplies, services,
and construction to the government. Signed into law on October
13, 1994, and effective October 1, 1995, FASA made the most
sweeping statutory changes to the Federal procurement process
since the landmark ``Competition in Contracting Act of 1984.''
During the consideration of the legislation that became
FASA, the small business community struggled to assure that the
changes being made in the name of ``procurement streamlining''
did not become obstacles to small business participation. In
the end, they were only partially successful since FASA granted
expansive authority to the regulation writers, constrained only
by broad statutory standards in many key areas relating to the
solicitation and award of Federal contracts, especially those
below $100,000, the new small purchase threshold, which FASA
increased from $25,000 and renamed the Simplified Acquisition
Threshold (SAT).
The small business community also worked hard to link the
SAT and other grants of permissive authority to the
implementation of the Federal Acquisition Network (FACNET).
Through the use of computer-assisted electronic commerce,
FACNET would provide small firms with better access to
information about contracting opportunities, especially those
below the $100,000 threshold, at various Executive departments
and agencies. Through FACNET, small firms (or any firm) could
electronically obtain copies of the government's contract
solicitation (and any modifications), submit offers, receive
notices of award (and indirectly a notice that a offeror was
not successful), communicate with the government regarding
contract administration during performance, and receive
payments. Data generated by transactions through FACNET would
also become a valuable source of information.
FASA also established a new micropurchase threshold at
$2,500, and purchases below this threshold were no longer
reserved for competition among small businesses. This
significant change was strongly advocated by the Administration
as essential to facilitate ``streamlined'' purchases using the
new government purchase card, the IMPACT Card. The IMPACT Card
was intended to be used more broadly by agency personnel to
purchase simple commercial products without any assistance from
the agency's procurement specialist. Since purchases below the
new threshold do not have to be announced or even competed,
small firms now confronted a new and significant challenge in
continuing to tap this segment of the market.

Summary

The hearing was comprised of a single panel, which
included: David E. Cooper, Associate Director, Acquisition
Policy, Technology and Competitiveness, National Security and
International Affairs Division (NSIAD), U.S. General Accounting
Office (GAO), accompanied by David Childress, Assistant
Director for Acquisition Policy, Technology and Competitiveness
Issues, NSIAD, GAO, William T. Woods, Assistant GAO General
Counsel, and Chris Martin, Assistant Director, Office of the
Chief Scientist, GAO; Jere W. Glover, Chief Counsel for
Advocacy, U.S. Small Business Administration (SBA), accompanied
by James M. O'Connor, Assistant Chief Counsel for Procurement
Policy, SBA.
The GAO witnesses reviewed three elements of the on-going
implementation of FASA. First, they provided an assessment of
the status of the proposed and final implementing regulations
to be promulgated by the Executive Branch in accordance with
FASA's statutory schedule. The witnesses reviewed the extensive
efforts being made to develop the necessary revisions to the
government-wide Federal Acquisition Regulation (FAR). While the
Administrator of Federal Procurement Policy at the Office of
Management and Budget projected that the new regulations would
be completed almost three months ahead of the October 1
statutory deadline, the GAO witnesses testified that the
accelerated timetable had not been met. They noted that some of
the most important implementing regulations, such as those
pertaining to SAT and FACNET, were issued in so-called interim
final form, in which the proposed regulations were made
effective, and public comment sought after the fact.
Second, the GAO witnesses provided the Committee with a
preliminary assessment of FACNET's implementation and its use
by the Federal procuring agencies and the vendor community.
They confirmed that the implementation of FACNET was proceeding
very slowly, with only a small fraction of the available
procurement opportunities being solicited and awarded through
FACNET. The primary obstacle for implementation was system
reliability. The witnesses observed that FACNET implementation
would require additional leadership and direction from senior
management in the Executive Branch.
Third, the GAO's testimony provided a status report on the
implementation of FASA's new authority regarding micropurchases
and the use of the IMPACT Purchase Card. The witnesses reported
that agency use of the IMPACT Card has been expanding rapidly.
While the GAO issued a report on August 6, 1996 concerning
acquisition reform, it did not include any data on the effect
on small business of the expanding use of the purchase card or
the elimination of the small business reserve for purchases
below the Micropurchase threshold. Without such information,
small firms cannot compete for the millions of purchases below
$10,000, which is now the threshold below which no form of
public notice is required.
The SBA's Chief Counsel for Advocacy made five principal
observations about the implementation of FASA and its potential
impact on small firms seeking to market to the Federal
government. First, he testified that while FASA made the most
sweeping changes to the Federal procurement process in 10
years, FASA's specific effects, especially on small firms,
cannot be assessed until its implementation regulations are in
place given the substantial discretion given to the regulation
writers. He cited several examples relating to the new SAT,
including the potential benefit to small business by having
these contracting opportunities reserved for small business and
the potential adverse effects of having lost the statutory
guarantees for adequate advance notice of contracting
opportunities and the adequate time to develop and submit
offers.
Second, Mr. Glover noted that the Office of Advocacy was
applying steady pressure on the FASA regulation drafters to
force their fullest compliance with the Regulatory Flexibility
Act. His office has been admonishing the regulation writers
that a simple assertion that a regulatory proposal would
generally benefit small business government contractors was
unacceptable to absolve them from conducting an initial
regulatory flexibility analysis meeting the Act's standards. He
also stressed the importance of the small business community's
participation in the public comment process with regard to the
new regulation.
Third, Mr. Glover discussed his concerns about the
implementation of FACNET, which he noted was proceeding quite
slowly with very few procurement opportunities available
through the system. Given the status of FACNET, participating
small firms were subject to unreasonably high government
marketing costs in the form of the subscription and transaction
fees charged for transacting electronic commerce through
FACNET. Mr. Glover stressed the need for smaller firms, which
are limited participants in the Federal procurement market, to
obtain access to FACNET at reduced costs.
Fourth, he emphasized that some of the provisions of FASA
remained potentially dangerous to future small business
participation. Among others, he cited FASA's provisions that
would further encourage the bundling of contracting
opportunities, which would effectively eliminate chances for a
capable small firm to become a prime contractor. He also
expressed concern about FASA's elimination, as part of the new
$2,500 Micropurchase threshold, of the reservation of small
purchase opportunities for small firms.
Finally, Mr. Glover urged the Committee to give the fullest
consideration to the recommendations of the delegates to the
1995 White House Conference on Small Business and to the
concerns being expressed by many groups within the small
business community. He stressed that given the opportunity to
compete on fair terms, small business can remain a source of
quality products, services, and construction that are
innovative and cost effective.
For further information on this hearing, refer to Committee
publication number 104-41.

7.2.26 the administration and congressional initiatives
to reform osha, and their impact on
small businesses

Background

On July 26, 1995, the Committee on Small Business held a
hearing to examine the initiatives undertaken by the
Administration and Congress to reform the Occupational Safety
and Health Administration (OSHA) and their effect on small
businesses. The hearing was the second in a series of oversight
hearings that focused on the Administration's efforts to reduce
paperwork and regulatory burdens on small business.
At the White House Conference on Small Business in June
1995, the President described the Administration's initiatives
to reduce regulatory burdens on small business. He referred to
his March 1, 1995, memorandum to department and agency heads to
make regulatory reform a priority. Agency heads were directed
to review their regulations page by page and indicate by June
1, 1995, which regulations they would eliminate or modify and
which needed legislative attention in the reinvention exercise.

Summary

The hearing was comprised of two panels, the first of which
included a single witness: Charlie Norwood (R-GA), Member of
Congress. The Congressman's testimony focused on H.R. 1834,
``Safety and Health Improvement and Regulatory Reform Act of
1995,'' introduced by Congressman Cass Ballenger (R-NC), which
would protect small businesses by requiring employees to work
with employers to fix a perceived problem before OSHA becomes
involved in the issue. The Clinton Administration has agreed
that OSHA needs to be changed and has indicated that it will be
guided by three principles: more cooperation between OSHA and
employers; more common sense solutions; and a focus on results,
not red tape. Congressman Norwood urged the Committee to
monitor OSHA's activities closely to make sure that it adheres
to these principles.
The second panel included: Joseph A. Dear, Assistant
Secretary of Labor and Occupational Health, U.S. Department of
Labor; Giovanni Coratolo, Owner, Port of Italy Restaurant;
Eamonn McGready, President, Martin Imbach, Inc.; Richard
Palmer, Vice President and Secretary Treasurer, Palmer Painting
Co., Inc.; William Roth, Finite Industries of New Jersey; and
William Stone, President, Louisville Plate Glass Co.
Mr. Dear reviewed the Administration's efforts to reform
OSHA and reduce the burdens on small business. One of the
primary changes undertaken by the agency was to offer employers
a choice between traditional enforcement or a partnership with
OSHA to achieve better worker safety. Mr. Dear gave the
Committee as an example of the partnership approach the so-
called Maine 200 program, in which OSHA identified the 200
firms throughout the State of Maine with the highest workers
compensation claims and offered them the opportunity to work
with OSHA in collaboration to modify the factors contributing
to the high levels of worker injuries. Out of the 200 offers,
198 of the firms accepted and 60 percent have reduced their
incidents of injury and illness.
Mr. Dear also testified that OSHA is bringing common sense
to the regulations and how they are developed and enforced. In
addition, OSHA is focusing on ways to change the way that the
agency measure performance. Instead of measuring performance
based on the number of violations found and penalty dollars
collected, OSHA has refocused its efforts on reducing illness,
injuries, and deaths as a measurement of the agency's success.
The balance of the panel was comprised of witnesses from
the small business community who testified about the tremendous
burdens that OSHA regulations represent for small businesses in
this country. Witnesses noted that small business compliance
with OSHA's relations represents a greater burden than for
large business, in part due to the fact that small businesses
typically have fewer employees to review, monitor, and
implement the voluminous amount of regulations concerning
worker safety. This is especially true for the restaurant
industry, which one witness noted, is second only to the
nuclear power industry in terms of number of applicable
regulations.
The witnesses also commented that old regulations are
rarely replaced by new regulations; rather the new ones are
just added to the list. OSHA standards and regulations should
be based on common sense and sound scientific judgment in order
to produce reasonable and efficient rules that promote the
safety and protection of workers. The witnesses generally
congratulated OSHA for its efforts to be more consultative and
less confrontational. In addition, the panel supported the aims
of the Ballenger legislation as a means of reinforcing the
organizational changes that Mr. Dear pledged to implement.
The panelists stressed that worker safety is particularly
important to small businessmen and women, for they are the
prime investors in the business and they suffer the
consequences of work-related injury through increased workers-
compensation insurance premiums. In addition, the greatest
assets to small businesses are their employees, and
historically small businesses are the primary job creators in
the nation. As a result, it is in the direct interest of small
business owners to make every effort to reduce worker injury.
For further information on this hearing, refer to Committee
publication number 104-42.

7.2.27 pension reform and simplification: a small busi-
ness perspective

Background

On September 8, 1995, the Committee on Small Business held
a hearing on pension reform and simplification from the
perspective of small business. As the seventh highest vote-
receiving recommendation from the 1995 White House Conference
on Small Business, pension reform and simplification has
significant effects on small business. Historically, however,
the number of small businesses that offer pension benefits to
their employees has been alarmingly low. The witnesses were
asked to address this problem in two ways. First, they were
asked to evaluate the technical aspects of H.R. 2037, the
``Pension Simplification Act of 1995,'' the Joint Committee on
Taxation's ``Description of Miscellaneous Tax Proposal's''
(Committee Print JCS-19-95), and the proposal formulated by the
White House. In many cases, each of the three proposals
contained provisions on a specific pension issue, and the
witnesses were asked to identify the version most favorable to
small business. Second, the witnesses were asked to identify
alternatives through which pension plans could be made more
accessible to small business in this country.

Summary

The hearing was comprised of three panels. The first panel
consisted of Congressman Rob Portman (R-OH) who testified about
H.R. 2037, which he and Congressman Ben Cardin (D-MD)
sponsored. Congressman Portman emphasized that the level of
small businesse's sponsorship of pension plans was dangerously
low, which has long-term detrimental effects on private
retirement savings. This low level is largely due to the fact
that small businesses are faced with enormously complex
reporting and compliance requirements if they chose to offer
pension benefits. He testified that his bill was intended to
alleviate many of these burdens and encourage small businesses
to make pensions available to their employees.
The second panel consisted of representatives from the
small-business community, including: Paula Calimafde, Chair,
Small Business Council of America, also representing the Small
Business Legislative Council, and the National Association of
Women Business Owners; Sandra Turner, Bates, Turner &
Associates, representing National Federation of Independent
Business; Ron Merolli, Director, Pension Legislative &
Technical Services, National Life Insurance Company; Janice
Matthews, Manager, Employee Benefits, Trans Financial Bank,
representing National Small Business United; and Sam Gilbert,
President, United Plan Administrators, Inc., representing the
U.S. Chamber of Commerce.
The panel agreed on a number of the pension provisions
contained in the three legislative proposals. Specifically, the
panel overwhelmingly supported the repeal of the following
pension rules under the current law: the family aggregation
rules, the ``top heavy'' restrictions, the $150,000 limit on
compensation, the minimum participation rules, the 15-percent
excise tax on excess distributions and estate tax on excess
accumulations, the combined plan limitations under section
415(e) of the Internal Revenue Code, the lump-sum distribution
limits imposed under the GATT legislation, and the 150 percent
full-funding limitation imposed under the Omnibus Budget
Reconciliation Act of 1987.
In addition, the panel expressed strong support for a
simplified definition of ``highly compensated employee'' and
generally agreed that a person should be so classified if he or
she is a 5-percent owner in the current or preceding year or if
his or her compensation in the preceding year exceeded $80,000,
indexed for inflation. There was also strong support for
design-based safe-harbors for 401(k) plans, which the witnesses
stated would be a significant improvement over current law. If
asked to choose among the three proposals, the witnesses
generally favored the Joint Committee's design-based safe-
harbors or those contained in H.R. 2037. The panel also
supported the provisions for a look-back rule for determining
maximum 401(k) contributions and the proposal to make
corrective distributions for 401(k) plans optional, subject to
a consistency rule.
The Committee also heard support for the provisions in H.R.
2037 and the Administration's proposal that would repeal the
required distributions for individuals beginning at age 70\1/
2\, although they would go further and allow 5-percent owners
to also postpone distributions. The panel agreed with the
provisions in H.R. 2037 and the Administration's proposal to
coordinate the pension reporting penalties with other penalties
imposed under the Internal Revenue Code. Finally, the panel
expressed support for the prohibition on State source taxes on
pension benefits and the exemption for small businesses from
the partial termination rules, which currently cover multi-
employer plans.
With respect to alternatives to encourage small businesses
to offer pension benefits, the panel generally agreed that the
single most effective step would be the adoption of designed-
based safe-harbors for 401(k) plans. These safe-harbors would
eliminate many of the regulatory and compliance burdens
associated with these plans. Some of the small business
witnesses also testified that if the Administration's national
employee savings trust, or NEST, were adopted, it might be
useful to some small businesses, but they expressed concerns
about the mandatory employer contributions required under the
plan. In addition, the panel expressed support for the
proposals to expand salary reduction simplified employee plans,
known as SARSEPs, to cover employers with up to 100 employees.
The Committee also heard support for the tax credit under H.R.
2037 for small businesses that set up a new pension plan,
although some witnesses questioned whether the $1,000 amount
was a sufficient incentive.
The second panel consisted of two Administration witnesses:
Jere Glover, Chief Counsel for Advocacy, U.S. Small Business
Administration; and J. Mark Iwry, Benefits Tax Counsel, U.S.
Department of Treasury.
The Administration's representatives expressed general
support for the same issues emphasized by the small business
panel but generally advocated the version of each provision
that was set forth in the Administration's proposal. This panel
did, however, disagree with the small business witnesses in
certain aspects. For instance, the Administration supported
retention of the top heavy rules, although Mr. Iwry suggested
that the Treasury Department would be open to modifications of
the existing rules.
Similarly, the Administration supported the repeal of the
minimum participation rules only for defined contribution
plans; not all plans as advocated by the small business
witnesses. In addition, the Administration expressed a
preference for repealing the combined-plan limitations under
section 415(e) rather than repealing the 15-percent excise tax
on excess distributions and the estate tax on excess
accumulations. Finally, the Administration witnesses advocated
the creation of a NEST as a means for encouraging small
businesses to offer pension benefits.
For further information on this hearing, refer to Committee
publication number 104-48.

7.2.28 the impact of solid waste flow control on small
businesses and consumers

Background

On September 13, 1995, the Committee on Small Business held
a hearing to examine the impact of solid waste flow control on
small businesses and consumers. Flow control is the legal
authority given to States and local governments to designate
specifically where municipal solid waste may be taken for
treatment or disposal. Without flow control, small business
consumers and others who must pay to remove their waste usually
have choices about where to take the trash.
In May 1994, the Supreme Court decision in C&A Carbone v.
The Town of Clarkstown declared that a flow control ordinance
violated the Interstate Commerce clause of the U.S.
Constitution. In effect, the Court ruled that solid waste
constitutes an article of interstate commerce and its movement
cannot be restricted without explicit congressional authority.
Small business owners have approached the Committee on Small
Business expressing the concern that the congressional debate
on flow control was dominated by the local government and big
waste company perspectives to the detriment of small
businesses.

Summary

The hearing was comprised of four panels, the first of
which included: John Broadway, Virginia State Director,
National Federation of Independent Businesses; John McKeon, GZK
Inc., representing the National Restaurant Association; Cheryl
L. Dunson, Legislative Affairs Director, Santek Environmental,
Inc., and Friends of Locally Owned Government Waste (FLOW); and
David Muchnick, President, South Bronx 2000 Local Development
Corporation. The consensus of this panel was that flow control
ordinances negatively affect small business owners. These
ordinances force waste disposal customers to use government
mandated facilities and, in effect, create monopolies. The most
obvious impact of flow control, one witness testified, is on
price. In communities where there are no flow control
ordinances, processors and recyclers compete for market price.
One small business owner testified that flow control allows a
political jurisdiction to determine which disposal method and
which facility will be used.
One small business advocate testified that the issue of who
controls waste streams and their destinations is about the
livelihoods of small independent haulers who do not own
landfills and thus produces negative repercussions for the
Nation's small business owners. The witness testified that flow
control makes the small business owner captive to a single
public or private-sector waste hauler or waste disposal
facility, which in turn denies small business the opportunity
to reduce their cost by source-separating and marketing,
donating, or otherwise distributing their recyclable materials
on their own.
The second panel included: Jere Glover, Chief Counsel for
Advocacy, Small Business Administration (SBA); and Michael H.
Shapiro, Director, Office of Solid Waste, Environmental
Protection Agency (EPA). The EPA's testimony regarding the
report that it submitted to Congress in September 1992
indicated that flow controls provide an administratively
effective tool for local governments to plan and fund solid
waste management systems. However, they found no data showing
that jurisdictions having flow control authority provide more
protection in terms of human health and the environment than
jurisdictions without such authority. The SBA testified that
full and open competition is always better for small business.
According to one study, flow control imposes between 20 and 30
percent monopoly surcharges on small business for their solid
waste disposal. SBA stated that economic regulations, which
impose regulatory cost on taxpayers and small business without
at least having some significant environmental benefit, should
not exist.
The third panel included: Sharpe James, Mayor, Newark, New
Jersey; and Randy Johnson, County Commissioner, Hennepin
County, Minnesota. The Mayor of Newark testified that when flow
control came into existence in 1987 in the Newark area, the
immediate effect of the mandated flow control was a dramatic
increase in disposal cost to $103 per ton for municipal solid
waste and $109 per ton for bulk debris. Prior to the mandate,
Newark had been disposing of its waste at a nearby facility for
approximately $25 per ton. Flow control brought about a four-
fold increase in Newark's waste disposal costs. The Mayor also
stated that two of the negative effects that flow control has
on small businesses are an increase in the cost of doing
business in a non-competitive marketplace and it bars entry to
the market for companies that wish to recycle and dispose of
waste.
Commissioner Johnson testified that flow control has
allowed Hennepin County to manage solid waste over the long
term with stable prices and in an environmentally sound manner.
He stated that flow control is not a debate between public
versus private facilities but that flow control systems enable
many small trash haulers to survive, compete, and flourish.
Entering into long-term contracts for disposal and paying the
same price at the designated facility as every other hauler
enables small haulers to compete against the large,
multinational waste companies that own their own mega-
landfills, transfer stations, and large numbers of trucks.
The fourth panel included: Paul M. Felix, President,
Container Corporation of Carolina; Mel Kelly, President, K&K
Trash Removal, Inc.; Richard A. Perry, Executive Director,
California Refuse Removal Council; Brian W. Clements,
President, Clements Waste Services, Inc.; and Kenneth Bell,
Vice President for Development, ReComp of Washington. The
general consensus of the panelists was that flow control was
detrimental to small business. The small business owners felt
that flow control takes away the choice of each small business
owner to make the right economic decision for his or her
business. For example, if flow control were implemented in one
small business owner's company, it would have a net impact of
increasing the cost of disposal to the 10,000 customers who are
small businesses by over $15 million.
One small business owner on the panel testified that often
the debate about flow control revolves around what is merely
governmental intervention that stifles competition and makes
things tough for small businesses. This witness indicated that
his small business supports a competitive model of flow
control. Previously when flow control was believed to be a
basic local governmental power, his company was committed to
providing long-term solid waste processing service to the
community. Now, the witness maintained, flow control is being
undermined. He testified that it should be reinstated in the
name of fairness and in the name of allowing local governments
to do their job as they see fit without having their hands tied
by the Federal government.
For further information on this hearing, refer to Committee
publication number 104-50.

7.2.29 sba's venture capital programs

Background

On September 28, 1995, the Committee on Small Business held
a hearing to examine the Small Business Investment Company
(SBIC) and the Specialized Small Business Investment (SSBIC)
Programs. The SBIC and SSBIC Programs have provided early stage
funding for what are now some of America's largest publicly
held companies. The programs arrange for private investment
companies to raise a pool of capital to invest in or lend to
SBICs that are licensed by the Small Business Administration
(SBA). The SBICs agree to abide by the SBA's rules and
regulations regarding transactions with small businesses. In
exchange, the SBA provides matching funds either through
debentures or through participating securities. Ultimately, the
SBA-provided funds are supposed to be paid back to the
government.
The SBIC Program fills a gap in the small business
financing marketplace. As a result, small business owners have
a place to turn for investment capital, especially in the
startup phase when there is a great need for ``risk capital.''
The SSBIC Program provides the same kind of assistance targeted
at the minority community, which has traditionally had an even
more difficult time finding risk capital. The role of the SBA
is to make sure that the SBIC or SSBIC adheres to the
regulations, manages its deals appropriately, and does not
expose the Federal government and the taxpayer to undue risk.
The Committee has learned, however, that there are many
problems with both programs and that the potential risks to the
government are great.

Summary

The hearing was comprised of one panel, which included:
Judy England-Joseph, Office of Housing and Community
Development Issues, U.S. General Accounting Office (GAO);
Patricia Forbes, Office of Economic Development, SBA,
accompanied by Don A. Christensen, Associate Administrator for
Investments, SBA; and Donald J. Wheeler, Deputy Director,
Office of Special Investigations, GAO.
The GAO witnesses testified that weaknesses in SBA's
oversight and management continue to place Federal funds at
risk. Although recent SBA actions and legislative changes are
steps in the right direction, these oversight and management
weaknesses continue to plague the SBIC and SSBIC Programs. GAO
testified that corrective actions on examination findings are
not pursued rigorously, financially troubled firms are not
transferred to liquidation quickly, and overstated asset
valuations are not detected in a timely manner. GAO believes
that these weaknesses result in losses to the Federal
government that could have been avoided.
The GAO witnesses testified that the organizational
placement of the Office of Examinations in the same division
that is responsible for promoting the SBIC and SSBIC Programs
leaves it vulnerable to questions about its independence. They
recommend that Congress consider directing the Administrator of
the SBA to move the Office of Examinations out of the
investment division and have it report directly to the
Associate Deputy Administrator for Economic Development. GAO
further recommended that the SBA develop an overall strategy to
better target oversight resources to SBICs and SSBICs that
commit repeated or egregious violations and on those
investments that pose the greatest risk of loss to the Federal
government.
The SBA witnesses referred to the March 28, 1995, hearing
in which the rejuvenation of the SBIC Program through the Small
Business Equity Enhancement Act of 1992 was discussed.
According to the SBA the result of the Act on the SBIC Program
has incorporated the best practices of the private venture
capital industry as well as the lessons learned from past
experience with the program. The agency believes that, although
more remains to be done, the result has been an enormous
strengthening of the program and correction of the weaknesses
that had led to the well-publicized problems of the past.
For further information on this hearing, refer to Committee
publication number 104-51.

7.2.30 federal contract bundling: how can small busi-
ness compete?

Background

On October 11, 1995, the Committee on Small Business held a
hearing to assess the impact of Federal contract bundling on
small business. Contract bundling is the practice of
consolidating government contracts and limiting access to open
competition in the procurement process. The Committee focused
on two industries that rely on government contracts and that
were being threatened by proposals that would have effectively
excluded small businesses from openly competing for government
business. The two industries were air-freight forwarding, which
was threatened by a proposal from the General Services
Administration (GSA) and household-goods moving, which was
being threatened by a proposal from the Military Traffic
Management Command (MTMC).
In 1995, GSA issued a solicitation for air-freight
contracts that would have raised the minimum requirements that
private air-freight carriers must meet in order to qualify for
government-contracted business. These minimum requirements had
been set at a level so high that there was little chance that
small businesses competing in the government procurement
process could have complied. Historically, government agencies
have generally contracted directly with air-freight forwarders
to ship heavy items. The proposed solicitation, however, would
have transferred all contract authority for heavy air-freight
to GSA, making GSA the sole negotiator and contractor for 67
government agencies and departments (including all of the
Department of Defense (DOD), which is the largest shipper of
heavy air freight). The solicitation would have covered almost
all of the U.S. government's heavy air-freight business.
In early 1995, MTMC issued a contract proposal for its $1.1
billion per year personal property program that would have
abolished, rather than modified and improved, the existing
procurement procedures specifically developed for that
industry. Household-goods movers and forwarders are hired to
move military families who have been transferred from one
military installation to another. MTMC's goal was to substitute
the general Federal Acquisition Regulations (FAR) procurement
procedures for the system that had been in place for over forty
years. Under the traditional system, carriers bid on routes out
of military installations at specific rates. In addition,
carriers were allowed to bid a second time to reduce their
initial bid in response to the lowest bidder (which is
sometimes referred to as ``me-too'' bidding). This permitted
the me-too carriers to share with the low cost carrier in the
residual traffic on all channels at the established low rate.
This system also ensured a low rate for the government.
MTMC's proposal was a ``winner take all'' system. In other
words, any company could bid on specific routes between
military bases. Unlike the traditional system that ensured that
many carriers serviced each route, however, only one carrier
would have been able to service each route under MTMC's
proposal. This, in effect, would have bundled what had
historically been multiple contracts into one contract per
route.

Summary

The hearing was comprised of four panels, the first of
which included a single witness: Jack Quinn (R-NY), Member of
Congress. Congressman Quinn expressed his opposition to GSA's
contract solicitation for air-freight services, which would
have a significant effect on one of his constituents.
The second panel consisted of representatives from the air-
forwarding industry and GSA: Chris Alf, President, National Air
Cargo; Jim Foster, President, Airforwarders Association; and
Allan Beres, Assistant Commissioner of the Office of
Transportation and Property Management, GSA. The small business
witnesses presented testimony regarding GSA's contract
solicitation for air-freight services. Both witnesses were
strongly against GSA's proposal and claimed that the sole
purpose of GSA's proposal was to eliminate small companies from
the system in order to award a contract to a few very large
companies. Mr. Alf explained that if GSA's proposal was
adopted, his company would go out of business. Mr. Foster
similarly explained that this proposal would shut hundreds of
other companies out of the business of government air-freight
services, thereby forcing them out of business altogether. Mr.
Beres maintained that GSA was not bundling contracts, but
rather ``aggregating demand.'' He testified that any company
could bid on GSA's contract solicitation and that multiple
awards would be issued. He did not address the industry's
contention that there were essentially two companies in the
country that could meet GSA's impossibly high requirements.
The third panel consisted of representatives from the
household-goods moving industry and MTMC: Robert Moore, Deputy
Chief of Staff for Operations, MTMC; Bill Gremmels President,
AALCO Forwarding, Inc.; Donald H. Mensch, President, Household
Goods Forwarders Association of America, Inc.; and Joseph
Harrison, President, American Movers Conference.
The panel presented testimony regarding MTMC's contract
solicitation for the moving of household goods for U.S.
military members. Mr. Moore maintained that the system that had
been in place for over forty years was so badly broken that
nothing short of completely re-engineering the program could
possibly fix it. The industry representatives unanimously
agreed that while there were problems with the system, a
mutually beneficial compromise could be worked out so as to
ensure small business participation and improved service. In
addition, they claimed that, like the GSA solicitation, the
sole purpose of the MTMC proposal was to eliminate small
companies from the system in order to award a contract to a few
very large companies.
The fourth panel consisted of Jere W. Glover, Chief Counsel
for Advocacy, Office of Advocacy, U.S. Small Business
Administration. Mr. Glover testified against the practice of
contract bundling and, more specifically, against the contract
solicitations that had been issued by GSA and MTMC. He stated
that contract bundling was a trend that was rapidly advancing
in Federal procurement under the auspices of contract
simplicity, but with devastating results manifested in less
competition, higher government costs in the long run, and
reduced small business participation.
For further information on this hearing, refer to Committee
publication number 104-52.

7.2.31 the effects of superfund liability on small busi-
ness

Background

On October 19, 1995, the Committee on Small Business held a
hearing to examine the effects of Superfund liability on small
businesses. Superfund was created with the enactment of the
Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) in 1980. It has long been considered a
program in need of major reforms--to some, the program appears
to be more of a cash cow for environmental lawyers than an
efficient mechanism for cleaning up hazardous waste sites. In
addition, meaningful reform of Superfund, particularly the
liability system, ranked as the number five recommendation at
the 1995 White House Conference on Small Business.

Summary

The hearing was comprised of two panels, the first of which
included: Lois J. Schiffer, Assistant Attorney General,
Environmental and Natural Resources Division, U.S. Department
of Justice; Susan M. Eckerly, Director of Regulatory Policy,
Citizens for a Sound Economy; Raymond J. Keating, Chief
Economist, Small Business Survival Committee; and John C.
Shanahan, Policy Analyst, Environmental Affairs and Energy
Studies, The Heritage Foundation.
Ms. Schiffer began the panel and testified that the
problems with Superfund range from insensitive bureaucrats
writing letters that no one wants to receive; to people
bringing small businesses into a liability system in which
there is really no reason for their participation; to private
companies going after small businesses even when the government
has determined not to prosecute. Ms. Schiffer stated that the
Administration has recognized these problems and has been
working diligently to solve them. She went on to state that the
Department of Justice is using six approaches to the problems
with Superfund. One of the proposals relates to small business
generators that contribute very small amounts of waste--a few
barrels--and would exempt these small businesses. Another
proposal is for small business owners who operate hazardous
waste sites or transporters who cannot afford to pay the high
cleanup costs for which they may be responsible. The
Department's proposal would review what the business and its
owner have, and determine what they can pay, while leaving the
owner and business in tact.
Other witnesses on this panel spoke as to the failure of
Superfund to cleanup hazardous waste sites. One aspect of the
program that is believed to be in need of elimination is the
system of retroactive liability. The witnesses stated that this
system is very detrimental to small business, and one
complication is the lack of records that are available for
small business as opposed to larger businesses to prove their
innocence. It was also stated that the delays and costs of
litigation hinder Superfund's effectiveness. Reforms should
address the core elements of the Superfund structure that fuel
litigation, slow cleanups, and raise costs. One of the most
publicized criticisms of Superfund is that instead of monies
being spent on cleanup, it has been spent on lawyers.
The second panel included: John De Vinck, De Vinck, Inc.,
representing the National Automobile Dealers Association; Kevin
R. Herstad, United Truck Body Company, representing the
National Federation of Independent Business; Edward L. Quinn,
Sr., Chairman of the Board, K.J. Quinn & Company; and David
Norwine, Haward Corporation, representing the National
Association of Metal Finishers.
The panel consisted of small business owners whose
businesses have suffered because of Superfund. All of the
witnesses stated that Superfund's system of retroactive
liability is unduly harsh on small businesses. Under this
system, any contributor to a site is potentially responsible
for the entire cost of cleanup, even if the amount they
contributed to the site is minimal. Small businesses can be
held liable for cleanups that resulted from alleged waste
management activities occurring years and even decades in the
past. In addition, the law does not require a demonstration
that the small business was negligent or at fault to establish
liability.
As an example, one small business owner referred to a site
that was in the process of being ``cleaned up.'' He stated that
after the cleanup began, the plant blew up and a three-alarm
fire broke out. It is believed that there was more
contamination from the cleanup, with the explosion of the
plant, than there had been over the last 30 years of the site's
mere existence.
For further information on this hearing, refer to Committee
publication number 104-55.

7.2.32 the internal revenue service's initiatives to re-
duce regulatory and paperwork burdens
on small business

Background

On October 25, 1995, the Committee on Small Business held a
hearing to examine the initiatives undertaken by the Internal
Revenue Service (IRS) to reduce regulatory and paperwork
burdens on small business. The IRS estimates that the American
public expends over 5 billion hours responding to regulatory
forms, reports, and record keeping requirements of the tax
system, and small business carries a disproportionate share of
that burden. The Paperwork Reduction Act of 1995 established a
goal of reducing the government's overall paperwork burden on
the public by 10 percent in each of the following two years. In
addition, at the White House Conference on Small Business held
in June 1995, the President committed his Administration to
reducing regulatory and paperwork burdens on small business
significantly.

Summary

The hearing was comprised of one panel, which included:
Margaret Milner Richardson, Commissioner, IRS; Jack Faris,
President, National Federation of Independent Business; William
P. Fisher, Executive Vice President, National Restaurant
Association; Jeff Joseph, Vice President, Domestic Policy, U.S.
Chamber of Commerce; Bennie L. Thayer, President and Chief
Executive Officer, National Association for the Self-Employed;
and Ken Wolfe, Kohlhepp, Wolfe & Associates, representing the
U.S. Chamber of Commerce.
The Commissioner testified that the IRS has established an
Office of Small Business Affairs that will focus on the
concerns of small business. In this regard, the IRS has
conducted town meetings across the country to hear concerns
from small business owners. The Commissioner also explained
some of the programs that the IRS had been developing to
streamline procedures for the small business owner. In
addition, she testified that the IRS is anxious to keep
building on the progress already made but that the current
budget environment and the significant proposed reductions in
appropriations will hinder the agency's ability to deliver
these kinds of services.
The witnesses testifying on behalf of small business owners
stated that the Internal Revenue Code has endured over 4,000
changes since 1986. The witnesses maintained that the Code is
so convoluted and difficult to understand that it needs to be
thrown out and totally rewritten from scratch. Several
witnesses provided the Committee with stories of how they had
been involved in a small business in the past and were still
receiving letters from the IRS asking them to be responsible
for something they had not participated in for many years. One
witness stated that he simply paid the fine for which the IRS
said he was responsible because the time and energy it would
have taken to get through to the IRS and straighten the matter
out would amount to much more money than the IRS claimed he
owed.
Witnesses also testified that reforms in the Regulatory
Flexibility Act, the Taxpayer Bill of Rights, and the final
rule on the Paperwork Reduction Act, which involves compliance
by the IRS, must be passed to further enhance the process. The
Committee was given as an example the business that is suddenly
told by the IRS that is should have been treating its
independent contractors as employees. Such a change in worker
status can involves back taxes, interest, penalties, and even
if the IRS determines that no amount is due, the business and/
or independent contractor often must expend considerable sums
defending against the IR's allegations of misclassification.
For further information on this hearing, refer to Committee
publication number 104-56.

7.2.33 the cost of federal regulations on small business

Background

On October 31, 1995, the House and Senate Committees on
Small Business held a joint hearing to examine the costs of
Federal regulations on small business. It is believed that the
regulatory cost of regulations for small companies is some 50
percent more than the cost to large firms. This finding
establishes an appropriate perspective for prompt action on
eliminating unnecessary regulatory compliance costs to
encourage rather than discourage new small businesses. The
hearing was designed to examine the report to Congress by the
Chief Counsel for Advocacy of U.S. Small Business
Administration (SBA) requested under section 613 of Public Law
103-403 on ``the impact of all Federal regulatory, paperwork,
and tax requirements upon small business.''

Summary

The hearing was comprised of a single witness: Jere Glover,
Chief Counsel for Advocacy, SBA. Mr. Glover initially stated
that the one thing small businesses fear the most is government
regulations and that since 1980, the SBA's Office of Advocacy
has undertaken over 30 different studies on the regulatory
burdens of various sectors of the small business community.
Mr. Glover reviewed the recent study that the SBA undertook
pursuant to Public Law 103-403, which focused on the regulatory
costs for all businesses and a general analysis of these costs.
He maintained that the regulatory burden has leveled off as a
percentage of the gross domestic product. He also stated that
two regulatory costs have actually gone down over the last two
decades: the economic efficiency cost and the economic transfer
cost. The biggest increase in burden, however, has been in
environmental regulations. The next largest increase is in
process regulation, which is basically paperwork and involves
the Internal Revenue Service and the payroll and Social
Security records. Social regulation costs such as Occupational
Safety and Health Administration (OSHA) and worker safety rules
have not increased significantly, according to Mr. Glover.
Mr. Glover also testified that the study split the
regulatory burden between consumers and business with 60
percent of the regulatory burden falling on business. After
looking at all business, the study was then directed to the
small business sector. In examining the average cost of
regulations per employee, small businesses were much harder hit
than large businesses. In looking at the cost per dollar of
sales, there is a disparate burden on small businesses as well.
The conclusion of the study was that there is a very clear
disproportionate burden on small business, which continues
despite the passage of the Regulatory Flexibility Act.
Mr. Glover mentioned the Paperwork Reduction Act, recently
passed by Congress, which will require that the agencies reduce
their paperwork burden by 10 percent each year for each of the
next 2 years and 5 percent thereafter. He stated that while
these efforts are significant, more should be done to decrease
the disparate burden on small businesses.
For further information on this hearing, refer to Committee
publication number 104-57.

7.2.34 railroad consolidation: small business concerns

Background

On November 8, 1995, the House and Senate Committees on
Small Business held a joint hearing to examine railroad mergers
and their impact on small business and, in particular, small
shippers. A recent trend had been developing toward mega-
mergers among previously competing Class I railroads. The
primary concern of this hearing was to see how these mega-
mergers would affect small business shippers, particularly
shippers of bulk commodities such as agricultural goods.

Summary

The hearing was comprised of two panels, the first of which
included: Dan Glickman, Secretary, U.S. Department of
Agriculture (USDA), accompanied by Paul Kepler, Deputy Director
of Transportation and Marketing Division, Agricultural
Marketing Service, USDA. Secretary Glickman testified that in
1989 the USDA's Economic Research Service issued a report that
concluded that competition among railroads had a strong effect
on rates for agricultural shippers. The Secretary added that
when there is more competition, the rates are lower. An
increase in concentration reduces competition, and agricultural
shippers will incur higher rates, particularly those shippers
who are long distances from barge transportation.
Secretary Glickman stated that small shippers and railroads
have a number of concerns with the increased consolidation of
the major railroads, including a growing potential for captive
shippers who are only served by one railroad; reduced or
inadequate service; and non-competitive rates. The Secretary
stated that reliable, cost-effective transportation of
agricultural products enables U.S. agricultural producers and
shippers to be competitive in both domestic and export markets.
In closing, Secretary Glickman stated that the government must
ensure the continued availability of an adequately and
competitively priced railroad system in order to maintain
continued growth in U.S. export markets.
The second panel included: Richard J. Barber, Barber &
Associates; Ed Emmett, President, National Industrial
Transportation League; Duane ``Butch'' Fischer, President,
Scoular Grain Company; Curtis Grimm, Professor, College of
Business and Management, University of Maryland; Phil Hoffman,
Secretary, Hoffman & Reed; James F. Jundzilo, Transportation
Manager, Tetra Chemical Company; Ned Leonard, Manager,
Communications and Government Affairs, Western Fuels
Association, Inc.; and William F. York, Manager, Lange Company,
LLC.
Small business owners and shippers testifying at the
hearing were concerned about antitrust oversight of the
railroad industry. The owners stated that deregulation can only
work as long as competition is maintained. Current government
standards allow mega-mergers and concentration in the
marketplace with very little consideration of competition. For
some small business owners, transportation is 50 percent of
their costs. Limiting competition threatens their ability to
compete.
Several small business owners testified about their
concerns with the proposed Union Pacific and Southern Pacific
(UP-SP) merger. These witnesses believe that it is possible
that this mega-merger will result in rail-service dislocation
and will put some small business owners at a disadvantage since
they will not have access to railroad transportation. A
professor from the University of Maryland's College of Business
and Management advocated deregulation of the U.S. railroad
industry but maintained that deregulation does not authorize
the government to abdicate its antitrust responsibility.
Professor Grimm testified that the UP-SP merger would eliminate
rail competition to an unprecedented degree and that the
Interstate Commerce Commission should deny such a merger.
Advocates for consolidation in the railroad industry
testified that with the decline in the number of Class I
railroads over the past two decades, the remaining railroads
are more efficient, more productive, and better able to serve
grain shippers, both large and small, than they were 15 years
ago. The witnesses also stated that consolidations have created
opportunities for producers and merchandisers to find new
markets for their products. One advocate testified that the
transportation infrastructure to haul grain was devastated by
the effect of reduced production and reduced exports. If
expansion of grain production were permanent, the capital in-
flow would improve infrastructure.
For further information on this hearing, refer to Committee
publication number 104-58.

7.2.35 the abuses in the sba's 8(a) procurement program

Background

On December 13, 1995, the Committee on Small Business held
an oversight hearing to examine the Small Business
Administration's (SBA) Minority Enterprise Development Program,
also known as the 8(a) Program. The 8(a) Program began as a way
to help develop small businesses owned by socially and
economically disadvantaged individuals. For some time prior to
the hearing, the Committee has received reports concerning
abuses and fraud in the 8(a) Program from entities such as the
General Accounting Office (GAO) and the SBA Inspector General.
For example, the SBA Inspector General looked at 50 larger
size firms in the 8(a) Program and found that 35 of the 50
participant owners were millionaires but maintained their
classification as economically disadvantaged. Congressional
efforts to fix the program in 1988 failed. Given all of the
abuses surrounding the sole-source authority in the 8(a)
Program, the Chair of the Committee called upon the SBA
Administrator to place an immediate moratorium on all sole-
source contracting through the 8(a) Program.

Summary

The hearing was comprised of a single panel, which
included: William Campbell, Chief Financial Officer, U.S. Coast
Guard; Nicholas R. Innerbichler, President, Technical and
Management Services Corporation (TAMSCO); Calvin Jenkins,
Associate Administrator, Minority Small Business and Capital
Ownership Development, SBA; Karen S. Lee, Deputy Inspector
General, SBA; and Donald J. Wheeler, Director, Office of
Special Investigations, GAO.
The witnesses from the GAO and SBA Inspector General's
Office testified about abuses in the 8(a) Program.
Specifically, the SBA Inspector General had discovered major
systemic problems during audits and investigations into the
8(a) Program. The three major problems involve eligibility,
competition, and brokering. Over the past 3 years, the SBA
Inspector General's Office has obtained 26 indictments, 25
convictions, and approximately $60 million in financial
recoveries. In some cases of participant fraud, the SBA
Inspector General found that diligence on the part of SBA
employees would have prevented the fraud or contributed to
discovery sooner. The GAO testified that one firm
misrepresented to the SBA its qualifications to enter and
remain in the program and, upon learning of the
misrepresentations, the SBA's 8(a) Program office did not act
to suspend the firm's contracts or remove it from the program.
In reviewing larger companies, the SBA Inspector General's
Office found that participants remained in the program even
though they had overcome impediments to obtain access to
financial markets or had accumulated substantial wealth.
Prosperous individuals remained eligible because equity in
their businesses, primary residences, and spousal assets are
not considered in determining net worth under current rules.
The witness from the SBA Inspector General's Office
testified that in order to minimize abuse, simplify program
administration and reduce concentration, a ceiling on the
dollar amount of contracts that a participating company could
receive should be established. They also noted that a
requirement in the 1988 amendments for companies to obtain
certain levels of non-8(a) business, known as a competitive
mix, has not been effectively enforced by the SBA.
A witness from one company alleged to have misrepresented
itself in applying to the 8(a) Program refuted the allegations
by testifying that he had abided by all requirements in the
application process and throughout his company's program term.
The company maintained that GAO had not been fair or accurate
in suggesting that SBA failed to properly address his 8(a)
Program eligibility.
For further information on this hearing, refer to Committee
publication number 104-59.

7.2.36 small business' access to capital: impediments and
options

Background

On February 28, 1996, the Committee on Small Business held
the first, introductory hearing in a series on small business'
access to capital. The delegates at the 1995 White House
Conference on Small Business ranked a number of recommendations
concerning capital formation at the top of their list of
critical issues for small business. The goal of the Committee's
series of hearings was to address certain of these
recommendations with an emphasis on how the private sector,
rather than the government, can meet the capital needs of small
business as the Congress reduces the burdensome role that
government has historically played in the lives of small
businessmen and women. This first hearing focused on
introducing and defining the problems surrounding small
business' access to capital. The witnesses were asked to
provide the Committee with their views on the current
conditions and availability of capital for small businesses.

Summary

The hearing was comprised of one panel, which included the
following witnesses: William J. Dennis, Senior Research Fellow,
National Federation of Independent Businesses; Murray A.
Gerber, President and CEO, Prototype and Plastic Mold Company,
representing the National Association of Manufacturers;
Virginia C. Kirkpatrick, President, CVK Personnel Management &
Training Specialists, representing the National Association of
Women Business Owners; John Satagaj, President, Small Business
Legislative Council; and Robert Smith, President, Spero-Smith
Investment Advisors, Inc., representing National Small Business
United.
The majority of the witness' testimony focused on the role
that banks play in lending to small business. In general, the
witnesses pointed to the difficulties of securing small
business bank loans, and the demise of community bankers, which
has led to weakening relationships between bankers and
borrowers, as well as a decline in so called ``character
loans.'' The witnesses also noted that the high collateral and
paperwork requirements banks demand from borrowers, as well as
various other regulatory barriers, present significant
obstacles for small businesses seeking bank loans. In addition,
the witnesses testified that capital for start-up businesses is
almost non-existent.
According to the witnesses, unlike banks, venture capital,
securities offerings, and institutional investors (such as
insurance companies, pension funds, and mutual funds) provide
relatively little capital to small businesses. The witnesses
also stated that the diminishing role of banks in small
business financing, coupled with the relative lack of capital
from the above mentioned sources has led to increasing reliance
on SBA guaranteed loans, as well as a rise in non-bank lender
participation.
For further information on this hearing, refer to Committee
publication number 104-62.

7.2.37 pilot small business technology transfer (sttr)
program and small business innovation
research (sbir) program: assessing the
results of public law 102-654, the
``small business research and
development enhancement act of 1992''

Background

On March 6, 1996, the Committee on Small Business held a
hearing to evaluate the results of two Small Business
Administration (SBA) programs: the pilot Small Business
Technology Transfer Program (STTR) and the Small Business
Innovation Research (SBIR) Program. Under both the STTR and
SBIR programs, Federal agencies reserve a small portion of
their extramural, or contracted, research and development (R&D)
budget for competition among small businesses. Both programs
share a common three-stage process designed to enable small
firms to identify and nurture promising innovations toward the
marketplace. They differ in one aspect: an STTR award recipient
must collaborate with a non-profit research institution, such
as a university or Federally funded research and development
center. These programs were created to harness the
technological innovations of small business--the source of 55
percent of the nation's innovations and new technologies--and
promote commercialization of innovations derived from Federal
research and development. Without these programs, small
business would have little opportunity to compete for Federal
technology R&D. The three-year pilot STTR Program will
terminate on September 30, 1996 unless reauthorized by
Congress.
Witnesses from the small business and non-profit research
community were asked to provide the Committee with examples of
their experiences with both the SBIR and STTR programs,
including success in moving research to commercialization. They
were also asked whether the pilot STTR program should be
reauthorized and to provide any recommendations for making the
STTR and SBIR programs more effective in attaining their
objectives. The Committee also requested the General Accounting
Office (GAO) to review the findings from its January 1996
report on the STTR program and the March 1995 and previous
reports on the SBIR program. The SBA was asked to present its
assessment of the SBIR and STTR programs, recommendation
regarding extension of the STTR program, and any other changes
recommended for the two programs.

Summary

The hearing was comprised of a single panel of witnesses
representing individual small firms who participated in both
the pilot STTR Program and the expanded SBIR Program, small
business organizations, the GAO, and the SBA. The witnesses
included: Richard W. Carroll, President, Digital System
Resources, Inc.; Brian Clevinger, President, MEGAN Health Inc.;
John B. Phillips, Department of Chemistry and Biochemistry,
Southern Illinois University at Carbondale; Robin F. Risser,
Chief Executive Officer, Picometrix, Inc., representing
National Small Business United; Steven Zylstra, Director of
Business Development, Simula Government Products, representing
the U.S. Chamber of Commerce; Victor S. Rezendes, Director of
Energy, Resources and Science Issues Resources, Community and
Economic Development Division, GAO; Daniel O. Hill, Assistant
Administrator, Technology Programs, SBA.
All of the witnesses advocated maintaining a separate STTR
Program and recommended its reauthorization. In addition, the
witnesses generally supported the SBIR Program and its
continuation. Mr. Rezendes noted that quality research
proposals characterized both the SBIR and the pilot STTR
Programs. The March 1995 GAO review of the SBIR Program found
that the high level of competition, large numbers of worthy but
unfunded projects and views expressed by agency officials
indicated that the quality of research proposals has kept pace
with the Program's initial increase in funding. GAO found that
it was too early (after reviewing only one-year's experience in
the SBIR Program), however, to make a conclusive judgment about
the long-term quality of research proposals. The January 1996
GAO report on the pilot STTR Program determined that
participating agencies rated highly both the quality and
commercial potential of the proposals and have not found any
evidence that the pilot STTR Program was competing for quality
proposals with SBIR. Mr. Rezendes advised the Committee that
more time will be needed to determine the full impact of the
STTR Program.
Mr. Hill conveyed the SBA's strong recommendation to
continue both the SBIR and Pilot STTR Programs at their current
funding levels. He cited the vital role that both programs play
in the high-technology sector of the small business community
and in the nation's research agenda, ensuring a flow of
innovative new products and services to the American
marketplace. Commercial successes associated with the SBIR
program, for example, have come from a wide range of
technologies and industries from laser manufacturer to medical
research to robotics to military decision making. Twenty-four
percent of completed projects achieved commercialization within
four years. The percentage rises to 40 percent for products
that are the result of more than one contributory SBIR Project.
The SBA also noted the success of the STTR Program to date and
anticipates a success rate for STTR similar to that achieved by
the SBIR Program.
Witnesses from the small business community provided
numerous examples of success stories from both the SBIR and
pilot STTR Programs and the critical role that the programs
play in fostering the transfer of technology to the
marketplace. They expressed concern that the contribution to
the nation's economy and defense from the resulting
technologies and products would not have been possible without
small business participation in the SBIR and STTR Programs.
There are no other opportunities for small firms to participate
in high-tech Federal research and development, and small
businesses continue to be the source of the majority of the
nation's innovations and new technologies.
For further information on this hearing, refer to Committee
publication number 104-63.

7.2.38 the epa's progress in reducing unnecessary regu-
latory and paperwork burdens upon small
business

Background

On March 7, 1996, the Committee on Small Business held a
hearing on the progress of the Environmental Protection Agency
(EPA) in reducing regulatory and paperwork burdens on small
businesses during the Clinton Administration. This was the
fourth in a series of such oversight hearings on congressional
and Administration initiatives to reduce the burdens of
regulatory actions upon small businesses. The hearing was
designed to continue the Committee's evaluation of the actions
that various agencies were taking to (1) fulfill the
President's March 4, 1995, directive to agency heads, which
required them to read every page of their agency's regulations
and make regulatory reform a priority; (2) fulfill the
recommendations of the 1995 White House Conference on Small
Business; and (3) accomplish the burden-reduction goals of the
Paperwork Reduction Act of 1995.

Summary

The hearing was comprised of a single panel, which
included: Fred Hansen, Deputy Administrator, EPA; Dennis
Murphey, Director, Center for Environmental Education and
Training, University of Kansas; Carol Andress, Project Manager;
Great Lakes Printers Project, and Economic Development
Specialist, Environmental Defense Fund (ED); Andy Hines, Vice
President, Emerald Green Lawncare, representing the Small
Business Council of the U.S. Chamber of Commerce; Harold
Igdaloff, President, Sungro Chemicals Inc., representing
National Small Business United; and Sal Risalvato, Owner,
Riverdale Texaco, representing the National Federation of
Independent Business.
Mr. Hansen testified that the EPA had made substantial
progress in reinventing regulations over the past year. He
acknowledged that small businesses have a particularly
difficult time understanding and complying with environmental
responsibilities despite their overwhelming desire to live and
work in safe, clean communities. Mr. Hansen testified that the
EPA was half way toward the reduction of its paperwork burden
by 20 million hours, which EPA Administrator Carol Browner
promised in March of 1995, with the implication being that the
EPA would satisfy the 10 percent reduction goal established by
the 1995 Paperwork Reduction Act. He also noted the EPA's
implementation of a new, streamlined, universal waste rule,
less cumbersome Toxic Release Inventory reporting for small
businesses, plans for cutting the frequency of Clean Air Act
reports, and plans for phasing in an electronic reporting
system for discharge monitoring reports. Administrator Browner
also announced at the White House Conference a new compliance
policy that will waive penalties for non-criminal, first-time
violations. Mr. Hanson described the activities of EPA's Small
Business Ombudsman, Karen Brown, and discussed the Common Sense
Initiative, a project to bring together stakeholders in six
specific industries (such as metal finishing and printing,
which are two industries dominated by small businesses) to look
for cleaner, cheaper, and smarter ways to protect public health
and the environment. Mr. Hansen maintained that EPA was
deliberately changing the culture within its organization to be
less adversarial with small business, with the anticipated
result being fewer regulatory and paperwork burdens and an
improved environment.
The small business witnesses on the panel provided the
Committee with the industry's perceptions of the initiatives
undertaken by the EPA. The witnesses overwhelmingly stressed
that small businesses fear environmental regulatory agencies.
The biggest problem in providing any kind of compliance
assistance is to establish credibility and overcome the fear.
Offers of free seminars did not work, for example, unless
potential small business participants were assured that
attendance would not result in being visited by a regulatory
agency or being put on a list that would target them for
enforcement action. The perception of environmental agencies as
enforcement-minded rather than assistance-minded also undermine
any initiative that depends on small business participation in
voluntary or other assistance oriented programs designed to
reduce regulatory or paperwork burdens. Witnesses noted that
these perceptions will not change simply as a result of policy
pronouncements or shifts in attitude--concrete actions over
time will be necessary to convince small business that the EPA
is serious about changing its enforcement mentality.
Several witnesses also provided the Committee with
anecdotal evidence of their experiences with the EPA. One
witness described the success of the Great Lakes Printers
Project in which small business, environmental advocates, and
State and Federal regulatory agencies have successfully worked
together to reduce the paperwork and costs of regulations while
increasing environmental compliance. Other witnesses stressed
that EPA regulations often prevent small businesses from being
innovative and creating more environmentally conscious and
economically efficient business practices. Small business
owners also experience frustration in dealing with ever
changing regulations in many industries imposed on them by the
EPA and State counterparts. Mr. Murphey noted that a survey of
small businesses undertaken by the Institute for Public Policy
and Business Research at the University of Kansas concluded
that the cost of regulations are a major factor in the degree
of regulatory compliance--the less expensive the cost of
complying, the more likely there would be compliance. Other
witnesses agreed and stressed the importance of minimizing cost
and avoiding duplication and complexity of regulatory
compliance.
The General Accounting Office (GAO) provided written
testimony for the hearing in response to the Chair's request
that GAO review the EPA's progress in meeting Administrator
Browner's promise to reduce the burden of the EPA's paperwork
on the public by 25 percent within a year. The GAO reported in
``Assessing EPA's Progress in Paperwork Reduction'' that while
EPA claimed to have identified 18 million of the 20 million
hours of its promised reduction, it was not likely to meet its
actual reduction goals because of double counting and
overstating of accomplishments. GAO predicted an increase in
the EPA paperwork burdens for fiscal year 1996 as opposed to a
decrease.
For further information on this hearing, refer to Committee
publication number 104-64.

7.2.39 sba fy 1997 budget

Background

On March 21, 1996, the Committee on Small Business held a
hearing on the fiscal year 1997 budget for the Small Business
Administration (SBA). The Administration's budget proposal for
the SBA requested a budget authority of $808 million in fiscal
year 1997, as compared to an estimated funding level of $590
million in fiscal year 1996, not counting supplemental
appropriations that may be needed for disasters in the spring
of 1996. The funding increase proposed by the President for SBA
includes continuation of the 7(a) and 504 programs without
proposing legislative changes to reduce the newly projected
subsidy rate for each program.

Summary

The hearing was comprised of one panel, which included:
Philip Lader, Administrator, SBA; Greg Walter, Acting Chief
Financial Officer, SBA; Patricia Forbes, Acting Associate
Deputy Administrator for Economic Development, SBA; Anthony
Wilkinson, President and Chief Executive Officer, National
Association of Government Guaranteed Lenders; Ken Leuckenotte,
Executive Director, Rural Missouri, Inc., and Past President,
National Association of Development Companies; Roland Cook,
Financial Consultant, Development Company Funding Corporation;
and Raymond Rafferty, General Partner, Meridian Venture
Partners, representing the National Association of Small
Business Investment Companies.
Mr. Lader opened by stating that the Small Business
Administration supports small business through four principal
portfolios: access to capital; the education/training mission;
advocacy and contract opportunities; and the Disaster
Assistance Program. He noted that the SBA's current business
portfolio has about 170,000 financings, in the form of $26
billion, which has been made available to aid small businesses.
Mr. Lader also stated that 7(a) loans, the cornerstone program
of the SBA, more than doubled in the past two years.
In response to questions about the effectiveness of the
LowDoc program, Mr. Lader concluded that LowDoc loans were
performing better than the loans under $100,000 that are not in
the LowDoc program. The Chair also inquired about which loans
may not be performing well, and Mr. Lader responded that the
principal indicator of the health of the portfolio is the
currency rate, that is, that the percentage of the loans whose
monthly payments are being made on time. Mr. Lader stated that
the improvement in the currency rate was substantiated by the
fact that the SBA has gone from a low of 70 percent in the
1980s to more than 90 percent of the loans being current today.
Mr. Lueckenotte testified about why the subsidy rates were
so high for the 504 loan program. He noted that based on his
assessment of the 504 loan portfolio and on comparison of that
loan portfolio with commercial industrial loans, 504 loan
accelerations are very much consistent with market expectations
and with commercial lending of a similar nature. He concluded
that the exceedingly high loss rate is due either to inadequate
collateral or to poor or inattentive handling of liquidation
once the loan goes into default.
In response to questions regarding the SBA's comprehensive
study of facts and figures in relation to both the 7(a) and the
LowDoc programs, Mr. Lader stated that the SBA has now
established a base from which data can continue to be collected
and maintained in order to evaluate specific categories of
loans. In addition, he recommended that a two-year
recertification process be instituted for preferred lenders,
and as a criteria for being recertified, their loan portfolios
be examined.
Several members of the Committee expressed concern about
the SBA's proposal for converting the 504 program into a direct
lending program. One member noted that there does appear to be
a reduction immediately in the subsidy rate, however, he would
like to see what the mathematical model says about long-term
repayment rates. The hearing concluded with a promise from the
SBA to provide the Committee with specific data on this
proposal as well as a complete explanation of the reasons for
the surprising increase in the subsidy rates for both the 7(a)
and 504 programs.
For further information on this hearing, refer to Committee
publication number 104-67.

7.2.40 the practice of ``salting'' and its impact on small
business

Background

On April 12, 1996, the Committee on Small Business together
with the Subcommittee on Employer-Employee Relations of the
Committee on Economic and Educational Opportunities held a
field hearing in Overland Park, Kansas, to examine a union-
organizing practice known as ``salting'' and its effect on
small business. The purpose of salting is to recruit union
members from the ground up on a worker-to-worker level.
Significant concern has been raised by small business and their
employees that salting has a more sinister goal, putting small
businesses out of business if they fail to sign collective
bargaining agreements with the union.
The hearing was also designed to focus on H.R. 3211, The
Truth in Employment Act of 1996, sponsored by Congressman
Harris Fawell (R-IL), Chairman of the Subcommittee on Employer-
Employee Relations, who co-chaired the field hearing. The Act
would amend Section 8 of the National Labor Relations Act
(NLRA) ``to provide that nothing in specified prohibitions
against unfair labor practices shall be construed as requiring
an employer to employ any person who seeks or has sought
employment with the employer in furtherance of other employment
or agency status.''

Summary

The hearing was comprised of a single panel, which
included: William Creeden, Director of Organizing,
International Brotherhood of Boilermakers, Iron Ship Builders,
Blacksmiths, Forgers and Helpers; Gregory Hoberock, Vice
President of HTH Companies, Inc.; Robert Janowitz, Chair, Labor
and Employment Practice Group, Shook Hardy & Bacon; Lindell
Lee, Business Manager, Local 124, International Brotherhood of
Electrical Workers; Bill Love, President, SKC Electric, Inc.;
David R. Meyer, Vice President, Secretary, Meyer Brothers
Building Co.; Richard Oberlechner, employee, SKC Electric,
Inc.; and James K. Pease, Jr., Esq., Melli, Walker, Pease &
Ruhly.
The general consensus among small business owners on the
panel was that employees were free to join the union and have
elected not to. The small business witnesses maintain that the
union is targeting employers of non-union shops with the main
purpose of putting them out of business. The shop owners must
incur exorbitant legal fees and spend many hours of their time
proving their innocence to the National Labor Relations Board
(NLRB). Regardless of the outcome of the charges, small
business owners are on the losing side of the battle. Even if
they are found ``not guilty'' of the charges, the time and
money spent to defend themselves can put their small firms out
of business.
The small business witnesses stressed that the NLRA is a
good Act and should not be repealed. They do, however, believe
that clarifications need to be made to the Act because unions
are misusing the NLRB. The small business owners also believe
that unions are sending people to their businesses to apply for
jobs that they have no intention of fulfilling. All the while,
the union is subsidizing their salaries and giving them
benefits to ``invade'' the small businesses and begin the
process of union organizing as well as creating mishaps that
would allow them to file charges with the NLRB.
The small business owners testified that H.R. 3211 would
put them back on a level playing field with the unions. It
would give them the ability to hire someone whom they consider
to be a good employee whether the individual is a union member
or not. Union members certainly have the right to approach
employees on their own time whether at a lunch break or after
working hours. During the work day, however, the employee is
hired to do a job for the employer. An employer should not have
to worry about hiring someone who will spend his or her working
hours trying to organize the other employees.
Several members of organized unions testified at the
hearing on behalf of unions. The view of the union is that
construction industry workers are tied to an industry or craft
rather than to a specific employer. They believe that the NLRA
fails to address adequately the need for organizing in this
industry. The unions maintain that the majority of their
contacts with non-union workers are initiated by members who
voluntarily obtain employment with non-union contractors in
order to assist in the organizing efforts. These members do not
receive compensation, wage subsidy or any other fringe benefit
from the union for their efforts. All organizers, paid or
unpaid, must devote working hours to working for the employer
and organize only on their own time--before work, after work or
on breaks. The union representatives testified that to do
otherwise would subject them to discharge for cause.
The union representatives also testified that their goal is
very simply: to organize the unorganized employees in a
specific industry. One union representative stated that several
current and former employees of one of the small business
owners testifying at the hearing have become members of his
union. He also testified that these employees had never been
afforded the right to vote on whether they want representation
by the union. Instead, the employees had been threatened and
coerced and were fearful of being punished or fired if they
openly expressed an interest in union involvement. The unions
believe that H.R. 3211 would remove all the protection for
employees and allow employers to discipline them for exercising
their freedom of choice. The union representatives also
maintain that the same NLRB that investigates union complaints
also protects owners in the event that the union violates the
law.
Chairman Fawell concluded the hearing by noting that he is
cognizant of the fact that there are views on both sides of
this subject. H.R. 3211 is designed to provide language that
would be fair to employers as well as prospective employees.
The bill would not affect voluntary salters who are not paid by
the union. Its goal is to promote fairness for employers and
allow these businesses to hire individuals who want the job for
which they are applying without the threat of ulterior motives.
For further information on this hearing, refer to Committee
publication number 104-71.

7.2.41 the kemp commission recommendations: a small
business perspective

Background

On April 17, 1996, the Committee on Small Business held a
hearing to examine the small business implications of the
recommendations of the National Commission on Economic Growth
and Tax Reform, also known as the ``Kemp Commission.'' The
Commission was appointed by House Speaker Newt Gingrich and
Senate Majority Leader Robert Dole in May 1995 and was composed
of 18 members from the private sector, Federal and State
governments, and non-profit organizations, and was headed by
Jack Kemp, former Member of Congress and Secretary of Housing
and Urban Development. The Commission's mission was to make
recommendations for a tax code that would encourage economic
growth to benefit all Americans. The Kemp Commission held
multiple hearings across the country at which a broad cross-
section of taxpayers testified. On January 17, 1996, the
Commission released its report entitled, ``Unleashing America's
Potential.''
The witnesses were asked to review the Commission's report
and focus specifically on the issues and concerns particular to
small business, such as how the new system will reduce the
regulatory and paperwork burdens on small business. In
addition, the witnesses were asked to address ways in which
Congress can make the transition to a new tax system without
creating devastating financial consequences in the near term
for small business.

Summary

The hearing was comprised of a single panel, which included
three commissioners from the Kemp Commission: Jack Kemp,
Chairman of the Commission, Co-Director, Empower America, and
former Member of Congress and former Secretary of Housing and
Urban Development; Jack Faris, President, National Federation
of Independent Business; and Shirley D. Peterson, President,
Hood College, and former Commissioner of the Internal Revenue
Service.
The panel began by reviewing the final recommendations
contained in the Commission's report, which were based on the
finding that the current tax system is too broken to be fixed
and should be completely repealed. Specifically, the Commission
recommended that a new tax system should be adopted based on a
single low tax rate that will lower the tax burden on working
Americans with a generous exemption that would exempt persons
least able to pay taxes. The new system should end the bias
against work, savings, and investment, primarily through the
elimination of double taxation. The new tax system should allow
for the full deductibility of payroll taxes. And finally, once
the new tax system is in place, it should be protected against
frequent changes and special-interest provisions by requiring
that any changes in the rate be passed by a two-thirds vote in
both houses of Congress.
The panel also reviewed the Commission's ``tax test,''
which is a six-part evaluation that each proposals for a new
tax system must pass. The six criteria are: (1) the tax system
must promote economic growth; (2) it must be fair and treat all
persons equally; (3) the system must be simple enough for
anyone to understand; (4) it must be neutral (tax consequences
should not be the prime factor in an individual's or business'
economic decision making); (5) it must be visible (special
loopholes and benefits should not be hidden from view in a tax
system); and (6) the tax system must be stable (taxpayers
should be able to plan their lives without the rules changing
every year).
In the context of the small business consequences of tax
reform, the witnesses testified that the Commission's
recommendations would have positive, far-reaching effects.
First and foremost, a reduced tax rate would leave greater
after-tax dollars in the hands of small business owners to
reinvest in their businesses. The elimination of double
taxation, namely the capital-gains tax, would also free up
considerable amount of capital that could then be made
available for small business growth and development. The
witnesses also noted that a simple tax system would
dramatically reduce the time that small businessmen and women
now spend learning about and complying with the tax laws and
regulations and would ease the paperwork burdens since the tax
reporting requirements would consequently be reduced. In
addition, the panel noted that the Commission's recommendation
to allow individuals to deduct their payroll taxes would put
them on the same footing as businesses, which can currently
deduct the employer's portion of payroll taxes.
The panel stressed that the Commission's recommendations
are not intended to be a complete blueprint for a new tax
system. Rather, the recommendations are meant to provide a
broad framework for a tax system that will benefit individual
taxpayers as well as small and large businesses. The witnesses
also noted that the issue of transition is a key feature of the
tax-system replacement debate that is beginning in Congress and
across the country. Particular attention needs to be paid to
transition issues such as the treatment of existing debt, net
operating losses, fringe benefits, and mortgage interest, in
order to reduce the negative effect on businesses, especially
small enterprises.
For further information on this hearing, refer to Committee
publication number 104-72.
7.2.42 patent term and patent disclosure legislation

Background

On April 25, 1996, the Committee held a hearing on the
importance of patent term and patent disclosure issues to small
business. The discussion was based on two different legislative
proposals. H.R. 359, introduced by Congressman Dana Rohrabacher
(R-CA), would allow an exclusive patent term to the inventor
for 20 years from the date of filing the patent application or
17 years from the date of issuance of the patent, whichever is
greater. The bill would also allow pending patents to be
published after five years. The second bill, H.R. 1733,
introduced by Congressman Carlos Moorhead (R-CA), would conform
the U.S. patent term to the current international requirements
as promulgated in conjunction with the GATT Uruguay Round. The
bill would also permit publication of patent information after
18 months. The hearing was designed to examine the issues and
impediments that small businesses face with regard to obtaining
and enforcing patent rights. The witnesses were asked to assess
the strengths and weaknesses of both bills pending before
Congress on these issues.

Summary

The hearing was comprised of one panel, which included:
Donald Banner, Esq., Banner & Allegretti, Ltd.; Donald R.
Dunner, Esq., Finnegan, Henderson, Farabow, Garrett & Dunner
and Chair, Section of Intellectual Property Law, American Bar
Association; Orville ``Nip'' Litzsinger, Vice President, The
Alliance for American Innovation, Inc.; Charles E. Ludlam, Vice
President, Bio-Technology Industry Organization; Diane L.
Gardner, Molecular Biosystems, Inc.; Michael Kirk, Executive
Director, American Intellectual Property Law Association; and
Ginny Beauchamp, Vice President, National Association of the
Self-Employed.
The witnesses supporting H.R. 359 expressed general
agreement that the current system of 17 years of patent
protection from the date of grant is more conducive to
promoting American innovation and protecting the rights of
small business inventors. The bill would restore the patent
term by offering a dual term, giving equal protection to all
inventors of all technologies. Several panelists contended that
H.R. 1733 was contrary to the purpose of the patent system, and
it hurt small inventors, because the earlier there is
disclosure for a small inventor, the earlier they may be
attacked by large entities with more resources. Witnesses also
noted that premature disclosure of intellectual property can be
extremely detrimental to small businesses that worked hard to
develop new innovations, only to lose the means of marketing
these products due to the premature release of technical
information.
The advocates of H.R. 1733 argued that the implementation
of H.R. 1733 would be one of the best ways to regulate and
eventually end the delays that now exist in the patenting
process, which in turn strengthens small business. In
particular, witnesses noted that the United States should
change to an 18-month publication system because one of the
purposes that a patent serves is to induce people to invest in
a particular innovation before it is brought to market.
For further information on this hearing, refer to Committee
publication number 104-74.

7.2.43 small business' access to capital: the role of
banks in small business financing

Background

On May 1, 1996, the Committee on Small Business held the
second in a series of hearings on small businesses' access to
capital. The topic for the hearing was the role of banks in
small business financing. On February 28, 1996, the Committee
held the introductory hearing for this series, the purpose of
which was to identify the various problems small businesses
face with respect to meeting their capital needs. The present
hearing was designed to examine in greater detail the banking
issues raised at the first hearing.
The witnesses were asked to provide the Committee with
their views on the impediments to small business bank lending.
In addition, the banking and consulting-industry witnesses were
asked to address whether there are legitimate regulatory
impediments or disincentives that banks face in lending to
small business, and, if so, the witnesses were asked to
identify them and offer any suggestions to eliminate these
obstacles. The banking witnesses were also asked to inform the
Committee about efforts that their institutions were making to
lend successfully to small business. The witnesses representing
the Federal regulatory bodies were asked to address the
regulatory impediments or disincentives that banks face in
lending to small business and ways to eliminate them either
legislatively or at the administrative level. Finally, the
witnesses were asked for their comments on the rise of non-bank
lending institutions and, in particular, the affect that they
have on credit availability for small business.

Summary

The hearing was comprised of one panel of witnesses from
the banking, regulatory, and consulting fields. The witnesses
included: Andrew C. Hove, Jr., Vice-Chairman, Federal Deposit
Insurance Corporation; Janet L. Yellen, Governor, Federal
Reserve System; Sandy Maltby, Senior Vice President for Small
Business Services, KeyCorp, and Member, Small Business Council,
U.S. Chamber of Commerce; Cynthia A. Glassman, Ph.D., Managing
Director, Furash & Company; Frank A. Suellentrop, President,
State Bank of Colwich, representing the Independent Bankers
Association of America; and James Dowe, President, Bangor
Savings Bank, representing America's Community Bankers.
The witnesses representing the banking and consulting
industries testified that the current environment for bank
lending to small business is excellent because banks are
healthy, their capital positions are strong, and earnings have
hit record highs for the last four years. Furthermore, the
economy is growing, technological advances have reduced the
cost of small business lending, and regulators are now
encouraging banks to lend to small businesses. With respect to
bank regulation, the witnesses generally agreed that while the
costs of regulatory compliance is too high, the current
regulatory environment is much better than in the early 1990s,
as regulators have generally stopped evaluating individual
loans and instead begun concentrating on the risk level of a
bank's overall loan portfolio.
With respect to character loans, the witnesses were
somewhat divided. While the banking witnesses testified that
they are generally more willing to loan money to someone from
the community with whom they have a relationship, the
consulting witness stated that banks are in the business of
making money and, hence, are less concerned with an
individual's intention to pay back a loan than they are with a
business' ability to pay back a loan. In addition, the
consulting witnesses noted that small businesses generally need
more equity capital rather than debt capital. All witnesses
agreed that banks are currently facing more and more
competition from non-bank lenders that are not subject to
regulatory restrictions, which has forced them to be more
competitive.
The Federal regulators on the panel were generally
enthusiastic about the current climate for small business bank
lending, especially when compared to the period in the early
1990s known as the ``credit crunch.'' The regulatory witnesses
testified that bank lending to small businesses declined in
every quarter during the period of 1990 to 1992, as banks
focused their resources on eliminating leftover problem loans
and improving troubled balance sheets rather than taking on new
credit risks. In addition, as a result of legislation and
regulations enacted after the savings and loan crisis,
regulators were forced to monitor bank lending activities more
strictly. As a consequence, banks made fewer loans during that
period.
The witnesses also testified that out of concern that
exaggerated lending restraints might have been fostered by
legislative and regulatory reactions to the numerous problems
in the banking industry, the regulatory agencies undertook an
extensive review of their policies and practices. The result of
this review has been a concerted effort to reduce the burden of
regulation and to ensure that examiners evaluate bank lending
in a consistent, prudent, and balanced manner. Both witnesses
testified that the financial environment today is markedly
improved from that of the early 1990s, and as a result, banks'
business loans have expanded rapidly. In addition, the
witnesses stated that according to data collected from banks in
the June Call Reports, small businesses loans (defined as
commercial loans of $1 million or less) increased 7 percent
between June 1994 and June 1995. With respect to the issue of
bank consolidation, the witnesses testified that there is no
evidence to suggest that it has led to a decline in small
business lending.
For further information on this hearing, refer to Committee
publication number 104-78.
7.2.44 music licensing and small business

Background

On May 8, 1996, the Committee on Small Business held a
hearing on music licensing and small business, which was the
second in a series of hearings examining intellectual property
issues of importance to small business. The issues surrounding
music licensing practices of the performing rights societies,
which are primarily the American Society of Composers, Authors
and Publishers (ASCAP) and Broadcast Music Incorporated (BMI),
has long been a major concern for small businesses in the
entertainment and retailing industry. The hearing was designed
to examine these issues in light of pending legislation, H.R.
789, which would exempt certain smaller businesses from
licensing fees for music that is aired on radio or television,
which the business uses for background only without separate
charge to the customers.

Summary

The hearing was comprised of one panel, which included:
Charles F. Rule, Esq., a former Assistant Attorney General in
charge of the Antitrust Division of the Department of Justice
and currently with the law firm of Covington & Burling; Stephen
P. Barba, President and Managing Partner, The Balsams Grand
Resort Hotel; Pat Alger representing ASCAP; Stuart Epperson,
Vice-Chairman, National Religious Broadcasters; Marvin L.
Berenson, Esq., Senior Vice President and General Counsel, BMI;
and Tommy Taverna, President, Silo Inn.
The panel generally agreed that the issue of music
licensing remains critical to many small businesses. Several
witnesses testified that H.R. 789 would stop licensing groups
from charging fees more than once. Currently, ASCAP and BMI can
charge a hotel or restaurant licensing fees on background music
on television and the radio, which witnesses noted is patently
unfair because the rights to use that music have already been
paid for by television and radio stations.
One witness noted that H.R. 789 addresses two problems
critical to small business. The first is a requirement that the
music monopolies offer a per program license to radio
broadcasters that is a real economic alternative to the blanket
license favored by ASCAP and BMI. The second is the requirement
that each music licensing organization provide online access to
the repertoire of works for which it is authorized to collect
license fees. The opponents of the bill argued that the
inherent property right of a musical composition is no
different than that of any sort of tangible property and merits
the same degree of property protection.
For further information on this hearing, refer to Committee
publication number 104-76.
7.2.45 small business and entry-level employees: how to
increase take-home pay and keep america
working

Background

On May 15, 1996, the Committee on Small Business held a
hearing to examine, from an economic and small-business owner
point of view, how a proposed increase in the Federal minimum
wage would affect small businesses' ability to provide jobs.
Alternatives to an increase in the minimum wage that would
boost take-home pay and encourage employers to offer more job
opportunities were also discussed. In addition, the hearing
focused on the Small Business Job Protection Act since it
includes several provisions that were designed to help increase
the productivity of small businesses and promote opportunities
for expansion.

Summary

The hearing was comprised of one panel, and the witnesses
included: Dr. Martin Regalia, Vice President and Chief
Economist, U.S. Chamber of Commerce; Taalib-Din Uqdah, Co-
Owner, Cornrows & Co., representing the Small Business Survival
Committee; Bruce Bartlett, Senior Fellow, National Center for
Policy Analysis; Audrey Tayse Haynes, Executive Director,
Business and Professional Women USA and Owner, Kelly's Garden
Cafe; and Duncan Thomas, President, Q-Markets, Inc.,
representing the National Association of Convenience Stores.
There was a general consensus among the panelists that an
increase in the minimum wage would be detrimental to small
business and would lead to a loss of jobs. The small business
owners maintain that the typical minimum-wage worker is
generally a single, young person who is unskilled and looking
for a job to gain experience and move up the ladder. The
increase in the minimum wage would force employers to look for
skilled instead of non-skilled employees since they will be
able to hire fewer employees. The negative effects will fall on
the lowest-skilled workers and not allow them to gain the
experience needed to succeed.
A small business owner from Washington, D.C. testified that
the impact of a mandated wage increase would have far greater
effects on his business because under existing law, businesses
operating in the District of Columbia are forced to pay a
minimum wage $1 above the Federal rate. The small business
owner believed that the increase in the minimum wage would not
provide an incentive to employers to hire unskilled employees
who require extensive and intensive training and at the same
time do not generate revenue during the training period.
An alternative offered to the increase in minimum wage was
targeted tax policies--either an earned income tax credit or a
payroll tax credit--which the small business owners believe
would target the demographic groups in need of assistance. The
costs of achieving a targeted income redistribution through the
tax code would be born by the society as a whole rather than
levied on a particular segment of the industry, namely, small
businesses. Witnesses testified that it is believed that in the
long run, if an increase in the minimum wage takes away jobs,
many unskilled workers will not be able to increase their
skills through education, training, and on-the-job experience.
A small business owner and proponent of the minimum wage
increase testified that more than three out of every five
workers earning the minimum wage are women. The small business
owner testified that these women are struggling to support
their families and that the free market does not work the same
way for women and minorities as it does for men. The owner
maintained that if the fast-food chain that resides next to her
cafe had to raise its minimum wage rate, it would be more
competitive with her business. At the time of the hearing, the
witness was paying hirer wages and therefore had to charge
higher rates while this fast-food chain owner could purchase
food in much larger quantities and pay employees at the current
lower minimum wage. The witness testified that she would like
to raise the salaries of her employees based on merit but
cannot because of the fast-food competitor.
For further information on this hearing, refer to Committee
publication number 104-79.

7.2.46 proposed reforms of the small business invest-
ment company program

Background

On June 6, 1996 the Committee on Small Business met to
consider testimony regarding legislative proposals for the
reform of the Small Business Investment Company (SBIC) Program
administered by the Small Business Administration (SBA).
Authorized through the Small Business Investment Act of 1958,
the SBIC program provides for the licensing and financing of
small business investment companies, firms that provide equity
and specially structured venture capital to small businesses.
SBICs are eligible to obtain financing, also known as leverage,
from the SBA through either the issuance of SBA guaranteed
debentures or SBA guaranteed participating securities. The
program also provides for the licensing of Specialized Small
Business Investment Companies (SSBICs), which are restricted to
financing small businesses owned by socially or economically
disadvantaged persons. SSBICs may obtain financing under the
same vehicles as SBICs or through more heavily subsidized
debentures and the direct sale of preferred stock to the SBA.
The witnesses were asked to comment on the current health of
the SBIC and SSBIC program, provide suggestions for reform, and
evaluate the reform legislation pending in the Senate (S.
1784).

Summary

The hearing was comprised of a single panel, which
included: Keith Fox, Chairman, National Association of Small
Business Investment Companies, and Partner, Exeter Venture
Lenders; Terry Jones, Chairman, National Association of
Investment Companies, and Partner, Syncom Venture, Inc.; and
Patricia Forbes, Deputy Administrator for Finance and Economic
Development, SBA, accompanied by Don Christensen, Associate
Administrator for Investment, SBA.
The SBA witnesses testified about the agency's efforts to
improve the SBIC program's stability. Ms. Forbes emphasized the
strong capitalization of the 65 new licensees who have over
$827 million in private capital and the decline in defaults and
liquidations. The witnesses reviewed the new valuation criteria
and the tighter requirements for obtaining leverage that the
SBA has implemented as part of its program improvements. In
addition, the SBA was generally supportive of S. 1784,
underscoring the need for the 1-percent fee on SBIC financing
and the need for a $21.7 million dollar appropriation, which
would enable the SBA to provide a total of $400 million in
debenture leverage and $225 million in participating securities
leverage. The SBA was concerned, however, that the Senate's
legislation could be construed to require the removal of some
of the smaller licensees from the program. The witnesses
suggested changes in the capital-standards language that would
broaden the exemption to the increased capital standards and
allow smaller, profitable licensees to remain in the program.
The industry witnesses also testified about the enhanced
safety and soundness of the SBIC program, particularly the
improved valuation standards and reviews of SBIC financial
strength. They emphasized the need for the SBIC program in
light of continued consolidation in the banking industry, which
has led to reduced investment in smaller firms. Mr. Jones also
sought to correct the impression that the smaller SBIC
licensees are inherently more risky. He contended that the size
of an SBIC should not necessarily be used to determine its
chances of success.
The industry witnesses generally supported the Senate
legislation, including the increased fees and the efforts to
expand the availability of debenture funding. In addition, the
witnesses agreed with the Committee's desire to ensure the
stability of the program. Support was also given to the
legislation's proposal for the merging of the SSBIC licensees
into the SBIC program. One witness cautioned, however, that an
alternative source of financing needs to be available for
smaller SBICs as well as certain other protections for existing
SSBICs.
The industry witnesses also addressed the SSBIC's 3-percent
preferred stock repurchase program. The witnesses responded to
concerns that the program permitted significant forgiveness of
SSBIC debt to the SBA by allowing SSBIC to repay only about 35
percent of their stock value. The witnesses noted that the
SSBICs were paying what was agreed to be a fair market price,
and pointed out that the stock had no mandatory repayment term.
For further information on this hearing, refer to Committee
publication number 104-81.

7.2.47 small business competition for federal contracts:
the impact of federal prison industries

Background

On June 27, 1996, the Committee on Small Business began a
series of hearings on unfair government competition, with the
first hearing designed to examine the effect of the Federal
Prison Industries on the ability of small business to compete
for Federal procurement contracts. Federal agencies spend
approximately $200 billion a year for goods and services,
including everything from paper clips, clothing, and furniture
to major weapon systems such as the B-2 bomber. One of the
primary responsibilities of the Committee has historically been
to insure that small businesses have a fair opportunity to
participate in the Federal procurement system.
Federal Prison Industries (FPI), also known by its trade
name, UNICOR, is a government-owned corporation sponsored by
the Bureau of Prisons of the Department of Justice. FPI manages
a chain of manufacturing facilities located within Federal
correctional institutions operated by the Bureau of Prisons.
Established in 1934, FPI produced $392 million worth of goods
and services in 1994. By law, FPI may sell only to Federal
agencies, and under the government-wide Federal Acquisition
Regulation, FPI has been designated as a ``required source of
supply'' and ``a mandatory source'' for Federal government
purchasing. In practice, this ``super preference'' puts a
Federal agency in the position of having to buy from FPI if FPI
determines it can meet the agency's need, or be granted a
waiver by FPI in order to buy from the commercial market place.
When FPI determines that it can supply the product, the normal
procurement system is circumvented, and private-sector firms
are deprived of an opportunity to compete for the government's
business. While FPI's mission is to provide work for prisoners,
in the face of a growing prison population, small businesses,
affected by what they deem to be FPI's predatory business
practices, have become increasingly concerned about unfair
competition.

Summary

The hearing was comprised of a single panel, which
included: Steve Schwalb, Chief Operating Officer, Federal
Prison Industries, and Assistant Director for Industries,
Education and Vocational Training, Federal Bureau of Prisons,
Department of Justice; Rick Francis, Vice President of
Administration, Tennessee Apparel, representing the American
Apparel Manufacturers Association; Sharon Krell, Owner, Access
Products; James L. Riley, President, Omni International Inc.,
representing the Quarters Furniture Manufacturers Association
(QFMA) and the Business and Institutional Furniture
Manufacturers Association (BIFMA); Tim Graves, Co-owner,
General Engineering Services Inc.; and Roger English, Sales
Manager, ADM International.
Mr. Schwalb indicated the Clinton Administration was
reviewing legislative proposals to eliminate FPI's mandatory
source and had not yet announced a position on such proposals.
As a result, he testified only to the Justice Department's
position. He made the positive case for FPI's operations and
explained that FPI could not fulfill its mission as a
correctional program without the mandatory source status. He
asserted that the status was needed to maintain a continuous,
steady work flow without engaging massive sales and marketing
activities to ensure customer contact with the agencies, and to
provide an incentive for private-sector companies to become
partners with FPI in manufacturing products through prison
labor.
The small business witnesses testified that FPI unfairly
took business away from them and prevented private-sector
companies from continuing business with the government. For
many small businesses, the lost of government business could
mean the very existence of the company and threaten the jobs
associated with that enterprise so that convicts could be put
to work. The witnesses noted that FPI's prices have not been
competitive with industry prices, and none of the witnesses
agreed with Mr. Schwalb's assertion that FPI's quality of
products and contract performance in delivering products
matched that of the private sector.
All the small business witnesses agreed that requiring FPI
to compete as any other commercial firm would create a more
level playing field and be more fair than the current system.
They maintained that permitting agency contract officers to
choose among suppliers and enforce the government's rights as
spelled out in Federal procurement regulations would end most
of the perceived abuses. It would also enable dispute
mechanisms to be made available for disappointed bidders, which
do not exist currently.
Three Members of Congress also joined the Committee as
guest participants during the panel discussion. Congressman
Peter Hoekstra (R-MI) elicited testimony from Mr. Schwalb that
focused on FPI's concentration on the furniture industry,
despite the legal constraint that FPI limit itself to a
``reasonable share'' of any particular market. Congressman Mac
Collins (R-GA) raised the specialized missile-container market
to make a similar point. Congressman Thomas Petri (R-WI)
pointed out that FPI's partnering with Krueger International, a
furniture manufacturer, provided jobs in his district. He also
noted the concerns of prison guards, who view the activity of
Federal Prison Industries in the Federal correctional
institutions as vital to their job safety.
For further information on this hearing, refer to Committee
publication number 104-83.

7.2.48 unfair competition with small business from gov-
ernment and not-for-profits: assessing
the current state of the problem and
the recommendations of the 1995 white
house conference on small business

Background

On July 16 and 18, 1996, the Committee held hearings on the
problem of unfair competition with small business from
commercial activities undertaken by government and not-for-
profit organizations. The witnesses were asked to provide
current examples of the scope and breadth of this fundamental
problem, discuss the recommendations adopted by the delegates
to the 1995 White House Conference on Small Business, and
specify actions that could be taken to implement those
recommendations effectively.
The delegates to the 1980 and 1986 White House Conferences
on Small Business ranked recommendations regarding unfair
competition among their top 10 recommendations. Despite this
long-term attention from the small business community, the
problem of unfair competition by governments and from the not-
for-profit community has steadily grown throughout the 1990s.
As traditional funding sources have been curtailed, both
governments and not-for-profit entities have expanded their
commercial-type activities to generate the funding to sustain
themselves. With the renewed attention generated by the
recommendations from the 1995 White House Conference on Small
Business and the 104th Congress, the small business community
has re-energized its efforts to formulate effective remedies to
unfair government competition with small business, giving
practical substance to the national policy of reliance on the
private sector to meet the government's needs for supplies,
services, and construction.

Summary

The hearing on July 16th focused on unfair competition from
governments, especially the Federal government, and was
comprised of a single panel, which included: David Gorin,
Chairman, Business Coalition for Fair Competition (BCFC) and
President, National Association of RV Parks and Campgrounds
(ARVC); Rich Hoffmann, President, Sundex Corporation,
representing the Management Association for Private
Photogrammetric Surveyors (MAPPS); Molly F. Greene, President,
General Engineering Laboratories, representing ACIL--The
Association of Independent Scientific, Engineering and Testing
Firms and the International Association of Environmental
Testing Laboratories (IAETL); Elaine Boissevain, Owner,
Highland Orchard Park Resort and Chair, ARVC; Katherine
DePuydt, Board Member, National Child Care Association; and
Frank L. Jensen, Jr., President, Helicopter Association
International (HIA).
The panelists provided a comprehensive review of the
current status of unfair government competition with small
business, the ineffectiveness of existing administrative
restraints, and the current status of various legislative
proposals being advanced in the 104th Congress. Witnesses also
gave anecdotal evidence of commercial activities being
undertaken by an array of Federal agencies to the detriment of
small firms.
Mr. Gorin identified a number of governmental and private-
sector assessments that demonstrated the benefits of
contracting-out. He also emphasized the ineffectiveness of the
processes specified by Office of Management and Budget (OMB)
Circular A-76 for determining whether a commercial activity
currently performed by Federal employees should be contracted-
out. He argued that the ``Revised Supplemental Handbook on the
Performance of Commercial Activities,'' issued by the OMB in
March 1996 to provide detailed guidance to the Executive
agencies, was likely to inhibit rather than encourage
contracting-out to the private sector. Mr. Gorin reviewed some
of BCFC's efforts to block additional statutory impediments to
contracting-out and advance legislation that will foster the
contracting-out of existing commercial activities being
undertaken by the various Executive agencies and to discourage
the increasing tendency of many agencies to furnish commercial
activities to other Federal agencies, State and local
governments and even the private sector.
All of the witnesses expressed strong support for H.R. 28,
the ``Freedom from Government Competition Act,'' and its Senate
companion S. 1724, both of which attracted substantial
bipartisan support. The witnesses also highlighted provisions
that were included in the National Defense Authorization Act
for Fiscal Year 1996 that require the Secretary of Defense to
identify the various commercial activities of the Department of
Defense (DOD); highlight those that are suitable for conversion
to performance by the private sector; and justify those
proposed to be maintained for performance by DOD employees. The
provision also calls upon the Secretary to identify all
legislative and regulatory impediments to converting commercial
activities to performance by the private sector. These
provisions represented a victory for accelerating the
contracting-out of commercial activities currently performed by
Federal agencies.
The hearings continued on July 18, 1996, with another
single panel of witnesses, which included: Thomas J. Scanlon,
Vice Chairman, BCFC; Michael Lieberman, President, Valley Forge
Flag Company; Philip C. Hanson, Vice President, C.H. Hanson
Company; Evan J. Keep, Jr., Evan Keep and Associates; Robert P.
Stack, President, Community Options; Gene Meier, Owner,
Lewistown Propane and Fertilizer, representing the National
Federation of Independent Business (NFIB); Roger S. Ralph,
President, Bel Air Health Club, representing the International
Health, Racquet and Sportsclub Association; Dr. Charles A.
Garber, President, Structure Probe; Michael K. McGee, National
Environmental Testing, Inc., representing the International
Association of Environmental Testing Laboratories; and Lou
O'Brien, Chairman, Model-Star Services, representing the
Textile Rental Services Association of America.
The witnesses provided the Committee with anecdotal
evidence of the devastating effect of unfair competition by
government-sponsored entities on small business. Mr. Lieberman
particularly emphasized the effects when he testified that
Valley Forge Flag Company, a 114 year-old small business,
family-owned for four generations, was now facing an
essentially insurmountable competitive challenge for business
by the National Industries for the Severely Handicapped (NISH),
a government-sponsored, not-for-profit enterprise and a
companion organization to the National Industries for the Blind
(NIB).
Under the Javits-Wagner-O'Day (JWOD) Act, NISH and NIB are
given a preferential status with respect to selling certain
designated products or services to Federal agencies. Once a
product or service has been designated, Federal agencies are
required to solicit offers from NISH or NIB before offering the
contracting opportunities to the private sector. Products or
services, however, are not to be designated under the JWOD if
it is determined that the ``proposed addition to the
procurement list would have a severe adverse impact on the
current or most recent contractor for the specific commodity or
service.'' As Mr. Lieberman testified, a very high threshold
has been adopted for determining what constitutes doing adverse
economic harm to a small business--essentially not taking more
than 20 percent of a small firm's total annual revenue. After
taking 20 percent of Valley Forge Flag Company's largest
contract in 1993, which involved furnishing interment flags to
the Department of Veterans Affairs (DVA), on May 17, 1996, NISH
informed the company that it intended to take another 20
percent of the same contract.
Mr. Hanson testified about similar experiences with regard
to another family-owned small business that had furnished the
government since the Civil War with brass stencils for
labeling. When this work was completely taken for the JWOD
program, the C.H. Hanson Company sought to diversify to related
products, like identification tags and surveyors' markers, only
to have these products taken by the JWOD Program. Mr. Hanson
and Mr. Lieberman also raised concerns about whether pricing by
NISH and NIB represented fair market prices to the buying
Federal agencies; the underutilization of persons with
disabilities in the actual performance of JWOD contracts; and
excessive subcontracting by NISH and NIB to selected for-
profits companies in order to be able to meet their contractual
performance obligations to the government.
Two advocates for persons with disabilities provided the
Committee with a perspective on the issue from the view point
of the disabled community. Mr. Kemp suggested that the
workshops operated by NISH and NIB tended to perpetuate the
segregation of persons with disabilities rather than
emphasizing their mainstreaming in keeping with the landmark
Americans with Disabilities Act of 1990. Mr. Stack provided
specific examples of how organizations like his worked to
integrate persons with disabilities into the employment
mainstream. Mr. Lieberman also emphasized that Valley Forge
Flag Company currently employs persons with disabilities, and
he testified that his company was willing to employ more
individuals with disabilities than would be employed if the
contract were performed by a NISH-affiliated organization.
For further information on this hearing, refer to Committee
publication number 104-86.

7.2.49 proposed reform of the 8(a) program through h.r.
3994, the entrepreneur development
program act of 1996

Background

On September 18, 1996, the Committee on Small Business held
an oversight hearing to examine the proposed reform of the
Small Business Administration's (SBA) Minority Enterprise
Development Program (also known as the 8(a) Program) through
H.R. 3994, ``The Entrepreneur Development Program Act of
1996.'' Congress intended that the 8(a) Program would utilize
Federal procurement to promote development of small businesses
owned by socially and economically disadvantaged individuals.
The program put in motion a contracting mechanism within the
SBA through which purchases by the Federal government, now
worth about $6 billion, are made, for the most part, on a non-
competitive basis through set-asides.
The intent of the 8(a) Program was to allow eligible
companies an opportunity to get on their feet, gain practical
business experience, and at the end of a maximum nine years, to
graduate from the program and be prepared for the competitive
marketplace. It has been found, however, that opportunity has
been minimal for most of the approximately 6,000 firms that
have been certified in the program and that a select few
companies, though financially able, remain in the program long
after achieving a success level of which most struggling
entrepreneurs only dream.
Congress has attempted to clean up the longstanding
problems with this program through three major legislative
overhauls in 1978, 1980 and 1988. Each time, the SBA has been
directed to increase oversight of the program and to ensure
that the benefits are distributed fairly and to guard against
fraud and abuse. However, studies by independent investigators
such as the General Accounting Office (GAO) have given the
program poor and, in many cases, failing grades. General
findings of these studies have concluded that the 8(a)
Program's success in helping disadvantaged firms to become
self-sufficient and competitive was minimal.

Summary

The hearing was comprised of two panels. The first panel
included: Philip Lader, Administrator, SBA, accompanied by
Calvin Jenkins, Associate Administrator of Minority Enterprise
Development, SBA, John Spotila, General Counsel, SBA, and Hugh
Wright, Assistant District Director for Minority Enterprise
Development, SBA Washington District Office; and Judy England-
Joseph, Director of Housing and Community Development Issues,
GAO. Mr. Lader testified that significant improvements have
been made to the 8(a) Program. He stated that a new
comprehensive management information system was in place,
annual reviews of program participants had been done, and that
they had reduced the application processing time. The
Administrator also testified that, although their efforts had
not been perfect, they could demonstrate that the 8(a) Program
is currently being mended. One example of improvement, the
Administrator stated, was that 84 percent of all portfolio
firms were reviewed last year as compared to only 57 percent
the previous year. Mr. Lader stated that the Administration
strongly opposes H.R. 3994 and that the SBA would recommend
that the President veto any legislation that passes Congress
that would not allow the continued ``mending'' of the program.
The SBA believes that the 8(a) Program is necessary, but it
does not condone any past abuses that may have occurred.
GAO testified that its reports and testimony over the years
have chronicled the difficulties that the SBA has had in
implementing many of the changes to the 8(a) Program, which
were mandated by Congress in the Business Opportunity
Development Reform Act of 1988. The latest information that the
GAO has obtained directly from the SBA's automated system shows
that while the dollar amount of 8(a) contracts awarded
competitively during fiscal year 1995 increased over fiscal
year 1994, the percentage of contract dollars awarded
competitively remained at about 19 percent.
According to GAO testimony, during fiscal year 1995, three
firms, among some 6,000 firms, were graduated from the program
according to the SBA--the first graduations in the Program's
history. The SBA determined that the firms had met their
developmental goals and were able to compete in the marketplace
without further assistance from the 8(a) Program. The GAO also
stated that in May of 1995, the SBA established requirements
for its field staff to evaluate the financial condition of 8(a)
firms and to determine whether firms were ready to graduate
from the program. An evaluation done by the SBA of their field
staff in February of 1996 found that the staff's financial
analysis was poor and an understanding of concepts of economic
disadvantage, financial conditions of the firms, access to
capital, and comparisons to non-8(a) firms in similar
businesses was limited.
GAO testified that while the 8(a) program has not yet
achieved key changes mandated by Congress, the SBA has taken
actions during the past year that indicate steps in the right
direction. GAO was concerned, however, about the need to
collect data to measure better the overall effect of the 8(a)
Program and the need to improve the skills and abilities of the
SBA staff who are responsible for assessing the financial
condition and competitiveness of the 8(a) firms.
The second panel included: Shirley A. Stewart-Veal,
President and Founder, SAS, General Construction Contractor;
Brenda Ford, President, Ford & Associates; Jim Offord, Retired
Contract Specialist; George R. La Noue, Director, Policy
Sciences, Policy Sciences Graduate Program, University of
Maryland-Baltimore County; Jeffrey Rosen, Associate Professor,
George Washington University School of Law and Legal Affairs
and Editor, The New Republic; Tapan Banerjee, President, Tapan
& Associates; and Steven Farinha, President, Farinha, Inc.
Several small business owners who are designated as 8(a)
firms or previously sought such certification testified that
the SBA program officers have not been helpful to them. One
such owner testified that even though she has utilized all of
the counseling programs available, she found the SBA and the
contracting officers to be determined not to help her. Another
owner stated that she had documented cases of wrongdoing by the
SBA, facilities services managers, and contracting officers.
After 15 years of being an 8(a) firm, the contracts on which
she bid were always awarded to the larger firm. Testimony was
received from a retired Federal contract specialist whose job
it was to be an advocate for minority set-asides. This witness
stated that among other abuses, the Federal program managers
frequently found ways to avoid letting contracts be awarded to
minority firms by sometimes using unique specifications that
only the majority vendor possessed.
The Committee also received testimony from witnesses who
were considered experts in the field of affirmative action and
discrimination. Classification of an individual as socially and
economically disadvantaged has recently been questioned and
brought to the U.S. Supreme Court. The witnesses testifying
questioned how the SBA decides who fits its ``list'' of
socially and economically disadvantaged individuals. Some of
the groups included in this list are at the socioeconomic
bottom of society, while others, measured by education, income,
and business formation rates, are at the top. Facts about
individual group characteristics were apparently irrelevant to
the SBA's decision.
Testimony was also received from several 8(a) firms who
have had good experiences with the program. These owners
testified that the Program has given them the opportunity to
stabilize their businesses and to create a good track record
for clients. Two 8(a) firms stated that 65 percent of their
current contracts are non-8(a) contracts. These owners
testified that they believed H.R. 3994 would not reform the
8(a) Program but would eliminate it altogether.
For further information on this hearing, refer to Committee
publication number 104-92.

7.2.50 osha reform and relief for small business: what
needs to be done?
Background

On September 25, 1996, the Committee on Small Business held
a hearing on reform efforts undertaken by the Occupational
Safety and Health Administration (OSHA) from the small business
perspective. The Committee previously held a total of five
hearings on the issue of OSHA reform and the regulatory burdens
imposed on small business generally. This hearing was designed
to further the process of OSHA reform by reviewing OSHA's
efforts to date and to evaluate the merits of H.R. 3234, the
``Small Business OSHA Relief Act of 1996.''
OSHA was created in 1970 as a result of Public Law 91-596,
and the statute has not been amended since its enactment.
Furthermore, the 1995 White House Conference on Small Business
ranked the issue of regulatory reform 28th out of 60 final
recommendations, underscoring the critical need for reform in
this area. The primary thrust of the OSHA reform legislation
introduced in the 104th Congress has been to reduce the number
of penalties and citations issued by OSHA and to reduce OSHA's
role as a rule enforcer in favor of a consultation resource for
employers. Witnesses were asked to comment on H.R. 3234, the
status of OSHA reform, and specifically on the proposals for
cost-benefit analysis for new regulations.
Summary

The hearing was comprised of a single panel, which
included: Joseph Dear, Assistant Secretary for Occupational
Safety and Health, U.S. Department of Labor; F.M. ``Pete''
Lunnie, Jr., Executive Director, Coalition on Occupational
Safety and Health; Ed Hayden, Safety and Health Director,
Associated General Contractors of Greater Milwaukee; Kent
Swanson, Owner, Nurses Available Staffing, Inc., representing
the National Federation of Independent Business; and Larry
Larsen, President, Larsen Holmes, representing the National
Association of Home Builders.
The panel began with Mr. Dear who reviewed the
Administration's progress to reform OSHA and provide relief for
small businesses. He testified that OSHA now emphasizes
cooperative partnerships with employers and workers, with
small-business employers being involved whenever a new OSHA
rule would have a significant economic effect upon small
businesses. The agency was also implementing common sense
regulations written in plain language and a new agency culture
focusing on the reduction of injuries and illnesses rather than
the number of inspections and penalties. He maintained that
performance measures, such as inspectors being evaluated on the
number of inspections, citations, and fines that they have
issued, had been eliminated. Mr. Dear advised the Committee
that before his tenure at OSHA is completed, the agency will
eliminate more than 1,000 pages of regulations and will
simplify hundreds more.
Mr. Dear also commented on H.R. 3234 and asserted that the
bill would substantially compromise worker protection. He
claimed that the ``New OSHA'' has begun reducing or eliminating
penalties for technical paperwork violations while directing
its enforcement activities to the most dangerous work sites.
Mr. Dear concluded his testimony by stating that he has changed
OSHA forever by offering employers a choice between cooperation
and enforcement and by using common sense in developing and
enforcing regulations.
The small business representatives on the panel shared Mr.
Dear's call for cooperation and expressed their equal
commitment to work constructively with their employees, OSHA,
and other interested parties for continued improvement in
worker safety and health. The witnesses noted, however, that
OSHA is one of the least-liked regulatory agencies in
Washington due to a disjointed approach to enforcement and
confusing, burdensome standards among other agency practices.
OSHA in many ways treats small business as an adversary, which
was evidenced by the 1995 White House Conference on Small
Business. When the delegates to this conference were asked what
concerned them most about the Federal government, the
overwhelming response was not the IRS, health-care reform, or
the minimum wage--it was the OSHA inspector. Mr. Lunnie noted
as an example that of the top twenty most frequently cited OSHA
violations in 1994, eleven of them were for paperwork and of
those, the majority involved OSHA's hazard communication
standard.
The small-business witnesses generally favored the reforms
proposed in H.R. 3234. As one witness pointed out, there can be
no guarantees that the next OSHA Administrator will maintain
the policies set forth in the ``Reinventing OSHA'' initiative.
H.R. 3234 will ensure that these policy changes will be
continued. Witnesses noted that OSHA reform legislation must
ensure that OSHA's primary concern will be safety and not the
punishment of small business for minor mistakes. With regard to
specific provisions of H.R. 3234, several witnesses were
supportive of the requirement that OSHA and other Federal
agencies perform a cost/benefit analysis on regulations prior
to their promulgation to ensure that the regulations do not
impose an unnecessary or duplicative burden on the small
business community.
A number of small business witnesses also testified about
the effects of OSHA's proposed ergonomics regulations. The
witnesses maintained that under this proposal small businesses
would be required to implement comprehensive medical-management
programs for jobs with high signal risk factors for employees
including lifting 25 pounds, repetition (such as using a
computer keyboard or clicking a mouse), pushing or pulling, and
using an awkward position. The proposed regulations would
require small businesses to retrain employees and radically re-
engineer their businesses. Mr. Swanson commented that the new
regulations do not reflect the effort to reform OSHA that Mr.
Dear had previously pledged to implement.
For further information on this hearing, refer to Committee
publication number 104-93.
7.3 Summaries of the Hearings Held by the Subcommittee on
Government Programs

7.3.1 the impact of hanscom air force base upon small
business in the new england region

Background

On February 13, 1995, the Subcommittee on Government
Programs held a field hearing in Bedford, Massachusetts, to
examine the impact of Hanscom Air Force Base upon small
business. The Federal government selected Hanscom as a possible
target for shut-down and/or movement of sections of the base to
other locations. A number of small businesses in the area
depend on the base for much of their business. Hanscom is the
fourth largest employer in Massachusetts, directly employing
11,500 persons on the base and indirectly providing for another
19,800 jobs in the surrounding region. The total effect on the
New England economy is $3.2 billion per year, of which $120
million a year goes to the regional small business community.

Summary

The hearing was comprised of three panels, the first of
which included: Colonel Ken Collins, Director of Quality
Initiatives and Strategic Planning, Electronic Systems Center,
Hanscom Air Force Base; Captain Shannon Sullivan, member of
Team 21, which supports the BRAC process by providing
installation data through the Department of Defense structure;
and Al Hart, Director, Small Business Office, Electronic
Systems Center, Hanscom Air Force Base.
This panel described the relationship between the business
community and Hanscom Air Force Base. The base produces the
world's finest command, control, communications, computing, and
intelligence systems, known as C4I, which would not be possible
without the many small businesses that contract with Hanscom.
Hanscom's contractors fall under one of several major
categories: engineering services, intelligence systems, C4I
systems integrations, research and development, construction,
small purchases, physical security systems, travel services,
and base maintenance. The total small business obligations for
Hanscom over the past four years made up 10 to 15 percent of
the obligations to profit-seeking companies. Small businesses
provide backbone support to keep the base and its facilities
running smoothly and are able to provide technical expertise
quickly and accurately. The witnesses also testified to the
synergy of the small businesses and Hanscom and the importance
of this relationship to the economy as a whole.
The second panel consisted of Sanford Weiner, Research
Associate, Center for International Studies, Massachusetts
Institute of Technology; and William F. Weld, Governor,
Commonwealth of Massachusetts. Mr. Weiner discussed the
system's integration and how it was accomplished, and he
testified that Hanscom has been a true partner with small
engineering firms, major contractors, and the Federal contract
centers to have successful systems integration. Governor Weld
reiterated the importance of Hanscom to economy and said that
relocating the base would weaken the quality of the C4I
systems, force the Air Force to spend time and money
reconstructing an existing technical base, and harm the
commercial high tech cluster that has developed in that area.
Hanscom is also involved with universities in the area and
provides invaluable opportunities and knowledge. Governor Weld
further discussed the $100 million bond bill he had signed the
previous week that would aid in expanding Hanscom Air Force
Base and two other bases in Massachusetts. This bond bill was
seen as a major commitment from the State.
The third panel consisted of James Henderson, CEO and
President, Analytical Systems Corporation; David Vining, Vining
Disposal Services; Peng Siu Mei, President, Mei Technology
Corporation; Samir Desai, President and Founder, Systems
Resources Corporation; and Victoria Bondoc, President and CEO,
Gemini Industries.
The witnesses on the panel all represented small businesses
directly affected by Hanscom Air Force Base. The witnesses
described specifically how their companies were involved with
Hanscom and the potential impact on their business if the base
were to be shut down. For instance, Mr. Vining testified that
if the base were shut down, it would result in a direct loss of
4.6 percent, and a potential indirect loss of 34 percent, to
his company. This would equal a total dollar value loss of
$4,632,000 and the elimination of 40 jobs. All witnesses
predicted the elimination of jobs if the base were to close.
For further information on this hearing, refer to Committee
publication number 104-12.

7.3.2 small business administration's small business in-
novation research (sbir) program

Background

On April 6, 1995, the Subcommittee on Government Programs
held a hearing to discuss the Small Business Innovation and
Research (SBIR) program, which is administered by the Small
Business Administration (SBA) and assists small, technology-
oriented businesses. Because of their creativity and
flexibility, small businesses are often fertile ground for
innovation. These businesses, however, must overcome a number
of obstacles, including little access to capital and the lack
of a forum in which to supply their innovations to the Federal
government and commercial interests. In an effort to alleviate
these obstacles, the SBIR program requires Federal departments
and agencies with extramural research budgets in excess of $100
million to take a nominal percentage of those funds and set
them aside for small businesses that compete for research
projects.

Summary

The hearing was comprised of a single panel, which
included: Samuel J. Barish, SBIR/STTR Program Manager, Office
of Energy Research, U.S. Department of Energy; Constantine A.
Bassilakis, Grey Fox Technologies, Inc.; Jere W. Glover, Chief
Counsel for Advocacy, SBA; Robert L. Norwood, Director,
Commercial Development and Technology Transfer Division, Office
of Space Access and Technology, National Aeronautics and Space
Administration (NASA); Victor S. Rezendes, Director, Energy and
Science Issues, Resources, Community, and Economic Development
Division, U.S. General Accounting Office (GAO); Robert Neal,
Associate Deputy Administrator for Government Contracting and
Minority Enterprise Development, SBA; and Roger Little,
President, Spire Corporation.
Representatives from the small business community,
including Mr. Bassilakis and Mr. Little, rated their experience
with the SBIR program as favorable. Mr. Bassilakis lauded the
impact of the SBIR program on his company, Grey Wolf
Technologies, citing that it had provided an excellent
foundation for launching a new business and led to the award of
two non-SBIR contracts from General Electric in the second half
of 1994. According to Mr. Little, the SBIR program has
contributed to Spire Corporation's technology base and products
in a number of ways. For instance, it has allowed his
corporation to export to Europe and Japan, as well as various
third-world countries. Although these two small business
representatives generally praised the SBIR program, they also
expressed some concerns. Mr. Bassilakis called the
documentation requirements and the accounting system
requirements overly burdensome for small businesses. He
suggested simplifying these requirements and offering
alternatives to ``cost-plus fixed fee'' contracts. Mr. Little
criticized the lack of time between program phases, citing as
an example a five to ten year time frame from the point of
initial funding to commercialization.
Representatives from the SBA, including Mr. Glover and Mr.
Neal, generally praised the SBIR program. Mr. Glover testified
that the SBIR program contributes one of the highest returns to
taxpayers and redirects money to small businesses that might
otherwise have gone to large firms, universities, and Federal
government labs that are far less efficient, far less
innovative, and less able to commercialize their technologies.
Mr. Glover found the technology commercialization rate to be
between 30 and 40 percent for small businesses involved in the
SBIR program. According to Mr. Neal, since the program began,
the 11 Federal agencies in the program have made over 37,000
competitive awards worth more than $5.3 billion. Mr. Neal
concluded that the unqualified success of the SBIR program
attests to the strength of small business entrepreneurs and
their creativity.
Representatives from Federal agencies, including Dr. Barish
of the Department of Energy and Dr. Norwood of NASA, attested
to the success of the SBIR program, but also made some
suggestions regarding set-aside funds. Both witnesses
recommended using a small fraction of SBIR set-aside funds to
provide commercialization assistance to SBIR awardees and to
support administrative costs of the program's operation.
Mr. Rezendes testified about the GAO's report evaluating
the interim status of the SBIR program. The three basic
objectives of this report were to assess whether: (1) the
quality of research has kept pace with the increase in the
percentage of awards; (2) implementation of the technical
assistance program has occurred at the various agencies; and
(3) there is any duplicate funding of research. The report
identified only one problem area--duplicate funding. According
to the Department of Justice, one company received $1.4 million
in duplicate funding from NASA and various Department of
Defense agencies. In addition, 11 research ideas were recycled
40 times by this company. Most agencies agree, however, that
only a small percentage of these companies are responsible for
the majority of offenses.
For further information on this hearing, refer to Committee
publication number 104-25.

7.3.3 small business administration programs to assist
the new england fishing industry

Background

On April 10, 1995, the Subcommittee on Government Programs
held a field hearing in Gloucester, Massachusetts, to examine
the plight of the fishing industry in New England and to
discuss options for Federal government assistance from the
Small Business Administration (SBA).
The breeding stocks of several types of groundfish, most
notably cod, haddock, and yellow-tailed flounder, have been
depleted in the New England coastal area. Under Amendment 7 to
the Multi-species Plan and Amendment 5 to the Lobster Plan,
harvesting was temporarily restricted pending the stocks'
return to sustainable levels. Once the stocks are replenished,
licenses will allow harvesting at levels near what they had
previously been. The combination of natural and man-made
circumstances has had a negative effect on the fishing industry
in the area, which is predominantly comprised of small
businesses. The economic downturn has not only affected
fisherman and fish processors, but also the towns that depend
upon the constant economic input of the fishing industry.

Summary

The hearing was comprised of three panels, the first of
which included: Bruce Tobey, Mayor, City of Gloucester; Bruce
Tarr, Senator, Massachusetts State Senate; and Dr. Andy
Rosenberg, Deputy Regional Director, Northeast Regional Office,
National Marine Fisheries Service, National Oceanic and
Atmospheric Administration.
The first panel gave an overview of the situation in the
New England region with regards to the fishing industry. Mayor
Tobey and Senator Tarr explained the plight of fishermen who
have struggled with the depletion of fishing stocks and will
continue to struggle as harvesting restrictions are imposed.
Both stressed that more loans are not the answer, as the
region's fleet is already overcapitalized. Mayor Tobey
suggested financial grants to assist fishermen in modernizing
and refitting their vessels, thus enabling them to harvest
alternative fish stocks, and to assist in marketing these fish
domestically. Other suggestions included balancing the Magnuson
Act to reflect the views of fishermen, easing waste-water
regulations and, as a last resort, expanding a boat buy-back
program to encourage a reduction in the fishing fleet. Senator
Tarr concurred with these suggestions and also stressed the
need for extended loan terms, thus reducing monthly payments,
and helping to create new business opportunities for boat-
owners and their crews. Dr. Rosenberg gave a brief overview on
the status of groundfish stocks in the region, which he
contends have been severely depleted by over-fishing. According
to Dr. Rosenberg, restrictions on harvesting should continue
for approximately five to six years to allow stocks to grow to
sustainable levels.
The second panel included: Angela Sanfilippo, President,
Fishermen's Wives Association; Jose Testaverde, President, CGN
Corporation; Edward Lima, Director, Cape Ann Fishermen's
Cooperative of Gloucester; Scott Memhard, President and General
Manager, Cape Pond Ice Company; Pasquale Frontierro, Owner,
Frontierro Brothers, Inc.; and Edward MacLeod, consultant to
the fishing industry.
The second panel was comprised of area citizens who, like
many in New England's coastal towns, have been adversely
affected by fishing conditions. They complained about the
difficulty in obtaining loans to modernize their industry and
expand into new markets. According to the witnesses, banks will
not extend capital to small businesses in the fishing industry
because of the current depletion of groundfish stocks. All of
the witnesses noted the dependence on the fishing industry of
Gloucester and towns like it in New England. Mr. MacLeod
stressed the importance of maintaining an experienced corp of
fisherman and fish processors to jump start the fishing economy
once groundfish stocks return to sustainable levels. He
suggested assistance from the SBA in obtaining loans to start
new small businesses, expand into alternative fish markets, and
improve and modernize equipment for both fishermen and fish
processors.
The third panel included: Patrick McGowan, Regional
Administrator, SBA; Patricia Hanratty, Senior Vice President,
Fleet Bank; and David L. Marsh, President, Gloucester Bank &
Trust Company. This panel responded to the previous panels'
requests for financial assistance. While declaring their
willingness to assist whenever possible, each stressed the fact
that making loans to those who would be unable to repay them
was not feasible. Each committed themselves to keeping a
healthy and efficient fishing industry while concurrently
providing opportunities for those who are displaced as the
industry downsizes. All of the panelists expressed a need for
government assistance in providing any capitalization. Also
discussed was the possibility of declaring the region a
disaster area, thus making it eligible for low-interest loans.
For further information on this hearing, refer to Committee
publication number 104-26.

7.3.4 small business administration's disaster loan pro-
gram

Background

On May 25, 1995, the Subcommittee on Government Programs
held a hearing to examine the disaster assistance loan program
administered by the Small Business Administration (SBA) and how
it aids small businesses and individuals after a disaster.
Disaster loans are the primary form of Federal assistance for
non-agricultural and private-sector disaster losses.

Summary

The hearing was comprised of a single panel, and the
witnesses included: Jim Hammersley, Acting Deputy Associate
Administrator, Office of Disaster Assistance, SBA; Quirino
``Bud'' Iannazzo, Administrative Program Manager, Massachusetts
Emergency Management Policy; and Karen Lee, Deputy Inspector
General, SBA.
The panel began by providing the Subcommittee with
background on the two basic types of disaster loans, namely
physical disaster loans and economic injury disaster loan.
Witnesses also summarized the procedural precautions that SBA
applies to loan applications to ensure claims awarded are
legitimate.
The panel also provided the Subcommittee with anecdotal
evidence as to the efficacy of the SBA's Disaster Loan Program
as well as some areas for improvement. Overall, witnesses
testified that the Disaster Loan Program is a quality program
that should continue with a few adjustments. Suggested changes
included making the program more ``user-friendly,'' increasing
the process time from a month to 15 calendar days, expanding
the use of ``loan packagers,'' and reducing SBA's threshold
amount for determining when a disaster victim can qualify for
benefits under the loan program.
For more information on this hearing, refer to Committee
publication number 104-31.

7.3.5 u.s. small business administration low documenta-
tion loan program

Background

On June 28, 1995, the Subcommittee on Government Programs
held the first in a series of hearings to review the Small
Business Administration (SBA) and its specific loan programs
and, for this hearing, the SBA's Low Documentation (LowDoc)
Program. The LowDoc Program began as a pilot program in
December of 1993 and expanded nationally in the summer of 1994.
The program was created to respond specifically to a critical
funding need, that is, small business unable to find lenders
who are willing and able to provide loans in amounts under
$100,000. What makes a LowDoc loan unique is that the
application form for this type of loan is only one page in
length; therefore, it is easier on the borrower to apply for
the loan. Between December 1, 1993 and March 31, 1995, the SBA
approved 21,520 LowDoc loans, totaling approximately $1.8
billion.
The hearing was designed to evaluate two aspects of the
LowDoc Program. First, the witnesses were asked to discuss the
expected default rate on all loans as they enter their second
and third years of repayment. Secondly, the witnesses were
asked to discuss the scoring of the subsidy rate for the LowDoc
Program as it relates to the 7(a) Loan Program. Currently, it
is understood that the LowDoc Program has not been scored
separately, but that the Office of Management and Budget (OMB)
is considering a separate score in the future.

Summary

The hearing was comprised of two panels, the first of which
included: Patricia R. Forbes, Acting Associate Deputy
Administrator for Economic Development, SBA, accompanied by
John Cox, Associate Administrator for Financial Assistance,
SBA. Ms. Forbes discussed the internal workings of the LowDoc
Program, stressing the differences between the LowDoc Program
and the 7(a) Loan Program. The LowDoc Program was established
in direct response to the concern of small business owners
regarding their lack of access to capital. Small businesses
were unable to find lenders that were willing to provide loans
under $100,000. The loan application was also a concern, and as
part of this program, the application was reduced to one page.
Ms. Forbes noted that the single page form is both the
applicant's loan application and the lender's request for a
guaranty.
The witnesses also discussed the statistics available for
the LowDoc program, noting that LowDoc loans are high in
numbers compared to all 7(a) loans, but not in overall dollars.
LowDoc loans, both by dollars and numbers, however, are
performing slightly better than non-LowDoc loans of any size
approved during the same period. The witnesses emphasized that
the LowDoc program has been extremely well received by both
borrowers and lenders, and is serving many small financing
needs of the small business community.
The second panel included: Anthony R. Wilkinson, President
and Chief Executive Officer, National Association of Government
Guaranteed Lenders; Deryl Schuster, President for the Central
Division of Emergent Business Capital and Vice President of
Government Relations, National Association of Government
Guaranteed Lenders; and Blain Marchand, Vice President and SBA
Loan Specialist, Flagship Bank. All witnesses on this panel
were asked to discuss their experience with the loans, and
their recommendations for and concerns about the LowDoc
Program.
The second panel recommended that the SBA develop
procedures to place more reliance on the private sector since
the SBA can no longer handle the rapidly growing loan programs
with staff resources that have continued to shrink. If LowDoc
or any other SBA loan program is to pass the test of time and
survive, it must be operated efficiently and managed
effectively. These programs are vital to the small business
community and are the primary source of long-term capital for
many small businesses. The panelists stressed that the SBA's
loan programs have improved considerably since the 1970s, with
the 7(a) Loan Program now described as the ``flagship program''
of the SBA.
Mr. Marchand testified regarding the future of SBA loan
programs and how effective LowDoc has been for banks. A few
years ago, community banks were very eager to lend to small
businesses but were worried about the risks that go into
lending to new and/or small businesses. Smaller banks with
limited capital need a partner like the SBA as a way to reduce
the risks. While the guaranteed-loan option is attractive,
banks found the process of dealing with the SBA to be
frustrating for both banks and businesses, because it was too
lengthy, too costly, and too confusing. It was recommended that
the SBA continue to consolidate and streamline the process to
reduce overhead and reduce the number of programs.
Mr. Marchand also stressed that the SBA should focus on the
7(a) and 504 loan programs, concentrating on term lending
rather than asset-based lending, with which the SBA has
historically not been very successful. Bank lenders have also
advocated that the SBA reduce the guaranty percentages rather
than increase fees. If a bank is not going to approve a loan
because it has 70 percent guaranty versus 80 percent rate, it
probably should not be written in the first place. Mr. Marchand
specifically recommended that LowDoc loans have a lower
guaranty percentage. He noted that there should be some
correlation between the reduced work on each loan and a reduced
guarantee rate.
For further information on this hearing, refer to Committee
publication number 104-37.

7.3.6 sba's lowdoc loan program

Background

On July 19, 1995, the Subcommittee on Government Programs
held a hearing on the Low Documentation, or ``LowDoc,'' loan-
guarantee program administered by the Small Business
Administration (SBA). The first day of hearings on this issue
was held on June 28, 1995, and at that time, the Office of
Management and Budget (OMB) declined to testify before the
Subcommittee on the LowDoc program and OMB's scoring of the
subsidy rate for the program.
Because OMB refused to provide a witness for the hearing,
the Subcommittee moved to subpoena Alice Rivlin, Director of
OMB, to testify. A formal vote was held and the motion passed
the Subcommittee by a vote of 7-0. Chairman Torkildsen and Ms.
Rivlin spoke several times thereafter, agreeing on July 19 for
continuation of the hearing. Due to scheduling conflicts, Ms.
Rivlin could not attend the July 19 hearing, and instead the
Deputy Director for Management, attended the hearing on her
behalf to discuss the SBA's LowDoc loan program.

Summary

The hearing was comprised of a single witness, John
Koskinen, Deputy Director for Management, OMB. Mr. Koskinen
covered a number of issues in his testimony, beginning with a
summary of credit reform and OMB's role in establishing credit
subsidy rates for loan programs. The Federal Credit Reform Act
of 1990 made fundamental changes in the budgetary treatment of
direct loans and loan guarantees. These reforms became
effective in FY 1992 and shifted the basis for Federally
guaranteed credit from a cash basis to a net-present-value
basis. This new approach, Mr. Koskinen explained, is far
superior to the previous budgeting system in many ways. Under
credit reform, the Executive Branch must predict how loan
programs will perform and request budgetary resources up-front
based on the forecast. While this change has been complex, Mr.
Koskinen noted that it has greatly improved the budgetary
treatment of credit programs.
Mr. Koskinen also explained the process of estimating
subsidy rates. The Executive Branch is now required to follow a
specific process in developing and implementing subsidy rates.
During the development of the President's budget proposal, OMB
and other agencies with credit programs jointly establish
projections about how the loans that are expected to be made
during that year are likely to perform. Numerous assumptions
are made about the projected loans, such as expected defaults,
delinquencies, prepayments, loan maturity, and interest rates.
For loan programs already in existence, the Federal Credit
Reform Act requires subsidy estimates to be based on historic
loan performance data. Once OMB and an agency agree on the
assumptions, those assumptions are then reflected in the
President's budget.
The SBA initiated the LowDoc program as a pilot in December
of 1993. In the beginning, it was a very small program within
the Section 7(a) general business loan guarantee program, the
SBA's largest loan program. The LowDoc program allows lenders
to submit a one-page application for a Federal guarantee,
without most of the previously required attachments, and is
available for loans under $100,000. The SBA also established a
procedure for faster and more efficient turn-around on LowDoc
loan application reviews. When the LowDoc program began, OMB
and SBA discussed the options for establishing a separate
subsidy rate for the program. It was decided, for several
reasons, that a separate subsidy rate would not be calculated.
Primarily, it was not clear that LowDoc loans would perform
differently from regular 7(a) loans, the key difference between
LowDoc and regular 7(a) loans being that the lender is allowed
to submit less documentation to SBA. At the time LowDoc was
proposed, SBA was not prepared to budget and account for loans
by risk category, and the SBA was still working to implement
the Federal Credit Reform Act. OMB did not believe SBA's
financial systems could accurately handle this level of
sophistication. Given SBA's limited resources, OMB contended
that SBA should focus on accurately meeting the core credit-
reform requirements.
Mr. Koskinen testified that the lack of reliable loan
performance data is directly linked to the system constraints.
Agencies had little incentive to develop the capacity to
analyze loan performance across categories of loans, even
though this would have provided the important data that was
needed. Most agencies have made great strides in implementing
automated systems designed to provide detailed loan performance
information quickly and easily. By Winter 1996, OMB anticipates
that the SBA will have useful and accessible loan performance
data for use in developing the FY 1997 budget. Given the lack
of useful alternatives, OMB determined that a single subsidy
rate was the best option and that the existing subsidy rate
modeling procedure, which generates a blended subsidy rate,
could address many of the issues raised by LowDoc. The subsidy
model allows OMB to incorporate different loan characteristics
into the subsidy rate, so the effects of the LowDoc program
could be reflected in the overall 7(a) subsidy rate.
LowDoc offers an innovative way to reduce the paperwork
burden on private lenders and applicants for loan guarantees.
Mr. Koskinen testified that the LowDoc program has been
successful in increasing the portion of smaller loans in the
SBA's portfolio. There is reason to believe that these smaller
loans more often go to smaller businesses, and to businesses
owned by women and minorities, groups that frequently have the
least access to capital.
For further information on this hearing, refer to Committee
publication number 104-40.

7.3.7 professional certification as a sole source bid re-
quirement in federal contracting

Background

On August 2, 1995, the Subcommittee on Government Programs
held a hearing on professional certification as a sole-source
bid requirement in Federal contracts. In recent years, serious
questions have been raised relating to the fairness,
particularly to small business, of requiring one particular
version of professional certification over any alternatives as
a precondition to bidding on or being awarded a Federal
contract. Witnesses were asked to comment on the qualification
of certain Federal agencies to differentiate between competing
professional certification programs and the standards that
should be used to evaluate these programs.
The hearing was also designed to focus on the pricing of
certification programs. Witnesses were asked to provide
testimony about the cost of these certification programs and if
the taxpayers will bear the cost of their development and
maintenance. Finally, the hearing was intended to examine the
disturbing charges relating to deliberate attempts by certain
organizations to use professional certifications simply as a
revenue-producing product, rather than recognizing the serious
responsibilities assumed by these organizations.

Summary

The hearing was comprised of a single panel, which
included: Pete Geren (D-TX), Member of Congress; John Antrim,
General Manager of Certification Programs, National Society of
Professional Engineers; Gary Clark, President, Z-Scan, Inc.;
Steven Halsey, Immediate Past President, International Air
Filtration Certifiers Association; Dave Prevar, Manager of
Safety and Health, Beltsville Agricultural Research Center,
U.S. Department of Agriculture; and Frank Simione, Vice
President of Operations, American Type Culture Collection.
The hearing began with anecdotal evidence of the problems
faced by small businesses that are affected by the sole-source
bid requirements in government contracting. Congressman Geren
and Mr. Clark both provided the Subcommittee with testimony
concerning Z-Scan, Inc., a small business, that has been trying
to attain certification for testing biohazard cabinets through
the National Sanitation Foundation (NSF). The owners of Z-Scan
spent over 600 hours complying with the requirements of the
program to attain certification and submitted an application
and check to the NSF for both organizational certification and
individual certification. Both the check and application were
later returned with an explanation that the certification
program was not yet in place. During the investigation by
Congressman Geren's office, it was learned that the NSF's
organizational certification program was still under
development. Congressman Geren was also informed by the NSF
that participation in the program was voluntary, and if
government agencies require the NSF certification as a
requirement for a contract bid, many small businesses in the
biohazard industry would not qualify. The witnesses noted that
to date the NSF has not completed its organizational
certification program, which the NSF had previously indicated
would be in place by 1992.
Other witnesses on the panel testified that certification
requirements have become very pervasive either as a condition
of employment, directly or indirectly, or as a condition of
doing business. Additionally, even though certification is for
individuals, it is often the case that a company cannot do
business unless it has certified individuals on its payroll.
Dr. Antrim noted that the National Commission for Certifying
Agencies has published criteria for the accreditation of
certifying bodies based on a consensus of the certification
industry as to the requirements for a credible certification
program.
Other witnesses alerted the Subcommittee that some
companies have discovered that the government-contract bidding
process can be used to establish a monopoly. For example, a
company will seek out an industry that is considering the need
for professional certification, and then the company creates a
steering committee to assist the industry in establishing the
process and requirements for certification. Finally, the
certification program is instituted, and the sponsoring company
enjoys a monopoly in the field. Mr. Halsey stated that due to
the nature of professional certification and an increasing
reliance upon such programs throughout both the public and
private sectors, organizations that manage to inject their
certification programs into government contract-bidding
specifications are often in a unique position of power over an
industry. Mr. Halsey also called into question the quality of
the NSF certification program based on feedback he had received
from industry representatives.
The consensus of the panel was that it is inappropriate for
any government agency or private firm to choose a competent
contractor by limiting the bidding process only to vendors that
possess a specific certification. Mr. Simione noted that his
company, American Type Culture Collection (ATCC), competes for
government grants and contracts as part of its business, but
does not rely solely on the qualification of the vendor. ATCC's
solicitations carry specific requirements, which are intended
to ensure that the vendor's products and services meet the
company's particular needs. Mr. Simione testified that in
contrast to ATCC's practices, many firms use certification,
citing the government standards as a means of leveraging their
products or services. In essence, a company will assert that
its product or services meet the relevant government standard,
and imply that if the customer does not buy the product or
service, the customer may not be in compliance with government
standards.
One panelist presented the government's perspective on the
issue and testified about his experience at the U.S. Department
of Agriculture (USDA) with certification of contractors to
inspect biological safety cabinets. Mr. Prevar testified that
the need for competency in this area is no less important at
the USDA than it is in any other entity that works with
pathogens. Mr. Prevar pointed out that USDA utilizes small
businesses in their contract activities, and while he regarded
the NSF certification programs as the consensus standard, he
assured the Subcommittee that he will not specify the NSF
standard as a sole-source requirement for USDA procurement
contracts.
For further information on this hearing, refer to Committee
publication number 104-44.

7.3.8 the export working capital program

Background

On September 7, 1995, the Subcommittee on Government
Programs and the Subcommittee on Procurement, Exports and
Business Opportunities held a joint hearing on the Export
Working Capital Program administered by the Small Business
Administration (SBA). The hearing examined the SBA's
partnership with the Export-Import Bank (Eximbank) through the
pilot Export Working Capital Program. The program was a product
of the 1993 Trade Promotion Coordinating Committee
recommendations that prompted the harmonization of the SBA and
Eximbank in terms of their respective pre-export working
capital programs. Under these programs, the SBA processes loans
of under $750,000 and Eximbank processes loans above $750,000.
The hearing was also held to explore a proposal made by
Congressman John LaFalce (D-NY) during the markup of the Small
Business Credit Efficiency Act of 1995 (H.R. 2150) that would
allow the SBA to retain a 90-percent guarantee for a revolving
line of credit for export purposes. The credit line would
include a maximum of three years for repayment, regardless of
the loan amount. The Small Business Credit Efficiency Act of
1995 lowered the guarantee rate on SBA 7(a) loans, including
those for exporting, to 80 percent for all loans below $100,000
and 75 percent for all loans above $100,000.

Summary

The hearing was comprised of a single panel, which
included: JayEtta Hecker, Director, Office of International
Trade, Finance, and Competitiveness, General Accounting Office;
Cassandra Pulley, Deputy Administrator, SBA; Martin A. Kamarck,
Vice Chairman and Chief Operating Officer, Eximbank; and
William C. Cummins, Group Vice President, South Trust Bank of
Alabama, Co-Chairman, Small Business Export Finance Committee,
Banker's Association for Foreign Trade (BAFT).
The four witnesses were in agreement that the Export
Working Capital Program, although in its early stages, is a
successful program committed to aiding small firms in securing
the capital that they need to enter the international
marketplace. In addition, the number of secured export loans
has increased due to the SBA's new outreach efforts. The
program focuses on getting the capital to small businesses by
using the guaranteed loan process. The witnesses believed that
the new partnership between SBA and Eximbank was very
beneficial to the small business community.
The witnesses from Eximbank, SBA, and BAFT agreed that
lowering the guarantee rate from 90 percent to 75 or 80 percent
would limit access to capital for many small businesses. The
GAO, however, did not necessarily concur with that conclusion.
According to the Eximbank, SBA, and BAFT witnesses, the lower
rate would not give lenders the security in making a loan, much
of the collateral for which is in transit overseas. Moreover,
Eximbank has a guarantee level of 90 percent on the loans that
it processes. With the Export Working Capital Program guarantee
level lowered to 75 or 80 percent, Eximbank is at a competitive
advantage, and it discourages new banks from lending to small
firms. The witnesses maintained that the lower rate would also
lead to discrimination against businesses seeking the smaller
loans under $750,000.
For further information on this hearing, refer to Committee
publication number 104-49.

7.3.9 loan packaging

Background

On October 12, 1995, the Subcommittee on Government
Programs held a hearing on the issue of ``loan packaging.'' The
Small Business Administration (SBA) manages two general types
of loans that assist small businesses: normal business loans,
which are issued by local banks and guaranteed by the SBA
through such programs as the 7(a) and 504 lending programs, and
disaster assistance loans, which are direct loans from the SBA.
Loan packagers serve as an intermediary between the borrower
and lender and assist the borrower in finding the best rate and
with necessary paperwork. In return for these services, the
loan packager receives a fee.
In recent years, the activities of loan packagers have come
under increased scrutiny given the dramatic increase in claims
of fraudulent activity. As a result, a number of proposals have
been made to reduce the incidents of fraud and better regulate
the loan-packaging industry. The hearing was designed to review
these suggested reforms, including proposals for a registration
or licensing system for loan packagers, in an effort to improve
the system and protect the interests of the small business
borrower.

Summary

The hearing was comprised of a single panel, which
included: Charles Tomlinson, Owner, Tomlinson Funeral Home;
Karen Lee, Deputy Inspector General, SBA; Patricia Forbes,
Acting Associate Deputy Administrator for Economic Development,
SBA; Steve Stultz, Stultz Financial; and Anthony R. Wilkenson,
President and CEO, National Association of Government
Guaranteed Lenders.
The hearing began with anecdotal evidence of the problems
that many small businesses have encountered with loan
packaging. Mr. Tomlinson testified that he had attempted to
utilize a loan packager to obtain an SBA loan and was told that
before any application could be submitted, payments of more
than $3,700 would be required. Despite the packager's guarantee
that Mr. Tomlinson would receive a loan, no loan materialized,
and the packager later disappeared. Subsequently, the packager
was prosecuted and sentenced to five years in jail. The
packager was also required to repay Mr. Tomlinson's fees,
although no reparations have been forthcoming. Mr. Tomlinson
recommended that the Committee require that SBA have more
control over loan packagers and supervise their activities in
order to prevent future fraud.
The witnesses representing the SBA described the agency's
efforts to investigate improper activities by loan packagers as
well as prevent fraud in the industry. During the last five
years, 323 criminal investigations have been initiated with
respect to 7(a) loans prepared by 19 different packagers.
Similarly, 110 investigations were undertaken concerning
disaster assistance loans involving more than $44 million. So
far these investigations have resulted in 42 indictments and 38
convictions. Ms. Forbes noted, however, that the large number
of investigations must be taken in context of the overall level
of SBA's lending activities. During the five year period, the
SBA received more than 250,000 applications, and as a result,
the criminal investigation represented less that \1/10\ of 1
percent of that total.
The SBA witnesses reviewed some of the bases for the
investigations including discrepancies in the fee payment
schedule charged by loan packagers from that permitted by SBA
regulations. The witnesses informed the Committee that the SBA
is currently pursuing four strategies to help prevent future
fraud by loan packagers. The strategies include a registration
system for packagers, certification for packagers, criminal
background checks of packagers, and a requirement that
packagers provide full disclosure to applicants about the
responsibilities of the packager and the scope of the
packager's services. The SBA is also implementing a conflicts
of interest policy under which a packager would not be
permitted to receive compensation from both the borrower and
the lender.
The witnesses from the lending industry acknowledged that
the incidents of fraud have increased, although they, too,
noted that as a percentage of total SBA lending, the level was
relatively low. While witnesses generally agreed with the SBA's
proposals for improving the system, they stressed that the need
for additional supervision of loan packagers should be balanced
against the fact that market competition is a very effective
regulator. The lenders that are committed to the industry will
provide fair services and treat borrowers appropriately or be
faced with a loss of customers that ultimately could result in
termination of their businesses.
For further information on this hearing, refer to Committee
publication number 104-54.

7.3.10 the effects of bank consolidation on small busi-
ness lending

7.3.11 h.r. 2715: the paperwork elimination act

Background

On March 27, 1996, the Subcommittee on Government Programs
held a hearing to discuss H.R. 2715, the Paperwork Elimination
Act. The bill, introduced by Chairman Torkildsen (R-MA), would
minimize the burden of Federal paperwork demands upon small
businesses, educational and non-profit institutions, Federal
contractors, State and local governments, and other persons
through the use of alternative information technologies,
including electronic maintenance, submission, or disclosure of
information as a substitute for paper. The goals of this
legislation have been recommended by many, including President
Clinton who, at the signing of the Paperwork Reduction Act of
1995, stated that he wanted all agencies to provide for the
electronic submission of every new government form.
The Paperwork Elimination Act would amend Chapter 35, Title
44, the Paperwork Reduction Act of 1995, by requiring all
Federal agencies to provide the option of electronic submission
of information, electronic compliance with regulations, and
electronic disclosure of information to all who must comply
with Federal regulations. Furthermore, Federal agencies would
be prohibited from collecting information until they have first
published a notice in the Federal Register detailing how the
information may be maintained, submitted, or disclosed
electronically. The Director of the Office of Management and
Budget (OMB) would be required to oversee the implementation of
electronic submission, compliance, and disclosure and to
monitor and report on the progress of Federal agencies and how
regulatory burdens on small businesses have been reduced.

Summary

The hearing was comprised of a single panel of six
witnesses, including: Pedro Alfonso, President, Dynamic
Concepts, Inc., representing the National Small Business
United; Marvin Beriss, President, MB Associates, Inc.; Melvin
Gerald, M.D., representing the American Academy of Family
Physicians; Jere Glover, Chief Counsel, U.S. Small Business
Administration (SBA); Monika Harrison, Associate Administrator,
Office of Business Initiatives, SBA; and Sally Katzen,
Administrator, Office of Information and Regulatory Affairs,
OMB.
Ms. Katzen provided the Committee with the Administration's
position on H.R. 2715. While supporting the intent of the
legislation as an effort to reduce paperwork burdens and
modernize government, the Administration had some reservations
about its necessity and requirements. Ms. Katzen claimed that
the Administration was already doing its part to reduce
paperwork burdens by complying with the Paperwork Reduction Act
of 1995, and she questioned the timing of the Paperwork
Elimination Act, citing that too many departments and agencies
do not at this time have the technological capability to comply
with its requirements.
Two witnesses representing small businesses testified about
the benefit that the small business community would receive
from the passage of the Paperwork Reduction Act. Dr. Gerald, a
physician, testified that the field of medicine has been
significantly burdened by Federal paperwork demands, citing a
recent study finding that physicians spend 20 percent of a 60-
hour work week on administrative tasks. He believed that this
burden could be significantly reduced if regulators allowed
compliance by alternative technological means. Mr. Beriss,
owner of a small company that focuses on electronic forms and
electronic mail messaging, testified that the technology needed
to comply with this legislation exists and using it could save
at least $22 billion in mailing, receiving, rekeying, and
routing costs. Mr. Alphonso agreed and called upon the Federal
government to use electronic alternatives for retrieving,
storing and disseminating information.
The two SBA witnesses testified about the agency's efforts
to bring itself into the computer age. The witnesses
acknowledged that small businesses face tremendous burdens in
terms of paperwork mandated by the Federal government, and
noted that the SBA was making efforts to disseminate
information electronically via the Internet. In addition, the
SBA is conducting outreach and training activities to inform
small businesses about the Federal government's transition from
a paper-based procurement program to an electronic-based
system.
For more information on this hearing, refer to Committee
publication number 104-68.

7.3.12 venture capital marketing association charter act

Background

On April 18, 1996, the Subcommittee on Government Programs
held a hearing to discuss H.R. 2806, ``The Venture Capital
Marketing Association Act,'' which was introduced by Chairman
Peter Torkildsen (R-MA). The bill is designed to privatize the
Small Business Investment Company (SBIC) program, which is
administered by the Small Business Administration (SBA).
The current SBIC program is a partnership between the
Federal government and the private sector, by which privately-
funded SBICs provide loans and equity capital to small growth
companies. These SBICs are managed by skilled venture
capitalists who make investment decisions without intervention
from the government. They are licensed by the SBA based upon
their size, expertise, and investing history. Once licensed, an
SBIC may obtain guarantees from the SBA on its securities,
which it sells in the capital markets. Capital is then
typically invested in companies that may have low cash flows
but also the potential for fast growth after a short start-up
period (e.g., high-tech companies). In 35 years, SBICs licensed
by the SBA have invested more than $11 billion in more than
100,000 small growth companies at a net positive return on the
government's investment.
The Venture Capital Marketing Association (Vickie Mae)
would be a Government Sponsored Enterprise (GSE) that is able
to make its own investment decisions under careful watch of the
Federal government. Its initial capitalization would come from
a $20 million stock purchase made by existing and newly formed
SBICs that met standards set by the legislation. Additional
investments could come later from outside sources. The newly
formed Board of Directors, consisting of shareholder-elected
individuals and Presidential appointees, would develop the
corporation's charter in accordance with parameters set by
Congress. Additional capital could come from fees charged to
SBICs.

Summary

The hearing was comprised of a single panel, which
included: Michael Clare, Department Head for Asset-backed and
Government-backed Securities, Chase Securities, Inc.; William
F. Dunbar, President, Allied Capital Corporation II; Jim
Murray, Counsel, Brown and Wood; Raymond R. Rafferty, Jr.,
General Partner, Meridian Venture Partners; and Joel Zegart,
President, JBS & Associates.
The witnesses were generally very supportive of the Vickie
Mae legislation and testified to its different aspects,
depending upon their expertise. Mr. Dunbar and Mr. Rafferty,
both owners of SBICs, testified on the need for privatization
of the SBIC program. From their perspective, the main problem
with the current system is its ties to the Federal budget.
Because the amount that the SBA can legally guarantee is
limited and can change from year to year, the capital provided
to SBICs is not as consistent as is needed to ensure the most
efficient allocation of capital. In addition, the government
must pay for the costs of administering the program and its
liquidation portfolio. They contended that establishing Vickie
Mae would lower the costs to the government of administering
the program, enhance the safety and soundness of SBICs by
ensuring a stable flow of capital, and increase the capital
available to small businesses by releasing funds currently
restricted by government appropriations.
The other witnesses concurred with the assessment of Mr.
Dunbar and Mr. Rafferty and gave their own statements outlining
the feasibility of the proposal. Mr. Clare, an expert in
securities markets, assured the Subcommittee that the
securities market would be able to absorb any increase in
volume due to the privatization of the program. He did note
that there may some additional cost involved initially as the
guarantees switched from having an explicit guarantee from the
government to having an implicit one. Mr. Murray, a lawyer,
stated that Vickie Mae's ability to borrow from the Treasury
and provisions allowing investment by financial institutions
made it a full-fledged GSE, which status would allow the
corporation to borrow at low interest rates. Finally, Mr.
Zegart testified on the provisions of H.R. 2806 that allow
Vickie Mae to charge SBA a fee to liquidate the portfolio of
SBICs that have gone into default. He testified that Vickie Mae
would be able to liquidate these investments in an orderly and
efficient manner. Overall, the entire panel was enthusiastic
about H.R. 2806 and urged its passage.
For more information on this hearing, refer to Committee
publication number 104-73.
7.3.13 h.r. 2579: the travel and tourism partnership act
of 1995

Background

On May 6, 1996, the Subcommittee on Government Programs
held a field hearing in Newburyport, Massachusetts to discuss
how the Travel and Tourism Partnership Act of 1995 (H.R. 2579)
would affect the small business community in the Sixth
Congressional District of Massachusetts and the United States
in general. Early in 1996, Federal funding for the United
States Travel and Tourism Administration (USTTA) was
eliminated. While most people, including many in the travel and
tourism industry, agree that this was a positive move toward
decreasing needless government bureaucracy, the fact remains
that some of the USTTA's marketing and promotional activities
were valuable to the U.S. economy. Without an active USTTA, the
marketing of the United States as a popular travel destination
for foreign and domestic travelers is significantly diminished,
threatening a greater loss in the country's market share of the
worldwide travel and tourism industry, which directly or
indirectly employs 14.3 million Americans and contributes more
than $400 billion annually to the U.S. economy. Unfortunately,
the U.S. share of international tourism has already shrunk by
17 percent in the past two years.
H.R. 2579, legislation introduced by Congressman Toby Roth
(R-WI), would charter a private, non-profit organization to
fill the marketing void left when the USTTA lost its funding.
The organization would be a partnership between public and
private sectors, unifying the travel and tourism industry and
allowing it to work directly with Federal agencies to promote
travel to and within the United States. As a Federally
chartered organization, it would have authority to work with
foreign governments as an arm of the U.S. government, thus
greatly reducing the burdens of foreign regulations.

Summary

The hearing was comprised of three panels, the first of
which included: Lisa Mead, Mayor, Newburyport, Massachusetts;
James Jajuga, State Senator, Newburyport, Massachusetts; and
Frank Cousins, State Representative, Newburyport,
Massachusetts. This panel of area public officials expressed
support for the passage of H.R. 2759, emphasizing that it would
allow the Federal government to join with the tourism industry
in promoting U.S. travel destinations. Currently, businesses
must advertise their travel destinations independently, or with
small regional groups of businesses. Because many of these
regional groups are in small, rural areas, they find it
difficult to attract visitors, particularly visitors from
outside of the United States. These foreign visitors are often
preferred because they typically stay longer and can spend more
money. Witnesses noted that State and local governments were
already working to ease transportation concerns and enable
businesses to construct accommodations for visitors.
The second panel included: Shirley Magnanti, Greater
Newburyport Chamber of Commerce; Bill MacDougall, Massachusetts
Office of Travel and Tourism; Michelle Hatem Meehan, North of
Boston Convention and Visitors Bureau; and Maria Miles,
Salisbury Chamber of Commerce. This panel, comprised of
representatives of State and local businesses, testified about
the importance of tourism to local economies. They emphasized
that the beneficiaries of tourism are not only the hotels,
restaurants, and other tourist attractions that directly
receive dollars from travelers, but also the manufacturing,
retail, and service industries that support the tourism
industry. The witnesses also pointed out that many of the
beneficiaries, both direct and indirect, are small businesses.
Ms. Meehan and Mr. MacDougall noted that the United States'
budget of $16 million placed 33rd in the world in advertising
money spent annually to attract foreign travelers. The panelist
contended that State and local governments do not have the
resources to compete successfully for foreign travelers and
strongly urged the passage of H.R. 2579.
The third panel included: Mary Ann Abbott, Abigail's
Fashions; Kathy Aiello, Custom House Maritime Museum; Ann
Lagasse, Piper Properties; and Phyllis TeSelle, New England
Holidays. The final panel, composed of local small
businesspeople, reiterated many of the ideas and suggestions of
the previous two panels. They noted that their region had been
hit particularly hard by economic downturns and had been
struggling to recover. According to the panelists, tourism
provides a great stimulus because it infuses new money into the
area, enabling businesses to grow and create job opportunities.
Like the previous panels, the third panel also supported the
passage of H.R. 2579.
For further information on this hearing, refer to Committee
publication number 104-77.

7.3.14 oversight of the environmental protection agen-
cy's progress in reducing unnecessary
paperwork burdens upon small business

Background

On May 30, 1996, the Subcommittee on Government Programs
held a hearing to examine the progress of the Environmental
Protection Agency (EPA) in reducing unnecessary paperwork
burdens upon small business, as well as compliance with the
President's recent order to review all regulations and to
comply with the Paperwork Reduction Act of 1995.

Summary

The hearing was comprised of one panel, which included a
single witness: Thomas E. Kelly, Director, Office of Regulation
Management and Information, EPA. Mr. Kelly had been asked to
comment on three general areas: President Clinton's March 4,
1995 directive on regulation reform; the burden-reduction goals
of the newly enacted Paperwork Reduction Act of 1995,
especially EPA's pledge to reduce the burden by 25 percent; and
EPA's response to the recommendations adopted by the delegates
to the 1995 White House Conference on Small Business regarding
regulatory and paperwork burdens.
Mr. Kelly began his testimony by noting that `small
business' is an aggregate term that stands for hundreds of
thousands of diverse, diffuse activities throughout the country
in which people are making money by providing goods and
services. The only way to stay in touch with this segment of
the economy is to spend time with those who participate in
small business. Despite the difficulties that the agency has
had over the past year in terms of budget resources, EPA
continued to be on the road meeting with small business
representatives.
Mr. Kelly testified that, in an effort to reduce burdens on
small business, the EPA Administrator targeted a 25-percent
burden reduction. This percentage was translated into 25
million hours, from which 23 million hours have either already
been eliminated or will be eliminated in the very near future.
This is not simply a one-time exercise dedicated to reducing
burden on the public as measured by the Information Collection
Request's on a certain date--it is the Administration's
commitment to minimize the paperwork burden on the public going
forward.
Mr. Kelly emphasized that the EPA is committed to the use
of electronic information and has been working for the last few
years to develop prototypes for Electronic Data Interchange as
a mainstream method of collecting environmental information. In
fact, the EPA has one program that is functioning, the
Reformulated Gasoline Program, and will shortly be implementing
the Discharge Monitoring Report, which will serve to accept
data electronically in the Safe Drinking Water Data Collection
and the Hazardous Waste Manifest, both of which will soon be
subject to Electronic Data Interchange.
Mr. Kelly told the Subcommittee that the EPA, in reaching
out to small business, is requiring every regulatory working
group that is focusing on a regulation, which might affect
small business, to hold focus groups, hearings and meetings
specifically designed to integrate the views of small business.
He also stated that the EPA would continue its commitment to
the needs of small business and will continue to provide
flexible compliance opportunities for small business as well as
an implementation of the Small Business Regulatory Enforcement
Fairness Act.
For further information on this hearing, refer to Committee
publication number 104-80.

7.3.15 oversight of the department of labor's progress
on reducing unnecessary paperwork
burdens on small business

Background

On June 26, 1996, the Subcommittee on Government Programs
held a hearing to examine the compliance by the Department of
Labor (DOL) with the Paperwork Reduction Act of 1995 as it
relates directly to reducing unnecessary paperwork burdens on
small business. The Paperwork Reduction Act, which was passed
unanimously by the 104th Congress, amends the original
Paperwork Reduction Act of 1980, making it more effective in
reducing and preventing needless paperwork. The Act requires
the Office of Information and Regulatory Affairs to set a goal
of at least a 10 percent for reducing government-wide paperwork
burdens for fiscal year 1996. It also sets certain procedures
for regulatory agencies in developing information collection
plans, such as a 60-day notice and comment period.

Summary

The hearing was comprised of a single panel, which
consisted of one witness: Patricia Watkins Lattimore, Deputy
Assistant Secretary for Administration and Management, DOL.
Ms. Lattimore opened by stating that DOL implemented the
1995 changes quickly, coordinating with key regulatory
officials in each DOL agency, by briefing executive staff and
administrative officers and training more than 250 Department
officials. In addition, each DOL agency has a clearance officer
to provide hands-on assistance, working with agency regulatory
and enforcement officials to minimize the paperwork burden from
the planning stages to the actual preparation of paperwork-
clearance packages for submission to the Office of Management
and Budget.
Ms. Lattimore projected a three percent reduction in total
DOL burden hours when the fiscal 1996 statistics are compared
to those for fiscal year 1995, which was better than originally
anticipated since the primary Information Collection Budget
projected no change. She also testified that there is a very
strong possibility of reaching the 10 percent reduction goal by
the end of the fiscal year if OSHA is able to finalize
revisions now under way to reduce the burden estimates for two
existing standards, Process Safety Management and Hazardous
Waste Operations, and eliminate certification-recordkeeping
requirements in several existing rules.
The Chairman questioned Ms. Lattimore's statement
concerning whether or not the Pension Welfare Benefits
Administration could electronically implement the streamlined
reporting and disclosure of the Form 5500 series. Ms. Lattimore
stated that DOL is exploring the use of electronic application
support via the Internet for all regulatory reporting. This use
of the Internet would have to be examined in terms of DOL being
able to receive authentic documents with the technology
available in the business community.
Ms. Lattimore was also asked to describe for the
Subcommittee the process that DOL employs in examining new
regulations to ensure that they meet the paperwork
requirements. Ms. Lattimore described that, within the
Department, each agency has a clearance officer who works in
conjunction with the Office of Policy, the Solicitor's Office
and program staff to examine all aspects of a regulation. The
process is formulated to ensure that all aspects, including
paperwork concerns are addressed, in order to avoid creating
unnecessary additional burden. Ms. Lattimore emphasized that
DOL wants to ensure that it is creating regulations that are
not unduly burdensome to the industry. DOL's Paperwork
Reduction Act Staff will continue to work in tandem with the
Office of Policy and technical staffs as DOL develops
regulations, taking all considerations into account.
For further information on this hearing, refer to Committee
publication number 104-82.
7.3.16 massachusetts' request for disaster funds from
the sba

Background

On July 10, 1996, the Subcommittee on Government Programs
held an oversight hearing on the request for disaster funds
from the Small Business Administration (SBA) by the
Commonwealth of Massachusetts. In March 1995, Governor William
Weld made a request to the Federal Emergency Management Agency
for a Presidential declaration of a major disaster for the
Massachusetts fishing industry. The request was made on behalf
of the fishermen of Essex, Bristol, and Barnstable Counties,
all of whom have suffered severe economic losses because of the
sudden collapse of cod, yellowtail flounder, and haddock
fisheries in the region. The request was declined in July 1995
and again, on appeal, in December 1995. By letter dated April
30, 1996, Governor Weld requested an Economic Injury Disaster
Declaration on behalf of the fishermen in three Massachusetts
counties pursuant to Section 7(b)(2)(D) of the Small Business
Act. SBA Administrator Philip Lader declined to issue the
declaration and Governor Weld was notified of this decision by
letter dated June 3, 1996.
The initial denial of Governor Weld's request was based on
the argument that ``over fishing'' was not a ``sudden'' event
as defined under the statute governing the SBA's disaster
assistance program. Chairman Peter Torkildsen (R-MA) amended
this language at a later markup to include ``federal or
governmental action'' as the cause of a disaster. Once enacted
this amendment would eventually enable the Secretary of
Commerce to make the final decision as to whether or not
Federal or governmental action would be the cause of a
disaster. At this hearing, witnesses were asked to comment on
the Governor's request and also on the SBA's ruling.

Summary

The hearing was comprised of two panels, the first of which
included: Bernard Kulik, Associate Administrator for Disaster
Assistance, SBA; Trudy Coxe, Environmental Affairs Secretary,
Commonwealth of Massachusetts; Bruce Tarr, Senator,
Commonwealth of Massachusetts; Bruce Tobey, Mayor, Gloucester,
Massachusetts; and Christine Heanue, Massachusetts Emergency
Management Agency. The panel agreed that the Massachusetts
fishing industry was damaged by the closure of the fishing
grounds, but Mr. Kulik reiterated that the disaster-assistance
request was denied based on the definition of a disaster. In
the context of this situation, Mr. Kulik explained that a
disaster as defined in Section 3(k) of the Small Business Act
means a sudden event that causes severe damage including ocean
conditions resulting in the closure of customary fishing
waters. Again, Mr. Kulik stated that overfishing is not
considered a sudden event. Mr. Kulik also noted that this
disaster request was in large part the result of the issuance
of emergency rules by the Secretary of Commerce as recommended
by the New England Fishery Management Council, through the
National Marine Fisheries Service.
The other panelists explained that the emergency rules
placed on the fishermen by the New England Fishery Management
Council were too extreme. Two amendments called Amendments 5
and 7 to the Northeast Fishery Management Plan have mandated a
50 percent reduction in total fishing effort for the fishermen
in this region. The witnesses agreed that the Department of
Commerce failed to abide by the Regulatory Flexibility Act in
producing a Final Regulatory Analysis, and they maintained that
with the implementation of Amendment 7, New England's off-shore
fleet will not be able to break even within two years of its
enactment. The panelist pointed out that Canada has exploited
the newly imposed regulatory scheme by increasing quotas for
Canadian fishing vessels on George's Bank. As a result of all
of the events in the New England region, many of the small
businesses making up the fishing industry would likely go
bankrupt without financial backing from the Federal government.
The second panel consisted of representatives of the
fishing industry: Vito Calomo, Executive Director, Gloucester
Fisheries Commission; Jim Kendall, Executive Director, New
Bedford Seafood Coalition; and Corrado Bucceri, BNN Fishing
Gear. The second panel reiterated many of the concerns raised
by the first panel and elaborated on the emergency rules and
how these regulations affect not only fishermen but small
businesses that serve the fishing industry. The panel agreed
that the emergency rules implemented by the Department of
Commerce would eventually bankrupt many of these businesses and
that the Federal government should provide affected fishermen
with disaster-loan assistance through the SBA.
For further information on this hearing, refer to Committee
publication number 104-84.

7.3.17 the government's solicitation process and wheth-
er or not it is discriminatory to small
business

Background

On July 15, 1996, the Subcommittee on Government Programs
held a field hearing in Danvers, Massachusetts, to examine the
Federal government's solicitation process. Specifically, the
hearing focused on the government's method of soliciting
requests for proposals (RFPs), and whether or not the process
discriminates against small business. RFPs are the method by
which Federal departments and agencies request bids on specific
projects to be awarded to private-sector companies. The
department or agency making the request may specify the
contract as either open to set-asides or ``unrestricted,''
meaning any company or individual may apply. Although this
practice should apply to the small business community, some
contend that unrestricted RFPs are often used as a means to
exclude small business from competing for contracts.

Summary

The hearing was comprised of one panel, which included:
Robert Kern, Owner, Kernco, Inc.; and Karl Thidemann, Director
of Marketing, Solectria Corporation. Mr. Thidemann, whose
company is the largest independent maker of electronic vehicles
in the United States, expressed his concern that in a recent
public unrestricted bid to the General Services Administration,
Solectria and other smaller companies making electric vehicles
were restricted from meeting the qualifications not based on
competitiveness, but rather because they were not a large
automaker. Specifically, the RFP did not seek the best
vehicles--range, performance, experience and other relevant
factors were not part of the bid at all, except as footnotes.
The key criteria for eligibility to participate in this RFP was
that, ``vehicles shall be supplied by'' a bidder that first, is
an Original Equipment Manufacturer (OEM), defined as ``a motor
vehicle manufacturer who is responsible for the vehicle fuel
economy of the gasoline version of the model supplied,'' which
restricts the qualifier to only very large companies that also
produce gasoline vehicles. The RFP also required that an
offeror ``must have an agreement with OEM,'' one of the large
automakers for warranty purposes.
Mr. Thidemann testified that Solectria spent considerable
time and effort to put together its bid for these vehicles. If
his company is screened out as the language of the RFP implies,
the government will not get the best vehicle and his small
business will have been excluded from the competition for
clearly inappropriate reasons. An additional concern is the
precedent-setting nature of this RFP. If small companies like
Solectria are eliminated from eligibility at this stage, it
could put them and other small motor vehicle suppliers at a
competitive disadvantage in future bids.
Mr. Kern described the experience of Kernco, Inc., a
hardware supplier for the Department of Defense and National
Aeronautics and Space Administration (NASA), in early 1990. At
that time, Kernco submitted a bid to supply atomic clocks as
part of a major contract (the GPS Program) and won the bid.
While Kernco competitively out bid several of the large
aerospace companies, before the contract award could be
completed, Kernco was told to obtain a ``big brother,''
indicating that the company was considered to be too small.
Kernco was then forced to enter a joint enterprise agreement
with a large manufacturing company under which Kernco would do
the development and the design, and its ``big brother'' would
do the production, of only 20 units.
Mr. Kern noted that while the GPS Program was being
completed, the customer put out an additional RFP for an item
to replace a concept that did not work. Kernco subsequently won
this bid, and consequently was given six months to complete the
project, with the entire satellite system depending upon the
results. The company has completed 50 percent of the shipments
to date, and have thus defied the belief that small companies
cannot respond. Mr. Kern emphasized that his company has
consistently demonstrated technical excellence as well as the
ability to successfully manufacture, only to have this proven
performance be pushed aside in the government-contracting
process. The costs to the government are continually
increasing, and the cost factors, the performance factors and
some of the delivery difficulties now experienced by the GPS
Program could be resolved very simply by a realistic look at
actual small business performance.
For further information on this hearing, refer to Committee
publication number 104-85.
7.3.18 h.r. 1863: the employment non-discrimination act

Background

On July 17, 1996, the Subcommittee on Government Programs
held a hearing to examine H.R. 1863, the Employment Non-
Discrimination Act (ENDA), and its impact on the small business
community. This legislation, introduced by Congressman Gerry
Studds (D-MA) and co-sponsored by 118 other Members of
Congress, was designed to aid businesses by providing a
healthy, stable and productive work environment for all
employees. The bill would also remove potential barriers that
might impede our nation's progress in the diverse, global
marketplace.

Summary

The hearing was comprised of four panels, the first of
which included: Constance A. Morella (R-MD), Member of
Congress; Gerry E. Studds (D-MA), Member of Congress; Tom
Campbell (R-CA), Member of Congress; and Barney Frank (D-MA),
Member of Congress. The consensus of this panel, which
consisted of sponsors or co-sponsors of H.R. 1863, was that
ENDA needs to be passed. The witnesses testified that the
legislation simply prohibits employment discrimination based on
sexual orientation without creating special rights. The
witnesses maintained that American businesses would broaden the
talent pool and diversity of their businesses by hiring without
prejudice.
One member of the Subcommittee raised the controversial
part of this legislation by questioning whether the government
would be condoning a lifestyle if it condemns discrimination
against those that practice that lifestyle. The witnesses
agreed that there are not always only two choices in a
situation, and that it is unfair to assume that ending
discrimination leads to more acceptance of the practice being
legally protected. For example, laws prohibit discrimination
against individuals for their religious beliefs. A public
school teacher is hired for his or her abilities to teach, and
no one should assume that that person will impose his or her
religious viewpoints on the children in the class. The
witnesses emphasized the need for a level playing field in the
workplace without regard to sexual orientation.
The second panel included: Michael Morley, Senior Vice
President and Director of Human Resources, Eastman Kodak; Paula
Alexander, Director of Human Resources, Eastman Gelatine
Corporation; Patrick McVeigh, Senior Vice President, Franklin
Research & Development Corporation; and Brenda Cole, Member of
the Board of Directors, Wainwright Bank & Trust Company. The
witnesses on this panel represented businesses that have
voluntarily implemented policies similar to ENDA, and they
provided the Subcommittee with their perspective on how such
policies have affected their firms. The consensus of the panel
was that policies like ENDA are good for businesses because
they keep companies competitive in a diverse world by
reflecting the marketplace. As a result, these companies can
hire and retain the most qualified workers regardless of
personal lifestyles. The businesses witnesses maintained that
with non-discrimination policies in place, they significantly
improve employee morale, loyalty and productivity. The
witnesses on this panel supported passage of H.R. 1863.
The third panel included: Michael Proto, U.S. Department of
Justice; Nan Miguel, Seranga General Hospital; Todd Dobson,
Management Information Systems Director, Creative Office
Interiors; Ernest Dillon, U.S. Postal Service; and Karen Solon,
Child Development Center. These witnesses came forward to
testify as to discrimination they had faced due to being
homosexual or supporting individuals that were (or allegedly
were) gay or lesbian. The witnesses had lost job opportunities
or were fired from positions due to their alleged sexual
orientation or for standing up for gay/lesbian rights. All of
the witnesses on this panel were concerned that there were no
Federal laws protecting them or their jobs against this type of
discrimination, and they supported passage of ENDA.
The fourth panel included: Elizabeth Birch, Human Rights
Campaign; Michael Duffy, Massachusetts Commission Against
Discrimination; and Chai Feldblum, Director, Federal
Legislation Clinic and Associate Professor of Law, Georgetown
University Law Center. The witnesses on the fourth panel were
experts in the field of anti-discrimination policy. The
consensus was that legislation such as ENDA is necessary and
beneficial to businesses and society as a whole. Anti-
discrimination policies allow businesses to value employees for
their talents, work ethics and loyalty, while employees are
more motivated, committed and aware of equal rights. ENDA gives
gays and lesbians recourse against discrimination, and also
protects people who associate with individuals who are leading
alternative lifestyles.
For further information on this hearing, refer to Committee
publication number 104-87.

7.3.19 oversight of the food and drug administration's
progress in reducing unnecessary
paperwork burdens upon small business

Background

On July 24, 1996, the Subcommittee on Government Programs
held a hearing on the Food and Drug Administration's (FDA)
progress in complying with the Paperwork Reduction Act. This
was the third in a series of hearings examining Federal
agencies' efforts to reduce the burdens of paperwork. Experts
currently estimate that paperwork compliance occupies six and a
half billion hours of America's time annually. On March 4,
1995, the President directed all Federal agency heads to read
each of their regulations, page by page, and to make regulatory
reform a priority. The 1995 White House Conference on Small
Business also recommended addressing the burden reduction goals
of the 1995 Paperwork Reduction Act.
The FDA, which regulates the safety and effectiveness of
cosmetics, food, drugs, and medical devices, has been accused
of requiring excessive paperwork burdens during approval
processes. Although, many of these requirements are necessary
to ensure safe and effective foods and products, with each
additional rule the burden of paperwork and other regulations
comes closer to outweighing any benefits of the approval
process. Concerning drugs and medical devices, The Los Angeles
Times reported on April 17, 1995, that it typically takes 12
years, including six years of clinical trials, before a major
drug or medical device wins approval.

Summary

The hearing was comprised of a single panel, which
included: Robert J. Byrd, Acting Deputy Commissioner for
Management and Systems, FDA; and Jeffrey J. Kimbell, Executive
Director, Medical Device Manufacturers Association.
Mr. Byrd described for the Committee the FDA's efforts
currently in progress for meeting the statutory requirements of
the Paperwork Reduction Act. He noted that small businesses are
extremely valuable to the FDA and to the consumer market in
general for their many contributions and innovations. He
described the efforts undertaken by the FDA in response to a
department-wide review at the Department of Health and Human
Services, Vice President Gore's regulatory reinvention task
force, and the directive from President Clinton to reduce
unnecessary rules and regulations. Examples of these efforts
include: a page-by-page review of existing regulations to
eliminate or update outdated regulations; changing the way
performance is measured to focus on results instead of process
and punishment and allowing waivers for minor violations that
are quickly corrected; outreach with stakeholders through
grass-roots partnerships; and increased efforts to promote
consensual rulemaking. According to Mr. Byrd, the FDA has
maintained a constant level of burden hours for its information
collection and has proposed the deletion or reform of 74
percent of its rules that have a regulatory impact.
Mr. Kimbell testified about the burdens that FDA paperwork
and regulations create, particularly for the small
entrepreneurs who make up 98 percent of the medical-device
industry. For instance, a new medical-device reporting
regulation has resulted in over 100,000 reports received
annually by the FDA. The agency also has a plan pending to
regulate further the manufacturing practices of medical-device
companies. The effect of these burdens has been three-fold.
First, many new life-saving devices are kept from the patients
who need them for many years while they await FDA approval.
Second, because regulatory and paperwork rules are eased for
innovations based upon older technology, the focus of
researchers has shifted from the search for breakthrough
technologies to less significant changes in existing devices.
Finally, many medical-device companies are taking their
innovations outside of the United States where they can more
easily gain approval and move into the marketplace. This
deprives the United States not only of qualified health-care
professionals, scientists, and researchers, but also domestic
companies and jobs.
Mr. Kimbell praised new efforts by Congress and the FDA in
streamlining the approval process and urged continuing action
to ensure that new life-saving devices become available to the
public as quickly and safely as possible. Among other things,
Mr. Kimbell recommended continued efforts to hold FDA
inspectors accountable for their actions and establishing a
third-party review system by which an FDA-approved independent
research group would determine the safety and effectiveness of
new products.
For further information on this hearing, refer to Committee
publication number 104-88.

7.3.20 sba programs to assist veterans in readjusting to
civilian life

Background

On July 31, 1996, the Subcommittee on Government Programs
held a joint hearing together with the Veterans' Affairs
Subcommittee on Education, Training, and Employment, on Small
Business Administration (SBA) programs to assist veterans in
readjusting to civilian life. This hearing explored the SBA's
efforts to assist veterans in procuring their own small
businesses. In the past, many veterans have expressed concern
that Federal agencies were ignoring the entrepreneurial
interest of veterans starting their own small business.
According to many U.S. veterans, programs to assist veterans in
small business procurement have been passed around among
various Federal agencies. Witnesses at the hearing were asked
to comment on the past and present role of the SBA and its
effectiveness in helping veterans access capital. Witnesses
were also asked to comment on cooperation efforts between the
SBA and the Department of Veterans Affairs in helping veterans
readjust to civilian life.

Summary

The hearing was comprised of three panels, the first of
which included: John Lopez, Chairman, Association for Service
Disabled Veterans; Emil Nascinski, Representative, American
Legion; Michael Hladky, U.S. Army; and Dr. Paul Camacho,
University of Massachusetts. The first panel generally agreed
that the Office of Veterans Affairs at the SBA has been
bureaucratically strangled by initiative as well as funding.
They also agreed that veterans have been discriminated against
by not allowing certain privileges in affirmative-action
procurement contracts and that Federal agencies such as the
Department of Defense and the Department of Veterans Affairs
have been delinquent in their handling of veterans
entrepreneurial abilities. The panel maintained that these two
Departments should have taken a more direct approach in helping
veterans with this task, especially since these two Departments
had considerably more funding for this task than the SBA.

This panel also agreed on a legislative platform designed
to address veterans' needs. The agenda contained three specific
recommendations: (1) legislation should provide that action and
results, not consideration and efforts, are the required
objective of legislation to assist veterans; (2) legislation
should contain detail in its language that those who sacrificed
their well being for the benefit of all the free world's
economic benefit are the primary priority in business
assistance programs of the Federal government; and (3)
legislation should be introduced that amends the Small Business
Act to add the directive that ``for purposes of this Act,
service disabled and prisoner of war veterans are considered a
socially and economically disadvantaged population and/or group
and/or individuals.''
The second panel included: Cecil Byrd, Executive Director,
National Association of Concerned Veterans; Robert Sniffen,
Chairman, San Diego Veterans Services; and James Stephan,
President, Veterans Small Business Association. This panel had
many of the same concerns as the first panel, and the witnesses
agreed with the first panel that veterans are the very group
that have been denied full access to the free enterprise system
that they fought to protect and that there needs to be
legislation to implement procurement set-aside contracts for
U.S. veterans.
The panel agreed that partisan bickering during the past
two decades has resulted in congressional ignorance of veteran
issues. In addition, the witnesses noted that the background of
veterans is especially well suited to starting and operating
small businesses. The discipline that veterans have accrued
over the years would make veterans excellent entrepreneurs. The
witnesses also suggested setting up veterans business networks
to enable veterans to be more productive in their business
ventures, and, like the first panel, they agreed that
legislation needs to be enacted that provides veterans with
special privileges in terms of government contracts and
business procurement.
The final panel consisted of a single witness: Leon Bechet,
Assistant Administrator for Veterans Affairs, SBA. Mr. Bechet
testified about the general goals of the SBA with respect to
veterans assistance, and he provided the Subcommittees with
background on the SBA's Office of Veteran Affairs. He asserted
that there has been a dramatic increase in the number of SBA
guaranteed loans to veterans, and he noted that the SBA has
piloted the Veteran Entrepreneurial Training Program, which
provides long-term, in-depth training to veterans and their
spouses. Mr. Bechet also testified about the Defense Loan and
Technical Assistance (DELTA) program, which provides both
financial and technical assistance to help defense-dependent
small firms adversely affected by defense cutbacks diversify
into the commercial market. He maintained that both of these
programs have been highly successful for veterans seeking small
business assistance and training. He also pointed out that the
Administration's FY 1996 budget for the SBA contained a request
for $485,000 for veterans outreach efforts, but no funds were
appropriated for that year. Mr. Bechet concluded his testimony
by stating that the Office of Veteran Affairs needs more
resources to be able to produce the financial assistance that
veterans demand.
For further information on this hearing, refer to Committee
publication number 104-91.

7.3.21 fdic's handling of small business asset foreclos-
ures

Background

On September 25, 1996, the Subcommittee on Government
Programs held a hearing on the management of small business
asset foreclosures by the Federal Deposit Insurance Corporation
(FDIC) and specifically the handling of such foreclosures in
Massachusetts. The hearing focused on two situations in which
small business projects were not completed due to the failure
of one bank, ComFed Savings, and the alleged actions of the
Resolution Trust Corporation (RTC), which was appointed as the
conservator for the bank in December of 1990.

Summary

The hearing was comprised of two panels, the first of which
included: Rhetta Sweeney, a small business owner in Hamilton,
Massachusetts; Betty Scott, a small business owner in Concord,
Massachusetts; and Peter Britton, Hamilton Planning Board,
Hamilton, Massachusetts. Mrs. Sweeney and Mrs. Scott testified
about their businesses and relationship with ComFed Savings.
They also testified about the Hamilton Rock Maple Flexible
Subdivision plan and the difficulty they had surrounding the
unfair and deceptive trade business practices with ComFed
Savings, which resulted in litigation in the Middlesex Superior
Court of Massachusetts. In addition, they maintained that the
RTC and its agent had taken extraordinary actions designed to
cover up the State court judgment. Mr. Britton, a member of the
planning board that approved Mrs. Sweeney's subdivision plan,
asserted that the subdivision plan, which permitted Mrs.
Sweeney to develop her property, had been illegally obstructed
for eight years.
The second panel included a single witness: John Bovenzi,
Director, Depositor and Asset Services, FDIC. Mr. Bovenzi
testified that the past 10 years have posed tremendous
challenges to the banking industry and the FDIC. During that
time nearly 1,250 commercial banks have failed, with combined
assets of over $225 billion and deposits of almost $190
billion. The FDIC has resolved these failures without taxpayer
assistance. Over the same period of time, almost 1,100 savings
associations failed and were resolved by the former Federal
Savings and Loan Insurance Corporation and the RTC. These
savings associations had combined assets of over $540 billion
and deposits of almost $445 billion. According to the General
Accounting Office, the estimated direct cost to taxpayers of
these failures was almost $125 billion.
Mr. Bovenzi noted that the FDIC prefers to work with
borrowers to achieve a mutually agreeable repayment plan for
unpaid loans. After the FDIC succeeded the RTC as receiver of
ComFed Savings in January of 1996, it undertook a thorough
review of the Sweeney matter. To avoid further costs to
taxpayers, the FDIC subsequently provided the Sweeneys with
three settlement alternatives by letter of July 29, 1996. All
of these alternatives would allow the Sweeneys to continue
living on the property, yet the Sweeneys did not accept any of
the alternatives. According to the FDIC, through their failure
to repay money that they borrowed and their subsequent actions,
the Sweeneys have caused a loss to the taxpayers, which the
FDIC estimates at over $3 million. Unless the FDIC is able to
reach a settlement with the Sweeneys, the FDIC unfortunately
must obtain possession of the property that it legally owns.
For further information on this hearing, refer to Committee
publication number 104-94.
7.4 Summaries of the Hearings Held by the Subcommittee on
Procurement, Exports and Business Opportunities

7.4.1 export promotion programs: how is small business
helped?

Background

On March 29, 1995, the Subcommittee on Procurement,
Exports, and Business Opportunities held a hearing to examine
how small business is helped by the various export promotion
programs administered by the Federal government. The 104th
Congress had a series of proposals before it that would
eliminate trade-promotion programs, transfer them over to the
State Department, or combine all trade functions into a
Department of Trade. The goal of these proposals was to
streamline the existing export-promotion programs that have
similar or duplicate functions in order to focus and serve
small businesses, which in turn will generate new jobs in the
United States.

Summary

The hearing was comprised of one panel, which included:
Lauri Fitz-Pegado, Director General, U.S. Foreign Commercial
Service, Department of Commerce; Raymond Vickery, Jr.,
Assistant Secretary for Trade Development, Department of
Commerce; Charles Meissner, Assistant Secretary for
International Economic Policy, Department of Commerce; Mary
Jean Ryan, Associate Deputy Administrator for Economic
Development, Small Business Administration (SBA); Maria Louisa
Haley, Member, Board of Directors, Export-Import Bank of the
United States (Eximbank); Joseph Grandmaison, Director, U.S.
Trade and Development Agency; and Christopher Finn, Executive
Vice-President, Overseas Private Investment Corporation.
The panelists estimated that over the last year, the
International Trade Administration (ITA) facilitated over $9
billion in sales for small companies, which supported
approximately 180,000 jobs. In addition, there have been
dramatic increases in both the number of small businesses
exporting and the value of these exports. They generated an
estimated $134 billion in merchandise exports in 1993, an
increase of 84 percent from 1987. Moreover, about 22 percent
more small businesses exported in 1992 than in 1987.
Ms. Pegado also testified that by the end of fiscal year
1996 plans would be in place for all of the Commerce
Department's domestic offices to operate as part of a customer
focused hub-and-spoke system composed of export assistance
centers and district export assistance centers that deliver
integrated trade finance and export marketing assistance. The
hubs of U.S. export assistance centers will coordinate the
commercial services vital to international marketing services
with the crucial trade finance services provided by SBA,
Eximbank, State Department trade finance programs, and private
banks. Mr. Vickery also emphasized that the Commerce
Department's advocacy program is not just for large businesses,
it is for small business as well. He estimated that over the
past year, in terms of small businesses alone, there were about
$2 billion worth of successful transactions in which advocacy
was provided in order to enable Americans to remain employed.
The Commerce Department witnesses testified that to assist
small business better the ITA has brought together all of the
Department of Commerce programs related to economic development
in the United States border region. There are approximately
eight parts of the Department of Commerce, outside of ITA, that
are working on economic development in the border region.
Witnesses emphasized that one of the most significant
obstacles for small business exporters has been the lack of
export financing. Many banks think that small trade loans are
too risky and time consuming, and it is precisely those types
of deals with which small exports need help.
For further information on this hearing, refer to Committee
publication number 104-22.

7.4.2 small business administration's surety bond guaran-
tee program

Background

On April 5, 1995, the Subcommittee on Procurement, Exports,
and Business Opportunities held a hearing to evaluate the role
and effectiveness of the Surety Bond Program, which is
administered by the Small Business Administration (SBA). Surety
bonds are designed to ensure that if a bonded contractor
defaults, the terms of the contract will be completed and the
subcontractor and its employees will be paid. On Federal
contracts, surety bonds protect the American taxpayers if a
bonded private-sector contractor defaults on the contract.
As part of the Small Business Credit and Business
Opportunity Enhancement Act of 1992, Congress mandated that the
General Accounting Office (GAO) conduct a comprehensive survey
of business firms to determine their experience in obtaining
surety bonds. The GAO released the preliminary findings of this
survey on the day of the hearing. In addition, prior to the
hearing, the Administration proposed increasing a variety of
fees imposed on participants in the Surety Bond Program. The
witnesses were asked to comment on the proposals and discuss
whether higher fees would increase or decrease participation of
small businesses in Federal government procurement contracts,
which frequently require the contract recipient to post a
surety bond.

Summary

The hearing was comprised of a single panel, which
included: John Curtin, President, Curtin International
Insurance and Bonding Agency, Inc., representing the National
Association of Surety Bond Producers; Dorothy Kleeschulte,
Associate Administrator, SBA; Denise Norberg, Gust A. Norberg &
Son, Inc., representing the American Subcontractors'
Association; and Jim Wells, Associate Director, Housing and
Community Development Issues, Resources, Community, and
Economic Development Division, GAO.
Mr. Wells reviewed for the Subcommittee the basis for and
results of the GAO's study on surety bonds. GAO surveyed
approximately 12,000 randomly selected construction firms and
received about 5,000 responses to the questionnaires. Special
trade contractors, such as plumbers, painters, electrical
contractors, and concrete masons make up about 80 percent of
the population of small construction firms. From the survey
results, GAO estimated that at least 23 percent of the small
construction firms had obtained surety bonds. Roughly
projected, 520,000 small business firms had never obtained a
bond in the years between 1990 and 1993. Overall, GAO found
that one in five small construction firms that had obtained a
surety bond between 1990 to 1993 had at least one bond
application denied during that period. The reasons for denial
were generally two-fold: the firm's financial status was not
strong enough or the particular firm had never been involved in
the kind of work for which the surety bond was requested.
The SBA witness noted that the Surety Bond Guarantee
program exists because the Miller Act requires prime
contractors performing Federal construction contracts to post
surety bonds. Since the program began in 1971, more than
218,000 final bonds have been guaranteed by the SBA for more
than $21 billion in contracts for small businesses. The SBA
guarantees to a qualified surety up to 90 percent of losses
incurred under bid, payment, performance, or ancillary bonds if
the contractor breaches the contract terms. Bonds for minority
contractors receive a 90 percent guarantee on a maximum
contract size of $1,250,000. Under the pilot Preferred Surety
Bond Guarantee Program, the SBA provides a 70 percent guarantee
to participating sureties, and in exchange the sureties have
authority to issue, monitor and service bonds without SBA's
prior approval. Ms. Kleeschulte emphasized that the pilot
program enables the SBA to provide more contractors with more
guarantee authority but with less direct SBA resources. She
also defended the Administration's proposal for increased fees
for surety bonds, noting that with the fee revenues, the SBA
would be able to request less in appropriations for the surety
bond program.
The industry witnesses stressed the importance of the SBA's
Surety Bond Program and offered the Subcommittee several
recommendations for improving the program. Mr. Curtin noted the
strong partnership between the SBA and the surety bond
underwriters but was critical of the Administration's proposal
to increase fees. He warned the Subcommittee that an increase
in fees levied on a contractor for a surety bond would put the
contractor at a serious competitive disadvantage in the highly
competitive construction environment that exists today.
The witnesses' recommendations for improving the surety
bond program included an increase in the maximum bond size
allowable under the program in order to serve an expanding pool
of businesses without increased cost to government. The pilot
Preferred Surety Bond Guarantee Program should be extended
since it has proven useful in expanding access to surety bonds
for small businesses. It was also recommended that bond
producers be required to disclose fully the basis for denying a
surety bond and the actions that the applicant must take in
order for the bond to be approved. Finally, the Miller Act
should be amended to improve the payment rights for
subcontractors and suppliers through payment bonds.
For further information on this hearing, refer to Committee
publication number 104-24.

7.4.3 agriculture export promotion programs: how are
the small farmer and rancher helped?

Background

On May 17, 1995, the Subcommittee on Procurement, Exports
and Business Opportunities held a hearing on agriculture export
promotion programs and the effects that they have on small
farmers and ranchers. The subcommittee considered it
appropriate to devote an entire budget hearing on this subject
given that the Department of Agriculture receives the majority
of funding for promotion programs and agriculture accounts for
10 percent of the country's exports. The hearing was designed
to evaluate efforts to streamline the Federal government with
respect to agricultural export promotion programs.

Summary

The hearing was comprised of one panel, which included:
August Schumacher Jr., Administrator of Foreign Agricultural
Service, U.S. Department of Agriculture; Linda Reinhardt,
Chair, Women's Committee, American Farm Bureau; Richard
McGuire, Commissioner, New York Department of Agriculture and
Markets; and John Frydenlund, Director, Agriculture Policy
Project, Heritage Foundation.
The panel noted that the agriculture industry was at an all
time high, with a $20 billion trade surplus, coming from almost
every State, and consisting of many small companies. Growth
targets were projected to be $80 billion by the year 2000 with
a surplus of $25 to $30 billion, which will require nearly one
quarter of the Federal government's promotional efforts to be
devoted to agriculture. Such a large amount will be necessary
given the competitive effects resulting from NAFTA and GATT.
The European Union has also increased its spending by $10
billion in 1995, and its subsidies for wine alone is larger
than the entire Market Promotion Program in the United States.
The supporters of U.S. agricultural export promotion
programs argued that they should be maintained given their
record of success and ability to keep rural America and small
business growing. One witness noted that for every dollar
invested into the program, a return of $16 is netted. Witnesses
also commented that with current efforts to reduce Federal
government involvement in the private sector, efforts must be
made to insure that the United States maintains a foothold in
the agriculture business, which necessitates agricultural
export assistance programs. One witness suggests that for every
dollar saved in the reduced government involvement, at least 25
cents should be devoted to these programs to help farmers.
Without these programs in place, agricultural production will
increase, due to the removal of acreage restrictions, but small
farmers will not have adequate access to the world markets to
realize the benefits of higher production levels.
The panelists also addressed the pending farm legislation
and stressed that the new farm bill needs to provide a path for
U.S. farmers to reestablish their dominance in the world
market. The opponent of agricultural export promotion programs
offered a number of suggested reforms to help U.S. farmers,
including: elimination of all acreage reduction and set aside
programs; phaseout of the subsidy and support programs, and
phaseout of the conservation reserve program and the farmer
owned reserve. Ending these programs would suggest to the world
that the United States is promoting an aggressive agriculture
policy, and would lead to an additional net farm income over $2
billion in 1996, with growth expected to reach $4 billion by
2001, and $10 billion by 2005. As a result, during these years,
at least $21 billion would be channeled into the rural economy,
which offers the potential for tremendous revitalization of
rural areas.
For further information on this hearing, refer to Committee
publication number 104-28.

7.4.4 federal export promotion programs: an academic
perspective

Background

On May 23, 1995, the Subcommittee on Procurement, Exports
and Business Opportunities held the third in a series of
hearings on the appropriate role and effectiveness of various
Federal export-promotion programs, especially as they effect
small business. The hearing was designed to focus on a
government-wide trade strategy, a one-stop shop that could
bring some common sense to the process of export promotion for
small businesses.

Summary

The hearing was comprised of a single panel, which
included: Jennifer Bremmer, Deputy Director, International
Business Education Center, Kenan Institute of Private
Enterprise of the University of North Carolina at Chapel Hill;
Allan I. Mendelowitz, Ph.D., Managing Director, International
Trade, Finance and Competitiveness Issues, U.S. General
Accounting Office; and Dean Stansel, Fiscal Policy Analyst, The
CATO Institute.
According to one witness, with respect to trade policy
objectives, there are three justifications for export
promotion: helping U.S. firms overcome trade barriers; leveling
the playing field so that U.S. exporters competing with
subsidized foreign exporters can compete in world markets on an
equal basis; and trying to take the profit out of subsidies on
the part of the United States' competitors and bring them to
the table in order to negotiate reductions in and elimination
of trade-distorting subsidies.
It was also stated that export assistance programs have
come under particular attack as unnecessary and ineffective, a
form of corporate welfare. One witness commented that the
impact of U.S. export assistance could be increased by closer
cooperation between Federal and non-Federal programs at home.
Further, it was suggested that an important strategy for
improving Federal trade-program performance with reduced funds
is to work more closely with the private and non-profit sector,
such as trade associations, and with State and local
governments.
Conversely, Mr. Stansel testified that American businesses
do not need a government program to survive or to compete with
those in other countries. Any business that feels they would
benefit from these goods would be willing to pay a certain
price. Those who benefit from it should pay for it, and he
testified that taxpayer dollars should not be used to support
the bottom line of private businesses artificially, regardless
of the size of those businesses. Mr. Stansel maintained that
the government should not be in the business of spending
taxpayer dollars to promote exports. He stated that nowhere in
the Constitution is the Federal government granted the power to
spend general taxpayer dollars to promote the specific interest
of specific businesses or specific industries. In addition, the
programs are too expensive. According to Mr. Stansel, if the
goal is to promote economic growth, the money used in these
programs would be put to much better use if left in the hands
of its original owners, that is, the American taxpayers.
For further information on this hearing, refer to Committee
publication number 104-30.

7.4.5 export promotion: a business perspective

Background

On June 22, 1995, the Subcommittee on Procurement, Exports
and Business Opportunities held a hearing to continue its
examination of Federal export-promotion programs. The hearing
was designed to provide the Subcommittee with an overview from
businesses that have participated in these programs.
With the future of the Department of Commerce uncertain, it
was appropriate for the Subcommittee to continue its review of
the trade-promotion programs. The witnesses were asked to
provide testimony that will set the stage for how export-
promotion programs fit into the country's overall competitive
picture and if they make economic sense. The witnesses were
also asked to provide testimony on how trade-promotion programs
have effected companies.

Summary

The hearing was comprised of two panels, the first of which
included: John L. Mica (R-FL), Member of Congress. Congressman
Mica testified that currently the country's trade-promotion and
assistance programs are disorganized. He noted that the Federal
government has 19 agencies with separate missions and that
billions of taxpayer dollars are spent often in an
uncoordinated and inefficient manner. He advocated that an
ideal solution would be to combine most of the 19 agencies and
their functions that deal with trade and export promotions,
negotiations, finance and assistance. Congressman Mica also
stated that at the very least Congress should dismantle and
reorganize trade and export functions from the Department of
Commerce, Department of State, and other agencies and establish
a coherent basis for an Office of Trade with cabinet-level
status. He went on to say that U.S. businesses--small, medium,
and large--should have instantaneous and updated information on
trade, business and service opportunities around the globe.
The second panel included: Tajiv Arora, Vice President,
Virginia Transformer Corporation; Burt Norbert Beyer, Vice
President/Chief Financial Officer, Procedyne Corporation; Peter
A. Bowe, President, Ellicott Machine Corporation; Stephen D.
Cohen, Ph.D., Professor of International Relations, American
University; Peter Rogers, Director of Marketing, Micros
Systems; Howard F. Rosen, Executive Director, Competitiveness
Policy Council; and William Trueheart, Ph.D., President, Bryant
College.
The witnesses provided the Subcommittee with anecdotal
evidence of how export-promotion programs have helped their
businesses. One witness suggested that export-promotion efforts
need to be kept limited in scope and expense but that their
importance should not be underrated. If there is an increase in
U.S. exports, the trend would generate both jobs and corporate
profits, and increased exports would eventually generate more
tax revenue and improve the nation's saving rate.
The panelists also testified about their positive
association with Federal government agencies. One witness
stated that the Advocacy Center of the Commerce Department was
very responsive in coordinating the proper support from the
right governmental officials. The witness noted that when the
customer is a foreign government, the customer is generally
more receptive to official communication from American
government officials. Another witness stated that without the
Export-Import Bank of the United States, companies that export
construction equipment and heavy capital goods could not stay
in the export markets. The proposed budget cuts would seriously
hurt small exporters and would be devastating. The witnesses
maintained that export-promotion programs help small business
become more vigorous, more competitive, and more engaged in the
process in order to develop market opportunities abroad.
For further information on this hearing, refer to Committee
publication number 104-34.

7.4.6 the export working capital program

7.4.7 technologies for accessing foreign markets and re-
sources for export assistance

Background

On October 11, 1995 and February 13, 1996, the Subcommittee
on Procurement, Exports, and Business Opportunities held
hearings to examine various technologies available to help
small businesses establish and expand their export activities.
While many small businesses are often intimidated when faced
with the prospect of entering the export market, it is clear
that as the economy becomes more globally oriented, more small
businesses need to begin exporting their products and services
in order to maintain and advance American's competitiveness.
The hearing was designed to enable the Subcommittee to not only
learn about technologies available to help small businesses
export, but also to see actual demonstrations of those
technologies.

Summary

The hearing on October 11, 1995 was held in Washington,
D.C. and was comprised of a single panel, which included: Carl
Anderson, Director, ITDN, accompanied by Raymond Fogarty,
Director, Rhode Island Export Assistance Center; Joseph J.
Douress, Director, Global Trade Services, Dun & Bradstreet,
Information Services; C. Harvey Monk, Jr., Chief, Foreign Trade
Division, Bureau of the Census; Richard Preuss, Foreign Trade
Division, Bureau of the Census; James Segovis, Ph.D., Director,
CIBED; William Trueheart, Ph.D., President, Bryant College; and
Forrest Williams, Director of Operations, Economics and
Statistics Administration, U.S. Department of Commerce.
The Commerce Department witnesses demonstrated the trade
resource information that is available from the Federal
government. Mr. Monk presented an overview of the Census
Bureau's foreign trade statistics program, which has the
primary responsibility for the collection, compilation, and
dissemination of official export, import, and trade balance
data of the United States. The program also generates
statistics on foreign trade shipping. The witnesses
demonstrated the various products that the Commerce Department
makes available to small businesses that export goods or
services. In addition, Mr. Williams reviewed the information
available through the National Trade Data Bank to help
businesses make contacts in existing markets.
A second group of witnesses testified about the
International Trade Data Network (ITDN), which was developed by
Bryant College and is essentially a public-private sector
partnership that streamlines, consolidates, and makes much of
the information already available from the Federal government
into a more user-friendly package that could be easily
understood by small business owners. ITDN involves a Windows-
based computer software program that permits users to pinpoint
information effortlessly and with little or no training. The
information available helps small-and mid-sized businesses
export their products on a global basis. Dr. Trueheart provided
the Subcommittee with an example of a local small business
owner who used the ITDN service, with a resulting increase to
his export sales from $1.2 to $5 million annually in the last
two years.
Mr. Anderson demonstrated for the Subcommittee the ease of
using the ITDN system. With trade leads gathered from the U.S.
Department of Commerce and other government agencies, a user
can access the system by individual categories of products for
export such as computers. During the hearing, Mr. Anderson went
through 50 different databases and through over 200,000 files
to match a sample request in a relatively short period of time.
Dr. Segovis testified that one of the key issues facing
businesses is the cost of information and is especially
critical for a small business with limited resources. The ITDN
system is designed to address this issue and provides daily
access to the 60,000 businesses in its network at about $3 for
each business per year.
Mr. Douress testified about the export services available
through Dun & Bradstreet. As the publisher of the Exporters
Encyclopedia for Dun & Bradstreet's Information Services, Dun &
Bradstreet gathers export information spanning over 200
countries and has more than 3,000 information consultants in
300 locations who collect and analyze information used daily by
hundreds of firms around the world. Mr. Douress provided a
demonstration on Dun & Bradstreet products designed to assist
the small business owner through most of the steps of the
exporting cycle, from identifying the best overseas markets at
the commodity-specific level to ensuring payment. The Dun &
Bradstreet database has 39 million businesses worldwide, which
helps small businesses decide where to look for export
opportunities.
The hearing on February 13, 1996, was held at Northern
Illinois University in Rockford, Illinois, and was designed to
examine further the issue of accessing foreign markets. The
hearing was comprised of three panels, the first of which
included: Michael P. Donnelly, Vice President, Marketing, W.A.
Whitney Company; Maria Perr, Marketing Manager, International
Sales, Pierce Chemical; and Derek Sherman, Purchasing and
Sales, S. Franke & Company, Inc.
The first panel was comprised of representatives of
companies based in Rockford, Illinois, and the witnesses
testified about problems that their companies have had in
obtaining timely, accurate, and cost effective information
about export opportunities. In particular, Ms. Perr explained
both the difficulties and successes that Pierce Chemical had
experienced in utilizing the information from the Federal
government. Although the company was able to obtain
information, the company experienced problems due to the fact
that when a niche market is being serviced, the use of a
Standard Industrial Classification (SIC) code may not be
feasible. Since the market being targeted is so small, it may
prove impossible to determine what types of products are
exported or imported under a particular SIC code.
The second panel included: Mary Ann Boukalis, Vice
President, Global Trade Information Services, Inc.; Joseph J.
Douress, Director, Global Trade Services, Dun & Bradstreet,
Information Services; Raymond Fogarty, Director, Rhode Island
Export Assistance Center; Craig Leonard, Account Consultant,
AT&T, representing The Export Hotline; Richard Preuss, Foreign
Trade Division, Bureau of the Census; and Forrest Williams,
Director of Operations, Economics and Statistics
Administration, U.S. Department of Commerce.
Several witnesses on the second panel also attended the
hearing on October 11, 1995, and they presented similar
testimony about the technology available for small businesses
seeking to enter the export market. In addition, the new
presenters, Mr. Leonard and Ms. Boukalis, discussed their
respective information services, and how each aids businesses
in exporting to foreign markets. Mr. Leonard explained that The
Export Hotline provides information by fax to those businesses
that are expanding to foreign markets by providing, as a free
service, information on such areas as trade barriers,
financing, distribution, business etiquette, key contacts, and
direct marketing. This service provides a wide range of
information to businesses seeking to enter the export market.
Ms. Boukalis testified that the Global Trade Information
Service, a South Carolina-based market research and economic
consulting firm, designs and markets international trade
software called the World Trade Atlas CD-ROM. This service was
designed to take merchandise trade data from the Bureau of the
Census and make it into a more useful research and marketing
tool for businesses.
The third panel was comprised of representatives of the
U.S. Export Assistance Center (USEAC) in Chicago, Illinois,
including: Stanley Bakota, Director, U.S. and Foreign
Commercial Service, Department of Commerce; Mary Joyce, Senior
International Trade and Finance Specialist, Small Business
Administration (SBA); and Robert J. Kaiser, Vice President,
Communications, Export-Import Bank of the United States
(Eximbank). Mr. Bakota testified about the structure and
operation of the USEACs, which are a unique partnership among
three Federal agencies: Eximbank, the SBA and the Foreign
Commercial Service. There are currently 12 USEACs in the United
States, and they have connections to commercial service
officers in approximately 70 foreign countries, with
approximately 125 total different locations. The USEACs aid
small business by assessing the export readiness of a
particular company and providing assistance in developing a
marketing strategy for entry into foreign countries as well as
disseminating information.
Ms. Joyce noted that the SBA works closely with the
Commerce Department, the Foreign Commercial Service, and the
International Trade Centers. She explained that the success of
the SBA and its partners in these centers is mainly based upon
their ability to provide joint counseling. Based on the
particular needs of the small business looking to access a
foreign market, they have a range of resources to provide
answers as well as financial assistance.
Mr. Kaiser testified that since 1983, Eximbank has placed a
major emphasis on supporting the smaller exporter community.
This goal has been achieved through two programs: the working
capital guarantee program and the insurance program. The
capital guarantee program induces commercial banks to extend
credit to exporters who may be considered to be high risk
borrowers. They provide a 90 percent guarantee because of the
type of risk that the banks associate with this type of
transaction. By providing insurance to small businesses,
Eximbank enables them to sell more to existing customers as
well as allow them to enter markets that otherwise would be too
risky.
For further information on these hearings, refer to
Committee publication numbers 104-53 and 104-61.
7.4.8 the impact of ``short supply'' on small manufactur-
ters

Background

On May 2, 1996, the Subcommittee on Procurement, Exports
and Business Opportunities held a hearing on the impact of
``short supply'' on small manufacturers, focusing on those
companies that use steel in their final product. Short-supply
situations exist when U.S. manufacturers need certain raw
materials, which may be subject to anti-dumping orders, to stay
in business, but they cannot obtain such materials from U.S.
producers. These manufacturers require the raw materials in
order to integrate them in the United States into products with
higher value added, destined either for export or U.S.
consumption. This hearing was designed to examine the role that
H.R. 2822, the Temporary Duty Suspension Act, may have in
remedying short supply for small manufacturers.

Summary

The hearing was comprised of two panels, the first of which
included: Phillip Crane (R-IL), Member of Congress and
Chairman, Subcommittee on Trade, Committee on Ways and Means;
and Sander Levin (D-MI), Member of Congress. The panelist
presented differing views on H.R. 2822 and the short-supply
issue. Congressman Crane, testified that he introduced H.R.
2822 to give the U.S. Department of Commerce authority to
suspend temporarily the imposition of anti-dumping or
countervailing duties on a limited quantity of a particular
product needed by the American industry when users are
effectively unable to obtain that product from U.S. producers.
He also maintained that this legislation would be extremely
important to small business, which very often are the victims
of trade protections extended to help large industries such as
the integrated steel industry and the semiconductor industry.
Congressman Crane noted that while the government should
have anti-dumping laws, the focus needs to be more on the
effect that anti-dumping orders may have on downstream
industries--U.S. companies that purchase imported materials
when such products are not available domestically. It is often
extremely difficult for such companies, especially small
businesses, to compete if the U.S. industry does not produce
the product they need. Current U.S. trade laws simply do not
provide adequate redress for American firms that need products
that are subject to anti-dumping orders and that cannot be
obtained from U.S. producers. Congressman Crane testified that
his legislation will only address situations in which a product
is temporarily unavailable, and this temporary relief will
encourage the domestic industry to develop new products since
it will enable U.S. downstream users to stay in business in the
United States until the U.S. industry begins to manufacture the
needed input product.
Congressman Levin, also a member of the Committee on Ways
and Means, presented an opposing point of view. He noted that
short supply proposals were thoroughly reviewed two years ago
during consideration of the implementing legislation for the
GATT Uruguay Round Agreements and were rejected by bipartisan
majorities in both the Ways and Means Committee and the Senate
Finance Committee. Congressman Levin maintained that anti-
dumping laws are the first, and in many cases the last, line of
defense against foreign unfair trade practices. The purpose of
the trade laws is to provide a remedy against foreign unfair
trade practices equal to the amount of the foreign subsidy or
dumping margin.
According to Congressman Levin, current law already
provides regulatory flexibility to administer the anti-dumping
and countervailing duty laws to address situations in which no
supply of a particular product exists. He noted that the bill
would allow duty suspension whenever ``prevailing market
conditions related to the availability of the product in the
United States make imposition of duties inappropriate.'' He
also pointed out that the previous statement is an impossibly
vague set of standards that would surely be invoked and
litigated in every single anti-dumping suit, needlessly raising
litigation costs. As a result, Congress would ultimately be
lured into reviewing each interpretation of the language made
by the Department of Commerce, which would hopelessly
politicize the process and add lobbying expenses on top of
litigation expenses.
The second panel included: Paul Joffe, Deputy Assistant
Secretary for Import Administration, Department of Commerce;
Richard Harcke, CEO, Branford Wire Manufacturing; John
Phillips, Vice President (Sales), Berg Steel Pipe Corporation;
Gary Green, Secretary/Treasurer, Gary Drilling Company; and Ray
Hopp, President, H.K. Metalcraft. Other than Mr. Joffe, this
panel agreed that H.R. 2822 would solve the short-supply
problem of many small businesses. The small business witnesses
all agreed that a temporary duty suspension provision would
allow small firms to be competitive at a time when such
competition is extremely difficult if achievable at all. The
panelists also agreed that small businesses do not have the
leverage to pass on increased product costs to their customers,
nor do they have the reserves to stay in business for prolonged
periods when their costs are arbitrarily increased as a result
of short supply.
While emphasizing that the country must maintain a level
playing field to ensure that trade brings growth and an economy
that generates jobs at home, Mr. Joffe generally restated the
arguments that Congressman Levin made in opposition to the
legislation. He noted that the Commerce Department has been
given enough regulatory flexibility to make sure that the
short-supply situation would be remedied without amending the
existing trade laws. He also stressed that with the demise of
the Cold War, international rivalry has turned more and more to
economics, and it is not an appropriate time to be dismantling
defenses in the face of unfair foreign competition.
For further information on this hearing, refer to Committee
publication number 104-75.

7.4.9 the effectiveness of u.s. export assistance centers

Background

On July 25, 1996, the Subcommittee on Procurement, Exports,
and Business Opportunities held a hearing to examine the
effectiveness of the relatively new U.S. Export Centers
(USEAC), which were created as part of the 1992 Export
Enhancement Act. USEACs are centers in various sites around the
nation where small businesses can obtain export assistance from
the Department of Commerce, the Export-Import Bank of the
United States (Eximbank), and the Small Business Administration
(SBA) in a single location. The hearing was designed to examine
the comprehensive reviews of the USEAC system, which the
General Accounting Office (GAO) and the Inspector General of
the Commerce Department had recently completed to evaluate the
effectiveness of having three independent agencies working
together in a single location.

Summary

The hearing was comprised of one panel, which included:
JayEtta Hecker, Director, International Trade, Finance and
Competitiveness Division, GAO; Johnnie Frazier, Assistant
Inspector General for Inspections and Program Evaluations,
Department of Commerce; Lauri Fitz-Pegado, Assistant Secretary
and Director General, U.S. Commercial Service, Department of
Commerce; Mary N. Joyce, International Trade Specialist, SBA,
Chicago, Illinois; James P. Morris, Director, Miami, Florida,
Regional Office, Eximbank.
Ms. Hecker began her testimony by reviewing the methodology
that GAO employed in evaluating the USEACs and to assess
whether the Department of Commerce, Eximbank, and the SBA are
able to coordinate their export assistance activities in a
single location to the benefit of small businesses. She stated
that the main operational problem that GAO identified was a
lack of appropriate incentives in place to promote a good
working relationship among the staff of the three different
agencies. Basically, no common client tracking system existed,
which reinforced a tendency for the agency officials to operate
more independently. In addition, no information was available
on the cost of the centers.
The Commerce Department witnesses testified that they had
found that the USEACs did in fact offer a greater opportunity
for a more coordinated Federal effort. This finding was
significant since for more than a decade there has frequently
been a major void in the levels of cooperation and coordination
among the agencies in the trade-finance area. As a result, the
correction of this problem was a major step in the right
direction. The witnesses also noted that the Department of
Commerce has not only achieved the goals first set by Congress
and the Trade Promotion Coordinating Committee, but it has also
expanded on this original concept in order to benefit American
exporters. This has been achieved by fostering strong
partnerships with Federal, State, and local trade promotion
organizations, working to modernize their communications and
client management systems, taking advantage of technological
innovations, and strategically placing resources in order to
serve clients most effectively. Ultimately, the goal is to
create a truly integrated national export assistance delivery
network. The Subcommittee was also informed that recently the
agencies involved had signed a Memorandum of Understanding to
begin to resolve the three main problems highlighted by the GAO
and the Inspector General audits.
Mr. Morris testified that Eximbank views the USEAC as a way
to more efficiently use taxpayer resources. The USEACs have
proven to be extremely successful for the Eximbank, which
firmly supports both the National Export strategy and the USEAC
concept. Frequently, the critical missing element for many
small businesses is financing, and the USEACs provide another
outlet through which Eximbank can make its programs available
to small businesses.
Ms. Joyce testified that the success of SBA and its
partners is their ability to provide joint counseling and
training to their customers. The SBA has worked closely with
both the Foreign Commercial Service at the Department of
Commerce and the Eximbank to make sure that companies are
provided with the export marketing and trade-finance assistance
that they may require when venturing into new international
markets.
For further information on this hearing, refer to Committee
publication number 104-90.
7.5 Summaries of the Hearings Held by the Subcommittee on
Regulation and Paperwork

7.5.1 joint hearing on the impact of workplace and em-
ployment regulation on business

Background

On February 2, 1995, the Subcommittee on Regulation and
Paperwork held a joint hearing with the Subcommittee on
Oversight and Investigations of the Committee on Economic and
Educational Opportunities. The purpose of the hearing was
threefold. First, the subcommittees wanted to examine jointly
current Federal rules and regulations to determine their impact
on businesses in the United States. The hearing further focused
on the results, such as safe, productive, and cost-effective
workplaces, which regulations and rules are attempting to
achieve. Finally, the hearing was intended to identify
modifications to the current statutes to achieve the intended
results.

Summary

The hearing was comprised of two panels, the first of which
included: Lowell Gallaway, Professor of Economics, Ohio
University; Robert Hahn, American Enterprise Institute; Thomas
Hopkins, Professor of Economics, Rochester Institute of
Technology; and Brenda Enfinger, Hamlet Response Coalition.
The witnesses on the first panel outlined the different
ways in which employment by American businesses is regulated
and how those regulations affect business behavior. First, the
Federal government enforces rules, such as the minimum wage,
which dictate to American businesses how much to pay their
workers. Secondly, the government imposes direct taxes, which
decrease the amount that businesses may spend on, among other
things, labor. Finally, through mandates, the government forces
business owners to expend time and money complying with rules
and regulations. According to one expert, those who are
regulated spend $600 billion annually to comply with Federal
regulations. In one way or another, all of these taxes and
regulations increase the cost of hiring additional workers. In
doing so, the demand for labor is lowered, leading to increased
unemployment.
The witnesses offered several solutions, including
reviewing all current regulations using cost-benefit analysis;
providing information on regulations in ``plain English'';
reporting the cost of regulations; providing sunset
requirements that would require regulations to be reviewed
periodically before they are extended; placing the burden of
proof on those who want to pass new regulations; and
individualized regulatory requirements for businesses. One
witness, Brenda Enfinger, a homemaker who had lost one son and
had another disfigured as a result of accidents in the
workplace, provided the Subcommittees with dissenting views.
The second panel consisted of David Sebright, Sebright
Products, Inc.; John Lattauzio, Chief Executive Officer, J&J
Investments, Ltd.; Linda Benso, Accounting Manager, Baird,
Kurtz, and Dobson; and Ruth Ruttenberg, Ruth Ruttenberg and
Associates.
The second panel included two small businessmen and one
consultant to small businesses, each of whom had personal
experience with the burdens of Federal regulations and taxes.
Their testimony highlighted the fact that small businesses are
disproportionately affected by regulations and taxes because
they do not have the resources needed to understand, much less
comply with, everything that the Federal government demands of
them. The witnesses asked for relief from Federal regulatory
and tax burdens through simplification of statutes, rewriting
of costly regulations, restructuring of the tax code, and
decreasing the Federal paperwork requirements. Ms. Ruttenberg,
an economist specializing in Occupational Safety and Health
Administration (OSHA) regulations, contended that OSHA
regulations actually increase productivity and provide small
businesses with opportunities in marketing compliance
techniques.
For further information on this hearing, refer to Committee
publication number 104-16.

7.5.2 regulatory barriers to minority entrepreneurs

Background

On June 7, 1995, the Subcommittee on Regulation and
Paperwork held a hearing to discuss the impact of Federal
regulation on minority entrepreneurship. Evidence exists that
sets the annual cost of Federal regulation to the United
States' economy at $500 billion. Many experts contend that the
burden of Federal regulation and taxation falls
disproportionately on small businesses, in part because they
must comply with regulations and taxes intended more for larger
companies. Because small businesses are owned by and employ a
large percentage of minorities, Federal regulations and taxes
are said to fall disproportionately on minorities as well.

Summary

The hearing was comprised of two panels, the first of which
included: Jack Kemp, Co-Director, Empower America; Floyd Flake
(D-NY), Member of Congress; Clint Bolick, Vice President and
Director of Litigation, The Institute for Justice; and Peter
Kirsanow, Labor Counsel, Leaseway Transportation.
The first panel consisted of experts in the field of
regulation and small business whose testimony described the
detrimental effects of Federal taxes and regulations on small
businesses. They emphasized the great importance of small
business to the American economy and the many opportunities
that small business provides for minorities, not only in
ownership, but also in the many jobs that are created. The
panel emphasized that government programs such as welfare and
minority set-asides are solutions for the symptoms of poverty
among minorities, but do not go to the root of the problem,
which is a lack of economic opportunities provided to
minorities because small businesses are stifled with high taxes
and oppressive regulations. Among other things, members of the
panel recommended a moratorium on Federal regulations,
broadening the Civil Rights Act to apply to the rights of
``economic liberty,'' expanding enterprise zones, whose lower
tax rates and exemption from regulations encourage business
formation in poor communities, and repealing the Davis-Bacon
Act, a Depression-era law that has allegedly prevented
minorities from bidding successfully for and working on Federal
projects.
The second panel included: Leroy Jones, President and
Founder, Freedom Cabs, Inc.; Talib-Din Abdul, co-owner,
Cornrows and Company; and Art Pearson, Sole-Proprietor, Art
Pearson Electrical and General Contracting Company. The second
panel consisted of minority entrepreneurs who recounted their
personal experiences of starting businesses in the face of
oppressive regulations. The panelists implored that regulations
at the Federal, State and local levels have a negative effect
on small business start-ups and job opportunities and on the
very freedom of enterprise in America. Mr. Pearson singled out
the Davis-Bacon Act as a piece of legislation whose efforts to
provide training and raise wages were admirable, but whose
effects in practice created a web of regulations preventing
minority entrepreneurs from starting and growing their
businesses.
For further information on this hearing, refer to Committee
publication number 104-32.

7.5.3 osha fall protection standard

Background

On June 15, 1995, the Subcommittee on Regulation and
Paperwork held a hearing on the new fall-protection standard
promulgated by the Occupational Safety and Health
Administration (OSHA) and its effect on small businesses. The
new standard lowered the fall protection threshold from 16 feet
to 6 feet. An OSHA study conducted between 1985 and 1989 found
that falls from elevations of 6 to 10 feet caused 8 percent of
fall fatalities and 60 percent of lost workday fall injuries.
OSHA estimated the cost of complying with the new regulation to
be $40 million, or about $250 per worker. Industry
representatives and employers dispute this estimate, finding
the cost to be closer to $500 per worker. The savings from wage
and productivity losses, medical expenses, administrative
expenses, and other costs due to accidents were estimated by
OSHA to be about $200 million. Witnesses were asked to discuss
the effects of this new standard on small business.

Summary

The hearing was comprised of three panels, the first of
which consisted of a single witness: Joseph Dear, Assistant
Secretary and Director, Occupational Safety and Health
Administration, U.S. Department of Labor. Mr. Dear began his
testimony with a description of OSHA's reinvention efforts to
make the agency more efficient and productive. He testified
that the fall protection threshold was lowered to prevent more
injuries to workers and reduce workers' compensation payments.
He also noted that OSHA is looking for ways to reduce the
paperwork burden of the new regulation and at alternative plans
for businesses adversely effected by the new standard.
Questions arose regarding OSHA's ability to control compliance,
lost productivity, and the danger to homeowners attempting to
do their own roof-work instead of hiring professionals.
Overall, Mr. Dear testified that the new standard would not
have a disproportionately adverse impact on small businesses.
The second panel consisted of representatives of
associations whose members have been affected by the new fall
protection standard: William Good, Executive Vice-President,
National Roofing Contractors Association; Patty Burgio,
Director of Government Affairs, National Association of the
Remodeling Industry; Dan Gilligan, Vice-President, Manufactured
Housing Institute; and Howard Saslow, member of the National
Homebuilders Association. This panel raised many concerns
regarding the high cost of implementing this standard, the
additional accidents caused by the fall prevention devices, and
the lack of information from OSHA. Overall, this panel was
strongly opposed to the new standard.
The third panel consisted of employers affected by the
regulation: Douglas Jones, Vice-President and Chief Operating
Office, South Side Roofing Company; Robert Therrien, Vice-
President, Al Melanson Company; Reid Ribble, President,
Security Roofing and Siding Company; and William Brown,
Production Superintendent, Security Roofing and Siding Company.
All of the witnesses on the third panel were in agreement that
this new standard had not only cost more money than
anticipated, but had also resulted in more accidents. The panel
also expressed concern over losing work to companies not
complying with OSHA regulations. Since these companies began
complying with the new fall protection standard, their
production has decreased by 27 percent. Although the panel was
opposed to the new standard, they admitted that steps were
needed to ensure the safety of roofing workers. They asked for
a compromise to be made by taking the roof angles, type of
frame, and a higher height threshold into account.
For further information on the hearing, refer to Committee
publication number 104-33.

7.5.4 candidates for the regulatory corrections cal-
endar

Background

On August 23, 1995, the Subcommittee on Regulation and
Paperwork held a field hearing in Des Peres, Missouri. The
purpose of the hearing was to explore a number of regulations
that are particularly onerous and should be repealed through
the use of the Corrections Calendar. The Corrections Calendar
is the product of a new rule initiated by the 104th Congress,
which sets aside one morning every month to discuss regulations
that face non-partisan opposition. The purpose of the Calendar
is to allow for the elimination of regulations that are
outdated or otherwise fail to achieve their purpose without
having to go through the normal, laborious procedures required
in passing legislation in the House of Representatives.

Summary

The hearing was comprised of six panels, the first of which
included a single witness: Melinda Warren, Associate Director,
Center for the Study of American Business, Washington
University in St. Louis, Missouri. Ms. Warren testified on the
proliferation of regulations and funding for regulatory
agencies in recent years. She stated that, while many
regulations are necessary for the public good, they should also
be cost-effective. Ms. Warren estimated the cost to consumers
of complying with regulations to be $400 billion per year, or
$4,000 per family.
The second panel included a single witness: Leo Whiteside,
M.D., Director, Biomedical Research Laboratory. Dr. Whiteside
testified about the difficulties presented by the Food and Drug
Administration in acquiring approval for new medical devices
that are implanted within the human body. A newly developed
implant must either complete a clinical study proving its
safety and effectiveness or demonstrate that it uses technology
available before 1976. Because a clinical study can take from
four to eight years and cost between $3-8 million, many
medical-device developers, particularly individual inventors,
try to use 1976 technology to develop new products. The
negative effects of this regulation have been twofold. First,
many potentially beneficial and lifesaving innovations are not
developed or marketed because they cannot be linked to pre-1976
technology. Second, many companies that develop and produce
such devices are moving overseas, where regulations are not so
strict. Dr. Whiteside recommended reforming the approval
process by eliminating the need for clinical studies, extending
something like the 1976-technology mechanism to simplify the
process, and placing more trust in the hands of the
professionals and doctors who develop new life-saving devices.
The third panel included: Richard Redington, on behalf of
the J.E. Redington Company; Lee Kent, President, Missouri
Chapter of the National Association of Plumbing, Heating, and
Cooling Contractors; and Richard Church, President, Plumbing
Manufacturers Institute. This panel was comprised of experts in
plumbing who testified on a new Federal regulation passed in
the 1992 Energy Policy Act that attempted to increase water
conservation by requires new toilets in residential homes to
limit the amount of water expelled per flush to 1.6 gallons,
down from the industry standard of 3.5 gallons per flush. Many
owners of the new toilets have complained that their lack of
power in expelling waste makes them unsanitary and that they
actually waste more water because multiple flushes are needed
to accomplish what one flush would do in the old 3.5-gallon
toilets. The experts noted that the regulation passed because
legislators relied upon faulty studies that did not adequately
simulate real conditions during their experiments. Mr. Church
defended the statute, claiming that a single, Federal standard
was needed for toilet manufacturers who could not continue to
produce different size toilets to meet the varying standards
set by different State and local governments.
The fourth panel included: Dennis Hayden, on behalf of the
Hayden Company; Scott Harding, on behalf of Sci Engineering and
Materials Testing; and Brad Goss, on behalf of Whittaker
Construction. This panel provided the Subcommittee with
testimony concerning the need for relief from regulations
imposed by wetlands-protection legislation. They maintained
that the definition of protected areas was inadequate, defining
a wetland as any piece of land sustaining standing water for
seven days out of the year. Complex regulations were said to
make government decisions subjective and confuse the authority
of the various agencies that enforce the laws. Mr. Hayden
recounted a personal experience in which he was forced to
underwrite a six-month archaeological excavation on his
development site at a personal expense of $130,000, excluding
the costs of delaying the project and the $10,000 charge for a
permit to work in a wetlands area. Witnesses also noted that
the costs of complying with wetlands regulations are routinely
passed on to consumers who pay more for food, housing, and
other basic products. The panel recommended establishing a
better standard for what constitutes a wetlands area, including
definitions of what is not protected; simplifying regulations
and making them more objective; and creating an administrative-
appeals process for land-owners whose property is suddenly made
subject to wetlands protection laws.
The fifth panel included: John Eber, on behalf of
Interstate Brands; Pat Strader, on behalf of Union Electric;
Wayne McKinnon, on behalf of Land Management, Incorporated; and
John Stratton, also on behalf of Union Electric. The fifth
panel outlined problems with Federal motor-carrier-safety
regulations, which regulate all commercial vehicles weighing
over 10,000 pounds. These regulations, which treat delivery
vans in the same manner as eighteen-wheel trucks, require a
great deal of paperwork, are confusing, and make compliance
costly. One witness noted that it cost about $500 per driver to
comply with all the regulations that, among other things,
require owners to perform uniform maintenance practices;
document maintenance and daily vehicle condition reports; and
maintain driver files, hours of service, vehicle maintenance
files, additional vehicle markings, on-board safety equipment,
and documentation of authorized passengers. Drivers are
required to pass a written exam and road test, meet physical
requirements, be at least 21 years of age, speak English, and
complete special training. Witnesses testified that regulations
should be specialized to account for the differences between
heavy-duty and light- to medium-duty commercial vehicles.
The sixth panel included: Mary Gillespie, CPA and attorney
at law; Mike Meara, Certified Financial Planner, on behalf of
Renaissance Financial; and Eileen Dorsey, President, Money
Consultants, Incorporated. This panel provided the Subcommittee
with a general view of the effect that regulations have on
small businesses and noted that the many regulations that are
imposed upon the self-employed result in lost opportunity and
wasted resources. They stressed that with the increase in
corporate downsizing and lay-offs, self-employment and small
business provide excellent opportunities for job creation. The
government, however, has not made this transition easy,
imposing regulations on the self-employed the complexity of
which prevents any business from being in complete compliance.
In particular, witnesses testified about the unfair treatment
that small businesses face with regards to tax deductions for
health care, archaic financial planning laws, oppressive
social-security requirements, and excessive taxation on savings
and investment. Panelists recommended streamlining the
regulatory process for individuals, providing ``plain-English''
versions of regulations, strengthening the Paperwork Reduction
Act and Regulatory Flexibility Act, introducing judicial review
for the Regulatory Flexibility Act, increasing health-care
deductions, lowering estate and capital-gains taxes, and
reforming Social Security.
For further information on the hearing, refer to Committee
publication number 104-47.

7.5.5 examining the issues surrounding the national la-
bor relations board's rulemaking
concerning single location bargaining
units in representation cases

Background

On March 7, 1996, the Subcommittee on Regulation and
Paperwork held a hearing to discuss the ramifications of the
Nation Labor Relation Board's (NLRB) proposed rule concerning
single location bargaining units in labor representation cases.
Current law gives employees at any single location the right to
form a bargaining unit, but allows a hearing for the employer
at which he or she may show that a multi-unit facility unit is
more appropriate. It is imperative that the size of a
bargaining unit be determined prior to a vote by employees to
unionize so that those involved know which employees are
entitled to vote and who the union will represent if it wins.
Owners of businesses that operate more than one location
can prove that the single location union proposed by their
employees is an inappropriate bargaining unit by citing:
evidence of central control of operations and labor relations;
similarity of skills, functions, and working conditions of
employees at all locations; the degree of employee interchange;
distance between locations; and bargaining history, if any.
Hearings are decided by the NLRB on a case-by-case basis. The
new rule proposed by the NLRB changes that system to allow
employees to form a bargaining unit at any single location,
without a hearing for the employer, if the following conditions
are met: fifteen or more employees work at the unrepresented
location; no other location of the employer is within one mile
of the requested site; at least one supervisor is present on
the site for a regular and substantial period; and less that 10
percent of the employees at the facility have been temporarily
transferred less than 10 percent of the time.

Summary

The hearing was comprised of two panels, the first of which
included: William Gould, Chairman, NLRB. Chairman Gould
defended the proposed rule as necessary to reduce litigation
and make decision-making at the NLRB more efficient. He claimed
that the ambiguity of the current system necessitated a new
rule to make it more precise, thus ensuring that all concerned
were aware of their rights and responsibilities. He also
refuted allegations that the NLRB was attempting to change
existing labor law, claiming that this was merely a rule
change, perfectly within the bounds of the Board's jurisdiction
and powers. In response to the claim that this rule is aimed at
encouraging union organizing, he stated that no empirical
evidence exists to prove that fact, and he maintained that the
sole intent of the rule was to make decision making more
precise and efficient.
Chairman Gould pointed out that the Board considers many
other factors such as common skills functions and working
conditions when deciding on the appropriate size of a
bargaining unit and has ruled in favor of a single-unit
presumption for thirty years. Therefore, he did not foresee any
instances when a decision rendered by the new rule would differ
from a decision reached from litigation of the case and
asserted that the rule was merely a codification of existing
policy. In fact, he maintained that this rule would benefit
small businesses that often cannot afford the counsel needed to
arbitrate a case before the NLRB under the current system.
The second panel included: James Coleman, General Counsel,
National Council of Chain Restaurants; Sue Lin Kekuna, K & I
Management/The Coffee Beanery; Rock Magnan, Vice President -
Operation, Con-Way Transportation Service; Harold P. Coxson,
American Bankers Association; Joann Shaw, University of Chicago
Hospitals; Curtis Mack, Esq., Mack, Williams, Haygood, &
McLean; and Peter J. Ford, United Food & Commercial Workers
International Union, AFL-CIO.
The second panel consisted of representatives of small
businesses, small business owners and a union representative
who gave their estimation of the proposed rule's effect on
small businesses. All members of the panel except the union
representative, Mr. Ford, agreed that NLRB's proposed rule
would do more harm than good to business in general and small
business in particular. They argued that the proposed rule
would facilitate unions' ability to organize bargaining units
by allowing them to organize more easily small groups of
workers one unit at a time. They claimed that the new rule
would allow for single-unit organizing without regard for
circumstances such as common tasks and employee transfers.
Furthermore, the situation could become so difficult, with
employers hampered by multiple contract negotiations with
various unions, under differing rules and terms, that
businesses would be rendered non-competitive in the market.
Faced with the new rule, business owners indicated that they
would probably choose not to expand their businesses or hire
new workers.
Several witnesses claimed that the rule would come down
particularly hard on businesses in the restaurant and retail
industry, composed significantly of franchised small
businesses. Employees in franchised businesses work with a
single set of policies and procedures and under close
centralized control. They are transferred from location to
location more frequently and typically work with the company
for a shorter period of time. According to the panelists, the
rule would allow each location of a franchise to organize
independently, thus adding another regulatory burden to the
duties of business owners, particularly small business owners
who do not have the same resources as a larger business to ease
compliance. The panel maintained that the current system works
because it provides a means for businesses with legitimate
reasons to have their employees organized as multi-location
bargaining units.
Business owners and representatives claimed that the new
rule would deny them a fundamental right in the bargaining
process. This fact has been substantiated by court rulings
against the single location presumption. In response to
Chairman Gould's argument that litigation has become a
significant burden, Mr. Coleman cited evidence that litigation
cases concerning the appropriateness of a single location unit
have declined tremendously over the past 35 years.
Mr. Ford argued in support for the proposed rule. He called
the rulemaking procedure perfectly within the NLRB's power
according to the National Labor Relations Act. He declared that
the extraordinary exceptions clause, which other witnesses
claimed did little to abate the negative effects of the
proposed rule, allowed for the appropriate amount of
litigation. Mr. Ford noted that a change from the current rule
was necessary to protect and facilitate employees' opportunity
to organize unions, to reduce costs to the NLRB in light of
recent budget cuts, and to shorten delays in union organizing.
He concluded his testimony by alluding to situations in which
multiple collective bargaining agreements have been
successfully negotiated by a single employer.
For more information on this hearing, refer to Committee
publication number 104-65.
7.6 Summaries of the Hearings Held by the Subcommittee on
Taxation and Finance

7.6.1 the flat tax and small business

Background

On May 18, 1995, the Subcommittee on Taxation and Finance
held a hearing to discuss how a flat tax might affect small
businesses. The flat tax is a proposal that would completely
overhaul the current tax code with a simplified tax on
consumption. Instead of filing multiple forms with the Internal
Revenue Service for deductions, depreciations, and the like,
businesses would submit a single form containing income, minus
amounts expended on purchases, wages, salaries, and retirement
benefits during the year, which would then be taxed at a single
low rate. Individuals would be taxed at the same single rate on
their wages and salaries less personal and dependent
allowances. Among other things, a pure flat tax would eliminate
multiple taxation, marginal tax rates, and most deductions,
credits, exemptions, and depreciation schedules.

Summary

The hearing was comprised of three panels, the first of
which included the following economists: Alvin Rabushka, Senior
Fellow, Hoover Institution, Stanford University; Daniel
Mitchell, McKenna Senior Fellow in Political Economy, The
Heritage Foundation; Raymond J. Keating, Chief Economist, Small
Business Survival Committee (SBSC); and Richard W. Kahn,
Business Leadership Council.
The first panel stressed that the single greatest burden on
small businesses today is the tax code. Witnesses testified
that it hurts entrepreneurs by discouraging investment, thus
stifling the economy. They maintained that more capital would
become accessible to small, growing companies if investment
were encouraged through lower interest rates and the
elimination of estate and capital gains taxes. The complexity
of the current tax code was noted as being especially hard on
small businesses which, unlike larger businesses, cannot easily
hire experts to handle their taxes. According to Dr. Mitchell,
$150 to $200 billion is spent annually complying with the
current tax law. By eliminating itemized deductions,
depreciation schedules and multiple taxation, much of this
burden would be greatly reduced. The panel admitted that some
ambiguities in the tax code would still exist, such as the
distinction between business and personal expenses, and that
there may be some transition pains as people adapted to a new
system. Despite this, Dr. Keating released a SBSC report to the
Subcommittee revealing that in a poll of 500 small businesses
on the flat tax proposed by House Majority Leader Armey, 56
percent favored the proposal to 36 percent against. Dr. Rahn
stressed that, in comparison to a flat tax, no national sales
tax should be considered without first repealing the 16th
Amendment. And he expressed concern that, while a flat tax
would simplify the system for most small businesses, it would
be unlikely to do so for small service businesses such as
restaurants.
The Congressional panel included the following witnesses:
Richard K. Armey (R-TX), Member of Congress and House Majority
Leader; and Arlen Specter (R-PA), United States Senator. Both
witnesses favored replacing the current tax code with some form
of the flat tax and had proposals before Congress. Majority
Leader Armey stressed the simplicity and fairness of the flat
tax and praised its neutrality with respect to savings,
investment and consumption. Senator Specter reiterated
Congressman Armey's claim of the flat tax's simplicity and also
praised it for its pro-growth incentives, claiming that
interest rates would fall by 2 percent. His proposal would
retain mortgage interest and charitable contribution deductions
up to a certain limit. The panel stressed that high taxes and
compliance costs are strangling the economy--and hurting small
businesses most--with Americans spending 5.4 billion man-hours
doing their taxes each year. The panel believed that a flat tax
would lower marginal tax rates, improve incentives to work,
save and invest, raise living standards, and spur capital
investment in small businesses and economic growth. During
Committee questioning, the panelists acknowledged that people
fear such a drastic change and rebutted accusations that the
flat tax was regressive, showing that the generous family
allowance provided under the system actually makes the tax
progressive.
The third panel consisted of representatives of small
business, including: Jere W. Glover, Chief Counsel, Office of
Advocacy, U.S. Small Business Administration; Paul Hense, Tax
Committee, National Small Business United; James P. Lucier,
Jr., Director of Economic Research, Americans for Tax Reform;
Jeffrey Lear, Chairman, Ad Hoc Committee on Alternate Tax
Systems, Small Business Legislative Council; and Bennie Thayer,
President and Chief Executive Officer, National Association for
the Self-Employed.
While those on the small business panel were in favor of
simplifying the current tax code, they feared a shift in the
tax burden from larger to smaller businesses, which might be
caused by a flat tax. Mr. Hense stressed that the key elements
of any new tax system should be simplicity, fairness, and
consistency. The panel was in general agreement that the
deductions and graduated corporate tax rates in the current
system favored small businesses. They also acknowledged that
small businesses are greatly burdened by compliance costs and
would be helped greatly by lower interest rates. While Mr.
Lucier strongly favored the flat tax proposal, the panel
overall was not prepared to take a final position in favor of
or against a flat tax. They did identify benefits of a flat tax
to small businesses, including: simplicity; elimination of
capital gains and estate taxes; deductions for land,
structures, and capital equipment (i.e., 100-percent
expensing); and ending the double taxation of business profits.
Detriments were also identified, including: the loss of
interest deductions, which would favor equity over debt and
hurt start-ups; possible increase in the tax burden of small
businesses; and the favoring of physical over human capital. In
addition, this panel stressed the need for other reforms such
as reductions in government spending, reductions in the
combined Federal tax rates, including payroll and social
security taxes, and increasing access to capital.
For more information on this hearing, refer to Committee
publication number 104-29.

7.6.2 the burden of payroll taxes on small business

Background

On June 28, 1995, the Subcommittee on Taxation and Finance
held a hearing to discuss the impact of payroll taxes on small
businesses. Payroll taxes include any government revenue
collected by employers through withholding of employees' wages.
For certain withholdings, such as those for Social Security and
Medicare, the tax must be paid equally by employer and
employee. Because of substantial increases over the years,
payroll taxes now represent 37 percent of all Federal revenue
collected, and an astonishing 7 percent of Gross Domestic
Product. Accordingly, small businesses have urged that the
payroll tax burden is excessive not only because of the high
rate of taxation, but also because of its high cost of
compliance. The Federal government has countered that, because
payroll taxes make up 37 percent of its revenues, they are
necessary for adequate funding.

Summary

The hearing was comprised of two panels, the first of which
included: Mark Isakowitz, Director of House Lobbyists, National
Federation of Independent Businesses; and Ronald B. Cohen,
Owner, Cohen and Company, representing the National Small
Business United. This panel represented small businesses and
made the case that the burden of payroll taxes falls
excessively on small businesses. The disproportionate burden
exists because most small businesses are characteristically
labor intensive, heavily reliant on cash flow, unable to deduct
as much as large companies, and employers of lower-paid
employees. Mr. Isakowitz concluded that payroll taxes are the
greatest inhibitors to increased expansion and job creation
because employers who are faced with payroll taxes must either
raise prices, lower wages, or lay off workers. He stressed that
almost $1 out of every $3 tax dollars collected by the Federal
government is from a payroll tax. Mr. Cohen acknowledged that,
while a lack of pensions and minimal withholdings made payroll
taxes a good idea at the time of their inception, subsequent
rate increases due to excessive cost of living adjustments and
a higher life expectancy have made them an increasing burden on
small businesses and the economy.
The second panel included: Mark J. Iwry, Benefits Tax
Counsel, Office of Tax Policy, U.S. Department of the Treasury;
and Peter J. Ferrara, Senior Fellow, National Center for Policy
Analysis. The second panel consisted of two experts whose views
contrasted as to the burden of payroll taxes on small
businesses and the economy. Mr. Iwry acknowledged small
business' contribution to the economy, but concluded that the
impact of payroll taxes falls mainly on employees and that
employment is affected more by the strength of the economy than
by the burden of payroll taxes. He also stated that payroll
taxes are necessary to fund trusts to provide social insurance
and recommended tax credits to prevent the working poor from
being hurt disproportionately. Mr. Ferrara agreed that workers
pay most of the cost of payroll taxes, but maintained that any
tax on employment such as the payroll tax creates an impact on
job availability. He also stated that large businesses can bear
the burden with greater ease because they are more able to lay
off workers and still maintain productivity. He warned that the
cost of payroll taxes would continue to escalate because of
higher wages and increased life expectancy. His suggestion was
to begin to invest social insurance contributions in a private
fund, similar to the Chilean government, to achieve greater
gains with less withholdings.
For further information on this hearing, refer to Committee
publication number 104-35.

7.6.3 clarifying the status of independent contractors

Background

On July 26 and August 2, 1995, the Subcommittee on Taxation
and Finance held hearings to discuss the policy of the Internal
Revenue Service (IRS) regarding the classification of workers
as employees or independent contractors. The classification of
workers is extremely important because it determines who is
responsible for making withholding payments for Federal income
taxes, Social Security and Medicare. Some workers are
classified as independent contractors by law and some by the
safe-harbors set forth in Section 530 of the Revenue Act of
1978. Any workers who do not meet the requirements of a safe-
harbor must pass a 20-factor test derived by the IRS from the
common law in order to be classified as independent
contractors. Otherwise, under current IRS practice, workers are
classified as employees.
The 20-factor test has been declared by many to be unclear
and subject to varying interpretations by IRS auditors. If the
IRS deems a previously classified independent contractor to be
an employee, the employer is then responsible for all back
taxes and penalties retroactive to that date when the working
relationship began. A reclassification of this sort can be
particularly devastating to small businesses that often cannot
afford such payments. As evidence of the importance of this
issue to small business, clarification of independent-
contractor status was voted the top recommendation by the 1995
White House Conference on Small Business.

Summary

The hearings were comprised of five panels. The first
panel, which began on July 26, included: Jon Christensen (R-
NE), Member of Congress; and Jay Kim (R-CA), Member of
Congress. The first panel consisted of two Congressmen who have
introduced legislation aimed at clarifying the status of
independent contractors. Both agreed that the question of a
worker's status as an independent contractor or employee is a
very important one, especially to small businesses, and that
efforts must be made to answer the question adequately and in a
clear and objective way. The Independent Contractor Tax
Simplification Act of 1995, introduced by Congressman
Christensen, would create an alternative to the 20-factor test
whereby an individual would be given independent-contractor
status by adequately exhibiting personal investment in the
contractor's business, independence from the employer, and a
written contract between the business and the contractor.
Congressman Kim's legislation would grant independent-
contractor status to any individual who could meet one of four
criteria including: ability to realize a profit and loss;
having a separate physical place of business; a personal
investment in the business; or payment on a commission basis.
Congressman Kim's proposal would also require contractors to
itemize the services they render on their tax returns or face
increased penalties.
The second panel included: Fern Denholm, Owner, Flowers and
Ferns, representing the Society of American Florists; Debbi-Jo
Horton, Accountant and New England Taxation Chair for the 1995
White House Conference on Small Business Implementation Team;
Paul Johnson, Owner, P.J. Nice Construction, representing the
Associated Builders and Contractors, Inc.; Raymond Peter Kane,
Owner, Pisa Brothers, Inc., representing the American Society
of Travel Agents; and Lockwood Phillips, Publisher, The
Carteret County News-Times, representing the National Newspaper
Association.
This panel was comprised of small business people with
personal experience in dealing with the independent-contractor
issue. Each witness considered the existing guidelines for
determining independent-contractor status to be complicated,
contradictory, subjective, and unrealistic for small
businesses. They stressed that small businesses, because of
their size, are often forced to hire contractors to complete
tasks for which they cannot afford to hire additional employees
to complete. The panelists were particularly critical that two
IRS agents might see a situation differently and may reverse a
classification retroactively. The costs of such a reversal,
including payment of back taxes and penalties, additional
paperwork, and employment benefits to the previously classified
contractor, can be devastating to a small business. Members of
the panel recommended a repeal of the IRS's 20-factor test in
favor of the legislation offered by Congressmen Christensen and
Kim.
The third panel included: Abraham L. Schneier, Counsel,
McKevitt & Schneier, representing the National Federation of
Independent Business; John S. Satagaj, President, Small
Business Legislative Council; and Benson S. Goldstein,
Legislative and Tax Counsel, National Association for the Self-
Employed.
The third panel consisted of experts on the taxation of
small businesses who presented testimony on behalf of
organizations who represent small businesses. This panel
acknowledged that there are two sides to this issue--the small
businesses, which need the ability to hire independent
contractors, and the IRS, which needs to ensure that all income
and payments to the government are being accurately reported.
The witnesses noted that examples of unfair behavior by the IRS
stemmed from the fact that the agency is attempting to solve
the problem of non-compliance on the part of independent
contractors by classifying them as employees and requiring
their employers to handle the problem. They asserted that, if a
self-employed individual is not reporting his or her income or
making the correct withholdings, then the IRS should go after
the individual, not the small business person who hired that
person. Members of the panel stressed the need to reform the
system of classification and recommended the pending
legislation.
The fourth panel, which began the continuation of the
hearings on August 2, included: Marshall V. Washburn, National
Director of Specialty Taxes, IRS; and Natwar M. Gandhi,
Associate Director for Tax Policy and Administration, U.S.
General Accounting Office. This panel agreed that the
guidelines for determining the status of independent
contractors must be clarified and made consistent for the good
of the businesses that hire independent contractors as well as
the IRS agents who must make decisions as to the status of
business relationships. Mr. Washburn testified that the 20-
factor test had originated from the need to clarify common-law
guidelines that defined an employer-employee relationship only
as an individual having direction and control over the means
and details of a worker's activities.
For the benefit of their own agents, as well as businesses,
the IRS announced that it had initiated programs requiring all
local offices to obtain National Office approval for any
compliance projects involving worker classification and
providing additional training for agents to promote consistency
in decision-making. Mr. Gandhi suggested requiring businesses
to withhold taxes from contractors as if they were employees
and improving business reporting requirements to reflect the
specific amount of payment made to independent contractors. He
also stressed the need to broaden the laws that provide a
safety net for workers to apply to the relationships between
businesses and independent contractors.
The fifth panel included: James C. Pyles, Counsel, Powers,
Pyles, Sutter & Verville, representing the Coalition for Fair
Worker Classification; Harvey J. Shulman, General Counsel,
National Association of Computer Consultant Businesses; and
Michael A. Wolyn, Executive Director, Bureau of Wholesale Sales
Representatives. The final panel was comprised of experts in
the laws that define independent contractors. Members of this
panel provided contrasting views as to the benefits of the
legislation proposed by Congressmen Christensen and Kim. Mr.
Pyles was opposed to the practice by which businesses try to
gain an advantage over their competitors by classifying workers
as independent contractors in order to avoid making withholding
payments and complying with Federal and State labor laws. He
maintained that these proposals would legitimize this behavior
by making the definition of an independent contractor more
vague and would cost the government billions of dollars. The
other members of the panel supported the legislative proposals
and particularly favored the provisions that provide safe
harbors to businesses who hire independent contractors. Mr.
Shulman provided specific examples of IRS abuse on worker
classification.
For further information on these hearings, refer to
Committee publication numbers 104-43 and 104-45.
7.6.4 fundamental tax changes needed to unleash ameri-
ca's small businesses

Background

Early in 1996, the Subcommittee on Taxation and Finance
held a series of three field hearings to evaluate the current
Federal tax code and its effect on small businesses in several
regions of the country. Many economists agree that the Federal
tax system inhibits economic growth. It taxes income at high
marginal rates, influences behavior through deductions and
credits, and taxes capital gains and inheritance at high rates.
Experts consider these practices to be multiple taxation of the
same income, and accuse the tax code of stifling economic
growth by encouraging debt and discouraging investment. Owners
of small businesses have echoed these sentiments, disapproving
of the complexity of the current system and the harsh
enforcement practices undertaken by the Internal Revenue
Service (IRS).
The hearings focused on the reforms proposed by the
National Commission on Economic Growth and Tax Reform, also
referred to as the Kemp Commission after its Chairman, Jack
Kemp. The Kemp Commission was charged by Congress with
examining the current tax code and developing recommendations
on how to reform it. The Commission proposed six core
recommendations to Congress: (1) adopt a single, low tax rate;
(2) provide a generous personal exemption; (3) lower the tax
burden on America's working families and remove it on those
least able to pay; (4) end the bias against work, savings, and
investment; (5) allow full deductibility of the payroll tax for
working men and women; and (6) require a two-thirds vote in
Congress to raise taxes. In implementing these changes to the
tax code the Commission stressed the need to encourage economic
growth, and to make the tax code fair, simple, neutral,
visible, and stable. These six principles are included in the
Commission's ``Tax Test.''

Summary

The first hearing was held on February 9, 1996, in
Indianapolis, Indiana and was comprised of two panels. Members
of the first panel included: Peter Pitts, on behalf of Alan
Reynolds, Senior Fellow and Director of Research, The Hudson
Institute, and Director of Research, The National Commission on
Economic Growth and Tax Reform; William Styring, III, Director,
Benjamin Rogge Chair for Public Policy, Indiana Policy Review
Foundation; and Sandra J. Brothers, GRI, Coldwell Banker Graber
Realtors.
This panel gave expert testimony on the downfall of the
current tax system and what should be done to correct it. Mr.
Reynold stressed that capital gains and estate taxes are unfair
to small businesses that depend disproportionately more on
equity investment and on the ability to pass their business
from one generation to the next. He testified that the strength
and growth of small businesses, along with the rest of the
economy, depends on the quantity and quality of labor and
capital, yet the current system of heavily taxing money
acquired by selling an asset or through an inheritance is
hostile to work, savings, and investment.
Mr. Styring, an economist, gave expert testimony on
taxation in the State of Indiana and how residents of the State
might benefit from a flat tax. He stressed that the current
system violates Adam Smith's four principles of good taxation:
economy of collection; convenience; certainty; and equality.
Indiana, through its corporate gross income tax, taxes all
corporate business transactions. Small businesses are hit
particularly hard by this tax because they often operate on
little or no profit. To offset this, many Indiana small
businesses form S corporations, allowing them to avoid the
corporate income tax, but forcing them to pay more in capital
gains and estate taxes. He recommended a flat tax, a form of
which is used in Indiana for personal income taxes, as a better
alternative to the current Federal tax system. The final
witness, Ms. Brothers, emphasized the need to continue allowing
the interest on home mortgages to be deductible, particularly
for first-time buyers. She cited specific examples of how the
mortgage interest deduction encourages and facilitates home
buying in a community, and listed two dozen professions related
to real estate that could be affected by the elimination of the
mortgage interest deduction.
The second panel in Indianapolis included: Craig S.
Hartman, President, Preferred Industrial Services; Alfred
Stovall, Jr., President, The Cellular Shoppe; Steven M. Souers,
MST, CPA, Manager, George S. Olive & Company, LLC; and Don
Villwock, Owner, Villwock Farms. The second panel consisted of
owners of small businesses who testified on what changes in the
tax code would be best for the citizens of Indiana. All agreed
that the current system keeps small businesses from attaining
their full potential.
Mr. Hartman, a delegate to the 1995 White House Conference
on Small Business, suggested that small businesses in Indiana
need: (1) the restoration of the 100-percent deduction for
meals and entertainment; (2) clarification of the status of
independent contractors; (3) simplification of the tax system;
and (4) uniform application of tax laws. Mr. Souers agreed with
the principles of the Kemp Commission, but was wary of
eliminating taxation on investment income for individuals with
inherited wealth. He maintained that the emphasis should be put
on working for one's money. Mr. Villwock, a small farmer,
concluded by providing his perspective of the current tax
system. He testified that the two tax laws that most negatively
affect farmers are the capital-gains tax, which inhibits the
movement of assets and sound economic decisions, and the estate
tax, which endangers family farms. The members of the panel
made several additional suggestions for reforming the tax code:
(1) expand the 50-percent capital-gains exclusion; (2)
accelerate the depreciation for leasehold improvements; (3)
increase small businesses' expensing allowance; (4) expand the
home-office deduction; (5) repeal the alternative minimum tax;
(6) increase the health-insurance deduction for the self-
employed; and (7) simplify pensions for small businesses.
The second hearing was held on March 25, 1996, in Mentor,
Ohio and was also comprised of two panels, the first of which
included: J. Kenneth Blackwell, Treasurer, State of Ohio;
Robert C. Smith, President and Chief Investment Officer, Spero-
Smith Investment Advisers, Inc., representing the Council of
Smaller Enterprises of the Growth Association; and Katherine E.
Tatman, CPA, CPC, Ciuni and Panichi, Inc. Dean Kleckner,
President of the American Farm Bureau Federation, was unable to
attend the hearing, but submitted a written statement for the
record.
The first panel in Mentor included experts in the field of
taxation and how taxes affect small businesses in Ohio. Mr.
Blackwell, who served on the Kemp Commission, testified that
the current system should be changed fundamentally according to
the six principles listed in the Commission's ``Tax Test.'' He
assured the Subcommittee that any initial loss in government
revenue caused by a new tax system would be offset by increased
revenues due to economic growth and prosperity. Mr. Smith
stated that to achieve his organization's strategic plan for
economic growth and job creation, more small and mid-sized
business would have to form in the Cleveland area. He noted
that the current system of taxation hampers this growth by:(1)
encouraging debt and thereby raising the cost of borrowing; (2)
reducing profitability;(3) increasing compliance costs; (4)
lowering the valuation of businesses; (5) making the hiring
process complex and costly; and (6) reducing the chance that a
business may be passed from one generation to another without
having to sell a large portion of the business.
Ms. Tatman provided the Subcommittee with expert advise on
pension issues and policy. She advised that the current system
discourages small businesses from providing pension plans for
their employees because the cost of administration and
compliance with complex regulations is too high. She expressed
concern that a flat tax with no deductions for pension benefits
would merely shift the burden from employers to employees, and
she proposed simplifying the existing pension regulations. Mr.
Kleckner, also a member of the Kemp Commission, submitted a
written statement on taxation from the perspective of farmers
and ranchers across the nation. He maintained that the current
tax code is costly to administer, takes money away that could
be reinvested in business, and leaves taxpayers in fear. He
endorsed the final report of the Kemp Commission and outlined
the main issues of the American Farm Bureau Federation, which
include: clearly defined definitions of income and business
deductions; simplifying the tax code; addressing tax penalties
on savings and investment; and reforming estate tax laws.
The second panel in Mentor included: Robert L. Anderson,
Chief Executive Officer, Wiseco Piston, Inc.; Nancy Brown,
Owner, Ladies and Gentlemen; Donald E. Pendleton, Owner, Don's
Used Cars; Larry Reber, General Manager, Stamco Industries,
Inc.; and Richard Selip, President, Grand River Rubber and
Plastics. The second panel included a group of area small
businessmen and women. Each witness resounded the view that
many of the provisions of the current tax code are too complex
for small businesses and create disincentives for growth and
job creation.
Ms. Brown cautioned, however, that the advantages of a flat
tax--including tax simplification and reducing the power of the
IRS--may be offset by disadvantages such as the potential loss
of deductions, the uncertainty of any new system, and its
disparate impact on the accounting and legal professions. Mr.
Reber highlighted that small businesses must compete not only
with the pitfalls of taxation when hiring new employees, but
also with the welfare state, which discourages employment.
Specific recommendations from the panel included: (1) reforming
laws concerning the depreciation of capital improvements; (2)
allowing the deductibility of more business expenses; (3)
eliminating the marriage penalty; (4) allowing senior citizens
to continue working while receiving Social Security; (5)
stabilizing the tax laws; (6) easing restrictive regulations
concerning pensions; (7) expanding the deductibility of health-
care costs to shareholder-employees of S corporations; (8)
instituting an investment tax credit; and (9) eliminating the
alternative minimum tax.
The third hearing was held on April 3, 1996, in Seattle,
Washington and was comprised of two panels. The first panel
included: Edwin J. Feulner, Jr., Ph.D., President, The Heritage
Foundation and Vice Chairman, The National Commission on
Economic Growth and Tax Reform; Loretta Adams, President,
Market Development, Inc.; Bob Williams, President, Evergreen
Freedom Foundation; Kriss Sjoblom, Economist, Washington
Research Council; and Meade Emory, Professor of Law and
Director, Graduate Program in Taxation, University of
Washington School of Law. The first panel, consisting of
economists and experts, was almost unanimous in its support for
the core recommendations and principles of the Kemp
Commission's ``Tax Test.'' They applauded a single-rate tax as
a legitimate reform of the current tax system, praising its
simplicity, fairness, and potential for creating economic
growth for all Americans.
Dr. Feulner outlined the benefits of a flat tax to
businesses, which include: (1) a single, low rate of taxation
to increase profits; (2) simplicity in compliance; (3) lower
interest rates fostered by the freeing of capital for
investment; (4) immediate write-offs for all investment
spending; (5) easier access to capital; (6) the elimination of
capital-gains taxes; and (7) the elimination of estate taxes.
He cautioned, nonetheless, that businesses would be hurt by the
elimination of deductions for payroll taxes, health-care
benefits, and interest payments. Dr. Feulner stressed that, to
predict the full potential of a flat tax in its deliberation of
the proposal, Congress must study the tax in a dynamic economy
taking into account individuals' behavior in response to the
tax. Ms. Adams noted that if a flat tax does increase the rate
of economic growth, this increased growth will in turn increase
the ability of individuals and small businesses to participate
in the American model of success.
Mr. Williams reiterated that while tax policy alone cannot
create a booming economy, it can create the right climate for a
booming economy to exist. Professor Emory, on the other hand,
defended the current Federal tax system. He praised its ability
to raise revenue and attempted to refute that estate taxes are
hurting small businesses. Professor Emory also stressed that a
government agency must exist to enforce and administer the
nation's tax laws, even if it is called something other than
the IRS.
The second panel in Seattle included: Ann Anderson, State
Senator, Washington State Legislature; Craig Morrison,
President and Chief Executive Officer, CMI Incorporated;
Patricia Wilkerson, Proprietor, Enchanted Eagle Gallery;
William A. Sherman, Jr., President, William Sherman & Company,
representing the Building Industry Association of Washington;
Carolyn Logue, State Director, National Federation of
Independent Businesses (NFIB); and Priscilla S. Terry, Partner
and Managing Broker, Prime Locations, Inc., and President,
Lacey/Thurston County Chamber of Commerce.
The second panel consisted of small business owners and
representatives. Each witness supported an extensive overhaul
of the current tax system. Ms. Logue testified that Washington
State NFIB members, who face a gross-receipts tax in addition
to other State, local, and Federal taxes, rank taxes as the
third most adverse cost for their businesses, right below
regulatory and health-care costs. Regarding a single-rate tax,
she stressed that its impact is still unknown because of the
diversity of the small business population, which might pay
more or less under a single-rate tax depending upon the
individual situation of each small business owner.
Mr. Morrison, who favored several modifications to the
current system, stressed that Congress cannot address taxation
policies without curbing government growth. Mr. Sherman
approved of a flat tax provided that it retains the mortgage
interest deduction and requires a two-thirds vote in Congress
to raise taxes. Finally, Ms. Terry, while favoring a flat-rate
tax, nevertheless cautioned against a major reform similar to
the 1986 tax reform. She strongly advocated paying attention to
``the big picture'' and transition issues, including
grandfather provisions. Other recommendations by the panel
included: decreasing or eliminating the burden of capital-gains
taxes; instituting investment tax credits; clarifying the
status of independent contractors; and eliminating corporate
taxes.
For more information on these hearings, refer to Committee
publication number 104-60.

7.6.5 the effects of bank consolidation on small busi-
ness lending

Background

On March 4, 1996, the Subcommittee on Taxation and Finance
and the Subcommittee on Government Programs held a joint
hearing in Boston, Massachusetts, to examine how consolidation
affects banks' lending practices toward small businesses in New
England and across the country. In recent years, smaller banks
in New England have experienced considerable difficulties.
Falling asset values, due in large part to the failing real
estate market, have led to unstable capital positions. Shaky
capital positions preceded defaults, which in turn lead to
increased regulatory scrutiny. As a result, troubled banks were
required to increase their loan loss requirements and decrease
their leverage to capital ratio, which translated into fewer
loans for the small banks' customers. New England has been
particularly distressed by this situation because the
devaluation of the region's real estate market has been
particularly severe. Some believe that the troubles of small
banks, and consequently small businesses, have been compounded
by the recent bank consolidation trend.
The move toward fewer but larger banks can be attributed to
several factors. Competition from non-bank firms has forced
banks to grow and become more efficient in order to compete in
the modern financial market. Additionally, technological
innovations have transformed the way banks conduct business
and, thus, have given big banks the advantage in providing
advanced products and service. Most important, however, is the
regulatory reform outlined in the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994, which allows bank
holding companies to acquire or merge with other banks in any
State without authorization from the host State. Beginning in
June of 1997, holding companies may consolidate their banks
into a branch network, able to open branches across State
lines, unless the host State opts out of this reform by passing
its own legislation.

Summary

The hearing was comprised of two panels, the first of which
included: Christopher C. Gallagher, Esquire, Gallagher,
Callahan, and Gartrell; John P. Hamill, President and CEO,
Fleet Bank of Massachusetts; David A. Aloise, New England
Director of Small Business Banking, Bank of Boston; T. Lincoln
Morison, Jr., President, First National Savings Bank of
Ipswich; and James G. Zafris, Jr., President, Danvers Savings
Bank.
Mr. Gallagher started the panel by providing the
Subcommittees with background information on the subject of
bank consolidation and how it affects banks' lending practices
to small businesses. He noted that the needs of small
businesses when seeking capital include close proximity to the
financial institution, sophistication of services, flexibility,
and reasonable cost of borrowing. Efficiency is the key to
enabling banks to attain these attributes and, to the extent
that consolidation of banks increases their efficiency, it is
beneficial to small business. He stressed that consolidation
leading to uncompetitive market power could be detrimental, but
that the current consolidations seem to be increasing
competition and efficiency, thus strengthening the banks and
benefitting small businesses. Mr. Gallagher emphasized that
easing excessive regulatory pressures on banks and a healthy
economy were more important to small businesses and their
access to capital than a trend toward bank consolidation.
The remainder of the panel consisted of representatives of
area banks, both large and small, who testified about how bank
consolidations affect small businesses. The entire panel
praised the small business sector for its contribution to the
economy and assured the Subcommittees that as long as small
businesses continued to be a healthy and growing part of the
economy, they would not have trouble acquiring loans from banks
of any size. In fact, they cited evidence that showed the
amount of loan capital available to small businesses to be
quite substantial and growing. Many of the witnesses, from
large and small banks, emphasized the efforts of their banks to
attract more small business customers. Like Mr. Gallagher, they
agreed that enabling banks to be more efficient and competitive
through deregulation and consolidation was good for the entire
economy, including small businesses. Mr. Aloise cited a report
from the Federal Reserve Bank of New York, which concluded that
the current merger activity among banks has had no ill effect
on small business lending. He also pointed out that small
businesses today also have a great deal more options in
acquiring capital from thrifts, savings banks, and non-bank
financial institutions, many times at a cost lower than a bank
can provide.
Mr. Zafris provided only modest dissent, stating that small
and mid-sized banks are better prepared to invest in small
businesses because they can form more personal relationships
with their customers. This enables them to make judgments on
loans based on the character of the borrower as opposed to
relying on a financial statement or some sort of credit scoring
procedure, which may not be a good indicator of a small
business' ability to repay a loan. He went on to praise the
Small Business Administration (SBA) and its loan guarantees for
opening the doors of capital to more small businesses.
The second panel included: Julie Scofield, Executive
Director, Smaller Business Association of New England; Virginia
Allen, President, North Suburban Chamber of Commerce; John
Gould, President and CEO, Associated Industries of
Massachusetts; Frank C. Romano, Jr., President and CEO, Elder
Living Concepts, Inc.; and Joyce Plotkin, Executive Director,
Massachusetts Software Council, on behalf of David A. Blohm,
President, Virtual Entertainment, Inc.
The second panel included representatives of small business
and small business owners who expressed some wariness over how
recent bank mergers might affect their ability to access
capital. While the panel acknowledged that consolidation opened
beneficial new avenues of financing to small businesses, they
expressed concern over the loss of continuity among loan
officers and banks' decreasing involvement in the community.
The witnesses maintained that a small business' ability to
acquire loans was highly influenced by the relationship its
owners had with a bank and a bank's reliance upon the community
it serves for success. Many on the panel stressed that a loan
officer who did not personally know them or their business
would be more likely to refuse a loan application. A major
concern was the decline of the ``character'' loan, one which is
made based on the personal relationship between the bank and
the borrower, in favor of ``credit scoring,'' a system used in
the loan approval process in which banks make loan decisions
using a calculated formula looking primarily at an applicant's
credit history and his or her income-to-debt ratio.
In addition, Mr. Romano cited an article by Peggy Gilligan,
which concluded that if lending trends continue, loans to small
businesses will be made increasingly by smaller banks; and if
consolidation persists in absorbing smaller banks, small
businesses will be faced with a diminishing amount of available
capital. Mr. Romano presented this as evidence that bank
consolidation is an issue that needs to be closely monitored on
behalf of small businesses. He and other witnesses also
expressed a strong desire to continue the Federal government's
practice of requiring banks to disclose the number and amount
of small loans currently on their financial statement. Mr.
Romano also recommended amending the Community Reinvestment Act
to require banks not to reduce the amount of small business
lending; encouraging larger banks to establish small lending
groups or departments; expanding SBA loan guarantees beyond the
current $750,000 threshold; and increasing the number of
bankers approved by the SBA to be direct lenders.
For more information on this hearing, refer to Committee
publication number 104-66.